Why Brookfield Asset Management is ramping up monetization

The firm’s recent realization activities include a successful REIT listing in India earlier this month, which ended up being eight times oversubscribed.

A near zero global interest rate environment and vast government stimulus has prompted Brookfield Asset Management to dial up its sales activity across real estate and other asset classes.

Nick Goodman, chief financial officer at the $602 billion Canadian alternative investment manager, said during the firm’s Q4 2020 earnings call that as transaction activity started ramping up in the third quarter of last year, the firm restarted several sales processes that had been postponed from earlier in the year because of the covid-19 pandemic. Since that point, the firm has sold more than $15 billion of assets across its private funds, listed affiliate balance sheets and directly held investments, crystallizing total gains of approximately $6 billion, according to Goodman.

One of the highlight exits for the firm’s real estate business this quarter was its 38 billion rupees ($523 million; €432 million) issue of an Indian real estate investment trust, which closed with an eight times overall oversubscription earlier this month. The REIT was reportedly subscribed nearly 12 times by retail investors and five times in the institutional investors segment. The Brookfield India Real Estate Trust’s initial portfolio comprises four office parks in India, totaling 14 million square feet. Brookfield’s REIT, the third such vehicle to be launched in India’s nascent REIT regime, also received commitments of more than 17 billion rupees from 39 anchor investors ahead of the IPO that kickstarted on February 3.

This was preceded by the $3.45 billion sale of its 2.3-million-square-foot portfolio of lab office buildings, concentrated in Cambridge, Massachusetts, to Blackstone.

According to Goodman, this life sciences portfolio was sold at a 2.7x multiple of invested capital and a 55 percent internal rate of return. Meanwhile the Indian REIT listing values represent an IRR of over 30 percent and multiple of roughly 3x.

In the fourth quarter, the firm’s real estate dispositions included the sale of Simply Self Storage to Blackstone as well as the sale of an undisclosed prime London office building and a partial sale of a directly held real estate portfolio.

“The public markets are obviously very strong right now. And the private markets are very strong, given the abundance of capital and low rates, and search for yield and growth,” said Goodman, about the attractiveness of the market for monetization. “So, I think, given the quality of our assets, it is obviously very logical for us to be looking to monetize the value we’ve created.”

The current macro environment is also more stabilized today, compared to the volatility and market dislocation in the second quarter of last year, in light of vast government stimulus and the rollout of vaccines across economies. And that has influenced Brookfield’s approach towards capital deployment.

“As the market changes, we have to change with it. When we started 2020, it was a good market, and we were investing broadly across the world. The markets changed in March, and we started putting a lot of capital into the public markets. And come May, June that ended,” noted chief executive officer Bruce Flatt, in response to a question on the timing of investment opportunities.

Given the strength of the public markets, Brookfield has instead ramped up in selling or monetizing assets, he said. “Irrespective of that, there still are many countries, many places, many businesses, and many things that are not trading properly, and therefore we can put capital to work… On balance, though, I would say this is not a period where, [like] in March, you could put enormous amounts of money to work into the public markets at the stress valuation.”