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  5. BPY.UN: I had bought BPY for a number of reasons including the eventual return of mall traffic, the fact that it had room to run to get near to its pre-covid price, the dividend and then of course, having ... [Brookfield Property Partners L.P.]
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Q: I had bought BPY for a number of reasons including the eventual return of mall traffic, the fact that it had room to run to get near to its pre-covid price, the dividend and then of course, having Brookfield management behind it. The closest replications I can find are Simon Property Group and SRU in the U.S. and Canada respectively. Can you speak about their payout ratio and management quality, and especially their main risks in the medium term. Thank-you.

Asked by Alex on January 13, 2021
5i Research Answer:

SPG management has a decent reputation, though we do not know them personally. The stock is very cheap on a cash flow valuation (9X), due to the issues in the retail sector. Growth is very low: even with a 2021 recovery per share cash flow is going to be less than it was five or six years ago. 12-month payout ratio is 75% (distribution was cut in February). SRU management we think is quite good, though again, there is the sector concern. It is 10X cash flow, payout is 66%. The last distribution change (small increase) was Sept 2019. It had an OK 2020 but a small decline in cash flow is forecast for 2021. The main risks are interest rates, occupancy, investors' aversion to the sector and weakening asset prices as the world abandons the typical retail model. On the other hand, the end of the pandemic should see traffic and occupancy pick up, or at least make tenants more secure. We would view both as 'OK' but neither as particularly enticing.