Brookfield Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 8, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to the Brookfield Corporation 4th Quarter 2023 Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference call over to our first speaker, Ms. Angela Yulo, Vice President.

Speaker 1

Thank you, operator, and good morning. Welcome to Brookfield Corporation's 4th quarter and full year 2023 conference call. On the call today are Bruce Flat, our Chief Executive Officer and Nick Goodman, President of Brookfield Corporation. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter the year. After our formal comments, we'll turn the call over to the operator and take analyst questions.

Speaker 1

In order to accommodate all those who want to take We ask that you refrain from asking more than 2 questions. I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward looking statements, including forward looking statements within the meaning of applicable Canadian and U. S. Securities laws. These statements reflect predictions of future events and trends and do not relate to historic events.

Speaker 1

They are subject to known and unknown risks and future events and results may differ materially from such statements. For further information on these risks and the potential impacts on our company, please see our filings with the securities regulators in Canada and the U. S. And the information available on our website. And with that, I'll turn the call over to Bruce.

Speaker 2

Thank you, Angela, and welcome, everyone, on the call. We had an excellent year in 2023 with each of our businesses delivering strong financial results. In total, distributable earnings before realizations were $4,200,000,000 This was a 12% increase per share year over year on a comparable basis and we delivered net income of 5,100,000,000 Our manager had one of its strongest fundraising years ever. Our insurance solutions business had transformational year with assets set to shortly be over $100,000,000,000 with annualized earnings over 1,300,000,000 And our operating businesses continue to demonstrate their resilience through a period of economic uncertainty. Turning briefly to the market.

Speaker 2

Capital was less available in 2023 for many. This resulted in significantly reduced transaction activity more broadly. Despite that backdrop, we differentiated our franchise by maintaining strong access to capital. We financed approximately $100,000,000,000 of assets and businesses during the year. This combined with our strong liquidity position enabled us to also remain very active on the investment front.

Speaker 2

We invested over $55,000,000,000 and we expect to reap the benefits of many of these contrary investments for years to come. Today, the macro environment feels better. Short term interest rates have crested globally and are expected to go down. As capital markets regain strength, we anticipate transaction activity to pick up. As a result, it looks like 2024 2025 will be good years for our business.

Speaker 2

We recognize that geopolitics can lead to heightened volatility, But this does seem to have become the new normal. The most important thing for shareholders to remember is that owning businesses and assets that form the backbone of the global economy, combined with maintaining access to multiple sources of capital is always a safe place to be. This has proven over many decades and in our view this has not changed. Looking back over the last 20 years, the value of our business has grown at a compound annualized return of 23%. To illustrate, a holder of 1 share started with a split adjusted value of just over $2.50 At that time and over the 20 years, assuming dividend reinvestment, the total value is today $145 or 57 times the return on capital.

Speaker 2

We think though the best is yet to come. The discount of our Trading price to our value also presents an excellent opportunity for us to continue to add value to the company through share buybacks. Accordingly, we plan to accelerate our share repurchases this year and buy an additional $1,000,000,000 of shares in the open market over the next number of months if prices stay reasonable. Going forward, our investment philosophy though remains the same. To build and operate the backbone of the global economy, our experience has demonstrated it is possible to earn very good returns with moderate risk.

Speaker 2

And doing so for decades has proven that the results can compound a very meaningful wealth. We have stuck with this strategy for a long time, but have also continuously evolved in line with how the world has changed over that time. Of more than the $900,000,000,000 of assets that we manage, nearly half are in sectors that did not exist as an investment asset class 20 years ago. The contractual and inflation protected nature of these assets is very similar, but the types of assets we dedicate our capital to today look different from those historically as the incremental capital needed to build out capacity continuously evolve. With the global uptick in data demand showing no signs of slowing down, We continue to expand our investments, for example, in this sector and we are very much aligned with the largest and fastest growing companies in the world.

Speaker 2

As an example, we have significantly increased our data center operations and we now own and operate 1 of the largest global hyperscale data center platforms and this only looks to grow. In addition, the accelerating global trend of digitalization was already driving a step change in data center and electricity needs, but the power intensive nature of AI is amplifying energy demand from renewable power sources. By building a leading global development platform for data centers, renewable power and combined with our large global real estate business, We are positioned to meet the exponentially growing needs for the largest and fastest growing companies in the world. I would note the future will be centered around 3 trends: decarbonization, deglobalization and digitalization, as well as tilted towards the still emerging markets, which have voracious capital needs. As we constantly evolve our focus, we believe the backbone of the global economy will continue to be an excellent place to invest for a very long time.

Speaker 2

It always just looks a little different. As we look ahead, we continue to focus on strengthening our franchise, expanding our access to capital, owning and growing high quality assets and businesses that form the backbone of the global economy and aligning ourselves with global trends with the largest and fastest growing companies. All these position us well to continue to significantly increase the intrinsic value of our business over the long term. As always, Thank you for your continued support and interest in Brookfield. And with that, Nick will take you through our results.

Speaker 3

Thank you, Bruce, and good morning, everyone. We delivered very strong financial results in 2023. Distributable earnings or DE before realizations were $4,200,000,000 or $2.66 per share for the year. This represents an increase of 12% per share over the prior year after adjusting for the distribution of 25% of our manager in December 2022. Total DE was $4,800,000,000 were $3.03 per share with net income of $5,100,000,000 for the year.

Speaker 3

The earnings were supported by strong fundraising in our Asset Management business, growth in our Insurance Solutions business and the resilient performance of our operating businesses. Taking each of these businesses in turn, our asset management business generated distributable earnings of $2,600,000,000 or $1.61 per share for the year. Despite a more challenging fundraising environment, our fundraising to attract strong interest from our clients leading to $93,000,000,000 of capital raised, which when combined with the approximately $50,000,000,000 anticipated upon the closing of American Equity Life brings the total to $143,000,000,000 Fee bearing capital ended the year at $457,000,000,000 soon to be over $500,000,000,000 driving growth in fee related earnings of 6% compared to last year. And our fundraising outlook remains strong heading into 2024, which should contribute to meaningful earnings growth. And with that momentum, our manager announced a 19% increase in their quarterly dividend to $0.38 per share, which for context is nearly $300,000,000 of incremental cash annually distributed to us from this business.

Speaker 3

Our Insurance Solutions business had a strong year generating distributable operating earnings of $740,000,000 or $0.47 per share. We continue to scale our asset base and leverage our investment capabilities to drive earnings growth. Our insurance assets increased to approximately $60,000,000,000 at year end with the close of the Argo Group in November and the origination of $8,000,000,000 of annuity sales during the year. In 2023, we deployed approximately $5,000,000,000 of assets and an average investment yield in excess of 9%. Today, our average investment portfolio yield on our insurance assets is roughly 5.5%, which is approximately 2% higher than the average cost of capital.

Speaker 3

At the end of 2023, annualized earnings in this business were $940,000,000 That's up $290,000,000 compared to a year ago. And with the shortly anticipated closing of AEL, Our Insurance Solutions business is poised to grow to over $100,000,000,000 of assets and annualized earnings will increase to approximately $1,300,000,000 We continue to see a credible path to increasing the run rate of annualized earnings to approximately $2,000,000,000 over time as the investment portfolio is optimized. This $2,000,000,000 will all be available to be distributed to us bolstering our operating cash flows. And as you know, this business was only started 3 years ago and is tracking in line with plans. Through our retail wealth and insurance solutions platforms, we now raise approximately $800,000,000 a month from retail products for high net worth and mid market clients, of which approximately $300,000,000 is through our wealth solutions platform and approximately $500,000,000 is from the origination of annuities within our insurance solutions business.

Speaker 3

We remain on track to increase this source of capital to $1,500,000,000 a month in 2024 or close to $20,000,000,000 annually. Our operating businesses continue to deliver resilient cash flows, generating distributable earnings in total of nearly $3,000,000,000 $1,500,000,000 at our share or $0.92 per share for the year. Cash distributions were supported by the strong growth in earnings of our underlying businesses. Operating funds from operations within our renewable power and transition Infrastructure businesses increased by 7% over the prior year and adjusted EBITDA in our private equity business was 11% higher compared to last year. In our real estate business, our core portfolio continues to outperform the broader market with occupancy levels at 96% and growth in same store net operating income of 7% compared to the prior year.

Speaker 3

Our core retail portfolio is performing above 2019 levels with tenant sales exceeding $11.50 per square foot, 21% higher than 2019. In our office portfolio, we continue to capture tenant demand With over 15,000,000 square feet of leases completed in 2023 at average net rents 19% higher than those expiring. This includes nearly a 1000000 square feet leased in New York, over 850,000 square feet in Toronto and Calgary and a 1000000 square feet in Washington DC. Our track record is proving that owning the best assets allows for the compounding of capital over the long term and enables resiliency through cycles. In a tougher market environment, we have seen a pronounced flight to quality on the part of both tenants and lenders.

Speaker 3

For instance, in New York, more than 75% of new leasing activity in Midtown Manhattan occurred in Class A assets. Over the past 3 years, the number of transactions with the rents above $200 per square foot in New York exceeded all previous years combined. The market for premium real estate globally remains very robust and we are seeing the same across our leasing activity in our Also important for our real estate business is that our strong relationships and reputation as a responsible borrower has enabled us to maintain strong access to capital. In 2023, we successfully refinanced all of our debt maturities with no material impact to liquidity and we expect the same in 2024. We maintain our conviction in our portfolio And as interest rates come down and as our underlying cash flows continue to grow and compound, we are confident we will start to see a tailwind in our real estate business and its earnings.

Speaker 3

Shifting now to monetization activity. We continue to see strong demand for the high quality Cash generative businesses and assets we own. During the year, we monetized over $30,000,000,000 of assets at strong values. Most importantly, substantially all of these sales were transacted at values higher than our IFRS carrying values, validating the carrying values of our investments. A few examples of recently closed monetizations include the sale of Westinghouse and an implied enterprise value of price value of approximately $8,000,000,000 returning a 6 times multiple of capital and an IRR of approximately 60%.

Speaker 3

We sold an office asset in Brazil for approximately $300,000,000 at a 6.3% cap rate, generating an IRR of 17% the 3.4 times multiple of capital in local currency. We also monetized the landmark mixed use asset in Paris and a manufactured housing portfolio in the U. S. Both have very strong returns. The sales completed over the year generated strong returns, which resulted in $570,000,000 of net realized carried interest being recognized into income in 2023.

Speaker 3

During the year, we also generated $1,800,000,000 of unrealized carried interest, increasing our total accumulated unrealized carried interest to $10,200,000,000 of which $8,900,000,000 is directly owned by the corporation. And with the pool of eligible capital growing larger every year, we expect carried interest to contribute significant cash flows going forward. Turning to our balance sheet and liquidity, our business is underpinned by our conservatively capitalized balance sheet, high levels of liquidity with over $120,000,000,000 of deployable capital and our continued strong access to capital markets. These attributes put us in a strong position to withstand market cycles and to focus on growth during periods of excellent investment opportunities. Specifically, we have a large perpetual capital base supported by strong credit rating of the corporation.

Speaker 3

And in December, we received the credit rating upgrade from DBRS on our senior unsecured debt to A, reflecting the strength of our franchise and our continued growth in earnings. We have significant headroom in our current credit ratings, enabling us to access the debt markets, which we do from time to time to issue term paper. Moving on to capital allocation. Over the year, we reinvested excess cash flow back into the business and returned $1,100,000,000 to shareholders through regular dividends and share buybacks with over $600,000,000 of shares repurchased in the open market. This added roughly $900,000,000 of value to the company or $0.50 of value to each remaining share.

Speaker 3

And as Bruce mentioned, We intend to increase the pace of share repurchases, setting aside $1,000,000,000 over the next few months. If fully completed, this will add another approximately $1,000,000,000 of value, roughly $0.75 of value to each remaining share. Bringing it all together, the significant growth levers embedded in the business combined with our vast liquidity and access to multiple sources of capital position us well to deliver strong financial results heading into 2024 and to achieve our targeted 15% plus per share returns for our shareholders over the long term. And lastly, I'm pleased to confirm that our Board of Directors has declared a 14% increase to the quarterly dividend taking it to $0.08 per share payable at the end of March to shareholders of record at the close of business on March 13, 2024. Thank you for your time.

Speaker 3

I'll now hand the call back over to the operator for questions.

Operator

Thank you. Our first question comes from the line of Cherilyn Radbourne with TD Cowen. Your line is now open.

Speaker 4

Thanks very much and good morning. I wanted to start with a question on carried interest. You realized close to $600,000,000 in 2023 in the context of very low transaction velocity in general. Can you give us some indication of what you expect to be able to realize in 2024 and comment on whether it's still your intention to direct a lot of Realized carried interest to share repurchases over time.

Speaker 3

Hi, Cherilyn. Yes, you're right. We were successful in monetization this year and we do expect transaction activity to pick up this year, which will mean monetizations during the year. The output of carried interest is a product of where we're selling assets and from which funds. So we would expect A decent year for carried interest and if we achieve our plans maybe in that $400,000,000 to $500,000,000 range consistent with this year on a net basis And it's really building back up again to be meaningful and over the next few years, it's about $12,000,000,000 over the next 5 years, 26 over the next 10 next to the corporation and we maintain conviction in those numbers and timing is just dependent on the actual monetizations themselves.

Speaker 3

And yes, I think Bruce highlighted, I highlighted if we continue to see the share price, the disconnect between price and value, Then we will continue to allocate a meaningful amount of our free cash flow to share repurchases.

Speaker 4

And then on the insurance business, you've guided to what I think is a going in run rate of $1,300,000,000 pro form a AEL. And I'm curious what the timeline is to scale the business from $8,000,000,000 of annuities originated in 2023 to the targeted run rate of $15,000,000,000 to $20,000,000,000

Speaker 3

Yes, Cherilyn. So I think Through the course of this year, we will be scaling it up and it's going to be a product of the returns we can earn in the market. We're seeing the depth of the market and the demand for the product still being really strong. So we still have conviction we can get to those numbers and maintain our return. And I think you'll see a ramp up through the course of this year and hopefully be a run rate towards the end of the year and into next year.

Speaker 4

That's my 2. Thank you.

Operator

Thank you. Our next question comes from the line of Mario Saric with Scotiabank. Your line is now open.

Speaker 5

Hi, good morning and thank you for taking the questions. My first one is just on capital allocation. On the It's on the target $1,000,000,000 of share repurchases. How did you come to that figure? It looks like BN is trading at about a 50% discount 50% plus discount to your plan value per share that was up 12% quarter over quarter.

Speaker 5

So within the context of your Capital uses for $24,000,000,000 like outside of the $1,000,000,000 for repurchases and $500,000,000 for dividend payments. Can you just talk about where you to deploy capital in 2024 and how you right size the $1,000,000,000

Speaker 3

Yes, Mario, the $1,000,000,000 is really a product of The significant liquidity we have available and our view of performance and earnings growth over the year, and we think now is just the right time to allocate capital to the repurchases. So it's nothing more than that. We'll continue to reinvest in the business, support growth consistent with this year, but our earnings power is growing. Therefore, our available liquidity is getting larger and we think this is a good use of the capital.

Speaker 5

And I think Nick, you also just as a follow-up, you mentioned there's room in your credit rating to issue additional debt. Would you consider doing sort of fund incremental repurchases in excess of $1,000,000,000 if shares price kind of stays where it is through the year?

Speaker 3

Listen, we have lots of sources of cash coming in. With the way we think about issuing debt, Mario, as the business grows, We've got a track record of increasing the amount of debt we have consistent with the growth in the business. So maintaining our credit ratings and that's still our focus. But obviously the business is scaling, so it's just the available resources are getting bigger. And as we grow, we'll have more cash available and if there's a good investment, where we'll be allocated.

Speaker 5

Okay. And then my second question is just more of a, I guess, a higher level Theoretical question, I really appreciate the continuous disclosure on Brookfield's share price performance relative to the S and P and relative to intrinsic value per share growth. The relative returns versus the S and P have been very good over the past 2030 years, but more in line over the past 10, kind of despite intrinsic value per share growth outperforming both the BN share price and the S and P, that essentially implies a widening disconnect between price and value kind of over an extended period of time. I think this question gets asked in different ways every quarter, but I'm just curious about how you think about that. Why do you need to disconnect between price and value over an period of time internally, what you see as the biggest levers that can narrow that gap going forward and how you assess Brookfield's capability to do so?

Speaker 2

So I'll start off and just say that the If you trade at a discount, it is an unbelievably good opportunity for the company to continue to add value to the business without too much work. So, it's an I guess our biggest focus internally is, our job is to run the business and make money for shareholders. And if the price doesn't trade at the value of the business, it's an excellent opportunity to continue to repurchase shares and add money to the bottom line every day. So that's, I'd say, the biggest focus we have. The only other observation I'd have for you is over the last 30 years, Our observation has been that sometimes the company trades in favor and sometimes it doesn't.

Speaker 2

And discount narrows and widens over time, but the value keeps growing, as you can observe from the numbers. And I think it just stocks go in and out of favor and this one will be in favor at some point in time.

Speaker 5

Okay, great. Thank you. Those are my 2.

Operator

Thank you. Our next question comes from the line of Ken Worthington with JPMorgan. Your line is now open.

Speaker 6

Hi, good morning and thanks for taking the questions. In terms of, I guess, cash flow and liquidity, how does the outlook for uses of cash flow in asset management and Assurance look in 'twenty four compared with 'twenty three. So if I look at the slide on I think it's Page 8, talks about $5,000,000,000 being invested in the 2 last year. But I think we've recognized that a lot of your seating requirements were satisfied last year even as the insurance business continues to grow this year. So How does that uses look in those two areas, for 2024?

Speaker 3

Hi, Dennis, it's Nick. I think broadly consistent. I think with the growth that the insurance business has and the potential for the returns it can earn, it's realistic to assume it retains its distributable operating earnings and reinvest it back into the business growth, assuming it can maintain those kind of ROEs. And then a similar amount to last year will be invested back into various strategies that we're investing into things managed by the asset manager. So I think it'd be broadly consistent with last year.

Speaker 6

Okay. Thank you. And then in terms of real estate, I think the longer term plan was just hold some real estate, sell some real estate and migrate some of the real estate to the insurance portfolio over time. As we think about 2024, what are your thoughts on the for greater deal activity and the potential for more monetizations in the real estate, your real estate portfolio. And then we're seeing, I don't know, pockets of stress or more stress, in the U.

Speaker 6

S. Markets. How do you see the health of the U. S. Commercial real estate markets?

Speaker 6

And how does this impact what you see as the pace of deployment over, I don't know, picker time frame, let's say, a year or so.

Speaker 2

It's Bruce. I'll just give you a general comment on real estate and then maybe Nick can follow-up just on our strategy related to our balance sheet. But I would say the story of today is not what you just mentioned. The past story was that real estate in the United States was under stress. The new story will become soon that there are major tailwinds behind real estate because fundamentals are good and interest rates are coming down by 200 basis points.

Speaker 2

And as that occurs, Real assets and real estate in particular are going to have major tailwinds to both The net income and cash flows because the fundamental revenues are still going are flat to going up and interest costs are coming down dramatically. And secondly, that will spawn realistic the cap rates and therefore transaction activity will come back. So I think the next 24 months in real estate, you're going to see a much different story play out than what you imagined. And those stories of that people are still talking about are story from 24 months ago, not the next 24 months. That's the general comment I'd make on real estate.

Speaker 6

Great. Thank you.

Speaker 3

Yes. And Ken, the only thing I'd add about transaction activity is the other tailwind is the improving liquidity in the financing markets for real estate. And we've seen The start of this year, liquidity really step up for CMBS across most sectors of real estate and that should be very supportive of transaction activity as well. Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Dean Wilkinson with CIBC. Your line is now open.

Speaker 7

Thank you and good morning. Nick, just like to talk on the reinsurance business. That 200 basis point spread over the 3.5% cost of capital, Has that number in terms of the cost of capital come in a bit in say the last 6 or so months? And where do you expect that to go both with the rate environment and the closing of the AEL transaction?

Speaker 3

Hi, Deane. Yes, listen, as rates have gone up, obviously the rate that the annuitants are securing has gone up. But in the last few months, we have started to see that come back consistent with the outlook for interest rates. So I'd say it moves broadly with expectations on broader interest rates. And even as this market moves, we think of that as our cost of capital or a cost of liabilities and we've stayed disciplined in the rates that we're offering and it all comes back to what return do we think we can earn and can we earn our hurdle ROE.

Speaker 3

So I suspect as rates come down, you'll see that crediting rate come down in the broad market, but we will still be focused on achieving that roughly 2% spread as we write new business. And I don't expect it to change significantly with the closing of AEL.

Speaker 7

Okay, great. And I guess that sort of dovetails kind of back into Ken's question just around assets coming or real estate assets coming into the fold there, could I interpret from that then that the required cap rate you would need to see transactions come across Be something around a 5 or better given the strength of that same property NOI number and would that continue?

Speaker 3

Well, I don't know if I think of it exactly that way, Dean. We think about the return real estate can generate over the long term as opposed to just the day 1 cap rate or valuations, but I'd say that with the income generating profile that we have on the high quality assets that are attractive to insurance, We've been successful in doing some transactions in 2023 and we expect this is the market where the returns that they're generating And with the balanced portfolio, we are building on the insurance side, the current valuations we think the assets are worth are a level that works for the insurance balance sheet.

Speaker 7

Yes, makes sense. That's it. Thanks guys.

Speaker 3

Thanks, Gene.

Operator

Thank you. Our next question comes from the line of Saurabh Movahedi with BMO Capital Markets. Line is now open.

Speaker 8

Thank you. A broader capital allocation question. What do you have to see maybe to reduce your ownership stake in Brook filled the asset manager from 75% to something lower and maybe redeploy that into corporations buyback activity? Thanks.

Speaker 3

Hey, Saurabh, it's Nick. Listen, I think we obviously own 75 percent of that business as you know that will go down to 73% when we complete the American Equity transaction. And so it's been a really strong success. This transaction, if you just look over the last 12 months, the value of our ownership of BAM is up $14,000,000,000 next to BN. So it's a very valuable company and performance has been exceptional and that's a valuable currency for us.

Speaker 3

But the growth that business is generating is contributing to our returns and our growth and our cash flow and it's a really fantastic investment for us. So it would have to be something and right now we're just thinking about how we can help that business grow. But if something came along strategic like AEL, it's just another tool or currency we have available to us and that really was the intention of the spin. So it's worked really well.

Speaker 8

Okay. And then so Nick, just for crystal clarity, you don't see any relative value benefits to Brookfield Corporation to maybe lighten the load a little bit BAM and buyback be in?

Speaker 3

Listen, there is a relative value there, Sohrab, but I think we want the BAM currency to perform well. And so I'm not sure that we would see just doing a secondary into the market, but it's a valuable currency though on a relative basis may makes Definitely makes more sense than using BN shares for anything we look to acquire.

Speaker 8

Thank you for the color.

Operator

Thank you. Our next comes from the line of Mike Brown with KBW. Your line is now open.

Speaker 9

Great. Thank you for taking my questions. Appreciate all the commentary on the insurance business. I just wanted to maybe dive in a little bit deeper there As we approach a kind of easing environment from central banks globally, what is the floating rate exposure, I mean, if you have that pro form a with AEL, I'd be interested to hear where that is today, where it could go over the next 6 months? And then Clearly, the annuity flows have been very strong, 2023 a record, 4Q a record.

Speaker 9

What's your take on The tailwinds in the environment for that to continue even in a declining rate environment and How well do you believe you're positioned just given this market continues to be very competitive? And how do you feel that you're positioned for that? Thank you.

Speaker 3

Hey Mike, thanks for the questions. I don't have the specific floating rate component of the portfolio, but we do proactively manage interest rate risk within the portfolio. So we do hedge, but at the same time, I would also caution that the way we think about the portfolio is managing it through our return on equity within the insurance business, but it also acts as a very nice hedge against the broader BN balance sheet and income profile. So we've been running a little bit short in the investment portfolio, with that specific thought in mind that, where rates come down, maybe you miss out on a few basis points on the insurance side, but you'll more than make up for it in the broader business and it's definitely played out the way over the last 12 months as FFO In other parts of the business, we may be impacted by higher rates. We almost more than made up for it in the returns we generated and our insurance assets.

Speaker 3

So it's a really nice hedge for the broader business. On the ability to write new policy, listen, there are There's competition in everything that we do. But to date, we have not seen that impact our ability to write new policies. Going to stay disciplined. We're going to focus on our hurdle ROEs, but nothing right now gives us concern about our ability to achieve our targets.

Speaker 9

Okay, great. And then maybe just one clarification question on the Real Estate business. Just looking at the FFO in the core piece of the real estate there, Looks like it rose to $285,000,000 this quarter. I know that was up pretty meaningfully quarter over quarter and even the rate environment continues be a challenge. So just curious about what would have driven that change and maybe some thoughts on the near term there?

Speaker 9

Thank you.

Speaker 3

Yes. So there was a one time revenue item this quarter, which was associated with a lease extension, an amendment at one of our assets. But if you back that out and actually look at the FFO performance year over year, it's up about 11% and so the FFO performance of the business is getting better and that's driven by the NOI growth, which we focus on every quarter. So the NOI continues to grow. FFO feels like a trough from the rate impact is now climbing its way back with the NOI impact and as rates come down that will be a tailwind for FFO going forward.

Speaker 9

Okay, understood. Thank you for that.

Speaker 3

Thanks, Mike.

Operator

Thank you. I would now like to turn the call back over to Angela Yulo for closing remarks.

Speaker 1

Thank you everybody for joining us today. And with that, we'll end the call.

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