In this segment from MarketFoolery, host Chris Hill is joined by Motley Fool Director of Small Cap Research Bill Mann to talk about M&A news in the real estate investment trust arena: Brookfield Asset Management (BN 0.40%) is acquiring Forest City Realty Trust (FCE-A) (NYSE: FCE-B) in a deal that values the target at $6.8 billion (though it totals $11.4 billion when you include its debt). Mann, a longtime fan of Brookfield Asset Management, offers some background on the company, and his view of the acquisition.
A full transcript follows the video.
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This video was recorded on July 31, 2018.
Chris Hill: Let's move on to real estate. Brookfield Asset Management --
Bill Mann: BAM!
Hill: BAM, great ticker. It's buying Forest City Realty Trust. You tell me for how much, because I'm looking at two headlines, one from Reuters and one from Bloomberg. Reuters says it's an $11 billion deal. Bloomberg says it's a $6.8 billion deal.
Mann: Well, $4.6 billion in between them. It's both, actually. One headline is properly including all of the debt that's being purchased, and the other one is just, this is what the equity looks like. If you look at the market cap of Forest City, it's about $6.8 billion. It turns out, depending on what you're looking at, as a shareholder or as an enterprise, both are correct.
Hill: I'm assuming this is being viewed as a good deal for both, because both stocks are up. Brookfield Asset Management, much larger, around a $40 billion market cap or so. They're paying a little bit of a premium, but not much of a premium, it seems like. What was your take when you saw this headline?
Mann: I'm a longtime admirer of Brookfield Asset Management and their CEO, Bruce Flatt. I started writing about them in 2002. They're capital generators. They do it by buying underperforming assets, dressing them up, either holding them or selling them. The fact that they have gone in to buy Forest City means that they see not so much an opportunity at the current price, but they see that they can do some things and pull some levers and make this portfolio much more valuable in their hands.
Their track record is not perfect, but it's pretty good. The fact that they're paying a premium to current cap rates doesn't raise any alarm bells with me.
Hill: Brookfield Asset Management, I think this might be the first time we've ever talked about them on this podcast.
Mann: It's a longtime company that we've talked about a lot in other places in The Fool.
Hill: Where do they sit in the competitive landscape? When you think about their competition, what types of companies are out there?
Mann: Vornado would be the biggest one. Brookfield Asset Management owns, for example, one financial center directly across from the new World Trade Center, that's their property. They either own properties, a lot of Class A office space in New York and around the world. They're based in Toronto, so, a lot of Canadian property.
They also own things like Brookfield Homes, which is a separate, publicly traded company, and that's theirs, they own a portion of it. There's also another one called Brookfield Infrastructure Partners, which owns forest land, like half of Vancouver Island and British Columbia. I say half, I'm exaggerating a little, but they own a lot of Vancouver Island, timberland, things like that. So, they are a little bit as agnostic as to what sort of assets they buy.
