Brookfield Corporation
Q4/23 may have signaled a positive inflection point in Real Estate
Our view: BN is our #2 best idea for 2024 and Q4/23 results re-affirmed our view. BN’s various businesses continue to perform well with the exception being Real Estate. However, where Q2/23 and Q3/23 results indicated Real Estate FFO was stabilizing, Q4/23 may have signaled the important shift from stabilizing to increasing, which if confirmed with Q1/24 (and maybe Q2/24) results, should be a key catalyst to significantly narrowing BN’s discount to NAV. Looking ahead, stabilization (and potential decline) in interest rates should provide tailwinds for Real Estate NOI/FFO/valuations. Furthermore, should monetization markets be more favorable than 2023 and economic conditions be at least not negative, this could see greater monetization activity, driving additional NAV upside from realized carried interest and surfacing of value. BN trades at a 26% discount to NAV with the current share price implying zero value for BN’s Real Estate investments and also an 8% discount to the value of BN’s non-Real Estate private investments (e.g., Insurance) (Exhibit 6). Increasing target to US$53 (was US$52), maintaining Outperform.
Key points:
Q4/23 distributable earnings/share (before realized carried interest and disposition gains) was US$0.76, well ahead of our US$0.59 forecast due to higher-than-forecast contributions from Asset Management, Insurance and Property plus lower-than-forecast Corporate & Other expenses.
Real Estate may have finally hit its positive inflection point. Real Estate Operating FFO (OFFO) appears to have troughed in Q1/23, shown signs of stabilization in Q2/23 and Q3/23 with Q4/23 providing the first sign of positive improvements as normalized OFFO from Core and Transition & Development was +US$75MM vs. Q/Q of +US$7M in Q3/23, +US$32MM in Q2/23 and negative -US$6MM in Q1/23. Core same-store NOI was +7% Y/ Y, with the Retail assets within Core performing above pre-pandemic levels (tenant sales per ft2 were +21% vs. pre-pandemic).
14% dividend increase and US$1B in share buybacks in the next few months. BN increased the quarterly dividend by 14% to US$0.32/share annualized (was US$0.28). BN also said it plans to buy back US$1B of shares (~1.6% of shares outstanding) in the next few months.
Increasing 12-month price target to US$53/share (was US$52), maintaining Outperform rating. The higher price target reflects a slightly higher NAV growth forecast (15.0%, was 12.5%) due to stronger results within its investment portfolio.