Brookfield Property Partners (BPY) is one of the best collection of commercial real estate properties in the world, but you rarely hear the company discussed when investors talk about real estate securities. It is a partnership, not a real estate investment trust (REIT), and the company has a complex ownership structure. Some of their investments are joint ventures and partnerships with other real estate firms so it takes a pencil and some time to figure out the value of shares. Given that the shares trade at a significant discount to management’s estimate of value, it would seem to be worthwhile to take some time and figure out the value of this global, best-in-class property portfolio. (For related reading, see also: Simple Ways to Invest in Real Estate.)

Ownership Structure

When you consider the direct ownership of shares by its parent organization, Brookfield Asset Management (BAM), and the percentage ownership represented by the Redemption-Exchange Units established when the partnership was created, Brookfield Asset Management controls 61% of the partnership. This puts investors in a minority position. Since investors are limited partners they have no vote on corporate matters. While this may seem worrisome it really is not if you look at the bigger picture. This partnership was created specifically to be Brookfield Asset Management's flagship public commercial property entity and serve as the primary vehicle for the company’s commercial real estate investing activities around the globe.

To be comfortable owning shares of Brookfield Property we have to be comfortable with Brookfield Asset Management. The Canadian company is one of the largest asset owners in the world with over $200 billion invested in real estate, infrastructure assets, private equity and renewable energy companies. BAM has been in business for 100 years and has a solid history of earning good returns for its shareholders. In order for BAM to profit from its investment on Brookfield Property Partners, it has to increase the value and cash flows for investors as unit holders.

Property Portfolio

When we invest in Brookfield Property we can invest in an incredible portfolio of properties. The partnership owns 100% of Brookfield Office Properties which includes 250 office properties with over 123 million square feet of leasable space. Most of it is located in the downtown central business districts of major cities like New York, Washington D.C., Houston and Los Angeles in the United States. In Canada the company owns premier downtown properties in Toronto, Calgary and Ottawa. In Australia they have central business district buildings in Sydney, Melbourne and Perth. They also own a 22% interest in the Canary Wharf Complex in London that has some of the city's most sought after office space. (For more, see: Find Fortune in Commercial Real Estate.)

Brookfield Property also has substantial exposure to the retail property markets though ownership of a significant stake in several retail real estate operations. They own 29% of General Growth Properties (GGP) that owns 120 high-end retail properties including locations like Woodlands Mall in Texas, Water Tower Place in Oakbrook, Ill., the Ala Moana Center in Honolulu and the Fashion Show in Las Vegas. The partnership also owns 34% of Rouse Properties (RSE) than owns another 30 malls in 19 states with approximately 21 million square feet of retail space.

Along with Brookfield Asset Management they own multi-family properties through Fairfield Residential. Fairfield owns 28,000 multi-family units across the United States and has also formed Brookfield Fairfield U.S. Multi-family Value Add Fund to pursue further multi-family opportunities.

The industrial portfolio is also a joint venture with Brookfield Asset Management that owns 44 million square feet of logistics assets with land sites to develop an additional 69 million square feet of distribution facilities near major markets and transportation routes in North America, Europe and China. The partnership is also invested in a portfolio of hotels that includes 12 hotels in North America and Australia with 8,859 guest rooms. Flagship Properties include Atlantis Hotel in the Bahamas, the Hard Rock Hotel & Casino in Las Vegas, and the Diplomat Resort in South Florida. The company also recently formed the limited partnership Capital Automotive LP that leases a triple net basis of about 15.6 million square feet to automobile dealers. (For more, see also: 7 Steps to a Hot Commercial Real Estate Deal.)

High Total Return Potential

Through its direct holdings, joint ventures and partnerships, Brookfield Property Partners gives investors a chance to own a world-class portfolio of commercial properties with significant holdings in several market sectors. The property portfolio generates significant cash flows and the shares are yielding about 5% right now. Management has also adopted a dividend policy based on paying out all cash flows after expenses, development and improvement costs. In their most recent shareholder presentation they said they thought they could grow the payout by 5 to 8% annually.

In the second quarter supplemental information included with the earning release, it was estimated that unit holder equity value was $30.19 a share, which is significantly above the current price quote. Management addressed this discount market valuation in the accompanying shareholder letter saying that they are “very focused on narrowing this discount, which will provide additional upside to investors.” As part of its efforts to reduce or eliminate the discount, the company announced plans to renew its prior normal course issuer bid for a one-year period and buy back up to 13,142,359 limited partnership units, representing approximately 5% of the company.

The Bottom Line

Brookfield Property Partners represents a unique opportunity to invest in commercial real estate markets at a discounted price. The potential narrowing of the price to management's estimate of value, along with a generous and growing dividend, represents outstanding total return potential for long-term investors.

The author held shares in BPY at the time of writing.

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