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Brookfield Asset Management CEO Bruce Flatt at the company's 2015 AGM.Chris Young/The Canadian Press

Bruce Flatt, chief executive of Brookfield Asset Management Inc., likens his teams to farmers – and the first quarter was harvest time, with the company selling US$13-billion in assets while reaping a gain of more than US$6.4-billion.

Those sales helped Brookfield report profits more than twice what analysts were expecting. The company reported funds from operations – designed to measure Brookfield’s operating performance – at US$2.82-billion, up from US$884-million in 2020′s first quarter.

First-quarter net income, which included more than US$2-billion in unrealized gains on investments, was US$3.78-billion, versus a net loss of US$157-million in 2020.

“Some years are better for planting seeds, others are better for harvesting. Rarely are both exceptional at the same time, in the same place,” Mr. Flatt wrote in his letter to shareholders reviewing the quarter. “During 2020, we made many investments and deployed substantial capital. As we turn to 2021, the capital markets in developed markets are robust and we are monetizing assets at excellent values.”

The company’s first quarter asset sales included:

• A 2.3 million square foot portfolio of life-sciences laboratory office buildings sold to private-equity firm Blackstone Group LP for US$3.4-billion.

• 50 million shares worth between US$500-million and US$600-million, sold in two public stock offerings by GrafTech International Ltd., an Ohio-based manufacturer of products needed to make electric arc furnace steel and other metals.

• 77 million shares, worth US$1.8-billion, sold in the initial public offering of solar company Shoals Technologies Group Inc. The stock was owned by Brookfield affiliate Oaktree Capital Management.

• About US$900-million in shares of West Fraser Timber Co. Ltd., acquired when West Fraser bought Brookfield’s long-time holding in Norbord Inc. earlier this year. (Sales of the shares continued in the second quarter.)

• 15 million shares, worth about US$750-million, sold in a public stock offering from its own Brookfield Renewable Partners LP.

Mr. Flatt said Brookfield is looking outside North America, and in pandemic-distressed industries, for buying opportunities.

“Some markets like India, China, and Europe, markets are less flush with capital and therefore offer opportunities for buyers. In addition, some businesses were more affected by the pandemic – such as hotels, travel, tourism, in-person retail and other businesses which rely on human touch. Many of these sectors need capital, and we are focused on a number of them.”

There is one area in particular where Brookfield is buying. The company is attempting to privatize its Brookfield Property Partners LP affiliate (ticker symbol BPY.UN) based on the belief that public stockholders remain unduly pessimistic on the future of real estate. It’s a note of optimism Mr. Flatt has consistently sounded since the early days of the pandemic, when many wondered whether work-from-home would turn permanent and nearly all shopping would migrate online.

Mr. Flatt continued his hammering of the theme in the shareholders’ letter: “The tone in the market for commercial property assets is very negative at the moment. Real estate stocks have been trading as though no company will ever occupy an office again, no person will ever set foot in a store and nobody will ever travel again, for either business or leisure. We do not believe that any of these will be the case, and so we are investing accordingly.”

Brookfield’s $18.17-per-share offer for Brookfield Property Partners – a 10-per-cent increase from its initial offer in January – allows holders of the units to choose cash to exit, preferred shares for the dividend, or Brookfield Asset Management common shares “where they will be able to stay invested with all of us ... we believe BPY unitholders who receive Brookfield Class A shares will have a greater opportunity to compound wealth than if they remain invested in BPY.”

Mr. Flatt says Brookfield has the cash to do a future share buyback of all the stock it may issue in the BPY transaction.

Brookfield has consistently listed the value of its BPY stake on its balance sheet well above the market price, although that gap has narrowed as BPY has gradually recovered from its pandemic depths. At March 31, it listed 578 million BPY units at an International Financial Reporting Standards (IFRS) value of US$15.56-billion, versus a “quoted” market price of US$10.30-billion.

“To the extent quoted prices are less than IFRS values, those values may be relevant to a stock investor, but not to us as a control investor,” Brookfield explains in its financial materials.

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