Brookfield Property Partners (BPY) Reports 1Q15 Results, Continued Good Progress

Brookfield Property Partners (BPY) reported [Source] Funds from Operations (FFO) of $181 million or $0.25/unit for the first quarter of 2015 compared with $157 million or $0.28/unit for the 1Q14. The increase in FFO was driven the additional interests in Brookfield Office Properties Inc. (BPO) and Canary Wharf Group plc (Canary Wharf) and same store growth in the office and retail properties. These improvements were partly offset by the impact of foreign exchange rates due to the strong U.S. Dollar and interest expense on assets not yet fully contributing to income.

Net income to unitholders for the 1Q15 was $833 million or $1.17/unit compared to $372 million or $0.67/unit for 1Q14. The increase in the quarter was due primarily to valuation increases from strong leasing results and improved market conditions in the office business.

BPY 1Q15 Financial Results

[Source] BPY 1Q15 Earnings Release

Capital Recycling:

As value investors, this means Brookfield is not acquiring major assets in the U.S. due to relatively high valuations but it also means that the North American businesses are doing well. Interest rates remain low supporting a global shift from bonds to higher yielding alternatives such as real assets by institutional investors. Real assets like commercial real estate generate predicable cash, with equity like features with growing cash flows and generally provide inflation protection.

BPY, continues to transform the portfolio into a leading global commercial property company. You will recall in 2014 they merged the publicly traded office portfolio, Brookfield Office Properties (BPO) into BPY. Capital recycling is an integral part of Brookfield’s business model. While investor demand for high quality real estate, especially in the U.S. is strong, BPY is capitalizing on this by completing or advancing several transactions to monetize positions in mature assets. These include the sale of interests in select office properties in Seattle, Boston, Washington D.C., and London with net proceeds of about $1 billion expected by the end of 2Q15 and $1.5 billion through 2015. Proceeds from the asset sale and other will be used to pay down the debt from the Brookfield Office Properties acquisition and to further fund development projects.

Project Pipeline and Advanced Developments:

During the 1Q15 BPY advanced a 7 million-square-foot Manhattan West project in New York City’s Hudson Yards district and finalized construction of the platform spanning a portion of Manhattan West completing the site. They initiated the redevelopment of Five Manhattan West installing a new façade and lobby among other improvements. Launched construction of an 844-unit residential tower on the site, and, in April, announced the signing of an anchor tenant lease with a major professional services firm. They also started construction of One Manhattan West, the first of two, 2 million-square-foot office towers.

When complete, the $4.5 billion Manhattan West project will include two new and one renovated class “A” office towers, retail, rooftop gardens, restaurants and cafes, and a luxury residential building. BPY now has over 7 million square feet of office development underway, of which 51% is pre-leased on average. These projects, which are projected to cost approximately $4.6 billion in total, are expected to come online over the course of 2016-2019 and to generate incremental Net Operating Income of about $330 million per year.

Rationalizing BPY Structure:

Similar to the Brookfield Office Properties acquisition last year, Canary Wharf presented another avenue to enhance the value of an investments. Brookfield for over a decade held a minority stake in Canary Wharf with little influence on the development strategy of this world class asset. Last December with a leading sovereign wealth fund, the Qatar Investment Authority (QIA), they launched a bid to take control of Canary Wharf and closed the transaction last week, giving Brookfield a 50% interest in the operating assets and development sites. BPY believes Canary Wharf is one of the most treasured property estates in the world and can now work with their partner and the Canary Wharf Group management to advance the substantial development pipeline and realize the full potential of the site. Further detail on the plans for Canary Wharf, including the 11 million square feet of future mixed-use development, will be released over the course of this year.

BPY Canary Wharf

Brookfield’s management described their U.S. businesses early this year as showing strong results with excellent retail sales at the shopping malls, a greater number of office leases in the New York City market than seen in years, and single family housing results far better than anyone would expect reading the newspaper headlines. This is reflected in the 1Q15 highlights below.

BPY 1Q15 Segment Results

1Q15 Highlights:


  • For the quarter ended March 31, 2015, office operations generated FFO of $170 million compared to $97 million in 1Q14. The increase in FFO for the quarter was mainly due to the increased ownership in BPO and Canary Wharf, partly offset by the impact of foreign operations converted to U.S. dollars.
  • During the quarter, office operations contributed $770 million of valuation increases, primarily driven by strong market conditions and leasing activity in Manhattan and Sydney.
  • Operationally, during the quarter, leased 1.9 million square feet of space in the core office portfolio at average net rents significantly higher than expiring rents, while increasing global occupancy by 30 basis points over the previous quarter to 92.5%.
  • Significant leases executed during the first quarter include:
    • A 15-year lease renewal and expansion with The Capital Group Companies for 439,000 square feet at Bank of America Plaza and Wells Fargo Center South in Los Angeles.
    • A five-year new lease with Fannie Mae for 186,000 square feet at One Reston Crescent in Northern Virginia.
    • A 20-year new lease with WeWork for 168,000 square feet at Moor Place in London.
    • A 15-year new lease with Markit Ltd. for 135,000 square feet at Five Manhattan West in New York City.
    • A 10-year new lease with Transamerica Life Insurance Company for 121,000 square feet at 1801 California in Denver.
  • Significant transactions in the office segment included:
    • Completed the £4 billion acquisition (£1 billion of further equity at BPY’s share) of Canary Wharf with a 50/50 partner, subsequent to quarter-end.
    • Commenced development of One Manhattan West, a 2.1-million square foot office tower in Midtown’s Hudson Yards district, subsequent to quarter-end. Brookfield secured an anchor tenant with a major professional services firm signing a 20-year, 550,000-square-foot lease, which enabled us to close on a $1.2 billion construction loan.
    • Acquired the remaining 40% equity interest in a portfolio of office parks in India for total consideration of approximately $190 million (approximately $60 million at BPY’s share).
    • Sold office assets in Toronto and Seattle for net proceeds of approximately $100 million.


  • For the quarter ended March 31, 2015, retail operations reported FFO of $114 million compared to $105 million in the 1Q14. The increase in FFO for the quarter was due to an increase in same-store NOI of over 3% compared to the prior year and income from the investment in China Xintiandi which was acquired in the second quarter of 2014.
  • Initial rent rates for executed leases commencing in 2015 and 2016 on a suite-to-suite basis increased by 11.1% to $60.91 per square foot when compared to the rental rate for expiring leases.
  • Occupancy finished the quarter at 94.5%.
  • Significant transactions in the retail segment included:
    • In General Growth Properties (GGP), acquired, through a 50/50 joint venture with Sears, retail areas in the malls which are leased to 12 department stores for a total of $165 million ($48 million at BPY’s share).
    • In Rouse Properties, we acquired Mt. Shasta Mall in Redding, California for a total purchase price of approximately $50 million (Approximately $17 million at BPY’s share).
    • In GGP, sold a 25% interest in Ala Moana Center in Honolulu, Hawaii for net proceeds of $907 million ($262 million at BPY’s share). Subsequent to quarter-end, sold a further 12.5% of Ala Moana Center based on the same valuation.
    • Also subsequent to quarter-end,GGP closed on the following transactions:
      • Acquired the Crown Building at 730 Fifth Avenue in New York City along with co-investors for approximately $1.8 billion which was funded with $1.3 billion of secured debt.
      • Sold the office portion of 200 Lafayette Street in New York City for a gross purchase price of approximately $125 million (approximately $36 million at BPY’s share).

Industrial, Multifamily and Other

  • For the quarter ended March 31, 2015, the industrial, multifamily and other operations posted FFO of $33 million compared with $17 million in the 1Q14. The increase in FFO over the prior year was largely a result of the acquisitions of the triple net lease business in North America, a multifamily portfolio in New York City, and a hotel in Florida, all completed in the second half of 2014.
  • In the industrial operations, executed 1.8 million square feet of leasing during the quarter. Occupancy finished the quarter at 90.0%.
  • Occupancy in the multifamily portfolio increased 30 basis points to 95.0%.
  • ADR and REVPAR increased year-over-year in all of the hotel properties to a blended average of $253 and $199, respectively.
  • Significant transactions in the industrial, multifamily and other operations during the first quarter included:
    • Sold six industrial properties and 80 acres of industrial land for net proceeds of $56 million ($15 million at BPY’s share).
    • Acquired two multifamily assets in Virginia and California, respectively, for a net equity investment of $22 million ($8 million at BPY’s share).
    • Acquired four triple net lease properties for a total net equity investment of $41 million ($10 million at BPY’s share).
    • Acquired the Hyatt Vineyard Creek in California for a net equity investment of $11 million ($1 million at BPY’s share).
Brookfield Place NY, Fashion Show Las Vegas, Multi Family, Atlantis Resort Bahamas

Brookfield Place NY, Fashion Show Las Vegas, Multi Family, Atlantis Resort Bahamas

Distribution Declaration:

The Board of Directors declared the quarterly distribution of $0.265 per unit payable on June 30, 2015 to unitholders of record at the close of business on May 29, 2015. 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.


BPY’s net asset value has significant upside over next five years driven by visible initiatives within its existing asset base. BPY lays out their plan to a net asset value of $43/unit in 5 years [Source]. Add in accumulated dividends over that period of about $5/unit a total gain of $25/unit or a total return of 100%+ over the next 5 years. This management team has a track record of delivering on its targets and while we wait for the upside, we collect an attractive 4.6% distribution yield.

Disclosures: Long BPY, BAM, BIP, BEP


  • BPY 1Q15 Earnings News Release [Source]:
  • BPY 1Q15 Letter to Unitholders [Source]:
  • BPY 1Q15 Financial Tables [Source]:
  • BPY 1Q15 Supplemental Information [Source]:
  • BPY Website [Source]:

You are encouraged to do your own independent research (due diligence) on any idea discussed here because it could be wrong. This is not an invitation to buy or sell any particular security and at best it is an educated guess as to what a security or the markets may do. This is not intended as investment advice, it is just an opinion, so you should consult a reputable professional to get personal advice that meets your specialized needs of which the author has no knowledge.





  1. why is their such a large discount from nav or private market value?

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