Hello, and welcome to the Brookfield Corporation First Quarter 2023 Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference over to our first speaker, Ms. Angela Yulo, Vice President. Please go ahead.

Thank you, operator, and good morning. Welcome to Brookfield Corporation's First Quarter 2023 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; Nick Goodman, President of Brookfield Corporation; and Brian Kingston, Chief Executive Officer of our Real Estate business. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter. And finally, Brian will give an update on our real estate business. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we ask that you refrain from asking more than two questions. I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. And with that, I'll turn the call over to Bruce.

Thank you, Angela, and welcome to everyone on the call. Results for the quarter were very strong. Distributable earnings before realizations were $945 million in the quarter and $4.3 billion for the last 12 months, up 15% and 24%, respectively. On a comparable basis year-over-year when you take into account the distribution of 25% of the manager back in December. We continue to see strong performance in our asset management business and our insurance business continues to build scale with earnings benefiting from an attractive investment backdrop. Earnings from our operating businesses are also strong, underlining the quality of our assets and companies, growing nearly 25% on a comparable basis over the last 12 months across our renewal power and transition, infrastructure and private equity businesses. And in contrast to what you may be reading in the headlines, our real estate business continues to demonstrate its quality and resilience. Brian Kingston will spend more time on this in his remarks. Focusing first on the market environment. One of the fastest rate hiking cycles in history appears to have achieved its primary objective with inflation currently in the process of abating. While for much of the world, it remains above where many central banks want it. It is tracking lower, reducing the risk of rates going much higher than today's levels. Despite overall borrowing rates being low-ish in a historical context, rates rising so quickly has had some unintended consequences, as we are all seeing in the U.S. regional banking sector. While the immediate actions taken by governments and central banks appear to have isolated these issues and prevented a broader crisis of confidence. Recent events have led to a further tightening of financial conditions, making capital scarcer and more expensive for many. The strength of our franchise is and always…

Thank you, Bruce, and good morning, everyone. Financial results were strong in the first quarter, supported by the growth and resilience of our franchise, with each of our businesses performing well, generating stable and growing cash flows, in line with our objective of creating long-term wealth for all of our stakeholders. As Bruce mentioned, distributable earnings, or DE, before realizations were $945 million for the quarter and $4.3 billion over the last 12 months, up 15% and 24%, respectively, after adjusting for the special distribution of 25% of our asset management business that we completed in December last year. Total DE was $1.2 billion for the quarter and $5.2 billion over the last 12 months, respectively, with net income of $424 million and $2.7 billion, over those respective periods. Now turning to the operating results. Our asset management business continues to perform well, delivering another quarter of strong results. Distributions from our asset management business were $678 million in the quarter, up 15% year-over-year, benefiting from continued strong fundraising, which led to inflows of $19 billion year-to-date and almost $100 billion over the past 12 months. The outlook for 2023 and beyond remains very strong with each of our flagship funds, either currently in the market or expected to be so later this year and our complementary offerings, raising and deploying capital. Our insurance solutions business had a very strong quarter and contributed meaningfully to our earnings, generating distributable operating earnings of $145 million in the quarter and $520 million over the last 12 months, significantly higher than the comparative periods. The business continues to benefit from the redeployment of its liquid short duration investment portfolio into assets earning higher risk-adjusted returns. During the first quarter alone, our insurance business redeployed an additional nearly $2 billion across our portfolio, an…

Thank you, Nick, and good morning, everyone. Given the volatility in markets and headlines around real estate, we thought it was worthwhile to provide you with our latest perspectives on real estate markets and what we're seeing on the ground. Hopefully, this will clear up some misconceptions that you may be reading in the news. As a company, we've been successfully investing in real estate around the world for many, many decades. Our perspective comes from our team of almost 30,000 operating personnel in 30 countries. Operating over 7,000 properties in every sector of real estate. And this gives us unique insights in which most don't have access to. By leveraging our underground data collected from our global operations, we're able to make unbiased assessments of individual properties in the broader real estate markets. This data is increasingly showing us, that real estate fundamentals are a tale of two cities. Fundamentals for high-quality real estate remains strong with many parts of the real estate market doing very well, including hotels, industrial properties, high-quality retail, premier office and multifamily residential. For example, our U.S. multifamily portfolio recorded 22% growth in cash flows last year. Our retail properties recorded their highest tenant sales ever, up 17% over 2019 levels, and rents in our logistics portfolio were up 22% on average, over the past 12 months. And contrary to what you may have read, high-quality office properties also continue to perform very well. Same-store net operating income for our core office properties were up 5% last year. On the other hand, certain segments of the property market, particularly commodity office buildings in weaker locations or secondary markets have underperformed. This is not a recent phenomenon. Even prior to the onset of the COVID pandemic, we saw office tenants increasingly gravitate toward newer, more…

[Operator Instructions] Our first question comes from the line of Sohrab Movahedi with BMO Capital Markets.

Nick, thank you for the enhanced disclosure you've started to provide this quarter. I wanted to start off by just asking, maybe a bit more of a detailed question specific to the real estate portfolio. I think, the property value -- or property level loan to value, sorry, for the -- basically for the aggregated portfolio, I think you're reporting around 51%. But you have a footnote that says you're excluding about $7 billion or so of debt. What would the LTV be, if you included that $7 billion?

Obviously, it takes the LTV higher probably from 50%, you can do the math probably up to the high 50s. But the point of that, Sohrab, is we're showing you the property level debt, so you can understand what the leverage looks like in the portfolio, the value and the quality of financings that were done -- and then if you remember in [ BTY ], we have corporate debts. We allocate it across the portfolio based on the duration of the investment. But it's a modest amount of additional leverage that we add, complementary to returns and is consistent with prior keeping, which you have to carve it up for the separate reporting.

Okay. I appreciate that color. And then I guess -- my second question maybe for you and Bruce. I mean, ultimately, Brookfield Corporation, I think, is a capital allocator, and you talk about looking for opportunities to invest for long-term growth, but also, where there's this mispriced, I guess value. You've also talked about the disconnect between management's perception of intrinsic value and a market's valuation of your business. So I guess what I would like to know how much -- is how much wider would that discount have to be for you to view it as a meaningful capital deployment opportunity?

So I just -- if we take a step back and think about the business today, we're generating about $4 billion annualized cash flow at the corporation. And as we think about, how to allocate that cash flow, I guess what you're getting at -- is we have a couple of things in mind. One, we want to invest that capital to earn good returns and invest in areas that can enhance the overall broader franchise. And if you think, over the last couple of years, we've grown an insurance business, which is earning excellent returns on our capital is also facilitating the growth of our credit franchise in the business and benefiting the broader asset management and giving us tremendous flexibility in the organization. So we look at opportunities like that, and we see opportunity beyond just the return. Now obviously, where the share price is trading. It's a very attractive point today, and we're at the level, where we're already allocating a significant amount of capital over the last 12 months, getting closer to about 25% of free cash flow. So I'd say we're already allocating capital. And as the discount persists, we're obviously conscious that we have other areas in the portfolio where we could raise capital to think about doing something more significant. But it's very front of mind right now, and it's an important component of how we allocate on an ongoing basis.

But, it would have to be wider discounts than this before you would take action?

Potentially, not necessarily. It's already trading at a big discount. It just depends on what's in front of us, and the capital available to us at that time.

Our next question comes from the line of Geoffrey Kwan with RBC Capital Markets.

Maybe just a follow-up on the -- just clarify, Nick, your comments on the capital allocation and the buyback. So would that mean something along the lines of it, there's an asset in the portfolio that might be monetized that could be a trigger to get you to be more active on the buyback. Is that the right way to think about it?

Yes. Yes, that's right, Jeff.

Okay. And just my second question, I just want to clarify, the number that was being talked about in terms of that 5% same-store NOI growth in office, is that all office? Or was that just trophy, or was it trophy and Class A -- because I'm just trying to understand, if it was just in the trophy what would that same store NOI be across the entire portfolio? Or if it was for just the entire portfolio, then I'm assuming it would probably bit higher for just the trophy assets.

Yes, that 5%, Jeff, was for the core portfolio. So we had 5% growth in an LTM across course that would also include its core office, core retail at similar growth. The transitional and development business to NOI was largely flat year-over-year, which is also important because it also shows you that we have good quality asset portfolio in T&D. We just didn't have as much leasing activity because there was higher occupancy coming into that period.

Our next question comes from the line of Cherilyn Radbourne with TD Securities.

Just given the way the alternative manager space is consolidating, which you think would be accelerated by a more difficult fundraising environment. How likely, do you think it is that you'll be assisting the asset manager with a large transaction over the next 5 years to add to that franchise?

Cherilyn, listen, I think the asset manager, as you heard on the call, yesterday, the outlook for the organic growth of the manager is incredibly strong, still targeting to grow their business 15% to 20% a year. So I think, they have plenty of levers organically in that business to still deliver excellent returns. But your observation is right, there will be consolidation, maybe more constrained access to capital will be a catalyst for consolidation opportunities. I think, as we think about the manager, it would have to be something that's additive to the franchise. We have a global franchise market-leading in many areas. And so, it has to be something that is additive, like when we added Oaktree, where we had a gap for credit, we don't have many gaps today. But should something come along that's interesting, and it's a good cultural fit, then we could consider it, and the corporation would support the manager, if it needs that support.

Okay. And then, I'd actually -- what's been said about the enhanced disclosure on real estate and insurance this quarter. That's very much appreciated. On insurance specifically, most of the liabilities currently relates to annuities, which you do have a bit of P&C exposure. So I was hoping you could just remind us and elaborate on the types of liabilities that you're comfortable underwriting? And how comfortable you would be going out a little further on the risk spectrum?

Yes. Your observations are right. To date, it has been a largely life and annuity business, which is focusing on those stable, long-dated liabilities, with effectively no liquidity risk within them, that allows us to take those assets and invest in, would comfort over a long period of time and earn the kind of returns we're now earning. But as we broaden out the business and diversify it, we have through [indiscernible] small P&C exposure. And with Argo, we will be adding another $4 billion, still small in the context of the overall portfolio. But it will introduce some flexibility into our investment options with lot shorter dated assets that maybe lend themselves to investment outside of credit. It just gives us a bit more flexibility -- so I'd say, our risk tolerance is still low. We're still focused on buying businesses, even if it's in P&C, where we are comfortable with the risk. We're not taking undue insurance risk and introducing too much risk or volatility to the business. But we're enhancing our flexibility for investment. So we will look to stay low on the risk profile, but we will look to grow where we can enhance the franchise.

Our next question comes from the line of Mario Saric with Scotiabank.

So maybe a question for either Bruce or Brian. Bruce, you touched on the opportunity to acquire portfolios of real estate assets like good valuations, and you've also touched on kind of the bifurcation between premier quality and commodity. Given that bifurcation, is there a similar opportunity to dispose off assets that may be are about the assets -- but good assets, good returns? Or do you envision kind of real estate allocations rising on a net basis in the near term, given the [indiscernible] market discount?

Mario, it's Brian. Look, I think the way we think about the real estate exposure overall, obviously, as we're in, as I mentioned earlier, we're in 30 countries. And so -- not all of them are moving at exactly the same pace. A lot of our comments were sort of focused on what's happening here in the U.S., and I think that's the most topical right now. But we are seeing opportunities in some of our other markets around the world to continue to monetize assets at good value, right? And as you know, in our -- particularly in the opportunity business, the opportunity fund business, it's a lot about buying good assets substantially improving, making them great assets and then selling them at attractive returns. So for example, we're in the process of monetizing a large office portfolio in India, right now that will be a very attractive cap rates relative to what we can see. So I think, the answer is we think there's going to be markets where there's more volatility and capital will be more scarce, and that's a great market to be buying in and allocating capital to, and some of our markets, there will be opportunities to take money off the table as well.

Got it. And just as a follow-on, how should we think about the planned BN co-investment in [indiscernible] versus traditional Brookfield investments, as a percentage of the fund?

We've historically been between 25% and 1/3 of all of those funds, and I would expect that would continue.

Okay. And if I may, just one more clarification question for Nick. Just with respect to the realized carry this year, the target of $500 million, is that inclusive or exclusive of the $200 million generated this quarter?

Realizing this quarter, that would be an inclusive number of this year, so a bit more sales activity. And remember, that carry is not necessarily reflective of sales activity because it has to be for assets or properties in funds that are through their preferred return to actually realize the carry, but that's our net projection number for this year, inclusive of Q1.

Our next question comes from the line of Mike Brown with KBW.

Okay. Great. So understanding you've got 7,000 properties, but I just wanted to hear a little bit more, about on the real estate business here, and just hear some additional thoughts there. And is there any way to think about, what's the potential risk to some of the carrying values there? What could trigger any write-downs? And then, as you look across the portfolio, are there any upcoming debt maturities that could be a challenge in this market? And how could you navigate some of the challenges in the financing markets right now?

Yes. So I'll maybe do them in reverse order. On financing, as I mentioned in my comments, we -- all of our properties are financed on a nonrecourse asset-level basis. And we pay a lot of attention to maturity profiles and making sure that we've staggered those maturities. So, over the balance of this year, there really is nothing major that is coming due. It's a more challenging than normal environment. I think for groups like ourselves are large -- have relationships really across capital markets with banks, with insurance companies, with other institutional lenders, we have a lot of relationships that we can lean on to get those financings done, where others who are more concentrated in, let's just say, borrowing from regional banks or in particular markets, it may be a harder lift for them. So I think, it will be challenging for everyone, but we're not overly concerned over any maturities that we've got coming up this year, both as a result of the profile of them, but also just the depth of the relationships. And look, on valuations, again, as I mentioned, we are -- the biggest impact, obviously, from rising rates is the discount rates and cap rates that are being applied in valuations. We have been, like everyone else, adjusting those upwards. So our cap rates are higher today than our valuations higher today than they were a year ago. Discount rates are higher. But at the same time, we're seeing good growth in many of the real estate values and it somewhat offsets that. So look, I think the area where you always have risk on valuations is when you get into a no-growth environment with rates rising, and I don't think that's the situation we see ourselves in. As Nick mentioned, rates have risen pretty dramatically over the last year, but so have cash flows that have largely offset that. We think, we're nearing the end of rates going higher. They may not come lower for a while. But as long as they sit stable, the cash flow growth that we've had stays and continues to comp out. So I think a long-winded way of saying, on valuations, we don't think there's major, major write-downs across the real estate sector more broadly. I think within certain sectors, certain markets, if you see performance falling off. So, vacancy is going up or rents coming down, then those types of assets or those types of owners of assets may see a larger impact on valuations. But I think when you have portfolios like ours that are largely fully occupied but continue to grow their cash flows each year. We don't see a big move in valuations.

Okay. Great. And then, if you could change gears and maybe another follow-up on the buyback commentary that you made, Nick. So you kind of talked about there might be some opportunities to monetize things in the portfolio and perhaps that could help the share buyback. One thought is could be -- that I've gotten as the -- given the asset manager trades at a very attractive valuation, is -- obviously, Brookfield Corp. continues to trade at a discount. Would there be a scenario where you would consider floating more of the manager, and then redeploy those proceeds into share buybacks at the Brookfield Corp. level to help close the gap to intrinsic value?

Look, I think the first objective of separately listing the manager was to create another strong access to capital optionality for the franchise. It's trading well. It's got really good access to capital that creates options for the manager, as it looks to grow. So we bear that in mind, as we think about our interest. But yes, it's trading well. We have many other things in the organization are also trading well. As Brian mentioned, core real estate, trading at great values. Infrastructure renewable. We have other things in the organization trading well. So, as we assess the portfolio, we have many different levers we could pull to surface capital to think about allocating that into buybacks for BN.

Is there any contractual restriction there to pursuing that?

There's none.

Our next question comes from the line of Dean Wilkinson with CIBC.

Hello. Real estate question from a different angle. Never want to waste the crisis, maybe that's too strong of a term. Are there opportunities out there to maybe acquire debt given what we're seeing with some of the regional bank issues and sort of looking at debt portfolios and opportunities to come at it from another way?

The short answer, Dean, is yes. We do think that some of the things that are happening in the U.S. banking market generally are going to mean that many of these institutions will look to reduce their exposure. Obviously, one way for them to do that is wait for loans to mature, and then not renew them or have them refinanced the way, but another is for them to look to sell. And so, we do think there are a number of potentially force situations like with, say, a Signature Bank or some of the others that really got into trouble. But, I think more broadly across all of the banks, there may be opportunities to buy debt attractively from them. Now, that may result in situations where you end up owning the asset. But in a lot of cases, it may just be acquiring debt and earning a good risk-adjusted return. And what's really interesting about, it is these are performing loans. There's nothing wrong with the underlying collateral, and you're still collecting it. The distress is with the current owner of that loan, and that's what's creating the pricing opportunity.

Right. And would that be something that happened through Oaktree -- or would that go through sort of the BN balance sheet?

All of the above. I think obviously, Oaktree is very active in that market and has a number of funds with capital to deploy as does Brookfield.

Our next question comes from the line of Andrew Kuske with Credit Suisse.

Given the group's success and just fundraising for third-party capital. Historically, you've had quite an evolution. And I'm not trying to be patronizing about it -- just the fundraising cycles. But you've always offered these co-investments to your larger clients. Given the fundraising success that you've had, does that still wind up being a key feature and a key value proposition for some of your clients?

Absolutely, Andrew. Like I think, if you look at the recent transactions we've done of scale and quite a few of them, we have had significant co-invest. And, it is something that's very attractive to the clients. It's also something that's highly positive for our franchise because it allows us to pursue transactions of significant size with strong partners, who are investing long-dated capital. So; it's a benefit to our partners and the benefit to our franchise and our ability to continue to pursue scale growth.

Okay. I appreciate the color. And then, maybe just continuing on our longer-term views on things and with the enhanced disclosure and the segregation between core and the transitional development categories in the real estate side. Maybe direct it to Brian, given he's on the call. Just maybe it's a philosophical question. Given we saw the negative FFO and the transitional development, is that somewhat expected just in the context of most of those assets, you've invested for turnaround potential and value enhancement. And so generally speaking, on a quarter-to-quarter basis, you may have weaker performance, but you're really playing for the redevelopment and the amplification of returns on a longer-term basis.

Yes. I think that's fair. I think, within that transitional and development portfolio, we are focused on total return. And the components of that total return often times are more heavily weighted toward the back end, what the building is -- so if it's a development, it's obviously not earning any FFO right now. In some cases, we're buying buildings deliberately with vacancy and spending a year or two enhancing them, and leasing them back up. So again, they're not generating a lot of FFO there but the value creations on the back end versus the core portfolio, which is very highly occupied, and is really just about cash flow growth year-on-year.

Our next question comes from the line of Alexander Bernstein with JPMorgan.

Maybe to start at a higher level, we definitely noticed that you highlighted some of the larger transactions, you were able to complete alongside the asset manager recently tried in Origin Energy, et cetera. It definitely struck us as well that there seems to be a pretty unique competitive advantage you have, just having the various platforms, different access to capital, publicly traded securities in various places to do some of the larger deals, when others cannot. On a similar note, we recall that in some of your prior presentations, I think, it was last year, you talked about potentially looking at something transformative that would be, say, in the tens of billions of dollars. I think you mentioned, maybe green economy or something on the new infrastructure type point. We noticed that didn't seem to be a topic that got right up or noted more recently. Is that still something you look at? Or -- is it just that the opportunity set with some of the dislocations in your normal businesses, now are so attractive? Or am I trading into that?

It's Nick. Look, I think, a little bit of everything. But listen, when we think of a large transactions that offer good returns, as you know, we have many pools of capital that they can fit into. So, in many circumstances, in most circumstances, they would be transactions for the asset management business in one of the private funds, likely at scale with our partners who can comment alongside us and maybe BN comes into the transaction as a co-investor as well, and we consolidate many pools of capital to do things at scale, but predominantly through the asset management business. As we think about the allocation of capital at BN, if we are looking at that sort of new vertical or new growth, it would be something that is strategic and additive to the overall franchise most likely. And we weigh that up, as you said, against the opportunity to allocate capital back into the business and buy back stock. And obviously, at this point in time, the stock looks increasingly attractive. Although, we do also expect that in this environment, there could be other very attractive opportunities. But to your point, it will be where the right pool of capital is in the franchise.

Got it. And maybe to ask one that's a bit more in the [indiscernible]. We saw a recent filing from BPY, around acquiring some of the LP foreign investments from BSREP. Just to better understand kind of what's actually happening there and the right way for us to think about that and some of the accounting implications. Is that just really moving around assets from some of these different pools of capital? And are the implications, things like various periods and perhaps what's the motivation, behind a transaction like that?

It's Nick, I think of a transaction for BSREP, BPY buying assets from BSREP, I'm not sure what you're referring to as part of the spin-off of the asset manager, we did do some restructuring in the organization, but we didn't move around BSREP Holdings to BPY. But, I can follow up with you afterwards to work through that.

Thank you. I would now like to turn the call back over to Angela Yulo for closing remarks.

Thank you, everybody, for joining us today. And with that, we'll end the call.

This concludes today's conference call. Thank you for participating, and you may now disconnect.