Brookfield Corp (BN.TO)

They walked away from part of their LA portfolio. Management owns a lot of stock and always buying more, which is good. At the end of the day, BN is far more than properties (have infrastructure, for example). He's owned this 5 years. It's volatile, but gives access to infrastructure and private assets, which is rare.

Essentially a holding company for all their other assets, with unique capital allocation opportunities at the top of the pyramid. This will enhance compounding for shareholders over the longer term. Valuation is less than 10x cashflow, free cashflow yield north of 8%. Taking in cashflow from dividends from those companies. 

Hit hard because of real estate exposure. Lots of excess cash. Big dollars, and platforms to deploy capital. Yield is 0.87%.

Which is the better investment depends on your view of real estate. BN owns 75% of BAM, but you're also getting a huge real estate portfolio and that's primarily offices. Great locations, but under pressure with return to work not happening. So, value of real estate holdings has dropped considerably, and that's affected the shares. If you have a constructive view on real estate, you can get BN at a very good price here.

BAM continues to clip the coupon on fee-generating revenue. If you want more of a steady as she goes, pick this one.

Track record of management behind both is exceptional. Longer term, you'll do well.

Highly leveraged business.
Prefer business models with higher return on capital with less debt.
Better names to invest in.

Not just real estate. Also infrastructure, private equity, renewables, reinsurance, credit. Market's focused on properties. Defaulted on some buildings, which happens in a cycle. 95% of properties are trophy assets. Situation is very manageable. Financing set up so that one building not doing well does not affect the whole company. Fundraising going well.

Metrics: 27.65x PE (vs. BlackRock’s 21.59x), a high 1.59 beta, and pays a mere 1.49% dividend yield but based on a safe 47.06% payout ratio. Ten-year annualized returns are roughly 14.6%, which is why Bay Street hold Brookfield in high regard.Cash flows are stable and linked in to inflation to absorb rampant inflation. BN has beaten three of its last four quarters (remember: under its previous name), but stumbled in the most recent, Q4-2022). Read Which Brookfield? for our full analysis.

High quality. Tremendous success over the years. Management always tries to create value. Smart operators, very good assets. Long term, it's one to own. 

The value of commercial property is down so much these days that owners like Brookfield just walk away from them--not worth renewing the lease--but it won't impact the company much.

BAM was the parent before the spin-off. Now, BN is the parent that owns the various entities. So now the new BAM is a fee-related earnings business that pays a 4% dividend yield, It boils down to BAM having the yield vs. BN offering growth. BAM is for older investors seeking income, while BN is for younger, long-term investors.

Its two biggest overhangs are commercial real estate and interest rates. Built to take advantage of an environment like this. In prior downturns, took advantage of opportunities. Tons of excess capital. Well positioned. Don't throw in the towel. Very attractively valued, would buy today.

Shares are over 30% off peak, which is the 4th deepest pullback in 25 years of trading. Attractive multiple of 1.3x book, a 10-year low. Benefitting from a secular flow away from publicly traded market assets like stocks and bonds, and towards alternative assets such as the ones they own and manage. 

Advantage of global size and scale. Deep operating expertise. 15% compounded total shareholder return over 25 years. Any time you get a dip as deep and as sharp as this, buy it.

BAM, but he'd be wary of both right now because of the office side. BAM was spun out and it's largely private equity. Concerns him because it doesn't get revalued as frequently as publicly traded stocks. With interest rates having risen as much as they have, and potential economic weakness, there might be a risk to valuation. Public equity is a black box, so he's wary.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.

Lower interest rates are certainly more helpful to the Brookfield group. 
The company has a massive amount of capital to deploy. 
If valuations continue to fall, we would expect a lot of deals. 
Higher rates of course lower the potential return on deals, but if valuations are lower then this becomes a bit of a wash. 
The spin out should create value over time. Both companies have predicted fairly high growth rates, and BAM intends to pay out most cash flow in rising dividends. 
The value creation over the past 20 years has been nearly the best in Canada, and we would expect BN to survive this current market/economic scenario fairly well. 
The stock is going to bounce around, but it is not really a company we 'worry' about too much. It has proven itself time and time again.  
Unlock Premium - Try 5i Free

Anything Brookfield: sell. It needs lots of liquidity, and liquidity is being drawn out of this market. The macro runs counter to Brookfield. He model $40.17, which is exactly where shares trades. Pays a small dividend; Brookfield needs to increase this.

The people running it are very bright and are great at creating shareholder value. They are masters at buying up and using debt. They had two defaults on holdings in California but they knew what they were doing and it was not a problem for them financially.