Author Topic: BAM - Brookfield Asset Management  (Read 244274 times)



John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #791 on: December 06, 2018, 04:14:35 PM »
How do you interpret the large transactions on December 4th 2018, khturbo?

Large equal acquisitions and dispositions on the same day. It looks like exercising stock options for cash.

Thanks, rkbabang,

The one pair of trades attached to BAM, as indirect owner [by prior filings] makes some sense to me, the next pair of filings related to "RE LP Units (BPLP)" I do not understand - For the second pair of filings, please enlighten me in my darkness here.
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khturbo

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Re: BAM - Brookfield Asset Management
« Reply #792 on: December 06, 2018, 06:30:24 PM »
I'm not quite sure what's going on there either, but I've seen this big matching transactions in large blocks that net out before and it doesn't affect their net ownership, so I just kind of ignore them.

khturbo

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Re: BAM - Brookfield Asset Management
« Reply #793 on: December 06, 2018, 06:32:48 PM »
What do you guys think about using IFRS to value BPY? I got into a discussion with the author of the article that saltybit mentioned in the comment section of his first article (I'm Kyler Hasson).

Personally, it seems super clear to me that if you use IFRS and you count all of the fees that BAM earns from BPY then you're double counting the fees by not deducting them. I get a NPV of ~$4-5 / share of the fees under normalish kinds of scenarios (I talk about it at greater length in that same comment section) but would be interested to hear how others think of it.

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #794 on: December 07, 2018, 02:38:16 AM »
Kyler,

From BAM Annual Report 2017, p. 80:

Quote
... As a result, we include 100% of the revenues and expenses of these entities in our consolidated statements of operations, even though a substantial portion of the net income in these consolidated entities is attributable to non-controlling interests. On the other hand, revenues earned, and expenses paid between us and our subsidiaries, such as asset management fees, are eliminated in our consolidated statements of operations; however, these items affect the attribution of net income between shareholders and non-controlling interests. For example, asset management fees paid by our listed partnerships to the corporation are eliminated from consolidated revenues and expenses. However, as the common shareholders are attributed all of the fee revenues while only attributed their proportionate share of the listed partnerships’ expenses, the amount of net income attributable to common shareholders is increased with a corresponding decrease in net income attributable to non-controlling interests. ...

So net, no double counting in the BAM financials. It's a logical consequence of generally accepted principles for consolidation, based on a control criteria, to the contrary of a ownership share criteria.
« Last Edit: December 07, 2018, 02:40:01 AM by John Hjorth »
”In the race of excellence … there is no finish line.”
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rkbabang

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Re: BAM - Brookfield Asset Management
« Reply #795 on: December 07, 2018, 06:30:27 AM »
How do you interpret the large transactions on December 4th 2018, khturbo?

Large equal acquisitions and dispositions on the same day. It looks like exercising stock options for cash.

Thanks, rkbabang,

The one pair of trades attached to BAM, as indirect owner [by prior filings] makes some sense to me, the next pair of filings related to "RE LP Units (BPLP)" I do not understand - For the second pair of filings, please enlighten me in my darkness here.

I don't understand them either, I was just guessing.

khturbo

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Re: BAM - Brookfield Asset Management
« Reply #796 on: December 07, 2018, 10:22:10 AM »
Kyler,

From BAM Annual Report 2017, p. 80:

Quote
... As a result, we include 100% of the revenues and expenses of these entities in our consolidated statements of operations, even though a substantial portion of the net income in these consolidated entities is attributable to non-controlling interests. On the other hand, revenues earned, and expenses paid between us and our subsidiaries, such as asset management fees, are eliminated in our consolidated statements of operations; however, these items affect the attribution of net income between shareholders and non-controlling interests. For example, asset management fees paid by our listed partnerships to the corporation are eliminated from consolidated revenues and expenses. However, as the common shareholders are attributed all of the fee revenues while only attributed their proportionate share of the listed partnerships’ expenses, the amount of net income attributable to common shareholders is increased with a corresponding decrease in net income attributable to non-controlling interests. ...

So net, no double counting in the BAM financials. It's a logical consequence of generally accepted principles for consolidation, based on a control criteria, to the contrary of a ownership share criteria.

Ah yes sorry for being vague. I meant less of counting in the financials and more of how BAM carries the value on its balance sheet. What I mean is that if you accept the IFRS value for BPY but you also count the earnings that BAM gets managing BPY, then in my opinion you're double counting the value of the fees. IMO the NPV of the fees should be deducted from IFRS value of BPY units. I was wondering how different people thought about that.

vince

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Re: BAM - Brookfield Asset Management
« Reply #797 on: December 07, 2018, 01:34:49 PM »
Kyler,

From BAM Annual Report 2017, p. 80:

Quote
... As a result, we include 100% of the revenues and expenses of these entities in our consolidated statements of operations, even though a substantial portion of the net income in these consolidated entities is attributable to non-controlling interests. On the other hand, revenues earned, and expenses paid between us and our subsidiaries, such as asset management fees, are eliminated in our consolidated statements of operations; however, these items affect the attribution of net income between shareholders and non-controlling interests. For example, asset management fees paid by our listed partnerships to the corporation are eliminated from consolidated revenues and expenses. However, as the common shareholders are attributed all of the fee revenues while only attributed their proportionate share of the listed partnerships’ expenses, the amount of net income attributable to common shareholders is increased with a corresponding decrease in net income attributable to non-controlling interests. ...

So net, no double counting in the BAM financials. It's a logical consequence of generally accepted principles for consolidation, based on a control criteria, to the contrary of a ownership share criteria.

Ah yes sorry for being vague. I meant less of counting in the financials and more of how BAM carries the value on its balance sheet. What I mean is that if you accept the IFRS value for BPY but you also count the earnings that BAM gets managing BPY, then in my opinion you're double counting the value of the fees. IMO the NPV of the fees should be deducted from IFRS value of BPY units. I was wondering how different people thought about that.

I dont believe thats the right way to look at it.  Bam owns somewhere around 65% of bpy and thats counted as 65% of bpy's market cap.  But that value is determined by the market with bpy's earnings that are already net of the fees. I could be wrong though

johnny

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Re: BAM - Brookfield Asset Management
« Reply #798 on: December 07, 2018, 01:44:34 PM »
But that value is determined by the market with bpy's earnings that are already net of the fees. I could be wrong though

BAM presents its stake in BPY at book value, not market quote. That's the point KH is driving at. They're telling you to look at the underlying liquidation value of the real estate, and also telling you to put a 20x on the management fees they are receiving from Not Liquidating The Real Estate. As you say, knowing nothing, you'd assume an efficient market would discount the shares to compensate for the value lost to the external manager, so the question is how much the market is overshooting with its current 40% discount--it's certainly not 40%.

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #799 on: December 08, 2018, 12:34:25 PM »
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.
« Last Edit: December 09, 2018, 07:34:48 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