Bullish signals from private sales
Posted: August 16th, 2022, 8:13 am
A few days ago the Canadian alternative investment manager Brookfield Asset Management posted its second quarter results for 2022. I pay a lot of attention to Brookfield, not just because it's my largest holding but because Brookfield's reports give a lot of useful information as to what's going on in the markets in which they operate (notably commercial property). One part of the letter to shareholders, regarding commercial property, stood out for me.
"We note this in the context of the market disarray, as you may not be aware that many private markets are still operating in a very normal way. Of course, some borrowing is harder to do, interest rates are higher, some yield spreads are wider, and the markets are not as robust as they were. But for high quality assets, markets are generally still open and available to transact at good valuations."
Despite the claims of the efficient market theorists, we can often see wildly different prices between public and private markets which can't all be accounted for by the liquidity premium. A famous example is when Warren Buffett bought the Washington Post; the stockmarket valued it at $80 million whereas in a private sale Buffett reckons that the price would have been closer to $400 million.
Brookfield's 2002Q2 report talked about two British sales at a substantial premium.
"U.K.: Residential Property Student Housing Business – over seven years we built, developed, and acquired student-housing properties in the United Kingdom that became the third-largest portfolio in the country. At 26,000 beds, Student Roost is an operating business we created from the ground up that became a highly attractive asset for many buyers. We recently sold the business for £3.3 billion of enterprise value. We had invested £700 million into the equity of this portfolio over time, and on closing later this year will generate cash from the investment of £1.8 billion to the equity—resulting in a gain of US$1.6 billion or 2.7x our investment, resulting in an internal rate of return of 25%."
"U.K.: Office Properties in City of London – we sold a property in the City of London for £300 million that we had built ground-up for a cost of £150 million. We acquired our partner’s half pre-Covid at a gross valuation of £270 million. These transactions in totality generated an annualized internal rate of return of 18% and a 2.5x multiple of our equity capital. Down the street, while not a sale, we just completed the refinancing of 100 Bishopsgate, which is now fully completed, fully leased, and is established as one of the leading office buildings in central London. We built it for £850 million and closed last month on a non-recourse refinancing of £1.2 billion. We now have received cash distributions representing 100% of our equity plus a further £330 million, while continuing to own 100% of it. To date this has generated an internal rate of return of 19% and a multiple of equity capital of 2.9x."
I've been topping up my existing UK commercial property holdings, notably Derwent London (central London specialist) which is on a discount of about 30% to its NAV (and some more Brookfield). Derwent London recently sold part of Bush House for more than the most recent NAV.
Anyway, here are the links:
TMF post summarising a few more transactions
https://boards.fool.com/what-is-john-dizard-doing-these-days-35154647.aspx
Brookfield's 2022Q2 results
https://bam.brookfield.com/
Derwent London's sale of Bush House: "The disposal price is £85m before costs, reflecting a premium to December 2021 book value."
https://www.investegate.co.uk/derwent-london-plc/rns/disposal-of-bush-house-wc2/202207180700056998S/
"We note this in the context of the market disarray, as you may not be aware that many private markets are still operating in a very normal way. Of course, some borrowing is harder to do, interest rates are higher, some yield spreads are wider, and the markets are not as robust as they were. But for high quality assets, markets are generally still open and available to transact at good valuations."
Despite the claims of the efficient market theorists, we can often see wildly different prices between public and private markets which can't all be accounted for by the liquidity premium. A famous example is when Warren Buffett bought the Washington Post; the stockmarket valued it at $80 million whereas in a private sale Buffett reckons that the price would have been closer to $400 million.
Brookfield's 2002Q2 report talked about two British sales at a substantial premium.
"U.K.: Residential Property Student Housing Business – over seven years we built, developed, and acquired student-housing properties in the United Kingdom that became the third-largest portfolio in the country. At 26,000 beds, Student Roost is an operating business we created from the ground up that became a highly attractive asset for many buyers. We recently sold the business for £3.3 billion of enterprise value. We had invested £700 million into the equity of this portfolio over time, and on closing later this year will generate cash from the investment of £1.8 billion to the equity—resulting in a gain of US$1.6 billion or 2.7x our investment, resulting in an internal rate of return of 25%."
"U.K.: Office Properties in City of London – we sold a property in the City of London for £300 million that we had built ground-up for a cost of £150 million. We acquired our partner’s half pre-Covid at a gross valuation of £270 million. These transactions in totality generated an annualized internal rate of return of 18% and a 2.5x multiple of our equity capital. Down the street, while not a sale, we just completed the refinancing of 100 Bishopsgate, which is now fully completed, fully leased, and is established as one of the leading office buildings in central London. We built it for £850 million and closed last month on a non-recourse refinancing of £1.2 billion. We now have received cash distributions representing 100% of our equity plus a further £330 million, while continuing to own 100% of it. To date this has generated an internal rate of return of 19% and a multiple of equity capital of 2.9x."
I've been topping up my existing UK commercial property holdings, notably Derwent London (central London specialist) which is on a discount of about 30% to its NAV (and some more Brookfield). Derwent London recently sold part of Bush House for more than the most recent NAV.
Anyway, here are the links:
TMF post summarising a few more transactions
https://boards.fool.com/what-is-john-dizard-doing-these-days-35154647.aspx
Brookfield's 2022Q2 results
https://bam.brookfield.com/
Derwent London's sale of Bush House: "The disposal price is £85m before costs, reflecting a premium to December 2021 book value."
https://www.investegate.co.uk/derwent-london-plc/rns/disposal-of-bush-house-wc2/202207180700056998S/