Brookfield Corporation (BN) Earnings

Management highlights

### Strategic Activity & Capital Activity - Raised $98 billion of capital, deployed $100 billion into new opportunities, monetized $40 billion of assets year-to-date, and completed $130 billion of asset financing in the first half of the year. - Completed two major strategic acquisitions: the U.K.-based insurance firm Just Group, expanding total insurance assets to $190 billion, and Oaktree, creating one of the world's most comprehensive global credit businesses. - Shareholders approved the simplification of Brookfield's capital structure, combining insurance and investment capabilities into a stronger, simpler organization. - Returned $270 million of capital to shareholders via dividends and share repurchases in Q2; $580 million of shares repurchased year-to-date at an average price of $42 per share. ### Market Environment & Core Competitive Advantages - Short-term market noise (geopolitical conflict, high energy prices, interest rate uncertainty) does not impact long-term business success; current market conditions increase demand for the high-quality, low-obsolescence real assets that Brookfield specializes in owning. - Long-term secular themes (digitalization/AI, decarbonization/energy transition, deglobalization/supply chain reorganization) are accelerating, creating larger, more capital-intensive opportunities than ever before. - Brookfield's competitive advantages include: deep, long-standing industry relationships that generate off-market, bilateral opportunities; global on-the-ground presence to identify high-potential opportunities and emerging risks; cross-disciplinary operating expertise to deliver integrated large-scale solutions; and a diversified capital base drawing on public markets, institutional capital, private wealth, long-duration insurance, and internal balance sheet capital to deploy through market cycles. ### Key High-Growth Opportunities - AI infrastructure: The rapid growth of AI has created a large supply-demand gap for power and compute capacity, representing one of the most compelling investment opportunities in decades. Brookfield is developing a $100 billion advanced AI factory in Kentucky in partnership with the U.S. Department of Energy, leveraging existing federal land that requires minimal additional approvals. - Nuclear energy: Westinghouse, Brookfield's nuclear business, is uniquely positioned to benefit from growing demand for energy security and baseload zero-carbon power. The U.S. Department of Energy recently committed $17.5 billion in financing to accelerate nuclear reactor production, establishing a repeatable large-scale construction model. Westinghouse currently has 14 reactors under construction, 40 more in the pipeline, and 100 additional projected opportunities across a projected $6 trillion global build-out. - Retirement/Wealth Solutions: Aging populations and widening retirement savings shortfalls are driving rapid growth in the retirement market. Recent U.S. regulatory changes are opening access to private market assets for retirement savers, creating a new long-duration capital source for Brookfield. Brookfield targets growing total insurance assets to over $300 billion by the end of the decade. ### Operational Performance Highlights - Real estate: High-quality core/supercore portfolios maintain over 95% occupancy; new signed office leases achieved 19% higher average net rents than expiring leases, with U.S. leases up 25% and Canadian leases up more than 70% over expiring levels, demonstrating strong demand for premium assets in supply-constrained markets. - Just Group integration (post-acquisition): Exited unprofitable early-stage direct-to-consumer initiatives, simplified the organizational structure, and is targeting cost base reductions to improve competitiveness. Brookfield is integrating its in-house asset origination capabilities to Just's investment portfolio to drive higher investment yields and returns, with an initial 12% return on equity that is expected to grow. - P&C insurance: Derisked the liability profile by exiting volatile lines and reducing catastrophe exposure, resulting in stable underwriting income and a 99% combined ratio for Q2.

Guidance

- Brookfield is on track to deliver another record annual fundraising year, with Q2 fundraising reaching a record $77 billion, and flagship private equity and infrastructure funds on track to become the largest in their respective series. - Wealth Solutions targets growing total insurance assets to over $300 billion by the end of the decade, with organic growth in U.S. annuity sales expected to add $10 billion to $12 billion in annual sales via new bank/broker-dealer distribution channels over the next few years. - Just Group (U.K.) is expected to grow its return on equity from the current 12% through cost reductions and asset portfolio reallocation, with a clear pathway to reaching 200 basis point total spreads over the medium term. - Carried interest realizations are expected to see an inflection point over the next 12-24 months, driven by monetizations in earlier vintage infrastructure funds and Oaktree funds that have cleared preferred return hurdles. - Management maintained guidance for long-term compounding of capital at 15%+ annual returns for the Wealth Solutions segment, with disciplined underwriting to maintain target returns across all new business.

Segment performance

1. Asset Management: Generated $740 million in distributable earnings ($0.31 per share) for the quarter, and $2.9 billion ($1.24 per share) over the last 12 months. Fee-bearing capital increased 19% year-over-year to $672 billion, driving a 20% increase in fee-related earnings compared to the prior year quarter. It contributed ~52.9% of total Q2 distributable earnings before realizations. 2. Wealth Solutions: Generated $480 million in distributable earnings ($0.20 per share) for the quarter, up 23% year-over-year, and $1.8 billion ($0.75 per share) over the last 12 months. Total insurance assets grew to over $190 billion following the Just Group acquisition. Contributed ~34.3% of total Q2 distributable earnings before realizations. 3. Operating Businesses: Generated $361 million in distributable earnings ($0.15 per share) for the quarter, and $1.5 billion ($0.65 per share) over the last 12 months. Contributed ~25.8% of total Q2 distributable earnings before realizations. Overall: Distributable earnings before realizations totaled $1.4 billion ($0.61 per share) for Q2, up 15% year-over-year, and $5.7 billion ($2.39 per share) over the last 12 months. Total distributable earnings including realizations was $1.5 billion ($0.66 per share) for Q2.

Risks & headwinds

- Short-term market uncertainty from geopolitical conflict, elevated energy prices, and interest rate volatility creates near-term noise that can impact short-term market valuations and transaction pricing. - The AI infrastructure investment space is attracting large amounts of new capital, which can lead to stretched pricing for lower-quality opportunities; management emphasized the need for discipline to avoid overpaying or taking undue risk. - The U.K. pension risk transfer market is currently experiencing aggressive pricing that drives returns below Brookfield's target thresholds, requiring patience to wait for more attractive pricing before scaling new business. - The Just Group inherited a cost structure 2x to 3x higher than competitors, which reduces competitiveness and requires significant restructuring to improve profitability. - Softening pricing in the global P&C insurance market may lead to some players getting caught out by underwriting losses over the next 36 months, creating acquisition opportunities but also presenting near-term sector-wide risk. - Circularity concerns around AI industry supply chains and deal structures require enhanced risk controls and focus on high-quality, creditworthy counterparties with contracted cash flows to mitigate risk.

Analyst Q&A

• Q: Where are the most attractive risk-adjusted returns in AI infrastructure for Brookfield, and how will the firm capitalize on the opportunity via capital recycling?

  A: Management noted the AI investment cycle is still in very early stages, with opportunities spanning data center development, power generation (renewable and nuclear), and broader infrastructure across multiple Brookfield segments. The firm is focusing exclusively on high-quality opportunities with top counterparties to earn attractive risk-adjusted returns. Once developed assets stabilize, Brookfield will recycle them into long-duration lower-cost institutional capital pools, freeing up capital for further development.

• Q: How will Brookfield grow Just Group's earnings from the current 12% ROE over the near and medium term?

  A: Near-term growth will come primarily from cost cutting: unprofitable early-stage non-core initiatives have already been shut down, and reducing Just's bloated cost structure (currently 2x-3x higher than competitors) is the top priority. Medium-term growth will come from integrating Brookfield's in-house asset origination capabilities to add high-quality long-duration real assets to Just's investment portfolio, boosting investment yields to match the firm's U.S. Wealth Solutions business.

• Q: How is Brookfield addressing market concerns about circularity risk in AI industry deals, and how is the firm managing this risk?

  A: Management stated most circularity concerns are overstated, and Brookfield mitigates risk by focusing on projects with clear contracted cash flows from the highest-quality off-takers, hyperscalers, and chip providers. Brookfield maintains a broadly diversified business portfolio across real estate, energy, and infrastructure, so AI growth does not create unbalanced concentration risk. The firm adheres to its historic risk management framework, only taking on moderate risk for attractive returns at scale.

• Q: How much upside exists for U.S. annuity sales from the expansion into bank and broker-dealer distribution channels, and what is the current progress?

  A: Currently, Brookfield generates nearly all of its U.S. retail annuity sales through independent marketing organizations (IMOs), while bank/broker-dealer channels account for 60% of total U.S. annuity industry sales. After building out these new channels over the past 12 months, Q2 sales from new bank channels reached $200 million. Management expects annual sales will increase by an incremental $10 billion to $12 billion from bank channels once the new distribution relationships are fully scaled over the next few years.