10 Responses to “October 24, 2023”

1. fsabbagh says:

   October 25, 2023 at 4:14 pm

   I made my last purchases of preferreds for a while. Might start up late next year. Now with rates rising via bond vigilantes, preferreds keep driving down in price. Not sure when I will be rewarded for my preferred purchases. I will wait it out for a few years and collect my dividends.

2. Yomgui says:

   October 26, 2023 at 3:12 pm

   Another day… and still down further.

   Is there anyone with some info about what is seemingly going wrong with the Brookfield Empire?
   My exposure is not marginal and it seems like the preferred shares are falling very hard and that has me worried a little bit.
   I know the market is awful right now but it is even worse with Brookfield.

   There were the concerns about the office space (BPO) and now a short report on Brookfield Infrastructure stating that the value of assets is hugely inflated, financial performance far from covering distribution, etc.

   I agree with Mr. Hymas, it feels like we are going back to the pandemic and that everybody is convinced it is all going down to 0!

3. niagara says:

   October 26, 2023 at 4:29 pm

   “Is there anyone with some info about what is seemingly going wrong with the Brookfield Empire?”

   If I look at BN stock price, it is off the highs but not much worse than many other stocks like BCE, EMA, T, the banks…..if there was something truly wrong with the BN Empire, then I think that it would manifest in a much bigger swoon in the stock price.

   Then again, BEP and BIP are more strongly down. I have not seen that short report on BIP….can you share a link?

4. Yomgui says:

   October 26, 2023 at 6:20 pm

   I’m not saying it is very reliable but a short report comes from seekingalpha but I read another article also mentioning the issues raised in this one.

   And back to 2013 there was also some controversy about BIP and the valuation of their assets.

   BEP and BIP are sinking indeed and I’m not sure what to think.

   I’m just surprised to see BN.PF.G /R for example also dropping like this.
   They reset in June 2025 and June 2026 so in a little while but at today’s rate, they would respectively reset at 12+% and 13+%… and it’s not like there is an obvious risk of capital loss since they happen to trade close to their all-time low.

   It’s more complex than that but if we assume rates will have dropped a lot by then, perpetuals shouldn’t yield 7.4% and if we think rates will hold steady, those yields seem very high.

5. peet says:

   October 26, 2023 at 6:56 pm

   Seeking Alpha uses “earnings” for its calculation, and comes up with a “payout” over 400%. ie. clearly the distribution is nowhere close to being covered. Their “earnings” refers, I believe at first glance, to net income after deductions for all expenses, including depreciation, amortization, and interest expenses.

   The more appropriate metric would be to funds from operations (FFO or AFFO).

   With FFO or AFFO the distributions are well covered, with a payout ratio (net of incentives and the pref. dividends) somewhere in the low 60s% (per TD & RBC).

   I own a generous amount of BIP prefs. I don’t see the back up for concluding that “BEP and BIP are sinking indeed.”

6. Yomgui says:

   October 26, 2023 at 7:32 pm

   The stock price of BIP is down 25% in a month so not really a great performance and I don’t think it is just related to higher yields.
   As for BEP, one of their perpetuals is yielding more than 9% after a drop of 15% in a month and their min reset are also down around 15% in the same time frame.

   I also own a fair amount of BIP prefs (BIP.PR.A / BIK.PR.A) and they have also performed poorly over the last few weeks.
   I loved accumulating BIP.PR.A but it keeps falling and I start wondering what I am missing…

   A long shot maybe but at some point I thought BIK.PR.A was a “call” play since they reset in march 2024 at 396bps + GOC 5yr bond yield so it is 8+% today but at $20, the market tells me I was wrong to think that ah ah.

7. peet says:

   October 26, 2023 at 9:18 pm

   Yomgui, when I wrote that I don’t see the “back up” for concluding that these prefs are “sinking indeed”, I wasn’t referring to the obvious price drops (I own lots of BIP prefs after all) but read you as referring to something more serious.

   On that note, if we both thought accumulating BIP prefs was a good idea when we first bought them (in my case for the long term) what has changed? I am not aware of BIP’s structure, business model, financing etc. having changed for the worse, if anything it is more diversified now than, say, in 2015. In terms of weathering “higher rates for longer”, the financing is spread out with ~85% of its borrowings long-term, ~90% fixed-rate (ex Brazil), and ~55% maturing in 2028 and beyond. Also 70% of its FFO is indexed to inflation (sources:TD & RBC).

8. sacdechips says:

   October 27, 2023 at 8:26 pm

   @Yomgui

   I bought about 100K of Brookfield Corporation preferred shares in the last 2 weeks (which is a good amount for my portfolio). I was also wondering why they are so cheap. For sure, the credit rating agencies are not seeing anything wrong with BN.

   I am surprised that there are no bidders at 50% off. We get 9% if 5 year Gov bond is 2% and 15% at 5% interest rates, which seems like a lot for fixed income with A- credit rating (Fitch).

   I think they are the best preferred shares in Canada at this moment, along with Enbridge, but BN seems more solid to me on the very long term (I have 40K in Enbridge preferred shares, mostly ENB.PF.G).
   I bought BN.PR.T, BN.PR.R and BN.PF.G to have different reset dates (march 2027, june 2026 and june 2025).

   I have the impression that everything is ok, just that the rapid increase in interest rates, mixed with very little interest and knowledge for preferred shares create this opportunity.

9. Yomgui says:

   October 28, 2023 at 1:06 pm

   “A Short Report Questions Brookfield Infrastructure And Makes Me Rethink My Position”

   I’m sure there are other ways to access it but this new article on Seeking Alpha provides the link to the 76 pages-long short report on BIP.

   It can also be found here:
   https://dfresearch.substack.com/p/dfr-is-short-brookfield-infrastructure
   There is a link to download it.

   I don’t have the knowledge/skills to know how credible it is but if someone can peruse the claims, etc. that would be great.

   In an ideal world Mr.Hymas’ opinion would be invaluable since if the report is pretty accurate, it’s likely to negatively impact BIP but also I assume the parent company and the other subsidiaries.

   I’m also wondering if it would mostly impact the stock or could it also have an adverse impact on the prefs.

10. sacdechips says:

    October 28, 2023 at 3:56 pm

    I just read on seeking alpha the analysis of Dalrymple Finance and Alexander Steinberg about that short report, as well as the comments. I can’t make a good judgment on that. My impression is that BIP or BN may not be perfect, but I doubt they are a big scam.

    Dalrymple Finance has 427 followers. He does not have many articles on seeking alpha, but he wrote a lot about HCI group between 2014 and 2017. I did not read the articles but the titles suggest they are negative (maybe not accounting fraud though). The stock of HCI Group Inc did not go to $0… Although, as I said, could be totally different situation.

    The short report can affect on the short term the prices of all Brookfield entities, as well as the preferred shares, but if BN does not go bankcrupt (which I doubt this short report will do) then the dividends will be paid on the preferred shares. It’s easier (emotion wise) if the preferred shares of BN just go up from here, but even if they drop 20% (tax loss selling season or panic selling) and go back to $20 in 2 years when they have a high spread over 5 YR bond, then everything is ok.
    In other words, this short report makes me a little worried about the common shares but not about the safery of the dividends of BN preferred shares.
    What I write is to take with a grain of salt because I don’t consider myself knowledgeable in all that.