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What Went Wrong With Brookfield Property Partners (Part 1): Core Retail

Ján Mazák profile picture
Ján Mazák


  • This series of articles investigates why Brookfield Property Partners' value stayed far short of what was projected at the time of its spin-off.
  • The managers acted as they described during meetings with investors, but failed to reach some of their goals.
  • Operational performance in the Core Retail segment was solid but not outstanding.
  • BPY comes with a risk notably lower than that of almost any other mall operator, and chances to profit from adverse conditions are also much higher.

When one considers the 5-year projections provided by the management in September 2013 (half a year after the inception), it is immediately apparent that the performance of Brookfield Property Partners (NASDAQ:BPY) fell far short of what was expected.

The aim of this series of articles is to analyze what went wrong during the last 5 years, why the results appear so poor and how the findings affect the valuation of BPY units. We will also check earlier management's projections against actual results (in contrast to many SA articles on BPY which mostly take those projections for granted).

Before we start, it is worthwhile to mention that the projections were not just hot air: Brookfield claims that since 1989, they invested more than $17B of equity into real estate, resulting in blended gross IRR of 16% p. a.; since 2004, the returns were 12% p. a. for core-plus and 25% p. a. for opportunistic investments --- thus the track record is quite formidable. (I have not cross-checked this, but since real estate constitutes a majority of Brookfield's business and the stock price of BAM has grown by ~19% p. a. over most of that period, it is quite believable. Their institutional investors also appear satisfied.)

In addition, with regard to distributions, the management actually kept their promise: the distributions were increased every year, by 6% on average, in line with management targets (that is, 3-5% at first, later increased to 5-8%). So anyone who bought just for the cash flow has little to complain about.

What did not go according to the plans was capital appreciation; neither IFRS NAV per unit nor BPY unit price have grown much, and definitely not at a rate that would correspond to the 12-15% total return targets. This also explains why Brookfield Asset Management achieved rather poor returns on

This article was written by

Ján Mazák profile picture
I try to adhere to the investing principles laid down by Graham and Buffett, but sometimes it is difficult to control my emotions --- cash not yet invested is often burning a hole in my pocket, and when prices decline, I tend to buy too much too soon. My ultimate goal is to create an income stream that would allow me to safely retire. I like to learn about the world around, which includes analyzing companies and buying small pieces of them. I know all the arguments about how index funds are supposed to benefit my small portfolio, but I can't persuade myself to buy them nowadays because of low prospective returns thanks to tons of overvalued stocks contained in about any index. In my professional life, I am a mathematician (graph theory, combinatorics, algorithms), a teacher (computer science and mathematics), and a software engineer.

Analyst’s Disclosure: I am/we are long BAM, BPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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