Brookfield Asset Management to Spin Off $70B CRE Company

Brookfield Asset Management Inc., already one of the world's largest holders of commercial real estate assets under management, is making a major play to capitalize on recovering property markets and become an even bigger global player.

The Toronto-based firm, which already manages worldwide property, infrastructure and financial assets valued at more than $150 billion, said it will spin-off several of its CRE units into Brookfield Property Partners, a new publicly traded company with around $70 billion in assets under management, according to securities filings and public statements.

The company recently announced plans to distribute an interest in its commercial and income-producing properties to launch the new company, which will be publicly traded under the stock symbol BPY. Brookfield Assets filed a registration statement with U.S. regulators and intends to list the new firm on the New York and Toronto stock exchanges in the second half of 2012.

Brookfield Property Partners will include almost all BAM's current and future commercial property operations, including its stakes in Brookfield Office Properties (NYSE: BPO), an office REIT; General Growth Properties (NYSE: GGP), a publicly traded shopping center REIT; Canary Wharf Group, the owner and developer of property at Canary Wharf in London, and its directly held commercial properties in the U.S., Europe, Australia and Brazil.

In total, BPY will launch with interests in over 250 million square feet of commercial space globally, with around $70 billion of assets under management. The company’s common equity market capitalization will be about $10 billion.

"We are pleased with the positive initial response to BPY, which will rank among the largest listed commercial property companies," the company said in a filing this week. "More importantly, it will own one of the premier portfolios of office, retail, multifamily, and industrial assets in the world, and will further our investing activities on a global basis."

BPY is positioned to attract a global following of investors seeking diversified exposure to commercial real estate and other income producing property assets, a company that should deliver both growth and income, as it will have access to a wide range of capital and the ability to complete significant mergers and acquisitions, Brookfield Asset Management said.

In addition to acquiring and doubling the value of General Growth Properties, Brookfield Assets made a significant foray into industrial real estate through a development joint venture with Hillwood. The company failed in an effort to acquire a major interest in apartment company Archstone, beaten out by Sam Zell's Equity Residential (NYSE: EQR).

The new company intends to pay an initial annual dividend of 4% of the entity’s market cap, which is expected to grow by 3% to 5% annually. BAM will own around 90% of BPY after the distribution, and shareholders will directly own around 10%. BAM intends to reduce its interest in the spun off company "to ensure a proper market trading float."

The structure of the new company is similar to two successful entities introduced by BAM, Brookfield Infrastructure Partners (BIP), launched in 2008, which has delivered an annual compound return of 18% since inception, and Brookfield Renewable Energy Partners (BREP), which since its predecessor’s formation in 1999 has earned shareholders an annual return of 15%.

BPY will target significant investments on a "value" basis similar to the it has acquired major assets in the past, for example, the acquisition of the Olympia & York portfolio in New York in the mid-1990s; its investment in the Canary Wharf office complex in London in 2002, and the recapitalization of the General Growth retail portfolio in the U.S. in 2009.

BPY's should come from a combination of stable long-term cash flows from the company's office, retail, multifamily and
industrial property portfolios, along with "more opportunistic returns" from its fund investing, and development and redevelopment programs.

Similar strategies by BAM have generated a compound annual return of over 15% on $17 billion of investments in core and opportunistic holdings.