Brookfield Asset Management continues to raise billions of dollars to bail out struggling companies, and even governments, in a COVID-19 economy – but for now, the disruption is causing losses in the company’s portfolio.
Brookfield posted a loss of US$1.49-billion in the second quarter, compared with profit of US$704-million in 2019′s second quarter. The culprit was a writedown in the market value of a number of its businesses, some of which “reported no income for the quarter,” chief executive officer Bruce Flatt told shareholders in his quarterly letter. “The good news is that those operating businesses that were impacted are now all recovering, and the balance of the year should be better.”
Brookfield has kept up its message of strength and optimism even as investors have dented its stock, as well as the shares of some of its affiliates. Brookfield creates investment partnerships in areas such as real estate, infrastructure and energy, and draws in major institutional investors to commit capital to them. Several are also traded on Canadian and U.S. stock markets, allowing individual investors to participate.
In the second quarter, Brookfield pulled in another US$23-billion to its various funds, with US$12-billion dedicated to a distressed-debt fund from Oaktree Capital, which joined the Brookfield family in 2019 in what now looks like a well-timed transaction.
Brookfield says it has the capital to bail out not just struggling companies, but governments as well, Mr. Flatt told shareholders in his letter.
“Government debt is rising at an unprecedented pace due to the provision of enhanced unemployment support, and more is to come as stimulus spending is just beginning. The increased levels of government debt will have long-term effects on many things, the most important of which is that governments will have to increase taxes, offload spending onto the private sector, and sell assets.”
Still, Brookfield may not have had as many opportunities in the past few months as it thought – as the March quarter came to a close, Mr. Flatt said the decline in global stock markets meant Brookfield would look to make strategic investments in public companies. Stocks have instead rocketed back to prior highs, however.
Brookfield made US$9-billion in investments in the quarter – including buybacks of its own shares, and affiliates – and had just a couple of small deals to highlight. It also said it formed a special investments program with US$1-billion of its own money. “We have been keeping our powder dry, waiting for opportunities we believe will come,” Mr. Flatt wrote.
Still, while many stocks have rebounded, investors still express deep skepticism about Brookfield’s real estate business, as seen in the trading price of Brookfield Property Partners LP. While the shares have rebounded from the COVID-19 lows, they remain under 60 per cent of their 52-week highs.
Brookfield said Thursday that while it values its stake in Brookfield Property Partners at US$5.2-billion, it lists it on the balance sheet at US$14.4-billion – reflecting its aggressive belief that the public markets are dead wrong about the future of real estate.
In his letter, Mr. Flatt acknowledged “many of our retail tenants were unable to pay their rent during the shutdown,” but said, “We are now collecting rent again and are in the midst of settling arrears for the period of shutdown.”
He added, “We believe that great retail centres will become even stronger as the industry consolidates into the best located centres with high-quality operators (such as the vast majority of the ones we own).”
The Wall Street Journal reported Wednesday that Brookfield Property Partners and Simon Property Group Inc. are trying to solve the problem of the insolvency of one its major tenants – J.C. Penney Co. – by buying it out of bankruptcy.
Mr. Flatt also pushed back Thursday on the idea that the explosion of work-from-home caused by COVID-19 augurs a flight from urban centres and office buildings – many owned and operated by Brookfield – that cluster there.
“We believe video conferencing, like the internet, will allow more people to choose where they work,” he wrote. “But contrary to what some say, based on observations of the past, we believe this will only enhance the desirability of large cities – and the offices and other urban spaces in them.”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.