BAM - Brookfield Asset Management

[menlo]

I believe this one used to be followed on this board, but my search didn't turn up anything of note (recently - and my apologies if I missed something).  I'm curious if anyone owns it or has it on a watch list.

 

According to the various presentations at their website, it trades at a 20-30% discount to NAV.  IF Europe doesn't fall apart, and IF China has a soft landing (or no landing...), and IF the latest US PPI number shows some follow-through (up 0.8% in September), then their global hard/real asset approach might garner some interest going forward.  And now that I think about it, IF Europe falls apart, that might be an opportunity for them to pick up distressed assets.

 

Any thoughts are most welcome - I think the 3rd Avenue Fund group likes the company, and their quarterly reports might have additional detail, too.

[augustabound]

IF Europe falls apart, that might be an opportunity for them to pick up distressed assets.

 

Any thoughts are most welcome - I think the 3rd Avenue Fund group likes the company, and their quarterly reports might have additional detail, too.

 

Yes, and yes.  They'll be buyers if things get cheap.

 

I'm currently going through all Third Avenue letters to find mention of BAM since they first bought Brascan around 2000.  So far, each letter just mentions how cheap Brascan/Bam is on an adjusted NAV basis.

Their Third Avenue real estate fund has held Brookfield Properties as long, if not longer than the value fund has held Bras/BAM.  But still, only mentions of trading at cheap relative to adjusted NAV. 

 

From what I can tell, and please someone correct me if I'm wrong, TA version of adjusted NAV is basically a tangible book value unless the footnotes show any hidden liabilities like leases etc.  Uncle Marty Whitman has said many times that inventories can be a long term fixed asset (as in retail) but that doesn't really apply to BAM. 

(That was another reason I've been going through every letter, including the other TA funds, was to find out their version of NAV. 

[beerbaron]

There is some mention by Whitman about BAM in the following video collections.

 

http://www.bengrahaminvesting.ca/Resources/videos.htm

 

BeerBaron

[augustabound]

There is some mention by Whitman about BAM in the following video collections.

 

http://www.bengrahaminvesting.ca/Resources/videos.htm

 

BeerBaron

 

I forgot about the resources there, thanks for the link.

 

Also forgot to mention, I started looking at BAM again after seeing a thread here about someones question about the future capital allocators and Bruce Flatt of BAM was suggested by a few people.

[dwy000]

You might want to check some of the Bruce Berkowitz discussions as well.  He holds a big position and has had some favorable things to say about them, especially with respect to their role in the GGP restructuring.

[mranski]

This investor writes about BAM in his newsletters. I have found it quite useful, plus other commentary is good.

 

http://www.tiddcapital.com/

 

 

[augustabound]

Finally, a catalyst for Brookfield?

 

[thepupil]

I own Brookfield Asset Management. I highly recommend reading their supplemental for 2011

 

http://www.brookfield.com/content/financial_reports/supplemental_information-86.html

 

Also read their most recent shareholder letter. As the author of the above link points out BAM suffers from asset complexity but is making moves to change that by consolidating its holdings into flagship public entities, which hopefully will re-rate the stock.

 

The bull case for BAM is you are buying a "discounted" portfolio of best in breed infrastructure assets that provide some level of inflation protection and high IRR through non recourse single asset leverage.

 

I put discounted in quotations because in order to get comfortable with owning BAM you have to get comfortable with the prices currently being paid for trophy office real estate in the USA, Canada, and Australia. This is the biggest risk to BAM, in my opinion. Their internally calculated NAV (which is detailed quite nicely in the supplemental) is dependent upon cap rates in the 5-6% range.

 

As interest rates have declined and the desire for hard assets and yields has increased (REIT valuations are historically high, for example), much of BAM's earnings have been derived from revaluation of its portfolio at lower rates and higher prices, so buying BAM at 11X earnings includes a large component of "unrealized appreciation" in the earnings component.

 

I think Brookfield's management is top-notch, their asset quality is very high (ie World Financial Center), and they are conservatively capitalized at the corporate level, but the margin of safety in buying assets at a discount could disappear in a world in which capitalization rates rise to higher than historically low levels. Also they are heavily invested in commodity driven economies (Australia, Canada, Brazil) so you are also investing in the commodities supercycle/China/emergin markets story, which I think carries significant risks

 

All that being said, I think BAM is one of the more intelligent ways to invest in trophy real estate and infrastructure

 

I have been working on a valuation model but haven't gotten around to it because I work a lot and investing is my hobby... but here is a basic list of what BAM owns  :

 

Stakes in Publicly traded corps

Brookfield Office Properties

Brookfield Office Canada

General Growth Properties

Brookfield Renewable Energy

Brookfield Infrastructure Partners

Brookfield Residential Properties

Acadian Timber

Brookfield Real Estate Services

 

Other Assets

Corporate Cash

Canary Wharf Group 22% Interest

Brazilian Retail Properties (35% Owned Private Fund)

 

 

The 22% interest in Canary Wharf Group is a nice hidden asset.

 

 

 

 

 

 

 

 

 

[thepupil]

also of use : http://www.brookfield.com/_Global/1/img/content/File/Investor%20Relations/2011%20Brookfield%20IR%20Day%20-%20Sept.27%20Final.pdf

[jeffmori7]

For those interested by Brookfield, here is a nice summary of their activities and their roadmap for the next ten years :

 

https://www.brookfield.com/_Global/42/img/content/File/Investor%20Relations/Presentations/2012/F_2012_BAM_IR_Day_October_11.pdf

 

 

And here is the latest letter to shreholders for the Q3, where Flatt speaks again about their position on GGP and the whole affair with Ackman :

 

http://www.brookfield.com/_Global/42/documents/relatedlinks/5140.pdf

[savant]

WOuld anyone have access to Brookfield's historical annual reports / shareholder letters? ARs on the Brookfield website only go back to 2005.

 

Thanks

[augustabound]

WOuld anyone have access to Brookfield's historical annual reports / shareholder letters? ARs on the Brookfield website only go back to 2005.

 

Thanks

 

Pre-2005 they were Brascan.

http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00002413

They only seem to show 1997-2004.

[savant]

WOuld anyone have access to Brookfield's historical annual reports / shareholder letters? ARs on the Brookfield website only go back to 2005.

 

Thanks

 

Pre-2005 they were Brascan.

http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00002413

They only seem to show 1997-2004.

Thank you sir

[biaggio]

http://www.canadianinsider.com/node/7?ticker=BAM

 

Bruce Flatt just bought almost 1.5 million shares.

 

 

[bargainman]

looks like he bought them from Kerr, David Wylie:

 

"He has been a Director of Brookfield Asset Management Inc., (formerly Brascan Corp.) since May 1987. "

 

It's odd though.. why does that page show both a buy and a sell of 9,609,554 to/from Flatt?

 

Any idea?

[PlanMaestro]

Brookfield Faces Bribery Charges in Brazil

http://online.wsj.com/article/SB10001424127887323807004578286104086711588.html?mod=WSJ_RealEstate_MiddleBuckets1

[giofranchi]

Q4 2012 and full year results are out.

Please, see files in attachment.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

BAM_Q4_2012_Letter_to_Shareholders.pdf

News_Release_BAM_Q4_2012.pdf

BAM_Q4_2012_Financials.pdf

[giofranchi]

Find in attachment the full transcript of the Q4 2012 Conference Call.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

BAM-Q4-2012-Conference-Call.pdf

[giofranchi]

 

Brookfield Renewable Succeeds in Bid for Western Wind

 

http://www.marketwire.com/printer_friendly?woid=855163&segid=6

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[Yours Truly]

Anyone look into the upcoming spin-off consisting of BAM's commercial RE?

[premfan]

I'm liking how BAM is getting fixed LTD. Its sort of like a hedge against inflation. I should investigate BAM some more.

[giofranchi]

A new article on Seeking Alpha about BAM:

 

http://seekingalpha.com/article/1224491-brookfield-a-wealth-creation-machine?source=email_rt_article_title

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[giofranchi]

Two worrisome articles on BAM.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

brookfield-asset-management-seeking-alpha-11mar2013.pdf

the-paper-world-of-brookfield-asset-management.pdf

[WhoIsWarren]

Two worrisome articles on BAM.

 

giofranchi

 

Gio, thanks for posting these.

 

Worrisome is a good word to use in my opinion as, while I am inclined to temper the tone of both articles, nevertheless they raise a flag or two.

 

Regarding the "Second Wave" article, without knowing the full facts (which we'll probably never know), it would appear that the author is venting frustration at the poor share price over the last year or so.  Brookfield may have been fully justified in calling off a sale of the asset based on a "good faith" assessment by management of its long-term worth.  That the share price is (greatly) lower today could simply be a combination of changed facts in the intervening period plus a depressed Mr. Market, or perhaps just a mistake!  I would add too that Brookfield's Private Equity Group has an excellent long term track record and is motivated to generate long-term value for its investors.  Now if Brookfield was trying to engineer it so that Second Wave will ultimately be forced into bankruptcy (allowing Brookfield to pick up the pieces on the cheap), well that's a different story.  If anyone has evidence of the latter I would be very interested to hear about it.

 

As for the "Paper World" article, the author has obviously done a lot of work and has highlighted some "worrisome" issues.  However, I think it's a pity that he decided to take such a definite negative line of argument throughout the article, because it just looks like he's got an axe to grind (company said considering legal action would do that to you I suppose).  Anyone who's studied the Brookfield / Brascan / Edper story will know it has a history of wanting control for limited capital (Jack Cockwell, current board member and the driving force behind the group from the 70s through to the early 2000s, was the brains behind this strategy).  So the accusation of a pyramidal control structure, is well, about 40 years old.

 

The focus on the lack of cash flow relative to net profit, particularly in the last 3 years, is just too myopic in my opinion.  Net profit / total return is simply the amount that flows through the P&L to the balance sheet / intrinsic value of the company.  In assets such as real estate / infrastructure etc., cash flows do not typically reflect an increase or decrease in value.  If Brookfield buys a distressed asset on a 10% yield and a year later it's yielding 5%, with no change in cash flows, does this indicate a paper world in a sinister sense?  In my view, the pertinent questions are: can the company fund its obligations (mainly interest as capex tends to be minimal), how predictable are its cash flows and obligations and for how much could the company sell its assets, given a reasonable amount of time to find buyers.  As a reminder, management believes both book value and its estimate of intrinsic value are understated versus what it could achieve in an orderly wind-down of the company.

 

The author does however raise some interesting points about BIP and BREP, the infrastructure and renewable energy businesses, which I admit I haven't looked at in as fine a detail as BAM.  For instance, the renegotiation of the two power purchase contracts with related parties.  And they are playing silly games by suggesting that Trevor Eyton is independent, because he most certainly is not!

 

Neither do I much like that Brookfield decided to go down the legal route with the author.  Without knowing the specifics of this case, Brookfield has a history of secrecy and are prone to aggression when questioned about their integrity.  From Peter Bronfman to Jack Cockwell and then to Bruce Flatt, everything that I've read about them would support the view that Brookfield's culture is one of hard work and high integrity, although there's no denying that for many years they've pushed the "maximum control, limited capital" strategy aggressively, which a lot of people may not ever be comfortable with.

 

Bottom line: do you trust management to "do the right thing"?  I do.

 

Thoughts?

 

[ShahKhezri]

Paperworld is the reason why I never got comfortable with BAM.  It was way too difficult for me to put my arms around it and just say "look at the P/B, look at the jockey, get comfortable"

 

So many entities, complicated org structure, lots of financial engineering. 

 

I'm not saying it's a fraud, just very difficult to invest for me not knowing all the moving parts.  MKL has family connections though, so they got comfortable.