Brookfield : 2025 First Quarter Letter to Shareholders (English)

Published: 2025-05-08 06:59:11 ET BN

Published on 05/08/2025 at 06:59

Brookfield Corporation First Quarter 2025 - Letter to Shareholders

Our business performed well, with good progress across each of our core operations. Our asset management business had inflows of $25 billion and we added to our real asset credit franchise by agreeing to acquire a majority stake in an alternative private credit manager. Our operating businesses generated strong earnings, driven by their resilient cash flows, and we strengthened our capital, successfully financing over $30 billion of debt across our operations. Wealth solutions continued to deliver strong financial performance, and it received its regulatory license to launch in the U.K.-the first dedicated PRT license granted in the U.K. since 2007.

We advanced a number of important large-scale investments across the business, deploying $16 billion, and have an active pipeline. We monetized approximately $22 billion of assets, delivering strong risk-adjusted returns to our clients. We also increased the pace of our share buybacks in the quarter with the pull-back in the stock markets. To date this year, we acquired approximately $850 million of shares, adding intrinsic value to each remaining share.

While the geopolitical environment is more uncertain than three months ago, our focus remains the same: find great businesses to acquire, buy them when we can acquire for value, and operate them well once we own them. History has proven, through all economic conditions, that owning great businesses for long periods of time is the cornerstone of wealth creation.

We started the year with positive economic momentum. To date, growth and labor market data have remained resilient, but changes in U.S. trade policy have created uncertainty in capital markets. While our businesses and operations are not immune, they are generally insulated from the current environment. This is because our business focus is on providing essential products and services, which do not rely on the cross-border movement of goods; they serve customers locally and generally pass through increased input costs contractually to the end consumer.

As we have experienced in previous periods of stress, markets move for reasons that often don't reflect underlying fundamentals. This creates opportunities for experienced, well-capitalized investors to invest for value. Regardless of how the current administration's trade policy develops, the U.S. remains a premier destination for investment globally. It is energy independent, boasts the largest GDP in the world, has the deepest and most liquid capital markets, and is a leader in technology and entrepreneurship. The administration's objectives focus on lower taxes, deregulation and industrialization, which on balance are positive from a long-term investment perspective. We will all get to the other side of this.

Reflecting on periods of uncertainty over the last number of decades, we would like to offer our perspective on long-term investing. While it always feels like the first time in the moment, we have managed through many periods similar to the one we are seeing today. Our objective always remains the same: to create long-term value for our shareholders by buying, operating and owning businesses for long periods of time.

While price fluctuations in the moment seem significant, in the fullness of time they are likely to represent small deviations in the overall trajectory of the long-term compounding of wealth. Consider that the S&P 500 has

Q1 2025

delivered an annualized return of 10% over the past 30 years. Comparatively, our shareholders have earned an annualized return of 18% over that same 30 years by simply staying invested in Brookfield. Below is the S&P 500 chart over the past 30 years. Remember this next time you feel the urge to sell.

The Power of Staying Invested

With a franchise that spans 30 countries, we have the operating expertise to navigate change. Our consistent investment and operating approach has allowed us to deliver stable and growing results for decades. This includes taking a measured approach to risk, focusing on execution over sentiment, and investing in the backbone of the global economy, especially in periods of greater uncertainty.

Crucial to this success over the years has also been the effective allocation and reinvestment of our free cash flow. We have a broad perspective on the relative investment opportunities and capital needs across our entire franchise. Our philosophy has always been to largely distribute out all free cash flow from our operating companies to the Corporation and to centralize cash flow reinvestment decisions. This approach becomes even more valuable during periods of uncertainty, when price can diverge substantially from value and we are presented with attractive value investment opportunities-not least repurchasing our own shares in the market. So far this year, we have capitalized on the market volatility to repurchase approximately $850 million of our shares at a significant discount to our view of intrinsic value. Warren Buffett articulated this point about capital allocation well:

"Charlie [Munger] and I mainly attend to capital allocation and the care and feeding of our key managers. Most of these managers are happiest when they are left alone to run their businesses, and that is customarily just how we leave them. That puts them in charge of all operating decisions and of dispatching the excess cash they generate to headquarters. By sending it to us, they don't get diverted by the various enticements that would come their way were they responsible for deploying the cash their businesses throw off. Furthermore, Charlie and I are exposed to a much wider range of possibilities for investing these funds than any of our managers could find in his or her own industry."

This deliberate approach to capital allocation has been a key contributor to our ability to scale our business, and to withstand economic cycles across all the sectors in which we invest. This flexibility is one of our greatest strengths-and is something we created methodically and meticulously over many years.

Over the long term, price always meets value-market fluctuations are a natural part of the economic cycle, and the returns of a great business compound through all markets, good or bad.

Our first quarter financial results were strong. Each of our businesses continues to generate stable and growing cash flow. Each demonstrated resilience, supported by strong underlying fundamentals.

Financial Results

Distributable earnings (DE) before realizations were $1.3 billion, or $0.82 per share, in the quarter and

$5.2 billion, or $3.26 per share, over the last 12 months. This represents an increase of 30% per share over the prior year quarter.

$0.43 per share, in the quarter and $2.7 billion, or $1.71 per share, over the last 12 months. We raised $25 billion during the quarter, continuing our strong fundraising momentum. We closed on our flagship opportunistic credit strategy at $16 billion and held the final institutional close for the fifth vintage of our flagship opportunistic real estate strategy. We closed on $5.9 billion in the quarter in that strategy, increasing total capital raised to date to approximately $16 billion, already exceeding our goal. With the final close-out of clients in wealth and regional sleeves expected over the balance of the year, we are set to have by far our largest pool of capital for opportunistic real estate to date. We continue to see strong interest for our second global transition strategy and expect to hold the final close in the coming months. Fundraising helped drive fee-bearing capital to $549 billion, representing an increase of 20% from a year ago. Subsequent to quarter end, we announced the acquisition of a majority stake in Angel Oak, a leading origination platform and asset manager delivering innovative mortgage and consumer products with over $18 billion in assets under management.

$11.6 billion. As we execute on our monetization pipeline, we expect to realize much of this into income over the next five years. While uncertainty in the current environment may impact transaction activity, we continue to see

strong demand for the globally diversified portfolio of high-quality, cash-generating assets and businesses we own. We closed approximately $22 billion of asset sales across the business in the quarter, with substantially all sales being completed at prices in line or above our carrying values.

In our infrastructure business, we completed the sale of a minority stake in a portfolio of fully contracted containers within our global intermodal logistics operation, and we sold two regulated natural gas transmission pipelines in Mexico. We agreed to sell the remaining 25% interest in NGPL, a U.S. gas pipeline. This closed out an extremely successful exit from the business, generating total gross proceeds of over $1.7 billion, crystallizing an 18% IRR and a 3x multiple of capital. We also agreed to sell a minority stake in a portfolio of operating sites from our European hyperscale data center platform for approximately $460 million, and are progressing the sale of an additional stake in the portfolio.

In our real estate business, we closed the previously announced sale of our luxury 360-key hotel and golf club in Florida. This transaction marked one of the largest single U.S. hospitality transactions in the last 12 months. We completed the sale of an office asset in Sydney, a portfolio of U.S. manufactured housing assets, and agreed to sell two shopping malls in Brazil for approximately $450 million. We also agreed to sell a logistics asset in Sydney for approximately A$330 million-the largest single-asset logistics transaction ever completed in Australia.

In our renewable power and transition business, we closed the sale of the first phase of our Indian solar and wind portfolio, as well as an electricity generation and storage facility in the U.K. We also reached an agreement to sell an additional 25% stake in one of our U.S. wind portfolios. In our private equity business, we sold the shuttle tanker segment of our offshore oil services operation.

As we execute monetizations and return capital to investors over the course of 2025 and beyond, we will be well-positioned to realize significant carried interest into earnings in the coming years.

Balance Sheet and Liquidity - We continue to maintain a conservatively capitalized balance sheet and high levels of liquidity. At quarter end, our perpetual capital base was approximately $170 billion, with a modest amount of long-dated corporate debt at the Corporation. This positions us well to capitalize on attractive growth opportunities, protects us from downside risks through market cycles, and enables us to continue to repurchase shares opportunistically. We executed on over $30 billion of financings across the business.

A few highlights include:

The Corporation issued $500 million of 30-year senior unsecured notes, achieving its tightest 30-year spread to date. Similarly, Brookfield Renewable Partners issued C$450 million of medium-term notes during the quarter at its tightest new-issue spread in almost 20 years.

In our private equity business, we completed an upfinancing at Clarios, our battery business, which funded a $4.5 billion special distribution to shareholders representing an approximate 1.5x realized multiple on our original investment, while retaining our entire share of the business.

We issued €500 million of bonds at our German office REIT, a $360 million financing of a high-quality shopping center in the U.S., and approximately C$430 million of bonds on a core office asset in Canada.

In our infrastructure business, we closed $885 million and $940 million of investment-grade asset-backed securities at our U.S. hyperscale and U.S. colocation data center businesses, respectively. These financings underscore the continued demand from lenders for digitalization opportunities.

Five years ago, we established Brookfield Wealth Solutions (BWS). From the outset, our objective was building a business that can generate a durable 15%+ return on equity through economic cycles. Our goal is to source low-risk liabilities and earn our extra returns by drawing on our differentiated core competencies across real assets to invest a portion of the capital into real-asset credit and equity.

Real assets are ideal investments for insurance balance sheets because they generate long-term, inflation-protected cash flows. We have a unique capability in this area; our investment approach allows us to operate with conservative leverage and we have capitalized our insurance entities with more than $11 billion of equity capital. Our insurance operating companies are stronger and far better capitalized under our ownership than they were before, and we expect to build on this as we expand the business' presence globally.

After growing through several acquisitions in the U.S. over the past few years, we are now beginning our international expansion. We were recently granted the first dedicated pension risk transfer license in the U.K.- the first such license to be granted since 2007-and plan to bring our strong track record of servicing policyholders to the region. With over £500 billion of corporate pension transfers to insurance companies expected over the next decade in the U.K., this represents a key market for continued growth.

One of our great advantages is our ability to leverage the Brookfield ecosystem, including our vast network for sourcing investment opportunities. We can offer our insurance pools access to transactions that are available to few other insurance companies. This includes acquiring investments in real assets, including real estate, to deliver attractive risk-adjusted returns through economic cycles to policyholders and our shareholders.

Real estate has been a widely held asset class across the insurance industry for many years, and the insurance companies we acquired already had a significant concentration of real estate in their investment portfolio. Our real estate business is one of the world's highest-quality, largest and most established platforms, and as owners and operators over many decades, we have curated a portfolio of the best real estate assets around the world. These properties are premier assets in gateway cities and are exceptionally compatible with the long-dated nature of the insurance liabilities we manage on behalf of our policyholders. For these reasons, our intention is to slowly migrate some of these assets into BWS' insurance accounts without materially impacting the overall allocation to real estate.

By rotating the incumbent real estate portfolio into a higher quality class of real estate, we are positioning our business for continued growth and attractive risk-adjusted earnings. As we execute our strategy it is important to note a few key points:

Brookfield Wealth Solutions (NYSE: BNT, TSX: BNT) is a paired security to BN, meaning that both securities (BNT and BN) share the same underlying economic value-the value of overall Brookfield. This means that there is no winner or loser in any transactions done because the shareholders of BN and BNT share the same economic value. The tax profile for the shareholder is the only differentiating economic factor in owning one security or the other.

For our insurance accounts, all transactions are subject to a robust review process-both internal and external, which includes conflicts committee approval, third-party pricing validation and regulatory oversight. Rest assured, we are building this business for the long term and therefore err on the side of conservatism in terms of pricing and process with our regulated accounts.

Our rigorous process ensures these transactions are always conducted with integrity and at arm's length, and everything we do to strategically support the growth of our wealth solutions business reflects our long-term commitment to our policyholders.

Disclaimer

Brookfield Corporation published this content on May 08, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 08, 2025 at 10:58 UTC.