- Brookfield is expected to announce that it will pursue a $100 billion spinoff.
- The company spin-off would appeal to investors who favor commission-based investment firms.
- Brookfield has been a strong buyer of office properties, a contrarian strategy.
Brookfield Asset Management is often compared to alternative investment firm Blackstone.
Both are public companies with rapidly growing market capitalizations in the tens of billions of dollars, nearly $1 trillion each in assets under management, and hundreds of billions of dollars in real estate investments that anchor their earnings.
In a bid to reignite a chapter of growth for the Toronto-based investment firm, Brookfield is expected to announce during its quarterly earnings presentation on Thursday a restructuring that could turn it into a trading powerhouse rivaling the bigger and flashier Blackstone.
The company will move forward with a plan to spin off its investment management business from its roughly $50 billion in assets, three people with knowledge of the plan, which was made public a few years ago, have said. barely months. In February, Brookfield CEO Bruce Flatt told investors in a letter to shareholders that the company would “consider” divesting its investment management operations, but left no hints that the strategy might unfold. materialize so quickly.
Decoupling Brookfield’s balance sheet from the billions of dollars of institutional capital it invests on behalf of clients such as pension funds and sovereign wealth funds could unlock billions of dollars of unrealized value through lucrative management fees that it collects from these customers.
Flatt, in his February letter, said a spin-off could create an investment management company worth up to $100 billion. Brookfield’s market cap is over $70 billion.
It could also allow Brookfield to increase the scale of its investments at a time when several large investment firms, including Blackstone and Apollo Global Management, have sought to rapidly increase their scale.
A spin-off would simplify the complexity of Brookfield
Through raising funds and shares in public companies it controls, Brookfield owns a variety of assets, including hydroelectric dams and transmission lines, office towers in Manhattan, shopping malls in Central America and manufacturing companies, such as Westinghouse, a maker of nuclear reactors.
Brookfield is unusual among large modern alternative investment firms in that it pours its own cash into these assets alongside its fund investors. This co-investment strategy has been a selling point in its fundraising efforts.
“It’s really the difference between where we come from and where a lot of private equity firms come from — we had our own money invested in our own businesses,” Flatt told Carlyle co-founder David Rubenstein. , in a March interview for Rubenstein’s show. on Bloomberg Television. “And over time, we figured out the ones we loved.”
Flatt, who is an accountant by training, admitted to Rubenstein that Brookfield had “always been a bit more discreet” than some of its rivals in the investment world.
Brookfield’s structure also made it harder to decipher the value of the labyrinthine business.
“You have to go through a complicated analysis to peel the onion because there are so many layers,” said Andrew Kuske, a Credit Suisse analyst in Toronto who covers Brookfield. “A spinoff would make it easier for investors to digest rather than trying to tackle every component of Brookfield today.”
On Wall Street, stable management fees are considered king, resulting in higher stock multiples than income from investment returns, which are considered less predictable.
“You unlock a higher multiple for stocks by splitting a management company,” Kuske said.
Like Blackstone, Brookfield focuses on real estate
Like Blackstone, Brookfield has large holdings in the real estate sector.
It lagged behind Blackstone in fundraising for flagship investment vehicles and in trading volume. For example, Brookfield started raising $17 billion for a real estate fund last year. Blackstone’s ninth real estate fund – its most recent – raised a record $20.5 billion in 2019.
Blackstone has also made its private real estate investment trust, called BREIT, the company’s most voracious buyer of commercial real estate, with $94 billion in assets at the end of 2021. Last year, Brookfield has sought to develop a similar entity which at this time held only about $500 million in assets.
Brookfield is nevertheless one of the largest owners of multi-family and office assets in the country. Its holdings include the sprawling Brookfield Place office complex at the World Trade Center in lower Manhattan and the Wells Fargo Center in downtown Los Angeles. And much like Blackstone, in recent years it has invested cash in hot segments of the real estate market, including warehouses, life science properties, film and television production facilities and data centers.
Brookfield has also been a contrarian buyer. A company insider estimated it spent $4 billion buying office buildings in the US last year, acquiring them at a time when the future value of office space had been clouded by popularity sustainability of remote work. Among his purchases were 12 office buildings in Washington, DC, from their landlord, WashREIT, for $766 million and a 25% stake in Tower 46, an office skyscraper in midtown Manhattan.
Despite the headwinds, Brookfield has recently seen success in the office market.
It’s in the process of a $400 million renovation of 660 Fifth Ave. in Manhattan. The building, which is due to be completed next year, has attracted interest from several large office tenants, according to a person with knowledge of the building’s rental business, including Australian bank Macquarie and the company investment management firm Viking Global, which together could take up 500,000 square feet in the 1.25 million square foot tower.
Unlike many other large office owners, Brookfield has undertaken efforts to reduce the carbon footprint of some of its recently built properties. One Manhattan West, a 67-story Hudson Yards office tower completed in 2019, Two Manhattan West, a twin skyscraper under construction next door, and 660 Fifth Ave. will be supplied with electricity and district steam, a Manhattan utility. It is leveraging its hydro assets in Canada to try to provide clean electricity to these properties.
Brookfield has also recently profited from its office holdings. In March, he announced that he had sold a 49% stake in One Manhattan West in a deal valuing the property at $2.85 billion. The buyer of the stake was Blackstone.