Q4 2023 Brookfield Corp Earnings Call
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Operator: This. Hello, and welcome to the Brookfield Corporation fourth quarter 2023 conference call and webcast. At this time, all participants are in listen only mode.
Okay.
Okay.
Speaker Change: Hello, and welcome to the Brookfield Corporation fourth quarter, 2023 conference call and webcast at.
Operator: At this time all participants are in a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. I would now like to hand the conference call over to our first speaker, Ms. Angela Ullo, Vice President. Please go ahead.
After the speaker's presentation, there will be a question answer session.
Ask a question during the session you will need to press star one one on your telephone.
Operator: I would now like to hand, the conference call over to our first speaker Ms. Angela <unk> Vice President. Please go ahead.
Angela Ullo: Thank you, operator, and good morning. Welcome to Brookfield Corporation's fourth quarter and full year 2023 conference. On the call today are Bruce Flatt, our Chief Executive Officer, and Nick Goodman, President of Brookfield Corporation. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter and the year. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we ask that you refrain from asking more than two questions.
Angela Ullo: Okay. Thank you operator, and good morning, welcome to Brookfield Corporation's fourth quarter and full year 2023 conference call.
Operator: On the call today are Bruce Flatt, our Chief Executive Officer, and Nick Goodman, President of Brookfield Corporation.
Nick Goodman: Bruce will start off by giving a business update followed by Mike who will discuss our financial and operating results for the quarter and the year.
Angela Ullo: After our formal comments, we'll turn the call over to the operator and take analyst questions.
Angela Ullo: In order to accommodate all those who want to take questions. We ask that you refrain from asking more than two questions.
Angela Ullo: I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. These statements reflect predictions of future events and trends and do not relate to historic events. These risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. And with that, I'll turn the call over to...
Angela Ullo: I'd like to remind you that in today's comments, including in responding to questions and discussing new initiatives and our financial and operating performance. We may make forward looking statements, including forward looking statements within the meaning of the applicable Canadian and U S Securities law.
Angela Ullo: These statements reflect predictions of future events and trends and do not relate to historic events.
Angela Ullo: Subject to known and unknown risks and future events and results may differ materially from such statements.
Angela Ullo: For further information on these risks and their potential impacts on our company. Please see our filings with the securities regulators in Canada, and the U S and the information available on our website and with that I'll turn the call over to Bruce.
Bruce Flatt: Thank you, Angela, and welcome everyone on the call. We had an excellent year in 2023, each of our businesses delivering strong financial results. In total, distributable earnings before realizations were $4.2 billion. There was a 12% increase per share year over year on a comparable basis, and we delivered net income of $5.1 billion. Our manager had one of its strongest fundraising years ever. Our insurance solutions business had a transformational year with assets set to shortly be over $100 billion, annualized earnings over $1.3 billion, and our operating businesses continue to demonstrate their resilience through a period of economic uncertainty. Turning briefly to the market, capital was less available in 2023 for many. This resulted in significantly reduced transaction activity more broadly.
Angela Ullo: Thank you Angela and welcome everyone on the call.
Speaker Change: We had an excellent year in 2023.
Speaker Change: With each of our businesses delivering strong financial results.
Bruce Flatt: And total distributable earnings before realizations were $4 2 billion.
Bruce Flatt: This was a 12% increase per share year over year on a comparable basis and we delivered net income of $5 1 billion.
Bruce Flatt: Our manager had one of its strongest fundraising years ever.
Bruce Flatt: Insurance solutions business had a transformational year with asset set just shortly be over 100 billion.
Bruce Flatt: With annualized earnings over $1 3 billion.
Bruce Flatt: And our operating businesses continued to demonstrate their resilience.
Bruce Flatt: Through a period of economic uncertainty.
Bruce Flatt: Turning briefly to the market capital was less available in 2023 for many this resulted in significantly reduced transaction activity more broadly.
Bruce Flatt: Despite that backdrop, we differentiated our franchise by maintaining strong access to capital, which financed approximately $100 billion of assets and businesses during the year. This, combined with our strong liquidity position, enabled us to also remain very active on the investment front. We invested over $55 billion, and we expect to reap the benefits of many of these contrarian investments for years to come. Today the macro environment feels better. Short-term interest rates have risen globally and are expected to go down.
Bruce Flatt: Despite the fact that backdrop, we differentiated our franchise by maintaining strong access to capital, we financed approximately $100 billion of assets and businesses during the year.
Bruce Flatt: This combined with our strong liquidity position enabled us to also remain very active on the investment front.
Bruce Flatt: We invested over $55 billion and we.
Bruce Flatt: Expect to reap the benefits of many of these contrary investments for years to come.
Bruce Flatt: Today, the macro environment feels better.
Bruce Flatt: Short term interest rates have crested globally and are expected to go down.
Bruce Flatt: Capital Markets Regain Strength. We anticipate transaction activity to pick up. As a result, it looks like 2024 and 2025.
Bruce Flatt: Capital markets regain strength.
Bruce Flatt: <unk> pay transaction activity to pick up.
Bruce Flatt: As a result, it looks like 'twenty 'twenty, four and 'twenty 25 will be good years for our business.
Bruce Flatt: Good years for our companies. We recognize that geopolitics can lead to heightened volatility, but this does seem to have become the new normal. The most important thing for shareholders to remember is that owning businesses and assets that form the backbone of the global economy, combined with maintaining access to multiple sources of capital, is always a safe place, proven over many decades, and in our view, this has not. Looking back over the last 20 years, the value of our business has grown at a compound annualized return of 23%. To illustrate, a holder of one share started with a split adjusted value of just over $2.50 at that time, and over the 20 years, assuming dividend reinvestment, the total value is today $145, or 57 times the return on capital. I don't think, though, that the best is yet to come.
Bruce Flatt: We recognize the geopolitics can lead to heightened volatility.
Bruce Flatt: But this does seem to have become the new normal.
Bruce Flatt: The most important thing for shareholders to remember is that owning businesses and assets that farm the backbone of the global economy.
Bruce Flatt: Combined with maintaining access to multiple sources of capital is always a safe place to be this.
Bruce Flatt: This is proven over many decades and are in our view this has not changed.
Bruce Flatt: Looking back over the last 20 years the value of our business has grown at a compound annualized return of 23%.
Bruce Flatt: To illustrate a holder of one share started with a split adjusted value of just over $2 50.
Bruce Flatt: At that time and over the 20 years, assuming dividend reinvestment the total value is today $145.
Bruce Flatt: Or <unk> 57 times the return on capital.
Bruce Flatt: We think though the best is yet to come.
Bruce Flatt: The discount of our trading price to our value also presents an excellent opportunity for us to continue to add value to the company, through a share buyback. Accordingly, we plan to accelerate our share buyback, and Gary Bragg. Going forward, our investment philosophy will remain to build and operate the backbone of the global economy. Our experience has demonstrated it is possible to earn very good returns with moderate risk. And doing so for decades has proven that the results can compound very meaningful wealth. We have stuck with this strategy for a long time, but we have also continuously evolved in line with how the world has changed over that time.
Bruce Flatt: The discount of our trading price to our value also presents an excellent opportunity for us to continue to add value to the company through share buybacks. Accordingly, we plan to accelerate our share repurchases this year and by an additional billion dollars of shares in the open market over the next number of months.
Bruce Flatt: Prices stay reasonable.
Bruce Flatt: Going forward our investment philosophy.
Bruce Flatt: It remains the same to.
Bruce Flatt: To build and operate the backbone of the global economy, our experiences demonstrated as possible to earn very good returns with moderate risk and doing so for decades of proven that the results can compound a very meaningful well we.
Bruce Flatt: We are stuck with this strategy for a long time, but are also continuously evolved in line with how the world has changed over that time.
Bruce Flatt: Of more than the $900 billion of assets that we manage, nearly half are in sectors that did not exist as an investment asset class 20 years ago. The contractual and inflation-protected nature of these assets is very similar. But the types of assets we dedicate our capital to today look different from those of historic past, the incremental capital needed to build out capacity, and many others. The global uptick in data demand, showing no signs of slowing down, we continue to expand our investments, for example, in this sector, and we are very much aligned with the largest and fastest growing companies in the world. As an example, we have significantly increased our data center operations. We now own and operate one of the largest global hyperscale data center platforms, and this only looks to grow. In addition, the accelerating global trend of digitalization was already driving a step change in data center and electricity needs, but the power-intensive nature of AI is amplifying energy demand from renewable power sources.
Bruce Flatt: More than the $900 billion of assets that we manage nearly half are in sectors that did not exist as an investment asset class 20 years ago.
Bruce Flatt: The contractual in an inflation protected nature of these assets is very similar but the types of assets, we dedicate our capital to today look different from those historically as the incremental capital needed to build out capacity continuously evolve.
Bruce Flatt: With the global uptick in data demand showing no signs of slowing down we continue to expand our investments for example in this sector.
Bruce Flatt: And we are very much aligned with the largest and fastest growing companies in the world.
Bruce Flatt: As an example, we have significantly increased our data center operations.
Bruce Flatt: And we now own and operate one of the largest global hyper scale data center platforms and this only looks to grow.
Bruce Flatt: In addition, the accelerating global trend of digitalization was already driving a step change in data center and electricity needs, but the power intensive nature of AI is amplifying energy demand from renewable power sources.
Bruce Flatt: By building a leading global development platform for data centers, renewable power, and combined with our large global real estate business, we are positioned to meet the exponentially growing needs of the large, fastest-growing companies in the world. I would note the future will be centered around Three trends, decarbonization, deglobalization, and digitalization, as well as tilted towards the still emerging markets, which have voracious capital. As we constantly evolve our focus, we believe the backbone of the global economy will continue to be an excellent place to invest for a very long time. It just always looks a little different.
Bruce Flatt: By building, a leading global development platform for data centers renewable power and combined with our large global real estate business. We are positioned to meet the exponentially growing needs for the largest and fastest growing companies in the world.
Bruce Flatt: I would note the future.
Bruce Flatt: Will be centered around three trends de carbonization, the globalization and digitalization.
Bruce Flatt: As well as tilted towards the still emerging markets, which have voracious capital needs as.
Bruce Flatt: As we constantly evolve our focus we believe the backbone of the global economy will continue to be an excellent place to invest for a very long time.
Bruce Flatt: As we look ahead, we continue to focus on strengthening our franchise, expanding our access to capital, owning and growing high-quality assets and businesses that form the backbone of the global economy, and aligning ourselves with global trends in the largest and fastest-growing economy in the world. And as we look ahead, we continue to focus on strengthening our franchise, expanding our access to capital, owning and growing high-quality assets and businesses that form the backbone of the global economy, and aligning ourselves with global trends with the largest, all these positions as well. The intrinsic value of our business over the long term, as always. Thank you for your continued support and interest in Brookfield. And with that, Nick, we'll take you through our.
Bruce Flatt: It always just looks a little different.
Bruce Flatt: As we look ahead, we continue to focus on strengthening our franchise expanding our access to capital owning and growing high quality assets and businesses that form the backbone of the global economy, and aligning ourselves with global trends with the largest and fastest growing companies.
Bruce Flatt: All of these position us well to continue to significantly increase the intrinsic value of our business over the long term.
Bruce Flatt: As always.
Bruce Flatt: Thank you for your continued support and interest in Brookfield and with that Nick will take you through our results.
Nick Goodman: Thank you, Bruce, and good morning, everyone. We delivered very strong financial results in 2023. Distributable earnings, or D.E. before realizations, were four point two billion dollars or two dollars and sixty six cents per share for the year. This represents an increase of 12% per share over the prior year after adjusting for the distribution of 25% of our manager's equity in December 2022. Total DE was $4.8 billion, or $3.03 per share, with net income of $5.1 billion for the year.
Nick: Thank you Bruce and good morning, everyone.
Nick: We delivered very strong financial results in 2023 distributable earnings or de before realizations were $4 2 billion.
Bruce Flatt: Our $2 66 per share for the year. This.
Nick Goodman: This represents an increase of 12% per share over the prior year after adjusting for the distribution of 25% of our manager in December 2022.
Nick Goodman: Total <unk> was $4 8 billion or $3 <unk> per share with net income of $5 1 billion for the year.
Nick Goodman: The earnings were supported by strong fundraising momentum in our asset management business, growth in our insurance solutions business, and the resilient performance of our operating business, taking each of these businesses in turn. Our asset management business generated distributable earnings of $2.6 billion, or $1.61 per share for the year. And despite a more challenging fundraising environment, our fundraising strategies continue to attract strong interest from our clients, leading to $93 billion of capital raised, which, when combined with the approximately $50 billion anticipated upon the closing of American equity life, brings the total to $143 billion. Fee-bearing capital ended the year at $457 billion, soon to be over $500 billion, driving growth in fee-related earnings of 6% compared to last year. And our fundraising outlook remains strong heading into 2024, which should contribute to meaningful earnings growth. And with that momentum, our manager announced a 19% increase in their quarterly dividend to $0.38 per share, which, for context, is nearly $300 million of incremental cash annually distributed to us from this business. Our insurance solutions business had a strong year, generating distributable operating earnings of $740 million, or 47 cents per share.
Nick Goodman: The earnings were supported by strong fundraising momentum and our asset management business growth in our insurance solutions business and the resilient performance of our operating businesses and taking each of these businesses in turn.
Nick Goodman: Our asset management business generated distributable earnings of $2 6 billion.
Nick Goodman: Or $1 61 per share for the year.
Nick Goodman: A more challenging fund raising environment. Our fundraising strategy has continued to attract strong interest from our clients leading to $93 billion of capital raised which when combined with the approximately $50 billion anticipated upon the closing of the American equity life brings the total to 143 billion.
Nick Goodman: Fee bearing capital ended the year at $457 billion seem.
Nick Goodman: Soon to be over 500 billion.
Nick Goodman: Driving growth in fee related earnings of 6% compared to last year.
Nick Goodman: Our fundraising outlook remains strong heading into 2024, which should contribute to meaningful earnings growth.
Nick Goodman: And with that momentum our manager announced a 19% increase in their quarterly dividend to <unk> 38 per share, which for context is nearly $300 million of incremental cash annually distributed to us from this business.
Nick Goodman: Our insurance solutions business had a strong year generating distributable operating earnings of $748 million or <unk> 47 per share.
Nick Goodman: We continue to scale our asset base and leverage our investment capabilities to drive earnings growth. Our insurance assets increased to approximately $60 billion at year end with the close of the Argo Group in November and the origination of $8 billion of annuity sales during the year. In 2023, we deployed approximately $5 billion of assets and an average investment yield in excess of 9%. Today, our average investment portfolio yield on our insurance assets is roughly 5.5%, which is approximately 2% higher than the average cost of capital. At the end of 2023, annualized earnings in this business were $940 million.
Nick Goodman: We continued to scale, our asset base and leverage our investment capabilities to drive earnings growth.
Nick Goodman: Our insurance assets increased to approximately $60 billion at year end with the close of the <unk> group in November and the origination of $8 billion of <unk>.
Nick Goodman: <unk> sales during the year.
Nick Goodman: In 2023 with the bright deployed approximately.
Nick Goodman: Approximately $5 billion of assets and an average investment yield in excess of 9%.
Nick Goodman: Today, our average investment portfolio yield on our insurance assets is roughly five 5%, which is approximately 2% higher than the average cost of capital.
Nick Goodman: At the end of 2023 annualized earnings in this business were $948 million, that's up $219 million compared to a year ago.
Nick Goodman: That's up $290 million compared to a year ago. And with the soon anticipated closing of AEL, our insurance solutions business is poised to grow to over $100 billion in assets, and annualized earnings will increase to approximately $1.3 billion. We continue to see a credible path to increasing the run rate of annualized earnings to approximately $2 billion over time as the investment portfolio is optimized. This $2 billion will all be available to be distributed to us, bolstering our operating cash flows. And as you know, this business was only started three years ago and is tracking in line with plans. Through our retail wealth and insurance solutions platforms, we now raise approximately $800 million a month from retail products for high net worth and mid-market clients, of which approximately $300 million is through our wealth solutions platform and approximately $500 million is from the origination of annuities within our insurance solutions business.
Nick Goodman: But the shortly anticipated closing of HBO, our insurance solutions business is poised to grow to over $100 billion of assets, an annualized earnings will increase to approximately $1 3 billion.
Nick Goodman: We continue to see a credible path to increasing the run rate of annual annualized earnings to approximately $2 billion over time as the investment portfolio is optimized.
Nick Goodman: This $2 billion will all be available to be distributed to us bolstering our operating cash flows and as you know this business was only started three years ago and is tracking in line with plans.
Nick Goodman: Through our retail wealth and insurance solutions platforms. We now raised approximately $800 million a month from retail products for high net worth and mid market clients of which approximately $300 million is through our wealth solutions platform and approximately $500 million.
Nick Goodman: As from the origination of annuities within our insurance solutions business.
Nick Goodman: We remain on track to increase this source of capital to $1.5 billion a month in 2024, or close to $20 billion annually. Our operating businesses continue to deliver resilient cash flows, generating distributable earnings in total of nearly $3 billion, $1.5 billion at our share, or $0.92 per share for the year. Cash distributions were supported by the strong growth and earnings of our underlying business. Operating funds from operations within our Renewable Power and Transition and Infrastructure businesses increased by 7% over the prior year.
Nick Goodman: We remain on track to increase the source of capital to $1 $5 billion a month in 2024 for close to $20 billion annually.
Nick Goodman: Our operating businesses continued to deliver resilient cash flows generating distributable earnings in total of nearly $3 billion.
Nick Goodman: One 5 billion, our share or <unk> 92 per share for the year.
Nick Goodman: Cash distributions were supported by the strong growth in earnings of our underlying businesses.
Nick Goodman: Operating funds from operations within our renewable power in transition and infrastructure businesses increased by 7% over the prior year and adjusted EBITDA in our private equity business was 11% higher compared to last year.
Nick Goodman: An adjusted EBITDA in our private equity business was 11% higher compared to last year. In our real estate business, our core portfolio continues to outperform the broader market, with occupancy levels at 96% and growth in same-store net operating income of 7% compared to the prior year. Our core retail portfolio is performing above 2019 levels, with tenant sales exceeding $1,150 per square foot, 21% higher than 2019. In our office portfolio, we continue to capture tenant demand, with over 15 million square feet of leases completed in 2023 at average net rents 19% higher than those expiring. This includes nearly a million square feet leased in New York, over 850,000 square feet in Toronto and Calgary, and a million square feet in Washington, D.C. Our track record is proving that owning the best assets allows for the compounding of capital over the long term and enables resiliency through cycles.
Nick Goodman: And our real estate business, our core portfolio continues to outperform the broader market with occupancy levels at 96% and growth in same store net operating income of 7% compared to the prior year.
Nick Goodman: Our core retail portfolio is performing above 2019 levels with tenant sales exceeding $1150 per square foot, 21% higher than 2019.
Nick Goodman: In our office portfolio, we continued to capture tenant demand with over 15 million square feet of leases completed in 2023 at average net rent is 19% higher than those expiring.
Nick Goodman: This includes nearly 1 million square feet leased in New York over 850000 square feet in Toronto, and Calgary, and 1 million square feet in Washington DC.
Nick Goodman: Our track record is proving to owning the best assets of lows for the compounding of capital over the long term and enables resiliency through cycles.
Nick Goodman: In a tougher market environment, we have seen a pronounced flight to quality on the part of both tenants and lenders. For instance, in New York, more than 75% of new leasing activity in midtown Manhattan occurred in Class A assets. In fact, over the past three years, the number of transactions with rents above $200 per square foot in New York exceeded all previous years combined.
Nick Goodman: In a tougher market environment, we have seen a pronounced flight to quality on the park with tenants and lenders.
Nick Goodman: For instance, in New York more than 75% of new leasing activity in Midtown Manhattan for card and class a assets.
Nick Goodman: Over the past three years, the number of transactions with rents above $200 per square feet per square foot in New York exceeded all previous years combined.
Nick Goodman: The market for premium real estate globally remains very robust, and we are seeing the same across our leasing activity in our portfolio. Also important for our real estate business is that our strong relationships and reputation as a responsible borrower have enabled us to maintain strong access to capital. In 2023, we successfully refinanced all of our debt maturities with no material impact on liquidity, and we expect the same in 2024.
Nick Goodman: The market for premium real estate globally remains very robust and we're seeing the same across our leasing activity in our portfolio.
Nick Goodman: Also important for our real estate business is that our strong relationships and reputation as a responsible borrower has enabled us to maintain strong access to capital.
Nick Goodman: In 2023, we successfully refinanced all of our debt maturities with no material impact to liquidity and we expect the same in 2024.
Nick Goodman: We maintain our conviction in our portfolio, and as interest rates come down and as our underlying cash flows continue to grow and compound, we are confident we will start to see a tailwind in our real estate business and its earnings. Moving now to monetization activity. We continue to see strong demand for the high-quality, cash-generative businesses and assets we own. During the year, we monetized over $30 billion of assets at strong values. Most importantly, substantially all of these sales were transacted at values higher than our IFRS carrying values, validating the carrying values of our investment. A few examples of recently closed monetizations include:
Nick Goodman: We maintain our conviction in our portfolio and as interest rates come down and as our underlying cash flows continued to grow and compound. We are confident we will start to see a tailwind in our real estate business and its earnings.
Nick Goodman: Shifting now to monetization activity.
Nick Goodman: Continued to see strong demand for the high quality cash generative businesses and assets. We owned during the year, we monetized over $30 billion of assets at strong values. Most importantly substantially all of these sales were transacted at values higher than our <unk> carrying values validating the carrying values of our investments.
Nick Goodman: A few examples of recently closed monetization.
Nick Goodman: Include the sale of Westinghouse and an implied enterprise value of approximately $8 billion, returning a six times multiple of capital and an IRR of approximately 60%.
Nick Goodman: The sale of Westinghouse and an implied enterprise value of approximately $8 billion, returning a six times multiple of capital and an IRR of approximately 60%. We've sold an office asset in Brazil for approximately $300 million at a 6.3% cap rate, generating an IRR of 17% and a 3.4 times multiple of capital in local currency. We also monetized a landmark mixed-use asset in Paris and a manufactured housing portfolio in the U.S., both for very strong returns. The sales completed over the year generated strong returns, which resulted in $570 million of net realized carried interest being recognized as income in 2023. During the year, we also generated $1.8 billion of unrealized carried interest, increasing our total accumulated unrealized carried interest to $10.2 billion, of which $8.9 billion is directly owned by the corporation.
Nick Goodman: So in an office asset in Brazil for approximately $300 million at a six 3% cap rate generating an IRR of 17% and a three four times multiple of capital in local currency.
Nick Goodman: We also monetize the landmark mixed use asset in Paris, and our manufactured housing portfolio in the U S. Both at very strong returns.
Nick Goodman: The sale is completed over the year generated strong returns, which resulted in $517 billion of net realized carried interest being recognized into income in 2023.
Nick Goodman: During the year, we also generated $1 $8 billion of unrealized carried interest increasing our total accumulated unrealized carried interest to $10 2 billion.
Nick Goodman: Of which $8 9 billion is directly owned by the Corporation.
Nick Goodman: With the pool of CARI-eligible capital growing larger every year, we expect CARI interest to contribute significant cash flows going forward. Turning to our balance sheet and liquidity, our business is underpinned by our conservatively capitalized balance sheet, high levels of liquidity with over $120 billion of deployable capital, and our continued strong access to the capital market. These attributes put us in a strong position to withstand market cycles and to focus on growth during periods of excellent investment opportunities. Specifically, we have a large perpetual capital base, supported by a strong credit rating of the corporation. And in December, we received a credit rating upgrade from DBRS on our senior unsecured debt to A, reflecting the strength of our franchise and our continued growth in earnings.
Nick Goodman: And with the pool of carry eligible capital growing larger every year, we expect carried interest to contribute significant cash flow going forward.
Nick Goodman: Turning to our balance sheet and liquidity our business is underpinned by our conservatively capitalized balance sheet high levels of liquidity with over $120 billion of deploy deployable capital on our continued strong access to capital markets.
Nick Goodman: These attributes put us in a strong position to withstand market cycles and to focus on growth during periods of excellent investment opportunities.
Nick Goodman: Specifically, we have a large perpetual capital base supported by a strong credit rating of the corporation and in December we received a credit rating upgrade from <unk> on our senior unsecured debt to eight reflecting.
Nick Goodman: The strength of our franchise and our continued growth in earnings.
Nick Goodman: We have significant headroom in our current credit ratings, enabling us to access the debt markets, which we do from time to time to issue term papers. Moving on to capital allocation, over the year, we reinvested excess cash flow back into the business and returned $1.1 billion to shareholders through regular dividends and share buybacks, with over $600 million of shares repurchased in the open market. This added roughly $900 million of value to the company, or $0.50 of value to each remaining share.
Nick Goodman: We have significant headroom in our current credit ratings, enabling us to access the debt markets, which we do from time to time to issue term paper.
Nick Goodman: And moving on to capital allocation over the year, we reinvested excess cash flow back into the business and returned $1 $1 billion to shareholders through regular dividends and share buybacks with over $600 million of shares repurchased in the open market.
Nick Goodman: This added roughly $900 million of value to the company are 50 of value to each remaining share.
Nick Goodman: And, as Bruce mentioned, we intend to increase the pace of share repurchases, setting aside a billion dollars over the next few months. Fully completed, this will add another approximately $1 billion of value, roughly $0.75 of value to each remaining share. Bringing it all together, the significant growth levers embedded in the business, combined with our vast liquidity and access to multiple sources of capital, position us well to deliver strong financial results heading into 2024 and to achieve our targeted 15% plus per share returns for our shareholders over the long term. Lastly, I'm pleased to confirm that our Board of Directors has declared a 14% increase to the quarterly dividend, taking it to $0.08 per share, payable at the end of March to Thank you for your time.
Nick Goodman: And as Bruce mentioned, we intend to increase the pace of share repurchases setting aside $1 billion over the next few months if fully completed this will add another approximately $1 billion of value roughly 75.
Nick Goodman: Value to each remaining share.
Nick Goodman: Bringing it altogether this significant growth levers embedded in the business combined with our fast liquidity and access to multiple sources of capital position us well to deliver strong financial results heading into 2024 and to achieve our targeted 15% plus per share returns for our shareholders over the long term.
Nick Goodman: And lastly, I am pleased to confirm that our board of directors has declared a 14% increase to the quarterly dividend taking it to eight cents per share payable at the end of March to shareholders of record at the close of business on March 13th 2024.
Operator: I'll now hand the call back over to the operator for questions. Thank you. And as a reminder, if you have a question, please press star 11 on your telephone. If your question has been answered or you want to remove yourself from the queue, please press star 11 again.
Speaker Change: Thank you for your time I will now hand, the call back over to the operator for questions.
Speaker Change: Thank you and as a reminder, if you have a question. Please press star one on your telephone.
Nick Goodman: If your question has been answered or you want to remove yourself from the queue. Please press star one again.
Cherilyn Radbourne: Our first question comes from the line of Cherilyn Radbourne with TD Coward. Your line is now open. Thanks very much and good morning.
Operator: Our first question comes from the line of Cherilyn Radbourne with TD Cowen. Your line is now open.
Speaker Change: Thanks, very much and good morning.
Nick Goodman: I wanted to start with a question on carried interest. You realized close to 600 million in 2023 in the context of very low transaction velocity in general. Can you give us some indication of what you expect to be able to realize in 2024 and comment on whether it's still your intention to direct a lot of realized carried interest to share repurchases over time? Hi Cherilyn.
Speaker Change: Wanted to start with a question on carried interest you.
Cherilyn Radbourne: You realized close to 600 million in 2023 in the context of very low transaction velocity in general.
Nick Goodman: Can you give us some indication of what you expect to be able to realize in 2024 and comment on whether it's still your intention to direct a lot of realized carried interest to share repurchases over time.
Cherilyn Radbourne: Hi, Sharon.
Nick Goodman: Yes, you're right. We were successful in monetization this year, and we do expect transaction activity to pick up this year, which will mean monetizations during the year. The output of carried interest is a product of where we're selling assets and from which funds. So we would expect a decent year for carried interest if we achieve our plans, maybe in that $400 million to $500 million range consistent with this year on a net basis. And it's really building back up again to be meaningful over the next few years. It's about $12 billion over the next five years, 26 over the next 10 years next to the corporation. And we maintain conviction in those numbers.
Cherilyn Radbourne: Yes, Youre right we were successful in monetization this year.
Nick Goodman: We do expect transaction activity to pick up this year, which will mean.
Nick Goodman: Monetization during the year.
Nick Goodman: <unk> of carried interest is a product of where we're selling assets and from which funds. So we would expect a decent year for carried interest and if we achieve our plans maybe in that 4% to $500 million range consistent with this year on a net basis and it's really building back up again to be meaningful and over the next few years of debate $12 billion over the next five years 26.
Nick Goodman: Over the next 10 mixed of the Corporation and we maintain conviction in those numbers and timing is just dependent on the actual monetization themselves and yes, I think Bruce highlighted I highlighted if we continue to see the share price. The disconnect between price and value. Then we will continue to allocate a meaningful amount of our free cash flow.
Nick Goodman: And timing is just dependent on the actual monetizations themselves. And yeah, I think Bruce highlighted, I highlighted, if we continue to see the share price, the disconnect between price and value, then we will continue to allocate a meaningful amount of our free cash flow to share repurchase. And then on the insurance business, you've got it to what I think is a going in run rate of $1.3 billion pro forma AEL. And I'm curious what the timeline is to scale the business from $8 billion of annuities originated in 2023 to the targeted run rate of $15 to $20 billion. Yes, Cherilyn.
Nick Goodman: To share repurchases.
Nick Goodman: And then on the insurance business and you've guided to what I think is it going in the run rate of $1 3 billion pro forma ADL and I'm curious what the timeline is to scale the business from $8 billion.
Nick Goodman: It generated in 2023 to the targeted run rate of $15 billion to $20 billion.
Cherilyn Radbourne: Yes Charlene.
Nick Goodman: Zinc.
Speaker Change: Through the course of this year, we will be scaling it up and it's going to be a product of the returns we can earn in the market. We're seeing the depth of the market and the demand for the product.
Nick Goodman: So I think through the course of this year, we will be scaling it up, and it's going to be a product of the returns we can earn in the market. We're seeing the depth of the market and the demand for the product still being really strong. So we still have conviction that we can get to those numbers and maintain our return. And I think you'll see a ramp-up through the course of this year and hopefully be at run rate towards the end of the year and into next year. That's my two.
Speaker Change: Still being really strong so we still have conviction, we can get to those numbers and maintain our return and I think youll see it ramp up through the course of this year and hopefully be a run rate towards the end of the year and into next year.
Speaker Change: That's my two thank you.
Speaker Change: Thank you.
Mario: Our next question comes from the line of Mario Sorry, with Scotiabank. Your line is now open.
Speaker Change: Hi, good morning, and thank you for taking the questions.
Speaker Change: My first one is just on capital allocation.
Cherilyn Radbourne: Thank you. Thank you. Our next question comes from the line of Mario Sarek with Scotiabank. Your line is now open.
Speaker Change: On the just wanted to target 1 billion of share repurchases, how did you come to that figure.
Mario Sarek: Hi, good morning, and thank you for taking the questions. My first one is just on capital allocation. On the target $1 billion of share repurchases, how did you come up with that figure? It looks like BN is trading at about a 50% discount or 50% plus discount to your planned value per share, which was up 12% quarter over quarter.
Nick Goodman: It looks like the <unk> trading at about a 50% discount or 50% plus discount to your planned value per share that was up 12% quarter over quarter. So within the context of your capital uses for 'twenty for the field side of the $1 billion for repurchases and 500 million for dividend payments can you just talked about where you expect to deploy capital in 'twenty four and how you rightsize.
Speaker Change: $2 billion.
Speaker Change: Yes, Mario 1 billion is really a product of the significant liquidity, we have available and our view of performance and earnings growth over the year.
Nick Goodman: Within the context of your capital uses for 2024, outside of the $1 billion for repurchases and $500 million for dividend payments, can you just talk about where you expect to deploy capital in 2024 and how you will right-side the billion? Yeah, Mario. The billion is really a product of the significant liquidity we have available and our view of performance and earnings growth over the year. And we think now is just the right time to allocate capital to the repurchases. So it's nothing more than that.
Mario Sarek: And we think now is just the right time to allocate that capital to the repurchases. So it's nothing more than that we'll continue to reinvest in the business support growth consistent with this year, but our earnings power is growing and therefore, our available liquidity is getting larger and we think this is a good use of the capital.
Nick Goodman: Okay.
Speaker Change: I think Nick you also just as a follow up I think you mentioned there is room in your credit rating.
Nick Goodman: To issue additional debt.
Speaker Change: Would you consider doing sort of fund incremental repurchases in excess of $1 billion. If the share price kind of stays where it is through the year and listen like we have lots of sources of cash coming in with the way, we think about issuing that Mario as the business grows we've got a track record of increasing the amount of debt we have consistent with the growth in the business win.
Nick Goodman: We'll continue to reinvest in the business, and support growth consistent with this year. But our earnings power is growing, and therefore our available liquidity is getting larger, and we think this is a good use of it.
Nick Goodman: And I think, Nick, just as a follow-up, I think you mentioned there's room in your credit rating to issue additional debt. Would you consider doing sort of fund incremental repurchases in excess of a billion if the share price kind of stays where it is through the year? Listen, like we have lots of sources of cash coming in with the way we think about issuing debt. Mario, as the business grows, we've got a track record of increasing the amount of debt we have consistent with the growth in the business. So maintaining our credit ratings, and that's still our focus. But obviously, the business is scaling, so just the available resources are getting bigger.
Nick Goodman: Turning our credit ratings, and that's still our focus and but obviously the business is scaling. So it just the available resources are getting bigger.
Nick Goodman: And as we grow we'll have more cash available and if theres, a good investment and Thats, where it will be allocated.
Speaker Change: Okay and then my second question is just more of a I guess a higher level.
Nick Goodman: She radical question I really appreciate the continuous disclosure on Brookfield share price performance relative to the S&P relative to intrinsic value per share growth the.
Nick Goodman: Relative returns for the S&P had been very good over the past 20, and 30 years, but more in line over the past 10.
Nick Goodman: And, you know, as we grow, we'll have more cash available. And if there's a good investment, then that's where we'll be allocated. Okay, and then my second question is just more of a, I guess, a higher level. A theoretical question.
Nick Goodman: Despite intrinsic value per share growth of performing.
Nick Goodman: Both the <unk> share price and the S&P, so that essentially implies a widening disconnect between price and value kind of all of an extended period of time.
Speaker Change: I think this question gets asked in different ways every quarter, but I'm just curious about how you think about that why do you think disconnect between price and value over an extended period of time internally what you see as the biggest lever is the key.
Mario Sarek: I really appreciate the continuous disclosure on Brookfield's share price performance relative to the S&P and relative to intrinsic value per share growth. The relative returns versus the S&P have been very good over the past 20 and 30 years, but more in line over the past 10, despite intrinsic value per share growth outperforming both the BN share price and the S&P. So that essentially implies a widening disconnect between price and value over an extended period of time. I think this question gets asked in different ways every quarter, but I'm just curious about how you think about that.
Mario Sarek: Narrow that gap.
Mario Sarek: Going forward and how you assess brookfield capability to do so.
Mario Sarek: So.
Speaker Change: I'll start off and just say that the.
Mario Sarek: If you trade at a discount it is an unbelievably good.
Mario Sarek: Good opportunity for the company to continue to add value to the business without too much work.
Mario Sarek: So it's.
Mario Sarek: I guess, our biggest focus internally is.
Speaker Change: Our job is to run the business and make money for shareholders.
Mario Sarek: And.
Mario Sarek: If the price doesn't trade at the value of the business. It's an excellent opportunity to continue to repurchase shares and add money to the bottom line every day. So that's I'd say the biggest focus we have.
Bruce Flatt: Why do you need to disconnect between price and value over an extended period of time internally? What do you see as the biggest levers that can narrow that gap going forward and how do you assess Brookfield's capability to do so? So, uh, I'll start off and just say that the, um... If you trade in a discount, it is an unbelievable, good opportunity for the company to continue to add value to the business without too much work.
Mario Sarek: The only other observation I'd have for you is over the last 30 years.
Speaker Change: Our observation has been that sometimes.
Mario Sarek: The company had trades in favor and sometimes it doesn't and discount narrows and widens overtime.
Bruce Flatt: But the value keeps growing.
Bruce Flatt: As you can observe from the numbers and.
Bruce Flatt: And I think it just stocks go in and out of favor in.
Bruce Flatt: This one will be any favor some point in time.
Speaker Change: Okay, great. Thank you those are my two.
Bruce Flatt: Yes.
Speaker Change: Thank you.
Bruce Flatt: Our next question comes from the line of Ken Worthington with Jpmorgan. Your line is now open.
Bruce Flatt: So, I guess our biggest focus internally is our job is to run the business and make money for shareholders. And if the price doesn't trade at the value of the business, it's an excellent opportunity.
Speaker Change: Hi, good morning, and thanks for taking the questions.
Bruce Flatt: In terms of I guess cash flow and liquidity how does the outlook for uses of cash flow and asset management and insurance looking 24, compared with 23. So if I look at the slide on page.
Bruce Flatt: So that's, I'd say, the biggest focus we have. The only other observation I'd have for you is that over the last 30, our observation has been that sometimes the company trades in favor, and sometimes it doesn't. And the discount narrows and widens over time, but the value... growing when I am another from the numbers and, And I think it just stocks go in and out of favor, and this one will be in favor, unfortunately. Okay, great. Thank you. Those are my two.
Bruce Flatt: Page eight.
Bruce Flatt: Talks about $5 billion being invested in the two last year, but I think we recognize that a lot of your seating requirements were satisfied last year, even as the insurance business continues to grow this year. So how does that uses look in those two areas.
Bruce Flatt: 24.
Bruce Flatt: Hey, Dennis I think broadly consistent I think with the growth that the insurance business has the potential for the returns that can earn it's realistic to assume that it retains its distributable operating earnings and reinvest it back into the business for growth.
Ken Worthington: Thank you. Our next question comes from the line of Ken Worthington with J.P. Morgan. Your line is now open.
Ken Worthington: Hi, good morning, and thanks for taking the questions. In terms of cash flow and liquidity, how does the outlook for uses of cash flow in asset management and insurance look in 24 compared with 23? So if I look at the slide on, I think it's page 8, it talks about $5 billion being invested in the two last year, but I think we recognize that a lot of your seating requirements were satisfied last year, even as the insurance business continues to grow this year. So how does that usage look in those two areas for 24?
Ken Worthington: Assuming you can maintain those kind of Roe.
Ken Worthington: And then a similar amount to last year will be invested back into various strategies that we're investing in two things managed by the asset managers. So I think it would be broadly consistent with last year.
Speaker Change: Okay. Thank you.
Ken Worthington: And then in terms of real estate I think the longer term plan was.
Ken Worthington: Just hold some real estate sell some real estate and migrate some of the real estate to the insurance portfolio over time as we think about 2024, what are your thoughts on the potential for greater deal activity and the potential for more monetization and the real estate.
Nick Goodman: Dennis Nick, broadly consistent, I think with the growth that the insurance business has and the potential for the returns that it can earn, it's realistic to assume that it retains its distributable operating earnings and reinvests them back into the business for growth, assuming it can maintain those kinds of ROEs. And then a similar amount to last year will be invested back into various strategies that we're investing in things managed by the asset manager. So I think it'd probably be consistent with last. Thank you.
Ken Worthington: <unk> real estate portfolio.
Ken Worthington: And then we're seeing I don't know pockets of stress or more stress.
Nick Goodman: In the U S markets, how do you see the health of the U S commercial real estate markets and how does this impact what you see as the pace of deployment.
Nick Goodman: Over I don't know.
Nick Goodman: <unk> timeframe, let's say year or so.
Bruce Flatt: And then, in terms of real estate, I think the longer-term plan was to hold some real estate, sell some real estate, and migrate some of the real estate to the insurance portfolio over time. As we think about 2024, what are your thoughts on the potential for greater deal activity and the potential for more monetizations in the real estate, you know, your real estate portfolio? And then we're seeing, I don't know, pockets of stress or more stress in the U.S. markets. How do you view the health of the U.S. commercial real estate markets? And how does this impact what you see as the pace of deployment? Over, I don't know, pick your time frame, say a year or so. Bruce, I'll just give you a general comment on real estate and then maybe, just on our strategy related to our balance sheet. But I would say the story of today is not what you just mentioned.
Nick Goodman: It's Bruce I'll, just give you a general comment on real estate and maybe Nick can follow up just on our strategy related to our balance sheet, but.
Nick Goodman: I would say the story of today.
Speaker Change: Is not what you just mentioned.
Bruce Flatt: Paths story was it real estate and United States was under stress the new story will become soon.
Bruce Flatt: There are major tailwind behind real estate, because fundamentals are good and interest rates are coming down by 200 basis points and as that occurs.
Bruce Flatt: Real assets and real estate in particular.
Speaker Change: Going to have major tailwind to both the the net income and cash flows because the.
Bruce Flatt: The fundamental revenues are still growing or flat to going up.
Speaker Change: And interest costs are coming down dramatically and secondly that will.
Bruce Flatt: Bon realistic.
Bruce Flatt: Cap rates and therefore, our transaction activity will come back. So I think the next 24 months and real estate Youre going to see a much different story play out than what you imagined and those stories.
Bruce Flatt: The past story was that real estate in the United States was under stress. The new story will become soon that there are major tailwinds behind real estate because fundamentals are good and interest rates are coming down by 200. And as that occurs,
Speaker Change: That people are still talking about our story from 24 months ago, not the next 24 months.
Bruce Flatt: Real assets and real estate in particular are going to have major tailwinds to both the Net Income and Cash Flows because the fundamental revenues are still going, are flatly going up, and interest costs are coming down dramatically. And secondly, that will lead to realistic cap rates, and therefore transaction activity will come back. So I think the next... Every 24 months in real estate, you're going to see a much different story play out than what you imagined. And those stories of, The stories that people are still talking about, are stories from 24 months ago, not the next 24 months.
Bruce Flatt: The general comment I'd make on real estate.
Speaker Change: Great. Thank you.
Speaker Change: Yes, and Ken the only thing I'd add about transaction activity as the other tailwind is the improving liquidity in the financing markets for real estate and we've seen the start of this year liquidity really step up for <unk> across most sectors of real estate and that should be very supportive of transaction activity as well.
Speaker Change: Great. Thank you.
Bruce Flatt: <unk>.
Speaker Change: Thank you.
Bruce Flatt: Our next question comes from the line of Dean Wilkinson with CIBC. Your line is now open.
Speaker Change: Thank you and good morning.
Speaker Change: Nick just like to talk on the reinsurance business.
Bruce Flatt: That's the general comment. Great, thank you. Yeah, and Ken, the only thing I'd add about transaction activity is the other tailwind is improving liquidity in the financing markets for real estate. And we've seen, at the start of this year, liquidity really stepped up for CMBS across most sectors of real estate, and that should be very supportive of transaction activity as well.
Bruce Flatt: That 200 basis points spread over to three 5% cost of capital has that number in terms of the cost of capital come in a bit in in say the last six or so months and where do you expect that to go both with the rate environment and and the closing of the AGL transaction.
Ken Worthington: Yeah, Hi, Jim Yeah listen as rates have gone up obviously the rate that the annuitant are securing has gone up but in the last few months, we have start to see that come back consistent with the outlook.
Dean Wilkinson: Thank you. Our next question comes from the line of Dean Wilkinson with CIBC. Your line is now open. Thank you and good morning.
Nick Goodman: Nick, I'd just like to talk about the reinsurance business. That 200 basis points spread over the 3.5% cost of capital. Has that number, in terms of the cost of capital, come down a bit in the last six or so months? And where do you expect that to go, both with the rate environment and the closing of the AEL transaction? Hi Dean.
Bruce Flatt: For interest rates, so I would say it moves broadly and with expectations on broader interest rates.
Dean Wilkinson: And even as this market moves we think of that as our cost of capital or our cost of liabilities and we've stayed disciplined and the rates that we're offering and it all comes back to what returns do we think we can earn and can we earn our.
Nick Goodman: Hurdle ROE so I suspect as rates come down you will see that crediting rate come down and the broad market and but we will still be focused on achieving that roughly 2% spread as we write new business and I don't expect it to change significantly with the closing of AGL.
Nick Goodman: Yeah, listen, as rates have gone up, obviously, the rate that the annuitants are securing has gone up. But in the last few months, we have started to see that come back consistent with the outlook for interest rates. So I'd say it moves broadly with expectations for broader interest rates.
Speaker Change: Okay, great and I guess that sort of dovetails kind of back into Ken's question just around.
Nick Goodman: And even as this market moves, we think of that as our cost of capital, or a cost of liabilities. And we've stayed disciplined in the rates that we're offering. And it all comes back to what return do we think we can earn? And can we earn our hurdle ROE?
Nick Goodman: Assets, coming where real estate assets coming into into the fold there.
Nick Goodman: But could I interpret from that then that the required cap rate you would need to see transactions come across.
Nick Goodman: So I suspect as rates come down, you'll see that crediting rate come down in the broad market. But we will still be focused on achieving that roughly 2% spread as we write new business, and I don't expect it to change significantly with the closing of AEL. Okay, great.
Nick Goodman: Be something around a five or better given the strength.
Nick Goodman: The strength of that same property NOI number and would that continue.
Speaker Change: Well I don't know if I can think of it exactly that way, we think about the return real estate can generate over the long term as supposed to just the day one.
Nick Goodman: Cap rate, our valuations, but I would say that with the income generating profile that we have.
Nick Goodman: And I guess that sort of dovetails kind of back into Ken's question just around assets coming in or real estate assets coming into the fold there. Could I interpret from that then that, you know, the required cap rate you would need to see transactions come across would be something around a five or better given the strength of that same property NOI number? And would that continue?
Nick Goodman: On the high quality assets that are attractive to insurance, we've been successful in doing some transactions in 2023, and we expect this is the market where at the returns that they're generating and what the balanced portfolio. We are building on the insurance site.
Nick Goodman: That current valuations, we think the assets are worth or a level that works for the insurance balance sheet.
Dean Wilkinson: Well, I don't often think of it exactly that way, Dean. We think about the return real estate can generate over the long term, as opposed to just the day one cap rate or valuations. But I'd say that with the income-generating profile that we have on the high-quality assets that are attractive to insurance, we've been successful in doing some transactions in 2023. And we expect this to be a market where the returns that they're generating, and with the balanced portfolio we are building on the insurance side, the current valuations we think assets are worth are a level that works for the insurance balance. That makes sense. That's it.
Speaker Change: Yes, it makes sense.
Speaker Change: Thanks, guys.
Speaker Change: Thanks, Jim.
Speaker Change: Thank you.
Nick Goodman: Our next question comes from the line of Sorrow, Zurab Vahidi with BMO capital markets. Your line is now open.
Speaker Change: Thank you.
Dean Wilkinson: Our broader capital allocation question.
Speaker Change: What do you have to see.
Dean Wilkinson: Maybe to reduce your.
Dean Wilkinson: Ownership stake in Brookfield asset manager from 75% to something lower and maybe.
Dean Wilkinson: Redeploy that into cooperations buyback Act.
Dean Wilkinson: Activity.
Dean Wilkinson: Thanks.
Nick Goodman: Thanks, guys. Thanks, Gene. Thank you. Our next question comes from the line of Saurabh Muvvahidi with BMO Capital Markets, Shoreline, and Snow. Thank you. A broader capital allocation question. What do you have to see?
Dean Wilkinson: Hey, Rob it's Nick listen I think we obviously own 75% of that business. As you know that will go down to 73% when we complete the American equity transaction and so it's been a really strong success. This.
Saurabh Muvvahidi: maybe to reduce your ownership stake in Brookfield, the asset manager, from 75% to something lower and maybe redeploy that into corporations buyback activity. Thank you. I think we own 75% of that business. As you know, that will go down to 73% when we complete the American equity transaction. And so it's been a really strong success.
Saurabh Muvvahidi: This transaction if you just look over the last 12 months the value of our ownership with Bom is up $14 billion mix to be a very.
Saurabh Muvvahidi: Valuable company and performance has been exceptional and Thats, a valuable currency for us, but the growth of our business is generating is contributing to our to our returns and our growth in our cash flow and it's a really fantastic investment for us. So it would have to be something strategic and right. Now we're just thinking about how we can help that business grow, but if something came along strategic.
Nick Goodman: This transaction, if you just look over the last 12 months, the value of our ownership of BAM is up $14 billion next to BN. So it's a very valuable company, and its performance has been exceptional. And that's a valuable currency for us.
Saurabh Muvvahidi: Like AGL and its just another.
Saurabh Muvvahidi: Two of our currency, we have available to us and that really was the intention of the spin. So it's worked it's worked really well.
Nick Goodman: But the growth that business is generating is contributing to our returns and our growth and our cash flow, and it's a really fantastic investment for us, so it would have to be something strategic, and right now, we're just thinking about how we can help that business grow, but if something came along strategic like AEL, it's just another tool or currency we have available to us, and that really was the intention of the spin, so it's worked Okay, and then to Nick, just for crystal clarity, do you not see any relative value benefits to Brookfield Corporation to maybe lighten the load a little bit on BAM and buy back BAM? Listen, there is a relative value there, Saurabh, but I think we want the BAM currency to perform well. And so I'm not sure that we would see just doing a secondary into the market, but it's a valuable currency that, on a relative basis, definitely makes more sense than using BN shares for anything we look to acquire. Thank you for the call.
Speaker Change: Okay, and then Nick just for Crystal clarity, you don't see any relative value benefits to Brookfield cooperation to maybe lighten the load a little bit on Bam and buyback.
Nick Goodman: Listen there is a relative value there so rob, but I think we want the bond currency two to perform well and so I'm not sure that we would see just doing a secondary into the market, but it's a valuable currency, though on a relative basis may mix definitely makes more sense than using BN shares for anything we look to acquire.
Speaker Change: Thank you for the color.
Nick Goodman: Yeah.
Nick Goodman: Thank you. Our next question comes from the line of Mike Brown with <unk>. Your line is now open.
Speaker Change: Great. Thank you for taking my questions.
Nick Goodman: I appreciate all the commentary on the insurance business is wanted to maybe dive in a little bit deeper there.
Nick Goodman: As we approach a kind of easing environment from central banks globally.
Saurabh Muvvahidi: Thank you. Our next question comes from the line of Mike Brown with KBW. Your line is now open.
Nick Goodman: As the floating rate exposure I mean, if you're if you have that pro forma with <unk> interested to hear where that is today, where it could go over the next six months and then.
Michael Morosi: Great, thank you for taking my question. I appreciate all the commentary on the insurance business. I just wanted to maybe dive in a little bit deeper there as we approach a kind of easing environment from central banks globally. What is the floating rate exposure?
Nick Goodman: Clearly the annuity flows have been very strong in 2023, a record <unk> record.
Michael Morosi: What's what's your take on the.
Michael Morosi: The tailwind in the environment for that to continue even in a declining rate environment and how well do you believe your position just given this market continues to be very competitive.
Nick Goodman: I mean, if you have that pro forma with AEL, I'd be interested to hear where that is today, where it could go over the next six months. And then... Clearly, the annuity flows have been very strong in 2023, a record, 4Q a record. What's your take on the tailwinds in the environment for that to continue even in a declining rate environment? And how well do you believe your position, just given this market continues to be very competitive? And how do you feel about your position on that?
Speaker Change: And how do you.
Nick Goodman: How do you feel that you're positioned for that thank you.
Nick Goodman: Hey, Mike Thanks for the questions of I don't have the specific floating rate component of the portfolio, but we do proactively manage interest rate risk within the portfolio. So we do hedge but at the same time I would also caution that the way we think about the portfolio is managing it to a return on equity within the insurance business, but it also acts as.
Nick Goodman: Thank you, Mike, thanks for the questions. I don't have the specific floating rate component of the portfolio, but we do proactively manage interest rate risk within the portfolio. So we do hedge. But at the same time, I would also caution that the way we think about the portfolio is to manage it to our return on equity within the insurance business. But it also acts as a very nice hedge against the broader BN balance sheet and income profile.
Nick Goodman: A very nice hedge against the broader <unk> balance sheet and income profile. So we've been running a little bit short in the investment portfolio.
Nick Goodman: With that specific <unk> in mind that were rates to come down maybe you missed out on a few basis points on the insurance side, but you will more than make up for it in the broader business and has definitely played out the way over the last 12 months, it's ethical and other parts of the business from maybe impact impacted by higher rates, we almost more than made up for it and the returns we generated.
Nick Goodman: So we've been running a little bit short in the investment portfolio with that specific thought in mind that were rates to come down, maybe you would miss out on a few basis points on the insurance side, but you'll more than make up for it in the broader business. And it definitely played out in the last 12 months as FFO and other parts of the business were maybe impacted by higher rates. We almost more than made up for it in the returns we generated on our insurance assets, so it's a really nice hedge for the broader business. On the ability to write new policies, listen, obviously there's competition; there's competition in everything that we do. But to date, we have not seen that impact our ability to write new policies. We're going to stay disciplined; we're going to focus on our hurdle ROEs. But nothing right now gives us concern about our ability to achieve our targets.
Nick Goodman: And our insurance asset so it's a really nice hedge for the broader business on the ability to write new policy listen there are obviously there is competition. There is competition in everything that we do but to date, we have not seen that impact our ability to write new policies, we're going to stay disciplined we're going to focus on our hurdle Roe.
Nick Goodman: But nothing right now it gives us concern about our ability to achieve our targets.
Speaker Change: Okay, Great and then maybe just one.
Nick Goodman: Clarification question on the real estate business, just looking at the <unk>.
Nick Goodman: SFO.
Nick Goodman: The core piece of the.
Nick Goodman: Real estate there it looks like it rose to $2 85 this quarter.
Nick Goodman: I know that was up.
Nick Goodman: Meaningfully quarter over quarter in the rate environment continues to be a challenge. So just curious about what would have driven that change and maybe some thoughts on the near term there. Thank you. Yes. So there was a one time.
Michael Morosi: Okay, great. Then maybe just one clarification question on the real estate business. Just looking at the FFO and the core piece of the real estate there, it looks like it rose to $285,000 this quarter. I know that was up pretty meaningfully quarter over quarter and the rate environment continues to be a challenge. So just curious about what would have driven that change and maybe some thoughts on the near term there.
Nick Goodman: Revenue item this quarter, which was associated with a lease extension and amendment of one of our assets, but if you back that out and as you look at the <unk> performance year over year, it's up about 11% and so the full performance of the business is getting better and that's driven by the NOI growth, which we focus on every quarter. So.
Michael Morosi: NOI continues to grow <unk> feels like a trough from the rate impact of snow climbing its way back with the NOI impact on as rates come down that will be a tailwind for <unk> going forward.
Nick Goodman: So there was a one-time revenue item this quarter which was associated with a lease extension and an amendment at one of our assets, but if you back that out and actually look at the FFO performance year over year, it's up about 11%, and so the FFO performance of the business is getting better, and that's driven by the NOI growth which we focus on every quarter. So the NOI continues to grow, FFO feels like it troughed from the rate impact, and it's now climbing its way back with the rate impact, and as rates come down, that will be a tailwind for FFO going forward.
Speaker Change: Okay understood. Thank you for that.
Speaker Change: Thank you.
Nick Goodman: I would now like to turn the call back over to Angela for closing remarks.
Speaker Change: Thank you everybody for joining us today and with that we'll end the call.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Nick Goodman: Okay.
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Nick Goodman: [music].
Nick Goodman: Okay, understood. Thank you for that. Thank you. I would now like to turn the call back over to Angelo Ulloa for closing remarks. Thank you everybody for joining us today, and with that, we'll end the call. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Speaker Change: Thank you.
Nick Goodman: [music].
Nick Goodman: Okay.
Nick Goodman: Okay.
Nick Goodman: Okay.
Nick Goodman: Okay.
Nick Goodman: Yes.
Nick Goodman: Yes.
Nick Goodman: Okay.
Nick Goodman: Okay.
Nick Goodman: Okay.
Nick Goodman: [music].
Nick Goodman: Okay.
Nick Goodman: Yes.
Nick Goodman: Okay.
Nick Goodman: Dan.
Nick Goodman: [music].
Nick Goodman: Okay.
Nick Goodman: [music].