BPR - Brookfield Property REIT

[ValueMaven]

How can Brookfield Property REIT (BPR) share an 'identical economic interest' as Brookfield Property Partners (BPY), yet BPY's assets are 'GGP only', while BPY's assets are 'Diversified' ???  I do not understand the pro forma BPR structure, but am very interested.  It looks like due to US REIT rules, BPR will be made up of 40% of GGP and 60% of BPY.  Does anyone have additional thoughts here?

 

VM

[John Hjorth]

Valuemaven,

 

Ref. your post in the BAM topic about BRP [here, with my editing]:

 

So for us that HATE K1's here in the States...this is the one to own then..

 

'Brookfield Property REIT (NASDAQ: BPR) (“BPR”) is a subsidiary of BPY, intended to offer investors economic equivalence to BPY units but in the form of a U.S. REIT security. Dividends on BPR shares are identical in amount and timing to distributions paid out for BPY units, and BPR shares are exchangeable on a 1:1 basis for BPY units or their cash equivalence.'

 

i understand it, as BPR's capital is 100 percent allocated to GGP.

 

In that light your comment:

 

... It looks like due to US REIT rules, BPR will be made up of 40% of GGP and 60% of BPY. ...

 

becomes a bit confusing to me. Personally, I understand it that way, that any BPR investor [still owning - now indirectly via BPR - only GGP] now has the option to swap one share of BPR with one partnership unit of BPY at any time, thereby creating a floor [effective, or not - depending on how GGP evolves going forward relative to BPY] under the BPR share price.

 

Edit:

 

So, in short, I personally think of it this way: Any potential [net] upside of the future transformation of the GGP real estate is equally [pro rata, by capital invested] distributed among owners of BPY & BPR, while any potential [net] downside on this GGP transformation solely relies on the shoulders of the BPY owners, because of the standing swap option granted to the BPR owners.

 

In short: It better work out! [Posted as a BAM owner.]

 

- - - o 0 o - - -

 

I may have understood this thing wrong, though.

 

- - - o 0 o - - -

 

Edit 2: Fixed ticker for BPR.

[ValueMaven]

I think I get it...I guess. 

 

I think i'll just own BAM ... but the yield on BRP is nice, and I think some US REIT managers might start buying this which may force it higher.  Also, does anyone have an NAV estimate on BPY?  BAM filings saying that 'analyst estimates of NAV equate to ~$29'

[racemize]

I think I get it...I guess. 

 

I think i'll just own BAM ... but the yield on BRP is nice, and I think some US REIT managers might start buying this which may force it higher.  Also, does anyone have an NAV estimate on BPY?  BAM filings saying that 'analyst estimates of NAV equate to ~$29'

 

IFRS values should approximate NAV. Sales on average have been above IFRS. I personally think BPY is extremely cheap right now.

[Fairfaxnut]

I think I get it...I guess. 

 

I think i'll just own BAM ... but the yield on BRP is nice, and I think some US REIT managers might start buying this which may force it higher.  Also, does anyone have an NAV estimate on BPY?  BAM filings saying that 'analyst estimates of NAV equate to ~$29'

 

They won't post this til Q3 but guessing with the 110 million units issued for GGP (along with the 160 million BPR class A's) puts their units outstanding at around ~970 million.  That puts your NAV in the ballpark.

[John Hjorth]

Please fix the ticker in you starting post, ValueMaven. [ : - ) ]

[John Hjorth]

... They won't post this til Q3 but guessing with the 110 million units issued for GGP (along with the 160 million BPR class A's) puts their units outstanding at around ~970 million.  That puts your NAV in the ballpark....

 

Fairfaxnut,

 

What's your basis & source for your preferred shares numbers here?

[John Hjorth]

IFRS values should approximate NAV. Sales on average have been above IFRS. I personally think BPY is extremely cheap right now.

 

I agree here, Joel. Personally, I have to play this through BAM only, unfortunately, so far. Yes, could buy BPR right now, but BAM asset management income going forward makes the difference.

[ValueMaven]

Ticker Fixed :)

 

 

[John Hjorth]

Thanks, ValueMaven,

 

[Pretty annoying before fix, when one search.]

[Spekulatius]

IFRS values should approximate NAV. Sales on average have been above IFRS. I personally think BPY is extremely cheap right now.

 

I agree here, Joel. Personally, I have to play this through BAM only, unfortunately, so far. Yes, could buy BPR right now, but BAM asset management income going forward makes the difference.

 

I believe buying BAM is the right way to play this, based on the similarity of the GP/ LP structure with Limited partnerships. I stated this before, but BAM is the entities who gets the cream on top, assuming this goes well. If it doesn’t go well, neither BPY, BPR or BAM is a buy anyways.

[chrispy]

Additionally to what others said, I think over 50% of BAM's assets in their listed entities is in BPY/BPR.

 

BIP and BBU are the intriguing shares for me and have less of a relative impact on BAM.

[racemize]

It’s worth noting that BAM marks BPY at book value, not market price, in its calculations, thus an increase in BPY share orice has little impact there (although the market may view this differently). So, yes, it will help BAM have more fees, but if BPY is actually 40% too cheap, it returning to normal discounts and the yield would be much better for BPY holders than BAM. I own everything but BEP at various position sizes, BPY being a more temporary one.

[John Hjorth]

Thank you for sharing your view on BAM vs. BPY right now, Joel.

 

Today I found this elaboration of the standing one-way BPR->BPY share/unit swap option attached to each BPR share on the BPR subsection of the Brookfield website:

 

Brookfield Property REIT Class A (“BPR”) shareholders can exchange their shares for Brookfield Property Partners LP (“BPY”) units or their cash equivalence on a 1-for-1 basis. Please note the exchange may take up to 10 days and is based on a mandatory minimum of 1,000 BPR shares being tendered for exchange or the entire investor position, whichever is lower. For more information, beneficial BPR shareholders should contact their broker for instructions while registered BPR shareholders can contact AST Financial by phone at 800-937-5449 / 718-921-8124 or email help@astfinancial.com. In addition, registered BPR shareholders can submit an exchange request online via the link below: <link omitted, John>

[John Hjorth]

I posted this in the BAM topic yesterday, and had an exchange with LongTermView and Mike [cubsfan] about it :

 

I don't ride the same day as I saddle with this thingy - I still need to get a better understanding of the whole BAM system on the go [please feel free to call it trial and error method, if you want].

 

From what has been discussed in this topic, and also covered in news releases etc. from BAM & BPY, the GGP deal is to some extent critical to the success of BPY [short/mid term, I think]. In short, it's a large transaction [& bet], and the to-do list is complicated, and long. Add to that the special BPR company structure, which I have tried to dive into today, to get a better understanding of that structure and it's financial standing.

 

I can't find any 2018Q3 10-Q for BPR as of now on the SEC website to study the structure. I can only find this BPR 8-K. [Which by the way is absolutely rubbish to me.]

 

Honestly, is this all we get to look at for this thing called BPR? -I mean, it's a listed entity [for the sake of Christ].

 

I forgot that we had this seperate topic about BPR, so I'm reposting my question here, including my own findings below.

 

There is a fairly good overall explanation of it in the BPY 2018Q3 Supplemental Quarterly Report [note 3], and BPR released its 2018Q3 10-Q yesterday. More technical details of the merger are described in this BPR 8-K/A, also of yesterday.

 

Edit: Those documents have been released after I posted the question quoted above. [As if I'm not carpet bombed with e-mail notifications from the Brookfield companies in the first place! ...]

[Spekulatius]

How do folks feel about Th extremely high debt load of BPY/BPR. 12.6x EBITDA leverage is two times the typical leverage of a REIT. I acknowledge that BAM is smart about how they structure the debt at their subs but I consider high levels if debt always risky.

 

I wouldn’t touch a 12.6x leveraged REIT with a 10 foot pole.

[Viking]

How do folks feel about Th extremely high debt load of BPY/BPR. 12.6x EBITDA leverage is two times the typical leverage of a REIT. I acknowledge that BAM is smart about how they structure the debt at their subs but I consider high levels if debt always risky.

 

I wouldn’t touch a 12.6x leveraged REIT with a 10 foot pole.

 

Speculatius, i recently looked at BPR and the level of debt kept me away. The discount the market is currently applying to the shares of BPR is surprising. It would not surprise me to see some clarity from BAM in the coming year regarding BPR (to deal with the debt and/or the discount to unit prices).

 

I do own BAM (purchased in late Dec). i am looking forward to following management more closely, given their stellar reputation.

[chrispy]

It is quite high. You won't hear anyone disagreeing.

 

I believe management has said about 30 of the lowest quality GGP malls are up for sale. An article just came out about a Florida resort up for sale but not sure if it's under the BPY umbrella.

 

BPY has talked about how they will be receiving their capital plus appreciation from early BAM property funds. This isn't accounted for in the typical leverage ratios. I haven't verified the impact of this one.

[Spekulatius]

It is quite high. You won't hear anyone disagreeing.

 

I believe management has said about 30 of the lowest quality GGP malls are up for sale. An article just came out about a Florida resort up for sale but not sure if it's under the BPY umbrella.

 

BPY has talked about how they will be receiving their capital plus appreciation from early BAM property funds. This isn't accounted for in the typical leverage ratios. I haven't verified the impact of this one.

 

Their goal is to reduce the leverage from 12.6x pro forma to 10.5x, which is still very high. The high IRR achieved in their funds is tpduento leverage. It appears that they put about 1/3 down in equity in a typical fund and the rest from mortgage debt.

 

I also noted that the yield on capital for their development projects is often around 6-7%. That works when cap rates are 4.5% as they are currently in premier cities, but when they go up.....

 

It is clear to me why BPY trades at a discount to NAV - outside investors put a discount on the value markets from BPY ( or demand higher cap rates, same thing ) And with the huge leverage, this translates into to a significant discount to NAV. Reducing the leverage would probably close the discount to NAV, but then that’s not great for BAM since they would get lower fees from a smaller asset base.

https://bpy.brookfield.com/~/media/Files/B/Brookfield-BPY-IR/IR%20Day/2018/BPY%202018%20Investor%20Day%20Presentation%20Final%204.pdf

[peterHK]

It is quite high. You won't hear anyone disagreeing.

 

I believe management has said about 30 of the lowest quality GGP malls are up for sale. An article just came out about a Florida resort up for sale but not sure if it's under the BPY umbrella.

 

BPY has talked about how they will be receiving their capital plus appreciation from early BAM property funds. This isn't accounted for in the typical leverage ratios. I haven't verified the impact of this one.

 

Their goal is to reduce the leverage from 12.6x pro forma to 10.5x, which is still very high. The high IRR achieved in their funds is tpduento leverage. It appears that they put about 1/3 down in equity in a typical fund and the rest from mortgage debt.

 

I also noted that the yield on capital for their development projects is often around 6-7%. That works when cap rates are 4.5% as they are currently in premier cities, but when they go up.....

 

It is clear to me why BPY trades at a discount to NAV - outside investors put a discount on the value markets from BPY ( or demand higher cap rates, same thing ) And with the huge leverage, this translates into to a significant discount to NAV. Reducing the leverage would probably close the discount to NAV, but then that’s not great for BAM since they would get lower fees from a smaller asset base.

https://bpy.brookfield.com/~/media/Files/B/Brookfield-BPY-IR/IR%20Day/2018/BPY%202018%20Investor%20Day%20Presentation%20Final%204.pdf

 

Assets that trade at cap rates that are as high as BPY's, will ALWAYS look expensive on debt/EBITDA or interest coverage because you're financing them 60% with debt on a top rated stable asset that is worth a lot, but doesn't generate a lot of cash. So you have to look at debt/NAV or debt relative to their asset value, not debt to an income measure.

 

The income measure is worrying because a lot of their debt is floating today, but as they term that out, turn construction loans (they have over 1mn sqft under construction) which are floating into fixed 30 year mortgages, that debt/income/EBITDA etc. number becomes less and less meaningful.

[saltybit]

Barron's article this week:

Brookfield Property: Hot Property, Cool Price

https://www.barrons.com/articles/brookfield-property-has-a-world-class-portfolio-of-city-towers-and-malls-and-the-price-is-tempting-51549069201

 

In case you don't have a subscription:

https://outline.com/SXCD7c

[CorpRaider]

Throw away line about the "expensive external management structure" is the critical factor for me.  That and cashiering/hard-balling the minority investors in GGP, but I guess they had an option to receive at least a portion in stock.

[saltybit]

https://bpy.brookfield.com/en/press-releases/2019/02-07-2019-123149958

 

Dividend raise and buyback announced.

 

[saltybit]

In addition, the Partnership announced its intention to launch a Substantial Issuer Bid (“SIB”) to repurchase up to an aggregate of $500 million of BPY units and Class A shares of Brookfield Property REIT Inc. at a price of at least $19.00 per unit but not more than $21.00 per unit.

—

Does anyone know why there’s a price floor ($19) for the buyback. Isn’t it even better to buy back if it’s < $19?

[plato1976]

Does anyone still think BPY won't cut its dividend?

It's close to 20% now...

 

https://bpy.brookfield.com/en/press-releases/2019/02-07-2019-123149958

 

Dividend raise and buyback announced.