Brookfield Asset Management Letter to General Growth Properties Shareholders
11 September 2012 - 1:50AM
Marketwired
Brookfield Asset Management Inc.
(TSX:BAM.A)(NYSE:BAM)(EURONEXT:BAMA) -
To: The Shareholders of General Growth Properties Inc. ("GGP" or
the "Company") (NYSE:GGP) c/o The Board of Directors
Recently, Pershing Square published letters to the board of
directors of GGP seeking, among other things, a sale of the Company
and making a number of comments related to Brookfield's interest in
GGP. As such, we thought it appropriate to clarify for our fellow
shareholders our philosophy regarding our investment in GGP.
Sale of GGP:
We agree with the position unanimously taken by GGP's board to
have GGP continue to execute on its business plan. GGP is the
second largest owner of regional malls in the United States. It
owns 134 major retail centers, 70 of those by industry standards
are among the very best in the country. These are incredibly well
located assets supported by a highly desirable customer base, which
each day become more valuable.
GGP is currently performing extremely well and we believe GGP is
positioned for superior growth over the next five years versus any
comparable retail mall investment. This is largely due to the
Company's new management team, but also the impact of its
exceptional leasing progress, increasing occupancy and higher
rents. In addition, the management team has identified a
significant number of high return redevelopment opportunities which
should further enhance value.
GGP started its recovery less than two years ago and the Company
is only beginning to turn around. The strategy that GGP is now
following holds the promise of enormous upside potential over the
next three to five years. Any exchange of shares could dilute the
impact of the embedded growth in GGP's earnings and cash flows.
Our Approach to Investing:
It has been speculated by others that our approach is dictated
by the receipt of annual fees we charge for managing third party
assets under management. This is simply not correct. Our approach
is based on our strategic view that we should focus (and make any
sale decision) not just on an investment's short-term internal rate
of return, but also on maximizing the total returns we achieve from
the investments we make, which may result in a longer term
hold.
In essence, we subscribe to the Berkshire Hathaway view of
investing: if a business is a quality business that has an
irreplaceable franchise, then one should continue to hold the
investment, as compounding at significant rates of return on your
capital over a long time can make shareholders very wealthy. GGP is
clearly one of these great American franchises and will be able to
continue generating returns for a long time as the U.S. generates
greater wealth and the population grows around these unique assets.
The only caveat to this point of view is that it assumes that the
Company does not squander its resources by undertaking value
destroying investments. In this regard, we have tremendous
confidence in and support the board of directors and management of
GGP.
A sale of GGP at this stage of its recovery would be contrary to
the compound return theory of investing and instead subscribe to
the theory that generating short-term premiums on assets and moving
to the next investment is better. And, while some investors have
had tremendous success with this strategy, it simply is not ours.
This is largely because once the short-term premium is received,
then an investor must find an equivalent asset to invest in. We
have found that comparable type franchises of similar scale are not
that easy to find, and hence the premium received in the short term
does not compensate for the disruption of compounding returns over
the longer term.
This does not mean we should never sell. What it does mean is
that as the underlying company grows in value, the corresponding
premium which shareholders receive when they do sell also grows and
is available to be captured at the time shareholders decide to sell
the company. In the case of GGP, where the embedded growth is not
yet reflected in the share price, the premium which could be
realized at a future date will, in all likelihood, be far more
significant than what would be achieved in a sale today.
The common shares of our company, Brookfield Asset Management,
are illustrative. Over the past 20 years, our compound annual
return for common shareholders has been 18%. For those who were
fortunate enough to own shares over that 20 year period, their
capital has multiplied by 27 times. This multiplier far outweighs
any premium that could have been received on the sale of the
company at any juncture along the way, in particular when taxes are
taken into account. As an illustration of this, $100,000 invested
in Brookfield shares 20 years ago would be worth approximately $2.7
million today. You can see the effect of long-term compounding
which far outweighs any 30% premium (i.e. an extra payment of
$30,000 on an $100,000 investment for example), which may have
seemed large at the time, but seldom so in hindsight. That same
$30,000 or 30% premium would be approximately $800,000 today.
Governance Arrangements:
During GGP's restructuring, Brookfield agreed to become the
cornerstone investor of GGP, which accorded Brookfield the right to
own up to 45% of GGP. This and other terms were approved by the
board of directors of GGP, Pershing Square, the US bankruptcy
court, and other stakeholders. Furthermore, Brookfield was also
granted the right to maintain our ownership should GGP raise
capital by selling additional equity. Subject to securities laws,
there are no restrictions on when, or how, Brookfield can increase
its ownership to 45%. We have honored and will continue to honor
this agreement and we believe increasing our interest in GGP as we
have done in the past 18 months is a tangible demonstration of our
confidence in the Company's future success.
Lastly, and as a main tenet of the major investment we made to
ensure GGP was successfully restructured, we have the right to vote
all of our shares in any shareholder vote should one ever be
presented to shareholders.
The Future:
In summary, we believe a sale of GGP at this point would
substantially undervalue GGP's future potential. With GGP's
exceptional high quality property portfolio, positive outlook for
NOI growth and vast redevelopment opportunities, we believe that
the best way to maximize value for all GGP shareholders is to
provide the Company with the opportunity to realize its full
potential without disruption, and should we be required to, we
intend to vote our shares accordingly.
Yours truly,
J. Bruce Flatt, Chief Executive Officer
Contacts: Brookfield Asset Management Inc. Andrew Willis SVP,
Communications and Media (416) 369-8236 (416) 363-2856
(FAX)andrew.willis@brookfield.com Brookfield Asset Management Inc.
Katherine Vyse SVP, Investor Relations (416) 369-8246 (416)
363-2856 (FAX)kvyse@brookfield.com www.brookfield.com
Brookfield Asset Managem... (TSX:BAM.A)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Brookfield Asset Managem... (TSX:BAM.A)
Historical Stock Chart
Von Jul 2023 bis Jul 2024