Category Archives: REIT Real Estate Investment Trust

Brookfield Property Stock: Still Attractive with 7.3% Dividend Yield

Summary

  • Brookfield Property Partners LP’s (TSX:BPY.UN)(NASDAQ:BPY) / Brookfield Property REIT’s (NASDAQ:BPR) Core Retail business is resilient, and it’s going through a phase of redevelopment to be more relevant in today’s retail environment.
  • The REIT’s Core Office business is doing well.
  • Realized gains reduced 2019 payout ratio from 95% to 84%.
  • We’re comfortable with BPY’s token raise (+0.8%) of the Q1 2020 cash distribution, as the yield is high at 7.3%.

Financial Overview for Q4 and 2019

Funds from operations (FFO) per unit (excluding opportunistic portfolio investment gains) declined 6% for 2019 against 2018. However, BPY stock did increase its cash distribution by 4.8% year over year.

Based on FFO only, the payout ratio was 95%. Thanks to the investment gains from its opportunistic portfolio, the actual payout ratio (based on “total earnings”) is lowered to 84% for 2019. Although this is higher than the 60% range in the previous years, it’s still sustainable.

Capital Recycling Program

BPY has been consistently able to sell assets in the opportunistic portfolio or mature assets at higher than their accounting values and recycle that capital into properties with expected higher returns.

In 2019, BPY sold $3.3 billion of assets at 6% higher than their accounting values and generated net proceeds of $1.8 billion that were deployed at higher returns.

Management expects to continue this capital recycling program of stabilized or mature assets to achieve net proceeds of $1.5-$2.0 billion for redeployment.

Token Dividend Increase; Dividend Yields 7.3%

Admittedly, BPY’s 2019 payout ratio of 95%, based solely on FFO, was higher than normal. Its average payout ratio (based solely on FFO) from 2014 to 2018 was 85%.

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The Best 3 Places To Look For Safe Dividend Income

If history gives a hint about the future, it indicates that companies in certain industries tend to generate stable earnings or cash flows that lead to stable dividends.

If we choose the quality companies from these industries, we can then build a diversified portfolio that generates a secure, growing income stream. Below, I list some possibilities.

Utilities: A Must-Own Sector

Earnings generated by utilities are relatively stable because people need to use electricity, gas, and water, etc. no matter if the economy is doing well or not.

One utility that came out strongly from the last recession was Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP). Since 2009 it has been a five-bagger.

Brookfield Infrastructure is a rock solid utility, which owns and operates a global, quality portfolio of infrastructure assets, including toll roads, railroads, ports, pipelines, and telecom towers.

Its trusted management, Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM), employs value investing and actively recycles mature assets for higher returns. Because management owns 30% of the partnership, retail unitholders can expect the management to be unitholder-friendly.

Indeed, Brookfield Infrastructure has increased its distribution every year since 2009. Going forward, it gives the guidance to grow its distribution by 5-9% per year. Currently, it offers a yield of 4.5% to start.

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