Brookfield Asset Management is a global alternative asset manager with $192 billion in Assets under Management (AUM). They have a 100+ year history of owning and operating real assets with a focus on property, renewable power, infrastructure and private equity sectors. They invest alongside shareholders and institutional investment partners in high quality, simple to understand assets that earn solid cash returns on equity.
[Source] BAM May 2014 Corporate Profile
The business model is to identify and acquire high quality real assets at favorable valuations and finance them on a long term low risk basis and then enhance the cash flows. Because they invest in multiple types of real assets around the world the advantage is they can pick the best spots to invest. “Somewhere in the world there is always an asset sector or country out of favor.” Downside protection for the capital employed is provided through a long term investment horizon, attention to the business cycles and a deep value perspective. The past performance has been outstanding:
Brookfield has three publicly traded “flagship” entities: Property Partners (BPY); Infrastructure Partners (BIP); and Renewable Energy Partners (BREP/BEP). They also manage a private equity business; Capital Partners. The private funds, consisting of sovereign and institutional clients, invest alongside the flagship public entities providing additional funds for opportunities as they occur.
This structure enables BAM to raise multiple sources of capital to take advantage of value opportunities in the three major sectors when and where they occur around the world. It also creates a tremendous opportunity, in my view, for individual investors to invest in holdings alongside with some of the savviest investors in the world including institutional funds, sovereign funds, pension funds, etc.
[Source] BAM May 2014 Corporate Profile
Brookfield Asset Management (BAM): reported [Source] Funds from Operations (FFO) was $569 million or $0.84/share for the 2Q14 increasing 24% over the $0.68/share in 2Q13. The increase was due to increases in asset management fees, realized disposition gains and contributions from capital deployed over the past 12 months. Fee bearing capital increased to $84 billion for a 16% growth over last year’s second quarter. Consolidated net income was $1,558 million or $1.19/share in 2Q14 compared to $802 million or $0.31/share in 2Q13 for an almost four fold increase.
[Source] Earnings Press Release
“We are continuing to see clients allocate an increasing portion of their capital to Brookfield’s real asset investment strategies, due to the superior risk adjusted returns generated by these assets,” commented Bruce Flatt, CEO of Brookfield. “Our flagship listed partnerships and private funds are well positioned to deliver long-term performance for clients and shareholders.”
Expansion of asset management franchise and flagship listed partnerships:
- Fee bearing capital increased during 2Q14 by $7 billion to $84 billion, 16% higher than 2Q13 after adjusting for the sale of a low-margin fixed income investment business.
- Acquired the remaining shares in BPO, increasing the equity base of Brookfield Property Partners by $500 million.
- Added $1.6 billion of assets under management in public markets asset management business, primarily through market appreciation and fund flows to property and infrastructure securities.
- The private funds have committed or invested approximately 60% of capital commitments in aggregate and maintain a robust pipeline of investment opportunities.
- Total assets under management were $192 billion at the end of the quarter.
Announced or completed acquisitions and capital expansions that will deploy over $2 billion of capital:
- Continued to invest in emerging markets and Europe where valuations are compelling in particular when compared to the U.S.
- Announced plans to acquire a portfolio of office properties in India with an aggregate value of approximately $800 million.
- Continued progress with the acquisition of a port and rail network in Brazil, and closed the purchase of wind farms in Ireland for $690 million.
- In the property business recycled $1.2 billion through the sale of 13 mature properties.
- Invested approximately $450 million in retail projects in New York.
- Renewable energy business moved forward with the purchase of the stake not owned in one of the largest hydroelectric facilities in North America for $613 million.
- Launched development of new wind projects in Ireland.
- The infrastructure group announced plans to acquire a natural gas storage facility in California and continues to move forward with an acquisition of a container terminal in New York and district energy businesses in Chicago, Seattle and Las Vegas.
- The private equity group made further add-on purchases in a number of areas and now owns a substantial face value of debt in the power generation and distribution subsidiary of a Texas company (Energy Future Holdings (EFH); formerly TXU) that is currently in bankruptcy. BAM is now one of its largest creditors.
Operations Summarized Results:
Increased cash flow and created value with growth initiatives and operational improvements in all major businesses. FFO excluding gains was $422 million, compared to $406 million in the same quarter a year ago:
Asset Management and Services Businesses:
- The Asset management business generated fee revenues of $185 million leading to a 24% increase in quarterly fee related earnings to $88 million.
- The continued increase is due to 16% growth in fee-bearing capital and a resultant 31% increase in the fees generated from listed partnerships, private funds and public market business.
- BAM holds a 68% interest in Brookfield Property Partners which owns essentially all global property operations.
- The property group generated FFO of $137 million, excluding gains, up 10% from the same quarter last year, as a result of increased ownership of office and U.S. retail portfolios, opportunistic investments, and increases in net rents compared with expiring leases.
- Announced new long-term leases in New York and London that significantly increased occupancy rates and will contribute to cash flow increases by 2016. Signed new leases that were on average 5% above expiring rents in the office properties and 14% above expiring rents in the retail portfolio.
- BAM holds a 63% interest in Brookfield Renewable Energy Partners (BEP) which owns all their renewable energy facilities. BAM also conducts energy marketing on behalf of BEP).
- The renewable energy assets generated FFO of $83 million, up 5% over last year, and benefitted from the contribution from recently acquired assets and increased energy prices and capacity sales on un-contracted generation.
- In Brazil, locked in long-term power supply contracts with counterparties at attractive levels.
- BAM holds a 28% interest in Brookfield Infrastructure Partners holding majority of infrastructure operations.
- The infrastructure group recorded $53 million of FFO, which was up on a comparable or “same store” basis but lower than the previous year, which included the results of an Australasian utility sold in the fourth quarter of 2013.
- Performance benefited from increased ownership of the Brazilian toll road network as well as inflation indexation and a larger regulated asset base in the utilities group.
- Continue to invest in the expansion of our South American toll roads and UK port operations.
Private Equity Group:
- Private equity consists of: Brookfield Capital Partners, a series of private equity funds with $3.4 billion in commitments; Brookfield Residential Properties Inc.; Brookfield Incorporacoes S.A., Construction and Property Services.
- The private equity group generated $123 million of FFO excluding gains; lower than the 2Q13 quarter, which included additional FFO from assets that were subsequently sold, in addition to a decrease in panel board prices.
- The construction business announced new mandates totaling $1.2 billion, including a contract to build a major stadium in Australia.
- North American residential operations recorded higher profits following an increase in the level of land development and sales activity over the last year.
The Board of Directors declared a quarterly dividend of US$0.16 per share (US$0.64/year), payable on September 30, 2014 to shareholders of record as at the close of business on August 31, 2014. The Board also declared all of the regular monthly and quarterly dividends on its preferred shares.
Brookfield’s real asset investment strategies continue to earn reliable, attractive long term risk adjusted total returns and provide growth for the benefit of shareholders and clients. Although past success does not guaranty the future, a couple decades of success building global operations makes it seem like these returns will likely continue for the long term patient investor.
Long: BAM, BIP, BEP, BPY