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Marcato eliminates position in Brookfield Residential Properties

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Nov. 21 2019, Updated 5:35 p.m. ET

Marcato Capital and Brookfield Residential Properties

Marcato Capital Management’s third-quarter 13F filing revealed a new position in Bank of New York Mellon Corp (BK). It raised its stakes in Avis Budget Group (CAR), Lear Corporation (LEA), and Sotheby’s (BID). In October, the fund made a 13D filing on NCR Corporation (NCR).

In 3Q14, Marcato Capital sold a position in Brookfield Residential Properties Inc. (BRP). The stock accounted for 0.6% of the fund’s portfolio for the second quarter ending in June.

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About Brookfield Residential Properties

Brookfield Residential Properties Inc. (BRP), based in Calgary, Alberta, is a leading North American land developer and homebuilder with operations in 11 major markets. The company entitles and develops land to create master-planned communities and build and sell lots to third-party builders as well as to its own homebuilding division. It also participates in selected, strategic real estate opportunities, including infill projects, mixed-use developments, infrastructure projects, and joint ventures.

Brookfield Residential gets proposal from Brookfield Asset Management

In October, Brookfield Residential said it received a nonbinding proposal from Brookfield Asset Management to acquire the approximately 30%, or 36.8 million shares, of Brookfield Residential that it does not already own for $23 cash per share. Brookfield Residential said it has established a committee of independent directors to review and consider the proposal that values the stake at $846 million. The proposed price represented a premium of approximately 20% to closing price on October 22 and the 30-day volume-weighted average price of Brookfield Residential shares on the New York Stock Exchange and Toronto Stock Exchange.

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Posts increase in earnings, but revenue misses estimates

Brookfield Residential said 3Q14 net income attributable rose to $86 million, or $0.73 per diluted share, from $35 million, or $0.29 per diluted share in the same period in 2013. Third-quarter revenue increased 7%, to $355 million, but missed street estimates.

Brookfield Residential’s housing revenue increased to $291 million due to a rise in average home-selling prices resulting from both improved market conditions leading to price escalation and the mix of products sold across all operating segments. Land revenue totaled $64 million and slightly declined due to 95 fewer lot closings.

Management bullish on recovery in demand

The management, commenting on the industry outlook in the earnings release, said, “While the U.S. market has ‘paused’, we believe slower household formation, lack of mortgage availability, weakness in the overall quality of jobs being created and a degree of trepidation on the part of the first-time home buyer are all contributing to this. It is our belief that this represents substantial unfilled pent up demand where it is expected that as rents rise and the job situation improves, home ownership will again become more attractive.”

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