Profit at Brookfield Asset Management Inc. grew nearly fourfold in the latest quarter as the investment company benefited from low interest rates and booked a $1-billion (U.S.) accounting gain on the value of its office buildings.
The company formerly known as Brascan reported Wednesday it earned $1.43-billion in the quarter ended June 30. That compared with earnings of $373-million a year earlier.
Profits attributed to common shareholders increased nearly tenfold to $838-million, or $1.26 per share, from $89-million, or 12 cents per share, in the year-earlier period.
Revenue rose to $4.14-billion from $3.38-billion as the company enlarged its real estate, power generation and other businesses.
Cash flow from operations attributable to shareholders – a key measure Brookfield uses to evaluate its performance – rose to $342-million from $327-million.
The company benefited from a $1.1-billion increase in the market value of its assets, primarily commercial real estate. It booked a $1.03-billion accounting gain in the second quarter, compared with a $1-million loss last year, to reflect the higher value of its U.S. commercial and office properties.
"Performance is strong at virtually all of our operations, and we are taking advantage of numerous opportunities to increase our cash flow by investing in both organic expansion initiatives and disciplined acquisitions," chief executive officer Bruce Flatt said in Brookfield's earnings statement.
With bond interest rates low, many institutional investors are seeking real estate and other hard assets to invest in for higher returns. That has pushed up demand – and prices – of buildings and other property.
"The type of assets that we have, and in fact some of the non-core stuff that we've been selling, will continue to increase in value based on the interest rate environment that we're in," Mr. Flatt told a conference call with analysts. Meanwhile, revenue from asset management grew to $95-million from $78-million a year ago.
Brookfield said its renewable power generation operations saw revenue grow to $220-million from $164-million. Revenue from commercial properties rose to $383-million from $300-million, and infrastructure saw substantial revenue growth to $200-million from $58-million a year ago.
The strong quarter has left the asset manager with cash to spend and it said it is hunting out potential acquisition and share buy-back opportunities.
"We continue to see a vast number of opportunities to add assets to our principal operating businesses," Mr. Flatt said.
He expects many of those opportunities to come out of distressed companies in Europe, as banks there face the same situation those in the U.S. saw during the 2008-09 financial crisis, which is leaving European corporations stressed for credit.
Brookfield said credit is available to well-capitalized companies at reasonable rates, and it expects to benefit from a lack of credit available to marginal players, as there will be fewer competitive buyers.
The firm will weigh whether it is best to reinvest its cash flows in a share repurchase, as recent market turmoil has eaten into the company's share price and it could buy back its shares at a discount.
A share buy-back would mean the public would own fewer shares, which would improve its earnings per share ratio even if profits remain the same; this would help boost the value of its stock.
The company is also seeking $4-billion in third party fundraising for seven funds and thinks that the current low interest rate environment on bonds will drive more large institutional investors into higher return investments such as private equity firms like Brookfield.
"I think [low interest rates are] a positive thing for allocating more money to alternatives, and that's really the business that we're in," Mr. Flatt said.
Brookfield is also taking advantage of low interest rates to accelerate its refinancing program.
Brookfield Asset Management is active in real-estate, power-generation, and resources. It owns a range of assets from rail lines in Australia to office towers in several countries, to hydroelectric power in Canada and the United States.
During the quarter, Brookfield acquired $2-billion in assets, allowing it to invest $1.6-billion of capital, expand its asset base and cash flows across operating segments.
It bought a 30 megawatt hydroelectric plant in Brazil , three office properties in New York, Melbourne and Perth and sold an office property in Houston.
It also completed a major long-term contract that will allow it to begin a $500-million Australian ($512.7-million U.S.) expansion in its Western Australian rail lines and is also pursuing an expansion of its coal terminal in eastern Australia.