There are few things as confusing to Canadian investors (and reporters) as the corporate structure of Brookfield Asset Management and the smattering of real estate companies that it has spawned over the years.
So when Brookfield Office Properties Canada announced this month that it acquired interest in some Canadian buildings and planned to obtain a New York stock listing, the news wasn’t widely reported, mostly because it would require several paragraphs of explanation about the difference between the Canadian office REIT, its ultimate parent company Brookfield Asset Management, and its closely-related-but-entirely-different U.S. peer Brookfield Office Properties.
But the rash of news issued last week does have implications for the company’s investors, particularly its decision to seek a dual listing in the United States for its units.
“We expect such a listing could broaden the REIT’s potential investor base, and improve prospects for increased liquidity,” said CIBC World Markets analyst Alex Avery.
What is Brookfield Office Properties Canada?
The real estate investment trust was created last year, and trades on the Toronto Stock Exchange under the symbol “BOX.” In Canada, it owns 28 office properties in Toronto, Calgary and Vancouver, with about 14-million square feet of leasable space. Notable buildings include Bankers Hall in Calgary and Brookfield Place in Toronto.
The company is not to be confused with Brookfield Office Properties (though it often is), which is an American company that owns, develops and operates office buildings in the United States and Australia. This company is the largest office landlord in lower Manhattan, and trades under the symbol “BPO.” It also owns 83.3 per cent of BOX, which isn’t at all confusing.
Anyone interested in Canadian office holdings would want to invest in BOX. Those more interested in a piece of the American market would look to BPO.
Both companies are partially owned by Brookfield Asset Management, a “global asset management company focused on property, power and infrastructure assets.”
What did BOX do?
The company took more Canadian space off the hands of its American peer, taking a 25-per-cent interest in nine towers in Toronto and Ottawa for an estimated $362-million.
“We are pleased to see the transaction successfully completed,” said analyst Michael Smith of Macquarie Capital Markets Canada. “It gives BOX more scale, diversification and, importantly, puts the REIT into a new and attractive market – Ottawa.”
Brookfield Office Properties also said it would explore a U.S. listing so more investors could have access to its shares. That would be good news to Canadian investors, said Mr. Avery, because the units are fairly lightly traded.
“We expect that BOX could be particularly appealing to global investors seeking high-quality income yield,” he said.
It won’t be able to keep its catchy ticker symbol in the United States – it is being used by SeaCube Container Leasing Ltd. It says it will go for “BOXC,” instead.
How have its units done?
The company’s units are up almost 10 per cent on the year, while the broader S&P/TSX has been down by roughly the same amount.
Six analysts follow the units, with two of them rating them “buy” and the other four maintaining “hold” ratings. Their average 12-month price target is $25.33, which is 6.7 per cent higher than they are currently trading.
Mr. Smith calls the units the “most undervalued” in Canada.
The downside? The company is vulnerable to movements in interest rates, and relies on debt to finance most of its operations. And if the economy worsens, finding tenants willing to pay for top-tier space could be challenging.
“Risks include the potential for an unanticipated increase in interest rates, a reduction in debt availability, an unexpected deterioration in office space leasing conditions, and a diversion of investors’ capital flows away from real estate equities toward other asset classes,” Mr. Avery wrote in a report.
If that freaks anyone out, they could always opt for SeaCube Container Leasing instead – five of its six analysts rate it a “buy.”