Brookfield Asset Management Reports Third Quarter 2018 Results
Brookfield Asset Management Inc. (NYSE: BAM, TSX: BAM.A, Euronext:
BAMA) today announced financial results for the quarter ended
September 30, 2018.
Bruce Flatt, CEO of Brookfield stated, "We had
another strong quarter. We ended the quarter with liquidity of $32
billion, which we expect to deploy into opportunities across our
listed and private funds. Fundraising continues to be strong,
including $18.5 billion of capital to date into two of our
most recent flagship funds."
Operating Results
UnauditedFor the periods ended September 30(US$ millions, except
per share amounts) |
Three Months Ended |
Last Twelve Months |
2018 |
|
2017 |
|
2018 |
|
2017 |
|
Net income1 |
$ |
941 |
|
$ |
992 |
|
$ |
6,543 |
|
$ |
2,565 |
|
Per Brookfield share2,3 |
0.11 |
|
0.20 |
|
2.56 |
|
0.46 |
|
Funds from operations2,4 |
$ |
1,085 |
|
$ |
809 |
|
$ |
4,346 |
|
$ |
3,523 |
|
Per
Brookfield share2,3,4 |
1.07 |
|
0.79 |
|
4.28 |
|
3.47 |
|
1. Consolidated basis – includes amounts
attributable to non-controlling interests2.
Excludes amounts attributable to non-controlling
interests3. Per share amounts are inclusive
of dilutive effect of mandatorily redeemable preferred shares
issued in a consolidated subsidiary4. See
Basis of Presentation on page 3 and a reconciliation of net income
to FFO on page 8
Net income was $6.5 billion for the last twelve
months and $941 million in the quarter. The increase in the last
twelve months reflects contributions from recent acquisitions
across each of our businesses, a higher level of appraisal gains,
and transaction gains. Net income in the quarter reflects lower
appraisal gains compared to the prior year quarter.
Third quarter funds from operations (“FFO”) was
$1.1 billion. Fee related earnings increased to $320 million, a 72%
increase over the prior period, as a result of the growth in fee
bearing capital from our private funds, and higher performance fee
income. FFO from invested capital was $364 million, a slight
decrease from the comparable 2017 period, as incremental
contributions from recent acquisitions, additional home sales in
our North American residential business, and improved performance
by businesses owned within our private equity operations, were
offset by lower earnings on our financial asset portfolio. FFO
included $401 million of disposition gains within our private
equity and real estate businesses.
Dividend Declaration
The Board declared a quarterly dividend of
US$0.15 per share (representing US$0.60 per annum), payable on
December 31, 2018 to shareholders of record as at the close of
business on November 30, 2018. The Board also declared the regular
monthly and quarterly dividends on its preferred shares.
Operating Highlights
Fee bearing capital increased by $11 billion to
$141 billion at September 30, 2018 representing a 9% increase over
June 30, 2018, with growth from both our listed partnerships and
our private funds.
Fee bearing capital from our listed partnerships
increased by $8 billion. The increase was largely due to a
$6 billion increase in capitalization of Brookfield Property
Partners ("BPY"), including new units issued to privatize GGP. BAM
is entitled to earn incentive distributions on the units issued as
part of the transaction, effective the closing date, but has
granted a one-year management fee holiday on this capital.
We are currently raising capital for a wide
variety of funds, including all three of our flagship funds. In
October, we closed $6.5 billion for our latest flagship private
equity fund and launched our next flagship infrastructure fund. In
the quarter, our private fund fee bearing capital increased $4
billion, inclusive of $2.7 billion of co‑investment capital we
closed on as part of the GGP transaction, where we sold partial
interests in several retail assets to third party investors. We
also held closes for our flagship real estate fund, real estate
perpetual core fund, and real estate multifamily fund. We continue
to see opportunities to increase our private fund investor base in
Europe and parts of Asia, and accordingly have increased the size
of our investor servicing teams in these regions.
Our current real estate, infrastructure and
private equity flagship funds are now 95%, 75%, and 90%, invested
or committed.
Annualized fee revenues and target carry have
reached $2.7 billion, up 22% from last year.
Annualized fee revenues are now $1.5 billion,
with growth in the last year attributable to the capital raised for
our latest flagship real estate fund, and cash flow growth in our
listed partnerships, leading to higher incentive distributions.
Annualized target carry is now $1.2 billion,
including $725 million on capital that has been deployed. Carry
generated on deployed capital in the last twelve months was $1.1
billion, well in excess of our $725 million target, as we continue
to create value in our underlying businesses through operating
enhancements.
We continued to advance several transaction in
the quarter, investing or committing $16 billion of capital.
Our infrastructure business has had a busy year,
investing or committing up to an aggregate of $13 billion to six
transactions. In October, we acquired 100% of Enercare, one of
North America’s largest home and commercial services companies,
which provides residential energy infrastructure, including HVAC
rentals to approximately 1.8 million customers annually. We
also closed on the provincially regulated portion of the previously
announced Canadian natural gas gathering and processing asset
acquisition from Enbridge, with the sale of the remaining federally
regulated assets expected to close in mid-2019. Lastly, we are in
advanced bilateral discussions to acquire a well-located, 1,500 km
gas pipeline with access to the prolific Krishna Godavari basin in
India.
Our real estate business progressed several
transactions in the quarter. This included closing on the
acquisition of the balance of GGP for approximately $15 billion,
and reaching an agreement to acquire Forest City for
$6.8 billion. We also acquired a 90% interest in a
multifamily property operated with a unique Airbnb-friendly
apartment concept, as well as two million square feet of logistics
assets in greater São Paulo.
We continue to see strong demand from investors
globally for mature, contracted renewable assets. Following the
quarter, our renewable power business sold a 25% interest in a
413 megawatt Canadian hydroelectric portfolio. We also
intend to sell an additional 25% interest in these assets at the
same price to another group of investors prior to yearend. Our
renewable business will retain management and operating
responsibilities of these assets. In order to facilitate this
transaction, BAM will transfer its North American energy marketing
capabilities to Brookfield Renewable Partners ("BEP"), and BAM and
BEP have amended or agreed to transfer certain of their existing
Power Purchase Agreements ("PPA") to BEP. In exchange, BAM and BEP
have agreed to reduce the price BEP receives for its remaining PPA
with BAM that relates to BEP's New York assets. This part of the
transaction is expected to close in 2019.
Our private equity operations completed several
transactions in the quarter, returning capital to shareholders, and
providing liquidity for reinvestment. Our graphite electrode
manufacturing business, GrafTech, completed a secondary offering
and share repurchase generating proceeds of $668 million, and we
agreed to sell our Western Australia oil and gas producer,
Quadrant, for $2.15 billion, with an expected close in the fourth
quarter of 2018.
We continue to focus on maintaining a strong
balance sheet. We ended the quarter with $32 billion in liquidity,
inclusive of $21 billion of uncalled fund commitments and $11
billion of core liquidity.
Within the $11 billion of core liquidity, we
have $4 billion of cash and short-term securities at the corporate
level. Our listed partnerships also continue to generate ample
liquidity to fund their investment activities; during the quarter
Brookfield Infrastructure Partners issued $250 million of
preferred shares and $500 million of medium-term notes, and
BEP issued C$300 million of green bonds, its first corporate-level
green bond issuance, following the issuance of several
project-level green bonds.
Basis of Presentation
This news release and accompanying financial
statements are based on International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards Board
(“IASB”), unless otherwise noted.
We make reference to Funds from Operations
(“FFO”). We define FFO as net income attributable to shareholders
prior to fair value changes, depreciation and amortization, and
deferred income taxes, and include realized disposition gains that
are not recorded in net income as determined under IFRS. FFO also
includes the company’s share of equity accounted investments’ FFO
on a fully diluted basis. FFO consists of the following
components:
- FFO from Operating Activities represents the company’s share of
revenues less direct costs and interest expenses; excludes realized
carried interest and disposition gains, fair value changes,
depreciation and amortization and deferred income taxes; and
includes our proportionate share of FFO from operating activities
recorded by equity accounted investments on a fully diluted basis.
We present this measure as we believe it assists in describing our
results and variances within FFO.
- Realized Carried Interest represents our contractual share of
investment gains generated within a private fund after considering
our clients minimum return requirements. Realized carried interest
is determined on third-party capital that is no longer subject to
future investment performance.
- Realized Disposition Gains are included in FFO because we
consider the purchase and sale of assets to be a normal part of the
company’s business. Realized disposition gains include gains and
losses recorded in net income and equity in the current period, and
are adjusted to include fair value changes and revaluation surplus
balances recorded in prior periods which were not included in prior
period FFO.
We use FFO to assess our operating results and
the value of Brookfield’s business and believe that many
shareholders and analysts also find this measure of value to
them.
We note that FFO, its components, and its per
share equivalent are non-IFRS measures which do not have any
standard meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies.
We make reference to Invested Capital. Invested
Capital is defined as the amount of common equity in our segments
and underlying businesses within the segments.
We also make reference to Generated or
Unrealized Carried Interest, which represents our share of fund
profits if all of our funds were wound up and liquidated at period
end values. We use this measure to gain additional insight
into how investment performance is impacting our ability to earn
carried interest in the future.
We provide additional information on key terms
and non-IFRS measures in our filings available at
www.brookfield.com.
Additional Information
The Letter to Shareholders and the company’s
Supplemental Information for the three months ended
September 30, 2018 contain further information on the
company’s strategy, operations and financial results. Shareholders
are encouraged to read these documents, which are available on the
company’s website.
The attached statements are based primarily on
information that has been extracted from our financial statements
for the quarter ended September 30, 2018, which have been
prepared using IFRS, as issued by the IASB. The amounts have not
been audited by Brookfield’s external auditor.
Brookfield's Board of Directors have reviewed
and approved this document, including the summarized unaudited
consolidated financial statements prior to its release.
Information on our dividends can be found on our
website under Stock & Distributions/Distribution History.
Quarterly Earnings Call
Details
Investors, analysts and other interested parties
can access Brookfield Asset Management’s 2018 Third Quarter Results
as well as the Shareholders’ Letter and Supplemental Information on
Brookfield’s website under the Reports & Filings section at
www.brookfield.com.
To participate in the Conference Call, please
dial (877) 255-3077 toll free in North America, or for overseas
calls please dial (647) 252-4453 at approximately 10:50 a.m. The
Conference Call will also be Webcast live at www.brookfield.com
under Brookfield Asset Management/Events and Presentations. For
those unable to participate in the Conference Call, the telephone
replay will be archived and available until midnight December 8th,
2018. To access this rebroadcast, please call (800) 585-8367 or
(416) 621-4642 (password: 4897508).
Brookfield Asset Management
Inc. is a leading global alternative asset manager with
over $330 billion in assets under management. The company has
more than a 115-year history of owning and operating assets with a
focus on real estate, renewable power, infrastructure and private
equity. Brookfield offers a range of public and private investment
products and services, and is co-listed on the New York, Toronto
and Euronext stock exchanges under the symbol BAM, BAM.A and BAMA,
respectively. For more information, please visit our website at
www.brookfield.com.
Please note that Brookfield’s previous audited
annual and unaudited quarterly reports have been filed on EDGAR and
SEDAR and can also be found in the investor section of its website
at www.brookfield.com. Hard copies of the annual and quarterly
reports can be obtained free of charge upon request.
For more information, please visit our website at
www.brookfield.com or contact:
Communications & Media:Claire HollandVice
President, Branding & CommunicationsTel: (416) 369-8236Email:
claire.holland@brookfield.com |
|
Investor RelationsLinda Northwood Director,
Investor Relations Tel: (416) 359-8647 Email:
linda.northwood@brookfield.com |
Forward-Looking Statements
Note: This news release contains
“forward-looking information” within the meaning of Canadian
provincial securities laws and “forward-looking statements” within
the meaning of Section 27A of the U.S. Securities Act of 1933, as
amended, Section 21E of the U.S. Securities Exchange Act of 1934,
as amended, “safe harbor” provisions of the United States Private
Securities Litigation Reform Act of 1995 and in any applicable
Canadian securities regulations. Forward-looking statements include
statements that are predictive in nature, depend upon or refer to
future events or conditions, include statements regarding the
operations, business, financial condition, expected financial
results, performance, prospects, opportunities, priorities,
targets, goals, ongoing objectives, strategies and outlook of
Brookfield and its subsidiaries, as well as the outlook for North
American and international economies for the current fiscal year
and subsequent periods, and include words such as “expects,”
“anticipates,” “plans,” “believes,” “estimates,” “seeks,”
“intends,” “targets,” “projects,” “forecasts” or negative versions
thereof and other similar expressions, or future or conditional
verbs such as “may,” “will,” “should,” “would” and “could.”
Although we believe that our anticipated future
results, performance or achievements expressed or implied by the
forward-looking statements and information are based upon
reasonable assumptions and expectations, the reader should not
place undue reliance on forward-looking statements and information
because they involve known and unknown risks, uncertainties and
other factors, many of which are beyond our control, which may
cause the actual results, performance or achievements of Brookfield
to differ materially from anticipated future results, performance
or achievement expressed or implied by such forward-looking
statements and information.
Factors that could cause actual results to
differ materially from those contemplated or implied by
forward-looking statements include, but are not limited to: lower
than target investment returns; the impact or unanticipated impact
of general economic, political and market factors in the countries
in which we do business; the behavior of financial markets,
including fluctuations in interest and foreign exchange rates;
global equity and capital markets and the availability of equity
and debt financing and refinancing within these markets; strategic
actions including dispositions; the ability to complete and
effectively integrate acquisitions into existing operations and the
ability to attain expected benefits; changes in accounting policies
and methods used to report financial condition (including
uncertainties associated with critical accounting assumptions and
estimates); the ability to appropriately manage human capital; the
effect of applying future accounting changes; business competition;
operational and reputational risks; technological change; changes
in government regulation and legislation within the countries in
which we operate; governmental investigations; litigation; changes
in tax laws; ability to collect amounts owed; catastrophic events,
such as earthquakes and hurricanes; the possible impact of
international conflicts and other developments including terrorist
acts and cyber terrorism; and other risks and factors detailed from
time to time in our documents filed with the securities regulators
in Canada and the United States.
We caution that the foregoing list of important
factors that may affect future results is not exhaustive. When
relying on our forward-looking statements, investors and others
should carefully consider the foregoing factors and other
uncertainties and potential events. Except as required by law,
Brookfield undertakes no obligation to publicly update or revise
any forward-looking statements or information, whether written or
oral, that may be as a result of new information, future events or
otherwise.
This release does not constitute an offer of any
Brookfield fund.
CONSOLIDATED BALANCE SHEETS
Unaudited (US$ millions) |
September 30 |
|
December 31 |
|
2018 |
|
2017 |
|
Assets |
|
|
Cash and cash equivalents |
$ |
7,839 |
|
$ |
5,139 |
|
Other financial assets |
5,573 |
|
4,800 |
|
Accounts receivable and
other |
15,424 |
|
11,973 |
|
Inventory |
7,312 |
|
6,311 |
|
Assets classified as held for
sale |
1,727 |
|
1,605 |
|
Equity accounted
investments |
31,994 |
|
31,994 |
|
Investment properties |
79,217 |
|
56,870 |
|
Property, plant and
equipment |
59,688 |
|
53,005 |
|
Intangible assets |
16,146 |
|
14,242 |
|
Goodwill |
7,012 |
|
5,317 |
|
Deferred income tax
assets |
2,029 |
|
1,464 |
|
Total Assets |
$ |
233,961 |
|
$ |
192,720 |
|
|
|
|
Liabilities and
Equity |
|
|
Accounts payable and
other |
$ |
22,546 |
|
$ |
17,965 |
|
Liabilities associated with
assets classified as held for sale |
785 |
|
1,424 |
|
Corporate borrowings |
6,661 |
|
5,659 |
|
Non-recourse borrowings |
|
|
Property-specific mortgages |
91,551 |
|
63,721 |
|
Subsidiary borrowings |
8,762 |
|
9,009 |
|
Deferred income tax
liabilities |
11,550 |
|
11,409 |
|
Subsidiary equity
obligations |
3,847 |
|
3,661 |
|
Equity |
|
|
Preferred equity |
4,192 |
|
4,192 |
|
Non-controlling interests in net assets |
61,376 |
|
51,628 |
|
Common equity |
22,691 |
|
24,052 |
|
Total
Equity |
88,259 |
|
79,872 |
|
Total Liabilities and Equity |
$ |
233,961 |
|
$ |
192,720 |
|
CONSOLIDATED STATEMENTS OF
OPERATIONS
UnauditedFor the periods ended September 30(US$ millions, except
per share amounts) |
Three Months Ended |
|
Nine Months Ended |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Revenues |
$ |
14,858 |
|
$ |
12,276 |
|
|
$ |
40,765 |
|
$ |
27,721 |
|
Direct costs |
(11,967 |
) |
(10,034 |
) |
|
(32,839 |
) |
(21,753 |
) |
Other income and gains
(losses) |
144 |
|
(29 |
) |
|
581 |
|
236 |
|
Equity accounted income |
50 |
|
505 |
|
|
680 |
|
1,090 |
|
Expenses |
|
|
|
|
|
Interest |
(1,274 |
) |
(932 |
) |
|
(3,377 |
) |
(2,640 |
) |
Corporate costs |
(25 |
) |
(24 |
) |
|
(76 |
) |
(69 |
) |
Fair value changes |
132 |
|
132 |
|
|
1,537 |
|
141 |
|
Depreciation and
amortization |
(833 |
) |
(643 |
) |
|
(2,175 |
) |
(1,755 |
) |
Income taxes |
(144 |
) |
(259 |
) |
|
(636 |
) |
(503 |
) |
Net income |
$ |
941 |
|
$ |
992 |
|
|
$ |
4,460 |
|
$ |
2,468 |
|
|
|
|
|
|
|
Net income attributable
to: |
|
|
|
|
|
Brookfield shareholders |
$ |
163 |
|
$ |
228 |
|
|
$ |
1,700 |
|
$ |
416 |
|
Non-controlling interests |
778 |
|
764 |
|
|
2,760 |
|
2,052 |
|
|
$ |
941 |
|
$ |
992 |
|
|
$ |
4,460 |
|
$ |
2,468 |
|
|
|
|
|
|
|
Net income per share |
|
|
|
|
|
Diluted |
$ |
0.11 |
|
$ |
0.20 |
|
|
$ |
1.53 |
|
$ |
0.32 |
|
Basic |
0.11 |
|
0.20 |
|
|
1.57 |
|
0.32 |
|
SUMMARIZED FINANCIAL
RESULTS
RECONCILIATION OF NET INCOME TO FUNDS
FROM OPERATIONS
Unaudited For the periods ended September 30 (US$ millions) |
Three Months Ended |
|
Last Twelve Months Ended |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Net income |
$ |
941 |
|
$ |
992 |
|
|
$ |
6,543 |
|
$ |
2,565 |
|
Realized disposition gains in
fair value changes or prior periods |
387 |
|
232 |
|
|
1,135 |
|
1,079 |
|
Non-controlling interests |
(1,415 |
) |
(1,073 |
) |
|
(6,030 |
) |
(3,692 |
) |
Financial statement components
not included in FFO |
|
|
|
|
|
Equity accounted fair value changes and other non-FFO items |
446 |
|
(15 |
) |
|
1,570 |
|
546 |
|
Fair value changes |
(132 |
) |
(132 |
) |
|
(1,817 |
) |
347 |
|
Depreciation and amortization |
833 |
|
643 |
|
|
2,765 |
|
2,237 |
|
Deferred income taxes |
25 |
|
162 |
|
|
180 |
|
441 |
|
Funds from operations1,2 |
$ |
1,085 |
|
$ |
809 |
|
|
$ |
4,346 |
|
$ |
3,523 |
|
SEGMENT FUNDS FROM
OPERATIONS
UnauditedFor the periods ended September 30(US$ millions, except
per share amounts) |
Three Months Ended |
|
Last Twelve Months Ended |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Asset management |
$ |
320 |
|
$ |
211 |
|
|
$ |
1,286 |
|
$ |
922 |
|
Real estate |
464 |
|
382 |
|
|
1,745 |
|
1,736 |
|
Renewable power |
48 |
|
45 |
|
|
307 |
|
203 |
|
Infrastructure |
80 |
|
87 |
|
|
598 |
|
357 |
|
Private equity |
247 |
|
137 |
|
|
615 |
|
427 |
|
Residential |
16 |
|
(24 |
) |
|
93 |
|
13 |
|
Corporate |
(90 |
) |
(29 |
) |
|
(298 |
) |
(135 |
) |
Funds from operations1,2 |
$ |
1,085 |
|
$ |
809 |
|
|
$ |
4,346 |
|
$ |
3,523 |
|
|
|
|
|
|
|
Per
share3 |
$ |
1.07 |
|
$ |
0.79 |
|
|
$ |
4.28 |
|
$ |
3.47 |
|
- Non-IFRS measure – see Basis of Presentation on page 3
- Excludes amounts attributable to non-controlling interests
- Per share amounts are inclusive of dilutive effect of
mandatorily redeemable preferred shares held in a consolidated
subsidiary
EARNINGS PER SHARE
Unaudited For the periods ended September 30(US$ millions, except
per share amounts) |
Three Months Ended |
|
Last Twelve Months Ended |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Net income |
$ |
941 |
|
$ |
992 |
|
|
$ |
6,543 |
|
$ |
2,565 |
|
Non-controlling interests |
(778 |
) |
(764 |
) |
|
(3,797 |
) |
(1,976 |
) |
Net income attributable to
shareholders |
163 |
|
228 |
|
|
2,746 |
|
589 |
|
Preferred share dividends |
(38 |
) |
(35 |
) |
|
(153 |
) |
(139 |
) |
Dilutive effect of conversion of subsidiary preferred shares |
(20 |
) |
— |
|
|
(87 |
) |
— |
|
Net
income available to common shareholders |
$ |
105 |
|
$ |
193 |
|
|
$ |
2,506 |
|
$ |
450 |
|
|
|
|
|
|
|
Weighted average shares |
957.9 |
|
958.9 |
|
|
958.1 |
|
958.8 |
|
Dilutive effect of the
conversion of options and escrowed shares using treasury stock
method1 |
20.1 |
|
21.6 |
|
|
21.2 |
|
16.5 |
|
Shares and share equivalents |
978.0 |
|
980.5 |
|
|
979.3 |
|
975.3 |
|
|
|
|
|
|
|
Diluted
earnings per share2 |
$ |
0.11 |
|
$ |
0.20 |
|
|
$ |
2.56 |
|
$ |
0.46 |
|
CASH AVAILABLE FOR
DISTRIBUTION
Unaudited For the periods ended September 30 (US$ millions) |
Three Months Ended |
|
Last Twelve Months Ended |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Asset management FFO3 |
$ |
320 |
|
$ |
211 |
|
|
$ |
1,286 |
|
$ |
922 |
|
Dividends received from listed
investments |
464 |
|
329 |
|
|
1,478 |
|
1,239 |
|
Corporate activities FFO3 |
|
|
|
|
|
Financial assets earnings |
19 |
|
54 |
|
|
116 |
|
156 |
|
Corporate costs, cash taxes and other |
(26 |
) |
(17 |
) |
|
(103 |
) |
(39 |
) |
Corporate interest expense |
(83 |
) |
(66 |
) |
|
(311 |
) |
(252 |
) |
|
(90 |
) |
(29 |
) |
|
(298 |
) |
(135 |
) |
Preferred share dividends |
(38 |
) |
(35 |
) |
|
(153 |
) |
(139 |
) |
Available for distribution/reinvestment3 |
$ |
656 |
|
$ |
476 |
|
|
$ |
2,313 |
|
$ |
1,887 |
|
- Includes management share option plan and escrowed stock
plan
- Per share amounts are inclusive of dilutive effect of
mandatorily redeemable preferred shares held in a consolidated
subsidiary
- Non-IFRS measure – see Basis of Presentation on page 3
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