Brookfield Weighing Spinoff of Asset-Management Unit
February 11, 2022 | James Sprow | Blue Vault
• CEO Flatt says pure-play firm would have higher value
• Alternative managers such as Blackstone have soared recently
Brookfield Asset Management Inc. is weighing whether to spin-off its division that invests on behalf of institutions, a dramatic move that would reshape one of Canada’s biggest companies.
The equity value of a separate company could be as much as $100 billion, or about $45 to $60 per share, Chief Executive Officer Bruce Flatt said in a letter to shareholders as the firm issued fourth-quarter earnings.
“Its growth path on its own is very compelling,” Flatt said in the letter. “Pure-play managers have been more in vogue across global markets because they are easier to value and have attracted higher multiples.”
Brookfield is wagering the move, announced Thursday, would allow the unit to capitalize on investor hunger for exposure to sectors such as real estate and private credit. Alternative-asset managers are seeing strong demand from institutional investors seeking higher returns than the stock and bond markets offer. Private equity giant Blackstone Inc. hauled in a record pile of new cash in the fourth quarter, putting it years ahead of schedule in hitting its asset target by 2026. Carlyle Group Inc.’s fresh capital almost doubled last year.
Brookfield has seen similar demand. The company on Thursday pointed to high interest in its flagship real estate fund as well as its first transition fund. Its opportunistic fund closed at $16 billion in the fourth quarter, the largest fund ever for the strategy.
A spinoff would separate the company that manages assets across its portfolio of real estate, infrastructure, credit, private equity and renewables from Brookfield’s own investment capital of $50 billion. The separation makes Brookfield “asset-light,” a model preferred by investors.
Wall Street analysts on the conference call peppered Flatt for details. Flatt said the new unit would be a separately listed company, not a tracking stock.
“We’re heading down a path and we are quite serious about it,” Flatt said, adding that if shareholders had concerns they “can express their views to us.”
While the move would likely make financial sense, it would rework Brookfield, which had a market value of $93 billion as of Wednesday’s close.
Brookfield has a history of building up businesses under the parent and spinning them off when they gain scale in order to monetize them and allow shareholders to invest more directly in a pure-play company.
Last year, for example, it spun off its reinsurance arm, Brookfield Asset Management Reinsurance Partners Ltd., through a special dividend to shareholders. It has also done the same thing for its private equity arm, Brookfield Business Partners, and its renewable energy arm, Brookfield Renewable Partners, among other businesses.
In total, Brookfield’s fee-bearing capital surged to $364 billion, and fee-related earnings jumped 33% from the prior year.
Funds from operations came in at $1.04 a share, exceeding analysts’ estimates of 82 cents. Adjusted earnings totaled 66 cents, compared with estimates of 73 cents.
Brookfield plans to raise $125 billion for the next round of its flagship funds after it brings in $100 billion in the current round, Flatt said in September.
On July 15, 2021, Oaktree Real Estate Income Trust, Inc., a nontraded REIT program, entered into an adviser transition agreement and entered into a new advisory agreement with Brookfield REIT Adviser. Brookfield became the REIT’s adviser on November 2, 2021. On November 2, 2021, the SEC declared effective the REIT’s registration for its follow-on public offering of up to $6.0 billion in shares in its primary offering and up to $1.5 billion in shares pursuant to its DRIP. The Initial Public Offering terminated upon the commencement of the Follow-On Public Offering.
Sources: Bloomberg, SEC
