The equity market’s refusal to recognise the value of its vast real estate portfolio has long tested the patience of Bruce Flatt, chief executive 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 head back to shopping malls as the pandemic subsides, Mr Flatt told the Financial Times, as he prepared to complete a $5.9bn deal to delist Brookfield’s property arm.
Highlighting the return of office workers in Shanghai, Dubai and Australia as a sign of things to come, he said: “Clearly there are differing views about real estate securities. Some people think people won’t go back to the office and that retail will be done online.”
The result is that real estate holdings “are not trading at tangible value”, Mr Flatt said. “It’s the right thing to take it private.”
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 view that the vast US and global holdings of office buildings, shopping malls, self storage facilities and logistics hubs were properly valued at $27.
The delisting allows Brookfield to swap out public shareholders for private investors with a longer-term horizon.
“We had the wrong structure in the marketplace,” said Mr Flatt. Brookfield has offered $16.50 per share in cash for the rest of the property arm they do not own, and expects to end up with around 90 per cent of the business, up from its current stake of 60 per cent. After that, it can set about restructuring the portfolio, out of the public eye.
“Our intention is to take assets and place them with institutional investors over time,” he said.
Having helmed Brookfield since 2002, and been with the company since 1990, Canadian-born Mr Flatt has experienced plenty of ups and downs as the business has expanded across multiple asset classes. Controlling $540bn of assets under management, the parent company has four listed affiliates, handling renewables, infrastructure and private equity, as well as property
News of the buyout proposal this month sent BPY shares up 17.5 per cent, so it is now a tenth lower than a year ago, before the pandemic. The business has been hit by tenants not paying rents and been forced to slash staff, announced plans to sell a number of properties, and also renegotiated a $6.4bn credit facility with lenders in July.
Addressing the future of shopping malls, Mr Flatt said Brookfield and its tenants need to do better and focus on combining online trading with a physical store presence.
As for office life, he argued for the importance of water-cooler conversations and their role in building a strong culture. “In business and life there are always problems and having a personal connection with others helps you work through those situations. That’s why office spaces are important.”
Brookfield Asset Management has been back in its New York office since June, and even took on another floor and a half because, pre-pandemic, a third of its staff would have been travelling on business. Three-quarters of the 750 New York-based staff are now working in the office, with vulnerable workers staying at home until vaccinations are available, Mr Flatt said.