Brookfield Asset Management Inc. and its subsidiary Brookfield Properties Corp. are making a big bet on a turnaround in global real estate, with the creation of a $4-billion (U.S.) fund to buy distressed houses and office buildings.
So far, the market has responded favourably to the news, even though the U.S. housing market in particular has been a disaster over the past several years, making this a potentially dangerous bet. Brookfield Asset Management shares were up 1.3 per cent in mid-morning trading, while the shares of Brookfield Properties (51 per cent own by BAM) were up 1 per cent.
Here are a few initial thoughts from analysts on the two companies, whose shares trade in both Toronto and New York - but full disclosure: Your Market Blog reporter owns a tiny slice of Brookfield Asset Management.
Gail Mifsud, Blackmont Capital: "We believe Brookfield Properties has the management expertise to successfully invest in distressed assets to capitalize on this real estate cycle. The issuance of equity may alleviate some concerns in the marketplace about its leverage. Although the equity offering will be dilutive to our forward earnings figures, the firm continues to trade (even post transaction) at relatively attractive price multiples. We will revise our forward estimates and net asset value estimate following completion of the transaction. We continue to rate the stock as 'outperform' with a $14.50 target price."
Michael Goldberg, Desjardins Securities: "By taking this step, Brookfield Asset Management clearly believes that these markets have bottomed. Brookfield Asset Management continues to lay the groundwork to take advantage of highly lucrative opportunities that are expected to arise in the current distressed environment."
Shant Poladian, Canaccord Adams: "Once we digested the $4-billion real estate turnaround fund announcement, and the fact that institutional players committed $3-billion to the fund, it's hard to ignore the potential for Brookfield Properties to achieve 20 per cent-plus returns. There is no change to our 12-month $15 target price as it continues to remain below our net asset value estimate, despite near-term dilution. We maintain our 'buy' rating and recommend using the expected pullback (low $9s) to add to or increase long positions."