Author Topic: BAM - Brookfield Asset Management  (Read 349374 times)

jfan

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Re: BAM - Brookfield Asset Management
« Reply #810 on: December 11, 2018, 07:24:23 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! [ : - ) ]]

 Hi John,

I'm just curious where you got the USD 5.321 Other investment property number from? I've been searching for this differential between BAM and BPY's reports and can't seem to find it.

Thanks
Jerome


John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #811 on: December 11, 2018, 07:37:16 AM »
Hi Jerome, Welcome to CoBF! [ : - ) ],

You have to study the downloadable attachment to my post mentioning that particular figure. It's explained and documented there, cf. the content of my post.
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jfan

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Re: BAM - Brookfield Asset Management
« Reply #812 on: December 11, 2018, 11:49:53 AM »
Thanks John.

Sorting through BAM's financials is a challenging task. I think you are right about BAM keeping some investment properties to themselves without placing them into BPY.

Looking back at BAM's and BPY's 2012 annual report. It would appear that at least from the property acquisition perspective that there were more BAM consolidated purchases than attributed to just BPY's activity.

As an example, in BAM's 2012 report, page 30 under Investment properties and PPE, there were $4.508 B of property acquisitions. Whereas in BPY's 2012 report, page 194 (F-22) note 5, there were only $2.58 B of property acquisitions. Similar thing occurred in 2013.

Unfortunately, their disclosure on these properties is not forthcoming.

The only other possibility is that they have re-allocated their sustainable timberland properties to higher value use (?Brazil agricultural lands).
They sold off $3+ Billion in timberland in 2013. The remaining is attributable to Acadian Timber Corp ~ $123 million (based on Market Value on Dec 2017) and the rest is unlisted ~ $613 million. This is usually located in the accounts receivable but again disclosure is not consistent to make a concrete conclusion that they were shifted out to investment properties.











khturbo

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Re: BAM - Brookfield Asset Management
« Reply #813 on: December 11, 2018, 01:00:56 PM »
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.

I wonder if these properties are reflected as the "unlisted" investments? Unlisted was $5,885mm quoted and $4,797mm IFRS as per the discussion in at YE 2017. Seems pretty close.

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #814 on: December 12, 2018, 03:03:24 AM »
Ritzau via Boersen.dk [December 3rd 2018] : Media : Giants are bidding up to DKK 26 B for Ørsted subsidiary. [Unfortunately only in Danish.]

Brookfield is mentioned in the article as a bidder. The article appear undocumented. I haven't been able to find that particular Bloomberg News article mentioned.

Radius is the Ørsted subsidiary distributing power to customers primarily in the northern part of Sealand, strategically for sale by Ørsted.

My personal judgement here is, that most PE funds etc. won't stand a chance here as bidder, based on the political sentiment here in Denmark after the dividend cases etc. related to Macquarie investing in Copenhagen Airport and TDC. [Ørsted is state controlled, but listed.]

Finans.dk [December 11th 2018] : Ørsted filters politically unwanted bidders.
”In the race of excellence … there is no finish line.”
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jfan

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Re: BAM - Brookfield Asset Management
« Reply #815 on: December 12, 2018, 10:11:50 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.

I wonder if these properties are reflected as the "unlisted" investments? Unlisted was $5,885mm quoted and $4,797mm IFRS as per the discussion in at YE 2017. Seems pretty close.

No. The unlisted investments (IFRS amount $ 4797)on the pg3 of the 2017 annual report consists of Brookfield Energy Marketing ($801 Common equity), Brookfield Residential (common equity $2915), and $1081 of other unlisted investments. This "Other" category is consistent with the footnotes in the YE 2017 supplemental where its states $1.1 B of unlisted investments spread across real estate, private equity and sustainable resources.

Acadian is also follows similar IFRS Mark to Market accounting. Its market value is about $123 million. The sustainable resource common equity as quoted in the Infrastructure section of BAM's annual report is $736 million. My guess is that they have an excess of $613 million invested in other unlisted timberland resources.

Knowing this and the fact that the unlisted real estate investments are $72 (as disclosed in the 2017 supplemental).  There is probably $396 million in unlisted investments buried within the private equity portion.

Along the same lines, the "Other Listed" investments are Acadian Lumber and Norbord where BAM owns 45% and 49% of their respective shares. TERP is consolidated within BEP given that BAM owns Orion who in turns owns 51% of TERP.

If we estimate that the value of Acadian Lumber is $123 million and Norbord is $1801 million, plus the net cash and financial asset carried on the BAM corporate activities ($2255) gives you ~ $4179 million.

This estimate is roughly in line with the printed value of $4015 on BAM's annual report.

Knowing this, I think the most likely explanation for the $5.513 of other investment properties is that they are likely highly leveraged. The other investments in the real estate section ($72) is likely the residual amount.

BAM does state that they on occasion will use their corporate balance sheet to facilitate acquisitions so that they have a speed advantage when opportunities arise and so that they can close transactions efficiently.

« Last Edit: December 12, 2018, 10:48:11 AM by jfan »

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #816 on: December 12, 2018, 12:25:51 PM »
Awesome posts from you gents recently, Kyler & Jerome!,

Please keep them coming! To me, it's like one guy asking a specific question, triggering another guy a new way to look at BAM things from another perspective, triggering a new analysis, and thereby new ways to look at it.
”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

Jerry Capital

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Re: BAM - Brookfield Asset Management
« Reply #817 on: December 12, 2018, 12:32:05 PM »
Agreed thanks for your work.
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khturbo

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Re: BAM - Brookfield Asset Management
« Reply #818 on: December 13, 2018, 10:43:59 AM »
Ok guys, just heard back from IR. Here's verbatim what I got back when I asked about management fees being reflected in NAV:

"The equity per unit we disclose reflects all assets and liabilities, not just the properties. Insofar as the management fee is reflected in net income, it’s also reflected in the equity per unit calculation."

I responded asking him to confirm that the management fees were reflected in net income as they appeared to be in the Q's. He replied that that was correct.

So the management fees are reflected in NAV, which means that it is certainly not double counting to put a multiple on the management fee and value BAM's stake in BPY at NAV (or some multiple thereof).

Agreed with the other posters. Lots of good info in here and appreciate all of the learnings!

jfan

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Re: BAM - Brookfield Asset Management
« Reply #819 on: December 14, 2018, 10:15:10 PM »
... BAM can do the spins of the LPs & selectively purchase LPs when they think they think they are cheap & spin them off at some time in the future.  Management can also maintain their ownership of the LP interests they now have in direct interests which will have a higher value. The reason why these structures make sense for others is to maintain control but Brookfield has control via the GPs.  What is point of holding the LPs in BAM if they can retain control of the LP assets via the GP (and thus access to permanent capital) & retain management ownership/incentive of some of the funds directly?  I just do not see the benefits as all the benefits folks have been discussing can be retained via an LP spin-off with a reduced discount. There would have to be some explanation but I think clients & investors would understand the economics have not changed but the structure has to increase everyone's value.

Maybe I am missing something about how the GP/LP structure works.  Can the LPs remove Brookfield as the GP if a certain number of LP units vote to remove them?  I do not think so.

Packer

Those are some positions and questions, that actually qualify - at least, to me , personally. Time to go BAM digging - again! [To me, it's [ still] about the understanding of the whole inner workings of the Brookfield sphere, going forward.]

Thank you for your post, Packer.

I thought I try to ask this question at least with respect to BPY and BAM. In BPY's filings, page 156, it quotes: "Our company may not be removed as managing general partner by the partners of the Property Partnership". BPY GP can withdraw from being managing GP without the approval of the unitholders. So Packer is absolutely correct that the power is held by BAM with or without owning the LP units.

I have not read the filings for the other LPs, but I suspect they are similar in structure as well.

This is also consistent with BAM, given that 1/2 the board is elected by the Class B shares, and these shares are owned by Partner's Limited. Since Partner's Limited is wholly controlled by the group of likely prior Brascan managing partners. BAM similarly is protected from outside activists.

All this is consistent with the Brascan ethos, where they sought control of companies via ownership via debt or equity. All this in order to unlock shareholder value. This has always been their primary goal. (The Brass Ring is quite an insightful book)

Trying to see how it is from BAM's perspective, despite having control over BPY via the GP structure. If the LP shares are at a discount, why not purchase them for themselves for future capital gains? Particularly since, you have control over the direction of the LP anyways and most likely have a plan to unlock or at least make the value more transparent in the future. This would be preferable to purchasing another non-related business or debt/equity of someone else's company.

Furthermore, BAM still gets their base management fees from the LP, equity enhancements and incentive distributions albeit at a reduced rate if the BPY share price languishes, but always adding to their cash flow.

I think ultimately BAM prioritizes in this order of importance: 1) full control at all times 2) unlock value to be reflected in the share prices over time 3) then fees to themselves via AUM.

Anybody that invests with BAM has to "trust" that they will look after the outside passive minority investor and believe they know best. The question you have to answer in your mind, is BAM +/- LPs properly aligned with the common shareholder?
« Last Edit: December 16, 2018, 10:46:45 PM by jfan »