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With a rapid rise in interest rates creating a crunch in credit markets, Brookfield Corp. BN-T is looking to turn its large war chest of capital and continuing clout in financing deals to its advantage.

Brookfield has US$113-billion of liquid capital available to put into new investments across its group of subsidiaries, including US$33-billion of cash, financial assets and undrawn credit lines, as of March 31. That is backed by a balance sheet with US$135-billion of mostly liquid assets that have only US$12-billion of debt borrowed against them.

At the same time, Brookfield has shown it still has the ability to tap into financing, even as interest rates drive up borrowing costs and some financial institutions pull back on lending. Brookfield says it closed more than US$20-billion of financings across its operations “over the last several weeks,” including some that held the interest rate it pays constant or lower in spite of the volatility in markets.

“Capital markets are still open to those with strong balance sheets, high-quality assets and long-standing relationships,” said chief executive officer Bruce Flatt, in a letter to shareholders on Thursday.

As more companies feel the pinch from more expensive lending that is in shorter supply, Brookfield believes its “continued access to equity and debt financing will be a significant competitive advantage,” he said.

Among the examples he cited was a £650-million ($1.1-billion) refinancing of a hospitality asset in Britain in April. The financing was heavily oversubscribed and resulted in a lower interest rate of 6 per cent for Brookfield, down from 7.2 per cent previously, in spite of the higher interest rate environment.

Brookfield also refinanced its student housing portfolio in Spain and its German office portfolio. And it is looking to capitalize on the mounting pressure some rivals face from high interest rates and lower demand for some office and retail properties.

“While others in this environment possibly are having to be more defensive, we are looking ahead to what could be a significant opportunity to acquire great real estate at fractions of long-term intrinsic value where some do not have the staying power,” Mr. Flatt said on a conference call.

He also tried to calm growing fears over the health of commercial real estate. He reiterated Brookfield’s view that the real estate market is splitting into “a tale of two cities,” dividing high-quality office and retail properties as well as hotels, industrial buildings and residential holdings from lower-quality office and retail buildings that are struggling.

He also said the discount rates used to value properties have not changed as dramatically as interest rates, as investors anticipate rates settling at lower levels as inflation eases. And he stressed that interest costs on many properties have not surged as much as it seems, because they were previously financed when rates were lower but not at rock-bottom levels.

“The rates coming due on mortgages are in many cases similar to those that are expiring,” he said.

He also brushed off recent defaults on properties Brookfield owns in Los Angeles and Washington, D.C., as isolated events that are not financially material to the corporation.

“Of course, not every property in our portfolio has been unaffected by recent market volatility. When you own 7,000 properties, it is impossible not to make a few mistakes,” he said.

Brookfield Corp. reported first-quarter profit of US$424-million or 5 US cents a share, compared with US$2.96-billion or 81 US cents in the same quarter last year. The gap in earnings is partly a result of the spin-off of its asset management business, Brookfield Asset Management Ltd., as a stand-alone public entity last December.

Distributable earnings – which show the proportion of profit that could be paid out to shareholders – were US$1.16-billion in the quarter, or 72 US cents a share, similar to the same quarter last year. For the full year, distributable earnings before realizations were up 24 per cent to $2.66-billion, adjusting for the distribution of 25 per cent of Brookfield Asset Management late last year.

Brookfield Corp. returned US$404-million to shareholders through dividends and share repurchases in 2022, and plans to continue buying back shares.

Follow James Bradshaw on Twitter: @jembradshawOpens in a new window

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