Revealed: My TOP REIT Pick for 2020 Still Has Massive Upside Potential

2020 is poised to be another excellent year for Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY).

| More on:
Modern skyscrapers in business district

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Around a year ago, I told readers my top pick for 2019 was a REIT I thought had a ton of upside, Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY).

The choice has worked out pretty well, which has helped my portfolio have a decent year too. Shares are up approximately 10% for the year, and the stock has paid a dividend yield in the 7% range. That works out to a 17% total return, an excellent result.

Unfortunately, it has underperformed the TSX Composite Index by a hair, which is up a little over 18% in 2019 at writing. Still, making 17% in a year is a pretty good outcome, and I’ll gladly take it.

I have good news for investors who missed out on this opportunity last year. Brookfield Property Partners continues to be insanely cheap today and is poised to have an excellent 2020. Here’s why.

The opportunity

At this point last year, the company was digesting its big acquisition of General Growth Properties — a deal that added some 100 top U.S. shopping malls to the portfolio.

Many U.S. malls are dying, as struggling former anchor tenants pull up and leave. These assets are struggling with declining occupancy, poor locations, and other issues.

Brookfield acquired some of the nation’s best malls, the ones with good locations and all the hip stores. It paid a good price for these assets and plans to increase rents by doing renovations and adding other real estate — like condo towers — in select locations.

Meanwhile, the company’s core office portfolio continues to churn out excellent results. The focus on owning marquee assets in downtown areas of world-class metros like Toronto, New York, London, and Berlin, is working well.

These buildings spin out plenty of predictable cash flow, and have a greater ability to raise rents going forward because of their A+ locations.

The company also owns a prominent distressed real estate portfolio, assets it picks up at a significant discount to replacement value.

It’ll then make moves to increase the value of the building, wait patiently for the market to recover, and then sell into strength. Annual returns of 15% from this part of the portfolio should be possible over the long-term.

Add it all together, and Brookfield is an excellent opportunity. The huge discount to net asset value is just a bonus.

Upside potential

Brookfield’s management — who, let me remind you, are considered some of the smartest real estate people out there — are convinced the net asset value of their real estate portfolio is US$30 per share at writing.

Shares currently trade hands on the NASDAQ for a little over US$18. That’s 67% upside potential, right there.

Skeptical investors might discount management’s opinion, saying it’s just talk. The company has proved the naysayers wrong with an aggressive stock repurchase program that has consistently used spare cash to bu yback shares throughout 2019. From September to November alone, it bought back close to three million shares.

And remember, investors are also treated to a US$1.32 dividend, which works out to a 7.2% yield. That’s a nice consolation prize while you wait.

The bottom line

Even after a relatively good performance in 2019, Brookfield Property Partners should be an excellent performer in 2020. It owns fantastic real estate, is ran by smart people, and has perhaps Canada’s best asset manager as its majority shareholder.

I can’t guarantee the price-to-net asset value discount will shrink in investors’ favour in 2020, but I do know one thing — buying good assets at a discount tends to work out pretty well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns shares of Brookfield Property Partners LP. The Motley Fool recommends Brookfield Property Partners LP. Brookfield Property Partners LP is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

money cash dividends
Dividend Stocks

TFSA Passive Income: 2 Top TSX Dividend Stocks to Buy on the Correction

These top dividend stocks look cheap to buy right now for a TFSA focused on passive income.

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Oversold TSX Stocks to Buy in July

Invests can now find good value right now in top TSX dividend stocks.

Read more »

You Should Know This
Dividend Stocks

OSFI: Mortgage Arrears Only 0.15% Despite Rate Hikes

The OSFI is happy with the low mortgage delinquency but remains worried over the impact of rising rates on Canadian…

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

2 Great TSX Stocks to Start a TFSA Retirement Fund During a Market Correction

These top TSX dividend stocks look cheap right now to buy for a TFSA retirement portfolio focused on passive income…

Read more »

consider the options
Dividend Stocks

Recession Worries? Try Buying These 2 Stocks

Consider investing in these two safe dividend stocks if you are worried about your investment returns due to fears of…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

TFSA Investors: Should You Be Holding Cash Now?

Holding cash might not be the best option for TFSA investors in 2022, but using surplus cash to purchase dividend…

Read more »

stock market
Dividend Stocks

4 Dividend Stocks With Yields of at Least 5% in a Bearish Market

By investing in these stocks, investors can earn reliable dividend yield of 5% or more.

Read more »

Path to retirement
Dividend Stocks

Retirement Investors: 2 Top Defensive TSX Stocks to Own During a Recession

These top defensive TSX dividend stocks look good to buy for a retirement fund during an economic downturn.

Read more »