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Brookfield Property Partners' 6.8% Distribution Is Safe And Growing

The Affluent Tortoise profile picture
The Affluent Tortoise


  • Brookfield Property Partners has a current yield of 6.8%, with a commitment to grow its distribution by 5-8% annually.
  • Despite a 20% rebound in share price since December 2018, BPY remains undervalued, offering investors a margin of safety at the current entry point.
  • Brookfield Property Partners has a pipeline of world class development projects that will fuel CFFO growth and support its rising distribution.
  • With a portfolio of high quality properties, and Brookfield Asset Management as its majority shareholder, BPY is a relatively low-risk investment.

Investment Thesis

Investors of Brookfield Property Partners L.P. (NASDAQ:BPY) and Brookfield Property REIT Inc. (BPR) have seen shares slide over the last 12 months, pushing down prices and increasing the company's distribution yield. Since hitting a low of ~USD$15 in December 2018, units have rebounded over 20%. With a current yield of just under 7%, the current entry point still looks very attractive. The distribution is not only safe and well covered, but expected to grow by 5-8% annually. Concerns over debt levels and geopolitical exposure such as the impact of Brexit are overdone. While the stock has rebounded, it remains undervalued, currently trading at a 37% discount to NAV. Medium-term investors can still anticipate a strong total return and enjoy a growing distribution while they wait.

Company Profile

Brookfield Property Partners is the property investment arm of its parent Brookfield Asset Management (BAM), which, as the majority shareholder, owns 53% of BPY. Brookfield Property Partners owns, operates, and develops: office, retail, multifamily and alternative real estate assets. BPY owns a high quality diversified asset mix, which includes 42% retail, 41% office and 17% limited partnerships in a variety of assets, including storage units, multifamily, student housing, and hospitality properties. Brookfield's properties are geographically diversified with assets in North America, South America, Europe, Asia, Middle East and Australia. Since its launch in 2013, the firm's total assets have almost tripled to USD$90B.2018 17% 1000/0 DIRECT • Office • Retail LP Invesments

Source: Brookfield Investor Day Presentation

Corporate Structure - BPY & BPR

The Brookfield family of companies is famous for having a complicated corporate structure. Not only are its firms domiciled in different countries, it utilizes limited partnerships and subsidiaries throughout its organization. Brookfield Asset Management is the top level investment entity where management maintains high ownership. Under this umbrella, Brookfield has a partial ownership in a number of publicly

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The Affluent Tortoise profile picture
I am a value-oriented investor who seeks out high-quality companies with long histories of dividend growth. I believe that patient investors who build a core portfolio of dividend paying equities can achieve their retirement goals without taking on unnecessary risk. Dividend growth profiles are the best indicators of management's commitment to returning cash to shareholders. Dividend growth investing involves identifying quality companies with competitive advantages that provide visibility towards future cash flow growth. Warren Buffet once wrote "If you don't find a way to make money while you rest, you will work until you die". Fundamental analysis and patience are the tools I use to build a portfolio of equities that will enable my very comfortable retirement. Join me in exploring value and growth-at-a-reasonable-price opportunities and in building your own income-producing portfolio of dividend stocks. I am an investor with over 20 year of experience in the market. I hold a B.Mgt and an MBA where I enjoyed studying both corporate and personal finance.

Analyst’s Disclosure: I am/we are long BAM. 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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Comments (23)

The Affluent Tortoise profile picture
@razo69 Thanks for your comments, I think that you have to look at BPY or BPR as a focused entity within BAM. At the end of the day, I look at where management gets paid and where they keep their money too. BAM's receipt of these fees is one of the reasons why I like BAM for the long term. They have great assets, but I agree that the structure is not for everyone and it is not your traditional REIT. BPY is a great vehicle for distribution growth and cash flow. I like that it has a predictable record and forecast of distribution growth.
veridical profile picture
@Steve Brodrick
looking at BPR , which does look interesting , but 1rst thing is you said it was beat down over last 12 months
BPR was GGP 10 months ago , and has Not traded 12 months

BPR has replaced GGP , and GGP has become a subsidiary of BPY , which all are under the hand of BAM

property GGP had outright sucked , JCP, Sears, Macy , etc, etc
BPY seems to have a larger , more diversified basket of properties , and now BPR is a reflection of BPY ( per 1 sec filing )

forgetting the fact last filing was 1rst BPR filing

is BPR and BPY similar to LINN Energy
they had MPL and non K-1 symbol

I think BPR 10K will shed a lot of light with clarity about properties
The Affluent Tortoise profile picture
@veridical In my comments, I am using BPR and BPY interchanably, however, BPY is the main focus of my article. I agree, the 10-K should be good to see.
Steve, my read on BPY couldn't be more different:
- BPY over distributes AFFO by 40%+ (due to BAM fee structure)
- Extremely high leverage and high level of PUD is a kiss of death at the end of cycle (BPO was down 85% about a decade ago well under performing)
- If you look at the BAM fees as an MER flow, BPY has the highest expense structure in the industry at about 300% of the industry average
- Their capital recycling plan de-rates asset quality over time (pressure the multiple)
- Lastly BPY execs get paid by BAM (and in BAM stock) so BPY shareholders are nothing more than a minority interest afterthought
- Due to these reasons the stock has been de-rating for years and I personally think it is a total ESG nightmare.
Vandooman profile picture
So the reason BPY is so attractive is that it has been a dog. And all because of Brexit. Miraculously the market will begin to favor the company.

Could be right but the remarks about Brexit and the London market have no basis. Do you realize, as an example, that UK financial institutions can peddle their products and services throughout the EU but after Brexit they cannot. UK asset managers will no longer have EU wide access for their mutual funds, ETFs and whatever else they are flogging today. London is unlikely to die as a financial center but the hour that Brexit is official, every politician in Paris, Frankfurt and elsewhere will be trying to kill London's business in Europe.

Today you have money managed in London but booked in Luxembourg. Will that be true tomorrow? Political risk is notoriously difficult to assess. I would assume nothing. We could end up with empty towers in London.
clorenz273 profile picture
Great article! I like articles that go so far into the weeds. They loose my attention. I like forward looking analysis. The amount of debt is a concern. I am watching this stock.
The Affluent Tortoise profile picture
@clorenz273 , Thank you, I am glad you liked it
jgrever621 profile picture
Recently long BPY. Yes, I prefer the REIT version to the MLP. Went long due to what little I could find regarding this, as BAM doesn't excite me (low dividend).

Not a full position, want to watch this for a while before committing more.

On paper, this does look like a good buy. Will watch for a year or so.
I can’t help but think the 53% ownership by BAM contributes to the discount to NAV. I owned units of SEP that began to loose value when it became clear the parent company, ENB, no longer benefited from the complex corporate structure... Ultimately, ENB (a great company with great Mgt) bought in all shares of SEP at significant discounts! I’m long BPR, but cautious given my previous experience with majority owned sub units.
Yes one great under valued company ! Good eye ! I also Like Brookfield Realestate Services at this point, as well for a long term Hold . BRE on the TSX . Great Brookfield pedigree and its been hammered unduly lately ! :)
NV_GARY profile picture
Div raised 4.8% - announced yesterday : 0.33/Qtr
nicholas davout profile picture
I actually switched my BRK.B position into BAM as it's less dependent on one or two primary very senior movers, has a dividend, and does do stock splits. Long INF, BIP, BEP, BPY, BBR also. And I'm not even Canadian!
I still think I'd rather buy BAM to be on the receiving end of much of those management fees, still on the receiving end of much of the cashflow (even if ratio paid out as a dividend is smaller), better diversification, and better alignment with the guys who are ultimately in control. If you absolutely must have the yield right now and/or want to be more focused rather than more diversified, though, then I certainly understand the need for BPY, and it looks reasonably priced.
vectoradam profile picture
do both !
BAM by definition is both + more ... but yes, if you want both + more in different proportions than what BAM offers organically then sure, do both ... or if you don't want + more or need/want higher immediate yield traded off for other factors like growthand diversity, then just BPY. That's too complicated for me, though ... if I trust BAM management to manage and allocate assets, then I want to align myself as closely as I can to them, which for me means buy some BAM and call it a day. Again, I don't necessarily disagree with others that do both, or one, or the other, or none at all ... just trying to isolate the rationale behind the opinions ... that's the valuable bit IMO, and the bit that can be discussed independent of personal preference.
jimklawyer profile picture
Agree with the conclusion that BAM ought to have better capital appreciation than BPY or BPR. But, both BPR and BPY have had a very nice bounce off the $15 and change level of late December of 2018 to the $19 and change level now.

BAM bounced from the $36.58 low in late December of last year to the $43.72 level at the close today. so just under 20% if my eyeball math is any good.
I am unconvinced on BAM. If you measure progress from the exact December low you’ll show a decent return — through cherry picking. The 1-year return is essentially flat, and the 5-year is nothing to write home about. The 10-year, on the other hand, is substantial which means that the position has been underperforming for a while.

Moreover, the convoluted corporate structure makes me nervous. Who needs a Bahamian corporation owning a West Indian limited partnership with an Indonesian LLC subsidiary? The main reason to me for investing in BPR is to get a straightforward REIT vehicle. The principal downside is the management fee structure. We are likely to see the equivalent of IDR rationalization at some point.

Finally, it is odd to read sone SA contributors’ post-hoc rationalizations for this stock. For example, @Brad Thomas is the scourge of complexity and outside management. But he writes that BPR is a “blue chip.” Perhaps it is, but then his approach to some other stocks needs chiropractic adjustment.
The Quant Investor profile picture
BPY is a great investment at cheap prices for sure, but I also agree that BAM will outperform. While the corporate structure certainly favors the parent company in the long-term, I also think the incentive structure of top management, which essentially includes a large amount of BAM units, is quite revealing. I trust that top management will look after themselves and attempt to maximize BAM share prices in the long run.
Good article, and the earnings CC yesterday confirms the value of the company. The announced $500 million buyback of shares/units between $19 and $21 per unit certainly helps also.
The Affluent Tortoise profile picture
@greenway , Thank you, I am happy to hear you enjoyed the article. Great news on the buybacks.
Pablo profile picture
Owned since the merger. Been through the trough, nice to see the other side as I KNEW the value is there.
Nice article. Bought first of 2019, near the Christmas '18 low. Glad to own it!
The Affluent Tortoise profile picture
@mikefconnell , Thank you , I am glad you enjoyed the article. Great work picking this up when it was low.
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