BPY units trade at a substantial discount to their asset value. Consequently, the company continues to buy back its units, believing they’re an attractive investment.
Brookfield Property Partners (TSX—BPY.UN), one of the world’s largest commercial real estate companies with about US$85 billion in total assets, is benefiting from strong demand for office space.
In the third quarter, the company opened two marquee buildings in New York and London. They consisted of over three million square feet of office space that was about 85-per-cent leased on opening.
Brookfield says the buildings demonstrate the strong demand that it continues to see for premier, well-located office assets.
Brookfield Property Partners is a diversified global real estate company that owns, operates and develops one of the largest portfolios of office, retail, multifamily, industrial, hospitality, triple net lease, self-storage, student housing and manufactured housing assets.
The company’s overall core office business completed 1.9 million square feet of leasing in the third quarter, at rents that were over 30-per-cent higher than leases that expired during the period. This led to ‘same-store’ growth of 2.5 per cent.
Total CFFO up; CFFO per unit down
For the three months ended Sept. 30, 2019, Brookfield Property Partners’ CFFO (cash flow from operations) and realized gains were $324 million (all figures in US dollars unless otherwise noted), or $0.34 a unit, compared with $302 million, or $0.38 a unit, in the same period of 2018.
The increase in total CFFO and realized gains was primarily attributed to earnings growth related to new capital invested in the retail business, same-property growth in the office business, and the recognition of $41 million in incremental transaction and fee income.
The decrease in CFFO and realized gains per unit was attributed to $0.07 a unit in incremental gains in Brookfield’s LP investments segment recognized in the prior period and more units outstanding caused by the 2018 acquisition of GGP, the second-largest mall owner in the US.
Shares trade at a discount to assets
Despite its strong asset performance, Brookfield says its shares currently trade at a discount. Indeed, the company’s net asset value per unit is about C$38. The units trade at a 32-per-cent discount to that figure. Consequently, the company has continued to buy back its units, believing they’re an attractive investment opportunity. Total buybacks for the year now amount to $500 million.
What’s more, management thinks low interest rates should translate into higher demand and value for real assets, which should benefit its portfolio of properties.
Brookfield should earn C$1.84 a unit in funds from operations in 2019. The units trade at a reasonable 14.1 times that estimate. Their annual distribution of $1.76 a unit yields 6.8 per cent.
Brookfield Property Partners is a buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the November 29, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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