The real estate unit of Brookfield Asset Management Inc. is spending big money on U.S. shopping malls at a time when bricks-and-mortar retailing is being associated with tumbleweed.
If that concerns you, that's good: It reinforces Brookfield's reputation for making unpopular bets at low prices, which is a tactic that has made this stock a very profitable holding for long-term investors (full disclosure: I am one of them).
Over the past decade, Brookfield Asset Management's book value has nearly quadrupled, to $23.50 a share in 2016 from $6.20 a share in 2006.
Although the share price has endured some turbulence, it has delivered an average annualized gain of nearly 16 per cent over the past 20 years.
Compare this long-term performance to an average annualized gain of 7.3 per cent for the S&P 500 and 6.9 per cent for the S&P/TSX composite index over the same two-decade stretch and you can see why investors recognize that Brookfield enjoys some competitive advantages.
Size is one them. The firm has a market capitalization of about $53-billion, or bigger than any of the blue chip U.S. asset-management firms, including Blackstone Group LP, Carlyle Group, KKR & Co. and Apollo Global Management.
And if you include its various publicly traded units – Brookfield Infrastructure Partners LP (more disclosure: I own it), Brookfield Business Partners LP (again: I own it), Brookfield Property Partners LP and Brookfield Renewable Partners LP – Brookfield's heft in the marketplace is even larger. At more than $112-billion, the total value of this Brookfield family brings significant financial advantages in making large deals.
But the company's good timing is arguably the more important reason to keep this stock locked in your portfolio.
Under chief executive officer Bruce Flatt, Brookfield has shown a remarkable ability to scoop up attractive long-term assets when they are being sold under distressed conditions – with the aim of generating returns over decades.
As Mr. Flatt told Forbes magazine earlier this year, "We'd rather earn a 12-per-cent to 15-per-cent net return over 20 years than a 25-per-cent return over three."
Among some of the more notable deals Brookfield has made over the past decade, there was the $1.1-billion (U.S.) deal to restructure Babcock & Brown Infrastructure, the Australian-based owner of a Queensland coal terminal and British port, among other assets.
Brookfield made the deal, which gave it a significant ownership stake, when the heavily indebted Australian company was desperate to unload assets during the global financial crisis – and years before infrastructure became the biggest buzzword among patient institutional investors.
When corruption scandals and weak economic performance ensnared Brazilian companies in recent years, Brookfield increased its exposure to Brazilian infrastructure as a long-term bet on what it saw as strong investment fundamentals.
In 2016, it announced a $5.2-billion deal to acquire a 90-per-cent stake in Nova Transportadora do Sudeste SA, a natural gas pipeline, from Petrobras. The same year, Brookfield also agreed to a buy a 70-per-cent stake in Odebrecht Ambiental, the Brazilian water-treatment and sewage company, and now may be in talks to buy seven Brazilian highways, according to Reuters.
Early this year, Brookfield acquired renewable energy assets from SunEdison Inc., the bankrupt U.S. solar company that had fallen on hard times following an unsuccessful acquisition strategy.
And then there's Brookfield's long-held stake in Manhattan West: Lands that former New York mayor Michael Bloomberg called the city's final frontier are blossoming into a massive office, residential and retail development anchored by Amazon.com Inc.
Which brings us to U.S. malls. Investors may be a touch nervous about Brookfield Property Partners' $14.8-billion bid to buy 66 per cent of GGP Inc., giving Brookfield full control of the mall-owner. Brookfield Property's share price fell 4.5 per cent on the news on Monday.
But Brookfield Property isn't exactly chasing a hot trend here. It announced the bid after GGP's share price had tumbled more than 30 per cent from its high in 2016, fitting with Brookfield's interest in distressed sales.
The bigger question is what Brookfield Asset Management, and its real estate unit, sees in malls. The deal might cause some head-scratching today – but given the company's track record, it's reasonable to bet that it will pay off.
When you buy Brookfield shares, you're paying for savvy.