Brookfield Corp (BN.TO)

Challenges in office real estate business for next 5 years.
Office square footage shrunk for the first time since 1930's.
Suspects it will be hard to get government workers back to work. 
Would wait for office space industry to bottom out before investing. 

They own/operate long-duration assets and are third-party managers of outside capital. Flows of money into private-market assets are outstripping flows into traditional stocks and bonds. So, BN has been hovering up money and now manages over $800 billion. Share have generated a compounded return of over 15% annually over 25 years. Good managers. A nice pullback to buy.

Office real estate is the overhang. They have many other divisions. Trades at discount to NAV. She'd buy at these levels. Lots of deployable capital to take advantage of global opportunities.

Bruce Black is probably the best CEO in Canada and is a very smart deployer of capital that appreciates over time. You are buying infrastructure and real assets at 75 to 80 cents on the dollar.

Tremendously undervalued. If you take out the value of all its stakes in subsidiaries, you're getting a negative value for its real estate, which is over $30B in value. Challenges in office are likely to persist. The properties have good value.

This is cheap, but has been soft. Cheap at 10x PE and models 15% growth. A complex vehicle, but likes it. Higher interest rates remains a headwind. It's too cheap to ignore.

Owns shares in company.
Very high exposure to real estate and renewable energy.
Pandemic very hard on business.
Believes long term business will be strong.
Excellent capital allocation skills.

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.