BAM - Brookfield Asset Management

[tiddman]

Interesting that BPY has spent the entire day above the offer price of $16.50 so the market must think the offer will get sweetened. However I am not so sure... BAM owns 63% so has no need to make any adjustments.

[fareastwarriors]

Interesting that BPY has spent the entire day above the offer price of $16.50 so the market must think the offer will get sweetened. However I am not so sure... BAM owns 63% so has no need to make any adjustments.

 

Brookfield Property Partners and Brookfield Property REIT acknowledged they had received the proposal in a separate statement Monday. Brookfield Property Partners has formed a special committee of independent directors to review the offer, and it said investors don’t need to take any action at this time.

 

Any transaction would be subject to a vote requiring approval from the majority of minority holders, [Nick] Goodman said.

 

 

https://www.bloomberg.com/news/articles/2021-01-04/brookfield-offers-to-take-brookfield-property-partners-private

[tiddman]

"majority of minority holders" is key, this means that BAM can't just ram this through, and virtually everyone is going to want a higher price than $16.50.  I think we will see some sweetening of the offer.

[gokou3]

"majority of minority holders" is key, this means that BAM can't just ram this through, and virtually everyone is going to want a higher price than $16.50.  I think we will see some sweetening of the offer.

 

Don't be too optimistic.  Based on prior deals - e.g. TOO, GGP, TERP - it may only be a 5-10% sweetening and the stock is already trading at 3% above the $16.50 first offer price.

[tiddman]

Well I am sure BAM is aware of who the holders are and likely have a prior relationship with them. In fact the people holding BPY are probably investors in the fund that is doing the buyout and so are probably not too price sensitive because they're going to get the upside in the fund.

 

For better or worse this is how Brookfield operates. Control your destiny or someone else will.

[racemize]

"majority of minority holders" is key, this means that BAM can't just ram this through, and virtually everyone is going to want a higher price than $16.50.  I think we will see some sweetening of the offer.

 

Don't be too optimistic.  Based on prior deals - e.g. TOO, GGP, TERP - it may only be a 5-10% sweetening and the stock is already trading at 3% above the $16.50 first offer price.

 

TOO price went up significantly, but the initial offer was very very low/egregious (below market price). There is enough “discovery” here that I think the sweetening can’t be too high. I’d guess none or GGP level. (I sold and switched to BAM so that was my logic anyway).

[Xerxes]

If they already own 60% and already have control, any additional sweetener in the price would just help them beefing up the accounting value of the 60% of BPY already on their books for the whole, since the "market" demanded that premium, and we cannot argue with that.

 

 

[tiddman]

The deal has to be approved by a "majority of minority" holders, essentially their own vote doesn't count.

 

That minority is probably concentrated in a few holders that they are already affiliated with but at least there will be a vote.

[chrispy]

It is early days, less than a week, but market does not seem too excited for BAM. Could be due to interest rates. Either way, probably just noise.

 

I thought this was interesting - Epic is buying a mall in the Research Triangle. Epic could do a lot of cool things with this amount of real estate, maybe even large gaming/demonstration events:

https://www.cpexecutive.com/post/epic-games-to-convert-mega-mall-to-global-hq/

 

I think companies leasing office space in malls where maybe a large retailer was could be attractive; ample parking, near lots of residents, city like atmosphere with food court for lunch, restaurants for after work.

[james22]

I think malls could make for some pretty cool condos.

[Gregmal]

This is just the tip. Simon is doing similar things, check out their NHL Seattle mixed use development at Northgate. Although I know, malls suck and retail is dead apparently. You could make the argument part of the lasting effect of work from home would be all in one setups that mimic cities. It'll be easy enough to convert mall space to office, but you also have flexibility to create outparcels while vertically adding office/residential. If this location is solid, this will be a hit.

[MattR]

I waded through some of the financial statements from BAM and I can't for the life of me figure out how many assets and liabilities they really have. 250B in assets, 500B in assets? 120B in liabilities, or 215B in liabilities. If I would understand this I would invest in it, since the quality of the real estate and companies they own is very high for the current price.

[ValueMaven]

TransAlta could be interesting at somepoint for BAM.  It's interesting that BAM is the one acquiring shares of TA in the open-market...now controlling about 12% of shares o/s.  They bought a ton during the March panic as well....I think they did some weird preferred as well. 

[petec]

What do we think is the endgame for BPY's assets? Sold into BAM funds at IFRS and BAM is flooded with cash? Or owned inside BAM for a long time?

[chrispy]

Great question:

 

Leased up office towers that performed well in 2020 will go into funds, real estate located in India may not go into funds as it could be spun out in years to come (I think this was mentioned). Some malls will go into opportunistic, but others will be owned inside BAM.

 

You bring up a good point - if the assets go into funds at IFRS does BAM receive cash and a quick return on the assets?

 

Also, will clients be more happy to have these assets based on IFRS than mark to market volatility of BPY?

[bizaro86]

What do we think is the endgame for BPY's assets? Sold into BAM funds at IFRS and BAM is flooded with cash? Or owned inside BAM for a long time?

 

Both, I think. Probably minority stakes sold into funds that can be charged fees for an influx of cash, while control of the asset stays with the mother ship. Not so different than how it was before, really.

[John Hjorth]

Pete,

 

I speculate the [non-existent] "end game" is what you see now, and have seen over the years [,so that what we see now is actually some kind of status quo, or long term modus operandi]: An eternal process of taking BPY private [when there are headwinds in the market with regard to valuation], and then floating it again, when the market opportunistically permits - without ever giving up actual & factual control.]

 

So, "high altitude" value investing , where there aren't that many participants.

[petec]

Pete,

 

I speculate the [non-existent] "end game" is what you see now, and have seen over the years [,so that what we see now is actually some kind of status quo, or long term modus operandi]: An eternal process of taking BPY private [when there are headwinds in the market with regard to valuation], and then floating it again, when the market opportunistically permits - without ever giving up actual & factual control.]

 

So, "high altitude" value investing , where there aren't that many participants.

 

That’s a lovely idea, but I wonder how many investors would buy it knowing they’d be taken out in the next crash.

[John Hjorth]

That’s a lovely idea, but I wonder how many investors would buy it knowing they’d be taken out in the next crash.

 

Pete,

 

Please don't take it too seriously. It's highly speculative. It's based on confirmation bias [i personally wouldn't know what to do, if BAM suddenly totally off-loaded BPY.]

 

A few days ago DynamicPercption in an other topic defined a certain kind of confirmation bias :

 

These will make you groan a little.

 

... 10. Deja Moo: The feeling that you've heard this bull before. ...

 

I remember Xerxes has expressed being appalled by the privatization of the former Brookfield Properties [now years ago] in this topic not so long ago.

 

Also, perhaps it's not totally and clear-cut "Deja-Moo" ... - I mean, perhaps this was the first time you've read [speculative] BAM BS like this!

 

[rkbabang]

Pete,

 

I speculate the [non-existent] "end game" is what you see now, and have seen over the years [,so that what we see now is actually some kind of status quo, or long term modus operandi]: An eternal process of taking BPY private [when there are headwinds in the market with regard to valuation], and then floating it again, when the market opportunistically permits - without ever giving up actual & factual control.]

 

So, "high altitude" value investing , where there aren't that many participants.

 

That’s a lovely idea, but I wonder how many investors would buy it knowing they’d be taken out in the next crash.

 

I don't know, but the play is to buy after the crash, but before the buy-back.  Or just own BAM.

 

[ValueMaven]

The next several quarters at BAM will be extremely interesting.  I've been increasing my allocation to BAM across the board.  I'm very interested to see how BAMRE will develop as well. 

[petec]

The next several quarters at BAM will be extremely interesting.  I've been increasing my allocation to BAM across the board.  I'm very interested to see how BAMRE will develop as well.

 

I agree, but I am not sure it will play out over quarters. BAM in 2025 is something I am keen to see, and what I am investing for.

[petec]

That’s a lovely idea, but I wonder how many investors would buy it knowing they’d be taken out in the next crash.

 

Pete,

 

Please don't take it too seriously. It's highly speculative. It's based on confirmation bias [i personally wouldn't know what to do, if BAM suddenly totally off-loaded BPY.]

 

A few days ago DynamicPercption in an other topic defined a certain kind of confirmation bias :

 

These will make you groan a little.

 

... 10. Deja Moo: The feeling that you've heard this bull before. ...

 

I remember Xerxes has expressed being appalled by the privatization of the former Brookfield Properties [now years ago] in this topic not so long ago.

 

Also, perhaps it's not totally and clear-cut "Deja-Moo" ... - I mean, perhaps this was the first time you've read [speculative] BAM BS like this!

 

Understood.

 

I am slightly torn on the deal from a BAM strategy perspective.

 

I think (and they have been explicit about this) that part of how they add value is shuffling house capital from one area to another as value appears. Reducing BIP and BEP and adding to BPY in 2020 is smart, IMHO.

 

Then again, the whole point of the last two decades was to create a capital-light asset manager with capital-heavy subsidiaries. Yes the manager would have capital invested, but not much, and mainly for alignment of interest and seeding new businesses like BAMRE. In this regard, buying BPY seems a retrograde step.

 

It's also a little odd that they are issuing shares, rather than buying them back, given the upside to their 2025 plan value.

 

My hope is that over the next couple of years BAM can reorganise any of the BAM assets that need it, refinance them accretively, and flip them into third party funds at a discount to IFRS but a premium to the price paid. This could generate real value and unleash a wave of cash which could be used for BAMRE and buybacks. However BAM's failure to offload their stake in the New York portfolio that BPY offloaded in suspicious circumstances a couple of years back might suggest that such optimism is unwarranted. You may recall they planned to sell that to third parties immediately but to my knowledge it has not happened.

 

It will be interesting to see what they say in the Q1 call.

[petec]

Do I remember rightly that BPY paid fees based on enterprise value calculated at market, not using IFRS values?

 

If so then by buying it in at a discount and spinning it into funds that charge fees based (presumably?) on IFRS NAV, does BAM both make money on the trade and increase its fee stream?

[Xerxes]

Then again, the whole point of the last two decades was to create a capital-light asset manager with capital-heavy subsidiaries. Yes the manager would have capital invested, but not much, and mainly for alignment of interest and seeding new businesses like BAMRE. In this regard, buying BPY seems a retrograde step.

 

It's also a little odd that they are issuing shares, rather than buying them back, given the upside to their 2025 plan value.

 

Two step forward, one step back.

Privatization of BPY is the one step back on that multi-steps asset-light journey to become more aerodynamic.

 

In 2008-09 we were introduced to a Bernanke Put, then we got the Powell Put and now we have the Flatt Put.

If you own sub-shares issued by BAM, worry not the BAM-Fed got you back.