Brookfield Property Partners (BPY) Continues an Impressive Debut

Brookfield Property Partners (BPY) reported [Source] good third quarter 2013 results. Some interesting strategic moves occurred in past two quarters that will benefit BPY unitholders and Brookfield Asset Management’s (BAM) shareholders for years to come. While these strategic moves unfold we’ll receive a 5.2%/year distribution (dividend) income secured by world class commercial properties.

BPY Collage

Strategic Moves:

Brookfield Property Partners was formed in early 2013 with the spinoff of the global real estate assets of Brookfield Asset Management into a separate company. Our investment thesis is the long term excellent performance under BAM would continue under the new company, BPY, because the asset base and management team remained in place and they continue the same strategy that led to the prior outstanding long term performance.

Solid quarterly results are always good to see but more importantly for long term investors is continued implementation of a strategy that assure good results on average for years to come. Over the past six months the company made progress building the industrial and multi-family real estate holdings putting $235 million of equity to work in six acquisitions. In a relatively short time the industrial platform has grown to 64 million square feet and the multi-family holdings to more than 20,000 units within 64 properties.

Two significant transactions that were announced recently will contribute to the strategic goals of increasing equity invested in directly owned assets and increase the public float of BPY.  On September 30, BPY announced [Source]  an offer to acquire the 49% shares of Brookfield Office Properties (BPO) it currently does not own to increase ownership in this portfolio of high quality office assets. The assets consist of 114 properties and 85 million square feet in major global cities such as New York, Los Angeles, Toronto, London, and Sydney.

Brookfield Property Partners also owns 25% of General Growth Property (GGP) one of the two highest quality retail mall operators in North America. BPY also announced [Source] an additional investment of $1.4 billion in General Growth Property shares and warrants. Brookfield Asset Management led the recapitalization of GGP in 2010 after they filed for bankruptcy during the financial crises. GGP’s growth prospects remain strong and Brookfield Property management estimates that the return on this investment will be in excess of their 12% to 15% target. To fund the investment, BPY will issue $1.4 billion of limited partnership units and redeemable exchangeable units to institutional investors, including Investment Corporation of Dubai and Brookfield Asset Management.

Outlook:

Management continues to be optimistic about opportunities developing as they implement Brookfield’s long term value strategy. In the 3Q13 Letter to Unitholders [Source] Chief Executive Officer Ric Clark writes in part: “… Upon the successful completion of the BPO acquisition and the additional investment in GGP, BPY will have a market capitalization of approximately $15 billion with one of the highest quality portfolios of office and retail properties in the world. Additionally, BPY will have solidified its foundation for growth due to:

  • Opportunities to drive FFO growth through marking-to-market rents and increasing occupancy within our portfolio;
  • Enhanced growth prospects as a result of a robust portfolio of re-development and development projects;
  • Increased access to the capital markets, which should reduce our cost of capital and enable us to more efficiently fund our growth; and
  • A streamlined ownership and operating structure for the business, which should enable us to realize significant cost synergies over the coming years.

Furthermore, one of the main competitive advantages of our real estate franchise is that we have over 16,000 employees on the ground within our markets, including over 70 business development professionals…Ownership of 100% of BPO would provide greater flexibility to create value for our unit holders by selling non-core assets that command low yields in today’s market and recycling this equity capital into investments that we source in geographies and sectors that yield significantly higher risk-adjusted returns.

Over the next few months, we may see volatility in the capital markets…However, overall we believe that fundamentals in the markets that we serve are improving, albeit at a modest pace. With our diversified, high-quality asset base, we expect that we will continue to generate stable cash flow. Furthermore, we look forward to periods of volatility in our markets, as opportunities to originate new investments at attractive values become more abundant.

The company reported:

  • Fully diluted Funds from Operations (FFO), on a comparative basis, was $134 million or $0.29/unit versus $107 million or $0.23/unit in 2012.
  • The comparative results exclude a dividend of $31 million from the Partnership’s Canary Wharf Group plc investment received in 2012.
  • Fully-diluted FFO including all items was $128 million or $0.27/unit for the 3Q13 compared with $143 million or $0.31/unit for 3Q12.
  • Net income was $235 million or $0.50/unit for the 3Q13 compared with $376 million or $0.81/unit in the 3Q12. The decrease was because there was greater valuation gains recorded in the 3Q12.
  • Equity per unit as of the 3Q13 increased to $26.09 from $25.32 as of 4Q12 for a 3% gain and from $25.64/unit in the 2Q13 for a sequential gain of about 1.8%.

BPY 3Q13 Proforma Financial Results

Significant Transactions during the Third Quarter:

During the third quarter of 2013, Brookfield Property Partners, directly or through affiliates, disposed of seventeen assets totaling approximately $1.6 billion, which generated approximately $440 million of net proceeds. The Partnership recycled a portion of this capital into fourteen acquisitions with asset values totaling approximately $1.5 billion, deploying $240 million of equity.  

Highlights from the quarter include:

Office

  • Announced intention to acquire Brookfield Office Properties (“BPO”) through a tender offer for any or all common shares of BPO that it does not currently own. If successful, the transaction is expected to close in the first half of 2014.
  • Completed MPG Office Trust acquisition, increasing the downtown Los Angeles portfolio to seven Class A office properties totaling 8.3 million square feet, subsequent to quarter end.
  • Announced a cornerstone investment of $500 million in a Shanghai office and retail portfolio with institutional partners subsequent to quarter end, which is expected to close in Q2 2014. Brookfield Property Partners and its partners will have the ability to invest an additional $250 million in the     transaction upon identification of a defined use of proceeds.

Retail

  • Sold interests in Aliansce Shopping Centers S.A. for approximately $690 million.
  • Announced investment of $1.4 billion to acquire significant additional interest in General Growth Partners, Inc. (“GGP”) and Rouse Properties, Inc. from our investment partners, subsequent to quarter-end.

Multi-family

  • Completed over $137 million of value-add multi-family acquisitions in the U.S.
  • Closed acquisition of Industrial Developments International with institutional partners for an aggregate investment of $1.1 billion, subsequent to quarter end.

Recent Financings

  • During the quarter, Brookfield Property Partners closed $550 million of bi-lateral corporate revolving credit facilities with eleven financial institutions. This credit facility provides liquidity for general working capital as well as investments.
  • After quarter end, the Partnership expects to enter into a $500 million subordinated corporate credit facility with Brookfield Asset Management, Inc. to increase its liquidity for general corporate purposes and investments.

Dividend Declaration

The Board of Directors has declared a quarterly distribution of $0.25 per unit payable on December 31, 2013 to unitholders of record at the close of business on November 29, 2013. Unitholders resident in the United States will receive payment in U.S. dollars and unitholders resident in Canada will receive their distributions in Canadian dollars at the exchange rate on the record date, unless they elect otherwise. The distribution represents an annualized distribution of $1.00 per unit.

Long BAM, BPY, BIP, BEP

  • News Release [Source]
  • Letter to Unitholders [Source]
  • Financial Tables [Source]
  • Supplemental  Information [Source]
  • BPY Website [Source]

 

Comments

  1. Are you concerned that the equity issued for GGP results in paying too high a price for GGP?

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