Post by
retiredcf on Aug 13, 2023 7:31am
RBC
Their upside scenario target is US$62.00. GLTA
Outperform
NYSE: BN; USD 34.55
Price Target USD 50.00 ↓ 52.00
Brookfield Corporation
Look, if you had, one shot, or one opportunity. To seize everything you ever wanted...
Our view: Okay, there isn’t likely just one opportunity like Eminem raps about, but we think BN is in one of those rare moments where it has numerous opportunities to invest capital that could generate very lucrative returns (e.g., potential substantial issuer bid given the significantly wide 31% discount to NAV; Real Estate; Insurance; Global Transition), putting greater focus on capital allocation. Outside of Real Estate, we think BN’s various segments are performing for the most part very well. Real Estate remains a concern, although there were some early encouraging signs in Q2/23 (e.g., FFO was largely flat Q/Q vs. significant deterioration over the past year; Core Office SS NOI was +8% Y/Y) and further, BN’s share price seems to still be pricing in zero value for the Real Estate business and also a 19% discount to the value of non-Real Estate private assets (e.g., Insurance).
Key points:
Q2/23 Distributable Earnings/share (DE) (before realized carried interest and disposition gains) of US$0.64 was well ahead of our US$0.51 forecast due to higher-than-forecast distributions from perpetual affiliates (Property specifically) and Asset Management FRE attributable to BN and lower-than-forecast corporate expenses/taxes.
Key takeaways from Real Estate segment: (1) BN believes it could be 1-2 years before Real Estate FFO matches the distributions it pays up to BN; (2) after substantially declining Q/Q for the past year, FFO in Real Estate was largely flat Q/Q and may be showing early signs of stabilizing; (3) the IFRS fair value of BN’s Real Estate investments was largely flat Q/Q. However, there were notable Q/Q declines in the equity values within Core Office (-6% for Downtown NY and -5% for London); (4) NOI growth in Core was +8% Y/Y; and (5) within Office, BN said leasing activity and pipeline are robust with 1.2MM ft of leasing activity completed in Q2/23 with rents higher than those expiring and within Retail, leasing spreads are up over 15% Y/Y so far in 2023.
BN indicated that given the wide discount to NAV, a substantial issuer bid remains an option, but also that the investing environment is offering many opportunities to generate potentially abnormally higher- than-normal investment returns.
Maintaining our Outperform rating, but trimming our price target to US $50 (was US$52), reflecting a slightly wider discount to NAV assumption (15%, was 10%). While we think BN’s discount to NAV can narrow to its historical average of an ~8% discount to NAV (or better), with the current discount to NAV at 31%, we expect the discount to NAV to narrow over the next year, but not to the degree we previously expected.
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