BAM - Brookfield Asset Management

[petec]

 

I have written far too much, for someone with no position  ;D

 

Keep it up please! Always good to be questioned.

[villainx]

Y'all want me to liquidate!

[TwoSigma]

Thanks for the comments guys.  I'm in the industry and honestly its been hard for me to find people that follow Brookfield.  I actually first came across BIP several years ago at an MLP conference.  I think my sales coverage essentially begged me to take a meeting with them because no one else wanted to see them.  Knew nothing about them prior to that conference.  So I'm glad to have found a community that follows the Brookfield family of companies.

 

Would love to share some more thoughts here, but getting pretty tied up with my day job!  Will try to post more in the coming days.  In the meantime, I did get a request to share the source data for the Barclays report I referenced in a previous post so I am attaching it here. 

[petec]

BBU and BEP reporter yesterday. Nothing remarkable from BEP. BBU reported April revenues down 40% but only two of their businesses need liquidity support. They don’t have much cash, but they have big lines of credit, and believe they can support their businesses, make new investments, and buy back shares. They have invested $500m in public securities of companies they know well. There is a big disconnect between public and private market prices.

 

The other two horsemen, BIP and BPY, report tomorrow.

[racemize]

BBU and BEP reporter yesterday. Nothing remarkable from BEP. BBU reported April revenues down 40% but only two of their businesses need liquidity support. They don’t have much cash, but they have big lines of credit, and believe they can support their businesses, make new investments, and buy back shares. They have invested $500m in public securities of companies they know well. There is a big disconnect between public and private market prices.

 

The other two horsemen, BIP and BPY, report tomorrow.

 

Yeah, BEP seemed pretty rosey.

 

Very curious if BIP holds up like they said in the investor day.

 

BPY is basically just hoping it's not the worst news...

[petec]

BBU and BEP reporter yesterday. Nothing remarkable from BEP. BBU reported April revenues down 40% but only two of their businesses need liquidity support. They don’t have much cash, but they have big lines of credit, and believe they can support their businesses, make new investments, and buy back shares. They have invested $500m in public securities of companies they know well. There is a big disconnect between public and private market prices.

 

The other two horsemen, BIP and BPY, report tomorrow.

 

Yeah, BEP seemed pretty rosey.

 

Very curious if BIP holds up like they said in the investor day.

 

BPY is basically just hoping it's not the worst news...

 

Ha. Quite.

 

If BIP and BPY make it through unscathed it will be a huge feather in BAM's cap. I can't imagine a bigger stress test for their highly-levered but non-recourse structure. (Well actually I can - a deflationary depression with no government help - but that seems unlikely given that politics has shifted comprehensively away from sound money towards government intervention.)

[chrispy]

Brookfield Aims to Spend $5 Billion to Shore Up Troubled Retailers

 

https://www.wsj.com/articles/brookfield-aims-to-spend-5-billion-to-shore-up-troubled-retailers-11588865434?mod=article_inline

[racemize]

Brookfield Aims to Spend $5 Billion to Shore Up Troubled Retailers

 

https://www.wsj.com/articles/brookfield-aims-to-spend-5-billion-to-shore-up-troubled-retailers-11588865434?mod=article_inline

 

There's a creative way to save BPY using fund's money. 

[petec]

Smart!

[fareastwarriors]

Brookfield Aims to Spend $5 Billion to Shore Up Troubled Retailers

 

https://www.wsj.com/articles/brookfield-aims-to-spend-5-billion-to-shore-up-troubled-retailers-11588865434?mod=article_inline

 

no pay wall.

 

 

 

Mall owner Brookfield will spend $5 billion to save retailers

https://www.cnbc.com/2020/05/07/mall-owner-brookfield-will-spend-5-billion-to-save-retailers.html

 

.

 

Canada's Brookfield plans to invest $5 billion in struggling retailers

https://www.reuters.com/article/us-brookfield-asset-retailers-investment/canadas-brookfield-plans-to-invest-5-billion-in-struggling-retailers-idUSKBN22J2UA?il=0

[petec]

https://bam.brookfield.com/press-releases/2020/05-07-2020-170025385

[Gregmal]

While I have no position here anymore, I mentioned this on the SPG thread; the only logical way forward, especially with significant deferred and abated rents, is equity stakes. The major players could literally come out of this owning decent sized chunks of a high percentage of the usual mall occupants. Thats how you compete against Amazon. Amazon takes a % of sales from people on their platform, and now you'll have the physical location equivalent in many cases. Will be interesting for sure.

[Xerxes]

They don’t have much cash, but they have big lines of credit, and believe they can support their businesses, make new investments, and buy back shares.

 

I don't know … this doesn't sound good

not much cash but looking for buybacks

[petec]

While I have no position here anymore, I mentioned this on the SPG thread; the only logical way forward, especially with significant deferred and abated rents, is equity stakes. The major players could literally come out of this owning decent sized chunks of a high percentage of the usual mall occupants. Thats how you compete against Amazon. Amazon takes a % of sales from people on their platform, and now you'll have the physical location equivalent in many cases. Will be interesting for sure.

 

Sure. But much smarter to take those equity stakes with OPM and charge them fees into the bargain.

[K2SO]

Brookfield Aims to Spend $5 Billion to Shore Up Troubled Retailers

 

https://www.wsj.com/articles/brookfield-aims-to-spend-5-billion-to-shore-up-troubled-retailers-11588865434?mod=article_inline

 

So the money goes in a circle.

 

Does this remind anyone else of Nortel's infamous "vendor financing" tactics back in the day?  It's not quite as blatant but not terribly far off.

 

[TwoSigma]

I guess could structure something like with what BAM has with BEP.  I think BEP's biggest customer is actually BAM, which has a power purchase agreement with certain of BEP's assets/subsidiaries.  Perhaps BAM could become BPY's tenant and re-lease the space to retailers...taking some equity for a preferential lease rate.

[Spekulatius]

I guess could structure something like with what BAM has with BEP.  I think BEP's biggest customer is actually BAM, which has a power purchase agreement with certain of BEP's assets/subsidiaries.  Perhaps BAM could become BPY's tenant and re-lease the space to retailers...taking some equity for a preferential lease rate.

 

If owning real estate is what distinguishes the winner from the loser, Macy’s or Sears would never been in trouble.

 

BAM is basically doubling down on bricks and mortar retailing here.

 

My thinking is that the crisis is an accelerant for secular change. Sure, most people will go back into malls eventually, but some may just go less or stay away entirely. I if sales /sqft  are going to be permanently reduced by 10% for example , it will probably reduce the EV by 20% or if you are levered 50% equity/ 50% debt, you equity aus worth 40% less.

[petec]

BAM doesn’t need to become BPY’s tenant. BAM is seeding, and offering to its clients, a fund to invest in retailers that were sound before covid but are struggling for cash now. That’s smart countercyclical investing. Terms should be good - many of these retailers will be private firms that may not have good capital markets access and their lenders may be insisting on an equity injection not more debt.

 

Some of these retailers may never recover but if BAM chooses well there’s a good chance others will be home runs. Sure there’s an additional benefit that BPY’s clients are kept alive but I think BAM should be given credit here for making their own luck. They’re in a very good position to know which retailers will pull through and they’re making sure they have two ways to win from that, while charging fees along the way.

[chrispy]

petec quote of "They’re in a very good position to know which retailers will pull through and they’re making sure they have two ways to win from that, while charging fees along the way." is my thought as well on why BAM benefits

[thepupil]

BPY collected 20% of its retail rents (apparently above expectations?).

 

I don't see anything in BPY's office/retail etc that makes me think it's lower risk than the other stuff, other than one thing I had not previously noticed about their office in NYC. Their lease length is longer than VNO/SLG/PGRE. VNO's office is 8 years, PGRE's is 7 years,I think SLG's is 8-10.

 

BPY's midtown NYC is 12 years and downtown is 9.5 years. Additionally BPY's rents are below market to a greater degree than the others (except for maybe SLG, again I don' follow SLG super closely), so the combination should insulate a decline in NYC office rents to a greater degree (pre-credit losses/lease rejection) than the other alternatives.

 

One thing that irks me a little is BPY touting its huge amounts of liquidity ($1.8 billion of cash, $3.7 billion of credit facilities, $1.7 billion of construction/development facilities). This sounds like a lot of money and $7 billion is a lot of money to most people; it's enough to do a lot of cool stuff and BPY should be able to do some cool stuff [like I guess bail out its retail tenants?].

 

But they also just have a lot of assets/debt relative to comps; it's just a lot bigger so it should have a lot of liquidity.

 

the cash is 3% of their total $47 billon of debt and the additional liquidity via borrowing is another 11-12%. Compare that to VNO with $1.5 billion of cash (total gross debt of $11 billion at the least generous calc) so cash is 13% of their gross debt. VNO has another $1.5 or so of availability (another 13%) and another $750mm of cash from 220CPS (which has some risk as discussed ad nauseum by me).

 

PGRE has a net cash corporate balance sheet as does ALX. PGRE has several unencumbered properties amounting to 50% of its market cap (or more) if you mark them at BPY valuations: One Front Street, purchased for about 30% of market cap in 2016 [rents up since], 900 3rd Ave rumored to be sold for 20% of market cap in February 2020 [value probably lower], and 1325 Ave of Americas [generate $46mm of rent, 800K sq feet, $400mm-$600mm?] another 20-30%, the biggest mortgaged building just sold at a post covid mark of the equity in that building being worth 66% of the market cap lol.

 

Does BPY have any unencumbered buildings laying around worth 20 or 30% of its $28 billion equity? no, of course not, because the most valuable building in the world (maybe the Center in HK? which printed at 40 billion HKD) is not worth that and they have material corporate debt and preferred obligations at every level.

 

BIP cut its dividend by 10% this was corrected below. BIP did not cut its dividend, operations seem to have held up well overall.

 

both BPY/BIP stocks are up a little.

 

End Rant. Watch Brookfield prove me wrong and generally outperform all these things materially over the next few years.

 

 

[bearprowler6]

BPY collected 20% of its retail rents (apparently above expectations?).

 

I don't see anything in BPY's office/retail etc that makes me think it's lower risk than the other stuff, other than one thing I had not previously noticed about their office in NYC. Their lease length is longer than VNO/SLG/PGRE. VNO's office is 8 years, PGRE's is 7 years,I think SLG's is 8-10.

 

BPY's midtown NYC is 12 years and downtown is 9.5 years. Additionally BPY's rents are below market to a greater degree than the others (except for maybe SLG, again I don' follow SLG super closely), so the combination should insulate a decline in NYC office rents to a greater degree (pre-credit losses/lease rejection) than the other alternatives.

 

One thing that irks me a little is BPY touting its huge amounts of liquidity ($1.8 billion of cash, $3.7 billion of credit facilities, $1.7 billion of construction/development facilities). This sounds like a lot of money and $7 billion is a lot of money to most people; it's enough to do a lot of cool stuff and BPY should be able to do some cool stuff [like I guess bail out its retail tenants?].

 

But they also just have a lot of assets/debt relative to comps; it's just a lot bigger so it should have a lot of liquidity.

 

the cash is 3% of their total $47 billon of debt and the additional liquidity via borrowing is another 11-12%. Compare that to VNO with $1.5 billion of cash (total gross debt of $11 billion at the least generous calc) so cash is 13% of their gross debt. VNO has another $1.5 or so of availability (another 13%) and another $750mm of cash from 220CPS (which has some risk as discussed ad nauseum by me).

 

PGRE has a net cash corporate balance sheet as does ALX. PGRE has several unencumbered properties amounting to 50% of its market cap (or more) if you mark them at BPY valuations: One Front Street, purchased for about 30% of market cap in 2016 [rents up since], 900 3rd Ave rumored to be sold for 20% of market cap in February 2020 [value probably lower], and 1325 Ave of Americas [generate $46mm of rent, 800K sq feet, $400mm-$600mm?] another 20-30%, the biggest mortgaged building just sold at a post covid mark of the equity in that building being worth 66% of the market cap lol.

 

Does BPY have any unencumbered buildings laying around worth 20 or 30% of its $28 billion equity? no, of course not, because the most valuable building in the world (maybe the Center in HK? which printed at 40 billion HKD) is not worth that and they have material corporate debt and preferred obligations at every level.

 

BIP cut its dividend by 10%, operations seem to have held up well overall.

 

both BPY/BIP stocks are up a little.

 

End Rant. Watch Brookfield prove me wrong and generally outperform all these things materially over the next few years.

 

Recheck your numbers....BIP did not cut its dividend....you did not account for the creation of BIPC which got spun out to existing unitholders on March 31st.

 

I am sure others on here will address some other short comings in your rant in due time....

 

 

[thepupil]

thanks. feel free to do so.

 

there's nothing like a misinformed bear throwing out high level observations to demonstrate the veracity of your thesis.

 

take me to the woodshed and demonstrate that the above rant is wrong as you did with BIP divvy cut.

[petec]

End Rant. Watch Brookfield prove me wrong and generally outperform all these things materially over the next few years.

 

Depends whether by Brookfield you mean BPY, or BAM!

[ValueMaven]

Awesome quarter!  Flat really highlighted how strong the complex is right now and how they are buying back units.  BAM is one of my favorite stocks.  Also looks like the Partners units have been modified as well.... others??

[matts]

Awesome quarter!  Flat really highlighted how strong the complex is right now and how they are buying back units.  BAM is one of my favorite stocks.  Also looks like the Partners units have been modified as well.... others??

 

what do you mean by modified?