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BAM - Brookfield Asset Management

menlo

By menlo
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villainx Newbie

villainx

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That SIRF article resurfaces (and apparently resurfaces again) whenever BAM is analyzed. Last I checked, it didn't feel very compelling to me, as BAM has talked fairly about its business and have been fairly transparent.  Then again, I don't deep dive regularly.

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villainx Newbie

villainx

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Here's a Bloomberg video interview:

 

https://www.bloomberg.com/news/videos/2017-05-02/brookfield-s-flatt-excited-about-the-u-s-overall-video

 

BAM hasn't been my greatest stock investment - though it's hard to keep track with the spinoffs - as I tend to jump in at the temporary peaks.  But it's been pretty good.  However, the lessons I learned from Flatt has shaped a lot of my personal, professional and investing style.  Love the guy.

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villainx Newbie

villainx

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Sure.  In my pre-30s, I had decent career path that I squandered because I didn't work that hard.  I invested in a way that relied heavily on leverage (options mostly) that I hoped would result in big gains (without doing much due diligence), I was frugal but it was more due to laziness.

 

Today, I work harder and more than I ever imagined, but it doesn't feel like work, it just feels like a thing that I can excel at doing (related to real estate).  I got more into real estate.  I got more into value-ish, outsider-isa, quality-focused investment - that even though my due diligence skills aren't that great, I have a greater grasp of what and why I'm investing.  I look at cash flow a lot more.  Realizing stabile-ish 12% return is amazing in the long run.

 

A lot of it is just being mature, hard working, diligent, and so forth.  I'm far from meaningfully successful, though I feel ultimately I will be moderately so.  But the goal is more being mature, hard working, diligent, etc. that success itself.

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LesPaul Newbie

LesPaul

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Sure.  In my pre-30s, I had decent career path that I squandered because I didn't work that hard.  I invested in a way that relied heavily on leverage (options mostly) that I hoped would result in big gains (without doing much due diligence), I was frugal but it was more due to laziness.

 

Today, I work harder and more than I ever imagined, but it doesn't feel like work, it just feels like a thing that I can excel at doing (related to real estate).  I got more into real estate.  I got more into value-ish, outsider-isa, quality-focused investment - that even though my due diligence skills aren't that great, I have a greater grasp of what and why I'm investing.  I look at cash flow a lot more.  Realizing stabile-ish 12% return is amazing in the long run.

 

A lot of it is just being mature, hard working, diligent, and so forth.  I'm far from meaningfully successful, though I feel ultimately I will be moderately so.  <b>But the goal is more being mature, hard working, diligent, etc. that success itself.</b>

 

I admire this line of thinking and I personally find purpose and worth in this pursuit as well!

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sys Newbie

sys

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i've very gradually been convinced by flatt (although it can still be hard for me to put into practice) that it is often wise to pay up for premium assets - which may never become available cheap.

 

obviously not a unique insight from bam, but watching them is what has helped convince me.

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LongTermView Newbie

LongTermView

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Need many more 245 Park Street kind of deals.

 

Ohgodyeah!

 

For those who haven't yet gone through the letter:

In 1996, we purchased the property as part of the acquisition of a New York real estate company that was in bankruptcy. At that time, we allocated $430 million of the total purchase price to this property. It came with a $290 million mortgage, meaning that we invested $140 million to acquire the equity. In 2001, the value of the property had increased substantially, due to our renovation and subsequent re-leasing of the property with higher rents and stronger credit tenants. This enabled us to refinance the property with a $500 million mortgage and withdraw $200 million of cash.

 

In 2003, we sold a 49% equity interest to a client for a further $200 million. At the time, a $900 million total value for the property seemed high, and this allowed us to redeploy the capital elsewhere. Over the years, further leasing success, capital improvements and higher rental rates increased the value of the property further and we increased the mortgage on the property again to $800 million. We received another $150 million of cash from this financing. Finally, in this latest transaction we sold the entire building for $2.2 billion. Net of the $800 million mortgage, we received proceeds of $1.4 billion, which was distributed to us and our client.

 

In total, we received $1.5 billion of cash from our initial $140 million investment – or more than 10 times our initial equity investment. This included refinancing proceeds of $350 million, sale proceeds of $850 million, and $300 million of cash distributions from this property, which are net of tenant inducement and capital expenditures invested back into the property.

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villainx Newbie

villainx

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In 2003, we sold a 49% equity interest to a client for a further $200 million. At the time, a $900 million total value for the property seemed high, and this allowed us to redeploy the capital elsewhere. Over the years, further leasing success, capital improvements and higher rental rates increased the value of the property further and we increased the mortgage on the property again to $800 million. We received another $150 million of cash from this financing. Finally, in this latest transaction we sold the entire building for $2.2 billion. Net of the $800 million mortgage, we received proceeds of $1.4 billion, which was distributed to us and our client.

 

In total, we received $1.5 billion of cash from our initial $140 million investment – or more than 10 times our initial equity investment. This included refinancing proceeds of $350 million, sale proceeds of $850 million, and $300 million of cash distributions from this property, which are net of tenant inducement and capital expenditures invested back into the property.

 

Hmm... I wonder what the difference would have been if they never sold that 49% interest.  Was the redeployed money put to better use than just leaving it in the property?

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no_free_lunch Newbie

no_free_lunch

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They would have made 3x their money if they hadn't sold that interest.  However if they had invested the $200M in 2003 into BAM stock they would have made an additional 6-7x their money.  Or to look at the actual number, in 2003 they sold for $200M a $70M initial investment, invested subsequently in bam stock it would have grown to $1.2-1.4B, plus spinoffs and any dividends.  I don't know if that's what they did with the money but using their stock as a proxy seems reasonable.  I think they made a good capital allocation decision there.

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doughishere Newbie

doughishere

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Yeah it was interesting. Buffett was asked about Retail RE the other weekend. This and I think Third ave was not bullish on the sector but said they were hunting there.

 

I think even amazon is opening up stores here in chicago. Edit: http://www.chicagotribune.com/business/ct-amazon-bookstore-chicago-opening-0320-biz-20170318-story.html

 

Edit: There are stores opening up. http://www.businessinsider.com/retailers-opening-new-stores-this-year-2017-5

 

Third Ave: http://thirdave.com/wp-content/uploads/2017/04/Q1-2017-Real-Estate-March-31-2017-1.pdf

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villainx Newbie

villainx

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Anyone actively following or owning Brookfield group of companies, I have a question?  BBU recently closed on water facility in Brazil that - I guess - fits right in to BIP's wheelhouse.  BIP bought a water utility in Peru recently.  Does this seem odd allocation of which company buys the Brazil water management company?

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bearprowler6 Newbie

bearprowler6

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BIP vs BBU----different aspects of water focused businesses.

 

Different aspect but the Peru and Brazil water biz both seem much closer to infrastructure than ... I'm not sure what BBU's focus is.

 

?

 

Why doyou presume that BBU has a focus? BBU is the publically traded private equity partnership of the Brookfield Group. Expect a wide variety of quality businesses to make their way into BBU over time without any specific focus which differs from BIP (infrastructure), BEP (renewable energy) and BPY (real estate).

 

It may be worth asking Brookfield (they have very helpful investor relations teams) why the Brazilian water infrastructure was bought by BBU and not by BIP? Although water infrastructure has not been a main focus of BIP up until now. The BIP web site is very helpful in understanding BIP's infrastructure focus and geographic emphasis.

 

 

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LongTermView Newbie

LongTermView

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WSJ published an article today about possible inconsistent valuing of their Brazilian toll road:

 

https://www.wsj.com/amp/articles/brookfields-toll-road-to-riches-1502271002

 

Didn't have any impact on BAM or BIP share price today. Earnings are out tomorrow and I'm sure it will be discussed.

 

This is a lot like the http://www.barrons.com/articles/how-fair-are-brookfields-fair-value-estimates-1459570693 article from April of last year.

 

Neil Downey asked about this during the call and Brian Lawson answered noting that it is a rehash from Barron's with a number of fundamental inaccuracies and that it is misleading.

 

Here are some of the things Brian said:

...the management fees that Brookfield earns are based on the stock market capitalization of our listed affiliates, and not based on the IFRS valuations or book values.

 

And in fact if you look at the company that owns those assets that you referred to, Brookfield Infrastructure Partners, most of the assets owned by BIP are not actually mark-to-market at all because they are concessions. And so the IFRS value is only a fraction of what the value of the company is. And this is clearly evidenced by the fact that BIP has sold many businesses over the past number of years [for proceeds] significantly above IFRS values. We’ve observed that when investors look at a company like BIP, they’re really looking at the ability of it to increase its cash flows and therefore pay a good dividend [(reliable) and one that increases steadily over time] and again none of this is influenced by the IFRS valuations.

 

And again, the other point we’d like to make and this comes to your comment on the questions raised about the values of our tariffs, which is our Brazilian toll road operations, in particular. And the suggesting that we had widely [differing] values [that] we [assign] to it and again, that’s just not true. We did not revalue this asset over that time period. In fact, this is an even -- we don’t even use fair value accounting or for our tariffs. Just to clarify the confusion around that one. The increase in the value of our tariffs was due to two factors and two factors only; first, we invested another $700 million of cash in the business to fund capital projects and purchase in our interest; and second, the exchange rate for the Brazil currency went up by over 20% during [the] period. So this had nothing to do with our change in our valuation of the business.

 

Here is the transcript: https://seekingalpha.com/article/4097663-brookfield-asset-managements-bam-ceo-bruce-flatt-q2-2017-results-earnings-call-transcript?part=single

 

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LongTermView Newbie

LongTermView

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https://www.wsj.com/articles/amazon-inks-office-space-deal-on-manhattans-far-west-side-1506011956

The retail giant signed a 15-year lease to take about 360,000 square feet at Five Manhattan West, a revamped building that is part of Brookfield Property Partners L.P.’s new eight-acre development, Brookfield said Thursday.

 

Amazon said it plans to open its office at Five Manhattan West in 2018, creating a primary location for the company’s advertising division with teams in marketing, product design and engineering.

 

Amazon will invest $55 million to build out its new office space located at 450 W. 33rd St., which Brookfield has rebranded as Five Manhattan West.

 

...

 

The lease will bring the building’s occupancy to 99%, Brookfield said.

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