BAM - Brookfield Asset Management

[nspo]

Guys, I'm somewhat new to BAM and the offshoots (BIP, BEP). I'm thinking of the potential acquisition targets in these areas considering the current environment (as I'm sure you are). Which do you see as having the longest runway? Thanks

[Spekulatius]

Anyone heard the “BAM” sound? This could well be a zero. BPY would go first.

[John Hjorth]

<j/k>No sweat</j/k>, Spekulatius,

 

<j/k>OAK would just load up on distressed BAM & subs debt</j/k>. [<- Typing that caused a cerebral hemorrhage.]

 

- - - o 0 o - - -

 

For BAM to fail, the cash flow from operations would have to break to the extent that it sucks up all core liquidity. I'm un-opinionated on the likelihood of that scenario, as like for so many other investments.

[chrispy]

Parts of bam will benefit by percentage gains.  Other parts could explode despite BAM surviving because of the recourse

 

 

[petec]

Anyone heard the “BAM” sound? This could well be a zero. BPY would go first.

 

::)

[Gregmal]

It is my opinion that Icahn is on to something here. Not saying it will happen, but there’s plausible scenarios where stuff like BAM(I nailed the exit here)and SPG(I’m getting annihilated here) become distressed. Who s the buyer then and what happens to the supply/demand equation? Barring a bailout it’s probably not pretty.

[petec]

It is my opinion that Icahn is on to something here. Not saying it will happen, but there’s plausible scenarios where stuff like BAM(I nailed the exit here)and SPG(I’m getting annihilated here) become distressed. Who s the buyer then and what happens to the supply/demand equation? Barring a bailout it’s probably not pretty.

 

My understanding was that his short was focussed on B and C grade malls. I would not have thought that included SPG, at least. Did I miss something?

[Gregmal]

It is my opinion that Icahn is on to something here. Not saying it will happen, but there’s plausible scenarios where stuff like BAM(I nailed the exit here)and SPG(I’m getting annihilated here) become distressed. Who s the buyer then and what happens to the supply/demand equation? Barring a bailout it’s probably not pretty.

 

My understanding was that his short was focussed on B and C grade malls. I would not have thought that included SPG, at least. Did I miss something?

 

No, but you can extrapolate.

 

Its not necessarily the B and C stuff. We all, for a long time have known that. Its not that A is busted now too. Or the retail will go away. But what you do have is a unique situation, where short term, the biggest players are not in positions to play. If they come to market or get forced into dispositions, who's left to buy? My best guess is that there's some sort of government aid that bridges this, but it is a risk that exists and partially why I've cooled a bit on SPG. Although I still own it and have zero intention of selling. Yea, I'm fucking brilliant, timed BX and BAM sells near the highs and bought SPG at 140...but still, short terms vacancies will require further spending, and likely take longer to re-lease. Something I have noticed with C suite guys Ive been speaking with last week or two. No one is doing anything.

[petec]

It is my opinion that Icahn is on to something here. Not saying it will happen, but there’s plausible scenarios where stuff like BAM(I nailed the exit here)and SPG(I’m getting annihilated here) become distressed. Who s the buyer then and what happens to the supply/demand equation? Barring a bailout it’s probably not pretty.

 

My understanding was that his short was focussed on B and C grade malls. I would not have thought that included SPG, at least. Did I miss something?

 

No, but you can extrapolate.

 

Its not necessarily the B and C stuff. We all, for a long time have known that. Its not that A is busted now too. Or the retail will go away. But what you do have is a unique situation, where short term, the biggest players are not in positions to play. If they come to market or get forced into dispositions, who's left to buy? My best guess is that there's some sort of government aid that bridges this, but it is a risk that exists and partially why I've cooled a bit on SPG. Although I still own it and have zero intention of selling. Yea, I'm fucking brilliant, timed BX and BAM sells near the highs and bought SPG at 140...but still, short terms vacancies will require further spending, and likely take longer to re-lease. Something I have noticed with C suite guys Ive been speaking with last week or two. No one is doing anything.

 

No, that I can appreciate. All about how long this lasts, what govt does, and when debt matures.

[Viking]

Now i understand why it was off 20% at one point today... lots of debt and complexity; better hope asset quality is there.

[chrispy]

My concern is - does quality even matter?  Malls in Maryland will be closed for two months.

 

Retailers were already on the ropes and brookfield was betting on redeveloping A malls (spending lots of money).  Their thesis was plausible until a black swan event occurs which shuts down every high occupancy location and people begin to spend all of their money online or hoard it.

 

I believe BAM will survive but I would expect the shape price to be low for quite some time.  No one is getting excited about malls all of a sudden (and i know BAM owns much more then malls).  BAM will also pick up great assets at very cheap prices, and hopefully the Oaktree branch hits a few grand slams.  I am rooting for them

[Shane]

Why can't BPY issue shares to save the business?  Even if it is highly dilutive, would BAM even care?  Yes that own a large chunk of that business, but they would maintain the fees... right?  I am just spit balling.

[petec]

My concern is - does quality even matter?  Malls in Maryland will be closed for two months.

 

Retailers were already on the ropes and brookfield was betting on redeveloping A malls (spending lots of money).  Their thesis was plausible until a black swan event occurs which shuts down every high occupancy location and people begin to spend all of their money online or hoard it.

 

I believe BAM will survive but I would expect the shape price to be low for quite some time.  No one is getting excited about malls all of a sudden (and i know BAM owns much more then malls).  BAM will also pick up great assets at very cheap prices, and hopefully the Oaktree branch hits a few grand slams.  I am rooting for them

 

I think this is broadly right. The risk is that the tenants die, so that rents can’t come back fast even if mall traffic does.

 

My guess is if shutdowns have to last long we will see a LOT of govt intervention to save businesses from bankruptcy. Rent holidays, debt holidays, etc.

[chrispy]

So if retailers have a rent holiday does BPY not receive rents? Does BPY still have to pay their lenders?

[petec]

So if retailers have a rent holiday does BPY not receive rents? Does BPY still have to pay their lenders?

 

It’s highly likely that mall owners will not receive rents when malls are shut. Chile has this experience in late 2019. Either contracts specify this, or malls give rent holidays to help struggling retailers stay alive. I expect they must also come to some agreement while malls are open but footfall is low. It’s in nobody’s interests for all the tenants to go bust at once.

 

That said it’s also in nobody’s interests for all the malls to go bust at once, so I expect their debtors to allow debt service holidays etc.

 

Separately it’s worth remembering that in the weeks before this crisis started, BAM:

1) raised C$600m of 3.5% debt due 2050 to repay C$350m of 5.3% debt due 2021, which bears thinking about, and

2) closed its largest round of flagship funds ever, which they are hopefully in the process of investing.

[Spekulatius]

BPY is levered to the hilt. Their properties are of higher quality, but value you Market to market, them, they would be deep underwater. The stuff from GGP and Forest looked rich before the COVID-19 Crash, but now it’s got to be a real deep whole. Not only are malls empty, which also impact the landlord cash flows a bit, but there are going to be massive bankruptcies in retail which are going to be very hard to fill. I think BPY has doubly twice the leverage of SPG which is scary enough.

 

Then there is the secular trend online shopping which receives a tremendous boost from the current situation. I bet a lotmof e-commerce holdouts will sign up at Walmart and Amazon and the habit formed will cause a permanent shift.

 

This COVID thing is one of the best  things that ever happened to Amazon in terms of creating an external tailwind.

 

Circling back to BPY, it is possible that BAM can amputate BOY and survive, but it would be a massive hit both in terms of BAV, fees and reputation. I think BAM looks really really rich here.

 

OAK was certainly a great purchase for them, but is it enough, Howard Mark Must be regretting selling out, what happens here is  a great environment for them.

[jwelborn93]

This name, along with others in private equity, worry me today.  Working in the industry, all PE firms are focused on risk mitigation within the portfolio today and there are countless companies with high leverage that are at risk of missing covenants.  As a result, I don't think the top priority is taking advantage of the environment (although I'm sure some will be able to).

 

In addition, I've been thinking through how LPs will respond to this environment.  Given public marks have gone down significantly, PE now maintains an even higher percentage of LPs portfolios (marks will certainly come down in Q1, but most likely much less than public comps which is part of the appeal of PE).  Go-forward fund raises will most definitely be less than the past few years. 

[petec]

BPY is levered to the hilt. Their properties are of higher quality, but value you Market to market, them, they would be deep underwater. The stuff from GGP and Forest looked rich before the COVID-19 Crash, but now it’s got to be a real deep whole. Not only are malls empty, which also impact the landlord cash flows a bit, but there are going to be massive bankruptcies in retail which are going to be very hard to fill. I think BPY has doubly twice the leverage of SPG which is scary enough.

 

Then there is the secular trend online shopping which receives a tremendous boost from the current situation. I bet a lotmof e-commerce holdouts will sign up at Walmart and Amazon and the habit formed will cause a permanent shift.

 

This COVID thing is one of the best  things that ever happened to Amazon in terms of creating an external tailwind.

 

Circling back to BPY, it is possible that BAM can amputate BOY and survive, but it would be a massive hit both in terms of BAV, fees and reputation. I think BAM looks really really rich here.

 

OAK was certainly a great purchase for them, but is it enough, Howard Mark Must be regretting selling out, what happens here is  a great environment for them.

 

The marks aren’t to market, they’re to DCF, which won’t change a lot on the back of this.

[petec]

Go-forward fund raises will most definitely be less than the past few years.

 

I doubt the trend of the last decade will change. The assets (especially infrastructure) that BIP specializes in only become more interesting as public markets get more volatile and bond yields fall further. And if inflation picks up they’re the only game in town.

[petec]

Forgot to say, but I think I saw that BPY CEO and CFO bought fairly significant shares at $12 and change recently.

[Shane]

BPY is levered to the hilt. Their properties are of higher quality, but value you Market to market, them, they would be deep underwater. The stuff from GGP and Forest looked rich before the COVID-19 Crash, but now it’s got to be a real deep whole. Not only are malls empty, which also impact the landlord cash flows a bit, but there are going to be massive bankruptcies in retail which are going to be very hard to fill. I think BPY has doubly twice the leverage of SPG which is scary enough.

 

Then there is the secular trend online shopping which receives a tremendous boost from the current situation. I bet a lotmof e-commerce holdouts will sign up at Walmart and Amazon and the habit formed will cause a permanent shift.

 

This COVID thing is one of the best  things that ever happened to Amazon in terms of creating an external tailwind.

 

Circling back to BPY, it is possible that BAM can amputate BOY and survive, but it would be a massive hit both in terms of BAV, fees and reputation. I think BAM looks really really rich here.

 

OAK was certainly a great purchase for them, but is it enough, Howard Mark Must be regretting selling out, what happens here is  a great environment for them.

 

BAM's fee from BPY is based on market capitalization. BPY can dilute itself to finance the short-term and maybe even fund the redevelopment...  I think the legal structure is brilliant.  Yes BAM owns a meaningful portion of BPY... but it won't be that impactful.

 

Am I missing something?  Given what I said - why are you so worried for BAM?

[bearprowler6]

An update from the Brian Kingston, CEO of Brookfield Properties:

 

https://bpy.brookfield.com/~/media/Files/B/Brookfield-BPY-IR-V2/letters-to-unitholders/2020/bpy-covid-19-ltu.pdf

 

 

[Spekulatius]

BPY is levered to the hilt. Their properties are of higher quality, but value you Market to market, them, they would be deep underwater. The stuff from GGP and Forest looked rich before the COVID-19 Crash, but now it’s got to be a real deep whole. Not only are malls empty, which also impact the landlord cash flows a bit, but there are going to be massive bankruptcies in retail which are going to be very hard to fill. I think BPY has doubly twice the leverage of SPG which is scary enough.

 

Then there is the secular trend online shopping which receives a tremendous boost from the current situation. I bet a lotmof e-commerce holdouts will sign up at Walmart and Amazon and the habit formed will cause a permanent shift.

 

This COVID thing is one of the best  things that ever happened to Amazon in terms of creating an external tailwind.

 

Circling back to BPY, it is possible that BAM can amputate BOY and survive, but it would be a massive hit both in terms of BAV, fees and reputation. I think BAM looks really really rich here.

 

OAK was certainly a great purchase for them, but is it enough, Howard Mark Must be regretting selling out, what happens here is  a great environment for them.

 

BAM's fee from BPY is based on market capitalization. BPY can dilute itself to finance the short-term and maybe even fund the redevelopment...  I think the legal structure is brilliant.  Yes BAM owns a meaningful portion of BPY... but it won't be that impactful.

 

Am I missing something?  Given what I said - why are you so worried for BAM?

 

I am not worried because I don’t own it. They deserve all the praise the get, if they navigate this.

 

Structures like this have imploded before. They require very astute management. One example:

https://en.wikipedia.org/wiki/Babcock_%26_Brown

[Xerxes]

I own BAM for some years now + all of its subs except for BPY.  :P

I could be next !

 

 

[petec]

An update from the Brian Kingston, CEO of Brookfield Properties:

 

https://bpy.brookfield.com/~/media/Files/B/Brookfield-BPY-IR-V2/letters-to-unitholders/2020/bpy-covid-19-ltu.pdf

 

Not sure whether I find that reassuring (covenants) or terrifying (lack of answers re retail tenants).