Real estate has many advantages. Regular rent payments make it possible to pay dividends of 5% or more. As real estate is a physical asset, it can resist market volatility and reduce the impact of inflation.
But the term real estate covers thousands of regions and categories. Betting your money on a specific country or use-case could mean that you miss out on gains elsewhere, not to mention increase your investment risk.
How can you get exposure to the global real estate market without putting you eggs in one basket?
This is the stock
Brookfield Asset Management Inc (TSX: BAM)(NYSE: BAM) is an incredible company. With $540 billion in assets, it’s one of the largest alternative asset managers in the world. It focuses on niche investment universes that benefit from multi-decade growth drivers like global infrastructure and renewable energy.
One area that in which management sees long-term potential is global real estate. That’s why it formed Brookfield Property Partners L.P. (TSX: BPY.UN)(NASDAQ:BPY), which it co-owns alongside public investors.
Brookfield Property Partners is one of the world’s largest investors in real estate. Its portfolio includes office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing, and student housing assets on five continents.
With such scale, the company can target opportunities anywhere in the world, especially iconic mega-projects where there’s less competition for deals.
Brookfield Property Partners has very specific metrics of success. The firm targets “long-term returns on equity of 12%−15% based on stable cash flows, asset appreciation and annual distribution growth of 5%−8%.”
Unfortunately, shares still trade at 2013 prices. The healthy dividend has helped generate positive total returns, but results have been less than stellar. Part of the reason for this is a discounted valuation.
In order to capitalize, management repurchased $500 million worth of stock in 2019. Executives noted that the company “will continue to be active buying back BPY and BPR should units continue to trade at a meaningful discount to intrinsic value.”
Now is the time…
Brookfield stock was trading at a sizable discount to intrinsic value in 2019. In recent weeks, the discount widened as coronavirus fears swept through the market. It’s thought that reduced traffic could hurt some of Brookfield’s tenants.
Notably, this is a short-term issue. It’s doubtful that Brookfield’s global portfolio will be permanently impacted by the current virus crisis. In fact, the company was able to sell multiple properties last year for more than their carrying value, meaning there’s likely hidden value on the rest of the company’s books.
The share price dip has pushed the dividend yield up to 8% — a huge payout for such a reliable stock. In February, management actually increased the payout, indicating that they’re not worried about its long-term sustainability.
This year, expect management to direct as much capital as possible to share repurchases. By purchasing stock at 50% below book value, the company is immediately creating value for shareholders, not to mention saving cash through the associated dividends.
This stock really is the best of all worlds: global diversification, proven management, a discounted valuation, and a high dividend yield.
