Tuesday, January 31, 2023

Markets underestimate office appeal, says Brookfield chief

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The stock market’s refusal to recognize the value of its large real estate portfolio has long tested the patience of Bruce flatt, general manager of Brookfield Asset Management, the Canadian investment giant.

Now, public market investors are underestimating the speed and extent to which people will return to work in offices and go back to shopping malls as the pandemic subsides, Flatt told the Financial Times, while he was preparing to finish a Offer of $ 5.9 billion to deregister the owned branch of Brookfield.

Highlighting the return of office workers to Shanghai, Dubai and Australia as a sign of things to come, he said, “There are clearly divergent views on real estate titles. Some people believe that people will not be going back to the office and that retail will be online. “

The result is that real estate holdings “are not trading at tangible value,” Flatt said. “It’s the right thing to take into account.

Even before commercial real estate was hit hard by pandemic lockdowns, the share price of New York-listed Brookfield Property Partners had fallen from a high of $ 25 in 2017, despite Brookfield’s opinion that the vast US and global holdings of office buildings, shopping malls, open storage facilities, and logistics centers were properly valued at $ 27.

The delisting allows Brookfield to swap public shareholders for private investors with a longer time horizon.

“We had the wrong structure in the market,” Mr. Flatt said. Brookfield has offered $ 16.50 a share in cash for the rest of the real estate business they don’t own, and expects to end up with about 90% of the business, up from its current 60% stake. After that, he can undertake a restructuring of the portfolio, out of public view.

“Our intention is to take assets and place them with institutional investors over time,” he said.

At the helm of Brookfield since 2002 and with the company since 1990, Mr. Flatt, born in Canada, has seen many ups and downs as the company has grown across multiple asset classes. Controlling $ 540 billion in assets under management, the parent company has four listed subsidiaries, managing renewables, infrastructure and private equity, as well as real estate.

News of the buyout proposal this month pushed BPY shares up 17.5%, which is now a tenth less than a year ago, before the pandemic. The company has been hit by tenants who do not pay rent and has been forced to downsize, announced plans to sell a number of properties and also renegotiated a $ 6.4 billion credit facility with lenders in July.

Addressing the future of shopping malls, Flatt said Brookfield and its tenants need to do better and focus on the combination of online commerce and a physical presence in stores.

Regarding office life, he emphasized the importance of conversations about water fountains and their role in building a strong culture. “In business and in life there are always problems and having a personal connection with others helps you overcome these situations. This is why office space is important. “

Brookfield Asset Management has been back in its New York office since June and has even taken another floor and a half because, before the pandemic, a third of its staff reportedly traveled on business. Three-quarters of the 750 New York-based employees now work in the office, with vulnerable workers staying at home until vaccines are available, Flatt said.

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