Brookfield Property Partners – Take Your Money and Go

Brookfield Property Partners is a large diversified global real estate company. It owns, operates, and develops offices, retail, multifamily, industrial, hospitality, triple net lease, student housing, and manufactured housing properties. BPY.UN has approximately $88 billion in total assets.

Brookfield Property Partners has 136 premier office properties totaling 96 million square feet in gateway markets around the world and 122 retail properties totaling over 120 msf throughout the U.S. Its operating segments comprise Core Office (~57% of 2020 CFFO and realized gains), Core Retail (~57%), LP Investments (~24%), and Corporate (~-38%). Brookfield Property Partners has properties in Canada, the USA, Brazil, Europe, Middle East, and the Asia Pacific. 

Brookfield Asset Management currently has an economic interest of 60% in Brookfield Property Partners.

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Investment Data
 

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Revenue Growth & Market Exposure

Brookfield Property Partners’ portfolio features some of the world’s best-known commercial properties. The company has one of the largest diversified real estate properties portfolios. Brookfield Property Partners is diversified across both geographic areas and real estate sectors. It has high-quality assets in resilient and dynamic markets. BPY has been achieving a same-property growth of 2%-3% in its core businesses.

Brookfield Property Partners’ diversified global structure gives it a competitive edge in the marketplace. The company’s investments are secured either by high-quality, well-located assets and development projects or by properties having significant value-add. Increasing population and rising number of cities should act as strong tailwinds for Brookfield Property Partners.

Moreover, brick and mortar and e-commerce should combine to create one-channel opportunities for the company in the near future. More than 500 new stores have opened since 2017 across 22 leading digital-native brands and ~850 more such stores have been announced over the next five years.

Brookfield Property Partners witnessed an increased private market activity and office operations in the fourth quarter of the last year. Rent collections from office tenants remained at normal levels during the quarter while collections in the retail portfolio also showed signs of improvement. It closed on several asset sales, including One London Wall Place and self-storage business.

The occupancy in the core office portfolio stood at 89.8%, with a remaining weighted average lease term of 8.2 years, whereas retail properties were 92.5% leased. Brookfield Property Partners reported a loss for FY2020 due to the pandemic-induced economic slowdown.

Distributions

Units of Brookfield Property Partners sport a dividend yield of 7.5% and have a payout ratio of 85%. It last raised its distribution by 0.76% and has maintained a dividend growth rate of more than 5% in the last three and five-year period. Its annual distribution has grown by 6% since 2014. Brookfield Property Partners also has an active unit repurchase plan in place. It targets a distribution growth of 5%-8% annually.

Brookfield Property Partners’ FFO was adversely impacted by the global economic slowdown over the course of the last year. It was $815 million for FY 2020, compared to $1.35 billion in 2019. The company, however, is well-positioned to leverage relationships across geographies and business lines and gain in the long term.

BPY.UN derives a significant portion of its annual earnings from LP investments in private funds. It is projecting to realize significant earnings from its LP investments including, ~$400 million in annually based on projected returns.

BPY.UN Gains Since 2014
Source: Corporate Presentation

BPY.UN is Brookfield Asset Management’s primary vehicle to make real estate investments across all strategies. Brookfield Asset Management has proposed to acquire 100% of the units of BPY.UN for ~$5.9 billion. Unitholders can choose to receive a combination of Brookfield Asset Management stock, cash, or BPY.UN preferred shares for each share of Brookfield Property they currently own. 

Brookfield Property Partners has registered a growth of 7% in CFFO and realized gains since 2014. Its investment objective is to generate attractive long-term returns on equity of 12%-15%. Stable cash flows, resilient retail portfolio, and asset appreciation should support annual distribution and earnings growth.

BPY.UN stands to benefit from a healthy pipeline of 8 million square feet of core office and multifamily development projects currently underway. The company expects to generate annual CFFO growth for the next several years by achieving same-property growth and completion of active developments.

BPY.UN Historical Yield
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Competition

Brookfield Property Partners competes with other developers, managers, and owners of commercial properties. Moreover, it faces intense competition within the retail property sector.

Tricon Capital Group, FirstService Corp, Colliers International, Altus Group are other Canadian companies operating in the real estate services segment. BPY.UN’s global scale and large operating platforms are its strong competitive advantages.

Bottom Line

Pandemic-related closures and travel restrictions led to declines in BPY.UN’s retail and hotel properties. However, Brookfield Property Partners is well-positioned to generate a steady stream of cash flows on core portfolios enhanced by investment in opportunistic strategies.

As Brookfield’s flagship public commercial property entity, BPY.UN is the primary vehicle through which it invests in real estate on a global basis and unitholders stand a good chance to benefit from its global presence, operating excellence, and relationships.

BPY.UN Historical PE
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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.