Brookfield Asset Management Inc. (NYSE:BAM)(TSX:BAM.A)(EURONEXT
Bruce Flatt, CEO of Brookfield, stated, “Our diversified real asset strategies are performing well and we continue to see growing demand from investors, as evidenced by the closing on a record $27 billion of capital for our most recent series of flagship funds. We deployed $16 billion of capital during the last twelve months, and we expect to see continued opportunities for investment.”
Net income for the second quarter of 2016 totalled $584 million or $0.15 per share, and was $3.3 billion on a last twelve month basis. Net income declined from the prior period largely because the prior period included a higher level of valuation gains within our property operations. We recorded a positive contribution from earnings on new investments and operational improvements, including income from recently signed leases in our property group and rising rates and volumes in our infrastructure operations. Our renewable power operations experienced lower water levels in North America and lower pricing in Brazil.
Funds from operations (“FFO”) for the second quarter of 2016, which excludes unrealized valuation gains totalled $637 million or $0.62 per share, and was $2.8 billion on a last twelve month basis. Fee related earnings increased 50% to $191 million, from strong client inflows over the last twelve months. FFO from invested capital increased by 56% and included the contribution from new investments across our portfolio and operating improvements noted in the preceding paragraph. We sold interests in core office properties and a UK energy distribution business, generating $123 million of disposition gains. This compares to realized disposition gains of $171 million in the prior period.
The Board declared a quarterly dividend of US$0.13 per share (representing US$0.52 per annum), payable on September 30, 2016 to shareholders of record as at the close of business on August 31, 2016. The Board also declared all of the regular monthly and quarterly dividends on its preferred shares.
We achieved record fundraising for our flagship private funds.
We completed fundraising for our most recent series of flagship private funds. Nearly 250 clients committed to these three funds, which represent $27 billion of investible capital. We have already invested more than half of our $9 billion property fund and have commenced deploying capital in our $14 billion infrastructure fund and $4 billion private equity fund. We also continue to raise four additional funds, including an open-ended real estate fund and three niche funds, targetting $3 billion of client commitments.
Fee bearing capital increased by 15% to $108 billion over the last twelve months.
Our annualized run rate of total fees and carry is now more than $2.0 billion based on current funds under management, up from $1.6 billion last quarter end and $1.4 billion last year. Strong capital inflows increased annualized fee revenues by 24% to $1.2 billion. Recent private fund commitments increased carry eligible fee bearing capital by 74% to $39 billion, increasing our annualized target carried interest to $830 million.
We completed the launch of Brookfield Business Partners, our fourth listed partnership, which is now listed on both the Toronto and New York stock exchanges. We are now focused on enhancing the value of this business. Our renewable power partnership issued $670 million of equity during the quarter, increasing its capital base in line with the continued expansion of its operations. In our infrastructure partnership, strong double-digit growth in FFO enabled us to announce a 3.5% interim increase in its distribution to unitholders.
Over the last twelve months we announced or completed acquisitions that will deploy $16 billion of capital, including $3 billion in the current quarter. We also continued to raise capital by selling mature assets.
We continue to deploy capital across our real asset strategies, targetting investments which benefit from our competitive advantages. We invested or committed to invest $2 billion of fund capital during the quarter and have $18 billion of undrawn fund capital available. This is on top of our $6 billion of core liquidity.
In our property business, we acquired a portfolio of 5,600 student housing units in the UK, a residential rental communities business in the U.S., 51 self-storage facilities to add to our operations in the U.S., and a portfolio of suburban office properties. In early July, we also completed the privatization of a U.S. retail mall business. We continue to execute our strategy of selling mature assets and recycling the capital into higher yielding investments. Accordingly, our property partnerships commitment to these acquisitions was funded through proceeds received largely on the partial sale of office properties throughout the U.S. and Europe, which generated $1.5 billion of aggregate net proceeds since the beginning of the year.
Our renewable power business completed the first mandatory tender offer to acquire an additional interest in our 3,000 megawatt Colombian hydroelectric portfolio, increasing our interest in the company to 84%, and also completed the acquisition of a 296 megawatt hydroelectric portfolio in the northern U.S.
In our infrastructure group, we acquired a 57% interest in three toll roads in Peru totalling 115 km. We also successfully completed our tender offer to privatize the remaining interest in our Brazilian toll road business and are in advanced discussions to acquire a controlling stake in a regulated natural gas pipeline business in Brazil. Lastly, we recently obtained the necessary approvals to acquire an Australian logistics business.
In our private equity operations, we expanded our global facilities management operations with two tuck-in acquisitions and have built a record backlog in our constructions operations.
Basis of Presentation
This news release and accompanying financial statements are based on International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), unless otherwise noted and make reference to Funds From Operations (“FFO”).
We define FFO as net income attributable to shareholders prior to fair value changes, depreciation and amortization, and deferred income taxes, and include realized disposition gains that are not recorded in net income as determined under IFRS. FFO also includes the company’s share of equity accounted investments’ FFO on a fully diluted basis. FFO consists of the following components:
- FFO from Operating Activities represents the company’s share of revenues less direct costs and interest expenses; excludes realized carried interest and disposition gains, fair value changes, depreciation and amortization and deferred income taxes; and includes our proportionate share of FFO from operating activities recorded by equity accounted investments on a fully diluted basis. We present this measure as we believe it assists in describing our results and variances within FFO.
- Realized Carried Interest represents our contractual share of investment gains generated within a private fund after considering our clients minimum return requirements. Realized carried interest is determined on third party capital that is no longer subject to future investment performance.
- Realized Disposition Gains are included in FFO because we consider the purchase and sale of assets to be a normal part of the company’s business. Realized disposition gains include gains and losses recorded in net income and equity in the current period, and are adjusted to include fair value changes and revaluation surplus balances recorded in prior periods which were not included in prior period FFO.
We use FFO to assess our operating results and the value of Brookfield’s business and believe that many shareholders and analysts also find this measure of value to them.
We note that FFO, its components, and its per share equivalent are non-IFRS measures which do not have any standard meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies.
We provide additional information on the determination of FFO and reconciliation between FFO and net income attributable to Brookfield shareholders in our quarterly Supplemental Information and filings available at www.brookfield.com.
The Letter to Shareholders and the company’s Supplemental Information for the three months ended June 30, 2016 contain further information on the company’s strategy, operations and financial results. Shareholders are encouraged to read these documents, which are available on the company’s website.
The attached statements are based primarily on information that has been extracted from our interim financial statements for the three and six months ended June 30, 2016, which have been prepared using IFRS, as issued by the IASB. The amounts have not been audited by Brookfield’s external auditor.
Information on our dividends can be found on our website under Investors/Stock and Dividend Information.
Quarterly Earnings Call Details
Investors, analysts and other interested parties can access Brookfield Asset Management’s 2016 Second Quarter Results as well as the Shareholders’ Letter and Supplemental Information on Brookfield’s website under the Investors/Financial Reports section at www.brookfield.com.
The conference call can be accessed via webcast on August 12, 2016 at 11:00 a.m. Eastern Time at www.brookfield.com or via teleconference at 1-800-319-4610 toll free in North America. For overseas calls please dial 1-604-638-5340, at approximately 10:50 a.m. Eastern Time. A recording of the teleconference can be accessed at 1-800-319-6413 or 1-604-638-9010 (Password 00642#).
Brookfield Asset Management Inc. is a global alternative asset manager with approximately $250 billion in assets under management. The company has more than a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. Brookfield offers a range of public and private investment products and services, and is co-listed on the New York, Toronto and Euronext stock exchanges under the symbol BAM, BAM.A and BAMA, respectively.
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