Higher leasing and insurance income pushed Brookfield Corp.’s BN-T second quarter profit well above analysts’ expectations on Thursday.
Echoing sentiments expressed by the company’s asset management arm in its own quarterly results on Wednesday, Brookfield credited its US$272-billion portfolio of global real estate assets as a key driver of growth. The Toronto-based alternative asset manager’s recently acquired insurance businesses, including American National Group Inc., also bolstered profits.
Brookfield reported 64 U.S. cents in distributable earnings per share, well ahead of the 0.51 U.S. cents forecasted by Geoffrey Kwan of RBC Capital Markets. The analyst noted in a Thursday morning note to clients that property-related fees for the quarter came in at US$396-million, 13 per cent higher than he was expecting and 9 per cent above the real estate fees Brookfield reported during the same period in 2022.
“Great real estate is still great,” Brookfield CEO Bruce Flatt said on a Thursday morning conference call with analysts. “High-quality, well-located office assets around the world continue to be attractive investments and trade at premium values.”
Brookfield Asset Management, which is 75 per cent owned by Brookfield and is also helmed by Mr. Flatt, said Wednesday in a letter to shareholders alongside its own second quarter results that “the best real estate opportunities since 2009 are coming,” driven primarily by property owners struggling to keep up with higher interest rates.
On Thursday, Mr. Flatt said “it seems likely that central banks will keep rates in their current range for a while, but we are reaching the end of the hiking cycles.”
Nick Goodman, Brookfield’s president and chief financial officer, told analysts on Thursday that “if anything, rates are flattening, to hopefully coming down from here.”
Economic data from the United States on Thursday bolstered the notion that rates might be peaking. The U.S. Consumer Price Index rose 0.2 per cent in July, the Bureau of Labor Statistics said, matching the increase in June and representing the smallest back-to-back increase in more than two years.
The CPI results provided the latest evidence that higher interest rates are successfully combatting inflation. Mr. Flatt used the point on interest rates to stress that the current environment is advantageous for Brookfield’s position as a commercial landlord.
“Interest rates can go up once,” he said, “but the rental rates can go up for very, very long periods of time.”
Despite historically high vacancies in some office markets, Brookfield said its core real estate portfolio was 96 per cent leased as of June 30, which marked the end of its second quarter.
The company also sold US$15-billion worth of assets during the first half of the year, with Mr. Flatt citing as one example its US$1.4-billion sale of a portfolio of office campuses in India “returning nearly four times our capital.”
Brookfield also began to see benefits from its US$5.1-billion acquisition of Galveston, Tex.-based American National Group shortly after it established Brookfield Asset Management Reinsurance Partners Ltd. in mid-2021. When that acquisition closed just over one year ago, the business was selling roughly US$1-billion in annuities each year, Jon Bayer, managing partner of Brookfield’s Insurance Solutions Group, told analysts on the Thursday call.
“Since closing, we have scaled retail annuity sales to US$4.5-billion annually,” Mr. Bayer said.
Brookfield agreed to pay US$4.3-billion last month to acquire the portion of American Equity Investment Life Holding Co. that it did not already own. Buying Des Moines, Iowa-based AEL is expected to catapult Brookfield into a leading provider of annuities, which are an insurance product that offers buyers a steady income stream in retirement.
Mr. Bayer said Brookfield was looking to take its experience with American National and “replicate that success on a larger scale with AEL.”
Jameson Berkow