Brookfield Asset Management (NYSE: BAM) is one of the world's largest commercial real estate investors. The Canadian alternative asset manager had a whopping $208 billion of real estate assets under management as of late 2020. These assets consisted of more than 500 million square feet of commercial space, spanning the office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing, and student housing sectors across five continents. To put that size into perspective, it's like owning more than 185 Empire State Buildings.
Among the many assets managed by Brookfield are two publicly traded real estate companies: Brookfield Property Partners (NASDAQ: BPY) and Brookfield Property REIT (NASDAQ: BPYU). Here's everything real estate investors need to know about Brookfield's real estate affiliates.
Brookfield Property company profile
Brookfield Property Partners is a publicly traded partnership similar to a master limited partnership (MLP). Meanwhile, Brookfield Property REIT is a real estate investment trust (REIT). The two companies are economic equivalents, meaning they allow investors to own interests in the same assets and pay identical dividends. Brookfield Property, which Brookfield Asset Management spun off in 2013, created a REIT to acquire mall owner GGP in 2018. This structure enabled investors in that company to continue owning a REIT while expanding its investor base to REIT investors.
Brookfield Property is Brookfield Asset Management's primary vehicle to make investments across all strategies in real estate. The company currently owns $86 billion of real estate assets. These consist of:
- Core office: 134 premier office properties totaling 94 million square feet in major gateway cities like New York, London, Toronto, Los Angeles, Houston, Melbourne, Berlin, and Washington, D.C.. The company also has more than 9 million square feet of core office and multifamily development projects under construction.
- Core retail: 122 best-in-class malls and urban retail centers in the U.S. with more than 120 million square feet of retail space.
- Limited partner (LP) investments: Brookfield Property invests in several real estate funds managed by its parent that own high-quality assets and portfolios across the office, retail, multifamily, logistics, hospitality, triple net lease, self-storage, student housing, and manufactured housing sectors.
Brookfield has invested roughly 85% of its balance sheet capital across its core office and retail portfolios. The company's core portfolios primarily consist of properties it bought or developed to operate long-term. These assets generate recurring rental income that Brookfield uses to pay its dividend.
The company allocates the other approximately 15% of its capital into LP investment funds. These funds seek to acquire high-quality real estate assets at a discount to their replacement cost or intrinsic value. Brookfield then applies its operational expertise to boost the property's income and value, enabling the funds to sell the assets at a profit. The company typically reinvests these capital gains into new funds, core development projects, acquisitions, and share buybacks.
Brookfield Asset Management provides management services to Brookfield Property Partners and Brookfield Property REIT for a fee. It helps these entities source and finance acquisitions, provides business planning, and supervises day-to-day management and administrative activities. As of the end of June 2020, Brookfield Asset Management held a 52% economic interest in Brookfield Property Partners, which controls 92% of Brookfield Property REIT's outstanding voting shares.
Brookfield Property news
Brookfield Property experienced some turbulence in 2020 due to the impact COVID-19 had on its core office and retail businesses and LP investments. Through the first nine months of the year, FFO and realized property sale gains in its core office portfolio declined from $477 million to $402 million, due in part to a reduced contribution from the parking and retail operations within its office buildings.
Meanwhile, FFO and realized gains in the core retail portfolio decreased from $555 million to $432 million due to falling mall revenues and fee income and rising credit loss reserves and operating expenses.
Finally, FFO and realized gains from LP investments dropped from $326 million to $94 million due to the impact COVID-19 had on its hospitality investments and the property transaction market.
However, while Brookfield Property faced several headwinds in 2020 due to COVID-19, it doesn't expect the pandemic to have a long-term negative impact on its operations. While the market worried that an increase in work-from-home would crush Brookfield's office operations, the company believes offices will evolve, not go extinct. Similarly, the company's malls are adapting to the retail apocalypse by expanding their roles to become places to engage with customers and fulfill online orders. It's also investing to transform them into mini-cities to meet more consumer needs.
Meanwhile, the property market has begun to thaw. After only selling $86 million of assets during the third quarter (Brookfield Property's interest is $63 million), Brookfield and its funds signed deals for $1.845 billion of properties (Brookfield Property's interest is $235 million) early in the fourth quarter, including an office building in London and a self-storage portfolio. Those proceeds will bolster the company's already-strong balance sheet, which consisted of $1.6 billion of cash and $6 billion of total liquidity -- cash and available credit -- at the end of the third quarter.
Brookfield had been using some of its liquidity to repurchase shares in 2020. Brookfield Asset Management launched a buyback program that repurchased 35.5 million of Brookfield Property's shares from the public for $426 million in September. Meanwhile, Brookfield Property bought back nearly 10 million more shares with its parent's help during the third quarter. The company prioritized buybacks due to its belief that the market had significantly undervalued its shares relative to its net asset value (NAV).
In addition to repurchasing shares, one of the primary uses of Brookfield's liquidity is development projects. As of late 2020, the company was in the process of investing $2.665 billion to build nearly 5 million square feet of core office projects in New York, London, Dubai, and Toronto. It also had another $1.778 million in multifamily and other projects in New York and London underway. Meanwhile, it had $459 million of core retail projects under construction to add new retail, entertainment, and residential space at its existing malls and another $361 million of projects on the planning board.
Brookfield Property stock price
While Brookfield Asset Management has an excellent track record of creating value for investors over the years, Brookfield Property has underperformed the market since its spinoff in 2013: