Brookfield Infrastructure Partners…Q4 2019, Letter to Shareholders

Brookfield Infrastructure Partners…Q4 2019, Letter to Shareholders

 

Perhaps the most commonly successful corporate trait is an emphasis on cost control but with exceptional firms like Brookfield it’s embedded deep in their corporate culture and becomes, over time part of who they are…Maximizing the utility of their debt profile resounds all through this letter.

Overview

As we look back on 2019, it was an exceptional year for Brookfield Infrastructure. Our financial results and operating performance were strong and we added high-quality assets to each of our operating segments. Funds from Operations (‘FFO’) totaled $1.38 billion or $3.40 per unit, an increase of 11% on a comparable basis and 9% on a total basis, over 2018. Operating conditions during the year were favorable in all regions, enabling us to execute our full cycle investment strategy of acquiring high-quality assets, creating value through active asset management, and recycling capital on an attractive basis. The capital markets were also strong, allowing us to raise equity to fund growth and to secure debt at historically low interest rates.

The following is a summary of our key accomplishments during the year:

 • $2.6 billion of new investments – significantly expanded our data infrastructure segment and added a largescale North American rail business to our portfolio. These new investments are expected to generate an average going-in FFO yield of 12% and provide attractive organic growth opportunities.

• Organic growth of 9% – achieved solid performance across all operating segments, with organic growth at the high end of our 6% to 9% long-term target range.

• $1.5 billion of capital recycling proceeds – the sale of six mature assets and several financings generating proceeds of approximately $1.5 billion and resulting in an average after-tax IRR and multiple of capital of 17% and 2.6 times, respectively.

• Announced Brookfield Infrastructure Corporation (BIPC) – establishing this publicly traded company will enable us to make the company more accessible to a broader base of investors. We are on track to launch BIPC at the end of March.

As a result of our strong financial and operating performance, robust liquidity position and positive outlook for the business, our Board of Directors approved an increase to our quarterly distribution of 7% to $0.5375 per unit in 2020. This is at the mid-point of our 5% to 9% target and represents the 11th consecutive year of distribution increases.

Brookfield Infrastructure’s units also performed exceptionally well this year, returning 52% and 44% on the NYSE and TSX, respectively. More relevant for long-term focused unit-holders, our 5-year and 10-year annualized returns of 18% and 22%, respectively, have considerably exceeded performance of the broader market, as well as all the relevant benchmarks of our peer group.

Results of Operations

Results for 2019 reflect solid organic growth and the execution of our asset rotation program. FFO of $1.38 billion benefited from organic growth of 9%, and contributions from new investments. Our per unit FFO was impacted by equity capital that was raised earlier this year and not yet fully invested and contributing to earnings. Excluding this impact, our FFO per unit would have increased by 11% compared to the prior year.

Our utilities segment contributed FFO of $577 million in 2019. This is consistent with the prior year, which included the contribution of approximately $25 million from the Chilean electricity transmission business sold in 2018. The segment generated organic growth of 8%, reflecting inflation-indexation and $300 million of capital commissioned into rate base. Results also benefited from the initial contribution of the North American regulated natural gas transmission business acquired in October. These contributions were partially offset by the weakening of foreign currencies, which lowered results by $14 million.

Our U.K. regulated distribution business delivered exceptional results in 2019, despite uncertainty surrounding Brexit. Results were driven by (i) the installation of utility connections at approximately 200,000 new homes, the highest level of activity during our 10-year ownership, and (ii) the sale of 300,000 new connections, a level surpassed only by the record sales achieved last year. These results bring the order book to an all-time high of 1.15 million connections. Our fiber offering performed well ahead of expectations, with a 36% increase in sales, in part due to the successful rollout of our new fiber offering recently created as a result of our partnership with Sky Fiber Broadband. These positive trends, combined with capital commissioned into rate base, contributed to a 10% increase in FFO relative to the prior year.

In October, we completed the acquisition of two operating natural gas transmission assets in North America and integration efforts are progressing well. These regulated assets operate under a take-or-pay arrangement with an investment grade counterparty that extends through 2041. In December, the capital structure of one of the pipelines was optimized through the refinancing of existing asset level debt and the issuance of an incremental $330 million facility with a 20-year final maturity. The implementation of these financing initiatives reduced the weighted average cost of debt by 30 basis points and extended the weighted average maturity profile by three years.

Our transport segment generated FFO of $530 million, compared to $518 million in the prior year. Organic growth of 5% was driven by GDP-linked volume increases and higher tariffs across most of our operations. The segment benefited from strong agricultural rail volumes in Australia and Brazil, and higher traffic and tariffs of 3% and 4%, respectively, across our global toll road portfolio. FFO from our port operations exceeded prior year levels by approximately 25%, excluding the contribution from our European port operation which was sold in mid-2019. This increase primarily reflects growth in container volumes at our U.K. operations and higher tariffs at our Australian ports.

In 2019, our U.K. port operation commissioned approximately £20 million of capital projects for warehouse development, automation initiatives and capacity expansion at our container terminal in response to growing customer needs. The business is on-track to increase EBITDA by over 50% in the next two to three years. This increase is the result of contributions from recently secured contracts, high probability growth from captive customers, and new revenues related to the commissioning of the world’s largest biomass power station.

FFO from our energy segment was $412 million, an increase of 53% over the prior year. This significant increase is primarily attributable to the $1.2 billion of capital deployed to acquire two North American businesses in late 2018 and a natural gas pipeline in India in the first quarter of 2019. Results also benefited from organic growth of 16%, which was attributable to higher volumes at our North American natural gas pipeline business and new customer connections at our distributed energy businesses in North America.

FFO from our data infrastructure segment totaled $136 million in 2019, an increase of over 75% relative to 2018. This step change in FFO was a result of contributions related to capital deployed at our French telecommunications business, as well as four new investments which enabled us to establish our global data infrastructure franchise. These acquisitions include three data storage operations in the U.S., Brazil and Australia, as well as an integrated data distribution business in New Zealand.

Our French telecommunication business has been supporting customers with several large-scale organic growth projects. Through its build-to-suit tower program, the business has strengthened relationships with major mobile network operators by assisting them in meeting their national coverage requirements. We commissioned 245 towers in 2019 and expect to have a total of approximately 1,000 build-to-suit towers operational in the first half of 2020. Additionally, our fiber-to-the-home deployment is ahead of underwriting, with almost 35% of the portfolio now built or under construction and the first network scheduled to be completed in the first quarter of 2020.

Balance Sheet & Funding Plan

A key element of our investment strategy is to finance our businesses with long-term debt at attractive fixed interest rates. Financing markets remain very strong and credit investors are seeking exposure to high-quality infrastructure assets like the ones we own. As a result, we continue to identify opportunities to optimize the capital structure at our operating businesses and secure attractive all-in rates. During the fourth quarter, we closed financings for new acquisitions, and opportunistically enhanced the debt profile of several existing businesses.

The most noteworthy acquisition financing this quarter was $2.6 billion of financing in the institutional term loan market to fund the acquisition of our North American rail business. This debt issuance was heavily oversubscribed, as credit investors seek high-quality names that are financed at prudent levels. We achieved enhanced pricing and terms that are consistent with high-quality investment grade issuers. We raised seven-year financing with attractive terms and a coupon of LIBOR + 200 basis points.

We capitalized on favorable markets to re-do the financings of several existing businesses in our portfolio. We raised approximately C$2 billion at our North American residential energy infrastructure operation to refinance existing higher cost debt in the business. We also recently refinanced the debt at our U.K. port operation to increase debt levels commensurate with growing EBITDA in the business. The transaction returned $110 million of capital to BIP and reduced the average annual financing cost by 3.5%.

Despite a year of outsized capital deployment, our balance sheet remains healthy with $3.0 billion of total liquidity, including $1.9 billion at the corporate level. We are also making good progress on the next phase of our capital recycling program, completing three asset sales announced last quarter. The sale of our Australian district energy and distribution business closed in November (BIP proceeds – $280 million). The divestment of our regulated distribution operation in Colombia closed in January (BIP proceeds – $100 million). Finally, we closed the sale of a further 33% interest in our Chilean toll road business in early February (BIP proceeds – $170 million).

Furthermore, during the fourth quarter, we signed a binding agreement to sell our North American electricity transmission operation for proceeds of approximately $60 million to BIP. We established this business over a decade ago as part of a government-led program to support renewable power generation in Texas. Since commissioning the transmission system in 2014, the company has been a best-in-class operator with an extensive track record of stable distributions. Given the de-risked, mature state of the business and substantial investor demand for North American regulated assets, we viewed this as an opportune time to sell. The transaction is expected to close in mid-2020 and generate an IRR and multiple of capital of approximately 23% and 3.5 times, respectively.

Spotlight on Value Creation

Our investment strategy consists of three core components: (i) we buy high-quality infrastructure assets at attractive entry points, (ii) we employ an active asset management approach and (iii) we monetize assets at their full value potential and start over again by investing into higher returning opportunities. Our deep operating expertise is central to the second component of our strategy. During each year of ownership, but particularly in the early years after we acquire a business, we identify and implement initiatives that increase the value of our businesses. Value is created through various means, including margin improvements, revenue growth, as well as capital structure optimization. Since the acquisition of Enercare in late 2018, we have been focused on several initiatives that highlight our active approach to asset management.

Enercare is a leading provider of essential residential energy infrastructure such as water heaters, furnaces, air conditioning (“HVAC”) systems and other in-home services. The business operates in a sector and region that we understand well and this business shares a number of similar features with our U.K. regulated distribution business. We were attracted to the high-quality annuity-like cashflows, established market position in Canada and significant growth potential in the U.S. Since acquisition, the business has been performing well and we have been focused on two key value creation levers: (i) capital structure optimization and (ii) sales growth in the U.S. market.

Since we acquired the business, it was our belief that Enercare’s capital structure was not optimal given the contracted cash flow profile of the business. Enercare has over one million long-term rental contracts with low rates of attrition, consistent real price growth, and high renewal rates. We examined available financing structures and ultimately concluded that Enercare’s Canadian rental business was uniquely positioned for a securitization financing. In December, we recapitalized the business through the issuance of approximately C$2 billion of primarily AAA-rated securitized debt. This is a marquee financing, as it is the first of its kind for this type of business in the Canadian market. The proceeds were used, in part, to redeem C$1.4 billion of public bonds, and we achieved an overall reduction in the cost of debt by 50 basis points while also substantially improving the credit rating of the assets (from BBB low to primarily AAA). The securitization facility also provides a mechanism to efficiently fund organic growth and future tuck-in acquisitions, thereby reducing the need to inject capital to fund growth. This financing was very accretive to our underwriting and improves the competitiveness of the business.

To facilitate rental growth in the U.S., we are focused on implementing a dealer adoption model that will complement the tuck-in acquisition and “sales to rental” conversion strategies currently underway. While rental conversion rates are well ahead of plan, reaching over 40% in the fourth quarter, we believe we can accelerate growth by offering a partnership model to HVAC dealers in markets where we do not have a presence. In addition, we have various initiatives underway with Brookfield-managed businesses to further enhance growth. Earlier this year, we launched a pilot program with a utility in Texas to offer residential infrastructure products to a large subset of the utility’s clients. The pilot has been well received and we are working on the long-term rollout of the program. Enercare also recently partnered with our Canadian district energy business to participate in a housing development project, representing an opportunity to offer services to a community-scale district energy system.

With the Canadian securitization complete and additional growth strategies underway (that will be financed in a much more accretive manner), we are well-positioned to expect equity returns in the high teens and potentially higher, exceeding our conservative base case underwriting for this business.

Update on Strategic Initiatives

The fourth quarter was very active from an investment perspective. In December, we expanded our data infrastructure segment committing nearly $1 billion (BIP’s share) in three separate transactions. This includes the previously disclosed Indian Telecom Towers business, as well as two new investments:

• U.S. Data Transmission and Distribution Business – In late December, we agreed to acquire 100% of Cincinnati Bell Inc. (“CBB”) in a take-private transaction investing $480 million (BIP’s share). CBB is a leading fiber-to-the-home business in the U.S., serving approximately 1.3 million residential and business customers in greater Cincinnati and Hawaii. This is an attractive business with substantial growth prospects. The transaction is subject to shareholder and regulatory approvals, which, if obtained, would likely result in a closing of this transaction in late 2020.

• U.K. Telecom Towers – In December, we completed the acquisition of a U.K. based independent wireless infrastructure company, investing $140 million (BIP’s share). It is comprised of over 2,000 fully contracted operating towers and distributed antenna systems. The business is well-positioned to capture expected network growth in the U.K. and has significant potential to leverage Brookfield’s real estate holdings to expand into other jurisdictions outside of the U.K.

At year end, we closed the previously announced acquisition of Genesee and Wyoming (BIP’s investment – $500 million) and the federally regulated assets of our Western Canadian natural gas gathering and processing operation (BIP’s investment – $250 million).

We have also made advancements in the formation of Brookfield Infrastructure Corporation (BIPC). Subject to receipt of regulatory approvals, BIP expects to complete the special distribution of class A shares of BIPC to BIP’s unit-holders in the first half of 2020.

BIPC will provide investors with an alternative way to gain exposure to our global infrastructure business. We believe a corporate entity will be attractive to many investors, particularly in the U.S. and Europe, who have historically been averse to our partnership structure. BIPC’s class A shares will be structured with the intention of being economically equivalent to BIP LP units, including by having the right to receive identical distributions; BIPC’s class A shares will also be exchangeable into LP units (or the cash equivalent, at BIPC’s sole discretion) at any time, as well as provide simplified tax reporting and other tax advantages.

Outlook

We have entered 2020 with both positive and negative developments in regard to global growth. The signing of Phase I of the trade deal between the U.S. and China removed some of the impediments to global growth. Unfortunately, the outbreak of the novel Coronavirus has significantly disrupted economic activity in China which will have global implications. However, if the financial effects from this outbreak are similar to those felt during the SARS outbreak in 2003, the slowdown should be short-lived. From a BIP perspective, we do not anticipate any material financial impact from the Coronavirus situation and remain optimistic regarding the business outlook for the regions where we operate. We do not have any operations in China and potential disruption to commodity supply chains should not have a significant impact on our overall activities.

Looking beyond current headlines, our business is well positioned for continued growth and our outlook remains positive. We anticipate delivering another year of organic growth at the high end of our 6 to 9% target range. We are focused on executing the next phase of our capital recycling program and it is on track to raise a further $1.5 billion. We plan to redeploy this capital into higher yielding new investments which should provide for another period of outsized FFO growth. While quarterly results this year may be impacted by the timing of new investments and sales, we anticipate that our run-rate exit FFO per unit in 2020 will be 12-15% higher than current levels.

The past year was one of the most active and dynamic in our company’s history. On behalf of the Board and management team of Brookfield Infrastructure, I would like to thank our unit-holders for their ongoing support. I look forward to updating you on our progress throughout the year ahead.

Sincerely,

Sam Pollock

Chief Executive Officer

February 10, 2020

Brookfield Business Partners…Q4, 2019…Letter to Shareholders

Brookfield Business Partners…Q4, 2019…Letter to Shareholders

There is a reason why 60 percent of my investment capital is tied up with the Brookfield family of companies...In a word....communication...When an investor is partnered up with management teams like the ones at Brookfield, there is a re-assuring sense of not only knowing what is going on, but being part of something worth while...

Brookfield Business Partners (“BBU”) had an active and successful 2019. Company EBITDA increased to over $1.2 billion and Company FFO increased to over $1.1 billion or $7.86/unit. Our strong financial performance was a result of contributions from recent acquisitions and improved performance across our businesses. Since the beginning of 2019 we invested over $2.5 billion to acquire new businesses and generated over $1 billion from the monetization of mature operations and distributions from our businesses. We ended the year with $2.3 billion of liquidity, positioning us well for continued growth in 2020.

Our overall objective to create long-term intrinsic value per unit remains unchanged, and the increase in BBU’s intrinsic value is evidenced, in part, by the growth of our Company FFO per unit that has more than tripled over the last two years. Most of our value creation has been achieved by acquiring high-quality businesses for value and improving their underlying operational performance and cash flows.

Embedded Value

We have meaningfully improved the overall quality of our business operations over the past few years by recycling proceeds from the sale of smaller businesses to fund the acquisition of larger businesses with increased scale, stronger barriers to entry and more resilient cash flows. Our largest businesses today are market leading providers of essential products and services. The resiliency of these operations should contribute to more stable performance at BBU across economic cycles.

In addition to resiliency, our portfolio of businesses has considerable embedded value growth which we will surface through initiatives currently underway. At Westinghouse, to date we have achieved over $150 million in annual EBITDA improvements and identified opportunities to achieve up to an additional $200 million in EBITDA. At Clarios we have an initial target of $300 million in EBITDA improvement, and are developing additional plans to enhance cash flows and create value.

In some instances, as in the case of Westinghouse, we have been able to implement improvements and generate significant value in a relatively short period of time. In other cases the repositioning of businesses takes more time, as in the cases of GrafTech and North American Palladium, the latter of which took several years to realize the value from our efforts. BRK Ambiental (“BRK”) is a similar example of a company with significant potential where we expect to realize meaningful value creation over time.

BRK Ambiental

At its core BRK is a simple business. It connects new customers to its water and sewage networks, provides them with quality service and receives a tariff for that service. At this stage in its evolution, BRK invests virtually all its cash flows to improve and expand its service networks and this expansion provides it with significant organic growth.

Since acquiring BRK almost three years ago, we have focused on working closely with management to better manage and execute BRK’s capital projects. During 2019, the company invested almost $250 million to expand its service networks, adding over 700 kilometers of pipe and 70,000 new connections which resulted in a 15% increase in EBITDA over 2018. Over the next five years, BRK expects to further drive cash flow growth by investing $250 million each year in its existing operations, all of which should be self-funded.

Our efforts, working with BRK’s management team, to improve business operations and create a performance-based culture, are having a positive impact. Our strong emphasis on safety has reduced workplace safety incidents by 70% and water quality programs have more rigor as a result of being centralized and standardized to ensure adherence with all required water quality standards.

In 2019 we closed the sale of BRK’s three industrial water treatment operations at an attractive price and generated $175 million of net proceeds that will be reinvested in the company’s municipal operations and used to repay corporate debt. In addition, last year BRK acquired the 10% interest of a minority partner in the Recife operation at an attractive price. Recife is one of our largest operations and has strong contractual growth over the next five years.

In addition to our operations-focused efforts, there have been two meaningful improvements to the business environment for BRK. First, Brazil’s new federal government has been successful in passing transformational reforms and is currently progressing new sanitation legislation through congress aimed at increasing private sector participation. Up to now only one concession of size has been auctioned in the last few years and if this legislation is passed we expect an increase in the number of new opportunities of scale in the next few years as municipalities look to accelerate the improvement in the level of sanitation services.

Second, inflation is under control and interest rates have dropped from a peak of over 14% in 2016 to 4.5% at the end of 2019. The expectation is for inflation to remain stable and for slow but steady economic growth. Brazilian investors that had grown accustomed to generating high returns from money market funds are now seeking new ways to earn more yield while maintaining inflation protection. In this environment our business, with its long-term contracts and inflation protected cash flows, is very attractive. While we still have lots of work to do to fully realize on our investment thesis, BRK has become a more robust company and remains well positioned to compound returns over the long-term.

BRK is just one example of the value creation potential within our business today. We are executing a similar hands-on approach to enhance value and improve cash flow generation across our operations. Not all of our businesses will compound growth at the same rate, but if we successfully execute on our plan, we believe our existing businesses should increase BBU’s intrinsic value per unit by approximately 30% over the next two years.

Strategic Initiatives

Genworth Canada

In December we closed our acquisition of a controlling 57% ownership interest in Genworth, the largest private sector residential mortgage insurer in Canada, which is an essential service provider to the Canadian banking industry. We funded the acquisition with $1.7 billion of equity, of which BBU’s share was $670 million, net of dividends received shortly after closing, for a 24% ownership in the company.

Genworth has significant scale and a long track record of generating strong cash flows across housing and business cycles. Our history of owning and operating regulated insurance companies together with our ability to provide the seller with speed and certainty of execution positioned us well to acquire this high quality, cash generative business for tangible book value. Over time we believe we can assist Genworth to enhance its business, optimize its capital structure and improve the returns earned on its investment portfolio.

The business also continues to generate significant cash flow, and since December Genworth has declared two special dividends and returned over $300 million to shareholders. The strong cash flow profile of the company should continue to support the return of capital to BBU and help fund our future growth, absent better opportunities within Genworth.

BrandSafway

Subsequent to the year end, together with institutional partners, we closed our acquisition of a 48% ownership interest in BrandSafway, a leading global infrastructure services company that provides access, specialized services, and forming and shoring solutions to the industrial, commercial and infrastructure end markets. BrandSafway’s scale and reputation as a leader in engineering innovation and productivity are competitive advantages in a fragmented industry. The recurring nature of BrandSafway’s services derived from the ongoing maintenance requirements of its customers results in resilient cash flows across economic cycles.

We funded the transaction with $1.3 billion of equity, of which we expect BBU’s share to be approximately $400 million for a 15% ownership interest in the business. We look forward to working with our partners and the management team to execute initiatives identified during our due diligence, build on BrandSafway’s history as a service provider to Brookfield’s broader operations and support the business’ growth plans.

Altera Infrastructure

In January, together with institutional partners, we completed the privatization of Teekay Offshore for an aggregate investment of $165 million, of which BBU funded approximately $75 million. We offered all minority unitholders the option to exchange one publicly traded unit of Teekay Offshore for one new economically equivalent unit in the private company. Unitholders who exercised this option and elected to continue to invest alongside us in the new private company hold an approximate 1% ownership interest as our partners. We are rebranding the company to Altera Infrastructure to reflect its identity as a global energy infrastructure services company committed to operational excellence and sustainable responsibility

IndoStar Capital Finance (“IndoStar”)

In January, together with institutional partners, we committed approximately $220 million to acquire a 40% interest in IndoStar, an Indian financing company primarily servicing the used commercial vehicle segment. BBU expects to fund approximately $75 million of the equity purchase price. India is an attractive market for us, and we have been selectively pursuing opportunities over the last several years that leverage Brookfield’s local presence and broader experience. The ongoing Indian credit crisis which has resulted from an increase in the number of nonperforming loans within state banks has depressed valuations across India’s financing sector today. We acquired this platform at approximately book value, which rarely occurs in a growth business and when it possesses a strong management team and a large retail lending infrastructure in underserved markets.

Overview of Operational Performance

Our Infrastructure Services segment generated Company EBITDA of $468 million for 2019. Performance at Westinghouse, our service provider to the global nuclear power industry, was strong for the year and the business is now achieving our targeted run-rate EBITDA of $600 million. Results in 2019 reflect the benefit of our ongoing profit enhancement initiatives, strong performance in the core fuel manufacturing and servicing operations and continued execution on new plant projects. Supported by strong cash flow generated by the business during the year, Westinghouse paid a $275 million dividend of which BBU’s share was $120 million. Since our acquisition just 18 months ago, we have received more than $250 million in dividends which represents over 60% of the capital BBU invested to acquire Westinghouse.

Altera Infrastructure’s contribution for the year increased primarily as a result of our increased ownership and also benefitted from increased shuttle tanker and towage utilization. The shuttle tanker renewal program remains on track. The company took delivery of one new shuttle tanker in January and the remaining six shuttle tankers under construction are expected to be delivered over the next two-year period.

Our Industrials segment generated Company EBITDA of $619 million in 2019. Results benefited from Clarios, our global manufacturer of automotive batteries, which we acquired in April. The business is performing well and carve-out activities are progressing on plan with a focus on setting up new corporate functions. Going forward we plan to optimize our manufacturing operations and supply chain, and are considering alternatives related to noncore activities and joint ventures.

In December we closed the acquisition of Robert Bosch GmbH’s 20% interest in our European battery manufacturing and sales joint venture. GrafTech, our global manufacturer of graphite electrodes, generated reduced EBITDA for BBU primarily due to our decreased ownership interest in the business. Overall the company’s earnings and cash flows continue to benefit from long-term supply contracts.

Our Business Services segment generated $221 million of Company EBITDA for 2019. At Healthscope, our Australian private hospital operator, we have progressed onboarding activities and now have an experienced senior management team in place to execute our overall business improvement plan. It is early days for our investment, but we are working to address many of the challenges we identified during our due diligence process to improve the company’s operational discipline, achieve labor savings and optimize the occupancy of our private hospital network. At our pathology services business, we recently were awarded a new contract to provide laboratory and pathology services for a local health district, reinforcing the business’ position as the market leader in New Zealand.

Financial performance at our construction services business, Multiplex, improved significantly in 2019 compared to the prior year. During the fourth quarter 2019 the company secured four new projects, most notably Westside Place Stage 2 in Melbourne valued at $450 million. We ended the year with a strong backlog of approximately $7 billion.

At our road fuel distribution and marketing business we are focused on enhancing margins. Results were positively impacted by stronger biodiesel blend margins in Europe, partially offset by softer margins in our Canadian retail operations.

Capital Position and Liquidity

We ended the year in a strong financial position with total liquidity of $2.3 billion including $274 million of cash and liquid securities and $2.1 billion of undrawn credit facilities. Given the substantial growth in our overall business, we increased our corporate debt facilities by approximately $750 million in 2019. We are also confident we can generate substantial liquidity from the monetization of our larger businesses, when it is appropriate to do so to fund our acquisitions. As an example, GrafTech to date has returned more than $1.3 billion to BBU.

Looking Forward

The acquisition environment today is competitive. Valuations in North America and other developed markets are near historical highs driven by robust capital markets, low interest rates, positive investor sentiment and substantial capital availability of buyout firms. That said, we believe we are well positioned to continue making value investments.

A key advantage of our business model is that we have a broad mandate and the flexibility to invest in many forms. We are seeing opportunities arise from mispriced public companies that become orphaned by the capital markets for one reason or another, causing them to trade below their intrinsic value. We also benefit from being viewed as a partner of choice for owners and existing management teams. We continue to review corporate carve-out opportunities, where some operations perform well below their potential. Finally, despite robust capital markets, from time to time stressed sellers simply need liquidity, often on an expedited basis, which creates an opportunity to buy for value.

Our outlook for BBU is positive and we are well prepared for 2020 to be another active year for our business. We have built a global investment team with significant scale and a local presence in key regions where we operate around the world. We have a strong financial position with multiple levers to generate liquidity and are confident in our ability to continue to grow our business.

On behalf of everyone at BBU, thank you for your ongoing interest and support.

Sincerely,

Cyrus Madon

Chief Executive Officer

February 2020

David Driscoll on BNN-Bloomberg’s Market Call – Feb 7, 2020

David Driscoll on BNN-Bloomberg’s Market Call – Feb 7, 2020

Although I see no serious market weakness in my indicators (outside of being overbought in the short-term), it's always a good idea to consider a countervailing point of view...It is supplied below by David Driscoll of  Liberty International...

MARKET OUTLOOK

The S&P ended up with a total return of 31 per cent in 2019. This was the second-best year for the market since 1997 and similar to market returns in 2013 (up 29 per cent). Unlike in 2013, however, profits in 2019 dropped; all the market upside came from multiple expansion.

In 1998, the U.S. Federal Reserve delivered 75 basis points of “insurance cuts” and the S&P 500 rallied by 27 per cent and valuations exploded like in 2019. Price multiples expanded from 18 times earnings to 23 times and accounted for nearly all the index return. Back then, Russia defaulted on its sovereign debt and the hedge fund Long-Term Capital Management collapsed because most of its investments were in Russian bonds.

Treasury yields fell from 5.8 to 4.7 per cent and, as a result, technology stocks rallied (up 77 per cent) and accounted for 35 per cent of the index return. As a result, the FOMO (fear of missing out) trades are back in vogue, as are momentum traders. This explains the rapid rise and fall of Tesla shares in just five weeks.

FOMO is also happening in the bond market, as junk bond yields (non-investment grade bonds rated “BB” or worse) hover under 3 per cent. To provide some comparison, they yielded 16 per cent during the Financial Crisis. Clearly, the risks on these securities far outweigh the rewards.

Investors would be well advised to hold some cash in reserve if this market runs out of energy and begins to topple. Our current holding of cash is 20 per cent times the equity weighting. For clients who are 100 per cent equities, they are 80 per cent invested and are holding 20 per cent cash. For clients with a 60/40 stock and fixed income asset mix, the holdings are 12 per cent cash, 48 per cent equities and 40 per cent fixed income.

Market Outlook for 2020

Market Outlook for 2020

The following is the opinion of Canadian technical analyst Leon Tuey...I’m not one who necessarily likes to get into predictions but there are always exceptions. Take the following comments with a grain of salt. They are the opinion of a very good, seasoned technical analyst who has a good track record and is not an ego-maniac like so many in the industry.

Technical analyst Leon Tuey identified the start of the current North American equity bull market many years ago. He continues to believe that there is much more upside left. He noted on Dec. 5 noted that in May, gold broke out of a six-year base and that it appears headed significantly higher. U.S. WTI oil has traded above US$60 and from a technical analysis perspective looks to be headed 55 per cent higher to US$93. The price of lumber bottomed in May 2019 and also appears to be headed higher. The forecast rise in all of these commodities would be very positive for the TSX in 2020.

Mark Deriet, quantitative and technical analyst at Cormark Securities, recently recommended continuing selling defense stocks in favour of cyclicals. His breadth measures bottomed in December 2018 and the last time it happened before that on February 2016, cyclicals outperformed defensives by 33 per cent. We expect this rotation will benefit the relative performance of TSX stocks In the coming year. After a potential intermediate correction in the first quarter, we expect North American equities will continue to move higher over the coming year.

Resources,
Robert Mcwhirter,

BNN-Bloomberg

Stephen Takacsy on BNN-Bloomberg’s Market Call – Dec 12, 2019

Stephen Takacsy on BNN-Bloomberg’s Market Call – Dec 12, 2019

Market Outlook

Equity markets have been strong in 2019 as fears of an impending recession faded and central banks cut interest rates, they’re now trending sideways as the U.S.-China trade war drags out and corporations start feeling the impact. Large caps have become very expensive as a result of passive ETF investing to the detriment of small- and mid-cap stocks, which have gotten even cheaper. Michael Burry of The Big Short fame recently called this phenomena a “bubble.” He’s investing heavily in small-cap value stocks around the world. We also see many good long-term opportunities in the neglected and mispriced Canadian small- and mid-cap sector at valuations well below private market values. IPOs such as Uber priced at ridiculously high valuations signaled a market top for money-losing tech stocks, which are now starting to deflate with WeWork’s failed IPO and valuation now a fraction of the last private equity round.

Top Picks

Mediagrif Interactive Technologies (MDF)

This Quebec-based technology company has two business segments: business-to-business e-commerce platforms which are growing, and business-to-consumer websites which are declining (Jobboom and Reseau Contact). The stock collapsed this year when the company made huge write-offs in its business-to-consumer segment, which is being sold, and also eliminated its dividend since it wants to deploy cash to grow its other segment. Its new CEO, Luc Filiatrault, just announced his first large acquisition. Filiatrault has a very successful track record of creating shareholder value in the tech space, having sold businesses to large corporations such as OpenText. The business-to-business platforms generate high margin recurring revenues, and the company is worth at least $9 to $10 per share today based on a modest two times revenues.  It’s a great time to buy the stock as it is under tax-loss selling pressure and most investors have not bothered to understand the company’s new strategy. We recently purchased a block at $6.

Logistic Corp (LGT.B)

Logistec is a leading Montreal-based marine cargo handler and environmental services company. It owns marine terminals in over 30 ports in Eastern Canada and the U.S. The company’s environmental division provides site remediation and trenchless water pipe repairs using their AquaPipe proprietary technology. Logistec is an infrastructure play on two fronts: port facilities, which are currently commanding high valuations by pension funds, and the repair of aging North American drinking water systems, which will benefit from increased government stimulus spending. The stock came down on integration issues with the recently acquired Fer-Pal, their main water pipe contractor in Ontario, but results are improving. Environmental backlog is strong while the marine business is booming. We expect earnings to be up this year to between $2.10 and $2.40 per share, so the pull-back from the stock’s high of $55 represents an excellent buying opportunity. They increase dividend yearly and regularly buy back stock. Strong management. No analyst coverage. Recently topped-up below $38. 

Badger Daylighting (BAD)

By far North America’s largest operator of hydrovac services (excavation by high water pressure trucks) used in the municipal, utilities and oil and gas sectors. Badger has been generating record results due to strong growth in the U.S. The company now generates 70 per cent of its business in the U.S., which is expected to double over the next three to five years since hydrovac services are still new in many parts of the country and infrastructure spending is growing. Shares have declined on weather-related issues and temporary enterprise reason planning expenses, and are now trading at a cheap valuation in relation to its growth rate. Badger has been aggressively buying back stock and insiders have been buying shares as well. We recently purchased more stock in the low $30s.

Stephen  Takacsy, CEO and chief investment officer, 
Lester Asset Management

James Telfser on BNN-Bloomberg’s Market Call – Dec 9, 2019

James Telfser on BNN-Bloomberg’s Market Call – Dec 9, 2019

Market Outlook

We believe the current investing environment is more balanced from a risk/return standpoint versus a couple months ago. While financial conditions, breadth and credit metrics continue to improve and many recent geopolitical risks have receded, we’re more cautious about valuations at current market levels. We continue to hold modest amounts of cash in our private client accounts to take advantage of any short-term volatility. However, given the bottoming of global economic data, the fact that the U.S. Federal Reserve has started expanding its balance sheet again and that there’s favourable comparative periods to next year, we’re more invested now than at any point during 2019.

Our private client accounts have been taking advantage of valuation discounts with small-cap non-resource equities in Canada and have increased their U.S. large-cap equity exposure through our large-cap dividend growth strategy. With interest rates looking like they will continue to stay lower for longer, we believe that owning large-cap diversified dividend growers in the U.S. (and Canada) over traditional fixed income assets is very attractive.

Top Picks

Akumin Inc (AKU)

Akumin has been executing well on their business plan of acquiring and operating diagnostic imaging clinics primarily focusing on MRI and CT Scans in the U.S. They’re now the number 2 player in North America behind RadNet, with 130 centres. Their business has several strong macroeconomic tailwinds, most notably demographics. Akumin should also benefit from operating leverage as they continue to scale. We expect strong volume growth as insurance companies encourage patients to utilize independent clinics versus the more expensive hospital centres. While growth has been robust (more than 50 per cent on revenue in the last 12 months), we’re even more impressed with the margin profile at more than 20 per cent on EBTIDA and their ability to integrate new acquisitions. Given their execution to date, we believe that the current multiple of 5.5 times EV/EBITDA is far too low and remains out of line with the peer group and other consolidators. We consider this level to be an excellent entry point as the next phase of their business plan unfolds, resulting in enhanced organic growth and free cash flow.

Firstservice Corp (FSV)

FirstService is the largest property management company in North America and is also a leading provider of property services. The management team has a long history of impressive capital allocation. We particularly like the fact that FirstService has several levers to pull for growth, both organically and through acquisitions. Given the stock price weakness following their Q3/19 results, we believe it is an attractive time to add FirstService to portfolios. The recent share price weakness was driven by difficult year-over-year comps from storm-related restoration work in the U.S. All other underlying business trends remain strong. While valuation is in line with historical levels, the recent correction has provided an opportunity. It is not unreasonable to expect 5 to 10 per cent organic growth and 5 to 10 per cent acquisition-oriented growth going forward, providing a very attractive return profile in a stable industry.

Heroux-Devtek (HRX)

Heroux-Devtek specializes in the design, development, manufacture, repair and overhaul of systems and components used in aerospace and industrial sectors. A large part of their business is focused on aircraft landing gear for both the commercial and military segments. The company is the no. 3 player globally by market share, but no. 1 by profitability. It is now an appropriate time to own the shares, as the company has recently completed a large capex program to support a major new contract and is integrating recent acquisitions (Beaver and CESA). We believe the company will now begin to realize the benefit of additional free cash flow, revenue and earnings. Expectations are currently very low and as a result we should see earnings beats and guidance raises, which have historically rewarded equity holders. The current valuation (8 times EV/EBTIDA) is at a discount to history and peers, a gap we expect it will close in the next few quarters.

James Telfser,

Aventine Asset Management

Brookfield Asset Management…Q3, 2019…Letter to Shareholders

Brookfield Asset Management…Q3, 2019…Letter to Shareholders

I own Brookfield’s parent company and all four of their limited partnerships. In total these five equities make up 60 percent of my overall investment portfolio. They have been fabulous investments. I have learned so much over the years reading Bruce Flatt’s quarterly letter to the shareholders. They are simply put, the gold standard in communicating information to investors and have spoiled me as I expect all companies I’m interested in to communicate in the same fashion. 

Overview

During the third quarter, markets were positive, liquidity was strong, and most of our businesses performed on plan. We moved forward on numerous strategic initiatives, advanced fundraising, closed our Oaktree transaction, and continued to invest capital.

The backdrop for investing capital into alternative assets continues to be very favorable, and the long-term trend appears to be even stronger. We continue to strengthen our position as a leading global alternative asset manager, enabling our investors to benefit from our scale, global reach and operating expertise.

Total assets under management now exceed $500 billion, and our total capital available for new investments increased to ±$65 billion. We are actively adding capital in virtually all areas across the business and while we are cautious about overall market conditions, we continue to find attractive opportunities to put capital to work.

Market Environment

The global business environment continues to be a tale of two cities. Business fundamentals in most markets are still good: slower than 2018, but still very constructive. On the other hand, politics dominate the headlines and continue to unsettle investors. Looking longer term, however, these conditions in themselves are creating opportunity for investors like us who have on-the-ground intelligence and can therefore differentiate between headline news, and news that actually affects business fundamentals.

Interest rates continued to settle back in at historic lows, with the potential for them to go even lower when a global slowdown occurs. With interest rates in Japan and Europe now negative for all maturities, we seem to be in a new phase with global rates in the range of –2% to +2% for the next five to seven years. This is particularly relevant for us and will positively impact on all asset values and businesses that generate cash.

Should this interest rate environment continue to prevail, and with institutional capital growing, we expect that capital will increasingly be allocated to alternatives. We think that institutional investors will continue a push towards 60% alternatives allocation in their portfolios—from a global estimate of 25% today.

Performance in the Quarter

Our asset management operations generated strong results as a result of both significant fundraising over the last twelve months and the increase in unit prices across our listed partnerships. Fee related earnings before performance fees increased 35% over the prior year quarter; and this excludes Oaktree’s fee related earnings as the acquisition closed at quarter end. In total, annualized fees and carried interest are now $5.4 billion—including annualized fee revenues of $2.8 billion, and annualized target carried interest of $2.6 billion.

Our income over the last twelve months included $595 million of realized carried interest before costs, including $59 million in the current quarter from capital returned within our first flagship real estate fund. We expect continued realizations within this fund in the fourth quarter of 2019 and in the first half of 2020, as we sell the remaining investments and return capital to investors. As a result of our normal course fundraising and the Oaktree acquisition, total assets under management are over $500 billion, and we continue to raise and deploy additional capital across our businesses.

We raised $2 billion of private fund capital in the quarter, bringing the total third-party capital raised over the last twelve months to just short of $30 billion. This included $19 billion of fee bearing capital across our latest round of flagship fundraising, $3 billion in our long-life fund strategies, and $6 billion in other funds and co-investments. We also added $102 billion of private fund fee bearing capital as a result of the closing of Oaktree. Together with Oaktree, we now have ±$275 billion of total fee bearing capital, and our private fund investor base includes over 1,800 investors.

Subsequent to quarter end, we completed the final close of our fifth private equity flagship fund, raising $9 billion. We expect our latest flagship infrastructure fund to hold its final close by the end of 2019 or early in 2020, bringing to completion the latest round of flagship fundraising. Together with co-investment capital raised to date, this round of flagship fundraising will total approximately $50 billion. More importantly, with the growth of our strategies and our expanded credit franchise, we expect the next round of fundraising for our flagship funds to be ±$100 billion. Our latest flagship real estate, infrastructure and private equity funds are approximately 45% invested in aggregate, and we therefore anticipate that we will be back in the markets with our flagships in 2021/2022.

Our investment partnerships also continue to grow. Our listed partnerships have seen combined growth in their funds from operations (“FFO”) over the last twelve months of more than 13%. This growth came from strong transportation volumes and expansion projects within our infrastructure business, strong wind pricing within our renewable business, margin improvement within a number of our private equity businesses, and leasing and new developments coming online within our real estate business. We have deployed $33 billion of capital across our funds and listed partnerships over the last twelve months and expect to see this contribute to further growth in our invested capital and FFO going forward.

Investor Day

During the quarter we hosted our annual Investor Day at Brookfield Place in Manhattan. The event was webcast live and the materials are posted on our website. A quick summary is as follows:

Brookfield Asset Management’s outlook is strong; global interest rates appear likely to stay low for a while, causing institutional investors to allocate larger amounts of their capital to alternatives. Alternatives are therefore no longer ‘alternative,’ but rather mainstream, and we think they could reach a percentage of 60% of institutional funds in the next 10 years. In addition, asset values in this environment are increasing, as recourse only borrowing is cheaper, leveraged equity returns are higher, and investors’ choices are fewer. Our next round of funds, including credit, should reach $100 billion, and all of this positions us well for the coming several years. As our cash generation continues to grow, we will need to decide if, when, and how to return capital to shareholders.

Brookfield Property Partners has transformed itself over the past five years since its spin-off from BAM. In addition, NAV and cash flows have grown at a compound ±10% annually. For various reasons, similar to most real estate securities, this is not reflected (yet) in the stock price, enabling a buyer today to make an investment at an estimated 35% discount to the appraised IFRS value of its underlying assets and a going-in yield of over 6%. This is almost unprecedented for the quality of portfolio that this entity owns. As a result, BPY has been repurchasing units with extra cash while adding value through completion of its significant development program. The opportunities to redevelop retail centers into office, residential, hotel, and other uses are expected to continue for many years, and we have some incredible office projects coming online in the next few quarters. This should enable cash flows to grow at 7% to 9%, and NAV to compound at ±15% for years. At today’s trading price, this is a great opportunity to own this business at a 35% margin of safety to IFRS value.

Brookfield Infrastructure Partners owns one of the highest quality, most diverse group of utility assets globally. In the 13 years since its spin-off, we have compounded the returns to investors at an annualized 18%. Going forward, with the critical mass to set us apart from most others, we believe we can continue to operate our assets well, dispose of mature ones, and acquire new ones opportunistically to drive 6% to 9% annual cash flow growth. In conjunction with a growing cash distribution, this should drive 12-15% in annualized returns to investors looking forward. These assets are the backbone of the global economy, many of which will continue to exist 100 years from now.

Brookfield Renewable Partners is one of the largest privately-owned renewable energy entities in the world and has produced a 16% annualized compound return over the past 20 years. We believe that the renewables industry is at an inflection point: wind and solar are now profitable without subsidies, and the push for decarbonization of the electricity grid is substantial. We believe we can continue to grow our cash flows at 5% to 9%—and with the cash distribution, this generates an all-in return to investors of ±15%. In addition, owning one of the largest renewable businesses ensures that we are on the right side of one of the dominant trends in the global economy today.

Brookfield Business Partners has now reached a critical mass and has acquired some exceptional businesses since its launch. An investor in this entity participates in all the private equity strategies in which we invest for our private clients. Recently we added Clarios, the largest battery provider to the automotive industry; Westinghouse, the leading infrastructure services provider to the nuclear industry; and Healthscope, a leader in private hospitals in Australia. We also sold a facilities management company and an industrial mining business for substantial gains. This entity is focused on achieving NAV growth of ±15% on an annualized basis over time, with substantial upside to the NAV if we successfully execute our plans for these exciting businesses.

Oaktree

We completed the acquisition of approximately 61% of Oaktree, with the balance continuing to be owned by the current and former management partners. This is a very exciting partnership for us, and Oaktree continues to deploy capital into all of their primarily credit strategies, as well as raise capital for successor funds or adjacent strategies. In addition to this, we are working to help them scale up some of their strategies and are considering where we can jointly provide products to our clients.

We are thrilled to also benefit from the world-class expertise of the Oaktree team. Oaktree is the premier global credit franchise, and we intend to utilize this expertise to make us better investors in everything we do. This should enhance our ability to engage with our clients in more ways and help them achieve their investment objectives in a more responsive and all-encompassing fashion. It is still early days, but we are pleased by our progress to date.

Longer term, Oaktree will also help us prepare for the inevitable downturn in the markets. We are positioning ourselves to put our resources behind the Oaktree franchise to allow it to excel even more when, inevitably, the market turns.

Data Infrastructure

Over the last few years, we have focused on growing our data infrastructure business. Data has been one of the fastest growing commodities in the world, and we expect this to continue for the foreseeable future. This is being driven by several factors, including greater smartphone penetration, increasing video consumption, and the advent of 5G networks. It is also driven by more connected devices everywhere, greater use of artificial intelligence, and other applications that are being developed every day.

We believe strongly that as people, places and objects become increasingly interconnected, the importance and value of data infrastructure assets will continue to grow. Given the ongoing evolution and innovation taking place in the telecom sector, we are looking to partner with telecom owners by investing in and leasing back their infrastructure. The other factor that is helpful to this trend is that the capital required to build out this data infrastructure is far greater than the capital the traditional telecom owners typically have access to within their own financial resources.

We own the leading independent telecom tower operator in France, with over 7,000 towers and active rooftop sites. More recently, we secured an exclusive agreement to invest into one of the largest privately-owned tower businesses in the world—130,000 telecom towers that support Reliance Jio in India. We have also been acquiring and building out fiber networks. Our U.K. regulated distribution business is deploying fiber-to-the-home networks in new housing developments as part of its multi-utility offering in response to customer demand for faster and more reliable broadband solutions. Meanwhile, our French telecommunications infrastructure business is rolling out four fiber networks to connect over 700,000 households in the next few years as part of the French government’s national broadband plan, and in New Zealand we are deploying 5G technology on our networks.

Lastly, we have been active in acquiring data centers, and now own businesses on three continents. We own a U.S. business that deals with large, blue-chip enterprise customers and the U.S. Federal Government, having acquired it as a carve-out from a major telecommunications company. In South America and Asia-Pacific, where cloud computing is at an earlier stage of adoption, we are building major cloud data centers that are leased to the global technology giants.

We think data infrastructure is an exciting area for us, and that it has many decades of growth ahead.

Global Urbanization

By 2050, another two billion people will move into cities globally. A great percentage of these are in emerging countries, but the past 20 years has seen increasing intensification in every large city in the world. This trend affects many businesses in our portfolio—including our office space, residential high-rise, and a number of our infrastructure businesses.

Office space globally has never been more fully occupied. Supply has been relatively constrained in most places, and due to residential demand in cities, many sites that would have been built as office were instead converted to residential use. More importantly, though, many companies that used to move to campuses in the suburbs are moving back into the city. This is for one simple reason: people, old and young, want to enjoy the vibrancy of a great city. As a small example, because of this phenomena, Sydney and Toronto have virtually zero percent commercial vacancy today. Very seldom does this happen in any major city.

Residential high-rise condominiums (owned by individuals) or apartments (multiple units owned by large investors and rented to individuals) have also increased in scale and value in all major cities. This started because young employees could live relatively inexpensively and close to their offices. Further, due to the success and the buildout of amenities (restaurants, bars, gyms) to service these young residents, older, wealthier people started moving into the city. Instead of downsizing to a small house and living in the suburbs, the empty nesters are now moving to the vibrancy of the cities, with all of their benefits—such as museums, galleries, sports arenas, theatres and concert halls. This trend is accelerating and making cities better, and land and apartments are increasingly valuable.

Within our infrastructure business, these factors are leading to increased opportunities for us. Our district cooling and heating business (an outsourced provider to a property) is a beneficiary of increased demand for and subsequent construction of properties. The combination of two mega-trends—environmental sustainability and urbanization—is at the heart of a number of our infrastructure businesses and should enable substantial growth for us in the coming years.

Operating Standards

Recently, the Business Roundtable came out with what they deem to be new standards on how business should conduct itself. We thought it worthwhile to share our views on this with you. Our basic starting point has always been that to sustain a business over the longer term, one must operate with high governance standards, respect the environment, and operate in a socially responsible manner.

As a result, we have always aimed to operate with strong governance standards in every country in which we operate. This is an expectation that, once understood across an organization, ensures employees “know how to act.” With respect to governance, as a fiduciary, we hold ourselves to very high standards. We have significant responsibilities to our stakeholders, including pensioners, countries, governments, investors, and employees. That does not mean we don’t face difficult decisions from time to time; it does, however, mean that we strive always to act with integrity and to be transparent about how we solve each situation.

We believe that being environmentally conscious is a requirement as a successful long-term investor, and our investments demonstrate this. Over the last few decades, we have assembled one of the largest privately-owned portfolio of renewable power facilities globally. We own ±$50 billion of hydro, wind and solar facilities—enough renewable power to serve the combined needs of Ireland and Denmark on an annual basis. In real estate, we have one of the largest portfolios of properties globally, a large percentage of which meet the highest standard of environmentally positive working environments. Our global tenants, many of whom are leading international companies, have been demanding this for decades, and we have worked with them for many years to ensure that we meet their advancing needs and expectations.

With respect to social responsibility, we believe in supporting the communities in which we operate. Our expertise in turnarounds means that we often save companies from liquidation—and in many cases, reinvigorate communities as a result. In infrastructure, for example, the companies we own deliver critical services to tens of millions of people around the world. One of these, BRK Ambiental, provides water distribution and wastewater treatment for 15 million people in Brazil, a country that still struggles to deliver these services. As another example, last year we purchased Westinghouse from bankruptcy and have now turned it into a healthy global leader in the servicing of the power industry. As we grow these businesses, we are providing critical services, as well as earning solid returns for our investors.

Closing

We remain committed to being a world-class alternative asset manager, and to investing capital for you and our investment partners in high-quality assets that earn solid cash returns on equity, while emphasizing downside protection for the capital employed. The primary objective of the company continues to be generating increased cash flows on a per share basis and, as a result, rising intrinsic value per share over the longer term. Please do not hesitate to contact any of us should you have suggestions, questions, comments, or ideas you wish to share with us.

Sincerely,

J. Bruce Flatt,

Chief Executive Officer,
November 14, 2019