Skip to main content

How Healthy Is Retail For Brookfield Property Partners?

Brookefield Property Partners (BPY) derives roughly 60% of its FFO from retail locations. Given the current retail environment, this area should be a cause for concern for investors. In its latest earnings call, BPY stated that their retail properties saw 5.3% same property revenue growth and a 20% increase in new lease prices when compared to expiring leases. The numbers sound promising, but could potentially be misleading.

The 20% increase in new lease price is compared to expiring leases, but ‘expiring leases’ does not paint a very clear picture. It is possible that the leases expiring were long term leases with outdated conditions for lease adjustment, making the lessee’s payment well below market value. If the lease payments are increasing 20% from well below market value, it does not represent the explosive growth in retail that the measure would first lead you to believe, granted it is still positive for BPY, but not nearly to the same extent. While this scenario is unlikely, it is entirely possible for a struggling company to use this to keep investors optimistic.

The purpose of this demonstration is to say that metrics with extremely nebulous comparisons do not provide as clear a picture as one might hope. Statistics are often viewed as infallible, however they can be manipulated to paint a rosier picture. The key is to look for clear metrics in which it is easily understood where the numbers are drawn from.  An example would be when management cited a 1% growth rate in retail tenant sales year over year. This growth rate demonstrates a much clearer image of the health of their retail segment. The growth in retail sales is simply not there, which could mean that demand for property could soon follow the slowing growth trend.


As you can see, these different metrics convey two completely different narratives regarding the health of their retail division. It is crucial to understand the whole story, rather than fit a convenient stat to a rationale.

Comments

Post a Comment

Popular posts from this blog

The Base Case Is Bullish For HealthSouth

HealthSouth Corporation (Ticker: HLS) operates post-acute rehabilitation centers across the country, with locations more focused in the southern U.S. Their business model is quite simple, they provide physical rehabilitation services based either in their facilities or at an individual’s home. As of December 31, 2014 they acquired Encompass, which broadens their care base to both home health and hospice. Home health provides assistance for individuals at home who require aid in their daily lives, while hospice care is for individuals with terminal diagnoses. HealthSouth’s business model is extremely dependent on their employees, and as a result they have limited economies of scale. Margins are also pretty standard, as Medicare only gives a ‘market basket’ price increase and HealthSouth itself gives their employees an equivalent increase in salary. The business model is extremely dependent on the quality of people they have interacting with and treating patients. HealthSouth unde...
9 comments
Read more

Digi International Makes A Convincing Argument For Growth

  Digi International is a small player in in the internet-of-things and connectivity space. With a market cap of just over $300 million they struggle to compete and innovate with the larger, more well funded companies such as HP. While their core business has been stagnant, they have positioned themselves to launch into an underserved and growing market through 3 small acquisitions. Over the past two years and as recently as January 2017, Digi has acquired Bluenica, Freshtemps and Smart Temps. Combined with Digi’s hardware manufacturing and cloud based platforms, their ‘Digi Cold’ suite of products allows restaurants, pharmacies, grocery stores and food services to remotely and automatically monitor the temperature of their cold storage. The current food safety procedure requires the aforementioned industries to physically check the temperature of their fridge or food, record it by hand on a piece of paper and then upload it to a spreadsheet or similar form of data stor...
2 comments
Read more

Setup For A Correction?

Today we are seeing volatility return to the market. As I write, the S&P 500 and Dow are down 2.08% and 2.39% respectively. Over the past week the VIX has risen over 40%, coming off of a period of historically low closes. While today is exciting, the real story will be told when the markets re-open on Monday. The setup today feels like a familiar story in this historic bull-run. An unforeseen political action, in this case the release of the GOP Surveillance memo, followed by a subsequent decline in the markets. Historically, shares have shown to be resilient; recovery from the surprise Brexit vote took less than 2 weeks for the S&P 500.   The term ‘buy the dip’ has come to characterize our current market. Moving towards the close today and during the open on Monday we will see if the sentiment for buying these pullbacks has shifted. Over the past week I have read second hand reports of brokers having difficulty selling volume in the market. In other wo...
1 comment
Read more