BAM - Brookfield Asset Management

[Jerry Capital]

10% lower

[Shane]

10% lower

 

Weird - why not just say reduce to where shares were in 2009?

[John Hjorth]

10% lower

 

Weird - why not just say reduce to where shares were in 2009?

 

Shane,

 

The 1999 figures are actually in the table in the shareholder letter, p. 3, lower part. 1999: shares : 905 M - 2018 [mid year] : 1,004 M. Ref. note 2 to the table, the 1999 figure is adjusted for four 3 for 2 stock splits since 1999 [, but not share buybacks, excersises of options etc., I suppose]. The actual fully diluted share count at YE1999 was 178,733,919, ref. Joel's BAM monster compilation [p. 44 [out of 13,840 [!]]].

[Shane]

Thanks - I had missed that!

[CorpRaider]

Seems like some of you guys are deep in the weeds on BAM.  Is BPR (the GGP successor REIT) going to have the same fee arrangement with BAM as BPY (expenses + management fee + incentive fee)?  I suspect that it will (although I'm not sure, but I don't remember that from going through the deal docs).  Didn't make it all the way through yet...not sure that I will.  Thanks!

[racemize]

Seems like some of your guys are deep in the weeds on BAM.  Is BPR (the GGP successor REIT) going to have the same fee arrangement with BAM as BPY (expenses + management fee + incentive fee)?  I suspect that it will (although I'm not sure I've seen , but I didn't hit that going through the deal docs.  Didn't make it all the way through yet...not sure that I will.  Thanks!

 

I think it should be similar, but they are waiving fees for the first year (I think).

[John Hjorth]

Seems like some of your guys are deep in the weeds on BAM.  Is BPR (the GGP successor REIT) going to have the same fee arrangement with BAM as BPY (expenses + management fee + incentive fee)?  I suspect that it will (although I'm not sure I've seen , but I didn't hit that going through the deal docs.  Didn't make it all the way through yet...not sure that I will.  Thanks!

 

I think it should be similar, but they are waiving fees for the first year (I think).

 

I have read what Joel just posted, too. However I can't immediately find the source.

[CorpRaider]

Makes sense.  Thanks gents.

[John Hjorth]

Just a note here, now that we are actually right now talking about GGP and its successor REIT BRP:

 

I think that it was a while back while reading the AGM presentations not so long ago for BAM ... -  It was about priorities going forward, presented as bullet points in that particular presentation ... I ended up very puzzled, thinking: "What? - GGP integration isen't mentioned in the priorities there?" ... Then I finally ended up pushing that particular thing away from me mentally, thinking: "Well, talking about that [at that time] would actually be like selling the fur of the bear before shooting it." [related to not-yet GGP shareholder approval of BAM take-over bid].

 

-And now, we have a description of what BAM actually plans to do with the GGP properties, in the 2018Q2 shareholder letter. To me, it reads pretty daunting. -For BAM, it's "just" "in the course of ordinary business".

[OnTheShouldersOfGiants]

Bruce Flatt will be coming through our office this week for a meeting. Anyone have a question they would like have answered?

[racemize]

Bruce Flatt will be coming through our office this week for a meeting. Anyone have a question they would like have answered?

 

These are my current questions:

 

1) BPY focuses on FFO growth + dividends as a measure of returns to investors; however, BPY is marked on BAM's balance sheet as its IFRS values.  These IFRS values appear to be in line with NAV estimations, and as BAM has emphasized in the past, properties have generally sold close to those values.  Accordingly, shouldn't we be able to use IFRS growth + reinvested dividends as a proxy for IV growth of BPY?  If so, since 2011, BPY's IFRS has grown at around 9% a year since 12/31/2013, which is below the targeted 12% returns.  How should we think about this?  Is this because of the irregularity of timing of when unrealized gains are reflected?  Does it have to do with the development pipeline, which presumably has depressed IFRS values until the projects are completed?

 

2) Where does the fee related overhead go (e.g., the 30% of fee earnings that are subtracted for costs)?  Is it mostly compensation to underlying managers?

 

3) Given that the public entities are largely directed towards core type investments (e.g., BPY) and have permanent equity, why is there a need to create new private permanent core funds, which would seem to have very similar characteristics?  Is it because there is value to private partners to have non-listed investments (e.g., which do not mark-to-market in the same way)?

 

4) Each of the sub-entities report FFO/AFFO in different ways.  For example, BIP's AFFO does not adjust for preferred unit distributions or incentive distributions, whereas BEP's AFFO is post-preferred unit distributions, but before incentive distributions.  Additionally, investors have to adjust these numbers by hand to determine the "owner earnings" attributable to them as the earnings those investors receive will be post these distributions.  Has Brookfield considered presenting an "owner AFFO" value for each of the sub-entities?

 

5) In a related manner, BPY now shows opportunistic realized gains with an adjustment to get to an approximation of AFFO, but there are significant gains outside of BPY which are not included.  Additionally, it appears that these additional realized gains are no longer reported in the supplemental, which puts investors a little in the dark if they were attempting to create an AFFO that had a "smoothed out" value for disposition gains (i.e., including both core and opportunistic disposition gains).  Is there a reason these disposition gains are no longer reported and/or is there a way to get to an AFFO value that includes all of the gains (e.g., using a 3 or more year average disposition gain figure)?

[Jerry Capital]

Those are great questions including the last two.

 

Thank you for posting

[TorontoRaptorsFan]

Bruce Flatt will be coming through our office this week for a meeting. Anyone have a question they would like have answered?

 

Does he any have any book recommendations? What's a typical day like for him.

[Rod]

I'm actually wondering if we are reading the same documents..

 

Are the companies growing? What's the outlook?  It's all in there.

 

Maybe I posted before I read the letter thoroughly enough.  However, I'm not suggesting that the conclusion is wrong, or that they didn't discuss other things.  I simply don't like the valuation framework in the quoted section.  Specifically, somewhat setting aside the invested capital side in this specific valuation discussion section.

 

FWIW, I think that 20X FRE and 10X incentive may be appropriate valuations.  They are growing FRE at 34% and expect to be able to continue to grow at 20% going forward.  20X for FRE growing at 20% isn't rich.  I am also fine with 10X carry.  Maybe lumpy, but certainly valuable.  However, unlike the letter says, I don't believe that similar businesses are currently trading at those multiples.  I think I am right on that, but admit I haven't run those numbers on the competitors lately.

 

I'm having a bit of trouble interpreting the 20X multiple of fee related earnings that Flatt uses in the Q2 report. The implication seems to be that these are net earnings, that is after tax. But, I can't see where the tax is actually being deducted. All I see is revenues less direct costs. The direct costs, however, don't seem to include income tax. Does anyone have any insight into this?

[pau_]

Google just published this talk by the CEO:

 

[ValueMaven]

WOW!  Thank you for sharing this! 

[fareastwarriors]

Google just published this talk by the CEO:

 

Google gets the most amazing speakers.

[John Hjorth]

Very good talk and Q&A session with Mr. Flatt. Brookfield explained "on the rim". Certainly worth anybodys time, if interested in BAM.

[chrispy]

A very nice surprise

[Rod]

I only started researching BAM recently and I was surprised to keep reading that the company is "little known", "ignored", and Bruce Flatt is the "billionaire nobody has heard of". Even this video from Google shows an audience of about 10 people! I had assumed that BAM was a well known stock, a household name amongst investors. So I thought it was a crowded trade and avoided looking at it. Have I been wrong all this time? Is BAM really generally ignored by investors?

 

As an aside, I actually bought Brookfield about 20 years ago when it was called Brascan just before Flatt took over. I bought it because the stock seemed cheap. Of course, I promptly sold it around the time Bruce became CEO (face palm!).

[bizaro86]

Thanks for posting that. Every time I see him speak I add to my BAM exposure, and I consider whether I should just go 100% there and find a different hobby.

[John Hjorth]

Thanks for posting that. Every time I see him speak I add to my BAM exposure, and I consider whether I should just go 100% there and find a different hobby.

 

bizaro,

 

Back in December 2017 in this topic Al replied to a question from me this way [just sayin'! [ : - ) ]]:

 

"So, I think the most important question we have to ask ourselves here, is actually: " What does have to happen to take this thing down?"

 

Fraud at the top? 

Involvement in bribery? 

Unethical, amoral behaviour by the CEO, or one of his closest associates?  No evidence of this.  The guy eats lunch with employees in the food court when he is in town, and apparently doesn't have a private office. 

 

The usual things Buffett worries about.  Not saying anything like this could happen, but it could happen.  In other words, dont make this a 100% holding.

 

Some major hits could be felt if a Venezuela happens in one of the primary operating countries.

 

The stock may come way down in a market crash but that provides opportunity for the BAMs of the world and they are clearly primed for this.  As Bruce has said, the business cycle has not been repealed.  Each day we get closer to a crash...

[Spekulatius]

A credit market meltdown in combination with a downturn in the economy will hit BAM disproportionally harder than let say BRK or GOOG etc. BAM is an asset manager and if assets values  don’t do well, neither will BAM. BAM assets and vehicles also have a lot of leverage (BPY) to both credit markets and the economy. They have shown to manage astutely in the last, but that’s no guarantee for the future, esepicalky since they grow so much in size.

[bizaro86]

Oh for sure. That was hyperbole, sorry, doesn't come across on the internet. My current BAM/PVF allocation is high single digits, and I doubt I'd ever go more than 20-25%, which I'd only do if they had a big drop not coincident with a big drop in the rest of the market.

 

As operators go, I think I'd put Flatt second to only Buffett, and he likely has a lot more time left in him.

 

 

[ValueMaven]

As operators go, I think I'd put Flatt second to only Buffett'

 

Flatt is likely a BETTER operator then Buffett.  Either way - one of the best public CEOs out there.  Would be interesting to see how many CEO's have $1bn of common stock exposure like Flatt does...I am sure a lot of Tech...but outside of that???