Analyzing Canadian REITs, Part VIII: Brookfield Asset Management And Real Estate Funds

| About: Brookfield Asset (BAM)
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Although our previous seven articles have examined investing in individual Canadian real estate securities, there is a group of investors who prefer funds. This article and its associated Instablog - Canadian Real Estate Funds And Canadian-Traded International REITs (Part VIII-A) - addresses the interests of these investors. There is no Canadian real estate fund (specifically, a Canada-originated security) traded on American exchanges. However, there is one significant stock that would provide investors substantial Canadian and global real estate (and infrastructure) exposure - Brookfield Asset Management (NYSE:BAM), which is co-listed on both the Toronto and New York stock exchanges.

Brookfield Asset Management Inc. is not a real estate security, but has a substantial real estate portfolio within the conglomerate. Trading at $30.30 (52-Week Range is $32.96 - $25.91), it provides a 1.7% yield; this yield is certainly unappealing to yield-oriented investors, but the impaired market price and enormous, diversified and defensive portfolio, may appeal to many other investment strategies. Its Property Platform website identifies the following portfolios, some of which are described in detail in other articles in this series:

Overview - Brookfield has a high-quality commercial portfolio - BAM holds 235 properties in the U.S., with a concentration in the major cities. For example, New York City's portfolio of 12 properties includes the World Financial Center. The 34 Canadian properties include two marquis buildings in Toronto - Brookfield Place and First Canadian Place. The other property holdings are also impressive: 25 properties in London, UK; 22 in Rio de Jeneiro; and, 44 spread across the major Australian cities, provide a total of 360 properties in this portfolio. Therefore, this is not an investment in only Canadian or American real estate, but a substantial position in several major world centers. The main operating divisions are:

1. General Growth Properties - BAM purchased this at fire-sale prices a few years ago, when GGP was insolvent. According to its website, General Growth Properties has been in the shopping center business for more than 50 years. This U.S. portfolio includes shopping locales such as Ala Moana Center (Honolulu), Tysons Galleria (D.C.), Glendale Galleria (Los Angeles) and Water Tower Place (Chicago), the entire GGP portfolio comprising 136 regional and super-regional malls, totaling roughly 140-million square feet of space.

2. Brookfield Multiplex - An international contracting and development business, creating large-scale and complex landmark buildings, commercial structures and infrastructure projects, predominantly in Europe, the Middle-East, Canada, and Australia.

3. Brookfield Office Properties (NYSE:BPO) - A commercial real estate corporation that owns, manages, and develops premier assets in North America and Australia. Part III of this series includes the financial/performance metrics, and description, of this security, and more information is available at its website.

4. Brookfield Europe- Brookfield currently has £2.2 billion in assets under management with offices and operations in 17 European cities. Brookfield and its partners own a significant stake in Canary Wharf Group PLC, an integrated property development and investment company focused on the Canary Wharf Estate, a major part of the Central London Office Market. The Canary Wharf Estate extends over 97 acres and the development focuses exclusively on Grade A office space and high-quality retail facilities.

5. Brookfield Australia - 37 properties, comprising over 1 million square meters in Australia's top markets. High rents, high occupancy levels and long-term leases to government and institutional grade tenants. The portfolio is currently managed by Brookfield Properties Management Ltd., an operating division of Brookfield Office Properties.

As you can see, Brookfield Asset Management is more of a conglomerate or fund real estate holding, and is not a pure-play on certain Canadian real estate assets.

The CIBC report from December 19, 2011, (available to customers at no cost) suggested that current economic conditions are ideal for BAM to execute its strategy, and summarized its strategic and financial position as follows:

BAM has a strong track record of creating value through opportunistically acquiring high-quality assets, often with balance sheet challenges. Current conditions are ideal for sourcing and executing such investments. Recent examples include Babcock & Brown, General Growth & Birch Mountain.
With $4.1 bln of liquidity (incl. subsidiaries, or $2.8 bln at the corporate level), $8.0 bln more from its private equity partners, and as much as $5 bln or more being raised through 8 funds, BAM is well capitalized to pursue growth as opportunities arise, potentially including investments in Europe.
Q3/11 CFPS was $0.35 (incl. $0.02 of gains), vs. $0.57 ($0.08 of gains) a year ago. Q3 EPS were $0.36 vs. $0.16 LY. Higher renewable power & real estate contributions were offset by lower development, PE and other income contributions, as well as a higher share count (Q1/11 issue).
BAM shares trade 23% below our current NAV estimate of ~$34 per share (vs. BAM's core $31.85 tangible asset value and $37.93 total NAV). Our 12-to 18-month price target is $34.00 per share (from $38.00) or in line with our NAV, implying a 31% total return. We rate BAM Sector Outperformer.

Not interested in Brookfield Asset Management and still want to have Canadian-based real estate fund exposure? Those who are interested in this investment category will need to trade on the main Canadian exchange - the Toronto Stock Exchange (TSX). One of our colleagues, Philipsonh - has identified an article which may prove useful to achieve this goal: How to Trade Foreign Stocks. Charles P. Whaley provided an excellent comment, overview, and reference links for us regarding the performance of the real estate funds and market in Canada:

What you may have left out, unless I skipped over it, is that there are S&P/TSX indexes that represent Canadian real estate companies, and these may be used as benchmarks for any individual REIT purchases.

There's the S&P/TSX Capped Real Estate Index, up roughly 4% in 2011 (the general S&P/TSX Composite Index was down -11%), and the S&P/TSX Capped REIT Index, up 15% in 2011.

I currently can't explain the performance gap between those two, since there is quite a bit of overlap in the constituents of those two indexes.

More information on these indexes, their constituents and recent quotes can be found at the Toronto Exchange web site, but I generally find better coverage of Canadian Indexes at the S&P Index site

None of the Canadian real estate funds is available on U.S. exchanges. If you are interested, I have added information about the funds (such as a description, and certain financial and performance details) to Canadian Real Estate Funds And Canadian-Traded International REITs (Part VIII-A).

Our next article will assemble the miscellaneous categories of real estate securities, and in the subsequent and final article, we will rank the top Canadian real estate securities by yield and risk.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.