DBRS Morningstar Confirms Ratings of Brookfield Property Partners L.P., Brookfield Property Finance ULC, and Brookfield Office Properties Inc. at BBB (low)/Pfd-3 (low), Stable

DBRS Limited (DBRS Morningstar) confirmed Brookfield Property Partners L.P.’s (BPP) Issuer Rating and Senior Unsecured Debt rating at BBB (low). DBRS Morningstar also confirmed the ratings on Brookfield Property Finance ULC’s Senior Unsecured Notes and Brookfield Office Properties Inc.’s Senior Unsecured Notes at BBB (low) and Brookfield Office Properties Inc.'s Cumulative Redeemable Preferred Shares, Class AAA at Pfd-3 (low). All trends are Stable. The ratings are based on the credit risk profile of the consolidated entity, including BPP and its subsidiaries (collectively, BPY or the Partnership).

The confirmations and Stable trends consider the privatization of BPY by Brookfield Asset Management Inc. (BAM; rated A (low) with a Stable trend by DBRS Morningstar) on July 26, 2021, by way of BAM's acquisition of all outstanding units that it did not already own for a combination of cash, BAM shares, and new preferred units (the Privatization). BPY's renewed focus on a program of asset dispositions following the Privatization, stabilizing and improving operating results, and recent development completions together contributed to improving leverage; BPY's total debt-to-EBITDA was 17.5 times (x) at December 31, 2021.

The Stable trends also consider DBRS Morningstar's expectations that (1) BPY's operating environment will continue to improve as the global economy normalizes following the peak of the Coronavirus Disease (COVID-19) pandemic, contributing to a strong recovery in operating results; (2) BPY will continue its capital recycling initiatives at an accelerated pace, thereby using proceeds from dispositions to fund growth capital expenditures and reduce debt; and (3) the combined result will be total debt-to-EBITDA below 16.0x and EBITDA interest coverage approaching 1.40x through year-end 2023, reflecting a material improvement in BPY's financial risk assessment from recent years.

The ratings continue to be supported by (1) the Partnership's robust access to liquidity of $4.7 billion, consisting of $2.0 billion in cash and cash equivalents and $2.7 billion available on credit facilities at December 31, 2021; (2) financial flexibility afforded by nonrecourse mortgage debt and no unsecured maturities until July 2023 when the CAD 500 million Series 1 Senior Unsecured Notes come due; (3) DBRS Morningstar’s view of implicit support from BAM; (4) BPY's market position as a preeminent global real estate company; and (5) high-quality assets, particularly its Core Office segment, with long-term leases in place and large, recognizable investment-grade-rated tenants. The ratings continue to be constrained by BPY’s weak financial risk assessment as reflected by both its highly leveraged balance sheet and low EBITDA interest coverage (1.28x at the last 12 months ended December 31, 2021); a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to BPY’s Core Office segment; a higher-risk opportunistic Limited Partnership Investments segment composed primarily of hotel, office, retail, and alternative assets; and DBRS Morningstar’s assessment of the unmitigated structural subordination of the Senior Unsecured Debt at the BPP level relative to a material amount of debt at its operating subsidiaries.

DBRS Morningstar would consider a negative rating action should BPY's operating environment fail to improve as expected such that total debt-to-EBITDA remains above 16.0x, on a sustained basis, all else equal, or if DBRS Morningstar changes its views on the level and strength of implicit support provided by BAM. On the other hand, DBRS Morningstar would consider a positive rating action should DBRS Morningstar's outlook for BPY's total debt-to-EBITDA improve to 13.0x or better.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Entities in the Real Estate Industry (April 23, 2021; https://www.dbrsmorningstar.com/research/377358); DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021; https://www.dbrsmorningstar.com/research/379424); and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 21, 2021; https://www.dbrsmorningstar.com/research/386355), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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