BAM - Brookfield Asset Management

[vince]

racemize, can u be more specific in what you mean with respect to the 8% please, im a little slow today

[racemize]

racemize, can u be more specific in what you mean with respect to the 8% please, im a little slow today

 

Sure, so the cash portion of the deal is $9.5 billion.  The equity portion is 254 million shares of BPY (to be BPR REIT), which is worth 254*19.19 (closing price) = $4.9 billion.  The ratio of those are 66%/34%.  Adjusting this down to per share by assuming everyone gets a prorated version: 66%*23.5+34%*19.19 = $22.03.  $22.03/20.08 = 1.097 = 9.7% spread now.

 

The math above changes based on the share price, so when BPY was cheaper earlier today the spread was lower.

 

Honestly seems pretty good to me.

[vince]

Thanks

[John Hjorth]

BAM 2017 Annual Report out on 29^th March 2018.

 

A lot to chew on. I'm not done yet.

 

-Unrealized Carried Interest Net up from 291M at YE2016 to 928M at YE2017! [p. 5.]

[Spekulatius]

Did anyone notice that they use IFRS valuation for BPY and quoted values for BEP,  BIP and BBU? IFRS value is $4.5B higher for BPY than in quoted value, for the other entities the quoted values are higher.

 

Sneaky accountants....

[John Hjorth]

What the heck are you talking about here, Spekulatius? Consolidation is what it is: Consolidation.

[racemize]

Did anyone notice that they use IFRS valuation for BPY and quoted values for BEP,  BIP and BBU? IFRS value is $4.5B higher for BPY than in quoted value, for the other entities the quoted values are higher.

 

Sneaky accountants....

 

They are marking what they think approximates fair value.  I tend to pick one or the other (IFRS vs quoted) for my own valuations, personally.

[John Hjorth]

Did anyone notice that they use IFRS valuation for BPY and quoted values for BEP,  BIP and BBU? IFRS value is $4.5B higher for BPY than in quoted value, for the other entities the quoted values are higher.

 

Sneaky accountants....

 

Joel cooled me down - at least a bit - , Spekulatius,

 

What exacly are you referring to - above?

 

-There is no way according to IFRS to include write-ups of intangibles to the income statements - nor to do the write-ups.

 

- - - o 0 o - - - -

 

If your post was about alternative investment measures - no harm done here.

[Spekulatius]

Consolidation is required , since it is a related party and BAM is the GP. However, I don’t like they mark IFRS or quoted prices, whatever is higher apparently.

[Jerry Capital]

Take all of the values at their lowest most conservative levels and apply even small multiples to the FRE and Unrealized Carry and its clear $BAM is cheap.

[cubsfan]

They don't exactly hide it from anyone - it's right on the first page of the annual report:

 

INVESTED CAPITAL

We value our invested capital based primarily on a combination of quoted market prices for listed investments and IFRS book values for unlisted investments. Listed investments represent approximately 85% of our invested capital. For purposes of measuring value creation and business planning, we substitute BPY’s IFRS value for its market price because its balance sheet assets are almost entirely carried at fair values that are adjusted quarterly, and we adjust the IFRS we value of our unlisted North American residential business to re ect its privatization value. We measure value creation in this part of our business by the change in the value of our invested capital over time.

[Spekulatius]

They don't exactly hide it from anyone - it's right on the first page of the annual report:

 

INVESTED CAPITAL

We value our invested capital based primarily on a combination of quoted market prices for listed investments and IFRS book values for unlisted investments. Listed investments represent approximately 85% of our invested capital. For purposes of measuring value creation and business planning, we substitute BPY’s IFRS value for its market price because its balance sheet assets are almost entirely carried at fair values that are adjusted quarterly, and we adjust the IFRS we value of our unlisted North American residential business to re ect its privatization value. We measure value creation in this part of our business by the change in the value of our invested capital over time.

 

Yes, it’s not hidden. Nefarious stuff is usually hidden in the footnotes. I still wonder why they do it. It does not look good.

[chrispy]

For quite some time they have stated BPY and GGP are undervalued and they use IFRS for them. This is very clearly stated whenever it is presented. They acted on GGP by acquiring it and they are creating BPR because they believe the REIT strcuture could increase share price of BPY.

 

While selecting whichever two they like is inconsistent, they have been very consistent in their way of doing it.

[CorpRaider]

The deal GGP structure looks kind of interesting to me. $400MM termination fee and seems like the cash component could motivate enough of the non-bam unit holders to get the votes.  Seems maybe designed to incent outsiders to GTFO in a seemingly less than robust pricing environment/with properties in flux. 

 

Discount to offer is like 15%; competing bid seems unlikely since they own 34%.

 

I don't really like the structure of the funds, as a long term holder, paying the fees and carry and being externally managed.

[Spekulatius]

The deal GGP structure looks kind of interesting to me. $400MM termination fee and seems like the cash component could motivate enough of the non-bam unit holders to get the votes.  Seems maybe designed to incent outsiders to GTFO in a seemingly less than robust pricing environment/with properties in flux. 

 

Discount to offer is like 15%; competing bid seems unlikely since they own 34%.

 

I don't really like the structure of the funds, as a long term holder, paying the fees and carry and being externally managed.

 

There aren’t that many suitors that could take out GGP with an EV of ~$33B. SPG could do it, I don’t think they are interested. I agree on avoiding these yield vehicles. BAM’s incentive as a GP is to make them bigger  (hence the GGP takeover) more so than making them better.

[Jerry Capital]

BAM has an incentive to make them bigger for the fee stream, that is undeniable. But your comment implies a sort of negative connotation. They also have (post GGP acquisition)  50% ownership in the combined entity which accounts for a large chunk of the market cap of BAM.

 

So yes, fees are important, but net net the performance of BPY is equally or even more important than the fee stream.

[chrispy]

The reason I own BAM is the diversity across all the partnerships and that outperformance will hopefully come from the asset management business (during the next few years funds will be closed that have been very successful so far).

 

Yes, BAM does better when the partnerships become bigger, but who doesnt?  Looking at p6 of the Annual Report (AR), ~50% of BAM's invested capital is in BPY.  BAM does benefit more than the average shareholder due to the fees but their interests are very much aligned with the average shareholder.  Does BPY not also benefit from all of the expertise, capital, reputation, and connections of BAM?

 

BAM had to make some concessions for the GGP deal, such as this from the "Definitive Agreement to Acquire GGP":

 

"Brookfield Asset Management (“BAM”), in support of the transaction, has agreed to waive the incremental management fee for a period of 12 months and convert its $500M Class C Preferred Shares into approximately 21.3M BPY units at $23.50 per unit"

 

From the AR, BAM's first business risk after volatility in the share price is Reputation.

 

"Actions or conduct that have a negative impact on clients’or stakeholders’perception of us could adversely impact our ability to attract and/or retain client capital."

 

They are well aware that poor performance in any of their funds could cause harm to their future as an asset manager.

 

And with regards to the IFRS debate, it should be noted that BAM has sold several assets recently at 10%+ more than IFRS.

[Spekulatius]

Points mentioned above are well reasoned. I would say that way to invest in the BAM complex is BAM itself  not the investment entities, because in the end the fees will make the difference.

 

i don’t think they are playing nice wth GGP. I had some GGP shares a while, but sold in the news of  BAM taking over GGP. If I owned them now, I would be pissed. Exchanging  GGP into BPY is a bad deal for two reasons

1) No chance of anothe suitor or liquidation

2) With BPY owning GGP assets, there is now and additional layer of fees to run and own these assets

 

There is a lot of reflexivity in BAM‘s business model, which works both in positive and negative feedback loops. some. Some of the peers like Macquarie got hit by this in the 2008 meltdown, BAM got spared, due to being more adept and maybe a bit of luck too, but that is mo guarantee that they will come out Ok next time.

[gokou3]

Wondering if this is good or bad for BAM:

 

Blackstone is struggling to raise money for the massive, Saudi-backed infrastructure fund it trumpeted last year

http://www.businessinsider.com/blackstone-struggling-to-raise-money-for-saudi-backed-infrastructure-fund-2018-4

 

[John Hjorth]

Points mentioned above are well reasoned. I would say thwtthat way to invest in the BAM complex is BAM itself  not the investment entities, because in the end the fees will make the difference.

 

i don’t think they are playing nice wth GGP. I had some GGP shares a while, but sold in the news of  BAM taking over GGP. If I owned them now, I would be pissed. Exchanging  GGP into BPY is a bad deal for two reasons

1) No chance of anothe suitor or liquidation

2) With BPY owning GGP assets, there is now and additional layer of fees to run and own these assets

 

There is a lot of reflexivity in BAM‘s business model, which works both in positive and negative feedback loops. some. Some of the peers like Macquarie got hit by this in the 2008 meltdown, BAM got spared, due to being more adept and maybe a bit of luck too, but that is mo guarantee that they will come out Ok next time.

 

I have been thinking quite a bit about this post of yours the last couple of days, Spekulatius,

 

BAM & subs are opportunistic, bordering to being exploitive. It's just the way they operate - it's part of how their capital recycling approach work. We can like it, or not. It will not change. Think the WestingHouse deal and the Terraform deal based on the SUNE bankruptcy. It's almost like sharks that have smelled blood. The moves appear to take place when someone is on their knees in weakness [broke, almost broke, low share price etc.]

 

To me, GGP has been subject to an occupation by the BAM sphere, and it has only been a matter of time, before the BAM sphere would go in for the kill. I expect there will be an internal bloodbath in GGP related to total reorganization and overhaul of GGP to integrate GGP and make it fit to the "BAM way" to operate. It's to me a daunting task.

 

And all this because of some reckless RE financing in GGP earlier.

[chrispy]

Toronto-based Brookfield acquired GrafTech in 2015 with an equity investment of about $855 million. If the IPO were to price at the top end of the range, that would ascribe a valuation to the company that is 8.5 times what Brookfield paid for it three years ago.

 

https://www.bloomberg.com/news/articles/2018-04-04/brookfield-s-graftech-aims-to-raise-up-to-907-million-in-ipo

[villainx]

Isn't GrafTech technically with BBU?

 

 

[chrispy]

Yes and is the reason why BBU spiked ~8-10% last week I believe

[no_free_lunch]

Beginner question.  Are the dollar amounts in the brookfield annual report in USD or CAD?

[John Hjorth]

Beginner question.  Are the dollar amounts in the brookfield annual report in USD or CAD?

 

Somehow, the question is ridiculous [because it has merit, based on the reporting, - I can't even straight out find a place in the financials, where it is stated, that reporting is in USD.]. [ : - ) ]

 

Edit:

 

BAM Financial Report 2017, p. 39 [about foreign currency translations]: CAD is mentioned in the table, so from that you can deduct that the reporting is done in USD.

 

BAM Financial Report 2017, p. 123, section e):

 

The U.S. dollar is the functional and presentation currency of the company.