Subject: Re: tough day
I'd avoid using revenue changes from year to year as a proxy for intrinsic value. For any asset manager, especially Brookfield which include very lumpy gains from asset sales, the changes in reported revenue are a poor proxy for changes in intrinsic value. Better to use recurring distributable earnings.

Distributable Earnings (DE) before Realizations (per share): +18%. This is a better (probably the best single) year on year measure of the recurring, underlying cash flow generation from its Asset Management and Operating Businesses.

Fee-Related Earnings (Asset Management) was +17%. This segment's consistent, high-margin fee revenue is another far more useful indicator of change in intrinsic value for BN overall.

Regarding the asset sales and monetizations, whilst they are really lumpy, they have been pretty consistently successfully selling what they call "mature assets" at or above carrying value, which validates their book valuations and allows them to recycle capital into higher-growth opportunities. This includes their real estate business. When people panic about their real estate business being marked too high, you should always go back to this point - their sales are consistently at or above the carrying value. Of course they sell mature assets and don't sell assets under development, that is obvious if you manage real estate projects yourself. Real estate assets can be terrible and absolutely superb depending on the location - the need for physical property will never go away, and the pandemic lockdowns were a shrewd time to expand that business whilst frightened sellers were outnumbering the buyers.

Reported Revenue quarterly was -8.3% year on year. This is neutral to irrelevent. This figure is volatile because of the timing of asset sales and cyclical operating businesses, and does not reflect change in value of the fee-based business or overall cash generation (DE).

Regarding paying down debt, the debt is not an expense, so the paying of debt is not deducted from the reported earnings. Paying down debt is a capital allocation decision which could alternatively be buying back shares, paying a dividend, buying or constructing more assets. If they want to reduce debt, good on them.. Their judgement about how to deploy capital each year is definitely exceedingly better than mine, in fact I view Brookfield Corporation as a capital allocator more than anything else though they are never framed in that way.

Regarding the property having low earnings for the real estate business (as reported net income) the reason is primarily due to two non-cash accounting items, depreciation and fair value adjustments. In the 2023-2025 period the cap rates rose very slightly (actually, they widened with the average rising slightly) decreases the fair value (which produce non-cash losses), however this is a non-cash calculation that has no real importance. If we asked BN to increase its cap rates by 2% today, it would report *massive losses* from the abstract write-downs, but it would be entirely abstract and have no effect on the business, whilst the media commentators would go into a frenzy and the latest Paper Properties of Brookfield articles would hit the printing press.

There are reports that come out almost every year about Brookfield's property business not producing earnings and they are completely ridiculous. Part of the drama is also that Brookfield regularly defaults on individual assets each time they decide that keeping the asset is of net negative value for the business. This concept - freely jumping out of individual projects very selectively - is part of their business plan. It is not systemically consequential, by design, as they consistently use non-recourse debt.

The managers at Brookfield must roll their eyes a lot at the commentary, but I'm probably in the minority that I rather like the investing community often misunderstanding Brookfield, as the market dislocations occasionally give them not only buying opportunities but also and selling opportunities (such as BN selling BAM - not a typical sale to the public market but rather a large-scale internal restructuring that involved transferring shares - nearly a year ago whilst BAM on a relative basis was trading optimistically).

- Manlobbi