Brookfield’s U.K. Assets Could See Boost From Brexit, Flatt Says

  • Canadian asset manager has $25 billion in British assets
  • Impact on office property business remains biggest uncertainty

Brookfield Asset Management Inc., Canada’s largest alternative-asset manager, may get a boost to some of its $25 billion of U.K. assets following the country’s June vote to leave the European Union.

While the fallout from the Brexit vote is still uncertain, Brookfield Chief Executive Officer Bruce Flatt said such situations “often present opportunities to earn greater returns than might otherwise be possible.”

“One must take a long-term view and be prepared to withstand bumps along the way,” he wrote in a letter to shareholders on Friday.

Brookfield has 12 businesses in the U.K. with about $25 billion in assets, or about 10 percent of the company’s $250 billion in assets worldwide. Certain businesses -- such as its office property business, which includes London’s Canary Wharf Group Plc -- face the most uncertainty, Flatt said.

“We rent space to major corporations, many of which are global. Uncertainty about the future of their business model in the U.K. is definitely not helpful to long term planning,” Flatt said.

“The good news is that we have time, as the vast majority of our properties are fully leased on very long leases with very high quality tenants.”

Currency Hedge

In the lead up to the vote on June 23, Brookfield increased its financial hedges on the U.K. currency to approximately 80 percent of the total value of its U.K. assets. As it finances those assets in British pounds, that accounted for roughly 50 percent of the hedge, Flatt said. It also sold 6 billion pounds ($7.8 billion) through financial contracts across its funds and listed partners, to protect the rest of its assets, he added.

The British currency has borne the brunt of the decision to leave the world’s largest trading bloc. The pound fell to a 30-year low in the wake of the vote, and is down 12 percent versus the dollar in 2016.

London will continue to be an important center for global commerce no matter what happens, Flatt said. The capital’s central location, having English as its primary language and a favorable tax regime for foreign companies and people are among its attractive attributes, he said.  

“This is why London was a global center before the vote, and why we believe it will continue to be a global center of commerce over the long term,” he said.

Other businesses in Brookfield’s U.K. portfolio, like Center Parcs U.K. Group Ltd., a short-stay family resort, may actually stand to benefit from the fallout of the vote because they already cater primarily to the domestic market, he said. With the currency down, it may start to attract more foreign visitors. For the same reason, its student housing portfolio may attract more foreign students, he added.

Income, funds

Brookfield said Friday its net income fell 51 percent in the second quarter to $584 million, or 15 cents a share, down from $1.2 billion, or 62 cent a share, for the same period last year. The company said the decline was largely due to a higher level of valuation gains within its property operations last year. 

Funds from operations were up nearly 23 percent to $637 million, or 62 cents a share, form $520 million, or 50 cents a share a year ago.

The U.K. is likely to either negotiate an acceptable deal with the EU, establish itself as a large, Singapore-esque trading partner sitting adjacent to the trading bloc -- or “everyone would get tired of years of negotiation and the Leave vote will fade away,” Flatt said.

“We believe any of these outcomes will work over the long term,” he said.

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