BAM - Brookfield Asset Management

[khturbo]

... , and since they're done with the growth initiatives, ...

 

Kyler,

 

Where do you get that personal perception from?

 

Yes, good point. To clarify, I was referring to the parent. It seems to me that credit was the last big platform they wanted to have. With the acquisition that's now built out. I don't see anything that's going to require a huge amount of capital for the parent at this point. Flatt has said as much at certain points in the last few quarterly letters.

 

Brookfield entities will certainly still be investing over time but a lot of that will come through raised capital or retained earnings at the LPs. The parent is on a $2.5bb+ run rate of FCF and they don't have much to invest in by themselves. They'll put some money into the new RE fund but will have plenty left over.

 

I don't know, do you guys see any other places where the parent needs to invest? We've also now consolidated everything in BPY so there's not a big need for capital there either.

[vince]

... , and since they're done with the growth initiatives, ...

 

Kyler,

 

Where do you get that personal perception from?

 

Yes, good point. To clarify, I was referring to the parent. It seems to me that credit was the last big platform they wanted to have. With the acquisition that's now built out. I don't see anything that's going to require a huge amount of capital for the parent at this point. Flatt has said as much at certain points in the last few quarterly letters.

 

Brookfield entities will certainly still be investing over time but a lot of that will come through raised capital or retained earnings at the LPs. The parent is on a $2.5bb+ run rate of FCF and they don't have much to invest in by themselves. They'll put some money into the new RE fund but will have plenty left over.

 

I don't know, do you guys see any other places where the parent needs to invest? We've also now consolidated everything in BPY so there's not a big need for capital there either.

 

How did you determine 2.5 billion in fcf?  Are you subtracting dividends? You are including Oak's cash flows too right?

[John Hjorth]

Thank you for the elaboration, Kyler,

 

Perhaps I was reading the sentence of yours a bit out of the overall context. I agree with you about BAM's overall operational fields now appear to be complete.

 

We have had discussions earlier in this topic about where opportunities for growth most likely will be, and I recall infrastructure being the guess by some fellow board members - a guess on which I personally concur. To me it appears evident, that BIP can't handle such growth by itself - if it's material - going forward. Some of that demand for capital then - if it becomes actual - has to be met by the parent.

[chrispy]

Its interesting that a couple of people have mentioned tooday is not a great price for buybacks ($46) but management has said units are worth about $51 (if I recall correctly from last presentation). Is a greater discount desired or is managements valuation too rosy?

[cubsfan]

Its interesting that a couple of people have mentioned tooday is not a great price for buybacks ($46) but management has said units are worth about $51 (if I recall correctly from last presentation). Is a greater discount desired or is managements valuation too rosy?

 

I think the last management presentation said there calculation of BAM IV is currently $62.

[vince]

Its interesting that a couple of people have mentioned tooday is not a great price for buybacks ($46) but management has said units are worth about $51 (if I recall correctly from last presentation). Is a greater discount desired or is managements valuation too rosy?

 

Depends on whether they believe they will likely get higher returns investing within the business.  My guess is that a 10% discount on repurchases is not going to get them to excited.

[walkie518]

Its interesting that a couple of people have mentioned tooday is not a great price for buybacks ($46) but management has said units are worth about $51 (if I recall correctly from last presentation). Is a greater discount desired or is managements valuation too rosy?

 

Depends on whether they believe they will likely get higher returns investing within the business.  My guess is that a 10% discount on repurchases is not going to get them to excited.

 

p3 shows $62/sh of value now and at the investor day I think they were modelling a double in a few years

2018-q4-supplemental-f.pdf

[khturbo]

Thank you for the elaboration, Kyler,

 

Perhaps I was reading the sentence of yours a bit out of the overall context. I agree with you about BAM's overall operational fields now appear to be complete.

 

We have had discussions earlier in this topic about where opportunities for growth most likely will be, and I recall infrastructure being the guess by some fellow board members - a guess on which I personally concur. To me it appears evident, that BIP can't handle such growth by itself - if it's material - going forward. Some of that demand for capital then - if it becomes actual - has to be met by the parent.

 

Yes true on the infrastructure side. It does seem like they could put a lot of capital to work there, and I would be pretty excited if they did.

 

And @Vince, there's a sources and uses of cash page in the Q4 supplemental showing the parent cash flow situation. The $2.5bb I used was just a round number. It was $2.4bb last year off the top of my head so it should grow to $2.5bb+ this year and with OAK the run rate would be probably closer to $2.8bb by the end of the year.

[John Hjorth]

Forbes - Editor's Pick - Antoine Gara : Contrarians Combine As Canadian Titan Brookfield Buys Credit Heavyweight Oaktree Capital [March 13^th 2019].

[james22]

I was OK holding BAM and OAK at 10% each, now have to decide if am comfortable with the combined at 20%.

 

Probably am, as both strengthened, but at the portfolio level seems less diversified.

 

Anyone else who held both find the combined allocation above their comfort level?

[ValueMaven]

Bruce Flatt and Howard Marks on Bloomberg TV

 

https://www.youtube.com/watch?v=jpWDdgvZSbc

[Cigarbutt]

Bruce Flatt and Howard Marks on Bloomberg TV

 

https://www.youtube.com/watch?v=jpWDdgvZSbc

A slightly expanded version.

https://www.bloomberg.com/news/videos/2019-03-21/brookfield-s-flatt-oaktree-s-marks-talk-industry-m-a-credit-markets-video

[james22]

Thanks again for this, tillman:

 

I've had large positions in both Berkshire and Brookfield for about 15 years.  One of the things I like about having both investments is that they are in many ways completely different, and yet each company is widely diversified and based on cash flow returns. 

 

Berkshire is almost entirely in the US, has long term holdings, organic growth, makes little use of debt or financing, and Buffett at the helm.  Brookfield is very international in multiple countries, is more transactional, makes heavy use of debt and financing, and the management team is about 10-15 people who are all considerably younger than Buffett and Munger.

 

I really don't think that Berkshire would have any interest in acquiring Brookfield or any of its subsidiaries, and it's interesting to me that even though both of them have broad reach, they almost never encounter one another or partner on any investments.  They just have totally different approaches. I think that Buffett and the Berkshire execs would be put off by Brookfield's use of debt and financing, and while Brookfield in some ways models its business after Berkshire, it could not do what it does without debt financing.  The secret to Brookfield's success is access to third party capital, but Berkshire has always generated its own capital via insurance companies.

 

I think both companies have a bright future but over the next 20 years I think that Brookfield probably has more opportunities for growth and a broader reach.  BAM has a market cap of only $43B, all of the Brookfield subs combined add up to around $70B.  Berkshire is nearly 10x as large with a market cap of $500B and its returns are still driven primarily by one person.  Brookfield is driven by a team of younger execs who each have their own opportunities for growth.  In fact I think Berkshire could learn something from Brookfield's culture and management style.

 

After some portfolio revision (and converting my OAK to BAM), the two will be (nearly) my only two positions.

 

I do agree they are nicely complementary, tiddman.

 

I'd be OK if they were my only two positions.

[John Hjorth]

Bloomberg News [April 3^rd 2019] : Canada’s Brookfield to Consider $2 Billion Property Deal in Shanghai.

[ValueMaven]

Thoughts on valuation here?  These past 18 months have been unreal in terms of what BAM has acquired from an asset perspective.  GGP, Westinghouse, Oaktree, Enbridge assets etc .. I'd like management to focus on reducing share-count aggressive over the next few years at this point!!

[ValueMaven]

how the heck could I have forgotten about Healthscope for $3.1bn, and Power Solutions Business From Johnson Controls for $13.2bn!!

[John Hjorth]

Thoughts on valuation here?  These past 18 months have been unreal in terms of what BAM has acquired from an asset perspective.  GGP, Westinghouse, Oaktree, Enbridge assets etc .. I'd like management to focus on reducing share-count aggressive over the next few years at this point!!

 

Silence around here, ValueMaven,

 

Prices just about everywhere right now seem steep. To me, BAM is a decade trade, which means price does not matter too much. [This however also implies, that buying now at recent prices - or even worse - being wrong about the company long term - may produce a row of years of underperformance ...] - My intention is to buy more later today, when NYSE opens.

[StevieV]

I own BAM, but am not a buyer here.  Just on the price.  Not that the price is necessarily unfairly high or out of line given their growth and prospects, but higher than I'd be looking for to add.

 

[John Hjorth]

Stevie,

 

As always, one of us may be right.

[villainx]

Stevie,

 

As always, one of us may be right.

 

Not to nitpick, as I am long BAM (and trying to figure where to add), but both could be right (and wrong).  There's a lot of matching to one's investing preferences, biases, and risk tolerance. 

 

Other than that, sounds like you both have similar assessment, it's fair to not unfairly high, with promising prospects.

[rkbabang]

Stevie,

 

As always, one of us may be right.

 

Not to nitpick, as I am long BAM (and trying to figure where to add), but both could be right (and wrong).  There's a lot of matching to one's investing preferences, biases, and risk tolerance. 

 

Other than that, sounds like you both have similar assessment, it's fair to not unfairly high, with promising prospects.

 

Exactly.  Since they are both humans and we have a tendency to look back and justify our past decisions, the most likely outcome is that they are both correct.

 

[Rod]

Has anyone involved in BAM thought about the impacts that climate change might have on BAM's real estate and infrastructure assets? I'd like to know if they are carefully taking into consideration these impacts when they make acquistions. I think that a lot of infrastructure is in harm's way. For example, I wouldn't want to see them buying Miami real estate. Also the output from hydroelectric power plants can be affected badly by persistent drought. I don't recall hearing Bruce Flatt mention this as a risk factor that they are paying close attention to. Any thoughts?

[Jerry Capital]

[Castanza]

Has anyone involved in BAM thought about the impacts that climate change might have on BAM's real estate and infrastructure assets? I'd like to know if they are carefully taking into consideration these impacts when they make acquistions. I think that a lot of infrastructure is in harm's way. For example, I wouldn't want to see them buying Miami real estate. Also the output from hydroelectric power plants can be affected badly by persistent drought. I don't recall hearing Bruce Flatt mention this as a risk factor that they are paying close attention to. Any thoughts?

 

Not that this exactly relate to the types of assents Brookfield owns, but I know in New Orleans, housing market prices are up 46% since Katrina. And that city is built below sea level.

 

https://blog.firstam.com/economics/what-the-post-katrina-real-estate-market-can-tell-us-about-hurricane-harveys-impact-on-houston

 

I will say that Florida, particularly Miami is a bit different as the geology there is terrible. The bedrock is sightly below the surface and happens to be a type of limestone (dolomite). When dolomite is exposed to cold ocean water it dissolves over time. Add salt to the mix and this increases the corrosion rate quite significantly. Having a bit of a geologic background (two years in college) it's quite amazing that civil engineers continue to build on these poor foundations. I specifically remember a professor of mine talking about this. I mean, it's already evident with the plethora of sinkholes found there. Will it deter people? no idea. People seem to live in the moment.

 

Another area that is/will be plagued by this is Southern Indian, Northern Kentucky, and Southwestern Ohio along the Ohio River. Pretty much the entire mid-west sits on dolomite about 8ft below the ground with rich topsoil on top (all from the glacial boundary during the Ice Age). Again, not quite sure if this info is significant or not; but there you have it.

 

Regards

 

 

[John Hjorth]

Those are some great considerations, Rod & Castanza,

 

For the real estate owned by BPY, there is a directory of properties in the financials - the reporting is not like for Berkshire where "the reporting is for the investor, not the analyst" - basically every quarter - at least every year -, you get slapped in your face with something like an old fashion paper version of a community telephone directory - more or less unordered! [ : - ) ]

 

I haven't seen any real estate in Miami owned by BPY in those notes [, but there are a few owned properties in Los Angeles, ref. earth quake risk].

 

Hydro power plants [now owned for many years by BAM/BEP] does not go into infrastructure assets, but to renewable energy assets, owned by BEP. If you take a look at BEP, the BEP reporting is based "normal years", based on operational statistics [operational statistics, that may change over time in variance and means, based on historical experience, ref. "climate change" issue, including drought as variance explanation].

 

There is an operational/technical organisation behind all this inside BAM & subs, which Mr. Flat basically never talks about in depth to investors. I'm sure it's existent, live, active & kicking, to avoid buying the cat in the sack in the first place.

 

- - - o 0 o - - -

 

To me, it's like talking about Berkshire as "old economy" [because we get no or scarce information about innovation inside the Berkshire subs from Mr. Buffett], simply because of what Mr. Buffett focuses on in his communication with investors puts more weight into something else. [The exactly opposite perception you would get, if you were invested in the Wallenberg Sphere].