Brookfield Properties Corp. is putting a "for sale" sign on its North American residential homes business and expanding into Australia's booming economy.
As part of a multi-stage restructuring plan unveiled Friday, the company announced plans to acquire a portfolio of 16 Australian office buildings from its parent Brookfield Asset Management for $1.64-billion (U.S.). Brookfield Properties will initially finance the purchase with cash and a $750-million bridge loan from its parent.
Ultimately, the company said it would pay for the portfolio by merging its Canadian residential housing unit, known as Carma, with its parent's publicly listed U.S. housing affiliate Brookfield Homes Corp. and then the new company will be put on the selling block.
Ric Clark, chief executive officer of Brookfield Properties, said the sale of the residential division will reshape the company into a "pure-play" office property company and eliminate the discount on its stock price they he attributed to investors undervaluing its North American home properties. Signaling the shift, the company is changing its name to Brookfield Office Properties Inc.
The investment in Australia will give Brookfield Properties bragging rights to the world's largest portfolio of top tier global office buildings with Australia accounting for about 10 per cent of its total 77.8 million square feet of office space. Mr. Clark said the company opted to expand in Australia because of its strong resource based economy and deep trading ties to Asia.
"The next 20 years we are liable to see a higher rate of growth in Australia than we will in North America," he said.
Michael Smith, a Toronto based analyst with Australia's Macquarie Group said he expects the restructuring will attract more investors and lower the company's capital costs because "it will be the go-to global office property company with tier-one office assets and lots of growth opportunities."
Despite the rosy outlook, the complex strategic shift caught a investors off guard. Only a year ago, the company was betting that the devastated U.S. housing market was a great buy and invested $150-million in unfinished luxury homes in a Los Angeles suburb.
Although Mr. Clark said Brookfield continues to see opportunities in the United States, some analysts were not happy with the changes announced Friday. "We don't like it" a team of UBS Securities analysts wrote in a report on the restructuring which they said offered "questionable" opportunities. In addition, the report warned the plan "reinforces our concerns" about Brookfield Properties relationship with its parent.
Ross Nussbaum, the lead analyst on the UBS team, could not be reached for comment. Brookfield and its parent have a long history of trading assets and arranging financing in complex transactions with each other and affiliates.
Brookfield Properties appointed a committee of independent directors and an adviser, Morgan Stanley & Co., to review the transaction, which the company said the board unanimously approved.
Mr. Clark said that there was "an initial negative reaction" from investors and that the complaints reflected confusion about the intricate plan. In hindsight, he said, the company should not have released the news the same day as it and other real-estate companies released their quarterly earnings reports.
"We need to do a good job of explaining the merits of the transaction," he said.
BROOKFIELD PROPERTIES (BPO)
Close: $15.04 (U.S.), down 51¢