Q1 2020 Earnings Call
You're welcome to the Brookfield asset management, 2021st quarter results call.
At this time all participants are in listen only.
After the speakers presentation, there will be a question and answer session. If you need asked a question during the session. Please press star one on your telephone if you're required offered assistance or the program. Please press Star then zero I would now like to do so first conference call Misinforming managing partner Brookfield you may begin.
Thank you operator, and good morning, everyone. Welcome to Brookfields first quarter 2020 conference calls on the call today are bright spot or Chief Executive Officer, Nick Goodman, Our Chief Financial Officer, as well as Brian Kingston, CEO about real estate business.
Chris will start off by giving a business update followed by Nick will discuss our financial and operating results for the quarter. Finally, Brian will give an update on the retail business.
After our formal comments, we'll turn the call over to the operator and pick analysts' questions.
I'd like to remind you that in today's comments, including in responding to questions and then discussing new initiatives and our financial and operating performance. We may make forward looking statements, including forward looking statements within the meaning of the football Canadian Securities.
These statements reflect the predictions of future events and trends do not relate to a stark.
Got to known and unknown risks and future events and results may differ materially from such statements are.
For further information on these risks and the potential impact on our company. Please see our filings with securities regulators in Canada, the U.S. and the information available on our website.
With that I'll turn the call Bloxiverz.
[music], Thank you Suzanne and good morning to everyone on the call.
I will start today by expressing on behalf of myself and all of my partners at Brookfield that we hope you your families and your colleagues are all staying safe and healthy.
The world looks very different today than when we last updated you three months ago.
Many of our businesses have remained open and operational throughout this environment and we are proud of the countless employees and stakeholders across our business and portfolio companies.
Who remain working every day, providing essential services and products around the world to aid those in need.
In addition to the relief efforts that were supporting financially across our organization. Our people are contributing in many ways.
Which have a included our hospitals being provided as.
Bad providing beds to the government's requiring them hotels that were providing rooms to frontline medical staff.
And some of our [noise].
Real estate properties being used as has released centers.
Before I get into the quarter I thought it would just give a quick update on what we are seeing across our business in terms of re opening and how we're approaching it.
Across our global operations, we are very encouraged by the account.
From our regions such as Asia that have begun reopening their economies and places a business.
And we are leveraging their experiences today as we plan for our broader workforce to return to work.
For regions that have already opened up.
We are seeing trend of cautious, but steadily increasing consumer confidence.
Right now our plans for reopening our guided by our ongoing discussions with local governments and in accordance with each regions plans for reopening.
For example, within our real estate business as of today and Brian May touch on this later.
About one third of our retail centers in the U.S. every open and significant more coming in the short while.
Within our actual offices for Brookfield asset management, we've opened numerous I've them, including our Shanghai office, and our Dubai Office recently reopened and starting a few weeks ago. Most of our senior leadership has now returned to our offices and we are preparing our space.
Basis.
For the return of our people to it but with the respecting social distance he distancing protocols and so the rest of the people can return to the office when the government's give the go ahead.
Our long history of owning and operating assets in quoting the changes we went through after 911 have prepared us well to successfully handled business continuity planning.
And the at Dawn adoption of new normal for tenants employees and all other stakeholders.
Well no one could have predicted the catalyst for the environment than we currently find ourselves in.
If you have been following us for the past few years, you know that we had been expecting and preparing for some kind of market turn for quite some time now.
That preparation has meant that our business performed well in the quarter.
And we believe the outlook for our businesses and our asset management franchise is very strong.
The critical nature of many of our assets has ensured that they stayed open providing essential services to the communities, which within which they operate and they continue to earn strong cash flows with most of it being contractual in nature.
Our financial assets were and continue to be largely protected as we had indexed hedge those assets.
Hi.
In the first quarter and our asset management fee income, which has grown significantly because of very strong fund raising over the last 12 months.
His perpetual or long term in nature, and largely not impacted by the market volatility.
Our fundraising outlook for the remainder of 2020 is stronger than we would have initially inspected having just wrapped up the fundraising for our latest flagship funds in January.
Already today, our Oaktree business is in the market to raise its next flagship distressed debt fund.
Which we previously had planned would not be raised until 2021.
At the earliest.
We also anticipate that our special investment activities, which are focused on non controlling equity investments.
And not bound by asset class or geography restrictions will attract greater amounts of interest both from clients and from the greater need that businesses will have with their recapitalization efforts, which we expect to come.
In the second half of Twentytwenty.
We also believe that many of our other fund offerings will also see increasing demand coming out of this current environment.
Such as our funds focused around contract it infrastructure like assets that are proving to provide stability of return across these markets cycles.
Lost in much of the news of the last few months.
It seems to have been forgotten that interest rates virtually everywhere in the world are zero.
That is a simplification, but they are essentially zero.
As a result real assets are therefore highly attractive in this environment.
While ensuring our business was prepared for an inevitable market during the downturn.
We remain disciplined in our underwriting and investing over the last number of years as you might have seen in some more publicized transactions.
And I can assure you that there were many not publicized.
This resulted in us losing out on a number of transactions over that period.
Despite that discipline, we stuck to then is now paying off today.
We have approximately $60 billion of capital available currently to deploy across our business.
And from our experience over the past month, the capital markets continue to remain open for companies with strong balance sheets, such as ours.
We have been receiving both funding commitments for equity capital, but also debt markets since April in the debt market since April a nickel talk about this a little bit we added over $3 billion up liquidity by actually accessing the investment grade debt markets, increasing and increasing the.
Size of our bank lines to bolster our liquidity.
As I mentioned in the update we sent out in March our immediate focus for deployment was in the listed stock markets. Since the market turned in late February we have deployed $2 billion of capital into these markets. A large portion of this deployment was into high.
Quality businesses that are trading at a significant discount to our view of intrinsic value.
Over time.
These positions could lead to privatizations for controlling positions, but today at the very least we it's we expect they will provide excellent returns.
With large margins of safety.
As markets normalize.
We also repurchased approximately $300 million of our own securities across the business within the parameters of our share repurchase programs and we will continue to buy back shares as we see appropriate.
Well also balancing liquidity requirements of all of our companies.
And lastly, just to be expected in the current environment. The team at Oaktree accelerated its pace of deployment in the public markets.
During the quarter they invested approach during the quarter and since then they've invested approximately $8.5 billion across their funds.
Today their flagship distressed debt fund is over 80% invested and they have already started to line up capital as mentioned for their successful <unk> successor Fund.
We expect that fund will have hold its first close within the next few months and we anticipate that it will be larger than its predecessor upon close.
So while there has been lots of opportunity in the public market on the private side for the most part we have been just getting ready for a more active times.
One of these places were already seeing opportunity to use our knowledge of the operating businesses. A is our retail business and Brian Kingston is on the call with us today and he'll provide some background on our plans for the revitalization program that we announced last week.
Lastly, before I turn the call over the next to speak about financial results.
Included in our circular filed last night as always is a description of the partnership.
Of ours as individuals and its ownership of our 20% stake in Brookfield and the class B shares.
You may have noticed some new details about these arrangements and I thought I'd make a few comments about those.
First nothing has changed for Brookfield. These weren't changes to refine how the partnership manages its ownership of the class B shares. They are included in the Brookfield circular as part of the disclosure around the ownership of the company's voting securities.
Second Theres been no fundamental change in the the control of the shares. It is the same group as before what we merely did is simplify and clarify the ownership structure.
Third while the partnership is very important to ensuring the long term stability of Brookfield.
In our in our view it does not play an active role in the day to day operations of the business. It does however allow us to operate and then Brookfield to operate in an environment that facilitates long term decision, making and and we believe is very helpful in maintaining our culture and none of that has changed.
Yes.
With those comments I will turn the call over to Nick Goodman.
Thank you Bruce and good morning, everyone.
Our business performed very well in the first quarter, even as the economy and markets falter towards the end of March our asset management franchise and invested cap to continue to generate significant amounts of free cash flow highlighting the resiliency of our business.
Generated $751 million of cash available for distribution and or reinvestment or what we called kept our during the first quarter, a 43% increase from the first quarter of 2019, and we consider cast are to be the best indicator of the long term earnings power of our business has it can things are stable fee related.
The earnings with the long term sustainable distributions from are listed affiliates, which largely on contracted income streams.
Notwithstanding the strong cash performance the market turbulence at the end of March resulted in unrealized noncash adjustments, including Mark to market movements on liquid securities, which had a negative impact on net income.
This resulted in a net loss for the first quarter of $157 million or 20 cents per share on a full split basis, it's worth noting that we expect these unrealized marks to recover overtime as markets stabilize.
Our funds from operations, our AFFO was $884 million for the quarter or 55 cents per share on a pool split basis.
Starting with our asset management results.
Fee related earnings before performance fees increased by 35% to $321 million for three month period and totaled $1.3 billion over last 12 months, an increase of 44% from the same period in 2019.
The majority of our fee revenues are no impacted by market volatility as evidenced in the stability and growth of our effort period over period and the growth in our fee related earnings as a reflection of the significant step change in the business over the past year, including the successful Ryan to flagship fund raising that we completed in January the growth in our distributor.
And channels on our expanding private fund offerings, along with our partnership with Oaktree today, our fee bearing capital totals $264 billion on our annual fee revenue stand at $2.8 billion.
Our unrealized carried interest bound stands at $3.2 billion as the investments in our funds are largely critical assets or assets that have long term contracted cash flows have largely not being impacted by recent events.
We also benefit from having minimal exposure to public securities or energy investments during the quarter unrealized carried interest decreased by $298 million before cost and the impact of foreign exchange.
We realized $132 million that carried interest during the quarter and $613 million over the last 12 months as we continue to sell mature assets, we've realized approximately $1 billion of proceeds from asset sales during the quarter and $12 billion over the last 12 months looking forward, while the piece of asset realizations during.
Twentytwenty as lately to be slower than we thought when we last spoke at the end of Q4, the long term nature of our funds ensure that we can be patient when seeking to excise X X investments in order to maximize the value creation.
Turning to our balance sheet investments, excluding disposition gains FX will for the quarter was $397 million the decrease compared to the prior year was the result of lower mark to market gains on our financial asset portfolio lower earnings on or energy contracts on the impacts on portfolio companies of the recent measures taken Dick.
Corporate 19.
We expect these impacts to continue into the second quarter, but we believe earnings will return to normalized levels as the economy gradually opens up and begins in the path recovery.
Finally, we sold several investments within or private equity infrastructure and realistic groups. During the first quarter. These monetizations contributed towards approximately $107 million if realize disposition gains recorded net vessel.
Today, our liquidity and capitalization remained very strong in addition to $45 billion of Uncalled fund commitments, we $15 billion of core liquidity across the group, including $6 billion directly upon.
Our balance sheet remains conservatively capitalized with an implied corporate debt to market capitalization ratio, 14% of the ended the quarter and an average remaining term and our corporate day of 11 years and new individual piece of debt maturing before twentytwenty three.
And we're seeing the credit markets continue to remain open today to creditworthy companies with strong balance sheets and April we completed the issuance of $750 million of medium term notes and increased the size of both the bomb and that credit facilities bolstering liquidity by further $2 billion.
Finally, I am pleased to confirms our board of directors has declared a 12 cents per share dividend payable at the end of June on a post split basis, the dividend is consistent with the previous quarter.
With that I will turn the call over to Brian Kingston, The CEO Ofer real estate group, we won't be providing us with an update on our real retail operations as well as our recently announced retail revitalization program Brian.
Thank you Nick and good morning, everyone.
Today, I'm going to talk about our re retail real estate portfolio as well as offering some observations on on what we're seeing on the ground and our outlook for the future.
Retail makes up about one third of our real estate assets under management.
And while our business is global the vast majority of our retail holdings or here in the United States. We currently have 170 properties, comprising almost 150 million square feet of high quality retail real estate, located and 43 states, making us one of the largest owner operators have been close shopping centers in the United States.
Our properties or some of the most highly trafficked retail properties in the world centers like Alamo on a shopping center in Honolulu that welcome this more than 50 million guests each year in fashion show in Las Vegas, located in the heart of Las Vegas strip.
This unique portfolio of properties would be impossible to replicate and provides us with the unique ability to leverage our scale and market presence.
Well today. These properties are 100% owned by Brookfield property partners. They were acquired through a series of transactions starting with the recapitalization of general growth properties back in 2011.
By taking advantage of past market dislocations, we've managed to acquire this unique portfolio at a substantial discount to the value of the underlying assets.
Over the past five years, we've witnessed tremendous change in the retail operating environment.
Retailers with weak balance sheets, and our business models that haven't kept pace with changes in customer taste and buying patterns are seeing their business has steadily declined.
At the same time exciting new digitally native businesses have emerged and some old line retailers reinvented their businesses to meet these new realities and they've seen their sales and market share expanding dramatically as a result.
Well they come from a wide range of retail sectors and have managed to be successful for a variety of reasons. These retailers of the future. All have one thing in common they've been expanding their physical store counts to help them interact with customers directly.
As a way to fulfill online orders more efficiently by locating their inventory closer to where customers live in work.
When deciding on the location for their physical store front. These retailers want to be in densely populated high growth markets for owners of the best retail properties in the United States like Brookfield. This has meant there was a waiting line of new tenants to take the place of old line retailers, when they vacated or malls.
We had initially expected this process to play out over an extended number of years. However, the sudden impacted the cobot 19 crisis has accelerated the demise of the weaker balance sheets import business models.
We've also been investing in repositioning in Densifying. These high quality locations into mixed use entertainment destinations by adding residential hotel and entertainment uses to our 40 plus acre urban sites.
These retail shopping centers often serve as the commercial hub for trade areas that they serve and by adding these additional uses on site, we're turning them into Mideast, many cities offering residents and tenants dynamic live work play environment across the country.
Much of the excess density to complete these redevelopments has come through the recapture in redevelopment of anchor department store boxes attached to or adjacent to our malls and we expect our ability to recapture those boxes, a good value will only accelerate in the future.
While the impact of the Cobot Lockdown has been felt acutely in our retail portfolio due to the government mandated closure of all of our malls last month.
Our places have always provided a safe and clean environment for people to shop and entertain themselves. We're now in the midst of reopening our centers with new measures that will enable them to be the safest place for people to send their families and meet their friends.
As of today around 75 of our retail centers of reopened under restricted capacity and we expect the balance of them to open in the coming weeks.
We are supporting these reopenings by concurrently launching curbside pickup programs at our properties designed to seamlessly integrate online shopping with the inventory held in stores in our malls effectively turning those stores into fulfillment centers, located where attendance customers live and work.
The feedback so far from our tenants has been very positive with many of them reporting a significant proportion of their online sales being fulfilled through this channel.
We believe this is more than a short term stopgap measure during the retail shutdown and expect this to become a permanent feature in our tenants supply chain in the future and this will further underpin the value of our premium assets, which are located in these densely populated urban areas throughout the country.
Our 170 retail properties are located within one hour drive of 60% of the U.S. population.
In the coming months as our tenants continue the process of restarting their businesses, we will work closely with them to assist them getting back up and running as quickly as possible.
At our properties, we are implementing comprehensive health and safety mitigation measures, including PE worn by all employees and available for guests upon request.
And sanitizing stations at high touch locations Sanitizing wipes available in food courts frequent signage with health and hygiene reminders and strict enforcement of social distancing and density protocols.
We're also working with our smaller regional tenants to provide them with financial accommodation recognizing their ability to fund short term operating losses is not the same as the larger national and international brands.
We expect this will have some impact on our earnings over the balance of the year. However, it is expected to rebound quickly as the industry recovers.
In addition to assistance to smaller retailers, we plan to utilize the position we have to make investments in retail companies as this industry consolidates.
As we announced last week Brookfield has established a $5 billion retail revitalization program to bring much needed capital and operational assistance to support the stabilization and growth of retail businesses and all of the markets in which we operate.
The program aligns with our approach is value oriented investors investing in high quality businesses at favorable valuations at a time when capital is scarce in sectors that we know well and the program will and now will enable us to both support retail companies and deliver attractive returns to our investors.
As you can imagine since announcing this last week, our phone has been ringing off the hook with investment opportunities.
We've also been active participants in supporting the industry's efforts to work with us federal government on its economic stimulus packages specifically the cares act, we're taking a proactive role in working with our retail tenants to ensure that those who qualify for stimulus received the subsidies that they're entitled to.
Our dedicated tenant resource page and Webinars devoted to the cares Act has attracted over 23000 visitors providing valuable information on how to understand and determine the potential options available for our tenants.
These subsidies if applied in distributed correctly could play an important role in easing the financial burden that retailers and restaurant operators are faced with.
The one hundreds of billions of dollars earmarked for small businesses to pay for their employees wages as well as cover operating expenses, including Ren.
Should mitigate some of the financial and emotional hardship that they're facing.
So in conclusion, while the retail operating environment was already highly dynamic prior to the onset of the cobot 19 crisis the impact of the lock down will be to accelerate many of the super trends that we already saw underway.
While this may cause us in short term pain, we own the highest quality portfolio of retail assets in the world and will ultimately be the beneficiaries of consolidation. When this is finished.
Physical retail real estate will change in evolve over the next decade as it has for many years. Prior however, the highest quality best located real estate always increases in value overtime, and we have no reason to believe otherwise in this case.
So with that as my comments I'll turn the call back over to the operator to see if there are any questions operator.
Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone telephones.
Question has been answered your question with yourself from the Q. Please press the pound key.
Our first question comes from surety bond regard with TD Securities.
Thanks, very much and good morning.
Starting with a question on the fundraising environment.
I appreciate the comments that you need.
Holistic sense.
Was wondering if you could drill down and talk about how that looks for real estate more specifically.
So its Bruce it I'll make a high level common and Brian.
May wish to add something afterwards, I, just say first is that.
Fundraising environment, if you hadn't it's kind of like everything that's going on and business today. If you hadn't action if something wasn't in action before all of this occurred.
Not very many people have been doing a lot of new things over the past two months.
There have been some and selectively there are some but.
If you don't know your manager or if you didn't already have a relationship you probably didnt start one so.
I'd say, that's a good news and bad News story. The the Bad news is if we were looking to close things or get new things. They not much has started over the last couple of months. The good news is we had many things in the pipeline and our relationships are very deep so.
People will put money with managers they now.
And I would just say in general though.
I think theres still money coming into all of the businesses, we have including including real estate and Brian I don't know if you want to specifically.
Take that go further on that.
No I don't I don't think there is any different store for real estate versus the other.
Asset classes, where we were typically raising money I think we spent a lot of time and have spent a lot of time last couple of months speaking to Lps a lot of them have.
Capital that they're seeing as Bruce mentioned earlier, earning zero percent in their fixed income portfolio Center are looking at this is an opportunity to potentially.
Put some of that money to work in high quality cash flow generating assets and real estate is part of that I think there's a lot of appetite out there and when things do free up I do think you'll you'll see a lot of capital coming into real estate, but it's the same as all the asset classes.
Okay.
In terms of your investment posture on do you think that the amount of dry powder, that's been raised by dam and others diminishes the opportunity set versus prior downturns or would you see that is proportionate relative to the scale of opportunities that may emerge here as others you start to drop.
Look I just make the comment that our general view.
And no one knows what the future brings but our general view is that the.
Economic ramifications on businesses that don't have substantial liquidity.
Once this fully plays out.
Meetings, this second quarter and the third quarter come and we may not open up exactly as fast as.
One might have hoped.
Will bring up bring to us significant opportunities and when I say is just those with capital. So I think there are.
There are going to be lots of opportunities for us to put money to work would be the short answer.
That's my Q. Thank you.
Okay.
Our next question comes from Bill Katz with Citigroup.
Okay. Thank you very much for the extra discussion today as well so maybe I could start there.
On the on the real estate. So Brian. So you mentioned that strategy of sort of being within an hour drive and the densification and multiuse et cetera.
Does anything change post cobot 19, just given the potential for any kind of structural shifts in commutation work from home type patterns that that might otherwise dilute that strategy.
No I think in the short term clearly the way we operate in our office buildings in our shopping centers is going to be altered until we really get to a place where.
We haven't vaccine and and people are feeling more more comfortable but those trends that I was talking about or have been playing over 20 years, right, which is increasing urbanization.
Businesses large businesses using their office premises as a way to build and.
Grow and expand their culture, and the importance of having that collaboration and people close but and so I think its interrupted at the moment because of the shutdown and people are finding ways.
To use zoom calls and some other things to get by but but the reality is in the long term basis.
These office premises are an important part of business strategies.
We don't really see that changing so I think operationally.
With many things you're going to see.
Hand, sanitizer and those sorts of things, becoming a permanent fixture in the buildings, but I don't think the use of the more but frankly the demand changes over the long term.
Okay. Thank you and then maybe just a two parter for nickel unrelated.
Nick just in terms of thinking about the for re launching from here how should we think about that was there anything sort of unique in this particular quarter that we'd be aware of and as you think about hedging some of the invested capital exposure. When you have nice benefit. This particular in first quarter, how we think about that for the market's rebounding in anyway.
Yeah, So I listen I don't think there was anything unique this quarter in terms of margins. The the fee related earnings continued to grow they continued to be stable and their reflecting kind the resiliency of our business model and the fee cash flow generation of on them we retain.
Positive outlook as we look forward. So we're continuing to continue to invest in the business. So we can service our clients over the long term as the business grows. So I don't think you should read anything into like the margins were fairly consistent this quarter and there continues to be in those ranges as we diversify our product offering as we do more of the core products as we may be race.
More of the market based strategies in oak tree and the product mix grows than maybe the margins change a bit but I think overall.
You should.
The results were fairly consistent this quarter with prior and what you should expect going forward and on the hedges you know I think this is more about protecting bombs liquidity, we have a large balance sheet we have.
And we have assets that we owned that are in the public markets and we have the large portfolio, which has a huge benefit analyzers or water flexibility.
We just took the opportunity to hedge some of that and lay off some of the risk and effectively.
Look in values and hedge against volatility. So you might find just things recover we don't benefit in the full recovery, but we looked at an attractive values in prior quarters. So it might just remove some of the volatility from earnings going forward.
Thank you very much.
Our next question comes from more growth from Canaccord.
Thanks, and good morning, everyone up Bruce when you completed the oak trees transaction acquisition, you spoke about how this acquisition would really shine.
And some times of distressed when they can take advantage of that than it appears that we're getting some of that at the very at least right now.
How do you see a playing out as far as the cash flow that you get from Oaktree over the next year and is this something that while it's a good opportunity for oaktree to make money. It will just take a number of years spreads for its actually show in your results.
Look I think the all businesses are created.
Over many many years and nothing ever plays out Tomorrow morning, So the.
[music].
The short answer is.
Our earnings will not be affected by.
Or anything that Oaktree does.
Immediately.
Having said that.
The outlook for.
The Oaktree franchise for the next.
Three to five years 2354 or five years.
Yes.
Much better today than it looked.
Two months ago than when it when we acquired the business and Thats why as you know in you stated it Thats why we acquired the business and partnered with the team there and I.
I think there they will be able to put very they'll be able to raise lots of money and they'll put very significant amounts of money to work through this period and it is a very exciting time for them at us.
Okay. Thanks.
In regards to the transactions are doing now it's.
There might be some distressed but as far as doing big acquisitions in the near term just probably it's going to take some time, whereas in the public markets. As you stated and shown there is quick opportunities you could take advantage of quicker to what extent.
The funds you ways, whether it's in the private equity side or the property side are you able to use those private funds to invest in public securities in a material way when there might be more dislocation today there than in larger transactions.
So just to be clear all all all of our opportunistic funds are and we have.
Tired discretion total discretion to invest.
In.
In public securities as long as they're a means to an end and so most of the positions that we purchased are within the.
Funds, we have with clients private funds, we have with clients.
Okay, great. Thank you so much.
Our next question comes from Andrew Kuske with Credit Suisse.
Thank you good morning.
Questions either for Bruce search for neck, and that just relates to the U.S. 2 billion of capital that you've invested.
Thanks for the public disclosures or God, North BBU was around 500 million Bep around 450, Brookfield renewable bought back some transalta, the 300 million to buybacks across the group.
Is there any more granularity you can provide on on really what's left about 2 billion on what buckets there was allocated towards.
Yes, it's really just Andrew across the other groups I think all of the groups in our business have been active. So it's you referenced it's an infrastructure it's in private equity disclosure renewable and real estate. We have just been executing the same strategy, which is identifying high quality businesses that we've seen.
Traded at discount intrinsic value, where we think over the long term that could potentially be a catalyst for broader transaction. So it's fairly broad based across the across the groups.
Okay. That's helpful. And then just I think this comes from pitch 12 than the and the supplemental on the expiry profile.
I think the numbers about six and a half billion of funds, that's really skewed other real estate and infrastructure is being the biggest areas.
Oh for uncalled commitments expiring.
So as the natural conclusion to draw Rensi greater activity.
For value in the current market environment from those business groups.
And while I think that dry powder, you're referencing would be on the funds and were onto the next vintage of the funds, so new transactions, which come from the latest vintage that dry powder that has been left in those funds would be made available because we believe we've been have follow on opportunities deployment opportunities in those funds or we have been.
Mrs with development pipeline or tuck in and roll up strategy. So they're dry powder is really there that's being left available for follow on transactions.
Okay. That's great. Thank you.
Thank you.
Next question comes from brought into the whole Deutsche Bank.
Great. Thanks, Good morning, Thanks for taking my questions.
Just one might be back on the retail side for Brian.
And the real estate said.
Just maybe more of a short term question here, but it's there is.
I guess, a more problematic second wave.
In the pandemic essentially in the dense populations in the U.S.
Just what you saw it would be on potential impact.
If you I see if that happened over the next.
The two to three quarters in into 2021, and if there's any way to frame.
The risk of that or not.
Well the.
Look the primary risk from from all of this really is.
With respect to bankruptcies in the absence of a tenant going bankrupt, we have leases long term leases in place with them and rents are due and we continue to collect the.
Click click the rent as part of that.
So I think to the extent that shopping centers remain closed or close again or the potential office building.
Usage is lower.
Neither of those on their own actually impact or AFFO in the short term.
Really is just sort of on the in the scenario, where where you have tenants going bankrupt and not being able to pay time. So to answer. Your question I think we have a second wave obviously that's that's.
I'm going to have further reaching economic impacts for the economy, and putting us maybe deeper into recession, but.
But it's not a direct impact on AFFO and I don't think you're going to see a huge impact on our AFFO over the over the course of this year anyway as a result.
That's great color. Thank you and then.
To the deployment, maybe just is it some I guess could sort of frame.
And again, maybe difficult to answer but.
With the lens if there are more opportunities over the next six to 12 months given valuations.
Prove even more attractive maybe you could sort of frame the pieces that.
60 billion deployment.
In time frame sort of a range.
And then if I can so Andy good question on Oak tree sounds like there a lot of their way through the did that is Uh huh.
11 can be rather.
Yes, any sense of the size of the next distressed fund and it was really.
But you could actually be larger than the prior one.
So its Bruce I'll I'll answer the last question first because of fundraising.
Constraints, we can't talk about.
Fundraise right so they're in the markets today and I I, we can't get into details on that so I apologize for that.
But but look I can what I can say is.
This is this is one of the great.
Environments, possibly to despite distressed debt that ever that may have ever been in existence.
And I think clients understand that and I think there for there will be a lot. There isn't there will be a lot of interest in the oak tree strategy. So.
We hope it will be very.
Significant fund.
With respect to deployment of actual capital within all all our other funds.
You know at all it always depends we never know what happens I. Our general view, though is there'll be more opportunities in three months from now and there will be a greater number in six months are now and that merely because.
Our expectation is that the economic.
Recovery will will be slightly less than everyone hopes because everyone hopes it goes back to exactly what it was and it will take just a little more time and therefore, there will be more as time goes on the capital needs of companies will be will be greater and we will be able to assist.
Companies during those situations. So I think it'll it'll happen, but you never know what what the total numbers are.
Right. That's that's great color. Thank you.
Welcome.
Our next question comes from exactly the terminal KBW.
Hi, everyone. Thanks for taking my call. So if I was just asking more capital management base question I saw that about like a year ago or so you had mentioned that as cash available for distribution rises you may look to repurchase stock.
So given the current environment like how the stock has performed recently do you feel differently about.
That's sort of viewpoint.
Hey, it's Nick and listen I don't think it's changed at all I think we said over the long term our view of cash coming into the business. You know our priority is to look to reinvest into the business for internal growth opportunities to be able to see that cash continuing to component.
And deliver long term compounded returns and we invest up by supporting the asset management business now taken participating in equity issuances and listed issuers and other forms and then when we've worked through those and we think about returning capital to shareholders buybacks would be the best and I don't think that change today, obviously the share price.
Is trading Nov is more attractive or was a few months ago, and we have been and buying on differentiate be but we found one stop with wanting to make sure we retain liquidity to be able to be opportunistic in this environment and just to be conservative through this period of time and have liquidity to support the franchise. So I think it's it's still a balanced approach and still.
Long term strategy and so nothing in that regard has really changed.
Okay. Thank you.
Our next question comes from Sohrab, Movahedi with BMO capital markets.
Thank you.
Bruce maybe maybe a bit of fab.
Strategical philosophical type question, obviously this spring.
An unparalleled type scenario the world's faced with.
Is it fair to say the only thing well, maybe it's not I don't know about the only thing, but it's one thing that you're doing differently philosophically is looking.
At the public markets for investment opportunities or what else are you doing differently I guess.
As a byproduct of fish in the first instance, and then secondarily can you just talk a little bit about what's the philosophy.
What's the decision, making framework basically pursuing to public investment opportunities.
Look I would just say Oh.
During other periods of time when environments like this existed.
During the first three months of what when that occurred there were many opportunities privately to assist corporations deal with assets or buy businesses from them or provide capital to them.
The difference today is that those opportunities are really in existence, because no one can due diligence and.
But the one opportunity that that has been available is that if you knew a business well and because remember the things that we're buying in our funds for our clients and for ourselves are only things that we have extreme confidence and that we know very well and that.
We have a big margin of safety and doing it because we're buying public securities and large large parts of.
These are very concentrated positions in the companys. So.
That is available and there's nothing else been available over the last while at Thats. If that's a simplistic statement, but there's been nothing else available to do over the last well, so thats, where we have been investing our money. We think it's been an excellent place those will either be sold if the markets come back or they will lead to stage two of this.
Financial situation that we're enter economic or health situation that we're end stage two is going to be corporations reorganizing their balance sheets and other things being done and some of those mainly lead to transactions with the companies to be able to system.
In addition to other things that we do out there so I would just say.
It's not a strategy in itself. It's just an adaptation of how we do our business.
Okay, that's very helpful and and so that adaptations doesn't necessarily mean you you are thinking about returns differently. You are still pursuing the same sorts of hurdle returns and target returns have fewer people preset correct. It I would hope I would be we would be unhappy if the return.
Ends weren't at the very high end of our return numbers, because where we're taking greater risk today than you might take another periods of time.
Perfect and if I can just sneak one more when when you talk about.
Not specifically talking about oak tree here, because I know you're into fund raising both but when you think about the next round of.
Fund raising.
Yeah and against the backdrop of or in the context of zero rate World. Do you think you will have to modify the.
The promise returns or the targeted returns or the fee rates or anything like that.
Materially from where you have been targeting an operating I previously.
Look on the target returns I of our businesses, we haven't changed them for a long time and I don't think this environment makes a change in that sounds.
Counter to what you would think but the type of things we do we're not available to most investors and therefore the returns should be.
We should we target same returns and we don't think we're going after changes now.
If we earn a little bit less for our clients. Then if we don't earned 20, and we are 19% or 18%, they're probably going to be happy.
So, but I would say, we haven't really changed our returns and.
With respect to what our.
Clients path for what we're doing they seem to be very happy with what we're doing in and ER and I don't think we expect any changes in those arrangement.
Alright very much appreciate it thank you.
Yup.
Our next question comes from Mario Mario Soc with Scotiabank.
Thank you I was just on the.
Just wondering side. It was noted in your prepared remarks, but the outlook for 2020 remains pretty positive.
Was that specifically referencing the earlier than anticipated launch and the next previous Trust Fund I guess the follow on question to that could be as a too early in the claim to be able to confidently.
Reiterate your hundred billion dollars flagship fund raising temperature that Florida at your Investor do Archer.
Yeah look I'll leave Nick to the second one because I'm not sure I have the specifics for you, but what I would say is oh.
The returns that we target within our funds once we clear through the first part of this these issues are highly attractive to our clients and they're more attractive than they were.
For.
And therefore, I guess, even on our open ended strategies, which which are fixed income supplements I think they're gonna be more attractive for our and our clients than they were before and.
Therefore that plus our oaktree franchise.
Plus the fact that we think money will go to work quicker than we might otherwise expected and we'll be back out fund raising quicker than we would've otherwise thought all of those things taken in mean, we have a much more positive backdrop to fundraising and deployment than we had 12 months ago.
Yeah, not run with I think Thats right I think so I think to Bruces point on beat your question is right. The oaktree fundraising is probably happening sooner than we would have expected and so that's just a timing shift in 100 billion, we would have presented and and for the balance I think we remain very optimistic that is.
But it's achievable over the timeline, we though at Investor day last year.
Perfect. Okay. Thank you and my second question just in.
With respect to the recovery there is more discussion media.
So we should kind of characterizing the recovery and there's also been some articles about potential kind of take solutionary environment coming out of this well just interested to hear.
If your base case thoughts on what a recovery could look like.
Got it here in the structural implications for long term global employment.
Look I, it's Bruce and I'd, just say, we don't as you know we don't.
Profess to have any great insights on economic developments globally.
What we do is.
By assets, which are contracted in nature.
We'll be can be can be turned into contracted in nature assets.
And earn cash flow returns over the long term, we try to buy them with the margin of safety.
Simple as I can state it.
And we think those are highly attractive in whatever environment. We're in there's no doubt the environment, we're going to be in is for awhile and we've been saying this for a long time, but it is more evident today is we're going to be in a low interest rate environment for awhile.
Possible at some point in time that in the future.
Way out in the future that interest rates go up because of inflationary things and.
But I think are the type of assets. We have for the next five to 10 years are very attractive asset class to be in.
Okay. Thank you for that.
You're welcome.
Again, ladies and gentlemen feel good question or comment at this time. Please press the star than the one key on your touched on telephone.
Our next question comes from Bill Katz with Citigroup.
Okay. Thanks, just for the follow up and it's just big picture, a boost perhaps for yourself going back to your Investor day as well the other instilling a data point you sort of offered was allocations rising to about 60, some odd percent in certain cases.
Apps to fluid just given the immediacy, what's been happening with the cobot 19, but how do you sort of see that slope of that is that something that gets pushed out a little bit assessing gets accelerated somewhat appreciate that the asset rotation from fixed income to real assets makes a lot of sense, but more structurally we could be a net beneficiary of these changes.
Or is it a push.
Look I would I think what the question is and if I don't answered correctly. Please ask again, but I think that are our view has been.
And then based off of our discussions with clients in our interactions with them as it is that.
That institutions.
Have been and will be pushing towards alternatives very significantly.
They have been doing it for 10 15 years and they will be doing it for the next 10 years and that allocations.
Push from zero to five to 10 to 15 to 20. They were originally we said going to 40 and then we said they eventually get to 60 I think today, where interest rates are it's possible there they get to that 60 quicker it's possible that some institutions take them far higher than 60 remember you cant.
If you're trying to earn 8%.
You can't do it owning a treasury bill at zero.
And all Treasury bills in the United States out to 20 or 30 years are zero in every country in the world other than a few emerging economies. So.
It's not.
It's not possible to earn your returns that you need without these type of products within the fun and and therefore.
Increasingly that'll be happening and I, what I would say is leave aside that the short term effects of what's going on right now.
If we stay in this low interest rate environment, which I think we will.
The allocations are going higher.
Great. That's my question. Thank you very much.
You're welcome.
No I'm not showing any further questions at this time, but turn the call back over to Suzanne.
Thank you operator, and with that we will end today's call. Thank you everyone Johnny.
Ladies and gentlemen, this does conclude todays presentation. You may now disconnect and have a wonderful day.