Commentary: Berkshire’s Patience Rewarded in Oncor

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With news that Berkshire Hathaway is acquiring Texas utility Oncor, Warren Buffett has once again shown that he is in the market for big acquisitions that produce solid, dependable revenue.

The all-cash consideration for reorganized EFH is $9 billion implying an equity value of approximately $11.25 billion for 100% of Oncor and is subject to closing conditions, including the receipt of required state, federal and bankruptcy court approvals. The transaction is currently expected to be completed in the fourth quarter of 2017.

Buffett has certainly been patient in pursuing this Texas-sized prize, and if successful, would mean he was able to acquire one of the biggest power-transmission companies in the United States.

Back in September 2014, Berkshire Hathaway Energy and several other energy companies, including NextEra Energy and Hunt Consolidated, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor, which was up for auction due to the April 2014 bankruptcy of electric utility Energy Future Holdings.

Energy Future Holdings went under after being burdened with $40 billion in debt from a 2007 leveraged buyout.

Bankruptcy Drama

Over the past two years, while Oncor went through the bankruptcy process, it repeatedly looked like Berkshire was on the losing end in the pursuit of the utility. It was too bad, as it was the perfect fit for Berkshire, as it continues to build it energy company portfolio.

However, the proposed deal comes because the Public Utility Commission of Texas (PUCT) ended up rejecting NextEra Energy’s deal to buy Oncor, opening the door once again for an offer from Berkshire.

A Texas-Sized Energy Asset

Oncor is a quite a prize. The company is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The company has the largest distribution and transmission system in Texas; with approximately 122,000 miles of lines and serving approximately 10 million Texans across the state.

Oncor is an excellent fit for Berkshire Hathaway, and we are pleased to make another long-term investment in Texas – when we invest in Texas, we invest big!” said Warren Buffett, chairman of Berkshire Hathaway. “Oncor is a great company with similar values and outstanding assets.”

Greg Abel, Berkshire Hathaway Energy chairman, president and CEO, said, “This partnership combines the strengths of two companies that share a common goal of providing exceptional customer service and a commitment to invest in critical infrastructure that will make the Texas energy grid even stronger and more reliable.”

“By joining forces with Berkshire Hathaway Energy, we will gain access to additional operational and financial resources as we continue to position Oncor to support the evolving energy needs of our state,” said Bob Shapard, CEO of Oncor. “Being part of Berkshire Hathaway Energy is a great outcome for Oncor. Oncor will remain a locally managed Texas company headquartered in Dallas, committed to the communities we serve, and our customers will continue to receive the safe and reliable service they have come to expect from our dedicated team of employees.”

Effective upon closing of the transaction, Bob Shapard will assume the role of executive chairman of the Oncor Board, and Allen Nye will assume the role of CEO of Oncor. “We are excited to begin the regulatory approval process as this transaction has significant support across our key stakeholders,” Nye said. “The stakeholders are eager to obtain a great outcome for Texas.”

“We are pleased to be working with Texas and stakeholders to ensure Oncor continues to be a strong electric transmission and distribution company. Oncor is an exceptional company with great employees and an excellent management team,” said Abel.

Energy Transmission is Great ROE

Transmission lines have been high on Berkshire Hathaway Energy’s wish list of late because they are a great way to put Berkshire’s huge insurance float to work for a high return with very low risk.

The AltaLink Example

In April 2014, BHE made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc. The acquisition got the company the transmission lines for Calgary, Alberta, and gives it an 8.75-percent after-tax return on equity, with consumers picking up 100-percent of the tab for any new transmission lines.

Like AltaLink, the acquisition of Oncor will be a perfect fit for Berkshire Hathaway Energy, and with $935 million in operating revenues and $73 million in net income in the quarter ending March 31, Oncor will put a portion of Berkshire’s over $90 billion in cash to good use.

Growing Berkshire’s Energy Business

Berkshire Hathaway Energy currently has over $70 billion in assets, including one of the largest portfolios of renewable energy in the world.

Energy sector businesses made up 9.5 percent of Berkshire Hathaway’s earnings in 2016.

Now, it looks like Buffett’s patience has been rewarded, and Oncor will help Berkshire pass the $100 billion in energy assets mark.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Intero Real Estate Services Agents Receive Recognition at NAHREP”s Top Latino Agents Awards

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Berkshire Hathaway’s Intero Real Estate Services, a wholly owned subsidiary of HomeServices of America, Inc., has announced the recognition several of their associates received at the 2017 National Association of Hispanic Real Estate Professionals (NAHREP)

Top Latino Agents Awards. NAHREP is a purpose-driven organization that is dedicated to a combination of entrepreneurial spirit, cultural heritage, and the advocacy of its members.

There were over six hundred nominations this year, and we are proud that our agents finished strongly in a number of categories.

Erika Carrasco and Joe Velasco finished in the Top 250 in the units sold category.

Finishing in the Top 100 in sales volume were Erika Carrasco and Carlos Padilla.

The Top 100 California Latino Real Estate Agents list included Erika Carrasco from the Silver Creek office, Joe Velasco from the Saratoga office, Carlos Padilla from the Los Altos office, Juan Barragan from the Livermore office, Juan Jara from the Corona office, and Sirilio Ortiz from the Rancho Cucamonga office.

Tom Tognoli, founder and CEO at Intero said of the award winners, “We are so proud and happy to see our agents recognized for their hard work and dedication to their clients, the industry, and Intero. We could not ask for a better group of people to receive these honors and we thank them tremendously for their commitment to excellence.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Home Furnishings Forecast Means Positive Outlook for Berkshire’s Furniture Retailers

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Berkshire Hathaway’s furniture retailing companies, which include Nebraska Furniture Mart, Jordan’s, and R.C. Wiley, will benefit from strong projected growth in the home furniture market.

Home furniture includes beds and mattresses, tables and table tops, desks, chairs, storage cabinets, sofas, and other furniture that are used to make a house or building a comfortable place to live.

In a new report from Research and Markets, “Home Furniture Market in the US 2017-2021,” the global luxury furniture market is projected to grow at a compound annual growth rate (CAGR) of 6.14% during the period from 2017-2021.

According to the report, one driver in the market is improving residential construction market. The real estate industry in the US is expected to drive the home furniture market in the next few years. This will be due to the increasing number of people engaging in household formation. There has been a significant rise in the number of women joining the workforce and living independently. As a result, there is a rising need for service apartments and single story houses.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD Chooses Brazil for Photovoltaic Research Center

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Chinese battery and vehicle maker BYD Company Ltd. has signed a letter of cooperation with Universidade Estadual de Campinas (Unicamp), in which the company commits to transfer over R$ 5 million (approximately 1.5 million USD) by 2020 to set up BYD’s first overseas Photovoltaic Research Center at the university.

“With a global R&D staff of over 20,000 engineers and researchers, and featuring amongst Fortune Magazine’s “15 companies changing the world”, the importance BYD gives to technological research is very clear. Our company is a true leader in the technology sector, and such leadership greatly relies on investing in local research and development.” says Stella Li, BYD’s global vice president.

The company opened its solar panel factory in Campinas this April and thus became the first in Brazil to offer comprehensive zero emission energy ecosystem projects – with generation, storage and transportation – to the local market.

The agreement aims to establish cooperation between BYD and Unicamp in scientific research and technological development activities.

“For Unicamp, it is a great opportunity to establish the foundations of a partnership with BYD that promises to be very fruitful, by following the precept of innovation in technological development from the very start. The company chose Campinas as its base in Brazil, and we are convinced that Unicamp will be an important partner in research and development in the field of photovoltaic, which will certainly lead to the establishment of other collaborations in the future, always in search of a sustainable future.” Said Marcelo Knobel, dean of Unicamp.

BYD’s investment is a counterpart of the federal government’s PADIS (Program of Support to the Technological Development of the Semiconductor Industry and Displays), under which the company is registered.

Gradual contributions will be made annually, according to Research and Development revenues. In 2017 and 2018, the percentage will be 4% and in 2019 and 2020 it will reach 5% of net sales in the domestic market. “As a high-tech company, BYD’s goal is to bring the best of the world’s technology into the country, always generating more innovation,” adds BYD President in Brazil, Tyler Li.

BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares. It’s an investment that has paid off handsomely. Berkshire’s original investment of $230 million is now worth roughly $1.8 billion.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Mouser Electronics Signs Global Agreement with ITT Cannon

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Berkshire Hathaway’s Mouser Electronics, and authorized semiconductor and electronic component distributor, has signed a global distribution agreement with ITT Cannon, a world leader in the design and manufacture of highly reliable and innovative connector and interconnect products serving military and commercial customers in the aerospace and defense, medical, energy, transportation, and industrial markets.

Mouser is excited to offer our customers this broad assortment of interconnect solutions from ITT Cannon,” said Krystal Jackson, Vice President, Supplier Management at Mouser. “ITT Cannon has a rich history of designing and manufacturing reliable connectors, earning a reputation for innovation and quality.”

“We are eager to launch our partnership with Mouser,” said Anh Phan, Vice President of Global Sales at ITT Cannon. “Mouser’s attention to detail, cutting-edge products, and responsive customer service makes them a perfect partner for ITT Cannon. This partnership offers another excellent channel for customers to procure our products quickly, anywhere and at any time.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkadia’s Student Housing Group Closes Over $146 Million in Sales for Two West Coast Student Housing Properties

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Berkadia, Berkshire Hathaway’s joint venture with Leucadia National Corporation has announced that its Student Housing Group has completed the sale of two properties totaling more than $146 million.

Berkadia’s student housing team, led by Managing Director Kevin Larimer and Director Greg Gonzalez, teamed with Senior Managing Director Kenny Dudunakis, Director David Sorensen and Director Ben Johnson of Berkadia’s Seattle office on the sale of AVA University District at University of Washington – Seattle on behalf of the seller, Arlington, Virginia based Avalon Bay Communities Inc. The student housing team, working with Managing Director Shane Shafer of Berkadia’s Irvine office, also closed Fullerton University Village at California State University in Fullerton, California on behalf of the seller, a local TIC group.

“Student housing seems to be the product type of choice right now for investors,” said Larimer. “Investors have identified the strong fundamentals of student housing with fewer deliveries, average occupancy above 97 percent, annual rent growth more than three percent and a fixed resident base from which to draw. Whether they are looking for yield or a defensive position, investors are finding a comfortable home for their capital in student housing.”

Located at 4535 12th Ave., AVA University District features studio, one- and two-bedroom apartments within walking distance of University of Washington and less than five miles from downtown Seattle. Units feature high-speed internet, a washer/dryer and air conditioning. The property also has a barbeque and picnic area, two rooftops with green spaces and on-site social events.

Fullerton University Village is located at 2000-2030 Oxford Ave., within walking distance of California State University, Fullerton. The property offers studio, two- and three-bedroom fully-furnished apartments with refrigerators, flat screen televisions and all utilities included in the cost of rent. Residents can also enjoy a fitness center, swimming pool, student lounge and monthly organized events.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA.

The company is among the top Freddie Mac and Fannie Mae multifamily lenders.

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Rocky Mountain Power to Build 140-mile, 500-kV Transmission Line

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Berkshire Hathaway’s Rocky Mountain Power, a unit of PacifiCorp, will build a new 140-mile, 500-kV transmission line running from the new Aeolus substation to the new Anticline substation; a 16-mile, 230-kV transmission line from the company’s existing Shirley Basin substation to the new Aeolus substation; rebuild four miles of 230-kV transmission line between Aeolus and the existing Freezeout substation; to rebuild 14 miles of an existing 230-kV transmission line between the Freezeout substation and the Standpipe substation.

Rocky Mountain Power, which serves nearly 1.1 million customers in Idaho, Utah and Wyoming, will file request for approval of the project on June 30 with the Utah Public Service Commission.

The company’s application will include a request for approval to procure or build new Wyoming wind resources with a total capacity of 860 MW.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF Continues To Have Robust Shipping Volumes Compared to 2016

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Higher carload numbers are continuing to bring good news to BNSF Railway when compared to 2016.

Slumping volumes in 2016 saw the total intermodal and carload volumes down 4.94% from 2015 levels, with coal shipments slumping 20.88% from 2015 levels.

This time, coal is leading the way in the recovery, with shipments up a strong 21.72% year-to-date through June18, as compared to the same period in 2016.

Also up a solid 4.9% are intermodal shipments.

While petroleum shipments continue to slide, with year-to-date numbers down 13.22%, the combined intermodal and carloads numbers are up 7.77% in the aggregate.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Invests $377 Million in STORE Capital

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Berkshire Hathaway has purchased 9.8% of STORE Capital Corporation, an internally managed net-lease real estate investment trust (REIT) that invests in Single Tenant Operational Real Estate.

Berkshire through a subsidiary invested $377 million for 18.6 million shares of company stock in a private placement at a price of $20.25 per share.

“Berkshire Hathaway’s investment solidly positions STORE for continued growth, while adding measurably to our already strong financial position,” said Christopher H. Volk, President and Chief Executive Officer of STORE Capital. “An investment in our company from one of history’s most admired investors represents a vote of confidence in our experienced leadership team and an affirmation of our profit-center real estate investment and management approach.”

In a statement to CNBC, Volk noted that Berkshire had first inquired about the company in 2014 and had been following them closely.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

GEICO Besting Esurance in Illinois

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GEICO Casualty has been gaining customers in Illinois while its competitor, Allstate’s Esurance, has seen policyholder slippage.

Esurance’s total Illinois policyholders dropped 4% from the prior year to 49,317, according to its June 12 filing with the Illinois Department of Insurance. Nationally, its total policyholders fell 2% to 1.4 million from 1.43 million.

In contrast, GEICO Casualty’s Illinois policyholders grew to 212,029 policyholders as of March 31, which is a strong 15% increase from 183,644 policyholders.

In 2011, Allstate bought Esurance and Answer Financial from White Mountains Insurance Group for roughly $1 billion. Esurance sells auto insurance directly to customers online and through call centers. The unit has never turned a profit, and Allstate has responded by slashing its advertising budget.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.