Brookfield Asset Management (BAM) Delivers: Properties Spinoff Announced

Brookfield Asset Management Announces Spin-Off of Brookfield Property Partners [Source]:

The spinoff of Brookfield Property Partners (BPY) is a special dividend to Brookfield Asset Management’s (BAM) shareholders of record as of March 26, 2013 and payable April 15, 2013. It is the last major step needed to complete the multi-year transformation from a sprawling international conglomerate formerly known as Brascan Corporation to a global asset manager.

BPY’s structure is similar to the successful spinoffs of Brookfield Infrastructure Partners (BIP) and Brookfield Renewable Energy Partners (BREP). BPY will be managed by Brookfield under the terms of a long-term management contract and BPY will list its shares on the NYSE and TSX.

The previous spinoffs of infrastructure assets (Brookfield Infrastructure Partners, BIP) and renewable energy assets (Brookfield Renewable Power, BREP) into publicly traded holdings have worked well. Brookfield Property Partners (BPY) is the largest spinoff and consists of BAM’s commercial global properties.

BPY Composition

[Source]: Brookfield Property Partners Summary

Collectively the spinoffs simplify the corporate structure for investors seeking either income investments, capital appreciation, or both. They place the assets in industry segments traditionally followed by security analysts and investors. This provides for better understanding, focus and improved appreciation of the asset values by the market.

Brookfield Asset Management’s restructuring is similar to what Kinder Morgan Inc. (KMI) did years ago to unlock the value of pipeline assets in the United States and Canada. Brookfield Asset Management is unlocking the value of real assets on a global basis.

Like the very successful KMI, BAM uses a structure known as a master limited partnership (MLP) to hold long life income producing assets. They grow the asset base through astute capital allocation, value investing and focused operational and transaction expertise.

Brookfield Asset Management holds the general partner units and large portions of the Limited Partner (LP) units of their flagship entities; Brookfield Property Partners (BPY) holding 92.5% of the LP units; Brookfield Infrastructure Partners (BIP) holding 28% of the LP units; and Brookfield Renewable Power (BREP) holding 68% of the LP units. In addition to this alignment with investors, management holds about 20% of BAM shares further aligning their interests with ours. BAM also holds Brookfield Private Equity Partners a non-publicly traded private equity business.

The corporate functions are handled by the respective general partners that are 100% owned by Brookfield Asset Management. BAM charges a fee for the corporate services. Most of the income is from the Limited Partner distributions (think dividends) and Incentive Distribution Rights (IDRs). Importantly under the MLP structure the partnerships (BPY,BIP,BREP) don’t pay corporate taxes. Profits and tax liabilities are passed on to unit holders in the form of distributions thus avoiding double taxation.

The news release in part [Source]:

TORONTO, ONTARIO–(Marketwire – March 15, 2013) – Brookfield Asset Management Inc. (“Brookfield”) (TSX:BAM.A)(NYSE:BAM)(EURONEXT:BAMA) today announced that it will distribute to the holders of its Class A and B limited voting shares an interest in its commercial property operations through a special dividend of units of a newly created company named Brookfield Property Partners L.P. (“BPY”). BPY has received conditional approval to list its units on The New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”).

Brookfield will effect the distribution by way of a special dividend of units of BPY, payable on April 15, 2013 to shareholders of record as of March 26, 2013. On the distribution date, each shareholder will receive one BPY unit for approximately every 17.42 shares of Brookfield (that is, 0.0574 BPY units for each Brookfield share). The dividend is currently estimated to be valued at approximately $1.45 per Brookfield Class A or B share, or approximately $900 million in the aggregate, based on December 31, 2012 International Financial Reporting Standards values.

Shareholders will receive a cash payment in lieu of any fractional interests in the BPY units. Brookfield will use the volume-weighted average of the trading price of the BPY units for the five trading days immediately following the spin-off to determine the value of the BPY units for the purpose of calculating the cash payable in lieu of any fractional interests.

Immediately following the distribution, BPY will effectively be owned approximately 7.5% by the shareholders of Brookfield and approximately 92.5% by Brookfield assuming the exchange of Brookfield’s redeemable partnership units which it holds in an affiliate of BPY.

BPY will be Brookfield’s flagship commercial property company and the primary entity through which Brookfield will carry on its commercial property operations on a global basis. BPY’s goal is to be the leading global investor in best in class commercial property assets.

BPY will own substantially all of Brookfield’s commercial property operations, including its office, retail, multi-family and industrial assets. BPY’s portfolio will include interests in over 300 office and retail properties encompassing more than 250 million square feet. In addition, BPY will have interests in approximately 12,200 multi-family units, 7 million square feet of industrial space and an 18 million square foot office development pipeline.

BPY’s distribution policy is to target an initial pay-out ratio of approximately 80% of its funds from operations and is initially pursuing a distribution growth rate in the range of 3% to 5% annually. It is expected that BPY’s distribution will be paid quarterly starting on June 28, 2013 and is anticipated to be $1.00 per unit annually (or $0.25 per unit on a quarterly basis), subject to board approval, with the first quarterly distribution pro-rated for the period between April 15, 2013 and the record date for the distribution.

“Brookfield Property Partners will be one of the world’s largest publicly-traded property companies, well-positioned for those seeking to invest in diversified high-quality real estate on a global scale,” stated Ric Clark, Senior Managing Partner of Brookfield and Chief Executive Officer of Brookfield’s global property group. “Brookfield’s long history of owning, operating, and developing properties across multiple geographies provides BPY with a strong pipeline of deal flow, market and asset-specific underwriting expertise, and the ability to add value at the asset level.”

“This distribution is the next stage of our alternative asset management strategy and creates one of the largest global property companies, with the size and scale needed to compete for the largest transactions in the world,” stated Bruce Flatt, Chief Executive Officer of Brookfield. “We intend to use this entity to build our commercial property businesses into an even stronger franchise globally, as we have done with Brookfield Infrastructure Partners and Brookfield Renewable Energy Partners.”

Brookfield Property Partners represents the third pillar of the strategy to consolidate Brookfield’s major business units into public market affiliates with appeal to investors looking for both solid income and steady growth. Brookfield Infrastructure Partners was spun out to Brookfield shareholders in 2008 as a special dividend and has produced an annual total return of approximately 35% over the past three years. Brookfield Renewable Energy Partners was created in 2011 and has produced an annual total return of approximately 25%.

Further details regarding the operations of Brookfield Property Partners are set forth in regulatory filings. A copy of the filings may be obtained through the website of the SEC at www.sec.gov and on BPY’s SEDAR profile at www.sedar.com…BPY is expected to begin “regular-way” trading on the NYSE and the TSX on April 15, 2013, under the symbols “BPY” and “BPY.UN” respectively.

Brookfield Asset Management Inc. is a global alternative asset manager with over $175 billion in assets under management. The company has over a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. Brookfield has a range of public and private investment products and services, which leverage its expertise and experience and provide it with a competitive advantage in the markets where it operates. Brookfield is co-listed on the New York and Toronto stock exchanges under the symbol BAM and BAM.A, respectively, and on NYSE Euronext under the symbol BAMA. For more information, please visit our website at www.brookfield.com.

We’ll discuss the investment attributes of the partners (BPY,BIP,BREP), and the asset manager (BAM) in our next post followed by a post updating the valuation of Brookfield Asset Management.

Disclosures: Long BAM, BIP, BREP

 

 

 

 

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