Brookfield Asset Management (BAM) to Spin-Off Brookfield Property Partners (BPY) on April 15
On March 22, 2013, Brookfield Property Partners (BPY WI) opened at $21.00 and closed 5% higher at $22.03. Brookfield Asset Management (NYSE: BAM, $35.50, Market Capitalization: $22.2 billion) announced plans to partially spin-off its commercial property operations on February 17, 2012, Brookfield Property Partners (BPY). The spin-off will comprise almost all BAM’s commercial property operations, including its stakes in Brookfield Office Properties, General Growth Properties, Canary Wharf Group and its directly held commercial properties in the US, Europe, Australia and Brazil. Following the spin-off, BPY will be one of the largest property companies in the world, with BAM retaining a 92.5% stake with the balance 7.5% held by BAM shareholders.
On March 15, 2013, BAM announced the details and timeline of the BPY spin-off via a special dividend to its shareholders. The record date for the spin-off is March 26, 2013 and BAM expects to complete the distribution on April 15, 2013. BAM Class A and Class B shareholders are entitled to receive 5.74 units of BPY for every 100 BAM shares held as of the record date. The spin-off is expected to be tax-free.
BAM (ex-distribution) and BPY commenced when-issued trading on the NYSE and TSX on March 22, 2013. On the NYSE, BAM and BPY trade under the ticker BAM WI and BPY WI respectively. BPY WI opened at $21.00 and closed 5% higher at $22.03 on March 22, 2013. BAM’s shares continue to trade regular-way on the NYSE under the symbol BAM and on the TSX under the symbol BAM.A. 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.
On February 17, 2012, BAM announced plans to spin-off 10% of its interest in its commercial real estate holdings into a new entity, BPY. The spin-off plans were later amended and the company now plans to spin off just 7.5% of its interest in BPY to its shareholders in the form of a tax-free special dividend. BPY will own substantially all of BAM’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. It will become BAM’s flagship public commercial property entity and the primary entity through which BAM owns and operates these businesses on a global basis. BAM will retain interests in Infrastructure (28%), renewable power (65%), BPY (92.5%) and private equity (100%).
On the distribution date, April 15, 2013, BAM will make a special dividend to its shareholders of 1 BPY unit for every 17.42 BAM shares held as of the record date March 26, 2013. The dividend is valued at ~$1.45 per Brookfield Class A or B share, implying ~$900 million in aggregate. Immediately following the distribution, BAM shareholders will effectively own ~7.5% in BPY and the balance ~92.5% will be held by BAM.
BAM (ex-distribution) and BPY commenced when-issued trading on the NYSE and TSX on March 22, 2013. On the NYSE, BAM and BPY trade under the ticker “BAM WI” and BPY WI” respectively. On the TSX, BAM and BPY trade under the ticker “BAM.W” and “BPY.UN” respectively. BAM’s shares continue to trade regular-way on the NYSE under the symbol BAM and on the TSX under the symbol BAM.A. 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.
BPY will target an initial pay-out ratio of approximately 80% of FFO and is initially pursuing a distribution growth rate target in the range of 3% to 5% annually. BPY’s distribution will be paid quarterly starting on June 28, 2013 and is anticipated to be $1.00 per unit annually ($0.25 per unit on a quarterly basis), subject to board approval. The first quarterly distribution will be pro-rated for the period between April 15, 2013 and the record date for the distribution.
BPY will acquire majority of BAM’s commercial real estate assets that are diversified across commercial segments such as offices, retail and industrial. On the other hand, BAM will continue to manage property, renewable power, infrastructure and private equity assets. Following the spin-off, BPY will be one of the largest property companies in the world, while BAM’s business model will move closer to that of an asset management company, with assured income in the form of fees from its spins.
Following its transition to an asset management company, we expect BAM to move to higher valuation multiples that will be comparable to some of its asset management peers.
Brookfield Property Partners (BPY) FY12 Result Update
On April 1, 2013, Brookfield Property Partners (NYSE: BPY WI, $21.70, Market Capitalization: $10.4 billion) reported a strong set of FY12 numbers. The entity’s net commercial property income increased 39.3% YOY due to significantly higher commercial property and hospitality revenue. Net operating income (NOI) increased 20.7% YOY while funds from operation (FFO) increased 15.9% YOY following strong leasing activity in the US.
In FY12, BPY’s net commercial property income increased 39.3% YOY to $4 billion following significantly higher commercial property and hospitality revenue. Commercial property revenue increased 23.2% YOY to $3 billion as leasing activity in the US strengthened. Hospitality revenue increased multifold in FY12 to $743 million from $164 million in FY11, following the acquisition of the Hard Rock Hotel and Casino in Las Vegas and Atlantis Resort in the Bahamas in March 2011 and April 2012, respectively. Strong growth in these boosted the entity’s NOI by 20.7% YOY to $2 billion in FY12. However, net operating margin declined 10 percentage points to 48.7% in FY12 following significant increase in direct commercial property expense and direct hospitality expense as a proportion of revenue.
FFO during the year increased 15.9% YOY to $504 million following the increase in NOI. This was partially offset by a 7.2% YOY increase in the entity’s interest expense following consolidation of U.S. Office Fund, acquisition of office and hospitality assets.
Brookfield Asset Management (BAM)
Brookfield Asset Management is a global alternative asset manager focused on property, infrastructure and renewable power, with ~$150 billion in assets under management. Post spin-off, BAM’s business model will move closer to managing assets rather than operating assets. It usually charges management fees from its subsidiaries such as BPY, BIP and BRP. Therefore a higher portion of its growth will come from fees.
Brookfield Property Partners (BPY)
BPY will comprise of all of BAM’s commercial property operations, which includes office, retail, multi-family and industrial assets. It will invest in high quality real estate assets in North America, Europe, Australia and Brazil, ensuring generation of predictable and sustainable cash flows. BPY expansion targets continue to be countries where it already has a presence.
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