As Brookfield Property Partners LP (NYSE:BPY) announced a much-anticipated public conference call for February 6, questions swirl regarding the firm’s SEC filings, accounting practices and relationships among related parties.
Brookfield questions started by Dialectic Capital
Brookfield Property Partners LP (NYSE:BPY)’s recent problems could be said to have started when the hedge fund Dialectic Capital first began questioning the firm’s “financial wizardry” in a letter to investors during the 4th quarter of 2012. Dialectic publicly questioned the relationship between BPY and its related company Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A). At the time Dialectic publicly said it suspected that BPP had a serious cash shortage and accused it of operating a Ponzi scheme.
In May the shares of Brookfield Property Partners LP (NYSE:BPY) fell from a high of $24 to just above $21 and steadily declined to the $20 level in November, when a report by Southern Investigative Reporting Foundation questioned the integrity of Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A)’s SEC filings, accounting practices and third party transactions, such as those between BPY and BAM – questions that remain unanswered today.
One specific point of contention in the report was accounting over a SWAP transaction gone wrong. The report says that BAM formerly paid to terminate a SWAPs contract with American International Group Inc (NYSE:AIG) but then placed a portion of this payment on the balance sheet as an asset. The report notes the SEC was engaged in questioning the firm about its accounting practices. The report noted the challenge is differentiating between the paper earnings and the true cash earnings from company operations, particularly as it relates to how real estate in the portfolio is valued.
Report did little to hurt stock, but…
When the report first came out in the fourth quarter of 2013, it didn’t impact Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A)’s share price negatively, which could be due to the stock ownership. Partners Limited, a group of 45 current and former corporate officers of BAM, owns 100% of BAM’s Class B shares and 20% of BAM’s Class A, according to the report. “Partners Limited is an oasis of concentrated corporate wealth,” the report said. “Considering Partner Limited’s big stake in Brookfield Asset Management and its other subsidiaries, and the widespread cross ownership of shares by Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A) and its subsidiaries, there is plenty of incentive for the managers of Brookfield Asset Management to use every last loophole to boost earnings.”
BAM spokesperson Andrew Willis said the Southern Investigative Reporting Foundation report was “wrong” but would not comment on the specific allegations raised and pointed to their website which identified Brookfield Property Partners LP (NYSE:BPY) is externally managed by BAM and operates commercial property assets in the US, Canada, Europe, Australia and Brazil.