Yahoo Finance Brookfield Corporation (NYSE:BN) Q4 2023 Earnings Call Transcript
Brookfield Corporation (NYSE:BN) Q4 2023 Earnings Call Transcript February 8, 2024
Brookfield Corporation misses on earnings expectations. Reported EPS is $0.42 EPS, expectations were $0.72. Brookfield Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the Brookfield Corporation Fourth Quarter 2023 Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions] I would now like to hand the conference call over to our first speaker, Ms. Angela Yulo, Vice President. Please go ahead.
Angela Yulo: Thank you, operator, and good morning. Welcome to Brookfield Corporation's fourth quarter and full year 2023 conference call. On the call today are Bruce Flatt, our Chief Executive Officer; and Nick Goodman, President of Brookfield Corporation. Bruce will start off by giving a business update, followed by Nick who will discuss our financial and operating results for the quarter and the year. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to take questions, we ask that you refrain from asking more than two questions. I would like to remind you that in today's comments including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities laws.
These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. And with that I'll turn the call over to Bruce.
Bruce Flatt : Thank you, Angela, and welcome everyone on the call. We had an excellent year in 2023 with each of our businesses delivering strong financial results. In total, distributable earnings before realizations were $4.2 billion. This was a 12% increase per share year-over-year on a comparable basis, and we delivered net income of $5.1 billion. Our manager had one of its strongest fundraising years ever. Our insurance solutions business had a transformational year with assets set to shortly be over $100 billion with annualized earnings over $1.3 billion, and our operating businesses continue to demonstrate their resilience through a period of economic uncertainty. Turning briefly to the market. Capital was less available in 2023 for many.
This resulted in significantly reduced transaction activity more broadly. Despite that backdrop, we differentiated our franchise by maintaining strong access to capital. We financed approximately $100 billion of assets and businesses during the year. This combined with our strong liquidity position enabled us to also remain very active on the investment front. We invested over $55 billion and we expect to reap the benefits of many of these contrary investments for years to come. Today the macro environment feels better. Short-term interest rates have crested globally and are expected to go down. As capital markets regain strength, we anticipate transaction activity to pick up. As a result, it looks like 2024 and 2025 will be good years for our business.
We recognize that geopolitics can lead to heightened volatility, but this does seem to have become the new normal. The most important thing for shareholders to remember is that owning businesses and assets that form the backbone of the global economy, combined with maintaining access to multiple sources of capital is always a safe place to be. This has proven over many decades and in our view this has not changed. Looking back over the last 20 years, the value of our business has grown at a compound annualized return of 23%. To illustrate a holder of one share started with a split adjusted value of just over $2.50 at that time. And over the 20 years assuming dividend reinvestment the total value is today $145 or 57 times the return on capital.
We think though the best is yet to come. The discount of our trading price to our value also presents an excellent opportunity for us to continue to add value to the company through share buybacks. Accordingly, we plan to accelerate our share repurchase this year and buy an additional $1 billion shares in the open market over the next number of months, if prices stay reasonable. Going forward, our investment philosophy though remains the same, to build and operate the backbone of global economy. Our experience has demonstrated it is possible to earn very good returns with moderate risk, and doing so for decades has proven that the results can compound a very meaningful wealth. We have stuck with this strategy for a long time, but have also continuously evolved in line with how the world has changed over that time.
Of more than the $900 billion of assets that we manage, nearly half are in sectors that did not exist as an investment asset class 20 years ago. The contractual and inflation protected nature of these assets is very similar, but the types of assets we dedicate our capital to today look different from those historically, as the incremental capital needed to build out capacity continuously evolve. With the global uptick in data demand showing no signs of slowing down, we continue to expand our investments for example in this sector, and we are very much aligned with the largest and fastest growing companies in the world. As an example, we have significantly increased our data center operations, and we now own and operate one of the largest global hyperscale data center platforms.
And this only looks to grow. In addition, the accelerating global trend of digitalization was already driving a step change in data center and electricity needs, but the power intensive nature of AI is amplifying energy demand from renewable power sources. By building a leading global development platform for data centers, renewable power and combined with our large global real estate business, we're positioned to meet the exponentially growing needs for the largest and fastest-growing companies in the world. I would note the future will be centered around three trends decarbonization, deglobalization and digitalization as well as tilted towards the still emerging markets, which have voracious capital needs. As we constantly evolve our focus, we believe the backbone and the global economy will continue to be an excellent place to invest for a very long time.
It always just looks a little different. As we look ahead, we continue to focus on strengthening our franchise, expanding our access to capital, owning and growing high-quality assets and businesses that form the backbone of global economy, and aligning ourselves with global trends with the largest and fastest growing companies. All these position us well to continue to significantly increase the intrinsic value of our business over the long term. As always, thank you for your continued support and interest in Brookfield. And with that, Nick will take you through our results.
Nick Goodman: Thank you, Bruce, and good morning, everyone. We delivered very strong financial results in 2023. Distributable earnings or DE before realizations were $4.2 billion or $2.66 per share for the year. This represents an increase of 12% per share over the prior year, after adjusting for the distribution 25% of our manager in December 2022. Total DE was $4.8 billion or $3.03 per share with net income of $5.1 billion for the year. The earnings were supported by strong fundraising momentum in our asset management business, growth in our insurance solutions business and the resilient performance of our operating businesses. And taking each of these businesses in turn. Our asset management business generated distributable earnings of $2.6 billion or $1.61 per share for the year.
And despite a more challenging fundraising environment, our fundraising strategies continue to attract strong interest from our clients, leading to $93 billion of capital raised, which when combined with the approximately $50 billion anticipated upon the closing of American Equity Life brings total to $143 billion. Fee-bearing capital ended the year at $457 billion, soon to be over $500 billion driving growth in fee-related earnings of 6% compared to last year. And our fundraising outlook remains strong heading into 2024, which should contribute to meaningful earnings growth. And with that momentum our manager announced a 19% increase in their quarterly dividend to $0.38 per share, which for context is nearly $300 million of incremental cash annually distributed to us from this business.
Our insurance solutions business had a strong year, generating distributable operating earnings of $740 million or $0.47 per share. We continue to scale our asset base and leverage our investment capabilities to drive earnings growth. Our insurance assets increased to approximately $60 billion at year-end with the close of the Argo Group in November and the origination of $8 billion of annuity sales during the year. In 2023, we deployed approximately $5 billion of assets and an average investment yield in excess of 9%. Today, our average investment portfolio yield on our insurance assets is roughly 5.5%, which is approximately 2% higher than the average cost of capital. At the end of 2023, annualized earnings in this business were $948 million, that's up $219 million compared to a year ago.
And with the shortly anticipated closing of AEL, our insurance solutions business is poised to grow to over $100 billion of assets and annualized earnings will increase to approximately $1.3 billion. We continue to see a credible path to increasing the run rate of annualized earnings to approximately $2 billion over time as the investment portfolio is optimized. This $2 billion will all be available to be distributed to us bolstering our operating cash flows. And as you know this business was only started three years ago and is tracking in line with plans. Through our retail wealth and insurance solutions platforms we now raised approximately $800 million a month from retail products for high net worth and mid-market clients, of which approximately $300 million is through our wealth solutions platform and approximately $500 million is from the origination of annuities within our insurance solutions business.
We remain on track to increase this source of capital to $1.5 billion a month in 2024 or close to $20 billion annually. Our operating businesses continued to deliver resilient cash flows, generating distributable earnings in total of nearly $3 billion, $1.5 billion our share or $0.92 per share for the year. Cash distributions were supported by the strong growth in earnings of our underlying businesses. Operating funds from operations within our renewable, power and transition, and infrastructure businesses increased by 7% over the prior year and adjusted EBITDA in our private equity business was 11% higher compared to last year. In our real estate business, our core portfolio continues to outperform the broader market with occupancy levels at 96% and growth in same-store net operating income of 7% compared to the prior year.
Our core retail portfolio is performing above 2019 levels with tenant sales exceeding $1150 per square foot 21% higher than 2019. In our office portfolio, we continue to capture tenant demand with over 15 million square feet of leases completed in 2023 at average net rents 19% higher than those expiring. This includes nearly 1 million square feet leased in New York, over 850,000 square feet in Toronto and Calgary, and 1 million square feet in Washington D.C. Our track record is proving that owning the best assets allows for the compounding of capital over the long-term and enables resiliency through cycles. In a tougher market environment, we have seen a pronounced flight to quality on the part of both tenants and lenders. For instance, in New York, more than 75% of new leasing activity in Midtown Manhattan occurred in Class A assets.
Over the past three years, the number of transactions with rents above $200 per square foot in New York exceeded all previous years combined. The market for premium real estate globally remains very robust and we are seeing the same across our leasing activity in our portfolio. Also important for our real estate business is that our strong relationships and reputation as a responsible borrower has enabled us to maintain strong access to capital. In 2023, we successfully refinanced all of our debt maturities with no material impact to liquidity and we expect the same in 2024. We maintain our conviction in our portfolio. And as interest rates come down and as our underlying cash flows continue to grow and compound, we're confident we will start to see a tailwind in our real estate business and its earnings.
Shifting now to monetization activity. We continue to see strong demand for the high-quality cash-generative businesses and assets we own. During the year, we monetized over $30 billion of assets at strong values. Most importantly, substantially all of these sales were transacted at values higher than our IFRS carrying values, validating the carrying values of our investments. A few examples of recently closed monetizations include, the sale of Westinghouse in an implied enterprise value of approximately $8 billion returning a 6 times multiple of capital and an IRR of approximately 60%. We sold an office asset in Brazil, for approximately $300 million at a 6.3% cap rate, generating an IRR of 17% and a 3.4 times multiple of capital in local currency.
We also monetized a landmark mixed-use asset in Paris, and a manufactured housing portfolio in the US, both at very strong returns. The sales completed over the year generated strong returns, which resulted in $570 million of net realized carried interest being recognized into income in 2023. During the year, we also generated $1.8 billion of unrealized carried interest, increasing our total accumulated unrealized carried interest to $10.2 billion, of which $8.9 billion is directly owned by the corporation. And with the pool of carry eligible capital growing larger every year, we expect carried interest to contribute significant cash flows going forward. Turning to our balance sheet and liquidity. Our business is underpinned by our conservatively capitalized balance sheet, high levels of liquidity, with over $120 billion of deployable capital and our continued strong access to capital markets.
These attributes put us in a strong position to withstand market cycles and to focus on growth, during periods of excellent investment opportunities. Specifically, we have a large perpetual capital base supported by a strong credit rating of the corporation. And in December, we received a credit rating upgrade from DBRS on our senior unsecured debt to A, reflecting the strength of our franchise and our continued growth in earnings. We have significant headroom in our current credit ratings, enabling us to access the debt markets which we do from time to time to issue term paper. Moving on to capital allocation. Over the year, we reinvested excess cash flow back into the business and returned $1.1 billion to shareholders through regular dividends and share buybacks with over $600 million of shares repurchased in the open market.
This added roughly $900 million of value to the company or $0.50 of value to each remaining share. And as Bruce mentioned, we intend to increase the pace of share repurchases setting aside $1 billion over the next few months. If fully completed, this will add another approximately $1 billion of value roughly $0.75 of value to each remaining share. Bringing it all together, the significant growth levers embedded in the business combined with our vast liquidity and access to multiple sources of capital position us well to deliver strong financial results heading into 2024, and to achieve our targeted 15% plus per share returns for our shareholders over the long term. And lastly, I'm pleased to confirm that our Board of Directors has declared a 14% increase to the quarterly dividend, taking it to $0.08 per share payable at the end of March to shareholders of record at the close of business on March 13, 2024.
Thank you, for your time. I'll now hand the call back over to the operator for questions.
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