- Although Brookfield Asset Management (NYSE:BAM) reaps cash flow from rents, tolls, and management fees, writes Bill Alpert, the majority of reported earnings in recent years have come from noncash markups of the "fair value" of its investment properties.
- Said properties - which include office buildings, container ports, toll roads, and hydroelectric dams - can be tricky to value, meaning "unobservable inputs" are at the fore in their calculation.
- BAM's 30%-owned affiliate Brookfield Infrastructure Partners (NYSE:BIP) has grown its cash flow and dividend at better than a 10% annualized clip since its 2008 spinoff, and today has a 5.5% yield. Two investments that account for 14% of its book value are jointly held with other public companies doing their own valuations of those assets - Natural Gas Pipeline Company of America and Brazilian toll road network Arteris (which, in fact, is publicly traded).
- Looking at Arteris, both Brookfield and Spanish co-owner Abertis Infraestructuras in 2014 carried the asset at values implying the company was worth $2.3B. With trucking traffic on the decline amid a Brazilian recession, Abertis Infraestructuras wrote down its investment to a level implying a $900M valuation at year-end 2015, while Brookfield hung tight at $2B. A check of Abertis' stock price finds the public market valuation lower than even that $900M figure.
- What gives? BIP CEO Sam Pollock says public markets are undervaluing Abertis, and BIP and its partner have offered $1B to take it private. As for BIP's $2B valuation, it implies an enterprise value of roughly eight times 2015 cash flow.