BROOKFIELD Corp /ON/(BNJ)Q1 2025 法說會逐字稿

Good day. And welcome to the Brookfield Corporation First Quarter 2025 Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Katie Battaglia, VP, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Brookfield Corporation's first quarter 2025 conference call. On the call today are Bruce Flatt, our Chief Executive Officer; Nick Goodman, President of Brookfield Corporation; and Sachin Shah, Chief Executive Officer of Brookfield Wealth Solutions. Bruce will start off by giving a business update, followed by Nick who will discuss our financial and operating results for the quarter, and finally, Sachin will provide an update on our Wealth Solutions business. After our formal comments, we'll turn the call over to the operator for analyst questions. In order to accommodate all those who wish to ask questions, we request that you limit yourself to two questions. I would like to remind you that today’s comments, including in response to questions and in discussing new initiatives, may include forward-looking statements. These statements reflect predictions of future events and trends and do not relate to historic events.

They are subject to known and unknown risks and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please refer to our filings with the securities regulators in Canada and the U.S. and the information available on our website. Additionally, when we speak about our Wealth Solutions business, we refer to Brookfield's investments in this area that supported the acquisition of its underlying operating subsidiaries. With that, I'll turn the call over to Bruce.

Thank you and welcome, everyone, on the call. We had a strong start to the year. Distributable Earnings before realizations increased 30% to $1.3 billion, which was $0.82 a share for the quarter, and $5.2 billion or $3.26 for the last 12 months. Each of our businesses performed well. Our asset management business delivered strong earnings growth backed by continued fundraising momentum. Our operating businesses demonstrated resilience with stable cash flows underpinned by largely contracted and inflation-protected revenue streams. Our Wealth Solutions business had a strong quarter, delivering organic growth, scaling earnings, and achieving our goal of 15% Return on Equity (ROE). In March, the business received its regulatory license to launch in the U.K., marking the first dedicated Pension Risk Transfer (PRT) license granted there since 2007. Sachin Shah, CEO of our Wealth Solutions business, is with us today and will spend more time on the progress and growth of his business in his remarks.

Briefly focusing on the macroenvironment, we started the year with positive economic momentum. However, as all of you know, trade policy has created volatility in the capital markets. While our businesses and operations are not immune, they are generally insulated from the current environment due to our ownership and operation of businesses that provide essential services and products without significant reliance on cross-border movement of goods. We operate domestic businesses in 30 countries, serving local customers in the markets where we invest. Most of these businesses have highly contracted income streams or are regulated, allowing us to generally pass through increased costs to the end consumer. We have the operating expertise to successfully navigate such changes. Historically, markets often move for reasons that don't reflect underlying fundamentals, creating opportunities for experienced and well-capitalized investors to invest for value.

This approach has allowed us to deliver stable and growing results for decades. This period should be no different. Despite the volatility we have observed, the underlying trends of deglobalization, digitalization, and decarbonization continue to drive our investment pipeline. In this regard, we committed $20 billion in the quarter to acquire some excellent businesses at very good value. Policies promoting the reshoring of key manufacturing and supply chains are also presenting opportunities. Breakthroughs in AI should lead to further attractive opportunities for disciplined investors like us. Renewables continue to be the most viable solution to meet the growing energy demand, particularly with strong data center growth requiring enormous power. Our ability to provide scalable solutions across technologies and regions reinforces our position as a partner of choice. With a record $165 billion of capital to deploy, we are well-positioned in the current environment to invest for value in all these areas.

At the same time, operating fundamentals for high-quality assets remain very strong. For example, in our real estate business, we continue to benefit from increasing demand for premium assets, further supported by a muted supply outlook. This has resulted in strong rental growth and higher occupancy rates across our portfolio. We are experiencing a significant increase in lease-up activity for our top-tier assets in our global markets. In New York, our largest market, office leasing surged to its highest level since 2019, with 1.3 million square feet completed in the quarter. Rents in premier buildings are very high and continue to rise. While it may seem like the first time, we have navigated through many periods similar to today. It is important to remember that price fluctuations may seem significant in the moment but are likely to represent just small deviations in the overall trajectory of long-term wealth compounding.

Our shareholders have earned an annualized return of 18% over the past 30 years simply by staying invested in Brookfield. This has not been a straight line, nor will it ever be, but compound returns are the secret to long-term wealth. Crucial to our success over the years has been effective capital allocation and reinvestment of the corporation's cash flows. We have a comprehensive perspective on the relative investment opportunities and capital needs across our entire franchise. Our philosophy has, therefore, always been to largely distribute free cash flow up from our operating companies to the corporation, centralizing cash reinvestment decisions. This deliberate approach to capital allocation has been a key contributor to our ability to scale our business and withstand economic cycles across sectors we invest in. This flexibility is one of our greatest strengths and has been created methodically over the years.

This approach becomes even more valuable during periods of uncertainty when prices can diverge significantly from value, presenting attractive investment opportunities. A recent example is our share repurchase in the market. Given the trading levels of our shares that saw a downturn during the quarter, we repurchased $850 million of shares to date this year. This was the most shares we have ever purchased in the open market in a single quarter. Looking ahead, we will continue to invest in a disciplined manner while adapting to the ever-evolving backbone of the global economy. Our business has proven to be a great compounder of capital across economic cycles. By staying the course, we are well-positioned to generate strong and sustainable returns for shareholders. Thank you, as always, for your continued support and interest in Brookfield. With those comments, I will turn the call over to Nick.

Thank you, Bruce, and good morning, everyone. Financial results were strong for the first quarter, supported by continued momentum across our core operations. Distributable Earnings, or DE, before realizations were $1.3 billion, or $0.82 per share for the quarter, representing an increase of 30% per share over the prior year quarter. Over the last 12 months, DE before realizations were $5.2 billion, or $3.26 per share. Total DE, including realizations, was $1.5 billion, or $0.98 per share for the quarter, and $6.6 billion, or $4.17 per share over the last 12 months, with total net income of $1.5 billion over the same period. Each of our businesses continues to generate stable and growing cash flows. Our asset management business delivered another quarter of strong results, with distributions of $684 million, or $0.43 per share in the quarter, and $2.7 billion, or $1.71 per share over the last 12 months.

We continue to see strong fundraising momentum across our flagship funds and complementary strategies, with inflows during the quarter amounting to $25 billion, contributing to over $140 billion of capital raised over the past 12 months. Notably, we closed on approximately $6 billion of capital for our latest real estate flagship strategy this quarter, bringing total commitments to $16 billion. The final closes from clients and regional sleeves are still ahead, making this strategy our largest pool of capital ever raised for opportunistic real estate. Our fee-bearing capital grew to $549 billion at quarter end, representing a 20% increase over the last 12 months. This increase contributed to a 26% growth in fee-related earnings, reaching a record $698 million. Our Wealth Solutions business continues to showcase strong financial performance, generating stable and growing long-dated cash flows.

Distributable operating earnings were $430 million, or $0.27 per share in the quarter, and $1.5 billion, or $0.95 per share over the last 12 months. During the quarter, we originated $4 billion of retail and institutional annuities, and we maintain a solid financial position in the business, with statutory capital increasing to over $16 billion and an ROE in line with our target of over 15%. Sachin will speak to this business in more detail. Through our combined Wealth Solutions platforms, we are raising close to $2 billion of retail capital per month, which includes over $650 million a month from our private wealth channel. Our operating businesses continue to deliver resilient and stable cash flows, generating distributable earnings of $426 million, or $0.27 per share in the quarter and $1.7 billion, or $1.08 per share over the last 12 months. Cash distributions from our renewable power and transition, infrastructure, and private equity businesses were supported by their strong operating earnings and underlying fundamentals.

As Bruce mentioned, our real estate business continues to benefit from increasing demand for the highest quality assets, contributing to high occupancy and strong rental growth across the portfolio. Specifically, in our core portfolio, we delivered 3% growth in same-store net operating income compared to the same period last year, with occupancy levels remaining high at 95%. During the quarter, we signed close to 9 million square feet of office and retail leases. Highlights of our office leasing activity include 1.1 million square feet in India, 787,000 square feet in Canada, and 2.3 million square feet of office leases across the United States, with 1.3 million square feet leased in New York. Notably, given supply constraints and strong demand for premium office space worldwide, we consistently see leases being signed at significantly higher rents than expiring leases, which is a very positive signal for our portfolio.

In our North American residential business, we continued to shift towards a more capital-light model. As part of this plan, we sold five master plan communities in the quarter, generating approximately $640 million of proceeds. During the quarter, we realized $189 million of carried interest into income, and accumulated unrealized carried interest increased to $11.6 billion. The growth in accumulated unrealized carry reflects the implementation of our value creation strategies across our investments. As we execute our monetization plan and return capital to investors throughout 2025 and beyond, we are well-positioned to recognize substantial carried interest into earnings over the next few years. While uncertainty in the current environment may impact transaction activity, we continue to see strong demand for our globally diversified portfolio of high-quality cash-generating assets and businesses.

In the quarter, we closed approximately $22 billion in asset sales across the business, with substantially all sales completed at prices in line with or above our carrying values. In our real estate business, we closed the previously announced sale of our hospitality asset in Florida for over $400 million in gross proceeds. In our infrastructure business, we completed the sale of a minority stake in a portfolio of fully contracted containers within our global intermodal logistics operation, and we remain on track to close the remaining 25% interest in NGPL, a U.S. gas pipeline, marking a successful exit from the business that will generate total gross proceeds of over $1.7 billion, reflecting an 18% IRR and 3x multiple on capital. Looking ahead, we have several sales processes underway, diversified across strategies, sectors, and geographies. We employ a disciplined yet flexible approach to executing exit strategies with the goal of optimizing investment value, and we look forward to providing updates as they progress.

Moving to capital allocation, we consistently reinvest our free cash flow back into the business to drive growth and further enhance value. We reinvested $3 billion back into our operations during the quarter, including $1.4 billion towards our operating businesses, primarily to opportunistically repay debt within our real estate business, and approximately $465 million to support commitments in our real estate and credit private fund strategies within our asset management business. Additionally, we allocated $430 million to support the growth of our Wealth Solutions business this quarter. We also returned over $700 million to our shareholders through regular dividends and share repurchases during the quarter, and so far this year, we have repurchased $850 million of shares in the open market, adding more than $0.40 per share of value to each remaining share. As Bruce highlighted in his remarks, we will continue to opportunistically repurchase shares when they are undervalued, carefully weighing this use of capital against other opportunities.

Regarding our balance sheet and liquidity, we maintain a conservatively capitalized balance sheet and high levels of liquidity, with record deployable capital of $165 billion. We were active in the capital markets, executing over $30 billion of financings throughout the quarter, including at the corporation, where we issued $500 million of senior unsecured 30-year notes, achieving our tightest spread for 30-year notes to date. Other notable financings include the $5 billion recapitalization of Clarios and $10 billion of real estate financings, which included successful term financings within our office and retail portfolios, along with several successful issuances in our infrastructure and renewable power businesses. In conclusion, our financial results signify a strong start to the year, and we expect to continue this positive momentum as we execute our strategic plans to enhance shareholder value.

I am pleased to confirm that our Board of Directors has declared a quarterly dividend of $0.09 per share, payable at the end of June to shareholders of record at the close of business on June 13, 2025. Thank you for your time, and I will now pass the call over to Sachin.

Thank you, Nick, and good morning, everyone. It's been a year since I last joined this call, and with the significant growth in Brookfield Wealth Solutions since that time, I am pleased to provide you with an update. As many of you know, we set out in late 2020 to focus on building the next scale business for Brookfield. Our thesis back then was that certain retirement, wealth, and protection products within the insurance industry could benefit from our scale capital, investment discipline, strong operating culture, and perpetual time horizon. Combining all of these attributes with the tailwind of an aging population driving demand could set the stage for this business. Equally important, though maybe not as appreciated, is that this business could be highly synergistic with all parts of Brookfield while scaling and delivering in excess of 15% returns on invested capital over a long period of time.

Fast forward to today, and through a series of acquisitions and organic growth, our business boasts over $140 billion of assets, $1.7 billion of annualized earnings, and statutory capital exceeding $16 billion. The business is also highly complementary to our overall operations. We benefit from access to Brookfield fund products, credit and equity capabilities, and expertise in infrastructure, real estate, and renewable power, which have decades-long track records. This has enabled us to upgrade assets inherited when we acquired American National and American Equity, particularly in real estate, where we have access to the highest quality and irreplaceable commercial real estate globally. This platform allows us to grow our annuity franchise with confidence that our investment teams will constantly source new and accretive assets. More important than even our investment capabilities is our capital base.

We have invested permanent capital from Brookfield's balance sheet to build this business. We do not have any client money or private equity money in any of our insurance businesses, meaning our capital is perpetual and 100% aligned with our policyholders. This allows us to make long-term decisions prioritizing simple and predictable liabilities, low volatility, and a singular focus on capital compounding. We will grow this business as long as our returns on capital remain above our targets and as long as the risk profile of liabilities remains low and predictable over the long term. With that in mind, we are continuing to scale our core U.S. annuity business, focusing on expanding our product offerings through both new product development and new distribution channels, including the larger bank channels. For context, banks and broker-dealers account for 60% of total U.S. retail annuity sales each year, yet only 30% of our retail annuity sales last year came from this channel.

Leveraging Brookfield's strong relationships, we expect to penetrate several larger bank channels over the next 12 to 18 months, which will support further growth in our business. We are also in the initial stages of our international expansion. Recently, we were granted a pension risk transfer license in the U.K., the first such license to be granted since 2007, and plan to bring our strong track record of servicing policyholders to the region. The U.K. represents the largest pension market globally, with over $500 billion expected to come to market in the next decade. Our U.S. pension risk transfer business is just in its third full year, focusing on small and mid-sized plans with a thoughtful progression toward larger plan deals. The U.S. pension market is expected to represent another $350 billion to $500 billion over the next decade, which sets us up for meaningful growth in the coming years.

As you can see, we are building a platform with diversified products and sales channels across various markets worldwide. Last year, we wrote $19 billion of annuities and pension deals across our business. While these numbers showcase the strength of our operational capabilities and significant growth in a few short years, we are still in the early stages of our evolution. Based on the current rate environment and projected demand, we expect to write $25 billion of combined retail and institutional annuities for the calendar year 2025. Regarding investment returns, one of our great advantages is our ability to leverage the Brookfield ecosystem. This includes a vast network of investment professionals across multiple asset classes and geographies. Our capabilities in real assets, including real estate and infrastructure, provide very attractive risk-adjusted returns across economic cycles, benefiting both policyholders and the growth of our capital base.

We are also highly opportunistic, especially during periods of volatility. In that regard, we continue to maintain over $15 billion of cash on hand and over $40 billion of liquidity for accretive transactions. Overall, our business is uniquely positioned to serve our policyholders and drive significant value. We remain on track with the goals set out during our Investor Day in September of last year. Although our business is much larger than it was just a few short years ago, our fundamentals remain unchanged, and our focus continues to be on compounding capital with returns exceeding 15% on our equity. With that, I'll turn it over to the operator for questions.

Our first question will come from Cherilyn Radbourne with TD Cowen.

Thanks very much and good morning. First question is, apart from semiconductors and pharmaceuticals, I find that investors I speak with are somewhat skeptical about the concept of broad reindustrialization in the U.S. Could you elaborate a little bit more on Brookfield's perspective on that and the opportunity to use the Intel deal as a template that facilitates the related funding needs?

Yes, sure, Cherilyn. I think the theme has been playing out for a while, and our expectation is that supply chains are reorienting around the world, and we don't see that slowing down. I understand it's a topical issue in the U.S., and we will see how much it plays out and the infrastructure they have to support it, but absolutely we see it reorienting. We have several discussions underway, and we believe it will present attractive investment opportunities for the business. We have a unique proposition, as we possess the capital, scale, and operational expertise to deliver these solutions that maybe few others have. So, I think we are in a unique position to have these conversations, and we do see it being a driver of capital flows in the coming years.

Thank you. Secondly, we appreciate the enhanced disclosure on Brookfield Wealth Solutions. One question I have is regarding funding agreements as a source of funds. Can you explain how the characteristics of that liability differ versus straight-up annuities and pension risk transfer deals, and who is the typical counterparty there?

Hi, Cherilyn. It's Sachin. I'm happy to take a shot at that. The characteristics, I would say, are a bit of a hybrid between an annuity and a pension deal. They resemble annuities in that they tend to have finite terms, with the standard product typically lasting between 5 and 10 years. They have a fixed rate and, for all intents and purposes, look similar to a bond issue, but they do form part of your insurance capital base. So they're not issued out of the holding company but out of the insurance subsidiary. They resemble pensions in that the holders, typically fixed-income buyers, cannot ask for their money back early—there is no lapse risk—meaning you don't have to include surrender charges or anything of that nature. They benefit from the best of both worlds. They're fixed annuities with set terms, and there's no right to ask for early withdrawal. We think it's a pretty attractive market. We did $500 million in the first quarter, our inaugural issue, and I would say we could probably do $1.5 billion this year if the markets are favorable. You should see this part of our annuity offering grow over time as an alternative to either annuities or pensions.

That will come from the line of Michael Cyprys with Morgan Stanley.

Hey, good morning. Thanks for taking the questions. Just starting off on Wealth Solutions, greatly appreciate the enhanced disclosure there, so a big thank you. Regarding the $25 billion of business you expect to do in calendar 2025, I think you did around $4 billion this quarter, suggesting a meaningful ramp over the next couple of quarters. I was hoping you could elaborate on where you see that coming from and what you expect to contribute to drive the ramp. Additionally, regarding building out the distribution and product side, how do you anticipate that playing out in terms of distribution channels? Please remind us where you are today and how you expect the product set to evolve from here. Thank you.

Sure. It's Sachin again. First on the remainder of the year, Q1 is typically a bit slower in terms of both annuities and pensions when they come to market, so we weren't surprised by that. The reason our expectations haven't changed for the year is largely because of that profile of the first quarter. Regarding our expectations for the rest of the year, we anticipate progress in the U.K., aiming to do several billion dollars of pension deals, primarily focused on smaller plans. The U.K. market currently lacks many participants and deeply needs competition. We represent a really interesting new entrant because we have a track record both in the U.S. and Canada, which we can leverage. Additionally, we have great relationships with trustees who often act on a global basis for corporate counterparties, allowing us to hit the ground running. Our U.S. pension business continues to scale, and so does our business in Canada.

Overall, the pension outlook remains very strong. Regarding retail and institutional annuity markets, we are building relationships with broker-dealers and bank channels, as I mentioned. Our relationships at the independent marketing organizations and agent levels are outstanding. We have a strong reputation with both American National and American Equity. We're regarded as one of the leading firms concerning our technology backbone and customer service, with agents strongly supporting us due to how well we serve our policyholders. Consequently, you can expect to see our product offerings expand through these channels. The entry into the larger banks will be new territory, and we're working actively to get integrated into several of those channels. Lastly, the institutional annuity market has healthy demand for our inaugural issue at $500 million, which was oversubscribed by three times. We anticipate solid interest in that product from us, allowing us to access that market throughout the year.

Great, thank you. A follow-up question on real estate. Can you describe how you're approaching and thinking about the opportunities available in this more volatile backdrop to monetize the real estate portfolio, and how do you expect that cadence to play out over the next 12 months versus the next five years? Thank you.

Yes. Hi, Mike. It's Nick. Time will tell. What we know for sure is that the operating fundamentals of the portfolio are improving daily. We're witnessing, as we anticipated, tightness in the market with limited supply, while demand from tenants remains strong. We previously discussed New York, but we are seeing this trend globally, where the supply of new quality space is limited, and tenants are actively seeking new locations. We are engaged in multiple conversations with tenants around the world. The underlying fundamentals are robust, indicating a healthy market, which is a positive sign for potential investors in the space. The capital markets are also constructive; we started the year strongly for office and retail segments and executed several financings. The market experienced a brief pause for a couple of weeks, but liquidity is returning and we are advancing several financing opportunities. All the building blocks are in place for transaction activity. We have already embarked on moving assets within the T&D portfolio, not meaningfully to equity but we are beginning to transact and progress with our plan. Considering this, we anticipate increased transaction activity over the next 12 months, and our outlook is highly optimistic. Meanwhile, our fundamentals remain very strong.

One moment for our next question. And that will come from the line of Kenneth Worthington with JPMorgan.

Hi, good morning. Thanks for taking the questions. Along those same lines, Nick, you and Bruce both highlighted that carry generation is at the highest level in two years, with the pace of monetization at $22 billion being strong, but maybe a somewhat uneven environment. What does the monetization pipeline look like as we think about the second half of the year and potentially compare the outlook for monetization in the funds versus what you expect off the balance sheet?

Yes, hi, Ken. The monetization pipeline is active. As you know, we operate a global business and are frequently in the market with assets in various sectors and geographies across the cycle. Currently, we have assets in the market across Australia, Korea, Brazil, and Europe, and we see strong demand for some of those assets holding up even amid this volatility. The uncertainty might affect the timing of these monetizations but hasn't materially impacted progress so far. At present, the majority of planned monetizations are fund assets coming from our earlier vintage real estate, infrastructure, and private equity funds. As we move through these planned monetizations, we will enter the carry phase we described. We view this as a bridge year for achieving increased carried interest and expect a meaningful step-up next year. While we are exploring plans for assets on the balance sheet, most of our planned sales are from the fund, which makes sense given the larger pool of assets located there.

Okay, great. Secondly, the U.S. financial media is suggesting that another larger annuity company is in play for acquisition by private equity. This leads me to the question: How beneficial is additional size and scale to Brookfield given your current position? Is it advantageous to have at the right price? Must it have significance given the consolidating marketplace, or is it simply irrelevant given what you've already built?

We've approached the growth of this business from a value perspective. We acquired American National and American Equity at a meaningful discount to their book equity—around 0.7 to 0.8 of book value. Fortunately, we made those acquisitions when rates were very low, which means we not only acquired at a discount but inherited liabilities at very low rates. Two things have changed significantly: today’s normalized rate environment and insurance platforms trading at close to two times book value. Recent transactions of scale platforms have shown valuations near that level, highlighting their demand and value. I don’t believe we would be a buyer in that range, and in fact, I can say we wouldn’t. Setting this aside, what we currently have is outstanding. We possess licenses across the U.S., distribution capabilities in all major channels, a pensions business, a retail annuity business, an institutional annuity business, and prospects for international expansion. Thus, we can rely on organic growth when valuations are high. If the situation changes, we still have the ability to pursue mergers and acquisitions opportunistically.

All righty, speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Katie Battaglia for any closing remarks.

Thank you, everybody, for joining us today. And with that, we'll end the call.

This concludes today's program. Thank you all for participating. You may now disconnect.