Author Topic: BAM - Brookfield Asset Management  (Read 318832 times)

bizaro86

  • Hero Member
  • *****
  • Posts: 1016
Re: BAM - Brookfield Asset Management
« Reply #800 on: December 08, 2018, 12:44:21 PM »
I'm on my phone so it's hard for me to check, but doesn't BAM consolidate BPY? They own a majority and have direction/control, so it seems like they should.

If that's the case, wouldn't the management fee from BPY to BAM be eliminated on consolidation?


John Hjorth

  • Hero Member
  • *****
  • Posts: 2523
Re: BAM - Brookfield Asset Management
« Reply #801 on: December 08, 2018, 12:51:27 PM »
bizaro,

BAM does full line-by-line consolidation of BPY, and management fees are eliminated. I have documented it in my post #795.
« Last Edit: December 08, 2018, 01:39:35 PM by John Hjorth »
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

gary17

  • Hero Member
  • *****
  • Posts: 1176
Re: BAM - Brookfield Asset Management
« Reply #802 on: December 09, 2018, 08:36:29 AM »
I must be missing something

I read BAM's report; the earnings attributed to common shareholders is $1.57 for the last 9 month of 2018...  So at $ 41... this is still 20x earnings... I am not getting why people seems to think this is a very attractive investment at current valuation.  Am I missing some important facts?   Would really appreciate someone able to enlighten me!

Thanks!
Gary

racemize

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2719
Re: BAM - Brookfield Asset Management
« Reply #803 on: December 09, 2018, 08:37:18 AM »
I must be missing something

I read BAM's report; the earnings attributed to common shareholders is $1.57 for the last 9 month of 2018...  So at $ 41... this is still 20x earnings... I am not getting why people seems to think this is a very attractive investment at current valuation.  Am I missing some important facts?   Would really appreciate someone able to enlighten me!

Thanks!
Gary

I would recommend looking at the investor day presentation.

Uccmal

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3726
GARP tending toward value

John Hjorth

  • Hero Member
  • *****
  • Posts: 2523
Re: BAM - Brookfield Asset Management
« Reply #805 on: December 09, 2018, 11:34:55 AM »
... The only unknown variables in the calculations are values in the separate categories of investment properties held by BAM the parent, or by subs of BAM controlled directly without involving BPY. The IFRS value of these investment properties is USD 5.321 B at YE2017.

That would be a good question at a future conference call to get an explanation & identification of these properties.

Today my thoughts have been circling about this particular BAM asset item of USD 5.321 B. It's a lot of value, and material compared to BAM BV. [YE2017 : BAM common equity USD 24.052 B, so gross [ex. eventual property debt] : 22%.]

I'm getting nosy and really persistent here [verging to become stubborn as some donkey]. Next, I'm going to dismantle and compare the notes in the financials about investment properties for BAM and BPY. By doing that, it must be possible to identify these investment properties. As basis, it should not be possible to "hide" a value that large in the BAM financials, when the notes are in some way structured and set as an asset directory.

Why is it so? [That there are investment properties owned by BAM, and not by the separate sub for that purpose: PBY?]: I don't know right now, but I hope to find out.

A possible explanation could be, that there at the formation of BPY years ago were certain properties considered "core-core"/"top notch"/"ultra-valuable", where BAM did not want to share the future progress in value and cash yield with the BPY minority LP unit holders.

[Like "the beer" in this old Carlsberg commercial, where everything is shared in the commune - women, toothbrushes and such - but not the beer! [I think English translation is not needed! [ : - ) ]]
« Last Edit: December 09, 2018, 11:36:32 AM by John Hjorth »
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

John Hjorth

  • Hero Member
  • *****
  • Posts: 2523
Re: BAM - Brookfield Asset Management
« Reply #806 on: December 10, 2018, 06:51:45 AM »
Really good analysis being done on BPY by this fellow:

https://seekingalpha.com/article/4226664-went-wrong-brookfield-property-partners-part-1-core-retail

https://seekingalpha.com/article/4226967-went-wrong-brookfield-property-partners-part-2-core-office

Thank you, Al,

Yes, Mr. Mazák is good. Here is his part 3 article, in a row of 4, just released today.

However, I have to say, that his NAV development analysis is a bit flawed, because it skips changes over time in capitalization rates applied under the IFRS valuation of investment properties. [And without getting too impolite or even rude, that is surprising, considering he's a "pure play" numbers/math guy/"nerd", ref. his SA profile description.]
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

vince

  • Sr. Member
  • ****
  • Posts: 391
Re: BAM - Brookfield Asset Management
« Reply #807 on: December 10, 2018, 11:34:20 AM »
Kyler, vince & johnny,

Thank you for your posts after the last one of mine. Sometimes communication via a message board can be hard and cumbersome ... - It dosen't exactly makes it easier that I've been doing my best to answer a question, that wasen't asked. [ : - ) ]

- - - o 0 o - - -

At least I think I understand Kyler's considerations and line of thinking about management fees now with respect to double counting or not.

- - - o 0 o - - -

Could BPY disregard the management fees while doing the fair value valuations for BPY's investment properties using af DCF model [Thereby getting higher valuations by disregarding/ignoring the load on cash flow from management fees]?

No, naturally not. If you look up the BPY notes to the income statement in BPY 2017 Annual Report, management fees are booked as ordinary operational expenses [also with cash flow effect], and are specified as a component of general and administrative expenses in note 28, p. F-57, upper part, as USD 168 M.

You are not allowed by IFRS to cherry pick expenses with direct cash flow effect, that you don't want to go into the DCF model. Cash flow is cash flow. Period.

PwC UK [November 2017] : Applying IFRS for the real estate industry.

- - - o 0 o - - -

Now the exactly same question about IFRS valuation of investment properties - this time not for BPY, but for BAM. It's not that hard to try to find the answer to that question. You simply walk through all the financials for all four subs and find all the LEGO bricks more or less hidden and scattered around in the +1K pages of financials for the four BAM subs and try to bolt it all together, and see what it gets you.

The conclusion is clear : BAM valuates BPY's investment properties to exactly the same values as BPY. No hanky-panky - no shagging with numbers.

Please see attached.

So BAM at group level valuates investment properties according to IFRS by use a DCF model, where management fees, which are eliminated in the BAM consolidation, are included as a cash flow burden in the DCF model.

The only unknown variables in the calculations are values in the separate categories of investment properties held by BAM the parent, or by subs of BAM controlled directly without involving BPY. The IFRS value of these investment properties is USD 5.321 B at YE2017.

That would be a good question at a future conference call to get an explanation & identification of these properties.

So I was right even though i was dead wrong, lol
« Last Edit: December 10, 2018, 04:20:32 PM by vince »

khturbo

  • Jr. Member
  • **
  • Posts: 58
Re: BAM - Brookfield Asset Management
« Reply #808 on: December 10, 2018, 11:52:01 AM »
John thanks for responding in depth. I implicitly trusted that the valuations were clean between BPY and BAM, but it's good to see the hard numbers there.

I just emailed IR asking about the management fees and whether they're reflected in the IFRS value. I always thought that the IFRS value was simply the summation of the individual properties, which would imply that corporate level management fees aren't reflected, but I could be (and hope I am) wrong. I think Brookfield IR is usually pretty good at getting back to you within a couple of days so I'll let everyone know what they say.

One other thing is the IDRs. If you assume 5% distribution growth and use a 12% discount rate (I just used 7% yield + 5% growth as the approximate return on the stock so used the same dr on the IDRs) the NPV of the IDRs is a bit above $2 / BPY share. I think everyone would agree that that should come out of the value in some way. Whether you deduct the fees from the IDRs by BAM's 53% ownership percentage in BPY or you deduct ~$2 / share (or whatever your estimate is) from BAM's holdings in BPY, I think you have to do one of those or else you really are double counting.

You have the same issue with BIP and BEP. Hypothetically since BAM uses the market price in their SOTP for themselves you don't need to make adjustments as the market should account for IDRs in the prices. I personally prefer to value them independently for mine but I guess you don't need to.

John Hjorth

  • Hero Member
  • *****
  • Posts: 2523
Re: BAM - Brookfield Asset Management
« Reply #809 on: December 10, 2018, 11:31:01 PM »
Thank you, Kyler,

Great initiative from you to get in contact with BAM IR about it. It's certainly better to ask the company and get confirmation [- or the opposite] with certainty, and perhaps also some supplemental elaboration. I'm looking forward to read the reply you'll get from BAM IR.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai