Few investments have created more wealth for more people than real estate. Brookfield Property Partners (BPY +0.00%) offers investors convenient access to this fortune-building asset class.
But is the real estate partnership a compelling buy today? Read on to find out.
Image source: Getty Images.
Brookfield Property Partners owns and operates a diversified portfolio of commercial real estate assets. With properties in North and South America, Europe, and Asia, Brookfield maintains a global presence. It's also diversified across real estate sectors; Brookfield owns properties in office, retail, multifamily, industrial, student housing, and self-storage, among others. This helps to reduce risk by limiting its exposure to any one market and allows Brookfield to seize a broad array of opportunities across the world.
A value-based approach
Brookfield's goal is to generate long-term returns on equity of 12% to 15%. To do this, it seeks to acquire high-quality properties at attractive prices. This often requires a contrarian approach -- so Brookfield tends to invest in areas that are out of favor with most other investors.
After acquiring a property, Brookfield uses its operational and development expertise to increase its value. It then looks to sell these assets at a premium, and redeploy its capital in new value-priced opportunities.
Multiple growth drivers
Several long-term trends are helping to fuel Brookfield's expansion. Somewhat counterintuitively, the relentless growth of e-commerce is one such trend.
The rise of internet retailers such as Amazon.com has taken a severe toll on the traditional retail industry. Malls, in particular, have suffered declining traffic and sales. In turn, the prices of the real estate in which these stores are located have come under pressure in recent years.
Brookfield has used this situation to its advantage. In August, it completed its acquisition of GGP, one of the largest mall owners in the U.S. Brookfield intends to redevelop many of GGP's malls, such as by reallocating square footage previously used by big-box retailers to new tenants like fitness centers, movie theaters, and even residential apartments. By doing so, Brookfield expects to boost occupancy rates and average rents at these properties.
Redevelopment is one of Brookfield Property Partners' core competencies. Image source: Getty Images.
Brookfield is also expanding its multifamily-housing portfolio. This is in response to several trends -- including urban population growth, low single-family housing supply, high student loan debt, and rising home prices -- that are all boosting demand for apartments.
In all, Brookfield has grown its funds from operations (FFO) by 9% annually over the past five years. That's allowed the company to raise its cash distribution to unitholders by 6% annually during this time, while also lowering its payout ratio from 90% of FFO to 80%.
Looking ahead, Brookfield expects to increase its distribution by 5% to 8% annually over the next five years, fueled by 7% to 9% annual growth in FFO.
An attractive price
Despite Brookfield's strong growth prospects, its units can currently be had for a bargain price.
Brookfield estimates its net asset value -- the value of its assets minus its liabilities -- is approximately $29 per unit. Today, however, those same units are trading for only $15.30.
To help close that gap, Brookfield intends to buy back its units and strengthen its communication with investors. Combined with the strong underlying performance of its global real estate empire, these ancillary measures could help boost returns for investors who buy today.
Moreover, Brookfield's units have declined along with the overall market in recent weeks and now yield a tantalizing 8.2%.
Brookfield Property Partners -- with its bountiful distribution yield, rising cash payout, and potential for significant price appreciation -- is a compelling buy at current prices.
