The Brookfield stable of companies have a proven history of delivering considerable value for investors. One that has not captured the same amount of attention as Brookfield Infrastructure Partners or Brookfield Renewable Partners is real estate investment trust (REIT) Brookfield Property Partners (TSX: BPY.UN)(NASDAQ:BPY).
The REIT possesses many characteristics that make it a highly appealing investment, even in the current difficult operating environment, which, after losing 7% over the last year, appears very attractively valued, making now the time to buy.
Positive outlook
While Brookfield Property reported some relatively solid results for the fourth quarter 2019, its full-year performance was disappointing. Full-year funds from operations (FFO) fell by 4% year over year to US$1.5 billion, while net income declined 14% to US$3.2 billion.
The decline in FFO and net income can be attributed to asset dispositions rather than a deterioration in Brookfield Property’s operations. During the fourth quarter 2019 alone, the partnership completed a whopping US$1.1 billion of asset sales, which netted Brookfield Property US$555 million.
Furthermore, during 2019, Brookfield Property’s core operations performed strongly. Its core office portfolio reported a 9% year-over-year increase in FFO to US$662 million, while core retail announced a 19% increase in FFO to US$772 million.
The improvement in Brookfield Property’s office business can be attributed to higher occupancy and rents during 2019 when compared to 2018 and to its retail operation’s higher rents as well as net operating income (NOI) weighted sales.
A combination of organic growth initiatives and new investments means that Brookfield Property’s earnings will continue to grow during 2020.
During 2019, the partnership invested US$432 million to acquire a 50% interest in London Wall Place, US$141 million for a mixed office and retail property in China, US$40 million in an Australian retirement facility, US$40 million interest in an Indian resort business, and US$18 million for a beachfront retail asset in Dubai.
Brookfield Property also strengthened its balance sheet and boosted liquidity during 2019, positioning it to make further investments while reducing financing costs.
Importantly, the partnership can access large reliable amounts of reasonably priced capital through its relationship with its parent Brookfield Asset Management, meaning that it possesses considerable financial flexibility. That also reduces the risk created by Brookfield Property’s large amount of debt, which should continue to fall during 2020.
Attractively valued
Aside from the partnership’s portfolio of quality real estate assets, including globally recognized marque properties, it is the fact that it is trading at a deep 47% discount to its net asset value (NAV) that makes now the time to buy. It is rare to find a quality REIT like Brookfield Property trading at such a large discount to its NAV.
Then there is Brookfield Property’s sustainable monthly distribution to consider. The partnership has a long history of rewarding patient investors through regular distribution hikes for the last seven years. It yields a very juicy 7%, well in excess of many other dividend stocks and traditional income-producing assets. That further increases its appeal as an investment.
Brookfield Property also offers a distribution-reinvestment plan, which allows unitholders to reinvest those payments to acquire further units at no additional cost, allowing them to cost effectively access the power of compounding. By reinvesting distributions, investors can accelerate the pace at which they create wealth, thereby achieving their financial goals sooner.
Foolish takeaway
Brookfield Property is a very attractively valued REIT, which offers the ability to gain exposure to a globally diversified portfolio of high-quality office and retail property. The combination of its juicy 7% yield and the fact that it is trading at a 47% discount to its NAV makes now the time to buy.
