Brookfield Asset Management Voting Ord Shs Class A T.BAM

TD

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It remains on their Action Buy list with a $57.00 target. GLTA

Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$39.45 | C$50.44

Proposing to Privatize BPY with Institutional Partners Event

BAM, alongside institutional partners, has made a proposal to acquire the 38% of BPY that it does not already own for $16.50/unit (total value of $5.9bln).

Impact: SLIGHTLY POSITIVE

• We do not anticipate that this announcement will be surprising to investors, as BAM has repeatedly expressed strong conviction that BPY is trading at a substantial discount to the intrinsic value of its real-estate portfolio, and has recently demonstrated that conviction by funding a recent substantial issuer bid in combination with institutional partners at ~$12.00/unit.

• A privatization would depart from BAM's strategy of simplifying its structure by establishing separate public vehicles for each of its major verticals, and would result in less transparency for investors in monitoring the performance of and in valuing the company's invested capital in real estate. On the other hand, we believe that a privatization will provide BAM with considerably more flexibility to structure its ownership of BPY's portfolio and to realize the intrinsic value. In particular, we could envision the portfolio being carved up by asset class (office, retail, etc.) and/or by geography to seed various perpetual core real-estate strategies, whereby BAM's percentage ownership of BPY's portfolio will temporarily increase post-transaction, but could ultimately decline below the current 62% over time. It is also possible that, in the absence of a publicly-traded unit price, investors/analysts might value BAM's stake in BPY's portfolio at less of a discount to its IFRS value, which was $15bln as of Q3/20 (i.e., ~$27.00/BPY unit and ~$9.65/BAM share).

• Although BAM's proposal is just that at this stage, and includes an undisclosed level of institutional participation, we calculate that the transaction will be slightly accretive to BAM's OFFO/share if the company funded 100%. BPY has established a committee of independent directors to evaluate BAM's proposal.

  TD Investment Conclusion

  We see a prolonged period of near-zero interest rates as a favourable backdrop for BAM, as it should only increase investor appetite for alternative investment products as fixed-income substitutes. Furthermore, we anticipate that BAM will capitalize on market dislocation resulting from the pandemic to enhance its franchise, as it has done in previous cycles.