Brookfield Asset Management Voting Ord Shs Class A T.BN.PF.I

TD

[retiredcf]

Maintain their Action Buy List and $63 target. GLTA

Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$44.75 | C$56.17

Agreement Reached on BPY Privatization Event

BAM has reached agreement to privatize BPY for $18.17/unit, which is 10% above its original non-binding proposal of $16.50/unit made on January 4, but still represents a substantial discount vs. BPY's IFRS value of $26.86/unit (basic), which we believe BAM has high conviction in.

Impact: SLIGHTLY POSITIVE

• Strategic Rationale: We believe that a bump had been widely anticipated based on BPY's recent trading range, and it remains our view that a privatization of BPY is a logical course of action, as the structure was not well-suited to the public market. Depending on the level of institutional participation alongside BAM, the company's ownership of BPY would increase to somewhat less than 100% post- transaction vs. 62% as of Q4/20, but we would expect the company's balance- sheet exposure to real estate to subsequently decline gradually over time, as private ownership should give BAM considerably more flexibility to realize the intrinsic value of the underlying real-estate portfolio.

• Financial Implications: BAM does not expect a take-private deal to negatively affect fee-related earnings in the near term, as BPY's base management fee would be prospectively determined based on NAV and its cash distribution would remain unchanged. Accordingly, we calculate that the transaction will be slightly accretive to BAM's OFFO/share on closing (see Exhibit 1), with the medium- to long-term accretion subject to how the company repositions BPY's real-estate portfolio, and in this regard, we could envision one-third of the portfolio being used to seed perpetual core real-estate strategies, one-third being monetized, and one-third remaining on BAM's balance sheet.

  TD Investment Conclusion

  We believe that an investment in BAM provides exposure to a very high-quality portfolio of real assets, with the added leverage of a world-class asset management franchise. BAM's latest round of flagship fundraising is currently underway, and we expect related announcements to be positive catalysts for the stock over the next 12 months. Notably, this round will raise capital for the company's inaugural Global Impact Fund, which we believe gives BAM the potential to carve out an early-mover advantage in this emerging asset class, much as it did in infrastructure more than 10 years ago.