BAM - Brookfield Asset Management

[petec]

First tranche of the deal with American Equity Life has closed.

 

The mechanics, if I have understood them correctly:

1) BAM buys 9.106m shares at $37 ($337m) taking the share count to 101m and BAM's stake to 9.0%.

2) AEL announces two buybacks, for $50m (completed in November, 1.9m shares) and $115m (starting now, 4.2m shares at the current price although there is some confusing wording about an "initial" delivery of 3.5m shares).

3) AEL continues buying shares in 2021 until BAM owns 9.9%.

4) Once the regulatory green light is given for BAM to own >9.9%, buybacks continue until the total reaches $500m.

 

By my maths, if the full $450m remaining of the already-announced $500m buyback were to be completed at the current price of $27, BAM would own 12% not 9.9%.

 

Then there's BAM's second tranche, closing in 1H21, which takes it to 19.9%.

 

[ValueMaven]

very helpful.  thank you.  Looking forward to see how this new BAMRE spinout is issued.  I could see AEL being acquired by BAM at somepoint into the future

[petec]

very helpful.  thank you.  Looking forward to see how this new BAMRE spinout is issued.  I could see AEL being acquired by BAM at somepoint into the future

 

Yes, actively or simply by waiting while AEL buys shares below book.

[Xerxes]

We need a Dec post on this thread.

Blackstone, Brookfield seek yield with bet on India office REITs

https://www.bnnbloomberg.ca/blackstone-brookfield-seek-yield-with-bet-on-india-office-reits-1.1533631

 

 

[thepupil]

Life sci properties are hot...

 

 

https://www.bloomberg.com/news/articles/2020-10-19/brookfield-said-to-weigh-3-billion-real-estate-portfolio-sale

 

Brookfield Weighs $3 Billion Life Sciences Real Estate Portfolio Sale

 

Brookfield Asset Management Inc. is exploring a sale of its life-sciences real estate portfolio, and seeking about $3 billion, according to people with knowledge of the matter.

 

this is a great example of how analytically complicated Brookfield is and how hard it is to "follow the money" for any given transaction. 

 

I was a FCE shareholder and owned it in part for their Cambridge / MIT life sciences campus (though I would note that ownership of these assets does revert to MIT in 2062 and 2091. MIT already owns the land, but the actual structures revert to the university on those dates (75 years after they were built), making this more onerous than a typical ground lease. I confirmed this with IR, who was kind enough to respond to an individual shareholder. IR did note there was some uncertainty as to how exactly the structure will be unwound and if there'd be any consideration involved, but that it was correct to think of it as having no ownership then.

 

so i saw this headline and thought to myself "holy shit that will de-lever BPY like crazy". Then I checked and remembered that Forest City is actually held in BSREP III, the $15B opportunity fund.  BSREP III bought FCE for $6.8B equity (I assume they may have syndicated co-investment in this deal and that BSREP III does not actually own 100% of the equity in the FCE deal because an institional RE fund wouldn' put 45% in one deal) .

 

BAM owns 18% of BSREP III and BPY owns 7% of BSREP III, so BPY's share in this life sciences portfolio is pretty small.

 

So the waterfall will be something like this:

 

Life Sciences Portfolio sale: $3B

Less and associated debt

Equity proceeds

Less co-investment partners equity share

Less any BSREP Fund level facilities / debt

then to BREP III LP's of which BAM is 18% / BPY is 7%

 

bottom line is this isn't as big of a liquidity event for BPY as it may looks, but it will probably be a nice "sold for above the mark" data point and likely increase the expected IRR on the LP investments. 

 

the 2016 VIC pitch on Forest City had a BULL case valuation of its life sciences portfolio of $1.9 billion and a bear case of $1.5B. 4 years later, rumored sale at $3 billion. I'm not sure if those are precisely comparable, but the rumored sale is for 2.3mm sf and FCE owned 2.0mm sf of life sciences so I'm assuming that it is roughly the same assets.

 

bump, $3.5 billion, big win for BSREP III

 

https://www.wsj.com/articles/blackstone-raises-wager-on-life-sciences-with-3-5-billion-property-deal-11607950801

[ValueMaven]

Lots of interesting things going on here right now.  After a HUGE run-up throughout Nov - BAM has flat-lined in Dec.  2021 this could be a very interesting stock to own. 

[EricSchleien]

Lots of interesting things going on here right now.  After a HUGE run-up throughout Nov - BAM has flat-lined in Dec.  2021 this could be a very interesting stock to own.

 

Flatt lined.

[chrispy]

Today's share price seems to be more in the fair price range than bargain. Hoping for a great 2021 though and BAM is positioned to excel

 

I have not followed KKR or BX earnings releases but it still surprises me how those two are at ATH's while BAM has Flatt-lined, as you say. I am assuming it is the optics of real estate, especially malls

[bearprowler6]

Some news to start off 2021:

 

https://bam.brookfield.com/press-releases/2021/01-04-2021-121525706

[thepupil]

love it. as one who joined the dark side and bought a little BAM in Q42020, I'd expect nothing less from them.

 

It’s a deal that literally pisses everyone involved off, shorts realize their losses because they were overzealous about office / mall death. Longs think it’s worth $30 so they’re getting taken under (maybe there will be a bump to $19/20). BAM shareholders probably don’t want BAM issuing shares / want to minimize BPY exposure; it’s truly glorious.

[Gregmal]

So without touching on anything fundamental(bc you dont need to), BPY outperformed all its peers, never cut the dividend, and went out on top....

 

All those super smart, numbers filled short thesis's, were a waste of time. This unfolded exactly as most predicted.

 

A good example of how sometimes the most predictable events are simple in nature and super duper crazy detailed hyper analysis is a waste of time.

[tiddman]

Definitely did not see this coming.  But after the earlier tender offer at $12 I think BAM owned something like 63% of BPY? So this is for the remaining 37%.

 

$16.50 is a very low price, this is a take-under, at around 2/3 of fair value IMHO, near the bottom of a cycle. I think they will have to sweeten this a bit in order to get it through, the market seems to agree, BPY is above $17 in the pre-market.

 

BPY (previously BPO) is my least favorite of BAM's subs, I only got interested at $8-12 earlier this year and was planning on selling at $18 or so. $16.50 is disappointing but if it gets sweetened a little it will be right on plan. I will probably take BAM shares in taxable accounts to avoid short term gains.

 

What happens to BPYU? It is not exactly a tracking stock for BPY, it is capitalized slightly differently I believe. It is currently moving up almost in tandem with BPY. I am disappointed by not being able to invest in BPY's mall assets which I think are going to turn around nicely starting this year.

 

The cynical/skeptical side of me wonders if the problems in the portfolio are worse than has been revealed, and by taking BPY private they can play the shell game and move assets around and sell them into third party funds and such to hide any impairments. I think that some of this occurred with BPO when it was first spun many years ago and that this was the reason for merging it into BPY to begin with. It has been quite a convoluted history spinning BRP, then BPO, then BPY, and then buying them all back in. If one wished to track asset values or ratios or impairments it would be impossible because of all of the different entities.

[thepupil]

I include myself in the wrong camp for preferring the less levered equally discounted equivalents to BPY at $7/8.

 

I did think the shorts were stupid though. A lot of people laughing at Flatt on Twitter for his bullishness and short BPY and it’s like “dude that guy you’re laughing at is the brains behind $500B and has the ear of institutions managing trillions and you are short a levered option with a minimal float”.

 

 

[tiddman]

Well it never makes sense to bet against Brookfield because they can go out of the box like this. With essentially unlimited third party capital and being able to approach a situation from 10 different angles they can pull an end run like this. The shorts look at the leverage or payout ratio or impaired assets and declare the value to be zero, ignoring the $100B's of assets and cash under Brookfield's control.

 

That said, this deal doesn't really sit well with me. I have held Brookfield for a long time but have often thought that their financials look a little too neat and are a little too opaque at times. What is the motivation for repeatedly spinning and buying in entities in the same industry and holding the same assets?

[Gregmal]

I include myself in the wrong camp for preferring the less levered equally discounted equivalents to BPY at $7/8.

 

I did think the shorts were stupid though. A lot of people laughing at Flatt on Twitter for his bullishness and short BPY and it’s like “dude that guy you’re laughing at is the brains behind $500B and has the ear of institutions managing trillions and you are short a levered option with a minimal float”.

 

He's Bruce Flatt and they're fidgeting around on Twitter. Enough said.

 

I too never bought BPY, just BAM. I looked at shorting it and in 2.8 seconds came to the conclusion you and others did. You can already see the wide range of ?s here. Perhaps this is a massive take under. Perhaps is done to conceal bigger issues. Perhaps its something else. Who cares? The outcome was reasonable and in a world where even an illegitimate scheme can be prolonged by cleverly shuffling assets around, a good scheme, like BAM, can keep powering on, especially now that the question mark asset goes into the black box.

[tiddman]

I am not super intersted in wading into Twitter nonsense but if you have some of these tweets can you share them? Surprised to find any discussion of Brookfield or Flatt on social media.

[rkbabang]

love it. as one who joined the dark side and bought a little BAM in Q42020, I'd expect nothing less from them.

 

It’s a deal that literally pisses everyone involved off, shorts realize their losses because they were overzealous about office / mall death. Longs think it’s worth $30 so they’re getting taken under (maybe there will be a bump to $19/20). BAM shareholders probably don’t want BAM issuing shares / want to minimize BPY exposure; it’s truly glorious.

 

 

This deal works for me.  I bought mine from $8-$10 and I just sold at $16.90 and bought more BAM with the proceeds.  I hope it goes through for $16.50.

 

 

[villainx]

love it. as one who joined the dark side and bought a little BAM in Q42020, I'd expect nothing less from them.

 

It’s a deal that literally pisses everyone involved off, shorts realize their losses because they were overzealous about office / mall death. Longs think it’s worth $30 so they’re getting taken under (maybe there will be a bump to $19/20). BAM shareholders probably don’t want BAM issuing shares / want to minimize BPY exposure; it’s truly glorious.

 

 

This deal works for me.  I bought mine from $8-$10 and I just sold at $16.90 and bought more BAM with the proceeds.  I hope it goes through for $16.50.

 

This serves as such a stark reminder that I'm far from good as an investor.  I stupidly didn't have patience with my BPY.

[rkbabang]

love it. as one who joined the dark side and bought a little BAM in Q42020, I'd expect nothing less from them.

 

It’s a deal that literally pisses everyone involved off, shorts realize their losses because they were overzealous about office / mall death. Longs think it’s worth $30 so they’re getting taken under (maybe there will be a bump to $19/20). BAM shareholders probably don’t want BAM issuing shares / want to minimize BPY exposure; it’s truly glorious.

 

 

This deal works for me.  I bought mine from $8-$10 and I just sold at $16.90 and bought more BAM with the proceeds.  I hope it goes through for $16.50.

 

This serves as such a stark reminder that I'm far from good as an investor.  I stupidly didn't have patience with my BPY.

 

I don't think you hold a monopoly on bad sell decisions.  The list of stocks I regret selling is a long one.

 

[tiddman]

Interesting that BAM is down 5% on the news. Some of this is probably arbs playing the spread. But performing a take under and locking in their distributions and fees for the next while should be positive for BAM.  Not to mention the ~$500M of BPY they recently bought at $12.

 

I wonder to what extent the "institutional partners" will play a role. The max cash consideration is $2.95B and I think about 37% of BPY is floating. Theoretically BAM doesn't have to lay out a single dollar to do the privatization, they could buy this in with third party capital and still retain full control.

 

I do not think the distribution was really in jeopardy but once private they could cut or change it if they wanted. So this could be a way of hiding that action from public unit holders.

 

I also wonder if there will be subsequent spin-offs. Their portfolio has grown a lot after recent acquisitions and they probably want to divest some of those assets. I wonder if we'll see a REIT or LP of certain assets spun off in the future.

 

One way to make money from the capital markets is to simply spin off new entities at high valuations and buy them back in at low valuations. Maybe doesn't even matter what the underlying assets are...

[chrispy]

Everyone has had great points and this can be spun any way.  Only time will tell but I am quite interested to see where this goes.  I bought BAM for the asset light management business...

 

I am guessing some institutional investors would be interested in near full occupancy office space.  Some assets can go into an India REIT

[Gregmal]

Any of you fine Canadian fellas familiar with the Morguard complex? Been doing some work and started MRG today, but many similarities to BAM. Its funny, but for all the Indian Canadian fund manager love on this site, arguably the most successful, Mr Sahi, never comes up.

[racemize]

FYI, just got off the phone with IR.

 

BPYU is going to go through a forced conversion to BPY units, so this buyout will apply to all holders (eventually).

 

Whether or not this is taxable (e.g., taking BAM units) is as of yet unknown.

[tiddman]

Kind of a bummer because I just finished converting my BPY to BPYU by year-end so I could skip the schedule K's this year.

 

From a tax standpoint it would be better for me to get converted into shares of BAM rather than sell and buy so I will opt for that if possible... but I guess I have to convert from BPYU to BPY first? Hopefully they will make this relatively easy.

 

Interesting to me that BAM is falling on the news and will be issuing shares as part of it. I think that BAM below $40 is a pretty good buy.

[rkbabang]

Kind of a bummer because I just finished converting my BPY to BPYU by year-end so I could skip the schedule K's this year.

 

From a tax standpoint it would be better for me to get converted into shares of BAM rather than sell and buy so I will opt for that if possible... but I guess I have to convert from BPYU to BPY first? Hopefully they will make this relatively easy.

 

Interesting to me that BAM is falling on the news and will be issuing shares as part of it. I think that BAM below $40 is a pretty good buy.

 

Yes, I held my BPYU in my IRA so selling and buying BAM today was a no-brainer.  If it was in a taxable account I'd probably wait.