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Brookfield has been on a tear lately.  On a BRK and FFH board, I am a little surprised that no one has talked much about this company (especially with many board members residing to the north).The manangement team seems to have done a good job with capital allocation.

 

Anyone want to take a stab at his on the investment board?  I haven't looked at the company in a while, but it is slightly more difficult than most to understand.  Some good analysis would be welcome.

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Bam is one of the simplest businesses to comprehend. The CEO, Bruce Flatt has said on numerous conference calls and reports that the goal at Brookfield is simplicity and not doing things that are complicated. Each annual report has an estimate of intrinsic value so you can compare that to the current stock price. All they do is own real estate, hydro, and infrastructure assets, financed by permanent capital and long-term debt that kick off large streams of cash-flow. Simple!

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Scorpion - I would love it if you did a writeup on the investment ideas board.

 

However, if you accept this assignment, please be sure to write the symbol - as I seemed to have omitted for Loews.

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Bam is one of the simplest businesses to comprehend. The CEO, Bruce Flatt has said on numerous conference calls and reports that the goal at Brookfield is simplicity and not doing things that are complicated. Each annual report has an estimate of intrinsic value so you can compare that to the current stock price. All they do is own real estate, hydro, and infrastructure assets, financed by permanent capital and long-term debt that kick off large streams of cash-flow. Simple!

 

Every business is simple if you look at it like that, Enron makes money trading energy and is well run Simple!

 

BAM seems to have hundreds of entities and related party transactions. This piece will sell to that, and bring in a third party for this or that, then they buy this, and spin off that and what not. I know its part of their asset management business but for me its tough to follow the details / big picture. Trust me BAMs accounting is far from simple, it may look pretty when its rolled up.

 

Also there assessment of IV is useful but I prefer to do my own. They should be interesting now that they are on IFRS. The revaluations every few years should help quite a bit.

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However, if you accept this assignment, please be sure to write the symbol - as I seemed to have omitted for Loews.

 

No wonder you guys need proof-readers.  ;D  Although you were only one culprit amongst a few who did the same.  Cheers!

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bam.a

 

I have held this a couple of times in the past.  Each time I have sold it for something cheaper that has a little more zing (upside catalyst) to it.  Management is quite good and has created a guru status but I wonder when he will key into getting his stock noticed.  As scorpion suggests they invest in Real estate, power assets, some commodity assets etc.  But they operate more like a package of hedge funds, and subs then a single business.  

 

So, Bam lies at this confusing interface between being a utility, a reit, and an Asset manager/commodity company.  Now I dont know about you but if I want a utility with solid growth prospects I may buy Bell Canada, TCPL, or Enbridge, which all pay good dividends in our cash starved world.  If I wanted to own a commodity stock I would likely buy one directly.  Similarly, if I wanted a reit I would buy one that paid a good dividend with a long term record.  If I want as asset manager I would buy one direct such as IGM, or a good US equivalent that pays out 4% of earnings and still grows at a 15% clip.

 

BAm is a complex, heavily leveraged, quite large, and certainly confusing entity, run by a bright guy who hasn't figured out that a 4.5% dividend with a 15% increase each year would be in his best interest.  If I want a Bam I would buy a GE which pays a reasonable dividend to go with its complexities.

 

   

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think of utilities...these are expensive assets, nobody is going to fund it with 100% equity. Think mid-american energy. Think a reasonable return on (usually government-entangled) assets and earning power that are not going away for a very long time. What matters is return on invested capital. Also you'll want to adjust net income for the very large depreciation charges, some of these properties capex is far less than the amount being depreciated. FCF is 2-3x the net income figure.

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Stable cash flow or not, what happens when interest rates increase by 300bp (note that I say when, not if!)?  Even having to refinance $10b at a higher rate would eat into FCF.

 

Good point on the depreciation vs maintenance capex.  I usually assume that they roughly offset, but it it's true that the maintenance capex requirements are far lower, then that would be a serious contributor to value.

 

I'm really having trouble with big piles of real estate and big piles of debt.  I guess that means I need more than a superficial glance at the annual so that I can better understand their portfolio!

 

SJ

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we own it...read the annual report...you will get a better idea why people on this board own it...brazil anyone?

 

some one mentioned catalyst earlier...

we rolled our GGP holding into BAM....why?

BAM invested $2.6 billion into new GGP at $10...it is worth between 15 and 20...so they will make

$1.3 billion minimum we think this year and likely more than duoble their investment over the next year.(they have a !0 yrear plan for GGP) They

will own about 30% of GGP on Nov 8...and they will be running it. They went big during the crisis... those bets are

about to pay off like the GGP investment. This investment will get a lot of attention as it will be the second biggest

REIT in the US and Ackman's involvement makes headlines everyday...BAM will get a lot of U.S exposure from this high profile

win. All we want is for the investment community to look at the assets...they speak for themselves...for example they own the biggest home builder

in Brazil...they are growing at 50%!!!

 

Dazel.

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I bought a small position earlier this year, but agree its a lot of work to understand and still won't have definite valuation. Basically, you have to look at the structures of their deals, management, etc,  and feel comfortable with the general theme and terms.  Its a similar to the trust involved investing in Luk or BRK. Personally, I like how they are run, the asset classes, and the ability to increase returns with asset management and incentive fees. It seems to me that every deal across asset classes they are targeting mid teen returns and capable of getting it. Mind you that when you are using partners money who's return expectations are sub 10% Brookfield with be left with large incentive distributions.

 

I guess I'm a little more comfortable with the debt level on the real estate because for the most part lower leverage deals <60% and mostly on individual non-recourse basis. They made some mistakes in Brookfield Properties with the Trizec deal, but seems like they will end up okay on that now. Certainly, interest rate increases will have an affect, but depends on the debt terms. Many of the deals are done with 10 yr term.

 

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  • 2 months later...

Just came across a nice profile of Brookfield and Bruce Flatt, published in the NY Times last month.

 

http://www.nytimes.com/2010/12/19/business/19brook.html?pagewanted=1&_r=1

 

Mr. Flatt is animated when talking about his businesses but terse when questions turn to his personal interests. (“How do you relax?” “I read business books.” “What’s your favorite one?” “I don’t have one.” “Do you listen to music?” “No.”)

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