The roughly 400 job cuts, centered in Brookfield’s 2,000-person retail division, come after the company reported collecting just 34 percent of rents owed across the 180 malls and retail properties in its portfolio, which also includes more than 200 office buildings, a segment that also suffered amid a widespread shift to white-collar employees working from home.
CEO Brian Kingston expressed cautious optimism on an earnings call that the worse of the shutdown was “behind us.” Ninety-two percent of Brookfield leases are long-term, while the remainder average almost nine years.
Rent collections for the quarter ended June 30 started to show signs of improvement once tenants began reopening, Kingston said.
“Nearly 15,000 of our tenants have restarted their businesses, representing more than 85% of the portfolio,” he said. Brookfield, he added, has been working with tenants on deferrals and abatements while foot traffic remains challenged.
“As we’ve stated in the past and continue to believe, the impact of the economic shutdown will accelerate a rationalization within this industry that was already well under way, with owners of the highest quality, best located real estate, standing to be the beneficiaries and best positioned for future success,” Kingston said, indicating that the layoffs were a long time coming.
“We brought popup drive-in theaters to a handful of our mall parking lots across the country, utilized our parking garages for outdoor dining and teamed up with Fit:Match to have kiosks in select malls where people can receive a 3D body scan to easily identify their size at different retailers and shop for clothes without ever having to try them on,” he added.
And while Brookfield, which employs about 22,000 across both division, was able to secure new tenancies for more than 650,000 square feet during the coronavirus pandemic, according to Kingston, there’s a good chance some of that retail space might be taken over by a new breed of tenant.
Jared Chupaila, CEO of Brookfield Properties’ retail division, said the company has been running tests with “retail tech companies that are providing solutions for last-mile delivery and other fulfillment solutions where we can use otherwise unused space, the back end of shopping centers, to help consolidate the packages and provide greater convenience to the couriers, all of which is expediting the delivery of the product and the volume of the product that could be delivered to the end customer.”
While Brookfield didn’t furlough staff during the pandemic, its REIT competitor Simon Property Group furloughed 30 percent of its employees in March.
It’s clear that REITs have been faced staggering headwinds from Covid-19, and need to keep close tabs on their operations. Shopping mall operator CBL inked a restructuring agreement with certain lenders last month, contingent upon a bankruptcy filing that is expected by Oct. 1. CBL has suffered with a portfolio of troubled retail tenants in default for rent non-payment.
Meanwhile, the investment arm of Brookfield has been eying investments, armed with a $15 billion buyout fund to salvage distressed retailers. And those on the J. C. Penney bankruptcy watch are still awaiting a filing that converts a non-binding letter of intent by Brookfield and Simon into an asset purchase agreement for the mass merchant’s retail operations.
Brookfield has plans to shed certain mall locations, as at least seven of its malls had defaulted on their mortgages by the end of June, the Financial Times reported.