Brookfield Corporation(BN) - 2024 Q3 - Quarterly Report

Financial Highlights This section presents key financial performance indicators and balance sheet figures for the periods ended September 30, 2024, and December 31, 2023 Financial Performance Summary | Indicator | Three Months Ended 2024 | Three Months Ended 2023 | Nine Months Ended 2024 | Nine Months Ended 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $20,623M | $24,441M | $66,580M | $71,406M | | Net Income | $1,518M | $35M | $1,752M | $1,971M | | Net Income Attributable to Shareholders | $64M | $230M | $209M | $431M | | Distributable Earnings | $1,325M | $1,150M | $4,668M | $3,494M | | Net Income per Share | $0.01 | $0.12 | $0.05 | $0.20 | | Distributable Earnings per Share | $0.84 | $0.73 | $2.95 | $2.19 | | Dividends per Share | $0.08 | $0.07 | $0.24 | $0.21 | Balance Sheet Snapshot | Balance Sheet Item | As at Sep. 30, 2024 | As at Dec. 31, 2023 | | :--- | :--- | :--- | | Total Assets | $508,144M | $490,095M | | Total Equity | $169,899M | $168,242M | | Common Equity | $42,368M | $41,674M | Brookfield at a Glance Brookfield is a global investment firm focused on real assets, aiming for 15%+ annualized shareholder returns through long-life, high-quality investments - Brookfield is a global investment firm with three core businesses: Asset Management, Wealth Solutions, and Operating Businesses, focused on investing in real assets that form the backbone of the global economy[9] - The company's long-term financial goal is to deliver 15%+ annualized returns to its shareholders[9] - The firm's investment strategy focuses on long-life, high-quality assets and businesses that generate stable, inflation-linked, and growing revenue streams with high cash margins[11] Letter to Shareholders The letter highlights strong Q3 2024 financial results, positive outlook, accelerating monetization, and strategic growth plans for distributable earnings and total returns - The company delivered strong Q3 financial results, with a positive outlook for the remainder of 2024 and 2025, driven by expected reductions in interest rates and a pickup in transaction activity[14] Distributable Earnings Metrics | Metric | Q3 2024 | LTM | YoY Change (Quarterly) | | :--- | :--- | :--- | :--- | | DE before realizations | $1.3B ($0.80/share) | $4.6B ($2.90/share) | +19% | | Total DE | $1.3B ($0.84/share) | $6.0B ($3.78/share) | - | - Asset Management fee-bearing capital reached $539 billion, a 23% increase over the last twelve months, leading to a 14% growth in fee-related earnings compared to the prior year quarter[15] - The Wealth Solutions business is growing rapidly, generating $364 million in distributable operating earnings in the quarter, with insurance assets exceeding $115 billion[15] - Monetization activity is accelerating, with over $17 billion in asset sales closed or advanced recently, including the sale of UK retail parks generating a 30% IRR and 2.2x multiple of capital[17] - The company maintains a robust balance sheet and strong liquidity, having executed over $30 billion in financings in the past few months and repurchased approximately $1 billion of shares over the last twelve months[19] - Over the next five years, the company plans to grow distributable earnings by over 20% annually and deliver total returns of 15%+, both on a per-share basis[20] Management's Discussion & Analysis This section provides a comprehensive review of the company's operations, financial condition, and performance for the reporting period PART 1 – Our Business and Strategy This section outlines Brookfield's core identity as a global investment firm focused on long-term wealth creation through its three main businesses: Asset Management, Wealth Solutions, and Operating Businesses. It details the investment strategy, which targets high-quality, long-life real assets with stable, inflation-linked cash flows. The primary performance measure used to evaluate the business is distributable earnings (DE) - The company's business is structured around three core pillars: Asset Management, Wealth Solutions, and Operating Businesses[37] - The Asset Management business is a leading global alternative asset manager with over $1 trillion of assets under management (AUM) as of September 30, 2024[43] - The Wealth Solutions business, through Brookfield Wealth Solutions Ltd. (BWS), has grown its insurance assets to over $115 billion with annualized earnings of $1.5 billion[45] - The Operating Businesses consist of significant ownership stakes in publicly listed permanent capital vehicles: Brookfield Renewable Partners (BEP, 46% ownership), Brookfield Infrastructure Partners (BIP, 26% ownership), Brookfield Business Partners (BBU, 61% ownership), and a 100% stake in Brookfield Property Group (BPG)[47][49] PART 2 – Review of Consolidated Financial Results This section provides a detailed IFRS-based analysis of the consolidated financial results. Q3 net income rose significantly to $1.5 billion, driven by organic growth, recent acquisitions, and a benefit from the U.S. Inflation Reduction Act. The analysis covers the income statement, balance sheet, impacts of acquisitions and dispositions, fair value changes, tax provisions, and foreign currency translation effects Income Statement Analysis For Q3 2024, revenues decreased 16% year-over-year to $20.6 billion, primarily due to dispositions. However, net income surged to $1.5 billion from $35 million in the prior-year quarter. This increase was driven by a significant reduction in direct costs, higher gains on dispositions, and a lower income tax expense, which more than offset a decrease in equity accounted income and higher interest expense Consolidated Income Statement | (in millions) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $20,623 | $24,441 | $66,580 | $71,406 | | Direct costs | $(15,344) | $(21,088) | $(53,542) | $(60,814) | | Net income | $1,518 | $35 | $1,752 | $1,971 | | Net income attributable to shareholders | $64 | $230 | $209 | $431 | | Net income per share | $0.01 | $0.12 | $0.05 | $0.20 | Significant Acquisitions and Dispositions In Q3 2024, recent acquisitions contributed $1.0 billion in revenue and $188 million in net income, primarily from the Infrastructure and Real Estate segments. Conversely, recent dispositions reduced revenues by $5.3 billion but increased net income by $85 million, largely due to the sale of the road fuels operation within the Private Equity segment Impact of Acquisitions and Dispositions | Impact in Q3 2024 (in millions) | Revenue | Net Income (Loss) | | :--- | :--- | :--- | | Acquisitions | $1,013 | $188 | | Dispositions | $(5,321) | $85 | Balance Sheet Analysis As of September 30, 2024, total assets increased by $18.0 billion since year-end 2023 to $508.1 billion, mainly due to acquisitions in the Infrastructure and Real Estate segments. Common equity rose by $694 million to $42.4 billion, reflecting net income and other comprehensive income, partially offset by $732 million in share repurchases and dividend payments Consolidated Balance Sheet | (in millions) | Sep. 30, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Total assets | $508,144 | $490,095 | | Total liabilities | $338,245 | $321,853 | | Common equity | $42,368 | $41,674 | | Total equity | $169,899 | $168,242 | - Common equity increased by $694 million in the first nine months of 2024, driven by $209 million in net income and $1.2 billion in other comprehensive income, offset by $499 million in dividends and $732 million in net share repurchases[98] Summary of Quarterly Results Quarterly financial results over the past two years have varied due to acquisitions, dispositions, non-cash fair value changes, and seasonality in businesses like Real Estate and Renewable Power. Q3 2024 revenues decreased from Q2 due to the disposition of the road fuels operation, but net income increased due to a benefit from the U.S. IRA and disposition gains Quarterly Financial Performance | For the periods ended (in millions) | Q3 2024 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $20,623 | $23,050 | $22,907 | $24,518 | $24,441 | | Net income (loss) to shareholders | $64 | $43 | $102 | $699 | $230 | PART 3 – Operating Segment Results This section details the performance of Brookfield's seven operating segments. For Q3 2024, total Distributable Earnings (DE) were $1.3 billion. Key drivers included strong fundraising in Asset Management, significant growth in Wealth Solutions, resilient cash flows from Renewable Power and Infrastructure, a substantial increase in Private Equity FFO from dispositions and operational improvements, and steady performance in the core Real Estate portfolio Segment Performance and Equity | Segment (Q3 2024, in millions) | DE / FFO / NOI | Common Equity | | :--- | :--- | :--- | | Asset Management | $758 (DE) | $18,042 | | Wealth Solutions | $364 (DE) | $9,354 | | Renewable Power and Transition | $102 (FFO) | $3,984 | | Infrastructure | $136 (FFO) | $2,175 | | Private Equity | $382 (FFO) | $3,265 | | Real Estate | $768 (NOI) | $23,667 | | Corporate Activities | $(139) (FFO) | $(18,119) | | Total | $1,325 (DE) | $42,368 | Asset Management The Asset Management segment generated $758 million in DE for Q3 2024. Fee-bearing capital increased by $25.6 billion during the quarter to $539.4 billion, driven by inflows and market valuation gains. Fee-related earnings grew due to higher base management fees. Accumulated unrealized carried interest, net of costs and non-controlling interests, stood at $10.1 billion - Fee-bearing capital increased by $25.6 billion during the quarter to a total of $539.4 billion as of September 30, 2024[126] - Fee-related earnings increased to $644 million at the Corporation's share, driven by higher base management fees from increased fee-bearing capital[132] - Accumulated unrealized carried interest, at the Corporation's share, totaled $10.1 billion as of September 30, 2024[141] Wealth Solutions The Wealth Solutions segment reported Distributable Operating Earnings (DOE) of $364 million for Q3 2024, a significant increase of $182 million from the prior year. This growth was fueled by the acquisitions of AEL and Argo, organic inflows, and strong investment performance. Insurance assets grew to over $115 billion, with $4.5 billion of organic inflows during the quarter Wealth Solutions Operating Earnings | (in millions) | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net investment income | $1,386 | $589 | | Cost of funds | $(854) | $(314) | | Distributable operating earnings | $370 | $182 | | DOE attributable to the Corporation | $364 | $182 | - Insurance assets within the Wealth Solutions business were over $115 billion, with approximately $4.5 billion of organic inflows generated in the quarter[145] Renewable Power and Transition The Renewable Power and Transition segment generated FFO of $102 million in Q3 2024, a slight increase of $5 million year-over-year. Favorable pricing and strong hydrology in Latin America were largely offset by net disposition activity and higher interest expenses. Total generation increased by 15% YoY to 7,320 GWh but remained 10% below the long-term average - FFO increased by $5 million to $102 million compared to the prior year quarter[150] - Total generation for the quarter was 7,320 GWh, a 15% increase from the prior year but 10% below the long-term average, primarily due to lower hydrology and wind resources[152] Infrastructure The Infrastructure segment's FFO was $136 million in Q3 2024, in line with the prior year. Excluding disposition gains, operating FFO increased by $5 million, driven by acquisitions, inflation-linked contracts, and volume growth, which was partially offset by higher interest expenses and foreign exchange impacts - FFO was $136 million, consistent with the prior year quarter's $134 million[164] - BIP's FFO for the quarter was $599 million, with the Corporation's share being $136 million. Growth in Transport and Data operations was offset by lower results in Utilities and higher corporate costs[165] Private Equity The Private Equity segment's FFO more than doubled to $382 million in Q3 2024 from $188 million in the prior year. This substantial increase was driven by strong same-store growth, a benefit recognized under the U.S. IRA at its advanced energy storage operation, and significant disposition gains from the sale of its road fuels and payment processing services operations - FFO increased by $194 million to $382 million compared to the prior year quarter[177] - Realized disposition gains of $86 million in the quarter were primarily from the disposition of the road fuels operation and deconsolidation of the payment processing services operation[183] Real Estate The Real Estate segment generated NOI of $768 million in Q3 2024, a decrease from $804 million year-over-year. The decline was due to net disposition activity and lower residential lot sales, which offset strong performance in the core portfolio, where same-store NOI grew by 4%. Leasing activity remained robust, with nearly 6 million square feet of office and retail leases signed - NOI decreased to $768 million from $804 million in the prior year quarter[188] - The core Real Estate portfolio demonstrated strong performance, with same-store core NOI growth of 4% over the prior year quarter and occupancy remaining high at 95%[120][187] PART 4 – Capitalization and Liquidity This section details the company's strong financial position. The corporate debt-to-capitalization ratio remained stable at 20%. Brookfield maintains significant liquidity, with $5.7 billion at the corporate level and $152 billion of total liquidity across the group, including uncalled private fund commitments. The analysis covers the structure of corporate and non-recourse borrowings, preferred equity, and a review of the consolidated cash flow statement Capitalization The company's capitalization remains robust, with a corporate debt-to-capitalization ratio of 20%, consistent with year-end 2023. Total corporate capitalization increased to $66.2 billion. The majority of debt is non-recourse and property-specific. As of September 30, 2024, 75% of the company's share of outstanding debt was fixed-rate - The corporate debt to capitalization ratio was 20% as of September 30, 2024, unchanged from year-end 2023[195] - Corporate term debt stood at $13.0 billion with a long average maturity of 13 years and an average interest rate of 4.6%[197] - 75% of the company's share of outstanding debt, including swaps, was fixed rate, mitigating interest rate risk[205] Liquidity Brookfield maintains a strong liquidity position with $5.7 billion in corporate core liquidity and $152 billion in total group liquidity as of September 30, 2024. This includes cash, financial assets, undrawn credit facilities, and $85.3 billion in uncalled private fund commitments. Capital requirements are manageable, with the next corporate debt maturity of approximately $500 million not due until January 2025 Liquidity Position | Liquidity (in millions) | Sep. 30, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Corporate Core Liquidity | $5,728 | $4,546 | | Group Core Liquidity | $66,345 | $38,170 | | Uncalled private fund commitments | $85,294 | $85,658 | | Total Liquidity | $151,639 | $123,828 | Review of Consolidated Statements of Cash Flows For Q3 2024, cash flow from operating activities was $3.4 billion. Net cash provided by financing activities was $4.5 billion, driven by non-recourse borrowings and capital from non-controlling interests. Net cash used in investing activities was $7.3 billion, primarily for acquisitions across various segments. This resulted in a net increase in cash and cash equivalents of $549 million for the quarter Consolidated Cash Flow Summary | (in millions) | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Operating activities | $3,388 | $3,437 | | Financing activities | $4,490 | $6,256 | | Investing activities | $(7,329) | $(9,874) | | Change in cash and cash equivalents | $549 | $(181) | PART 5 – Accounting Policies and Internal Controls This section confirms that the financial statements are prepared in accordance with IFRS and highlights the use of management judgments and estimates, particularly in the valuation of investment properties. The company's valuation process is supported by external appraisals, which were within 2% of management's valuations. No material changes to internal controls over financial reporting were identified during the quarter - The company's investment property valuations are prepared internally and supported by external appraisals. During the first nine months of 2024, external appraisals for $5.6 billion of assets were within 2% of management's valuations[226] Investment Property Valuation Metrics | Weighted Average Valuation Metrics | Discount Rate | Terminal Capitalization Rate | | :--- | :--- | :--- | | Core | 6.2% | 4.8% | | Transitional and development | 7.9% | 6.3% | | LP investments | 8.6% | 5.9% | - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[229] Consolidated Financial Statements This section presents the company's official consolidated balance sheets, statements of operations, cash flows, and accompanying notes Consolidated Balance Sheets Presents the company's financial position as of September 30, 2024, compared to December 31, 2023, detailing assets, liabilities, and equity Consolidated Balance Sheet | (in millions) | Sep. 30, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Total assets | $508,144 | $490,095 | | Total liabilities | $338,245 | $321,853 | | Total equity | $169,899 | $168,242 | Consolidated Statements of Operations Details the company's revenues, costs, and expenses to arrive at net income for the three and nine months ended September 30, 2024 and 2023 Consolidated Statement of Operations | (in millions) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $20,623 | $24,441 | $66,580 | $71,406 | | Net income | $1,518 | $35 | $1,752 | $1,971 | | Net income attributable to Shareholders | $64 | $230 | $209 | $431 | | Diluted Net income per share | $0.01 | $0.12 | $0.05 | $0.20 | Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, financing, and investing activities for the three and nine months ended September 30, 2024 and 2023 Consolidated Statement of Cash Flows | (in millions) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :--- | :--- | :--- | :--- | :--- | | Operating activities | $3,388 | $3,437 | $4,404 | $4,961 | | Financing activities | $4,490 | $6,256 | $17,068 | $16,794 | | Investing activities | $(7,329) | $(9,874) | $(20,531) | $(24,038) | | Change in cash and cash equivalents | $549 | $(181) | $941 | $(2,283) | Notes to the Consolidated Financial Statements Provides detailed disclosures and explanations for the line items presented in the consolidated financial statements, including information on accounting policies, segment performance, acquisitions, financial instruments, and equity