Brookfield Asset Management Notes

The notes below print out to around 150 pages. I have noticed several errors. Yet, I have not noticed what I consider to be any type of material error. Nor has my thesis changed. Yet, I keep looking to pierce holes in our thesis. Again, please do your own due diligence. We are certainly not recommending an investment in BAM or affiliates, be it long or short. Please read our disclaimer. We may or may not update these notes in the future. We could eliminate our short position at any time. Of course we would have and have made that same statement, when we first shorted during August 2007. If you notice any mistakes, please email me at rredfield@rbcpa.com . We will look into and attempt to change any mistakes we find.

It is our understanding, and this has not been confirmed, that one of China's State owned banks has agreed to provide 245 Park Ave with an $800M fixed rate loan. The 10 year loan was expected to go through a securitization program. Bank of China funded the entire balance without a securitization or without mezzanine debt. The rate is expected to be lower than potential securitization packages, with a senior loan with a rate just below 5% and a mezzanine loan with a rate of about 8%. Hence, the rate is probably somewhere between 5% and less than 8%. Insurers allegedly offered less than $700M for the loan. It was mentioned to us that the building is carrying a value of $1.3B. Hence, loan to value is approximately 61.5%. Interesting that Reis claims the building is 1.586M SF, whereas Brookfield claims on their web page it is 1.719M SF + parking of 68SF (See August 28, 2009 note below.) It is our understanding that JP Morgan leases 44% of the space through 2022. Brookfield Properties owns 51%, and NY State Teachers owns 49%. The proceeds will be used to pay down $431M of debt due in 2/2011. We expect that the building will retain $329M after fees.

It was announced on July 30, 2010, that "Brookfield Properties has agreed to enter into a transaction with Brookfield Asset Management whereby Brookfield Properties will pay Brookfield Asset Management A$1.6 billion (US$1.4 billion) for an interest in 16 premier Australian office properties comprising 8 million square feet in Sydney, Melbourne and Perth which are 99% leased. The properties have a total value of A$3.8 billion (US$3.4 billion)." http://brookfieldproperties.com/_Global/25/img/content//AUS_Transaction_Sup_Jul_30.pdf

As of now, it is our interpretation and gut feeling (and we could be wrong), that BPO is paying a great deal more for properties than current fair value, and that is not a real arms length transaction.

IFRS is reporting at the value that BAM interprets. Values of CRE in Australia have substantially declined since the market highs. BAM purchased these assets at the height of the market, with the Multiplex transaction.

During February of 2009 BAM was asked if they had concerns as it relates to mortgages or Multiplex. BAM responded, "I would say the quality of the assets gives us lot of comfort in that regard. So, we will work through that situation and fortunately we don't have a whole heck of a lot of maturities staring us in the face there. And we will get -- the quality of assets are such that we should have a pretty easy time refinancing them, we think."

This is what BAM mentioned on their recent 2Q10 conference call:

"Dealing specifically with the valuation of the portfolio, as many of you know, we went through a lot of work, money, and risk over the last number of years assembling this Australian office portfolio. Second, we're selling at our externally appraised IFRS values, which are the values in our accounting books. No gain, no loss.

For the record, we would not sell these properties at this low a price to a company which was not 50% owned and that was not strategic to us. Furthermore, BPO has been diligencing these assets for over 12 months, and therefore has little acquisition risk which would normally come along with a transaction."

"Our tangible assets are generally held in public and private operating subsidiaries and various listed and unlisted funds. Assets held in funds often require annual revaluation based on third party appraisal. In these cases, we utilize the appraised third party values and assumptions as the basis of our IFRS carrying values with adjustments in accordance with IFRS rules, if necessary. Assets not otherwise valued for fund requirements are valued by management, and also valued by third party appraisers on a rotating basis so that each asset is revalued externally at least once every three years. A summary of our revaluation methodology is provided below:

Commercial Properties: Revalued quarterly by management and on a rotating basis by third party appraisers at least once every three years and more frequently if required for fund reporting or refinancing activity."

BAM further indicated in the 2Q10 filing, that Commercial Properties had nil unrecognized IFRS value. To us, this means, that BAM considers Commercial Properties to be on their books at Fair Value.

"Fitch Ratings-New York-28 July 2010: Fitch Ratings has affirmed Brookfield Renewable Power, Inc.'s (BRPI) Issuer Default Rating (IDR) at 'BBB-' and its senior unsecured debt ratings at 'BBB'. At the same time, the Rating Outlook for BRPI's long-term ratings is revised to Stable from Negative. Approximately $1 billion of BRPI corporate level debt is affected by this action.

The affirmation and Stable outlook reflect the predictability and stability of BRPI's cash flows...."

"Due to hydrology risk, BRPI typically enters into long-term power sales agreements or intermediate-term financial derivatives for approximately 70% of its current year expected power output from average long-term water flows (using a 95% confidence factor). The uncontracted power is sold into the spot market resulting in some exposure to wholesale power prices over the short term. Over the longer term, if low spot power prices persist, as contracted revenues roll-off, BRPI could face a situation where contracts are reset at lower than existing contract power prices pressuring margins.

BRPI utilizes non-recourse project level debt to finance the bulk of its generating fleet; thus BRPI's own corporate debt and cash flows are subordinated to the project structures. Parent cash flows are comprised primarily from distributions, and dividends from BRPI's myriad of investments are expected to improve slightly over the near term based on a higher level of contracted revenues and the addition of new projects and investments.

Fitch estimates that the ratio of Adjusted Parent Operating Cash Flow (APOCF) to parent level debt, a non GAAP financial ratio used by Fitch, will remain at or above 36% over the next few years. Similarly, interest coverage, as measured by APOCF to corporate interest expense, is estimated to remain at or above at 5.3 times over the forecast period. APOCF is supported by the diversity of cash flow sources. In calculating APOCF, Fitch utilizes it low natural gas and low wholesale power price model to stress non-contracted, unhedged cash flows from the operating assets as well as certain distribution test assumptions to stress corporate cash flows. These credit metrics compare well to merchant generator and rating category peers.

Additional concerns relate to the complex organization structure with most of the assets held in project finance structures or in partially owned investment fund affiliates that make most of the cash flows to support BRPI's approximate $1 billion in corporate level debt subordinate to the project level financings. BRPI is a wholly-owned subsidiary of Brookfield Asset Management, Inc. (BAM, 'BBB'), an asset management company with investments in three primary areas: real estate; power generation; and infrastructure assets. BRPI and BAM have a sizable amount of inter-company advances and liabilities between themselves. Recently, BRPI purchased BAM's holdings in Brookfield Infrastructure Partners and Transelec, S.A. ('BBB-'), Chile's national transmission system; the investment represented another shift in BRPI's strategic focus away from renewable power generation. "

"The affirmation reflects Brookfield's continued adherence to its business strategy, diversified sources of remitted cash flow, and strong financial flexibility.

The negative outlook reflects our expectation that lower investment gains, challenging market conditions, and possible capital requirement from the General Growth Properties recapitalization plan and refinancing at Brookfield Properties Corp. could weaken the company's own financial risk profile."

"The company's strategy, as we understand it, also emphasizes the use of asset-specific nonrecourse debt to finance its subsidiaries' investments and
operating needs, financial flexibility (including a portion of capital in liquid listed investments), and a conservative capital structure at the company level.

Standard & Poor's consider the company's ability to generate remitted operating cash flow from multiple sources as a key strength supporting the ratings. Brookfield invests its underlying assets mainly in businesses with long-term contracts or regulated revenue, which are subject to different influencing factors and have demonstrated a track record of stable, albeit levered, returns.

The negative outlook reflects our expectation that lower investment gains, challenging market conditions, and possible capital requirement from General Growth Properties' (GGP) recapitalization plan and refinancing at Brookfield Properties Corp. (BPO) could weaken Brookfield's financial risk profile.

Standard & Poor's could consider lowering the rating if BPO's credit risk profiles deteriorate further. We could also lower the rating if remitted cash flows weaken further and result in remitted OCF interest coverage falling below 5x or OCF to total debt falling below 30% on a sustained basis. Conversely, we could revise the outlook to stable if the company creates a wider cushion in its financial measures (either through stronger OCF or a material reduction in company-level debt); and after we can ascertain that the size of Brookfield's investments in GGP are within its means without material increase in company-level debt."

"We affirmed our 'BBB' corporate credit ratings on Brookfield Properties Corp. (Brookfield) and its Toronto-based affiliate, Brookfield Office Properties Canada, and maintained our negative outlook.

-- Our ratings on Brookfield acknowledge the comparatively favorable performance of the company's well-leased and high-quality office portfolio in first-quarter 2010, as well as its improved liquidity following the issuance of more than $1.5 billion of equity over the past year.

-- However, our negative outlook reflects the sizable debt maturities in 2011 related to Brookfield's highly leveraged U.S. office fund joint venture, as an equity infusion will be necessary to refinance this debt at a lower loan-to-value level. Additionally, the company faces the lease expiration of its largest tenant in 2013."

"We would likely lower the rating one notch if debt coverage measures deteriorate from their current levels or liquidity becomes constrained. We would maintain the ratings if Brookfield's management successfully addresses the longer-term recapitalization needs of its U.S. fund without compromising its current pro rata fixed-charge coverage measures. Although less likely in the near term, the ratings could improve in the longer term if the company additionally were to reduce its top tenant concentration and improve its pro rata fixed-charge coverage to levels that are comfortably in the mid-2x area."

May 7, 2010 (24.76) DBRS Comments on Brookfield’s Investment in General Growth Properties

"DBRS notes that the proposal from Brookfield Asset Management Inc. (Brookfield or the Company) and related investors (collectively, the Brookfield Group) to recapitalize General Growth Properties, Inc. (GGP) has been accepted by the U.S. Bankruptcy Court. The offer by the Brookfield Group now becomes the stalking-horse bid, setting a floor that any competing offer must exceed.

As set out in the original offer, the Brookfield Group has agreed to invest approximately $2.5 billion in a recapitalization of GGP (and $125 million in General Growth Opportunities (GGO)). This is to be accomplished through its $5 billion Real Estate Turnaround Consortium (the Consortium). If successful, the Consortium would own approximately 26% of GGP, with Brookfield owning about 25% of the Consortium’s investment (about $700 million).

In a revision to the offer this week, Brookfield, Fairholme Capital Management, LLC and Pershing Square Capital Management LP (on a several basis) agreed to backstop an additional $2 billion in capital, which includes $1.5 billion of debt and a $500 million equity rights offering. The $1.5 billion is the same amount that had originally been proposed under a new credit facility. With this modification, Brookfield would backstop $600 million of the $1.5 billion in debt issuance and $350 million of the $500 million rights offering."

April 20, 2010 (25.40) Standard and Poor's upgrades Brookfield Renewable Power Inc.

The following is a press release from Standard & Poor's:

"We are revising our outlook on Brookfield Renewable Power Inc. (BRPI) and Brookfield Renewable Power Fund (BRPF, 50% owned by BRPI) to stable from negative.

-- We are affirming all the ratings on the companies, including our 'BBB' long-term corporate credit rating on BRPI and BRPF.

-- The outlook revision reflects our view that, with increased business and geographic diversity and a higher level of contracted revenue, BRPI is now more resilient to its exposure to wholesale electricity prices and hydrological risk.

-- The stable outlook reflects our view that BRPI's strong diversity and financial flexibility support the ratings despite our concerns over the company's high debt level and resulting weak coverage measures for the rating."

"The company has, in our view, a satisfactory business risk profile supported by increased diversification of its investment portfolio and cost-competitive position of its hydroelectricity generation assets, with an increased proportion of contracted revenue. We also conclude that the company has an intermediate financial risk profile. Although financial measures (both consolidated and at the company level) are weak for the rating, we believe this is mitigated by strong financial flexibility, with the value of investments well exceeding company-level debt, and from its strategic relationship with its corporate parent, Brookfield Asset Management Inc. (Brookfield; A-/Negative/A-2)."

"The stable outlook reflects our view that BRPI's improved business risk profile and strong financial flexibility support the rating despite our concerns over its high debt level and resulting weak coverage measures for the rating."

"We believe that an upgrade is unlikely without substantial improvement in cash flow coverage measures with debt coverage exceeding 35% and interest coverage exceeding 5.5x on a sustained basis. We believe that, to achieve these targets, BRPI would need to have a more conservative use of overall and project-level leverage."

Brookfield Properties, Inc. is selling Brookfield Place to a new soon to be public entity, Brookfield Office Properties Canada. (BCR-UN.TO)

Brookfield Properties is selling Brookfield Place at a 5.5% cap rate. The cap rate incorporates a 98+% occupancy. I think it is fair to say that Brookfield Place would not be able to sell in an independent open market at under a 6 cap. They are selling to a related property for $866M.

I guess the new investors of the property will think they are getting great property (and it is) at a fair price. My guess is that in years to come we will end up seeing what a great deal this was for Brookfield, and how the new investors of Brookfield Place will come to find what a terrible deal they got. Maybe BAM would then buy this trophy property back at foreclosure.

The purchase price for the Brookfield Place Interest will be satisfied by the payment of approximately $100.0 million in cash, the assumption of debt and the issuance of Class B LP Units. Debt at 9/30/09 was 332,835, matures in 4/2013.

Using above cap rate is 5.53%. If one was to use a 7% cap rate, value would be $684M ($182M less). Also, the transaction is based upon the price of Brookfield Office Properties Canada. Offering to the public.

1435 sf building owned interest, and 86 parking according to 4Q09 Brookfield Properties portfolio listing.

Rossa O’Reilly (CIBC) mentioned in a note after the conference call, “As part of the transaction, the REIT would acquire the Bay Wellington Tower office building and Brookfield Properties’ interest in adjacent retail and parking facilities at Brookfield Place in Toronto, adding 1.8 million sq. ft. of premium, quality space to its portfolio.”

Avery in a recent note mentioned, "The acquisition of the flagship 181 Bay Street office tower of Brookfield Place in Toronto (albeit at a low, but appropriate 5.5% initial cap rate/yield [per Altus Group (AIF.UN–SO)], resulting in some dilution to near-term FFO
and AFFO)."

NOI appears to be $47.9. Looks sustainable. Unaudited. Looks reasonable when you see 9 month NOI in BPO Properties circular.

“As part of the Transaction, Brookfield Office Properties Canada LP will acquire from BPO the Brookfield Place Interest. The subsidiary of BPO that owns the Brookfield Place Interest will amalgamate with substantially all of BPP’s existing subsidiary entities to form BPP Sub Amalco and BPO will receive shares of BPP Sub Amalco. BPP
Sub Amalco will then sell the Brookfield Place Interest to Brookfield Office Properties Canada LP for a purchase price equal to approximately $866 million to be satisfied by the payment of approximately $100 million in cash, the assumption of debt valued at approximately $342 million and the issuance of approximately 20.3 million Class B LP Units valued at approximately $20.90 per unit.”

“Given that approximately 20.3 million BCR Units (having an aggregate net equity value of $424 million) will be issued to BPO as part of the consideration for the Brookfield Place Interest and that the Excluded Assets and Liabilities will be retained by BPP in exchange for a reduction of approximately 12.1 million BCR Units (having an aggregate net equity value of $252 million), approximately 8.2 million BCR Units will be issued to BPO, on a net basis, which accounts for the increase in BPO's aggregate equity interest from 89.7% in BPP to approximately 90.6% in BCR.”

"As a result of joint venture restrictions, BPP will retain its 25% undivided interest in the Canadian Office Fund properties, which consist of 7.6 million square feet of rentable commercial and parking space and 0.6 million square feet of development property. The Canadian Office Fund commercial properties include: First Canadian Place in Toronto, Ontario; 2 Queen St. E. in Toronto, Ontario; 151 Yonge St. in Toronto, Ontario; Altius Centre in 26 Calgary, Alberta; Place de Ville I and Place de Ville II in Ottawa, Ontario; Jean Edmonds Tower in Ottawa, Ontario; Canadian Western Bank Place in Edmonton, Alberta; and Enbridge Tower in Edmonton, Alberta. For purposes of the Transaction, BPP’s 25% undivided interest in the Canadian Office Fund has been valued at approximately $252 million."

“In addition, BPP will retain 3.2 million square feet of development properties including: surface and air rights in respect of the Bay Adelaide Centre north and east parcels in Toronto, Ontario; the Yonge Adelaide parcel in Toronto, Ontario; the residential development density rights referred to as “Brookfield III” in Toronto, Ontario; the Herald site in Calgary, Alberta; and the unused density rights associated with the Bankers Hall complex in Calgary, Alberta. As is the case with many real estate investment trusts, management of BPP is of the view that the value of non-income producing development properties would not be appropriately reflected in the market price of Trust Units. For purposes of the Transaction, these development properties have been valued at approximately $126 million.”

“Excluded Assets and Liabilities, which have been valued at approximately $252 million for purposes of the Transaction, will be retained by BPP in exchange for a reduction in the number of BCR Units to be issued to BPO of approximately 12.1 million BCR Units valued at approximately $20.90 per unit.”

March 24, 2010 (24.92) Some BHS stuff

Looking at the 10-K 2009

1. No related party transactions mentioned. Yet, there are dealings together, such as unsecured credit facilities with BAM, as well as the services of CFO, Craig Laurie. See item 7. directly below.

2. Total Equity is $486.313M compared to $262.519M in 2008. When you subtract out preferred stock of $249.688, you get total equity of $236,625 in 2009. You have a Deferred Tax Asset of 40,112 on the balance sheet. I would suspect that will be reserved at some point, which would bring down stockholder’s equity. Also listed in Equity is Non-Controlling Interests of $7.317M.

3. Shares outstanding are 28,402,299 as of 1/18/10. Using market price today of $8.52, you have market cap of $241.988M.

4. Included in Payables is $14.192M of Swap Contracts. Not commenting, just noting. I previously asked BAM the following: “BAM has a bit of hedging in most of their consolidated entities. Are any of the hedging gains, losses, mark to markets, as well as transactions being done by BAM related entities?” BAM would not comment on that question. Since no Related Party Transactions are listed, you would think that BHS has no derivative positions with BAM. Yet, I have not confirmed that to be the case.

5. No subsequent events listed in the 10K.

Looking at DEF14A

6. Ian Cockwell received $2.130M in compensation in 2009.

7. Although Related Party Transactions have no mention in the K. They are mentioned in the Def14A. These include, but are not necessarily limited to the following:

A. BAM owns 82% of BHS. This includes an assumption of full preferred conversion. Without conversion ownership is 60%.

B. There is a related party debt facility of $100M. The covenant requires a minimum stockholders Equity of $300m. See my note above regarding Stockholders Equity. If Preferred Stock was not listed as Equity, the threshold of $300M would be in violation.

C. “The facility contains covenants requiring us to maintain minimum stockholders’ equity of $300 million and a consolidated net debt to book capitalization ratio of no greater than 70%.” FYI from the balance sheet, the following consolidated debt exists. Project Specific Financings $231.567M, Revolving and Other $150M. Total debt I listed was $382M, if you add Stockholders Equity Adjusted of $237M; you get total capital of $619. Hence the debt / Adjusted Capital Ratio is 62%. If Deferred Taxes were reserved, the ratio would increase to 66%.

D. “We sublease our administrative offices in Toronto, Ontario from Brookfield, which leases the space from Brookfield Properties. We are required to pay approximately $100,000 per year in rent under our Toronto sublease, which expires in 2011.”

Other stuff

8. There are SEC comment letters with BHS that are worth reading. I do not recall their contents. Here is one response to a comment letter http://rbcpa.com/companies/BHS_SEC_Comment_Letter_response_20090630.pdf I questioned BAM if there were any other comment letters for BAM, BHS or subsidiaries. BAM informed me that they would not respond to my question.

9. 8K filed 1/6/10,” "On December 31, 2009, Brookfield Homes Corporation (the “Corporation”) paid a semi-annual dividend of $10,000,000 to holders of record of its $250,000,000 8% Convertible Preferred Stock, Series A. At its election, this dividend was paid by the Corporation issuing 1,608,567 shares of Common Stock of the Corporation at the volume weighted closing price of the Common Stock over the five consecutive trading days preceding the dividend declaration date of December 16, 2009, or approximately $6.21."

10. You can go to my old notes and then hit <control f> and search “Brookfield Homes” for other notes I took. My notes are here http://rbcpa.com/companies/BAM_notes.html

February 16, 2010 Brookfield Properties Releases Earnings - Initial Reaction

One needs to read SEC filing to get a clearer picture of the business and operations. In the mean time, these notes are just some thoughts on the Brookfield Properties, February 5, 2010 earnings release.

A. Page 19 of the 4Q09 supplement discusses Average In-Place Net Rent ($ per Sq. Ft.). The 2008 annual report indicates the following in regards to description of Net Rents. "Substantially all of our leases are net leases in which the lessee is required to pay their proportionate share of property operating expenses such as utilities, repairs, insurance and taxes. Consequently, leasing activity, which affects both occupancy and in place rental rates, is the principal contributor to the change in same property net operating income." Bryan Davis CFO explained," Brookfield typically collects Base Rent, and then all operating expenses. When you take the Base Rent Collected, less, Operating Expenses, you get Net Rent Reported." He said risk was that tenants were late or do not pay either rent and/or expenses, and if so, that would show up in Net rent numbers. Bryan stated, "Rent is collected at the NOI level.”

B. Brookfield recently "monetized" 90% of their interest in 1625 Eye Street in Washington, D.C. On page 35 of 4Q09 supplement, they list $96M as a "Receivable and Other Asset." According to Brookfield Properties, the offsetting amount is a loan payable of $92M and is a component of “Accounts Payable and Accrued Liabilities” on page 36. The remaining $4M represents their retention of 10% common equity interest.

C. I asked if either Brookfield Realty Capital Corp., (BRCC), or the $5B consortium would be buying any assets, or participating in the refinance of any of the Trizec, U.S. Office Fund, or other Brookfield Properties debt or assets. Bryan mentioned that is not why the entities are set up. He does not expect any of those types of transactions to occur.

D. We discussed Trizec and U.S. Office Fund. Blackstone and Brookfield Properties bought Trizec Properties for $7.6B. Blackstone owns 27%, and Brookfield owns 73%. Brookfield's ownership is owned by the U.S. Office Fund. Brookfield currently owns effectively 47% of the Trizec purchase. This is where it gets tricky. Brookfield Properties records the entire Net Operating Income of Trizec into the Brookfield Properties Financial Statements. They label this as U.S. Office Fund. Even though the U.S. Office Fund only owns 73% of former Trizec, Brookfield Properties still call it U.S. Office Fund. Eventually, they net out to their 47% ownership. This is explained on page 11 of the 4Q09 supplement. The Total NOI for Trizec is $571.50 (454.8 + 116.7). On page 11 of the 4Q09 supplement, in note (2) it is indicated that total non-controlling share of NOI in the U.S. Office Fund is $303M. The Total NOI for Brookfield Properties would be $268.61. This nets close to the 47% effective ownership by Brookfield. The Total NOI is greater than the Cash NOI. Total Cash NOI is presented as $440.60M for Trizec ($351.4+$89.2.). According to Brookfield Properties, their proportionate share is $207M. The $207M is 47% of the entire Total Cash NOI. The Total Cash NOI of $320M,which Brookfield has referred to throughout this note, is approximately 73% of the Total Cash NOI of Trizec ($440.60 * 73%).

Bryan Davis explained, the total Cash NOI for Brookfield's managed assets (73% of Trizec) was $270M at purchase, $320M currently, and expected to be $370M in 2011. This is Total Cash NOI, which according to Brookfield Properties, is expected to be less than Projected Total NOI. According to Brookfield Properties, this “was meant to illustrate the progress Brookfield has made in increasing rents and occupancy of the properties it manages for the benefit of Brookfield and its fund partners. As at the end of 2009 the amount was $350M but is inclusive of some lease termination income which may not repeat.” This was also discussed in the conference call. He explained the Total NOI and the Total Cash NOI is increasing because of higher rents and increased occupancies since purchase. He also mentioned, he felt this is the reason that Trizec has not lost as much value as traditional Commercial Real Estate bought during the same time period (end of 2006). Bryan Davis further explained, “the increase in Total Cash NOI of our managed portfolio, has helped offset the decline in value of commercial real estate, as a result of increasing cap rates and discount rates.” The supplemental schedule identifies “Intangible lease amortization,” and “Straight-line rental amortization,” as the accounts which reduce Total NOI to get to Total Cash NOI.

E. At NAREIT 2009, Ric Clark mentioned going in Cash NOI for Brookfield was $270M, and he projected $320M in 2011. Brookfield Properties explained, “Ric Clark mentioned at NAREIT that the Cash NOI when we took over our managed portfolio was $270M and based on leasing to date we expected that Cash NOI to grow to $320M by 2009 and to $370M by 2011.”

F. One is not able to reconstruct Trizec NOI’s prior to 2009. I had asked Brookfield the following. “Has your NOI reporting of Trizec stayed similar during the years? I would like to schedule the Total NOI's and the Total Cash NOI's since inception of US Office Fund. Yet, I am having difficulty since it appears that the reporting’s have changed. A supplement since inception, consistent with the reporting on page 11 in the 4Q09 Supplemental would be helpful. Is there a schedule you could supply that would put in a similar table, including the history of Trizec purchase, including the same information that you included in the 4Q09 supplement on pages 10 and 11? I would like to be able to break up the entire managed business, and the Brookfield ownership numbers. I am assuming the entire managed business includes the 27% Blackstone and the 73% Brookfield.” Brookfield Properties responded to this question with, “Please note that we are unable to provide any further information beyond what is included in our published supplemental information packets in relation to your request for analysis going back to 2006.” “Although we began disclosing managed versus non-managed US Office Fund NOI in Q4 2009, we will not be providing the same detail going back. So yes, you are correct: a history of Trizec NOI will not be made available to you or any other investor or analyst.”

G. Bryan Davis mentioned, “Non-managed assets are assets that are not managed by us, but instead managed by Blackstone, and in which Blackstone shares in the majority of the economics. Managed assets in the U.S. Fund include the assets that Brookfield Manages on behalf of itself and its fund partners.”

2. Guidance: EPS range of $1.25 - $1.33. Calculated under Canadian GAAP and IFRS. Assumptions are:

E. 2010 Sales of approximately 2,000 lots and 950 homes. In Conference call it was mentioned to break up by 10% in Q1, 10% in Q2, 25% in Q3, and 55% in Q4. Brookfield Properties subsequently mentioned, “This is the usual split for residential operations but not set in stone. Any change in the economy or large bulk sales could potentially swing these percentages.”

F. Exchange rate of $0.95USD to CDN. A strong CDN is positive for BPO, and visa versa.

A. Ric Clark said, “I wouldn’t be surprised if we don’t refinance some things for next year toward the end of the year. It is definitely likely.” He was referring to refinances after it made economic sense to do so. That would be prior to note maturing, but after any early payment penalty clauses.

C. Rossa O’Reilly asked if $250M pay-down of residential revolver was available to non-residential liquidity. The conference call indicated it was available to Brookfield; yet, I reviewed the audio, and could not determine if the answer is whether it is or is not available to non-residential. The transcript does indicate inaudible during this section. Brookfield did clarify this, “We do have the ability to allocate capital out of our residential business and into our commercial operations.”

4. Liquidity of $2B: - The following table was confirmed correct by Brookfield Properties.

We questioned the Affiliated Receivable on the books of BPO Properties, to Brookfield Properties of $85M. We asked if the $85M should be a reduction of liquidity, since it is showing up as Cash Equivalent on Brookfield Properties books, and as a receivable on BPO Properties books. Brookfield Properties responded, “We consolidate BPO Properties – so whatever cash they have at their level is included in the cash balances at our level and hence included in our liquidity. Whether BPO Properties has put the money on deposit with Brookfield Properties or with another financial institution, it is still $85 million of cash liquidity and gets reflected as such in our consolidated Brookfield Properties disclosure.” We need to ponder this further. Not material in dollars, yet the concept could be material in the future.

A. Common Shares Outstanding – Fully Diluted Shares outstanding are 516,712,705. This is an increase of 115,876,049, since 12/31/08. Weighted Average Common Shares Outstanding – Fully Diluted are 504,809,300, this is an increase of 113,693,754 since 12/31/08.

B. On page 4 of the Supplemental Schedule there are several per share amounts. Here is a comment from Brookfield Properties in regards to the table. “Common equity market cap is basically our common shares outstanding multiplied by the respective closing NYSE share price on the same day. If you look at slide 2 in the supplemental you can see the components and make the calculation. Book Value per share is calculated on slide 43 – it shows the components calculating the per share amount.”

The following is from page 43 of Supplemental and indicates Book Value per share. This may help in reconciling above. I have not yet attempted to reconcile.

1. Receivables and Other for $1,952. This includes a contra receivable and payable of around $96M from sale of Eye Street in DC. There is a contra payable on that of $92M. Also includes deposit of $648M with BAM (Per CC, BPO is receiving 100bps on this). Other Receivables are increasing. This is something to monitor. Also Prepaid Expenses and Other Assets have increased since 12/31/08 from $131M to $291M. This is something to watch for as a quality of earnings issue.

D. Cashflow Statement (Don’t be confused with unsupplied “Statement of Cash Flows.”)

2. Debt is being paid back quicker than amount being arranged. I computed net pay-downs of $590M. Yet, there was common and preferred issuance in 2009 (not including CDN$275 in 1/10) of $1,273M, during 2009.

If we use Gross NOI, a 60% LTV and a Cap rate of 7, the loan would be $4,898.40M. Hence, there would have to be cash infusion of $778.60M. One needs to seriously consider Cash NOI in the calculation of value.

If we use Cash NOI, a 60% LTV and a Cap rate of 7, the loan would be $3,776.40M. Hence, there would have to be cash infusion of $1.9B.

In regards to cap rates, this is what Brookfield Properties mentioned, “We have seen cap rates based on both NOI and cash NOI but analysts typically focus on cash NOI.”

F. Looks like easy maturities on Commercial Property Debt in 2010. $84M proportional, and $86M consolidated. This does not include the $100M Term facility or any of the other BAM revolvers. Revolvers of $300M and $413M are not tapped as of 12/31/09.

G. Corporate Capital Securities have increased to $1,099M at 12/31/09, from $882M at 12/31/08.

H. Preferred Subsidiary Preferred Shares have increased to $363M at 12/31/09, from $313M at 12/31/08.

I. Corporate Preferred Shares have increased to $304M at 12/31/09, from $45M at 12/31/08.

Trizec Properties
	Full Portion		US Office Fund Portion		BAM Portion
	100.00%		73.00%		47.00%

Total Cash NOI 12/31/09	$441		$322		$207

Total Consolidated Debt	$5,677		$4,144		$2,668

Value based on Cap Rate	Value	LTV	Value	LTV	Value	LTV

5.00%	$8,812	64%	$6,433	64%	$4,142	64%
6.00%	$7,343	77%	$5,361	77%	$3,451	77%
6.50%	$6,778	84%	$4,948	84%	$3,186	84%
7.00%	$6,294	90%	$4,595	90%	$2,958	90%
7.50%	$5,875	97%	$4,289	97%	$2,761	97%
8.00%	$5,508	103%	$4,020	103%	$2,589	103%
8.50%	$5,184	110%	$3,784	110%	$2,436	110%
9.00%	$4,896	116%	$3,574	116%	$2,301	116%
9.50%	$4,638	122%	$3,386	122%	$2,180	122%
10.00%	$4,406	129%	$3,216	129%	$2,071	129%

Back of envelope of potential outcome at refinance of Trizec debt, using Brookfield Properties projected Total Cash NOI’s:

The above does not impute a capex reserve. It is our understanding that this is typically $0.20 per square foot. Trizec has 30,902,000 square feet. The capex reserve at $0.20 would be $6.2M.

If Trizec was to be refinanced in full (not just 2011 maturities), and if the above assumptions were achieved, it looks as though creditors would need to put in just under $1B in 2011. Of course, perhaps LTV would be 70%, not 65%. Or LTV could be 50% or 60%. Cap rate could be 8.5%, or perhaps 6.5%. Interest rate could be 6% or 8.5%. DSCR amortization requirements could be 10 years, or could be 30 years.

The above is a quick back of envelope analysis. There could be errors. I will try to work on this in the future.

Here is one way to determine the amount Trizec might be able to refinance. Granted, the full $5.7B is not coming due in 2011. Over $3B is coming due.

The entire Trizec entity is put on the financials of BPO. Eventually BPO apportions out, all but their 47% ownership. BPO is projecting Cash NOI for Trizec in 2011 of $370 for the 73% managed assets, and $238 for their own ownership.

Here is one step I have worked on.

1. Interpret the projected Cash NOI in 2011 for the entire entity. BPO projects $506M. You could increase or decrease from there. I would use $450M, $475M and $506M.

2. Impute a capex reserve. I think that $0.20 per square foot is typical.

3. Determine what NOI you would like to use, or use a variety of NOI's. I would use 6%, 7% and 8%.

4. Determine the interest rate and amortization period to be used. I would use both 25 year and 30 year. I would also use an interest rate assumption of 6.5%, 7% and 7.5%.

5. Determine expected minimum debt service coverage ratio. I would use 1.3, 1.5 and 1.75. Debt Service Coverage Ratio is NOI / Debt Service Costs (Principal and interest.)

6. The above will give you the maximum expected total loan.

Here is a quote, mentioning Trizec, from Blackstone (BX) 12/31/09 10-K.

Delloite is auditor for both BAM and BX. Hence, in theory we would expect the future and discussions should be consistent from both parties.

"Specifically, the decline in these funds was primarily driven by unrealized valuation reductions for Boca Resorts, Inc., Wyndham International, Inc., Equity Office Properties Trust, Trizec Properties, Inc. and Hilton Hotels Corporation."

BPO reported 2009 Cash NOI of $327 million through September for the US Fund, which annualizes to $436 million or a 5.9% cap rate based on the US Fund book value of $7,343 million at the end of 3Q09. Keep in mind that the NOI listed (from BPO report) includes all of Trizec, and is not merely BPO's portion.

Hence, for BPO ownership allocation one needs to reduce to 47%.

On the P&L side, all of Trizec is included, including the income and expenses associated with the properties managed by Blackstone. 100% of BPO's ownership in each property is reflected in Brookfield Properties NOI.   Interest expense on all of the debt within the Fund is also reflected. The minority share of these items is reflected in the non-controlling interests expense line on the P&L. Bottom line is FFO reflects the approximate ownership interest in the US Fund.

The debt coming due in 2011 (not including 2010), as per 3Q09 Interim Report for Brookfield Properties only is:

$1,845 US Office Fund. This is not the consolidated debt, or US Office Fund debt, but the proportional debt to Brookfield Properties in 2011 only. (Remember there is 2010 debt and other property debt coming due as well.)

In relation to Trizec. US Office Fund has $426M of Redeemable equity interests for the Blackstone Put in 2011. This is only if Blackstone exercises the PUT. If so, Brookfield Properties will be responsible for 62% of that, or $264M.

Trizec was purchased for around $7.5B. Current Value is probably in the area of $4B (loss of 47%) to $5.5B (loss of 27%). Full Debt owed is $5.7B.

It is my understanding that much of the debt is non-amortizing at this point.

Using an annualized 2009 projected NOI of $436M.

If cap rate is 7%, the value would be $6.2B.
If cap rate is 8%, the value would be $5.5B.
If cap rate is 9%, the value would be $4.8B.

These assumptions include constant rent and occupancy. Even under a 7% cap rate scenario, I think a 92% LTV is remote, if not impossible.

In my notes I mentioned Ric Clark with a $270M NOI at purchase and then mentioned a $320M NOI.

Ric Clark (at NAREIT) was talking about the $270M NOI at purchase. He also was projecting forward the 2011 expected NOI of $320M. Both of these comments referred to the US Office Funds 73% ownership of Trizec. None of these statements included the NOI of the buildings managed by Blackstone (27%).

The ownership is now 47%, via subsequent changes between I think Blackstone and Brookfield. Here are some notes of mine from June 2009 (These notes refer to the then 45%).

1.   Brookfield Properties through its US Office Fund acquired 73% of Trizec with Blackstone acquiring the remaining 27%. Brookfield owns a 62% interest in the US Office Fund with institutional partners owning the balance.

2.   Brookfield’s effective interest in Trizec is 45% (62% * 73%)

3.   Brookfield is required to consolidate the Trizec structure and as a result records 100% of the assets and debt on its balance sheet and nets down to its 45% effective interest through two balance sheet line items: "Non-controlling Interests – Fund Subsidiaries" and “Capital Securities – Fund Subsidiaries.”

4.   The US Office fund square footage listed in BPO's disclosure documents (1Q09) is inclusive of all assets at 100%.

5.   Brookfield does not manage Blackstone’s assets (Midtown Manhattan and Los Angeles) and as a result has provided identified these assets in their disclosure documents in italics with a footnote describing them as “non-managed.”

6.   The joint venture agreement with Blackstone provides for a put/call as well as a valuation and cash flow ‘true-up’ which are described on page 63 of BPO's 2008 Annual Report.

7.   The $270 million of NOI referred to (at NAREIT), represented the NOI from the buildings managed by Brookfield through its US Office Fund or 73% of total NOI at acquisition date. It did not refer to the NOI from the buildings managed by Blackstone (or 27%).

8.   Applying a 5% cap rate to the NOI at inception would result in a value of $5.4 billion ($270 / 5%) for the assets managed by Brookfield through the US Office Fund (or 73%).

9.   The $320 million of NOI referred to(at NAREIT) represented the NOI from the buildings managed by Brookfield through its US Office Fund or 73% of total NOI expected in 2011. It did not refer to the NOI from the buildings managed by Blackstone (or 27%).

I think the next round of CRE financings in might be "loan to owns." Meaning, the lending entity, takes the burden off of the current lender, who is stretched and forced to extend or take back property. Many of these lenders or entities, do not want the property, or can not afford the property, and they have been using the philosophy of "pretend and extend." The new lenders I foresee, will make sure monies are available, with plenty of cushion in a carefully constructed Loan to Value, and when the short term band aid comes due, it is my belief that the new entity will swiftly take control of such an asset.

I think this is where the new great investments will be. Brookfield, in my opinion, was once such a type of company, and in my opinion, it is possible, that they will lose material assets and equity, to this type of event.

Questions I asked BAM on February 2, 2010 (BAM indicated they will get back to me after February 19, 2010.)

1. Will any of the new consortiums be buying assets or monetizing assets of any BAM or BAM related investments. Are there any provisions the outside investors discussed or signed off on in regards to related party transactions?

2. Would you please explain in detail the related party sale, gain and contract amendment with Great Lakes Hydro from 3Q09? Was this amendment identified in the prospectus prior to the transactions? Specifically look at the contract amendment on Brookfield Renewable Power which seemed unexpected, and I think was paid to BAM for $349M, and see if that was part of the realization gain on BAM books for 3Q09. Interesting that BAM recorded 3 month net income of $112M. Would there have been a Net Loss had the related party realization gain of $346M not occurred? Was the $346M realization gain also part of the $349M contract amendment?

3. On page 7 of the Q3 / 2009 Supplemental Information you wrote the following, “We believe that our underlying values have increased by at least this much over the first nine months of the year with the result that our current deconsolidated debt to total capitalization ratio has improved from the 15% ratio at the beginning of 2009. Our proportionate debt-to-total-capitalization ratio was 44% at the beginning of the year and we believe that it also has improved as a result of increases in underlying values and lower debt levels.” Your stock price was at $15.27 on 12/31/08 and $22.71 on 9/30/09. Haven’t your ratios increased because of the stock price increase?

4. You have High-yield bonds and distressed debt of $411M on 9/30/09; this is up from $60M in June 2009. Are any of these assets related party assets? Does BAM categorize some related party purchases of investments to this section?

5. Please explain the Loans Receivable of $388M on 9/30/09. Again, is any of this from related parties?

6. Has the SEC or SEDAR issued comment letters to any of the consolidated entities other than Brookfield Homes?

7. It is my understanding that Trizec debt is partially owned by BAM. Please elaborate. What was cost and what is current carrying value? Are there any impairments? Is any of the Trizec of Brookfield Property consolidated debt in a special servicing situation, any delinquencies or delayed payments (even if accepted by lender)? You discussed CMBS financing in your shareholder letter, and that you primarily utilized “traditional mortgage financing.” Do you consider primarily interest only loans (i.e. 1 Liberty Plaza) as traditional? Does the ownership of Trizec paper at all conflict with your theory of leverage and excess liquidity offered to entities prior to the “crisis?”

8. Your 3Q09 shareholder letter stated, “Notwithstanding the challenging business environment, we recorded strong results for the quarter, generating cash flows from operations of $520 million, which compares favourably with $355 million last year. These results were assisted by our disposition of a portion of our investment in Canadian power plants.” Was any of this not a result of a related party transaction? Did any of this include the contract amendment of $349M?

9. BAM has a bit of hedging in most of their consolidated entities. Are any of the hedging gains, losses, mark to markets, as well as transactions being done by BAM related entities?

10. Why did Brookfield Properties buy certain assets from Western Forest Products (a consolidated BAM entity)? We know that Western Forest is distressed, and wondering if there were synergies as to why Brookfield Properties bought the interests?

11. You mentioned in your 3Q09 shareholder letter, “Unfortunately, many new investors entered the market over the past four years and made at least one of three fatal mistakes. They either: (1) paid too much; (2) had growth assumptions that were too high; or worst of all, (3) employed excessive debt leverage." You wrote that in connection with Infrastructure Assets. Yet, please describe if you think that any of the large purchases by BAM over the last 4 years were also part of such a group. Multiplex and Trizec seem to fit that mold. Please explain.

12. You also mentioned in the 3Q09 letter, “And while the capital markets’ recovery has allowed a number of property companies to refloat themselves on their own, there are many other situations where the clock is ticking and where major deleveraging may be required. Those who have no credible sponsor with the necessary capital represent suitable opportunities for us to assist with their recapitalizations.” Please elaborate that in regards to Trizec. It seems as though the LTV and current conditions will not allow for a refinance. The LTV is generally known to be underwater.

13. I find it interesting that your 3Q09 shareholder letter mentioned, “simple-to-understand assets.” To me, the structure of BAM as an entity, with all her tentacles, seems hardly “simple-to-understand.” Please elaborate. BAM did answer this. Here is their response. "The Letter said the assets/businesses are simple to understand. That is the business, industries, etc. related to power, real estate and infrastructure are pretty straightforward. They are cash flow generating assets that tend to increase in value over time, require minimal capex with high barriers to entry. In many cases they are regulated businesses.

You are making a different point, in that the accounting may be complex. We do disagree with that."

I responded with the following. I think the complexity is not in the accounting, but in the nature of your set up.

BAM answered this with, "I think we are saying same thing a little differently re: the complexity issue. The assets/businesses themselves are not complex. It is how we own them and account for them – through both public and private vehicles."

14. Do you consider Capital Securities and Preferred Stock to be Equity or Liabilities?

BAM filed a 13-G in respect to their ownership of Brookfield Properties on February 2, 2010. They previously owned 50.1%, and now own 49.7%.

I am not sure if they are still required to consolidate BPO into BAM now. As a general rule, if a company owns 50% or greater shares, they are required to consolidate.

Going from memory, I think BAM would still consolidate BPO for 2009, since they owned > 50% for most of the year. Obviously, BAM exercises control over BPO. I just don't remember what happens with 49.7%.

The following is from The US GAAP GUIDE.

"In substance, a single economic or accounting entity exists when one company (investor) owns a controlling interest in another entity (investee). (FASB ASC 810-10-10-1) (formerly ARB 51, par. 1) In such cases, consolidated financial statements are presumed to be more meaningful than separate financial statements, and an investor should issue consolidated, rather than parent company financial statements, as its primary financial statements. (FASB ASC 810-10-45-11) (formerly ARB 51, par. 24)

Usually, a controlling financial interest is evidenced by ownership of a majority voting interest. Thus, as a general rule, when a company directly or indirectly owns more than fifty percent of the outstanding voting shares of another entity, it should account for its investment through consolidation unless—

a. control does not rest with the majority owners (for example, if an entity is in legal reorganization or operates under foreign exchange or governmental restrictions so severe that they cast significant doubt on the owners’ ability to control the entity) (FASB ASC 810-10-15-8 and 15-10) (formerly ARB 51, par. 2), or

b. noncontrolling shareholder(s) have certain approval or veto rights that allow the minority shareholder(s) to participate in significant decisions related to the investee’s ordinary course of business. (FASB ASC 810-10-15-10) (formerly EITF 96-16.

Consolidation also is required when the controlling financial interest is achieved through means other than ownership of a majority voting interest. In certain situations, an entity that has a variable interest in another entity is required to consolidate the variable interest entity (VIE). (See paragraph 12.228)"

I imagine this will be addressed if any changes from consolidation are made. Just something that caught my eye. I did question BAM on this, and here was their response. They did confirm to me that BAM will still consolidate BPO. Here was their reply. The confirmation was not sent till later that day, hence not included in their reply.

"The annual 13G filing reports BAM’s common share interest in BPO is 49.7%. What it does not show is that BAM has ownership of Redeemable Voting Preferred Shares, which give us control over the 50% level. For background, see the information on Redeemable Voting Preferred shares from BPO’s annual information form from last year.

At March 17, 2009, Brookfield Properties had outstanding 391,118,440 common shares and 14,201,980 Class A Redeemable Voting

preferred shares. If you are a holder of common shares or Class A Redeemable Voting preferred shares of record at the close of business

on March 17, 2009, the record date established for the receipt of meeting materials and for voting in respect of the Meeting, you will be

entitled to one vote in respect of each such share held by you on all matters that come before the Meeting. For a description of the

procedures to be followed if you are a Non-Registered Holder to direct the voting of shares beneficially owned, see “Non-Registered

To our knowledge, the only person or corporations beneficially owning, directly or indirectly, or exercising control or direction over,

securities of Brookfield Properties entitled to vote at the Meeting carrying more than 10% of the votes attached to any class of

outstanding securities of Brookfield Properties is Brookfield Asset Management Inc. (“BAM”), which, directly and indirectly, owns

197,383,928 common shares and 13,796,870 Class A Redeemable Voting preferred shares as of December 31, 2008, being

approximately 50.5% and 97.1%, respectively, of the outstanding shares of each such class. BAM is focused on property, power and

infrastructure assets and has approximately $80 billion of assets under management. BAM’s shares are listed on the New York and

Toronto stock exchanges (the “NYSE” and “TSX”, respectively) under the symbols BAM and BAM.A, respectively, and on Euronext

National Bank Financial has issued a report on Brookfield Properties. Their thesis is basically that BPO has world class assets, low relative valuation, great investment potential with new consortium, upside to Manhattan and residential businesses. They mention that BAM owns 50.5% of BPO. That is now adjusted (as of this morning) to 49.7%. They feel that the Merrill space coming due in 2013 is an opportunity and not a risk. Interesting take. Not saying it is wrong. I have heard this before. I don't buy it, but certainly possible, and a lot can happen in 3 years. They identify other risks that all companies have. This includes cap rates, Merrill, economy etc.

What they did not surprisingly identify as a risk, is that they have over $3 BILLION coming due in less than 22 MONTHS.

Someone made the following statement in regards to our analysis. "Do you really think BAM/BPO would go through all the effort and exposure to announce a $5.5 billion real estate turnaround consortium if they weren't totally confident in their ability to refinance the Trizec debt? Of course not!"

I disagree. I think if BAM/BPO could get commitments on $5.5B, take it , why not. Perhaps you are on the industry inside, and have more info then us. Very possible as well, that BPO could refinance Trizec. Perhaps there will be a "loan to own financing." Maybe BPO puts in enough equity, to get loan refinanced for 1 - 5 years, and unlike a current lender, the future lender would have no issues foreclosing. On top of this, if things were so grand, why would ratings agencies be downgrading BPO credit, as they have. S&P ratings watch negative 5/09.

The same person mentioned, "At every CC throughout this credit crisis BPO has made it clear that they were going to be a buyer of distressed properties, not a seller. At the Q3 call Ric Clark stated that he hoped to announce more details on the Trizec refinancing plan in early 2010, although he was obviously reluctant to get into details as they are in the middle of negotiations. "

Here are some mentions of possible sale options for Trizec (US Office Fund assets). I really did not see discussions of being a buyer of distressed properties.

3Q09 BPO CC

Ric Clark - Brookfield Properties - CEO

"Assets within the US fund, there is some structuring that needs to be done before we're kind of in a position to sell them. So, it's not likely that in the next couple of months we'll be doing any transacting within the US office fund, though I will say there are a couple of assets within the fund that Dennis has been working on as possible sales options. So, it's probable that at some time during 2010, we'll have a couple of mature assets within the fund that we sell."

2Q09 BPO CC

Dennis Friedrich - Brookfield Properties Corp - President, COO - US Commercial Operations

"Yeah, John, on terms of the sales of assets within the Trizec we can sell assets. There is, we have to pay release prices but there's not constraints that prevent us from selling the assets."

Steve Douglas - Brookfield Properties Corp - President

"Looking past 2009, we have no major maturities to deal with in 2010 and remain focused on the refinancing of our 2011 maturities including the US Office Funds mezzanine debt. Brookfield's share of the debt on this US Office fund is $1.8 billion which is recourse only to the assets of the fund and matures in October 2011, and it was our intention to repay or refinance the facility through a combination of new asset level financing and to asset sales, following our efforts to increase the underlying cash flows of the assets through our leasing initiatives."

Ric Clark - Brookfield Properties Corp - CEO

"Our first major refinancing comes in late 2011 relating to our US Office Fund. At this point it's too early to give any specific update on the status of this, but I can assure you we're actively working on this and expect to have a refinancing recapitalization solution in advance of the maturity."

4Q08 BPO CC

Steve Douglas - Brookfield Properties Corp - Incoming President - Corporation

"Looking past 2009, we have minimal maturities to deal with. And we will turn our attention to refinancing our 2011 maturities including the US Office Fund Mezzanine debt."

"Brookfield share the debt on the US office fund; approximately it's $1.6 billion which is recourse only to the assets of the fund. It is our intention to repay this facility through a combination of new asset level financing and through asset sales, following on our efforts to increase the underlying cash flows of these assets through our leasing initiatives. We have been actively positioning these assets, some assets for sale commencing later this year. But we anticipate a more robust environment at 2010 for asset sales.

Our capital plan does not currently anticipate having to inject additional equity over and above what we have already invested as the Fund continues to generate positive cash flow."

On January 10, 2010, Brookfield Properties reported an issuance of Preferred Shares, Series N will be issued at a price of C$25.00 per share, for aggregate proceeds of C$150M.

It is my understanding, there might be another 2M share increase over the original 6M, bringing a total potential of C$200M to Brookfield.

Series N will be entitled to receive a cumulative quarterly fixed dividend yielding 6.15% annually for the initial 6
[1/2]-year period ending June 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 3.07%.

General corporate purposes are stated as the use of the funds.

DBRS assigned a rating of Pfd-3 (high) with a Stable trend.

http://dbrs.com/about/ratingScales

"Pfd-3 - Preferred shares rated Pfd-3 are of adequate credit quality. While protection of dividends and principal is still considered acceptable, the issuing entity is more susceptible to adverse changes in financial and economic conditions, and there may be other adverse conditions present which detract from debt protection. Pfd-3 ratings generally correspond with companies whose senior bonds are rated in the higher end of the BBB category."

"On December 31, 2009, Brookfield Homes Corporation (the “Corporation”) paid a semi-annual dividend of $10,000,000 to holders of record of its $250,000,000 8% Convertible Preferred Stock, Series A. At its election, this dividend was paid by the Corporation issuing 1,608,567 shares of Common Stock of the Corporation at the volume weighted closing price of the Common Stock over the five consecutive trading days preceding the dividend declaration date of December 16, 2009, or approximately $6.21."

Brookfield Asset Management Inc. announced that as a result of strong investor demand for its previously announced public offering of Preferred Shares, Series 24, it has agreed to increase the size of the offering from CDN$150,000,000 to CDN$275,000,000 or from 6,000,000 Preferred Shares to 11,000,000 Preferred Shares. There will not be an underwriters' option, as was previously granted.

Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM)(EURONEXT:BAMA) announced today that it has agreed to issue to a syndicate of underwriters led by Scotia Capital Inc., CIBC, RBC Capital Markets, and TD Securities Inc. for distribution to the public 6,000,000 Preferred Shares, Series 24. The Preferred Shares, Series 24 will be issued at a price of $25.00 per share, for aggregate gross proceeds of CDN$150,000,000. Holders of the Preferred Shares, Series 24 will be entitled to receive a cumulative quarterly fixed dividend yielding 5.40% annually for the initial period ending June 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.30%.

Holders of Preferred Shares, Series 24 will have the right, at their option, to convert their shares into cumulative Preferred Shares, Series 25, subject to certain conditions, on June 30, 2016 and on June 30 every five years thereafter. Holders of the Preferred Shares, Series 25 will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.30%.

Brookfield Asset Management Inc. has granted the underwriters an option, exercisable in whole or in part at least two days prior to closing, to purchase an additional 2,000,000 Preferred Shares, Series 24 at the same offering price. The Preferred Shares will be offered by way of prospectus supplement under the short form base shelf prospectus of Brookfield Asset Management Inc. dated January 12, 2009. The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

The net proceeds of the issue will be added to the general funds of Brookfield Asset Management Inc. and be used for general corporate purposes. The offering is expected to close on or about January 14, 2010. The preferred shares may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

BAM Sues AIG Over Interest-Rate Swap Pact (12/22/09)

"American International Group Inc. is asking a federal judge to throw out what the company calls a "lottery ticket" lawsuit filed by Brookfield Asset Management Inc., which alleges "certain bankruptcy events of default have been triggered under the parties' standard-form swap agreement" about 20 years ago, according to court papers.

In a motion to dismiss filed in U.S. District Court for the Southern District of New York, AIG contends that if Brookfield's allegations were true, "it would be inexplicable that not a single other counterparty has sought to assert the same position" as Brookfield, which claims the federal government's bailout of AIG was tantamount to a bankruptcy default.

"Brookfield is desperately trying to evade a more than $1 billion obligation owed to AIG," said spokesman Mark Herr. "We believe Brookfield's position is without merit and should be rejected."

In its lawsuit filed late September 2009, Brookfield said the swaps entered into in 1990 were automatically terminated "as a result of AIG's recent financial collapse." According to court records, Brookfield said several provisions within the swap deal, which was meant to protect each party from the other's severe financial distress, were "plainly triggered." AIG has refused to concede a default as outlined by the swap, Brookfield said in its suit.

AIG writes in court papers that Brookfield "purchased a litigation 'lottery ticket' and hopes to pull off a massive and inequitable $1.2 billion windfall, notwithstanding the fact that their claims lack a legal or factual basis." Brookfield's legal action "flies directly in the face of the federal government's goal in deciding to provide financial assistance to AIG: to prevent AIG from triggering the very kinds of defaults that (Brookfield) now claims were nonetheless triggered" and under this theory, "the billions that the federal government has invested in AIG was for naught."

December 17, 2009 (21.71) Error in our covenant and change of control provision analysis.

If you 'Ctrl - F' you can search terms "change of control" or "coven" Upon further research, we were made aware of an error. We thank that person for pointing out the error. A change of control is not triggered merely by a below investment grade rating. I think the correct answer is, if there is a change in ownership, over a specified percentage, and then , and only if the change of control happened, would there be a potential triggering event with a credit downgrade. Hence, if BAM or BRPI were brought below investment grade rating, the respective notes would not be affected in terms, calls, or anything like that.

This was corrected on 10/22/09 as I inadvertently missed a 3 for 2 Stock Split on June 4, 2007.

Greater maturities in 5 years. Greater Maturities to Capital. Increased Debt Levels. Lower coverage ratios. Greater Debt to Capital. Greater underfunded pension. Greater preferred stock. Share count has decreased. Revenues have increased 60%. Revenues Per Share have increased 67%. EPS has decreased 60% . Book Value has increased by 15%. Cash Flow per share has increased by 8%. Decrease in tax rate, which leads to higher NI. Yet, that could be a sign that higher NI is not sustainable. Negative Working Capital now. Lower returns on equity and capital. Higher ratio of Dividends to Profits. Increased Institutional Holders. Fitch IDR was BBB+ in 3/07, now BBB.

September 30, 2009 Fitch Ratings has downgraded the ratings on Brookfield Asset Management

Fitch Ratings has downgraded the ratings on Brookfield Asset Management (NYSE and TSX: BAM) as follows:
--Issuer Default Rating (IDR) to 'BBB' from 'BBB+';
--Unsecured line of credit to 'BBB' from 'BBB+';
--Senior unsecured notes to 'BBB' from 'BBB+'.

"The Rating Outlook is Stable.

"The lower ratings reflect Fitch's concerns as to the overall sustainability of cash flows from BAM investments within its diversified business portfolio, particularly given its large exposure to commercial real estate and the wholesale power markets."

"The complex corporate structure and sizable number of related-party transactions continue to be rating concerns."

"BAM's ratings continue to be supported by high cash flow coverage of its corporate debt service and low leverage at the BAM level. The ratings are further supported by a strong management track record, geographic diversification of investments, relative strength in cash flows from assets under management, and demonstrated access to third party capital at both the corporate and asset levels during a very challenging fundraising environment over the past year. In addition, BAM is relatively better positioned to weather the current economic challenges as it owns interests in premier portfolios of office buildings in major financial centers including New York, London, and Toronto with strong tenancy and manageable lease maturities. Similarly on the power side, BAM owns over 4,000MW of hydroelectric generation with a stable revenue stream as approximately 70% to 80% of output is contracted over the next two to 12 years. Hydroelectric generation benefits as the lowest cost generator of electricity, modest capital expenditure requirements, and is environmentally friendly.

Fitch also notes that BAM actively acquires and divests investments and the composition of its portfolio has shifted over time. BAM's assets under management have grown materially in recent years, as the businesses that the company controls have added scale, and the company has actively sought partners for the bulk of its investments."

"Fitch is comfortable that BAM has access to at least $1.06 billion of sustainable annual cash flow based on investments held on June 30, 2009."

"Fitch estimates that current cash flows are ample to service its corporate obligations, which included $2.9 billion of term debt held directly or guaranteed by the company, $100 million of commercial paper and bank borrowings, and $600 million of convertible preferred securities at June 30, 2009. Additionally, BAM has the ability to monetize some investments as necessary to fund obligations.

BAM's corporate debt maturity schedule is reasonable, with $200 million of corporate maturities over the next two years and minimal exposure to variable-rate debt.

BAM maintains a strong liquidity position and financial flexibility with access to a wide variety of global capital sources. On June 30, 2009, BAM had $536 million in cash on hand and approximately $1.3 billion in unused capacity through committed, unsecured credit facilities. Additionally, BAM maintains a pool of highly liquid marketable securities that could be liquidated in a relatively short period of time."

If they purchased 8.45% for ~$185M USD, then full value would extrapolate to $2.1B. If I recall BAM owns 15% of Canary Wharf. BAM sold their interest in Canary Wharf on 12/3/08 to Brookfield Europe LP in exchange for an approximately 42% limited partnership interest in Brookfield Europe LP with a fair market value of £333,800,000 and cash proceeds in the amount of £107,600,000."

If I interpret the above correctly, BAM sold their 15% interest in Canary Wharf for £441M. I think that equated to $524 USD on 12/03/08.

That looks as though BAM valued Canary Wharf in full for $3.5B.

Perhaps I made an error. Of course valuations may differ based on time, needs of seller, needs of buyer, etc. Here are questions or comments I would have in respect to above.

1. Are my assumptions, givens and interpretations correct?

2. Account for the difference of entire valuation of $2.1B valuation in todays sale, versus $3.5B using BAM's metrics in sale.

3. Via the sale to a related party, was a gain recorded? BAM has preveiously claimed the following: "The sale was by Brookfield Investments Corp., a 100% owned subsidiary. Therefore there is no income recognition on the transaction." Hence, I have no reason to believe that any gain was recorded.

4. Were there a step of assets on the GAAP balance sheet due to this? BAM affirmed on page 43 of 1Q09,that Canary Wharf is being reported at Historical Cost. I can not verify that since Canary Wharf was sold to a related party. I do not know if the asset was marked up in a similar fashion that Pingston Power and Prince Wind was, when Sold to Great Lakes (related and consolidated subsidiary). What value is being used for IFRS?

5. Would BAM have been able to generate such a sale to an unrelated party for simialr proceeds?

6. Were the proceeds of this sale reflected in the increased liquidity and monetizations that BAM has been discussing this year, and at 2009 Investor Day?

"NEW YORK, August 31, 2009 – Brookfield Properties Corporation (BPO: NYSE, TSX) announced today that it has agreed to issue to a syndicate of underwriters led by CIBC and Scotia Capital Inc. for distribution to the public, 6.0 million 6.75% Preferred Shares, Series L. The Preferred Shares, Series L will be issued at a price of C$25.00 per share, for aggregate gross proceeds of C$150 million. Holders of the Preferred Shares, Series L will be entitled to receive a cumulative quarterly fixed dividend yielding 6.75% annually for the initial five year period ending September 30, 2014. The dividend rate will be reset on September 30, 2014 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 4.17%.

Holders of Preferred Shares, Series L will have the right, at their option, to convert their shares into cumulative Preferred Shares, Series M, subject to certain conditions, on September 30, 2014 and on September 30 every five years thereafter. Holders of the Preferred Shares, Series M will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 4.17%.

Brookfield Properties Corporation has granted the underwriters an over-allotment option, exercisable in whole or in part anytime up to 30 days following closing, to purchase an additional 900,000 Preferred Shares, Series L at the same offering price. Should the over-allotment option be fully exercised, the total gross proceeds of the financing will be C$172.5 million.

The Preferred Shares, Series L will be offered by way of a short-form prospectus filed with securities regulatory authorities in all provinces of Canada.

The net proceeds of the issue will be added to the general funds of Brookfield Properties Corporation and be used for general corporate purposes. The offering is expected to close on or about September 24, 2009."

The following is a press release from Standard & Poor's:

OVERVIEW

-- We assigned our 'BB+' global scale rating and our 'P-3 (High)' Canadian national scale rating to Brookfield Properties Corp.'s new C$250 million preferred share issue (series L).

-- The preferred shares will be listed on the Toronto Stock Exchange.

-- Our ratings on Brookfield acknowledge the comparatively favorable second-quarter performance for the company's well-leased and high-quality office portfolio, as well as its currently reduced exposure to development
activity.

-- However, our negative outlook continues to reflect our concerns regarding very challenging and competitive office market fundamentals, an above-average leverage profile that results in weak fixed-charge coverage metrics, and sizable debt maturities in 2011 related to joint ventures.

1. During 2009, BAM purchased 3,200 residential lots in Riverside County, California through two court foreclosure proceedings. I need to find out if any of these purchases were via related parties, instruments or joint venture partners. I am assuming not, but would like verification.

2. In the BAM 2Q09 report they discussed the sale of substantially all of their Canadian Hydroelectric generation assets to a Great Lakes Hydro Income Fund. Great Lakes is consolidated into BAM. I found it interesting that they mentioned the following. “…as we purchase a substantial part of the electricity generated by the Fund on a fixed price basis and then re-sell it along with the electricity produced by the balance of our operations.” I find it interesting to see if they will be selling electricity, in materiality, to other related parties.

3. BAM is using a capitalization rate of 7.6% to value their power generation portfolio. A 100- basis point change in the discount rate and a 10% change in long-term power prices is claimed to change the valuation by $0.9 billion. I find a 7.6% capitalization rate for an operating entity to be low by at least 2.4% (or 240 basis points.)

4. During 2Q09 BAM recognized a gain and earnings of $65M for the exchange of debt into common shares. This seems to be a regular type situation for BAM with other subsidiaries as well.

August 28, 2009 Fitch Rates Brookfield Incorporacoes' First Debentures Issuance 'A+(bra)'

“SAO PAULO & RIO DE JANEIRO, Aug 28, 2009 (BUSINESS WIRE) -- Fitch Ratings has assigned the national long-term debt rating of 'A+(bra)' to the proposed first simple debentures issuance, not convertible into shares, of Brookfield Incorporacoes S.A. (Brookfield Incorporacoes), in the total amount of BRL100 million, with final maturity on Sept. 1, 2013. The proceeds will be used for company general purposes. Fitch has already rated Brookfield Incorporacoes' foreign and local currency Issuer Default Ratings (IDRs) 'BB-', and national long-term rating 'A+(bra)'. The Rating Outlook of the corporate ratings is Negative.

Brookfield Incorporacoes' ratings reflect the integration of the company's operations, which include a solid and geographically diversified land bank (Potential Sales Value (PSV) of BRL14.4 billion in June 2009); the strong shareholders structure and the capital support of the controlling group; and its operating scale expansion through strategic acquisitions carried out in 2008, which led the company to rank among the country's four largest real estate developers. The ratings also consider Brookfield Incorporacoes' satisfactory liquidity position and financial flexibility, resulting from the robust reserve of receivables of completed units not linked to debt, among other factors. The ratings further factor in the fact that Brookfield Incorporacoes should gradually return to more conservative credit measures, compatible with its ratings, after the significant impact on these measures from the merger of the formerly Company S.A. in October 2008, which had its name changed to Brookfield Sao Paulo Empreendimentos Imobiliarios S.A. The company also has as a major challenge the management of its consolidated operations in a scenario of weaker operating margins as a result of its greater focus on residential projects for the medium-low income segment, with lower margins.

Brookfield Incorporacoes' Negative Outlook is consistent with the rating action taken by Fitch for the overall homebuilding sector on Jan. 21, 2009, reflecting the expectation that homebuilders in Brazil will face a challenging operating environment as well as significant financial pressures in 2009 and 2010.

The ratings incorporate the negative impact that the merger of the formerly Company S.A. had on the Brookfield Incorporacoes' financial profile. For the last 12 months (LTM) ending June 30, 2009, adjusted consolidated EBITDA margin was 20.3%, well below Brookfield Incorporacoes' 39.1% stand-alone margin in LTM ending Sept. 30, 2008, before the incorporation of the formerly Company S.A. This result, however, remains compatible with the sector average. Despite the uncertainties created by a weaker macroeconomic environment and the retracted demand for residential properties in the last quarter of 2008, the volume of pre sales remained high. The consolidated results also reflect the negative accounting effects deriving from Law 11.638. The expectation is that the expansion of operations of Brookfield Incorporacoes in the medium-low and economic income segments, with higher growth potential and demand stimulated by the federal government measures, should increase EBITDA in 2009 and 2010, with operating margins remaining, however, at lower levels.

The merger with the formerly Company S.A. and expansion of project launches increased Brookfield Incorporacoes' leverage. As of June 30, 2009, total consolidated debt reached BRL1,148 million, compared to BRL473 million of Brookfield Incorporacoes, on a stand-alone basis, at end-September 2008. This increase resulted from Brookfield Incorporacoes' strategy to maintain its project launching goals, notwithstanding the global crisis, in the fourth quarter of 2008, raising BRL549 million of working capital lines in the period. Leverage, measured by total debt/adjusted EBITDA and net debt/adjusted EBITDA ratios, increased to 4.6 times (x) and 3.7x at end-June 2009, respectively, from 1.8x and 1.0x in September 2008, considering only Brookfield Incorporacoes. Such ratios are weak for the rating category, and Fitch's expectation is that the EBITDA increase expected for 2009 and 2010 and the future transfer of receivables contribute to reduce leverage ratios to levels more compatible with the ratings. The BRL251 million EBITDA in LTM ending in June 2009 considers BRL25 million of interest allocated to costs.”

32. Information about all investing and financing activities of an enterprise during a period that affect recognized assets or liabilities but that do not result in cash receipts or cash payments in the period shall be reported in related disclosures. Those disclosures may be either narrative or summarized in a schedule, and they shall clearly relate the cash and noncash aspects of transactions involving similar items. Examples of noncash investing and financing transactions are converting debt to equity; acquiring assets by assuming directly related liabilities, such as purchasing a building by incurring a mortgage to the seller; obtaining an asset by entering into a capital lease; and exchanging noncash assets or liabilities for other noncash assets or liabilities. Some transactions are part cash and part noncash; only the cash portion shall be reported in the statement of cash flows."

When a capital expenditure or equipment purchase or any asset purchase is financed, it will never show up on the statement of cash flows as capex. It will be recorded as an asset on the balance sheet, the debt will be recorded and of course depreciation and interest expense will show up on Statement of Cash Flows and Income Statement. You will also see the principal repayments show up.

This is an area that can be manipulated. A company could make capex look a lot less than it really is. Just another area to look at.

I mentioned previously with BAM, that now that assets are coming out of development, you could see expenses go up, since formerly capitalized costs will be immediately expensed, and past costs will now be depreciated, when the asset is placed in service.

Capex is a place where accounting games can be played. One example is equipment could be bought via a note payable. That will not be reflected in cash flow statement as capex. Yet, in future cash flow statement would be adjusted for the depreciation on such equipment, as well as debt pay-downs on the note. That is also why interest only and other exotics are interesting to watch.

On June 30, 2008 Third Ave Funds owned 24,473,987 shares.

On June 30, 2009 Third Ave Funds owned 21,032,601 shares.

This is a decrease in owned shares of 3,441,386 shares.

This is a reduction of 14.06%.

At current price of $20.85 this is a reduction of $71,752,898.

“1971
Peter Bronfman (1929-1996) and his brother Edward Bronfman co-owned the Montreal Canadiens hockey team. Their uncle, Samuel, was the founder of the liquor company, Seagram Co. Ltd. The brothers acquired holdings in Brascan Ltd., a property mgmt. company, Noranda Inc., a natural resource company, and John Labatt Ltd., one of Canada’s 2 biggest brewers.”

“2005 Apr 4
In Canada Edward Bronfman, Canadian businessman, died. Bronfman and his brother, Peter, built Edper Investments Ltd. into a business with interests ranging from forestry and mining to banking, beer and hockey to form the core of what is today Brascan Corp.”

Someone who is fluent in BAM wrote the following. I have not verified its accuracy.

“Yeah it goes something like this. Samuel Bronfman was a bootlegger who rolled his fortune into the Seagram company. At one point the Bronfman family was one of the wealthiest, if not the wealthiest, families in Canada.

Two of his kids, Peter and Edward, inherited a small portion of the family fortune, and at one point hired Jack L. Cockwell from accounting firm Edper to advise them. This led to a business partnership between Cockwell and the Bronfmans, with Edper as the investment vehicle. Cockwell also controlled a company named Hees International that provided merchant banking and financing services. Two of the early investments were the Labatt brewing company and mining company Noranda. They were also involved in Trizec Properties. This was ~30 years ago.

They effected a takeover of Brascan, and (summarizing a lot of history here), Hees, Edper, and Brascan were eventually amalgamated into the Brascan of the late 1990's, which was renamed to Brookfield Asset Management. Jack L. Cockwell is still the "group chairman" of BAM.

Labatt's was sold by Brascan in 1993. This included a bunch of other businesses including sports teams and real estate.

The Bronfman brothers are both dead (Peter in 1996 and Edward in 2005). All of these people had connections to Trizec which has ranked as one of the largest real estate companies in Canada for much of its history. I have wondered if Edward Bronfman's death was a catalyst to BPO's acquisition of Trizec. I don't know how active of a role he played at Trizec at the time of his death. But Trizec and what-is-now-BAM have been affiliated with one another for decades.”

On 4/8/08 Flatt told an Syracuse University Audience, "We Purchased 245 park ave for $250 sq foot or $500M in 1995. property now worth $2B. havent purhcased a property in NYC in 2 years because prices are high."

245 Park Ave is reported by Reis to be 1,586,000 SF. Hence, BAM seems to have paid around $317 SF.

Using Flatt's $2B number, that comes out to $1,261 per square foot.

Here would be the value of 245 Park Avenue if using various values. Keep in mind that Brookfield Properties reports the square footage without parking to be 1,719,000 SF. Hence, I adjusted the computations below for the 1,719M SF.

“The 2007 most expensive list included, along with the GM Building: 9 West 57th Street; Rockefeller Center; 200 Park Avenue; the Seagram Building; 4 Times Square; One Bryant Park; 245 Park Avenue; 277 Park Avenue; and the one non-midtown entry, 7 World Trade Center. Based on interviews with real estate professionals, their values have declined anywhere between 25 and 60 percent.”

“The big picture is that most properties that transferred in the last five years are worth less than the debt,” wrote Cushman & Wakefield sales guru Yoron Cohen in an email. “The markets provided huge leverage to buyers which were based on extremely optimistic future growth of rents. It was out of control. Buildings like 885 Third (the Lipstick Building) were sold for $1,000 per square foot, and it is worth about a third of that number.”

“You’re like the grim reaper,” chided Howard Michaels, chairman of the Carlton Group, before acknowledging, “All the buildings that were bought were bought on the expectation of increasing rents and that hasn’t happened. You combine that with higher cost of capital on financing, and buildings are worth less.”

“The big picture is that most properties that transferred in the last five years are worth less than the debt,” wrote Cushman & Wakefield sales guru Yoron Cohen in an email. “

“If we’re talking about better-quality buildings, we’re seeing price ranges in $350 to $600 a square foot,” he said. “And the super-premium buildings, such as 9 West [57th], the GM Building, 450 Park, etc., that handful or two of buildings, none of them have traded. So what they’re worth is pure conjecture. Based upon the rental premiums they achieve, they’re probably worth $800 a foot, but given their scarcity value, who’s to say what someone wouldn’t pay for them?”

Word is that 171K SF is being sold by Brookfield and Blackstone. CBRE looks to be agent. Early talk is $83M. Supposedly excellent location. I think the building was acquired as part of the Trizec purchase. I think the Trizec deal valued the building at $92.3M. This would be a price of 11% less than 2006 purchase. Don't forget, BPO and BAM stepped up basis on purchase of Trizec. Hence, all in cost is being reflected at a larger amount on GAAP financials.

“Brookfield Properties’ Grace Building at 1114 Avenue of the Americas, debt restructuring specialist Zolfo Cooper has signed a new 14-year, 26,000-square-foot lease on the 41st floor. Zolfo will relocate from about 17,000 square feet at Edward J. Minskoff Equities’ 1166 Avenue of the Americas.”

“They’re a consulting firm that does a lot of debt restructuring,” said Mr. Amrich, who also represented Zolfo. “So, obviously, in this environment, they’re very busy.”

“The asking rent was about $85 a square foot for the space, which Brookfield is building out. The taking rent was likely much lower. Patrice Hayden and Mr. Urrutia worked with Mr. Amrich in representing Zolfo in negotiations with Brookfield’s David Cheikin.”

Brookfield Properties reports average in-place rent in midtown Manhattan was $37.34 at the end of 2008.

I think that Grace building hopes for and currently gets a lot more than $37.34 SF.

1114 Ave of Americas is the location. This is part of what is called "Grand Central Sub Market" in NYC. According to a NYC CRE industry insider, this property has the following information.

The asking rent of this class A builing was $134 SF. I think that is a AAA net lease. Size of building reported at 1,380,330 SF.

Some comps:

Description***********************asking rent SF

1133 Avenue of the Americas**********$76.55
1095 Avenue of the Americas********$$129.98
1166 Avenue of the Americas**********$78.27
1185 Avenue of the Americas**********$91.41
1211 Avenue of the Americas**********$72.12
101 Park Ave************************$120.39
245 Park Ave************************$144.36

Just using Grace Building as an example, I would think its current value is $300 - $700 SF. If you are okay with that raw and generic valuation, the value of the property would be around $414M to $1B.

July 27, 2009 Western Forest released earnings

Here are some notes.

1. Going concern opinion - Interesting to see such in an unaudited report. Things of course are difficult. Covenants could be affected.

2. Credit Line with CIT Business Credit Canada (CITBCC). CITBCC is jointly owned by CIT and CIBC. Hence, CIT liquidity issues do not at this point seem to trickle down to CITBCC.

3. Western had a $50M rights subscription in January 2009, which was primarily funded by Tricap (wholly owned by BAM).

4. March 2009 entered into a foreign exchange facility with BAM. Facility expires in March 2010 and has a notional amount of US$80M. Company does not think credit risk is material. Just noting that this is probably a derivative type contract. Lot's of derivatives in the BAM web.

5. June 30, 2009 company under foreign exchange facility recognized a gain of $0.7M, which was included in sales. Hence, on consolidation with BAM, one needs to consider potential of non-recurring income and quality of earnings for both Western and BAM. I don't think this income would never be identified in BAM financials, and would probably be impossible to decipher, unless you studied Western Forest Products. Not material of course, but you could see how this usage could spread or be used (or has been continually used) within BAM financials. (A little bit here and a little bit there.)

“Two principal investments in Tricap I are Western Forest Products and Concert Industries. Western Forest Products experienced a difficult year due in part to a major industry strike which has since been resolved. Concert Industries, a leading producer of air-laid woven fabric, continues to perform well and we continue to make progress expanding its revenue and operating base.”

"Our specialty funds’ revenues increased due to the consolidation of revenues from Western Forest Products and Concert Industries and increased yields from loans issued during the year. Similarly, investment income and other includes revenues from operations consolidated during 2007 that were accounted for on the equity method during 2006."

Here are notes I had on a Western Rights Offering in December 2008.

Western Forest Products has a rights offering:

"The shares acquired by Tricap include an aggregate of 236,500,018 shares of Western that are beneficially owned by Brookfield Asset Management Inc. ("Brookfield Asset Management") and its affiliates and associates on a consolidated basis ("Brookfield"). Following the rights offering, Brookfield beneficially owns 49,124,547 common shares and 300,028,286 non-voting shares representing approximately 38% and 89% of the issued and outstanding common shares and non-voting shares of Western.

Tricap holds the shares for investment purposes. Tricap will continue to review its investment alternatives and may acquire additional shares of Western or may, subject to applicable securities laws, sell the shares it now holds in the open market or in privately negotiated transactions to one or more persons.

Tricap acquired the shares pursuant to the exercise of rights issued by Western in connection with a rights offering made by Western pursuant to a prospectus dated December 1, 2008. Although Tricap entered into a standby agreement with Western dated December 1, 2008 pursuant to which Tricap had agreed to purchase all shares which were not subscribed for under the rights offering, due to the exercise of the additional subscription privilege by rightholders, including Tricap, it was not necessary for Tricap to purchase shares pursuant to the terms of the standby purchase agreement.

Tricap will exercise control and direction over the shares acquired pursuant to the terms of a co-investment agreement entered into between Tricap Management Limited and each of the investors in the Tricap Restructuring Fund."

August 7, 2009 (20.26) Historical Cost Discussion after release of 2Q09 earnings. This is prior to release of SEC and SEDAR filings for BAM and all subs.

BAM historically discusses that traditional GAAP and historical cost financial statements are not relevant to BAM. Their reasoning is their claim that they generally hold assets for long periods of time and their consolidated statements utilize GAAP accounting, which reflects historical book values for most of their assets. To address this, they are adopting International Financial Reporting Standards (“IFRS”) reporting at the beginning of next year. They claim, under IFRS, the carrying values of assets are adjusted to reflect underlying values as opposed to utilizing their historical cost.

As long as one understands IFRS and the various methods and so forth, that is a generically typical proper argument. One must understand that IFRS is subjective, and is merely a guide. IFRS standards are evolving daily and there will be changes. IFRS by BAM so far, has not been subjected to external auditors of theirs (Deloitte). But, for a company that reports old typically revenue generating assets (think Commercial Real Estate or Power Plants), that of course IFRS disclosure is incredibly helpful.

In BAM's case and I have tried to ask them this, there seems to be a potential flaw. For example, BAM sold Pingston Power and Prince Wind in 1Q09 to Great Lakes Hydro Inc. (a 50.1% owned consolidated and related entity). The transaction essentially between Great Lakes Hydro and Brookfield Asset Management involved the sale of 49.9% of Pingston Hydro and 50% of Prince Wind. The sale was done via a conduit called Great Lakes Power Trust. The balances of the assets at December 31, 2008 were $348,483 for Prince Wind and $35,362 for Pingston Hydro. This totals 383,845. The difference between Power Generating Assets at transfer of $515,155 and the Net Book Value at 12/31/08 of $383,845 was $131,310. I think (but could be wrong) that Great Lakes Hydro stepped up the basis. I think the stepped up basis flowed through to BAM. Hence BAM gets to use a much greater than historical cost presentation in their GAAP financials. If that is correct, wouldn't GAAP then be closer to fair value (IFRS)? Bringing this further, what occurred when other assets over the last decade or so were sold to consolidated entities? If these assets were stepped up in basis, then the argument of historical cost presentation would be pierced, since the assets already may have received a stepped up basis upon the sale to related party.

I have mentioned this here before, and I don't think it has been discussed. I once asked BAM this question in relation to CRE and prior to Great Lakes purchases, and BAM claimed that no step up occurred. Yet, when I read the 1Q09 SEC and SEDAR filings, it certainly looked like step up did occur. This could be quite material. On another level, if you look at the assets on BAM financials, you will see that total Assets increased from $20,007 in 2004 to $55,972 in 2009. Historical cost assets have increased (via purchases of course) by $35,965 during this period. Wouldn’t one argue that perhaps historical cost might over-state asset value, since some of these assets could be or should I say, probably are currently carrying values less than purchase price? I cite Trizec and Multiplex as two examples.

"Our book value of $5.8 billion reflects the depreciated historical cost of many assets, such as office properties and hydroelectric facilities, which were acquired many years ago for values significantly below what they are worth today." I find it quite interesting that so many of their assets were purchased post 2004, and there is a good chance that many of those assets have a fair value at less than historical cost. Two examples could be Trizec and Multiplex. Again, BAM includes Goodwill as well in their book value mentions.

BAM values Renewable Power (going from memory) at $6.2B.

Based on that, here is a very quick work up, that just builds a framework (very early stage) and very back of envelope, and without any conclusion whatsover.

We know that Great Lakes currently has a Market Cap of around $3.0B, hence BAM value could be $1.5B.

BRP values.

Great Lakes Hydro $1.5B
cash received Net .7B (very estimated, net of Great Lakes Subscription)

You would want to add value of BRP US and Brazil operations, add the cash, subtract the debt, to find value of BRP. Would that come close to $6B. Time will tell.

I think quite a material amount of US operations were purchased post 2005. Also, I think some of Brazil operations were sold to BRP, from BAM in related party transaction in 2008.

I found it interesting in GLH prospectus that BRP "maintains a strong balance sheet and currently holds.... S&P rating of BBB," with no mention of recent outlook negative. Remember, in recent BAM financing, there was a material change of control provision. The change of control provision, if enacted, (via debt downgrades) could be potentially financially stressful to BAM. Hence, I think the document should have mentioned such.

SEDAR filings this Q and next, will be real interesting.

BAM is certainly getting, what appear to be great prices on recent sales (at least the sales to related entities.)

And, then we have Brookfield Energy Marketing, Inc.

1. Quick thought...... One could consider (inverting) that Net Income (NI) and Cash Flow (CF) of BAM and subsidiaries, are elevated, due to sales and transactions with related companies. If this is the case, one should consider whether NI and CF are sustainable. Not only should one consider convenience of activities with related parties, but also perhaps prices that would not be available elsewhere. Possible examples of this could be, demand note lending in the past from BPO Properties, to Brookfield Properties, as attractive levels. Another example could be sales of Prince Wind and Pingston Hydro, from Brookfield Renewable to Great Lakes.

2. It will be interesting to see future NI, now that cost of capital has certainly increased via loan extensions and new loans as well. On the positive side, BAM has been able to secure funding in this difficult credit environment.

On June 3, 2009 Ric Clark said the following in relation to Trizec. "We bought this company probably on a 5 cap going in when the portfolio was 88 -- and this was our part of the venture, was 88% leased and had a $270 million NOI. As of today, we've raised the NOI by $50 million. The portfolio is 93% leased. And we expect that the NOI will go up meaningfully between now and the time that that debt matures, just based on in-place leases."

It is my understanding that BAM has a 45% economic interest in Trizec. Yet, the 2006 AR of Brookfield Properties mentions, "To that end, during 2006, we launched and fully invested our first U.S. office fund in the $7.6 billion acquisition of Trizec. This transaction was completed in a partnership with the Blackstone Group with our fund owning 73% of the investment."

According to Brookfield Properties 2006 Annual Report, Trizec was purchased at a Purchase Price Book Value of $7,591M. It was also listed that the purchase was for 29M SF. Hence, if BPO owns effectively 73% of the investment, a cap rate of 5, would tie into the initial purchase price of $7,591. Here is calculation for showing that.

NOI = $369M ($270M/73% = $369) (from Rick Clark NAREIT presentation June 3, 2009)

$7,380 = $369/.05

If NOI was $270M, and purchase price was $7,591, then the going in cap rate would have been 3.56%. Yet, the question becomes, was the $270M NOI, Brookfield's share or the full NOI? I don't know the answer.

Let me repeat what BPO said on June 3, 2009..."We bought this company probably on a 5 cap going in when the portfolio was 88 -- and this was our part of the venture, was 88% leased and had a $270 million NOI. As of today, we've raised the NOI by $50 million. The portfolio is -- let's see, it's 93% leased. And we expect that the NOI will go up meaningfully between now and the time that that debt matures, just based on in-place leases."

I spoke with an industry insider in regards to the above quote, and here is what that person mentioned. "A 5% cap rate, using $270M of NOI, would give a value of $5.4B. They claim that NOI is now $320M, so that would be a 5.9% cap rate to get what they paid. It seems like they would be hard-pressed to get 5.9% today. They also had to put in additional capital to grow the NOI, which is offset by cash flow, depreciation, etc.

As far as growing the NOI…rents have been up for some time and definitely down now with maybe further to fall….so I would not be convinced that they can grow NOI meaningfully without further investigation. Especially with office where tenants usually don’t fully reimburse LL for operating expenses, real estate taxes, etc."

Price per square foot would be $262. If I am not mistaken, 11% of the properties was for parking, and I think some was sold off as well.

With that said, if we use the book value of $7,591, and use BPO's stated NOI of $320M, and ignore the issues the industry insider said, we would get a current cap rate of 4.22%.

Look at the values of NOI of $320M with various cap rates. Compare that to cost of $7,591. The debt is currently $5,724M, of which $3.1B comes due in 2011. Interesting that the balance as per 2006 AR was $5,800. Does that mean in 3 years $76M or 1.3% of the principal has been paid down?

From the 2006 AR "Equity offering In December, 2006, we entered into agreements for the issuance of 33 million of our common shares. Under the agreements, the underwriters purchased 20.625 million of our common shares at a price of $38 per share. Concurrently, Brookfield Asset Management purchased, directly or indirectly, 12.375 million of our common shares at a price of $38 per share. The gross proceeds from the combined share issuances totaled approximately $1.25 billion. Following the offering, Brookfield Asset Management owns, directly and indirectly, approximately 50.1% of our voting interest. The proceeds from this offering were used to repay outstanding indebtedness taken on to finance the company’s $857 million equity investment in its U.S. Office Fund created to invest in the acquisition of Trizec and the repayment of lines of credit to ensure the company is in a position to acquire further assets should opportunities of interest become available."

Interesting , they were borrowing to buy the minimum required equity for the Trizec company. Then BPO floated $1.3B , of which BAM bought $784M of the equity offering.

The annual report also indicated, "Our 45% economic interest in the Trizec portfolio was purchased for $857 million, after the assumption of debt and acquisition financing totaling $5.7 billion, and comprises 29 million square feet in New York, Washington, D.C., Houston and Los Angeles."

This was presented to me by a colleague as a possible answer, "I think the way it works is that BPO bought 73% of Trizec, and Blackstone the remaining 27%. Of that 73%, a further 28% was hived off to third party investors, leaving BPO’s ownership interest at 45%."

The following is a summary of some of the World Financial Center Holdings. These were gathered from the 2006 and the 1Q09 Commercial Debt Listings

In 27 months, there was debt reduction of $200M. Merrill fully occupies, Four World Financial Center, and partially occupies Two World Financial Center . BAM claims this debt will self-amortize to zero by year 2013.

"TORONTO--(BUSINESS WIRE)--Jun. 9, 2009-- Brookfield Properties Corporation (BPO: NYSE, TSX) and its Canadian-based subsidiary, BPO Properties Ltd. (BPP: TSX) today announced the completion of the refinancing of Petro-Canada Centre in Calgary with $370 million, five-year first mortgage bonds, issued by one of BPO’s subsidiary companies, PCC Properties (Calgary) Ltd., along with its joint-venture partner.

The financing was completed at a fixed rate of 6.379%, repaying an existing $300 million bridge facility which was previously completed in October 2008. Brookfield’s share of the refinancing was $220 million, consisting of $185 million from the issuance of the first mortgage bonds and $35 million from a subsequent transaction with an affiliate of the company’s joint-venture partner.

Resulting net proceeds to Brookfield are $70 million, which will be used for general corporate purposes. The bonds have been assigned a rating of A2 by Moody’s. RBC Dominion Securities Inc. and Brookfield Financial Corp. acted as agents on the transaction.

“This transaction demonstrates Brookfield’s ability to execute on a large refinancing in a difficult market at an attractive rate,” said Tom Farley, President & CEO of Brookfield’s Canadian Commercial Operations. “At the same time, we have repatriated equity out of this premier property to be redeployed.”

Petro-Canada Centre is a two-tower, 1.73-million-square-foot class “AA” office complex located in the heart of Calgary's central business district and a dominant feature of the Calgary skyline. The property is 100% leased. Petro-Canada occupies 58% of the complex, and has been a tenant since the property opened in 1984. In October 2008, Petro-Canada renewed its 945,000-square-foot lease through November 2028 and expanded its premises by an additional 70,000 square feet."

Looks like this previously was a 3.15% non-recourse loan, that was due 10/09. Now it looks to be secured for 5 years at 6.379%.

1. Loan appears to be secured. I imagine this loan, like the previous loan is non-recourse.

2. Interest rate has gone from 6.43% to 6.379%. The prior loan matured during 2008, and BPO used a bridge loan with LIBOR + 225.

3. No details released on amortization of loan.

4. Appears to be CAD$370M

5. Previously announced by BPO Properties. (Don't confuse with Brookfield Properties. Brookfield Properties owns 89% of BPO Properties.)

6. Brookfield Properties had debt listed on 3/31/09 filing as, $118, their interest from US Office Fund. I think they own 45% of the Fund. Just thinking out loud, and this is some quick analysis, since news was just released, but total debt would have been $262M (118/.45)? Maybe other debt was some pooled debt? Maybe CDN to USD conversion?

7. Looks like cash was extracted. I think BPO Properties owns this property, it will be interesting to see if $$$$ can flow through to BAM. Keep in mind that BPO Properties is the owner of Petro Canada. Brookfield Properties owns 89% of BPO Properties. It will be interesting to see if Brookfield Properties will be able to extract funds from BPO Properties. (search 'BPO' below for previous discussions.)

8. I think JV might be ARCI LTD. I think BPO Properties and ARCI each own 50%. BPO 2008 RAIF mentions, "Petro-Canada Centre consists of a two-tower office-retail complex and underground parking garage. The office towers are 52-story west tower and the 32-story east tower. The property is located in the Calgary Central Business District (“CBD”) and is connected to the above-ground pedestrian walkway system. The property was constructed in 1983 and is one of the top three office complexes in Calgary."

1. Consider doing a property analysis on all listed properties. Gather LTV's etc.

2. Looking at commercial property debt, there appears to be very little amortization. Looks to be amortizing at around 1% of loan balances per year.

3. Interesting that the REIT election became effective January 2008, yet was announced in 4Q08.

4. Bank Credit Facility of $388M matures on 6/2011, and balance drawn on 3/31/09 is $312M.

5. BAM offers Credit Facility of $300M, which extends to 2010, and balance drawn on 3/31/09 is $48M.

6. Commercial Property Debt which is floating rate is 38%, and was 45% at 12/31/08.

7. Claims to have Indebtedness which is 65% of Book Value. They feel this is conservative, because of Fair Value. If you match this up to earlier Annual Reports, you will notice that Brookfield Properties looks to achieve Debt to Market Cap of less than 50%. Current Debt (not including Preferred Securities, or the $454M development debt, buried in Accounts Payable) is $11,598. Current Market Cap using $8 per share and 391M shares O/S is $3.2B. Hence, Debt / Market Cap is 371%.

8. Page 47 of Interim Report mentions insurance coverage's. Their US Properties have coverage from 'Liberty IC Casualty, LLC. I think that this is a wholly owned entity of BAM. I could be incorrect on that. They used to use another Wholly Owned Entity, 'Realrisk Insurance Corporation.' Realrisk still provides protection for what are hopefully rare events.

9. Derivatives are discussed on page 49. They had a total return swap, under which they receive the returns on a notional number of Brookfield Properties Common Shares of 1,001,665. The Fair Value of the swap was a loss of $8M at March 31, 2009. $2M of losses were recorded as G&A at 3/31/09. A $1 increase or decrease in share price, would result in a $1M gain or loss, and be reported in G&A.

10. Accounts Payable of $1,137M, includes $454M ($434M 12/31/08) of land development debt. This is interesting, as the debt is not included in standard debt ratios.

Brookfield Asset Management is a diversified conglomerate. Their main areas are Commercial Real Estate, Hydro Energy, Asset Management and Infrastructure.

Quick Thesis:

High leverage, greater costs of capital, potential if not probably refinancing issues, Tangible Book Value of $2.2B, > $12B of debt coming due in less than 3 years, and $32B of debt in total, Incestual sales and potentially unusual uses of related parties, which I think lead to a Quality of earnings and balance sheet issue, slowdown in most areas of their business (because of leverage I believe extreme stress is possible), great capex requirements (i.e. South American Transmission), higher cap rates with commercial real estate. I believe major assets were bought at historically low cap rates and that we will never see cap rates like that ever again and potentially aggressive accounting usage, especially via inter-companies.

We feel that over the years investors have embraced BAM and their efforts, without really peeling the onion. Interesting to see the value investors who embraced BAM when we first started looking at it in August of 2007, and how there are fewer traditional value investors now. Third Ave Value (TAV) is the largest holder, yet has been reducing their Common Stock position. I think Brookfield Asset Management was misunderstood by many value investors, including legendary Whitman and Jensen, from TAV. I think that Whitman let his guard down with his admiration of Bruce Flatt. I used to speak to analysts in late 2007, that had no idea that Brookfield Renewable issued Financial Statements. These analysts took for face value what BAM wrote in their reports. Yet, if one looked into Brookfield Renewable’s financials (then they were called Brookfield Power Inc.) one could see a potentially different story. A few years ago, I spoke with quite a few analysts that had no idea that Brookfield Power segment filed their own financial statements. I think that BAM is over-leveraged. They have been extending financings, and have over $12B coming due in less than 3 years. They have tangible equity of < $2.5B.

Expanded Thesis:

Please not this paragraph was added on December 17, 2009. Upon further research, we were made aware of an error. We thank that person for pointing out the error. A change of control is not triggered merely by a below investment grade rating. I think the correct answer is, if there is a change in ownership, over a specified percentage, and then , and only if the change of control happened, would there be a potential triggering event with a credit downgrade. Hence, if BAM or BRPI were brought below investment grade rating, the respective notes would not be affected in terms, calls, or anything like that. This clearly affects our thesis mentioned below in part of (1.) Please keep in mind, that as of December 17, 2009, our BAM aggregate thesis has not changed with discovery of this error.

(1.) I think they are over leveraged and that increased credit costs, costs of capital, lower loan to values, could continue to stress BAM. BAM floated CAD$500M on June 2, 2009. In this market, they were able to secure the funds. Yet, they are paying 8.95% and the covenants are tighter than they have ever seen. The debt is 5 year debt. If BAM is downgraded to below investment grade by 3 of the 4 Ratings Agencies, the debt is immediately due. There were also comments in the note in regards to subsidiary payments. Within the last 30 days, Brookfield Renewable, BPO Properties and Brookfield Properties, were put on Outlook Negative by Standard & Poors.

(2.) BAM has quite a few Joint Ventures or minority interests. On projects they have co-investors. Both Co-Investor and BAM commit capital. I would watch if JV's start failing to meet capital contribution requirements. I think, but am not certain, that BAM has commitments promised on various ventures, that are not showing up as liabilities in their Balance Sheet.

(3.) Incestual sales and potentially unusual uses of related parties. These include related party sales. Related party fundings, which include potential below market loans. Related party dividends, which are not necessarily in the best interest of the entity distributing dividends. Potential use of subsidiaries as a funding source, which might not be considered arms-length in nature. Various recent examples of subsidiaries funding include Brascan Residential in Brazil, Great Lakes Hydro, Brookfield Homes, Norbord, Fraser Papers, and Canary Wharf. BAM could have a quality of earnings issue, as they record inter-company gains, without eliminating on the consolidated parent. These gains include sale of Pingston Hydro and Prince Wind to a conduit owned by both BAM and consolidated subsidiary, and public Fund, Great Lakes Hydro, gains on conversion of debentures to common for various companies owned by Consolidated subsidiary Brookfield Investments Corporation.

Here are some examples of Related Party Usage:

The following is quoted from a SEDAR filing on December 9, 2008 for Brookfield Investments Corporation.

"On December 3, 2008, the board of directors of the Company approved the sale of its 15% interest in The Canary Wharf Group plc (“CWG”) to Brookfield Europe LP in exchange for an approximately 42% limited partnership interest in Brookfield Europe LP with a fair market value of £333,800,000 and cash proceeds in the amount of £107,600,000."

Brookfield Infrastructure Partners - Acquiring Public Private Partnerships (PPP) from Brookfield Multiplex. Purchase price of $20M. I asked if this was discount from BAM’s original purchase price, but presenter was not sure. Properties include 2 hospitals. Anticipated close is November / December 2008 (even though presentation was in December 2008.)

Longview and BIP - Invested in Longview to maintain 30% ownership level. This further investment of $103M was completed in November 2008.

(4.) Slowdown in Alberta CN real estate. (BPO). I previously had this as potential. Slowdown in Calgary. On 3/3/09 this was in the news, "Canada's Economy Shrinks 3.4%" http://online.wsj.com/article/SB12360230...

(5.) High occupancy rates in metro areas deteriorating because of reliance on financial service industry. Interestingly enough, BPO Properties in recent CC, claimed "business as usual."

(6.) Previous access to low cost capital with excess cash based on NAV, no longer available to BAM. Again, they just floated CAD$500M, five year paper at 8.95%. This rate does not appear to be consistent with other S&P A- companies. Notes were priced at 8.95% for 5 year paper. This is 5 year UST (2.45) +~ 650 BPS. I would think that A- paper would be issued at less of a yield than that. Something to watch. I checked Egan Jones, and the BAM issue seems to be priced much higher than other similar credit rating issues. Egan Jones is showing several A- similar rated and duration issues to be yielding in the mid 5.50%'s. Here is another issue I pulled up from Finra with similar characteristics. This bond comes due 6 months prior and has a call provision. Hence, not apples to apples.

(7.) Industry credit tightness, and BAM's high leverage, could cause stress. Noting that > $12B comes due on or before 2011. BAM has $32B of total debt.

(8.) Lower values of assets, which were bought at potentially elevated prices, with concerns that loans that are no longer available to such assets. This potential lack of credit is not just industry specific, but what I believe to be company specific. We have read on several occasions, and as recently as June 3, 2009 in the Commercial Real Estate Alert (www.realalert.com ) that NYC CRE is back to 2004 prices.

Brookfield Properties has $5.6B of debt coming due on a consolidated level in less than 3 years. Most of this is from Trizec purchase in October 2006, which I think is now US Office Fund.

On June 3, 2009 Ric Clark, Brookfield Properties CEO said, "We bought this company probably on a 5 cap going in when the portfolio was 88 -- and this was our part of the venture, was 88% leased and had a $270 million NOI. As of today, we've raised the NOI by $50 million. The portfolio is -- let's see, it's 93% leased. And we expect that the
NOI will go up meaningfully between now and the time that that debt matures, just based on in-place leases."

I spoke with an industry insider in regards to the above quote, and here is what that person mentioned. "A 5% cap rate, using $270M of NOI, would give a value of $5.4B. They claim that NOI is now $320M, so that would be a 5.9% cap rate to get what they paid. It seems like they would be hard-pressed to get 5.9% today. They also had to put in additional capital to grow the NOI, which is offset by cash flow, depreciation, etc.

As far as growing the NOI…rents have been up for some time and definitely down now with maybe further to fall….so I would not be convinced that they can grow NOI meaningfully without further investigation. Especially with office where tenants usually don’t fully reimburse LL for operating expenses, real estate taxes, etc."

Again, Clark said, "bought this company probably on a 5 cap going in when the portfolio was 88 -- and this was our part of the venture, was 88% leased and had a $270 million NOI..."

So, was that full NOI for Trizec, or just Brookfield's portion? If just Brookfield's, what is the total NOI?

If that was there part of the deal, I think cap rate would compute too much > than 5%.

Let’s see, I think Brookfield owns 73%, if the $270 was there end, then full NOI would be $370. That would trail into the historical cost of $7.6B ($7,400 using 5% cap rate).

At $320, the full NOI would be $438. This would be 5.8% cap rate using value of $7.6B

I am fairly certain that the entire amount is put on consolidated books, and then minority interests are backed out. The question is, did he mean total NOI, or BPO's % of the (see 2006 AR 73 %?) of total NOI.

Either way, I think going to be tuff to eventually refinance $5.6B, of which $3.0B comes due in less than 3 years.

This is heavy stuff.

Trizec and Multiplex are just two items that make up almost $7B of debt coming due in less than 3 years.

In total on consolidated basis, BAM has over $12B coming due within three years.

Here is what BAM mentioned in their 4Q08 supplemental report in regards to non-recourse commercial property debt.

"Commercial property financings are secured by high quality office buildings. Many of the financings which mature in the next three years were arranged a number of years ago and, accordingly, represent a low loan to value. As a result, we expect to refinance these maturities in the normal course at the same or a higher level. Maturities in our North American, European and Brazilian operations, are extremely low relative to the scale of these operations, reflecting the long-term nature of the financing. The Australian property market typically utilizes shorter duration financing, which we are rolling over in the normal course and seeking to extend on a long-term basis where possible."

From above, not only does BAM expect to be able to refinance, they are expecting to refinance for the same amount of debt or greater. Yet, as JPM said today, it is a new ball game for lending. Cap rates, use of lending guidelines , loan to values have all changed. BAM has alluded long term ownership of assets, when indeed, they have $7B due before 2011 on assets that at the earliest were purchased in October of 2006.

If you review BAM and subsidiaries interest coverage ratios they are quite low and have been decreasing over the last few years. In the recent supplemental schedule BAM reported Interest Coverages on Operating Cash Flows, not on Net Income from Operations.

When looking at BAM remember to consider asset sales, debenture conversions and so forth, as non-recurring as well as being sold in most cases to related parties.
(9.) Funds that BAM manage are not performing within expectations. These include Crystal River, Some Hyperion’s, Brascan, Multiplex, Brookfield Properties (projected) and Brookfield Homes (projected).

Here is an example on Multiplex Funds on 3/2/09

On 3/2/09 MULTIPLEX ACUMEN PROPERTY FUND (MPF) closed at $0.03. This has lost 98% of its value since 12/31/07, and 77% of its value since 12/22/08. MULTIPLEX ACUMEN PROPERTY FUND (MPF) at 12/31/07 was priced at $1.25. It closed at $0.29 on 10/31/08, $0.20 on 11/24/08 and $0.10 on 12/22/08.

On 3/2/09 MULTIPLEX EUROPEAN PROPERTY FUND (MUE)closed at $0.12. This has lost 87% of its value since 12/31/07, and 30% of its value since 12/22/08.

MULTIPLEX EUROPEAN PROPERTY FUND (MUE)at 12/31/07 was priced at $0.90. It closed at $0.27 on 10/31/08, $0.20 on 11/24/08 and $0.17 on 12/22/08.

Here are some notes I had on potential debt breaches by a Multiplex fund.

Brookfield’s Multiplex Acumen Fund May Breach Debt Agreements

Dec. 17 (Bloomberg) -- Multiplex Acumen Property Fund, a A$342 million ($238 million) money manager controlled by Brookfield Asset Management Inc.’s Australian unit, said sliding property values may force it to breach debt covenants on Dec. 31.

The fund started its yearly review with lenders and would have 90 days to rectify any breach, Multiplex Acumen said today in a statement to the Australian stock exchange.

“The deterioration in the asset value of a number of the fund’s underlying investments, together with a sector-wide reduction in distribution income, is expected to have a negative impact on the net tangible assets,” Multiplex Acumen said.

Brookfield, the Toronto-based manager of $90 billion in assets including real estate, paid A$5.7 billion last year to acquire Multiplex Group. Brookfield last month said it agreed to refinance $800 million of Australia-related debt.

Credit Suisse, a long time bull on BAM commented the following on 12/17/08.

A. Potential breach of covenants is a minor near-term negative for BAM. CS does not believe that BAM has significant exposure to the fund.

B. The poor market performance for the related funds presents "significant restructuring opportunities."

C. Concern over potential cash funding needs for some of the funds and concern over BAM's ability to raise new money for asset management because of poor performance.

D. Historically CS claims that BAM does well in these funds. I say, historically in depressed economic conditions BAM did not have the excess leverage and pending increases in costs of capital as in the past.

(10.) Previous business conditions with wind at tail no longer exist. Closer eye on Corporate responsibility.

(11.) It seems as though their IFRS reporting could be potentially aggressive. They are using discount rates and other DCF techniques. All legal, all subject to interpretation. I think the discount rates could be raised, which in turn would bring down asset values. Higher the cap rate, lower the asset value. Higher the discount rate assumption, lower the asset value.

June 3, 2009 (18.73) Review and Discussion of BAM 8.95% Notes Due June 2, 2014 CAD$500M

Cusip 112585AF1, issued 6/2/09

Not TRACE Reportable and not Disseminated

Canada Issue and currency

Underwriters:

TD SECURITIES INC
SCOTIA CAPITAL INC
BMO NESBITT BURNS INC
CIBC WORLD MARKETS INC
RBC CAPITAL MARKETS INC
NATIONAL BANK FINANCIAL INC
HSBC SECURITIES (CANADA) INC

Proceeds used for general corporate purposes, including repayment of "certain bank and other indebtedness."

Change of Control Provisions, require 101% of their principal amount, plus accrued interest. The debt would have to be repaid no later than 90 days after a triggering event. The most interesting of the Change of Control Provisions are "Below Investment Grade Rating Event." If 3 of 4 Ratings Agencies rate the notes below Investment Grade, there will be deemed a change of control. If only one Ratings Agency reduces the rating to below Investment Grade, there is no Change of Control. The notes would be put on an "Extension Period" if a number of the Ratings Agencies have placed the notes on "publicly announced consideration for possible downgrade...." and at the same time a number of Ratings Agencies downgraded below investment grade. The Extension Period would terminate when two of the Ratings Agencies or one of the Ratings Agencies have confirmed that the notes are not subject to consideration for a possible downgrade, and have not downgraded the notes, to below an Investment Grade Rating.

Covenants - could restrict BAM's ability to create certain liens; declare or pay dividends or acquire capital stock or debt of the Company; consolidate or merge, and incur certain payment restrictions that third parties may impose. The covenants will be discussed below, and are crucial to understand for this issue.

Earnings Coverage Ratios - Includes all preferred shares, and is adjusted to a before tax equivalent using an effective tax rate of 28%. Coverage including Series 22 (announced just prior to this filing) on a pro-forma basis was 1.2X on December 31, 2008 and 1.1X on March 31, 2009.

Restricted Payments - Company must maintain a Consolidated Net Worth (GAAP Stockholder's Equity) of > or = to US$2B. This could limit the company from paying dividends, paying distributions or for various other subsidiary payments in kind or cash. This would have to be re-reviewed if such an event were to occur.

Please not this paragraph was added on December 17, 2009. Upon further research, we were made aware of an error. We thank that person for pointing out the error. A change of control is not triggered merely by a below investment grade rating. I think the correct answer is, if there is a change in ownership, over a specified percentage, and then , and only if the change of control happened, would there be a potential triggering event with a credit downgrade. Hence, if BAM or BRPI were brought below investment grade rating, the respective notes would not be affected in terms, calls, or anything like that. This clearly affects our thesis mentioned below. Please keep in mind, that as of December 17, 2009, our BAM aggregate thesis has not changed with discovery of this error.

1. Notes were priced at 8.95% for 5 year paper. This is 5 year UST (2.45) +~ 650 BPS. I would think that A- paper would be issued at less of a yield than that. Something to watch. I checked Egan Jones, and the BAM issue seems to be priced much higher than other similar credit rating issues. Egan Jones is showing several A- similar rated and duration issues to be yielding in the mid 5.50%'s. Here is another issue I pulled up from Finra with similar characteristics. This bond comes due 6 months prior and has a call provision. Hence, not apples to apples.

2. I do not ever recall seeing such strict covenants with BAM in prior offerings. I could be incorrect on that.

3. The Short Form Base Shelf Prospectus filed on January 12, 2009 had no mention of credit rating assurances or events. I only mention this, as this CAD$500M has such Investment Credit Rating requirements. This is the first time, I have seen BAM to be credit rating reliant.

Issuer Name	Coupon	Maturity	Callable	Moody's	S&P	Fitch	Price	Yield
D.GC	DOMINION RESOURCES INCORPORATED VA	6.63	12/01/2013	No	Baa2	A-	BBB+	106.605	4.999

4. Fairly impressive that they were able to raise CAD$500M in capital. If I am not mistaken, BPO outlook from S&P being negative was post the recent announcement of $800M + on fundings.

1. There is no mention of RiskCorp. BAM sold their insurance companies last year. Now they seem to self insure for billions of dollars, via a wholly owned insurance company called Riskcorp. Anyone have info on that. I imagine they are reinsuring elsewhere, as I would be surprised if lenders would allow a type of self insurance. Here is a quote from Brookfield Renewable's recent filing, "In the normal course of operations, Riskcorp Inc., an insurance broker related through common control, entered into transactions with the Company to provide insurance. These transactions are measured at exchange value. The total cost incurred in 2008 for these services was $11 million (2007 - $15 million) and is included in operations, maintenance and administration expenses. For 2008, no amount has been included in revenues for hydrological insurance claims (2007 - $nil)."

2. In the shareholder letter, BAM discusses unrealistic expectations and the industry purchasing with cap rates of 3% to 4%. We have casually seen cap rates allegedly used between 5% to 6.5% for the Trizec purchase. We have not seen for the Multiplex portfolio. Considering these assets were bought in 2006 and 2007, we think it is common knowledge, and believed by many, except the BAM cult and their friendly sell-side analysts, that both of these mega transactions are priced much less than when they bought these. As a follow up, On June 3, 2009 Ric Clark, Brookfield Properties CEO said, "We bought this company probably on a 5 cap going in when the portfolio was 88 -- and this was our part of the venture, was 88% leased and had a $270 million NOI. As of today, we've raised the NOI by $50 million. The portfolio is -- let's see, it's 93% leased. And we expect that the NOI will go up meaningfully between now and the time that that debt matures, just based on in-place leases."

3. On page 10 of the BAM 1Q09, they mention the monetization gain of $29M. One has to really know the company and history to realize that this was a related party transaction. When analyzing BAM, it is a good idea to read as many related party filings as possible. Here is a link to some of those filings http://www.rbcpa.com/companies/BAM_Related_party_filings.html

4. In regards to 3 above, I am fairly certain that because of this "monetization" the historical cost assets were given a stepped up basis on Great Lakes Hydro, and hence that basis increase flowed to an increase of assets on BAM's balance sheet. Interesting, as BAM condemns the benefit of historical cost balance sheets, as they bring in their own version of the Holy Grail with IFRS reporting. Of course, IFRS is not audited.

5. BAM claims their consolidated debt to equity ratio is 44%. They use the IFRS numbers at 12/31/08 to come up with that. The true debt/Equity when using the Balance Sheet is 86.25%. On page 38 of the report, BAM mentions Debt to Capitalization of 57%, yet they fail to include Preferred Securities of $870M as debt in the calculation. Also, there is debt included in accounts payable for land development in progress on Brookfield Properties books of $454M. I haven't looked to see if it is brought over to BAM. Excluding that of course deflates the debt to equity ratios. This is discussed in paragraph 2 on page 11. BAM writes, "The ratios are based on the underlying value of our equity as at December 31, 2008."

6. On page 14 BAM mentions the consolidated carrying value of North American properties is $249 per square foot. They mention it is below replacement cost. I don't know if the carrying value is Book value of Fair Value. I am thinking Book Value because of the term usage. I think the $249 does not sound so low to me, in regards to buildings intrinsic value. One could look at each property listed in Brookfield Properties filings and compute a square footage value, compare it to comparables via a service and then compute loan to values (LTV) and possibly cap rates as well. Again on page 14 BAM writes, "The debt to capitalization based on the underlying values as at December 31, 2008 is approximately 61%."

7. Total Debt / Net Income for F2008 is an interesting ratio.

Total Debt *(including preferred equity ) 32,570
Net Income 649
50.18 years

If you get rid of the tax benefit in NI of 461, you would have had NI of $188. The ratio would then be 173 years.

8. "Consolidated assets and net invested capital are largely unchanged from the end of 2008. Borrowings include $121 million of debt, which is guaranteed on a several basis by the obligations of ourselves and our partners to subscribe for capital in the applicable fund equal to the outstanding balance." I listed this just as something to keep an eye on going forward.

9. On page 15 BAM indicates the following: "The underlying values of the consolidated assets and net equity of our commercial portfolio were determined to be $23.9 billion and $7.8 billion, respectively, as at December 31, 2008." They also wrote, "The underlying value of our combined commercial office and retail portfolio represents a 7.2% “going in” capitalization rate based on the 2008 total operating cash flows, excluding gains. The valuations are most sensitive to changes in the discount rate. A 100 basis point change in the discount rate results in a $1.4 billion change in our common equity value after reflecting the interests of minority shareholders."

I used a back of envelope and cap rate formula. (Value = NOI/Cap rate). Numerically this would be V=$31.70 (7.8+23.9), cap rate 7.2% (given) and NOI needs to be calculated. NOI computes to $228.2M. This seems like a high NOI, yet we did not use DCF and other metrics, hence our back of envelope, could be error filled and irrelevant.

10. During the quarter, BAM, via affiliate BIP was awarded a $500M transmission system in the State of Texas. This is something we would like to monitor. They are partnered with Spain's "Isolux Corsan Concesiones."

12. On page 25, there was mention of a bridge lending fund which includes a "CAN$67M commitment from Brookfield."

13. On page 35 they wrote, "We generate substantial liquidity within our operations on an ongoing basis through our operating cash flow, which typically exceeds $1.5 billion on an annual basis, as well as from the turnover of assets with shorter investment horizons and periodic monetization of our longer-dated assets through sales, refinancings or co-investor participations. Accordingly, we believe we have the necessary liquidity to manage our financial commitments and to capitalize on opportunities to invest capital at attractive returns. Nevertheless, we are cognizant of the current instability in the capital markets and continue to place a premium on liquidity and allocate capital in a cautious manner." Just something else to watch.

14. On page 37 they wrote, "Commercial property financings are secured by high quality office buildings on an individual or, in certain circumstances, pooled basis. Many of the financings which mature in the next three years were arranged a number of years ago and, accordingly, represent a low loan to value. As a result, we expect to refinance most of these maturities in the normal course at the same or a higher level." We note that for several reasons. One, on May 29, 2009 S&P reduced the outlook on Commercial Properties to negative. We also debate the low loan to value, especially via the billions of dollars coming due on Trizec during 2011. BAM also hints at extracting greater amounts of monies in their refinancing endeavors. The cash- out extraction was common place in the past. Yet, credit issuance was more liquid, BAM's debt levels were not as leveraged, and we believe that extractions will not happen. We are certainly of the mind set that refinancings, if possible will be more costly, greater covenants and would not be surprised to see failed attempts at refinancing. At this point, extensions are occurring, as the lending industry has tabled foreclosures. In 6 months to 2 years time, we expect to see more visibility in this area.

15. On page 38, BAM indicates that Debt to capitalization on a consolidated basis is 57%. We would argue that the number is much higher, as one should include Preferred Stock and Capital Securities in the debt calculation. We would also use Tangible Book Value rather than Stockholder's Equity.

We would also refer to these sections on page 38 for potential further scrutiny, "The Corporation has $1,445 million of committed corporate two-year and three-year revolving term credit facilities which are utilized principally as back-up credit lines to support commercial paper issuance. At March 31, 2009, $676 million of these facilities were drawn or allocated as back-up to outstanding commercial paper, and approximately $98 million (December 31, 2008 – $104 million) of the facilities were utilized for letters of credit issued to support various business initiatives." And, "Subsidiary borrowings have no recourse to the Corporation with only a limited number of exceptions. As at March 31, 2009, subsidiary borrowings included $730 million (December 31, 2008 – $733 million) of financial obligations that are either guaranteed by the Corporation or are issued by direct corporate subsidiaries."

16. On page 40 BAM made what we consider to be an interesting statement. "Preferred equity consists of perpetual preferred shares that represent an attractive form of leverage for common shareholders, and was unchanged during the quarter. The average dividend rate at March 31, 2009 was 4%. Further details on the components of our equity and related distributions can be found on page 45 of this MD&A.

We repurchased 1.5 million common shares during the quarter at an average price of $12.09 per share representing a meaningful discount to the underlying values as at December 31, 2008. Common equity also declined as a result of the impact of lower foreign currency exchange rates on non-U.S. operations."

Why would they state those are "an attractive form of leverage?" Also interesting that they bought back 1.5M shares at $12.09, whereas price as I write this is $18.19. Yet, I find the use of the following words to be speculative in nature, "average price of $12.09 per share representing a meaningful discount to the underlying values as at December 31, 2008."

"Our book value of $5.8 billion reflects the depreciated historical cost of many assets, such as office properties and hydroelectric facilities, which were acquired many years ago for values significantly below what they are worth today." I find it quite interesting that so many of their assets were purchased post 2004, and there is a good chance that many of those assets have a fair value at less than historical cost. Two examples could be Trizec and Multiplex. Again, BAM includes Goodwill as well in their book value mentions.

16. The Balance sheet includes $464M in Deferred Tax Assets (page 41). We often will reduce this number. BAM does not pay a lot of Corporate Income Tax. Analysts have claimed that is due to heavy depreciation and non-cash charges. We are wary of companies that never pay tax. Perhaps their operations are not as fertile as they claim.

17. The consolidated Balance Sheets have some accounts that should be watched for a quality of earnings issue. These would include Investments ($897M), Accounts Receivable and Other ($7,484M) and Loans and Notes Receivable (2,101M), Restricted Cash ($800M). These were presented on page 42.

18. BAM affirmed on page 43 that Canary Wharf is being reported at Historical Cost. We can not verify that since Canary Wharf was sold to a related party. I do not know if the asset was marked up in a similar fashion that Pingston Power and Prince Wind was, when Sold to Great Lakes (related and consolidated subsidiary).

19. Just to note a mention on page 47, "Our 2008 Annual Report contains a table and description of our contractual obligations, which consist largely of long-term financial obligations, as well as commitments to provide bridge financing, capital subscriptions, and letters of credit and guarantees provided in respect of power sales contracts and reinsurance obligations in the normal course of business."

20. Page 49, we computed that Interest Coverage is 1.22X. This is what we would consider to be an incredibly weak number, especially in light of what is considered to be a decent quarter.

21. In regards to book value, BAM presents an interesting and logical discussion in regards to fully diluted shares on page 50, "In calculating our book value per common share, the cash value of our unexercised options of $549 million as at March 31, 2009 (December 31, 2008 –$446 million) is added to the book value of our common share equity of $4,976 million as at March 31, 2009 (December 31, 2008 – $4,911 million) prior to dividing by the total diluted common shares presented above."

22. On page 51 BAM lists Assets Under Management (AUM). I added up all assets purchased 2003 and after. I also included Core Office North America, Europe and Australia. This totaled $35,602M. There are other items that probably should be included, such as some Power Generation and others. We certainly see that the asset base, using historical cost, has certainly expanded a great deal since 2002.

23. Page 57, just something to note in relation to Stock Based Compensation, "During the three months ended March 31, 2009, the company granted 9.7 million stock options at an average exercise price of $14.10 per share, which was equal to the market price at the close of business on the day prior to the grant date."

May 29, 2009 (17.59) S&P revises outlook on Brookfield Properties and BPO Properties to Negative

Rating has been affirmed. They cite the following:

* Property Valuation declines.
* Stricter lending underwriting. tougher refinancing environment.
* above average leverage and concerns of "ability to meet a large 2011 debt maturity..."
* BPO Properties also had outlook reduced to negative from stable.

Affirmed for both companies, 'BBB' long-term corporate credit rating and 'BB+' " preferred stock rating on the companies. The affirmation affects roughly C$900 million of preferred stock and US$110 million of preferred stock issued by Brookfield, and C$382 million of preferred stock issued by BPP."

*ratings acknowledge long-term leases to high quality tenants, and exposure to "healthier Canada markets." Yet, they discuss risk of tenant defaults due to economic downturn.

* "Brookfield is reliant upon asset monetization proceeds and equity issuance to bolster its liquidity position and reduce overall leverage. The current environment of weak operating fundamentals, lower office property valuations, and more-restrictive lender underwriting in the U.S. will pose challenges to the company's efforts to recapitalize its highly leveraged U.S. property fund (debt is due in late 2011). We would lower the rating one notch if the company does not meaningfully improve its liquidity position this year or if fixed-charge coverage measures were to decline from their current level (1.6x). We would consider revising the outlook to stable if Brookfield's management successfully addresses the longer-term recapitalization needs of its U.S. fund while strengthening overall consolidated fixed-charge coverage measures."

So, now we have 3 subs with credit ratings revisions.

May 15, 2009 (17.18) Standard & Poor's Ratings Services affirmed its rating Brookfield Asset Management Inc.

Standard & Poor's Ratings Services affirmed its ratings, including its 'A-' long-term corporate credit rating, on Brookfield Asset Management Inc. The outlook is stable.

"Standard & Poor's consider the company's ability to generate remitted operating cash flow from multiple sources as a key strength supporting the ratings," said Standard & Poor's credit analyst Greg Pau. "The ratings on Brookfield reflect our expectation of the company's continued adherence to its clearly stated strategy based on three main principles: owning assets that generate steady cash flow; managing partially owned funds; and maintaining financial separation and flexibility among the holding company, subsidiaries, funds, and assets," added Greg Pau.

"In our view, coverage measures have weakened and we estimate that OCF coverage of company-level interest payments was 5.8x in 2008 and coverage of company-level debt was 38%. Despite the deterioration, these measures were still in line with those in 2006 and, in our opinion, still consistent with the rating on Brookfield."

"The stable outlook reflects what Standard & Poor's sees as Brookfield's focused and consistent investment strategy, the strong business fundamentals of its core portfolio in targeted segments, the steady improvement in cash flow coverage, and ample financial flexibility. We expect deterioration in cash flow coverages to be modest in the coming year as steady OCF from core investments should partially mitigate the decline in that from opportunistic investments."

"To maintain the current rating, we also expect Brookfield to remain committed to its investment strategy and abstain from providing material support to the servicing of subsidiary-level nonrecourse debt. We could revise the outlook on Brookfield to negative if the company deviates from this investment strategy or in any way materially weakens its company-level cash flow coverage and liquidity. This could happen if Brookfield's net OCF interest coverage falls below 4x or if its net OCF debt coverage falls below 25% on a sustained basis."

"As we expect OCF from opportunistic investments to remain subdued in 2009, we believe that revising the outlook to positive in the near-term is unlikely. In our view, this could happen if Brookfield reduces its company-level debt, resulting in material improvement of coverage measures, or significantly reduces the proportion of OCF from the more volatile investment businesses."

May 14, 2009 (17.58) S&P revised its outlook on Brookfield Renewable Power Inc. (BRP) to negative from stable.

S&P revised its outlook on Brookfield Renewable Power Inc. (BRP) to negative from stable. At the same time, Standard & Poor's lowered its commercial paper rating on the company to 'A-3' from 'A-2'. Standard & Poor's also affirmed its 'BBB' long-term corporate credit and senior unsecured debt ratings on the company. The feel that BRP has "aggressive leverage." Concerned with Interest Coverage ratios and free cash flow. Concerned with the depth of the balance sheet, and the ability to withstand sustained lower natural gas prices.

"The negative outlook comes despite better-than-expected financial performance in 2008 related to very strong hydrology and strong prices for its spot market exposure. "We are concerned that a return to average generation levels and continued weakness in the power prices of its key markets could lead to a weaker financial risk profile," said Standard & Poor's credit analyst Kenton Freitag. We recognize that BRP's production is highly contracted and that near-term financial metrics are somewhat immune from short-run price volatility. "However, a sustained period of low power prices would ultimately expose the company to lower levels of free cash flow and lower interest coverage levels," Mr. Freitag added.

"In our view, the ratings on BRP reflect the company's diversified mix of predominantly hydroelectric generation assets; these assets' excellent competitive position; and the financial flexibility provided by its strategic relationship with its corporate parent, Brookfield Asset Management Inc. (BAM; A-/Stable/--). We believe BRP's exposure to hydrological risk, partial exposure to wholesale power market risk, and aggressive leverage offset these strengths."

"BRP owns 4,145 megawatts (MW) of total generation capacity. We believe its generation portfolio is well-diversified, both geographically and by the number of plants and offtakers. The company's primary focus is low-risk, low-cost, long-life hydroelectric generating stations, which are spread across several river systems in Canada, the U.S., and Brazil. It also owns two natural gas-fired cogeneration plants (215 MW) and a 189 MW wind farm in Ontario."

"The negative outlook reflects our belief that there is little resilience in the balance sheet to withstand sustained lower natural gas prices (and therefore lower electricity prices) and average hydrology. We could lower the ratings if weak power prices in key markets (Ontario and northeast U.S.) are sustained and lead to a material deterioration in its financial risk profile."

"Conversely, a sustainable rebound in power prices, efforts to contain financial risk through pursuing a higher proportion of contracted production, or debt reduction could lead to a stable outlook."

May 12, 2009 (17.79) Review of Brookfield Renewable Power Inc 1Q09 Financials

Included in that NI was Investment Income and Other of $38M and Derivative Gains of $36M.

BRP also paid a $1.1B dividend to BAM. Stockholder's Equity actually went up to $1,494 from $1,373, even with the paid dividend. This occurred via reducing loan balances owed by BRP to BAM, as well as by an issuance of Preferred Shares to BAM during February 2009. BRP issued 24,705,200 Class A shares in exchange for $1.1B owed to BAM.

We typically remove Preferred Shares from Book Value computation, and consider it a form of debt. BRP appears to have negative common equity.

During the quarter BRP advance BAM $283M. This was done via the Series 5 Note Issuance.

Company indicated they will spend ~$72m in Capex for remainder of year ($93M in 2008). Looks like they have spent $43M so far, primarily on Brazil construction projects. I do not know if the $72M mentioned above is from 4/1/09 forward, or for all of 2009. Another $53M was placed in escrow at their Louisiana facility. This was classified as "Other Assets" in the Statement of Cash Flows.

Net Loan Receivable from BAM to BRP is $860M ($581 at 12/31/08). I think $629M of that is due upon demand.

Formed a new entity called ‘Great Lakes Power Holding Corporation (“GLPHC)” a subsidiary of Great Lakes Hydro Income Fund. This will still be consolidated into BAM, since BAM owns 50.1% of Great Lakes Hydro.

Transaction is complicated (for me) and I still have to interpret monies coming into BAM (if any) for the sale (Pingston and Prince) as well as the monies going out (if any) for the continued holding of 50.1% of Great Lakes Hydro.

“On February 4, 2009, the Company completed the previously announced sale of a 49.9% interest in a newly formed holding company, Great Lakes Power Holding Corporation (“GLPHC”) to a subsidiary, Great Lakes Hydro Income Fund (“GLHIF” or “the Fund”). GLPHC’s financial position and results of operations will be consolidated by the Fund as GLPHC is a variable interest entity and the Fund is GLPHC’s primary beneficiary. GLPHC now owns the 189 MW Prince Wind farm in Ontario and the 50% joint venture interest in the 45 MW Pingston Hydro station in British Columbia. Consideration for the transaction was CDN$135 million, including a CDN$5 million working capital adjustment. The transaction was financed through the issuance of CDN$65 million of Fund units to the public, as well as subscription by the Company for CDN$65 million of GLPHC shares that are exchangeable into 4,062,500 units of the Fund. Following the close of the sale, the Company owns a 50.01% interest in the Fund on a fully exchanged basis. The transaction also includes a ten year agreement between the Company and the Fund in which any generation in excess of 506 GWh annually from the Prince Wind farm is to the benefit of the Company, however any shortfall of generation in relation to the 506 GWh annually must be compensated to the Fund by the Company. The Company‘s gain of $29 million as a result of the transactions has been recorded as investment and other income in the consolidated statement of income.”

BRP has $600M of short term debt coming due. Some of that was reduced via a debt offering during April 2009. The new debts carry a rate of 8.75%. BRP claims “a portion of this offering was used to retire CDN$105M of Series 1 Canadian Corporate Indentures due in December 2009. The remaining balance of Series 1 Canadian corporate debentures was CDN $345M at 3/31/09. In April 2009, there was another financing of CDN$100M, costing BRP 8.75%. Of that CDN$100M, CDN$65M was used to pay down the CDN$345M mentioned a few sentences above. Balance of these debentures is now CDN$280M. With all that said, I am not sure what the short term Debt balance now is. Perhaps it is CDN$535M, which would reduce by the CDN$65M. I think, but am not certain, that the series 1 facility was CDN$450M. Hence, I guess (and could be wrong) that short term debt is at CDN$430.

Powell River Energy ( a sub of BRP) obtained a bridge facility of CDN$75M. They can only access this facility for refinancing the first mortgage bonds that come due on 7/24/09. Rate is Prime + 200bps or Canada Deposit Offering Rate + 300BPS. Bridge must be used by 7/24/09 or no longer available.

In the MD&A BRP mentioned the following, “Net income for the first quarter of 2009 was $100 million compared to net income of $47 million during the

same period in 2008, an increase of $53 million. The increase in net income is mainly due to unrealized gains on derivatives and a decrease in interest expense on capital securities. These increases were partially offset by higher tax expense associated with the increased net income during the first quarter of 2009 compared to the same period in 2008 and increased expense associated with non-controlling interests.” They did not mention the following:

A. Net Income for 3/31/09 was increased by $29M, due to gain on sale of assets to related party.

C. Tax expense at 3/31/08 was a tax recovery of $19M, an addition to earnings, not a subtraction.

BRP indicates that Operating Cash Flow (OCF) (a non-GAAP measure) was $21.1M. BRP defines OCF as , “revenues from the Company’s power operations, net of operating and maintenance costs, fuel purchases for its cogeneration plants, power purchases, marketing and administration expenses and municipal and other generation taxes on its facilities.”

BRP claims to have over $900M in liquidity. This includes $133M of cash, $142M of Short Term Investments, balances on hand with BAM (629M), undrawn credit facilities ($195m), and “operating assets that have the ability to generate steady operating cash flows.” Not only is this greater than the stated “over $900M,” it is actually $1.1B.

Times Interest Earned (Interest Coverage Ratio) - This evaluates the ability of a company to meet required interest payments.
Times Interest Earned = pretax income + total interest expense / total interest expense.
We like to see interest coverage at > 4 (or 25% on the inverse). We consider 6 (or inverse 16.67%) as a conservative number.

When we look at BRP as of 3/31/09, we arrive at the following. The following agrees with BRP's 3/31/09 Interest Coverage Ratio filing.

If you remove the Investment Income and Derivative Gains, you get the following:

Of course 1.62X interest coverage is less healthy than the already low coverage of 2.36X.

Review of Acquisition of Pingston Hydro and Prince Wind to a related entity.

The transaction essentially between Great Lakes Hydro and Brookfield Asset Management involved the sale of 49.9% of Pingston Hydro and 50% of Prince Wind. The sale was done via a conduit called Great Lakes Power Trust.

Consideration was CDN$130M, of which CDN$65M was paid in cash, the remainder in shares exchanged so that BRPI owns 50.1% of the fund.

The balances of the assets at December 31, 2008 were $348,483 for Prince Wind and $35,362 for Pingston Hydro. This totals 383,845.

The difference between Power Generating Assets at transfer of $515,155 and the Net Book Value at 12/31/08 of $383,845 was $131,310. I will know more after full financials are released, but it looks like the new entity will get a step-up of Book Value. I could be wrong on that.

Interesting that the general Brookfield Theme is that book value understates asset value. Yet, if I am correct, we have the potential via step up of assets stated over historical cost.

One of the Royalty owners is a related JV. Keating and Co. Design and Fabrication Inc. I could not locate a web site.

RiskCorp was paid $35,000 for insurance. Riskcorp is wholly owned by Brookfield Asset Management. I would like to find out if Riskcorp has any regulatory filings. I have not been able to find any. Riskcorp seems to insure a great deal for BAM.

In 2008 Prince Wind had Revenues of $42,852, a net loss of ($5,156) and Unrealized Losses on Derivatives of ($22.870).

Great Lakes Power Holding Corp is 50.1% owned by BRPI and 49.9% owned by Great Lakes Hydro Income Fund. “GLP is an equal participant with ‘Canadian Hydro Developers, Inc.’

1. Claims to have an extension in place for a one year bridge facility on Powell River Energy bonds which mature in July 2009.

2. Need to ask about the step up of basis for Prince Wind and Pingston purchase.

3. Interest Coverage Ratio is 1.75X. When including Non-Controlling Interest , Coverage ratio becomes 1.78X.

The following are questions I would have asked on the Great Lakes Hydro Conference Call. It appears that Brookfield and their subsidiaries have chosen to no longer let me ask questions on their conference calls.

1. BAM bought Prince Wind in November 2006. I think most utilities have lost market value since then. Hence, what was your thinking in paying over 3X book value for Prince Wind and Pingston Hydro?

2. Please comment on the derivative situation at Prince Wind. Prince wind had 2008 Revenues of $43M (2008 was $46M), a net operating loss of ($5.8M) (2008 was ($3.9M). In addition to a continuation of Net losses, Prince wind in 2008 had a Derivative Loss of ($23M). Please explain how that was handled in the valuation and if you have any derivative concerns going forward.

3. You indicated that you have a bridge facility in place for the $75M due on Powell River in July. Yet, Broofield Renewable Power (your parent) indicated that there is a bridge facility of up to $75M, yet if refinancing of $75m Powell River debt can not be refinanced, the bridge facility would expire on July 24, 2009. Has anything changed since the filing of BRPI financials?

4. Are there any specific loan covenants in place, with you or with BRPI, which if failed, would prevent dollars required for Great Lakes Hydro Operating to stop coming in from the parent (BRPI or BAM)?

5. Do you plan on buying other properties from Brookfield Asset Management, Brookfield Renewable Power or any other related companies?

6. Please explain the due diligence you have done on Riskcorp. I think Riskcorp is wholly owned by Brookfield Asset Management. How secure are you that they have the ability to pay major claims? What procedures have you performed to ensure that the related party is a viable source, even if the parent developed cash flow concerns?

1. Tangible Book Value at F2008 was $2,166. Total Equity is $4.9B At F2007 it was $4,202. Consolidated Debt at F2008 is 30,275M ($30 Billion). At F2007 it was $30,768M. Total Tangible Assets is $50B. Total Assets / Equity is 17.7X. Total Tangible Assets / Tangible Equity is 23.1X. Market Cap is $11B (using $18 per share and 600 common shares o/s. Price to Tangible Book is 5.08X

2. CRE has going in cap rate of 7.2%. I think too low and their calculations I suspect would be on the aggressive side. I would like to see their calculation of "going in." What are occupancy rates, have they assumed rental increases, continuing leases, constant costs?

3. On the other hand, when preparing IFRS, BRP off the cuff, looks like they used conservative cap and discount rates. Yet, one needs to disect the Power division, take out one time items, related parties, etc etc and with BAM you have more than your typical company (at least the ones I have ever followed, except for Enron.)

4. You have Tricap companies that seem to be bleeding cash, yet I think still listed as havign Operating Cash Flow.

5. Net Income was $649M, when you remove gain on Norbord debentures (they merely converted) and the tax gain of converting to REIT, you end up with Net Income of $346M.

6. On page 42 of AR, BAM describes how they will deploy capital from new funds. My question is, "what if new capital does not come in?" Several analysts have been concerned with the lack of third party announcements.

7. Page 42 also discusses a deleveraging process at BAM. Paying down debts etc. Yet, on page 45 they indicate that they expect to extract cash from refinancings. All through the leveraged balance sheet build, BAM was able to extract cash. What happens when and if it stops?

8. Coverage ratios and debt ratios as reported seem low. BAM uses deconsolidated reporting for all but Brookfield Properties. I think this distorts things. You can run the ratios as they did on a deconsolidated basis. Also run like they did on an IFRS basis. But, also, very important to run it on the as presented GAAP financials.

9. I ask myself, why did BAM spend 3.3% on transaction costs for their $150M offering. That sounds like a lot to pay for a company with such allegedly strong liquidity. Yet, they do only pay 5%. So, just a question and something to document.

10. There are letter of credit committments in excess of $1B not on liability section of balance sheet. This is GAAP and acceptable, but all should know that BAM has contractually committed to over $1B of LOC's that are not (yet) showing as liabilities on balance sheet. I imagine that if BAM was asked or told to commit funds, that stress could be felt.

12. What is free cash flow? Is there free cash flow? What would cash flow be if BAM was not able to sell assets to related parties.

13. Bonds are still acting weak, and not pricing as to the current credit ratings that BAM holds. BAM has over $14B coming due in less than 3 years. BAM is generous with options to officers and directors IMO.

14. There has not been a single CMBS issuance reported since July 1, 2007 through 3/31/08. This has been attributed to increased credit tightness (see my BAM thesis), deterioration in commercial real estate (see my BAM thesis), decreased rents, increased vacancies, decreased property values, increased cap rates and requirement to be more conservative in calculation of cap rates. Delinquencies will start to rise, especially when extensions are due. I think properties with claim to lower stated LTV will be susceptible, as a lender would rather take that back, than one of a mortgage that is under-water. Yet, industry insiders have felt that lower loan to values will have greater refinancings, citing the lenders having more comfort with the collateral. All that said, there are expectations that market will open up again, just with wider spreads, greater restrictions, recourses, etc. CRE CMBS delinquencies are increasing. I read a report that showed delinquencies rose from 0.40% in 3Q08 to 1.12% in 1Q09. Later vintage loans are also experiencing unexpectedly higher default rates. These were allegedly issued with greater standards, and hence the surprise of default rate. Interest Only loans have almost disappeared (I think this will obviously affect BAM cash flow).

15. Bruce Flatt's 2007 compensation (including options) , Brookfield Asset Management Inc. $27,164,707.

16. In a recent BusinessWeek interview, Sam Zell said the following in regards to Commercial Real Estate. "We all drank too much Kool-Aid. Between 2003 and 2007, 50% of all commercial real estate traded. It ended up being over-leveraged. All cash buyers like Calpers played the leverage game instead of buying for cash. Very few who bought from 2003 to 2007 are above water. You can call it credit crunch, seller’s strike, buyer’s strike, either way you have more debt than you have value. We won’t see new equity players until the banks foreclose. It’s going to be a couple to three years before the ownership structure changes. Prices are down 25% to 30% on what’s sold. The reality is there ain’t much trading. One of the great lessons of Confucius is bankruptcy courts don’t respect maturities. That’s your General Growth (Properties) story. Sales occur when there are prospects. Tell me where the prospects are? I’m happy to buy a hotel when you can tell me the President will stop pissing on conventions. If owners have no equity, owners have no incentive to do anything. Who’s going to put up tenant improvement money? Publicly held REITs have gone down 65%, arguably too far. That’s real daily pricing. You have a lot of loans at floating rate, you don’t miss payments at 1-2%.”

17. DBRS reduces credit rating on Norbord. "DBRS has today assigned an Issuer Rating to Norbord Inc. (Norbord or the Company) of BB with a Negative trend, meaning that our opinion on the default rating of Norbord has declined from BB (high) to BB." "The lower default rating reflects the negative impact of depressed oriented strandboard (OSB) markets on Norbord’s financial structure and a longer-than-expected time frame for the Company to significantly repair its financial profile. In addition, Norbord’s financial profile is no longer appropriate for a higher rating, following weak Q1 2009 financial performance and continued high leverage." "The current rating is supported by the implied support of Brookfield Asset Management Inc. as evidenced by the successful execution of the standby purchase agreement in connection with the recent rights offering."

Here is what I would have liked to ask, had I been selected to participate in the BPO Properties conference call.

You mentioned that you are not buying back shares to preserve cash. Very understandable. You mentioned that you are looking at ways to combat the future tax that will be generated from BPO Properties profits. I imagine your desire to preserve cash would include the $218M of debt coming due within the next 9 months. The $218M coming due includes Petro Canada 3.15% loan, which you claim to be in gear to refinance. Of course, the refinanced loan, which you claim to be for a 5 year period will be at less preferential rate than the current 3.15%.

Based on the above, my question is two-fold.

1. You stated that the loan will be via a corporate issue. Will the loan remain as a non-recourse loan? Will it be for the full $150M? Will you be able to extract cash from it? If you extract cash, will you use it for opportunities, or will you pay it out as a dividend? If a dividend, do you have any concerns that Brookfield Properties owns 89% of your company and would be the recipient of most dividends you pay?

2. As you are looking to preserve cash, why would you pay out an extra dividend of $140M? Was this because your parent Brookfield Properties would have better use of the money than you would? If so, aren't your fiduciary interests focused solely on BPO Properties and not a parent? If you recall, you were previously loaning money to Brookfield Properties at rates well below what they would have received from non-related parties, as well as the dividend paid last year by you to Brookfield Properties of $250M.

It seems like any extra funds could be used to purchase assets from distressed sellers, as opposed to paying out a total of $390M in dividends to your shareholders of which $347M went to your parent (Brookfield Properties). If I am not mistaken, that $390M paid was all done within the last 15 months.

Heck, you only had Net Income of $81M during the last 5 quarters, yet you declare dividends of $390M? As a matter of fact, you had net income for the year ended 2008 of $65.5M and $138.8M in 2007. So, you have had total net income of $204M in the last two fiscal years, and you pay out $390M in dividends.

Purchasing assets would generate depreciation, which WOULD benefit any desire to combat taxes. As you know, depreciation is a non-cash charge.

I'm not at all insinuating you should be buying assets. I'm just thinking that there is way better use of that money than to pay a dividend, of which a claim that "shareholders benefit" would sound funny. Since the 89% shareholder is the parent (Brookfield Properties). It just seems different if it were an independent 89% shareholder. If full independence, would that dividend be paid? I just think that all allegiances and fiduciary duties belong to BPO Properties, and none other.

3. In light of preserving cash, and dealing with a future tax situation, are Dividends in Canada tax deductible? In USA corporate dividends are not tax deductible, yet they are includible as income for the recipient.

***************************************************** *******

Truth of the matter is, putting aside parental pressures on BPO Properties, this is the best of the organizations that I have come across within the BAM organization. Debt levels are fine. Assets look great. Implied cap rates incredibly attractive, true cash generator. Yet, if a parent drains a company that is public and certainly has a fiduciary responsibility to all shareholders, then I would have a concern.

Tom Farley is very well respected. He is President & CEO of BPO Properties and President and Chief Executive Officer, Canadian Commercial Operations of Brookfield Properties (which is an 89% shareholder of BPO Properties).

I didn't realize that Moody's issued a rating on BPO Properties. I searched and couldn't find that. Perhaps I misinterpretted the statement.

In the CC, Tom Farley said, "we have a rating from Moody's that you would see that Moody's has announced
that they've underwritten it at CAD370 million. So we're expecting to get that amount." "That's just the full amount. So our half of that would be CAD185 million and our half of the existing bridge is CAD150 million.
So, so when we're successful, that would mean incremental CAD35 million."

I was able to find a $52.5M loan to Exchange Tower Ltd(this is a subsidiary of BPO Properties Inc). That loan was issued 9/8/08, comes due in 2011.

I guess this is their CRE in Thailand? http://www.property-report.com/thailand-property-magazine.php?id=1549&date=0808

1. Brookfield claims to be constitutionally conservative in the way they e manage their business. They claim to rarely take debt that is greater than 60% loan to value. They claim to be focused on preserving capital. This is based on a 96% USA occupancy rate, and 99% in CN.

2. Thinks that TD Canada Trust Tower would now trade at a cap rate below 5% and $723 SF (not sure if he was talking CDN or USD.) This was considered "too rich" by Cadillac Fairview Corp. Kimco thought cap rates will accelerate quickly in Canada. Kimco thinks some caprates have already reached 8 in Canada.

Back of envelope BPO valuation:

NOI estimated rbcpa $1,200

Value via 10% cap rate $12,000
value via 8% cap rate $15,000

Cash $ 315
Debt $11,598

Capital Securities and preferred equity $2,177.

Enterprise Value at 10% cap rate (not reducing for $2,177 above) is $717M.

Enterprise Value at 8% cap rate (not reducing for $2,177 above) is $3,717M

Shares outstanding 407,153,160 (note for eps, weighted average of 391M shares used. That will hit eps going forward.)

Market Cap using $7.47 per share (closing 4/30/09) is $3.04B

Market Cap using $8.22 per share (closing 3/31/09) is $3.35B

Of course above is vague and incomplete. One must fully analyse intercompany transactions, debt conditions, debt status and rates, debt extensions, status of developments (including Reston Crescent), leasing assumptions, rental per square foot and covenants, and other items, which may become available with eventual quarterly filings (10-Q equivalent).

BAM has assigned a value of $7,798M on Commercial Properties. BAM did this via their "IFRS" methods.

Market cap for entire interest of Brookfield Properties is $3.1B (share price $7.55). Granted , IFRS may have Multiplex and Canary Wharf included in the $7.8B. Yet, Brookfield Properties also has a percentage of residential value in their valuation.

Remember, BAM owns 51% of Brookfield Properties.

Hence, they value at $7.8B, whereas half the market value of Brookfield Properties is $1.55B.

One could argue that true enterprise value of Brookfield Properties is zero based on a 10% cap rate and including Capital Securities and preferred equity of $2,177.

The following are questions I would have asked on the Brookfield Properties 1Q09 Conference Call. It appears that Brookfield and their subsidiaries have chosen to no longer let me ask questions on their conference calls.

To bad critics are not allowed to ask questions. Easier to deal with the sheep of Wall Street. Yet, best questions I have heard in a long time. Analysts are not as lovey dovey as they used to be on the calls. It seems like the chronie wall streeters and chummy buddies in Toronto Finance district do not want to ask the difficult questions. Maybe they are concerned about their investment banking profits.

1. In discussing their IFRS valuation methods, BAM mentioned a going in cap rate of 7.2%. Would you elaborate on your calculation of "going in." What are the primary assumptions of cap rate, including occupancy rates, have they assumed rental increases, continuing leases, constant costs?

Tom recently mentioned, Thinks that TD Canada Trust Tower would now trade at a cap rate below 5% and $723 SF (not sure if he was talking CDN or USD.) This was considered "too rich" by Cadillac Fairview Corp. Kimco thought cap rates will accelerate quickly in Canada. Kimco thinks some cap rates have already reached 8 in Canada.

What do you expect Class A cap rates to level at. It seems like a cap rate less than 5% is optimistic?

2. Would you please identify loan balances and related party activities with BAM and any subsidiaries?

3. What is status of 2 Reston Crescent? Is more development slated for that area? I thought I noticed increased square footage potential in the supplemental filing today.

4. What are your expectations on refinancing in general? Do you envision greater monies down? What rates are you seeing? covenant requirements? You have been focusing on loans that are back ended with heavier payment requirements. Have you modeled the lack of that being available going forward in your cash flow projections. Also, have you included the requirement of more money down, as well as the probable inability to extract cash from refinancings as you had in the past?

5. Any derivative gains or losses?

6. Any gains or losses via intercompany or related party transactions.

7. Any expectations of rights offerings or any type of equity dilution in ways to raise cash?

1. I think that many of the entities insure via an insurance company owned by BAM. Anyone know if there are regulatory filings for that company. What kind of capital does it have, if claims were made?

2. BAM mentioned they are under review by ratings agencies. Should be interesting.

3. Looks like third party asset generation is difficult. No surprise, as that is the case for most of the Asset Management Industry.

7. In regards to the shareholder letter.

A very good letter. Not surprising at all.

In the CRE section, Flatt mentioned that BAM has already lived through a worse real estate market. Which market was that? Most of the long time CRE companies claim this is the worst market they have seen since the depression.

Flatt cited 9/11/01 and the challenges. And it was. Yet, CRE has since boomed big time and now has propably started a bust cycle.

Flatt discussed "non-recourse long-term financing." He discussed securing investment grade debt at 60% to 70% loan to value and that over time the ratio gets less because of increasing rents, amortization and value appreciation. I am under the impression that much of BAM's CRE debt is interest only or with minor principal amortizations. We are also in a period of price devaluation.

It will be interesting to see how Trizec and Multiplex play out, as they were bought when typical CRE was priced at the top of the market.

Flatt expressed "Concern #5 - Financing." He explained how the problems of CRE are caused by refinancing issues. He feels those who put "far too much leverage on their assets" to be the ones with issues, as those who have "prudent amounts of financing."

Once again, why wouldn't Trizec and Multiplex be included in that problem area?

BAM is currently rated S&P A-

Due Date*******Current Yield

3/2010********* 9.5%
6/2012*********11.0%
4/2017*********12.4%
3/2033*********11.8%

I looked at a list of available A/A- rated bonds and here are the results.

I have stated here, that I believe BAM bonds are not priced as though they are A- rated. Perhaps this is indicating a downgrade on the way, or perhaps it is mispricing. TAV believes mispricing. I suspect ratings pressure.

Due in 3/2010 or earlier as follows:

Chrysler 6.5%
All others less than 6.5%
BAM clearly showing stress at 9.5%

Due in 6/2012 or earlier as follows:

HSBC Bank, MBNA and Prudential, yielding b/w 6.3 - 9.9%.
BAM maybe showing stress at 11%

Due in 4/2017 or earlier as follows:

Morgan Stanley at 7%, Goldman at 6.4%, most others under 10%
BAM clearly showing stress at 12.4%

Due in 3/2033 or earlier as follows:

Citi, Allstate, Dominion Resources, Science Applications yielding b/w 7.4 and 10%
BAM maybe showing stress at 12.8%

May 5, 2009 Noticed that the 2012's had pricing stress today. The 2017's dropped only slightly.

BAM is currently rated S&P A-

Due Date*******Current Yield

3/2010********* 9.5%
6/2012*********13.5%
4/2017*********12.6%
3/2033*********11.8%

It will be very interesting to see the ratings agencies discussions soon.

1. BNN.GF cusip 10549PAE1 Maturity June 2012. Coupon 7.125%.

Traded 4/30/09 6MM+ shares, last sale 90.00 to yield 11.001%.

Traded 3/4/09 6MM+ shares, last sale 81.00 to yield 14.636%.

Traded 2/27/09 3.66MM shares, last trade 81.25 to yield 14.495%.

Traded 1/7/09 Over 10MM shares, last trade 67.75 to yield 20.73%.

Traded 12/30/08 2.5M shares at $60 to yield 25.101%.

This bond traded in October 2008 at 74 yielding 10.51%, July 2008 at 99.512 yielding 7.268%, in May 2008 at 103.7 with a yield of 6.086%.

2. BAM.GA Description: BROOKFIELD ASSET MANAGEMENT INC Coupon Rate: 5.800 Maturity Date: 04/25/2017.

Traded 4/21/09 <1MM shares, last sale 66.95 to yield 12.4375%.

Traded 3/3 /09 5MM shares, last sale 67.375 to yield 12.241%.

Traded 2/27 /09 3.9MM+ shares, last trade 65.875 to yield 12.624%.

Traded 1/6/09 3MM shares, last trade 40.75 to yield 21.31%.

Traded on 12/30/08 1.2M shares at $40, yielding 21.66%.

Traded on 10/30/08 65,000 shares at $74, yielding 10.505%. Last trade before that, I forget the date was 87.17.

3. Issue: BNN.GH 10549PAF8 Description: BRASCAN CORPORATION Coupon Rate: 5.750 Maturity Date: 03/01/2010

Traded 4/06/09 < 1M shares, last sale 96.875 to yield 9.462%.

Traded 1/20 /09 5MM+ shares, last sale 89.00 to yield 17.06%.

These bonds are due to mature in 14 months. They last traded until today in May of 2008 then were yielding 5.6%.

Traded 12/10/07 5MM+ shares, last sale 102.43 to yield 4.58%.

4. Issue: BNN.GG cusip 10549PAG6 Description: BRASCAN CORPORATION Coupon Rate: 7.375 Maturity Date: 03/01/2033

Traded 4/24/09 410K shares, last sale 64.75 to yield 11.830%.

Traded 2/27 /09 5MM+ shares, last sale 60.00 to yield 12.752%.

Traded on 2/28/08 150K shares at $90.79, yielding 8.249%.

Traded on 11/6/07 100K shares at $102.566, yielding 7.152%.

1. Owns 28M SF interest of US CRE. Side note, JPM owns 13M of CRE.

2. Liquidity consists of $157M in Cash and $388M (subsequent to year end) of un-drawn capacity. This totals to $545M, yet we do not know current cash balance.

3. Cost of capital based on 12% ROE was 5.30%. This was 7.19% in F2007.

4. Reduction of future tax expense of $498M. This increased earnings. Interesting, US operations went REIT. Why would a company forfeit future NOL's to become a REIT. I need to look further into that. I am fairly certain that NOL's become frozen when REIT become effective.

5. $24M foreign exchange gain on BPO dividend. If you recall the BPO dividend to Brookfield Properties really lacked a business purpose for BPO Properties. Similar to the low cost financing that BPO Properties previously extended to Brookfield Properties Inc.

6. Received $23M of fees from Brookfield Residential and Brookfield LePage Johnson Controls. This was $20M in F2007 and $16M in F2006.

7. Gain of $27M in sale of Gulf Canada Square.

8. Gain of $164M on sale of TD Canada Trust Tower Toronto to Omers.

9. 45% of the Commercial Property Debt outstanding is floating rate debt. This was 39% in F2007.

10. Claims Current indebtedness is 64% of Book Value.

11. Seems to insure under a wholly owned entity formed in October 2008 called, "Liberty IC Casualty, LLC." Liberty provides $2.5B of TRIA coverage (terrorism).

12. Blackstone has a put option commencing in 2011 in Trizec. Entity is called "TRZ Holdings LLC." In 2013 , if Blackstone does not exercise option, Brookfield has option to Call Blackstone's interest.

13. US Office Fund (12 above as well) has an institutional investor. Certain of the contributions by this investor are in the form of an unsecured debenture. This year the change in future estimated cash flows of this obligation, included a gain of $38M (nil in F2007.)

14. Related Party Insurance Expense was $1M.

15. Common Shareholder Equity is $3,382M, in F2007 was $3,033.

16. OCF is $459M. I would consider reducing the OCF by $394M of development and redevelopment ($332 construction and $62 Interest Expense) and by $106M of Tenant Improvements and $77M of Capex. This would lead to FCF (negative) of ($118M).

17. Claims BPO Properties operations are self sustaining.

18. 94% of Commercial Debt is non-recourse. Weighted Average interest rate is 5.07% (6.65% in F2007). Total commercial property debt is $10.24 Billion.

19. Land Development debt is $434M (residential) and secured by underlying properties. $379M comes due in 2009.

20. 9,793,216 option shares outstanding with weighted average price of $16.29. 1,054,590 DSU's are outstanding. These can not be converted to cash until cessation of employment.

21. Merrill rental revenue was 11% of total US Revenues.

22. Guarantees via LOC's of $99M. Not reflected in financials. $6M of guarantees tied to performance and milestones issued to municipality of Denver.

23. Contingently liable for obligations of Joint Ventures in residential development of
$12M ($8M in F2007).

24. Commercial Property debt are typically structured at 55% to 65% LTV (when market permits.) Claims that current debt at 64% of Book Value is within its target. Book Value is $8.80 per share.

25. Covenants include a "total and secured leverage ratio", an "interest and fixed charge ratio", a "fixed charge ratio" and a "recourse debt requirement." Company claims to be in compliance with all covenants at 12/31/08 and claims there is a quarterly review. Company does not disclose covenant requirements.

26. Company has following debt levels. The following does NOT include discontinued operations.

Commercial Property debt $11,505
Residential Development 434
Capital Securities - Corporate 882
Capital Securities - fund subs 240

Total $13,061

Of the $13,061, $6,680,000,000 comes due in less than 3 years (2011).

27. Company appears to carry derivatives with Notional amount of $4B. This is also tied into common shares of 1,001,665. These shares are part of a total return swap. A $1 gain or loss in share price results in a $1M gain or loss. Hence there is Equity Price Risk. This would be reflected in company's G&A. I think derivatives are too opaque and will leave it at that.

28. No money drawn on $300M credit facility from BAM.

29. Cash Taxes paid were $18M in F2008 and $35M in F2007. Cash interest paid was $762M (not including dividends on capital securities.)

30. Average occupancy % if 94.9%, 95.6% in F2007.

Here are my notes of the following clip.

http://www.cnbc.com/id/15840232?video=1074990842&play=1

Real estate storm brewing. category 5 hurricane coming. Aggressive underwriting 2005 - 2008. too much optimism in projections. deteriorating market conditions. Real estate market is collapsing. Distaste for real estate capital. He is more concerned today than ever before, because of economic conditions. failure of demand in system. Higher vacancies in office market. (see WSJ as 1 World Financial Center is offering nearly 300K SF available.) CRE is lagging indicator, last to get in trouble, last to get out. As investor he says "his hands are in his pockets." You can keep fingers crossed. Look at employment picture, and if improvement could help.

Unlike BPO properties has stated, I dont think Lefrak sees "business as usual."

The following is an excellent CRE presentation by DB and some quotes that were pertinent to me.

http://online.wsj.com/documents/CREOutlook20090325.pdf

"Price declines of 35-45% (or more) expected, exceeding those of early 1990s"

"Rent declines and vacancy rates may approach those of the early 1990s"

"Conduit collateral performance deteriorating at historically fast pace"

"Large percentage of CMBS loans made in 2005-2008 will not qualify for refinancing without substantial equity injections"

"Aggregate delinquency rate ready to surpass the peak of the previous recession"

"Since October, monthly delinquency rate increases have accelerated sharply to the 17-25bp range, a pace of deterioration that is without precedence"

"Deterioration far more severe in 2006, 2007 and 2008 vintages"

"Historically, larger loans exhibited performance that was far superior to that of smaller loans. This is unlikely to be the case going forward, as underwriting weakened most for larger loans"

"Given the deterioration in employment rates in general, and office employment rates in particular, we expect office to be one of the hardest hit property segments. At 103bp, total office delinquency rates remain low."

"Many of the riskiest pro forma loans from 2005-2007 were structured as 5Y IO loans"

"Declining property prices pose a significant threat to loans needing to refinance over the next decade. CRE prices peaked in October 2007 after appreciating of 30% since 2005 and 90% from 2001."

"The 1540 Broadway experience… Represents almost 63% price decline over past 24 months"

We have written extensively about 1540 Broadway See March 12, 2009 below

"Required ROE for levered CRE investors suggests price declines of 45% or more"

see excellent tables on pdf pages 31, 40 and 49 http://online.wsj.com/documents/CREOutlook20090325.pdf

"Cap rates increasing to 7% imply a 14% price decline, increasing to 8% a 25% price decline, increasing to 9% a 33% decline and increasing to 10% a 40% decline. We expect price declines of 35-45%, and possibly more."

"The number of conduit loans passing their maturity date without refinancing is growing rapidly"

"For loans maturing through 2012, even lenient underwriting requirements imply the majority (56.8%) of loans will not qualify. Out of $154.5 billion of maturing loans, $87.7 billion do not qualify. Office and multifamily are most severely impacted segments."

"In our view, much of these losses are unavoidable, even in a mass extension environment."

"Some argue that CRE markets are likely recover quickly as the economy begins to recover, which will resolve much of the refinancing problem. We disagree – even if rents and vacancy rates improve, the vast majority of the price declines reflected changes in underwriting regimes, not depressed cash flows."

Brookfield Renewable Power - back of envelope continued

I was trying to find a price to cash flow metric. Very difficult to do, as there are items that to me are not real clear.

There are two items in the statement of cash flows, that could lead to potential accounting aggressiveness. One item is Non-Controlling interests. There is so much fluctuation, year to year, that perhaps it is best to ignore when working with cash flow reconstruction for the future. There is also potential confusion and cash flow issues with inter-company fundings and frequent related party transactions that occur throughout the BAM organization.

Add back of taxes should be noted. Okay to add back for cash flow adjustments. One must be cognizant that taxes are future taxes, and that BRP is incurring less taxable income than reported income. There are many reasons this could occur. BRP paid $13m of taxes in 2008. I don't know if there are statutory Revenue tax or if they are reporting some taxable net income. I can't tell by the wording in financials on note 21, if there is an equivalent of a net operating loss carryforward in Canada.

Other line items on the statement of cash flows that I have ignored for now are "other" of $38M and "Net change in Working Capital" for $55M. I have ignored these, for now, because of the potential of aggressiveness within intercompany and related party usage.

Here is a back of envelope reconstruction of cash flows. My example does not include any debt repayment, principal reduction or dividends. Any and all of the above would reduce free cash flow.

Net Income 277
Add or (deduct)

Depreciation 169
Derivative Gain (96)
Future Taxes 40

Cash flow from ops 390

capital expenditures (148)

Free Cash flow 242M

Various multiples for valuation based on FCF adjusted

5X = $1.2B
10X = $2.42B
15X = $3.63B

One could add back the "non-controlling interests", "other" and "Net Change in WC" for an additional $170M in Cash flow. If that were done Adjusted Valuation would be FCF of $412M:

5X = $2.1B
10X = $4.1B
15X = $6.2B

Yet, if one were to add back those items, then they should also consider subtracting debt repayments. Again, I would refrain from that, or I would go with a lesser multiple due to potential "related party manipulation risk".

Of course you need to determine if 2009 is going to be better NI and CF than banner year 2008. Keeping in mind that 2009 will not include full operations (only consolidated) of Pingston, South American Transmission and Prince Wind.

At this point, for my purposes, I feel comfortable with a valuation of $2 - $4B for BRP. Potentially even less than $2B.

I think that BAM has placed an interim valuation of Renewable at $6.5B via their supplemental information (as originally reported).

Debate welcome. This is back of envelope, BAM has not yet released financials for 2008, hence margin of error and interpretation is greater than if all was filed.

As always, watch the debt and the credit agencies.

"In early 2009, Brookfield Renewable declared and paid a special one-time dividend to its common shareholder in the amount of $1,100 million. This dividend was applied by Brookfield Asset Management to reduce its outstanding indebtedness with the Company. For further information, please see “Dividend Policy”.

Also in early 2009, the Company issued 54,669,200 additional Class A Preference Shares in exchange for a reduction of $1,100 million of two promissory notes totaling $1,210 million outstanding to Brookfield Asset Management."

"The authorized capital of Brookfield Renewable consists of an unlimited number of Class A Preference Shares and an unlimited number of Common Shares. On December 31, 2008, there were 2,488,278 Common Shares and 57,077,111.87 Class A Preference Shares issued and outstanding. On February 25, 2009, Brookfield Renewable paid a portion of its outstanding promissory notes in Class A Preference Shares by issuing an additional 54,669,200 Class A Preference Shares to Brookfield Asset Management, bringing the total number of Class A Preference Shares outstanding as of that date to be 111,746,311.87. See “Capital
Structure – Promissory Notes” for further details."

"On February 24, 2009, the Company authorized the payment through the issuance of Class A Preference Shares of one of the promissory notes in full and a portion of the other promissory note. The payment aggregated $1,100 million and was paid through the issuance of 54,669,200 Class A Preference Shares calculated at an issue price of Cdn$25 per Class A Preference Share. While the promissory notes specified that payment could be made in Common Shares, both the Company and Brookfield Asset Management agreed to payment in Class A Preference Shares in substitution therefor. The payment of the $1,100 million in Class A Preference Shares to Brookfield Asset Management on February 25, 2009 reduced our intercompany debt with Brookfield Asset Management to $110 million on the remaining promissory note."

BAM shows IFRS value of hydro at $6.5B. Below I came up with various back of envelope valuations that range between $1.4B and $3.2B. Again, perhaps the annual filing of BAM when released will give greater detail.

1. Other Assets are $1,033. These include (see note 15) Costs to be amortized (future expense), FERC licences (also amortized), Goodwill (27) and Derivative Assets (Fair Value of $88).

2. Short Term Investments are $146 and are demand promissory notes issued to BAM. Promissory notes are at CDN prime rate. I think, but am not certain that 2008 CDN prime rate was 3%.

3. Derivatives used for interest rates, currency, hydrology levels and prices of electricity.

4. Company claims that 99% of the $150M accounts receivable are current. They are reserving $3M or 2% of A/R.

C. Purchase of 100% of Common Shares of BAM subsidiary Brascan Energetica S.A. (BESA) for $490M. Completed 11/28/08.

A. Supplies Katahdin Paper Company with energy at a fixed rate. There is a receivable of $1M. There is a profit sharing arrangement, which I think was allocated to BRP.

B. Supplies Fraser Papers with energy at a fixed rate. There is a receivable of $1M.

C. Has demand deposit of $346M with BAM, as well as a $25M promissory note with BAM. Earned $1M on interest income for the Demand Deposits.

E. Riskcorp Inc., is an insurance broker "related by common control" and provides insurance to BRP. Total cost was $11M and is included in G&A. This company provides Hydrological insurance.

F. March 12, 2008, transferred electricity transmission operations located in Northern Ontario to Brookfield Infrastructure Partners (BIP) for CDN$211M. There was a $45M gain which was recorded to Contributed Surplus. This allegedly flows through to Shareholder's Equity.

G. Purchase of 100% of Common Shares of BAM subsidiary Brascan Energetica S.A. (BESA) for $490M. Completed 11/28/08.

10. Benefit Plans are 60% equities and 40% debt. I do not recall if they are invested in any of BAM or related Debts or Equity.

11. The discount rates on Benefit Obligations was raised to 5.50% - 6.32% in 2008, from 5.25% to 5.85% in 2007. The discount rates for Benefit Expense was raised to 6.28% - 7.50% in 2008, from 5.50% to 6.32% in 2007. I do not know the expense amount, but the higher the discount rate assumptions, the lower the expense.

12. Parental Guarantees detailed on page 33. Nominal value of CDN$358M ( 12/31/07 was CDN$286M). Covenants require mark-to-market of PGs issued to be lower than CDN$350M. As of 12/31/08 mark to market was CDN$63M. "Historically , the Company has not been obligated to make significant payments for these guarantees." No amount was included in the balance sheet for these guarantees.

13. Subsequent Events - "On February 25, 2009, the Company declared a $1,100 million dividend payable to its common shareholder. Payment of the dividend was effected by reducing the amount receivable from the Company’s common shareholder. Immediately prior to declaring the dividend, the Company issued preferred shares to Brookfield in the amount of $1,100 million with proceeds being a reduction in the balance owing to Brookfield."

14. Earnings Coverage Ratios - BRP indicated that "earnings before interest and taxes" for 2008 was $677M. Included in that is $96M of Derivative Gains and $20M of Investment Income. BRP states that the Interest coverage ratio is 2.14 in 2008, and 1.30 in 2007. Keep in mind that Interest expense on Capital Securities was eliminated in 2008, after incurring $31M in expense during 1Q08. The coverage ratio when not including the other income is 2.62. Certainly an improvement over 2007. Still lower than we like to see as indicated at this link item 3.

15. I redid the interest coverage ratio by eliminating the Other Income and Derivative Gain. Here are the results.

16. On 1/6/09 BRP purchased 627,500 units of Great Lakes Hydro Income Fund for CDN$16.00 for total price of $CDN10M.

17. On 2/4/09 BRP sold its entire interest of Prince Wind Farm and a 50% interest in the 45MW Pingston Hydro Station to Great Lakes Hydro Income Fund. "Total proceeds of CDN$130 million, comprised of CDN$65 million cash and exchangeable shares in the corporation that owns the two projects. The exchangeable shares can be converted into Fund units at any time. On a fully exchangeable basis, the Company maintains its 50.01% ownership interest in the Fund." Wind generation in 2008 generated Revenues of $40M in 2008 (3.4% of Revenues and 4.6% of reported Operating Cash Flow). I do not know how much Revenue and OCF Pingston Hydro is responsible for.

18. On 2/3/09 BRP issued notes in the amount of CDN$300M. Assigned a ratings of BBB (high) by DBRS, and BBB by S&P and Fitch. With the proceeds they bought back a portion of their Series 1 Corporate Bonds for $105M. The series 1 bonds are expected to mature in December 2009. The remaining balance is to be used for "general corporate purposes." CDN$345M is still owed.

19. "On October 30, 2008, the Ontario Energy Board (“OEB”) issued its decision in the distribution rate application of Great Lakes Power Limited (“GLPL”), a subsidiary of the Company. As part of its decision, the OEB approved the Company’s request for an annual revenue requirement of approximately CDN$17 million, which the OEB made effective as of September 1, 2007. In another part of the decision, the OEB denied GLPL the recovery of approximately CDN$15 million related to amounts that GLPL accrued since 2002 in respect of its distribution rate mitigation plan and associated revenue deferrals that were not recovered through its approved distribution rates. GLPL has appealed this portion of the decision, and has accordingly not reversed these accruals." I listed this, only to see eventual outcome.

20. "In March 2008, we sold our transmission business to a Brookfield affiliate. We do not expect this disposition to materially impact our future results given that the operating cash flows from the transmission business in 2007 were $26 million, representing less than 5% of our consolidated operating cash flow."

21. Outlook: "In 2009, we intend to refinance our CDN$75 million Powell River Energy Inc. property specific debt that matures in July 2009. We also intend to refinance our $120 million Itiquira term loan and R$165 million Itiquira credit facility, as well as our corporate debentures in the amount of CDN$450 million, all of which mature in December 2009. We have taken the first step toward raising the funds necessary for these refinancing activities, with the issuance of medium-term notes in the amount of CDN$300 million in early February 2009."

22. Capital Asset additions were $148M. This includes the construction of projects in their development pipeline.

23. Note on Credit Ratings: "We continue to maintain investment grade unsecured issuer ratings from DBRS (BBB (High)), Standard and Poor’s (BBB) and Fitch (BBB), which are influenced by a prudent level of low-cost asset financing and modest levels of corporate debt. The long-life nature of our assets has allowed us to finance with non-recourse debt and minimal near-term maturities, minimizing risks associated with liquidity and refinancing."

March 12, 2009 (13.51) Update on NYC Commercial Real Estate and 1540 Broadway

"CB Richard Ellis Investors, the investment fund run by mega-brokerage CB Richard Ellis, is set to close as early as Thursday on 1540 Broadway, one of the last remnants of Harry Macklowe's once mighty midtown empire, sources say.

The price is said to be around $355 million. Macklowe Properties purchased the tower in February 2007 in a deal that valued it at $950 million, or $1,079.55 per square foot of office space, according to The Wall Street Journal. The new sales price would translate into just over $403 per square foot.

Despite the 44-story tower's prime location in Times Square, it has more than 200,000 square feet of vacant space, according to CoStar.

Mr. Macklowe acquired 1540 Broadway as part of an epic $7 billion, seven-tower shopping spree in the early days of 2007. A year—and a universe in the real estate market—later, Mr. Macklowe was forced to turn over the properties to one of his creditors, Deutsche Bank. The bank has since managed to sell all but two of those towers, 1540 Broadway and Worldwide Plaza.

The sale of 1540 Broadway would leave Deutsche Bank with only one."

"Twenty feet, nine inches from the southeast corner of Broadway and 46th Street rises a building known as 1540 Broadway, 1.1 million square feet of pure, honest-to-goodness office space in one of Manhattan’s most coveted commercial markets: Times Square."

"Deutsche Bank sold the office condo portion of the building last week to CB Richard Ellis Investors for $355 million, marking the first important building transaction in 2009, and giving a market made murky by instability some sense of perspective. To use industry jargon, it gave the market a “comp.”"

"Deutsche Bank, the seller that acquired the building last year from Harry Macklowe after he could no longer pay his mortgage, financed the transaction at a loan-to-value of less than 68 percent."

“It says to me that to sell a building today of that scale you need a seller financing,” said Peter Riguardi, the president of New York operations for Jones Lang LaSalle. “And I think that without that, the deal probably doesn’t happen.”

Meanwhile, the $355 million sale price puts the value per office square foot at about $392. “People will take those $350 or $400 a square foot as the new pricing for this type of properties,” Mr. Sierra said. “This is virtually half of what they would have cost a year ago.”

"The last time prices for midtown space were in the mid-$300s was 2004, according to Real Capital Analytics’ Pete Culliney. And the vacant office space in the building, which is only 78 percent leased, was valued at around zero.""

"A real estate executive, who would only speak anonymously, described some of those realities. In addition to the quality of the building, which he described as “A minus minus minus,” or maybe a “B,” he said that the most important metric to note was the returns.

“It traded at our view at a 12 percent levered return, and 9.5 unlevered return,” he said. “The price per foot is deceptive.”

“Our conservative underwriting of properties for which a valid value-add strategy (improve the building, re-lease, raise rents) was appropriate makes us comfortable with our portfolio,” GE spokesman Russell Wilkerson said in a statement on Saturday. “We have business plans in place to improve properties where necessary. Many of these properties still carry below-market rents, providing us with protection and some upside.”

“Today, I wish we had less exposure to commercial real estate and UK mortgages.”

“They spent a huge amount of money in real estate,” Corl said. “They paid a full price for what ends up being a lot of mediocre real estate.”

"General Electric’s real estate earnings are likely to fall further as occupancies and rents drop in a US recession that’s now in its second year, said James S Corl, who oversees distressed real estate investments at Siguler Guff & Co in New York."

Here are some comments Buffett made on 3/9/09, which I think are relevant to BAM and potential inflation.

"Mr. BUFFETT: It was--it was not a house of cards, but it was an economy that was benefiting from leverage--leveraging up.

And when you leverage up, it's very pleasant. I mean, you can build more houses than people are buying, you know, and--or the natural demand is for and you'll get people speculating in them and you'll get people lying in order to get into houses they can't afford. And so the percentage of people besides the American households that lived in their own house went a little bit and it went up a little bit because those people really didn't have the income to do it. Now it has to go down. But it was not a house of cards at all. I mean, we have an economy that really works."

"-we are going--we are doing things that are going to put a lot of inflationary pressure on at some later date and we're going to do more things like that and that's the right thing to do, actually. I wish we didn't have to do it, but it's the right thing to do and--but in economics, you can never just do one thing. I mean, if you do something, it has consequences and that's why they always say you never get a free lunch. But it's better to have the lunch we're having now even if we pay later than have no lunch at all."

"So the best--well, the best assets you can have during inflation is your abilities. I mean, because if you're the best doctor in town or the best lawyer in town or the best broadcaster in town or whatever it may be, you will always command a certain percentage of the resources of society. So your own talents are the most important thing. But if you don't have any talent like I do, you try to buy into other people's talents. And you know, this is the best candy. This is the best soft drink, as far as I'm concerned, and it will be that way 10 years from now. And whatever the value currency is, we'll get our share in that--in terms of that value at that time."

You can see his stance on mark to market accounting and perhaps extrapolate to BAM with IFRS early reporting.

"I've always been theological on mark-to-market accounting, because I've seen so much of what people do when they're allowed to use their imagination on balance sheets or income statements. And frankly, American business misbehaved in a big way, particularly in the '90s. But people did play games with numbers. And they probably still do. But it--there was--it was almost accepted as a way of doing business. So I've always been suspicious when you give a CEO a pen and tell him it's the honor system. And anything other than mark-to-market works in that direction. Now, it's true, I think, that mark-to-market has had a--it's been some gasoline on the fire in terms of financial institutions. The markets are, on certain things, are pretty unrealistic, which is why I said just a little while ago that I would like to--I would rather buy the toxic assets at market from a bank than their good--than their best assets. There's more money to be made in those and they've been marked to a level where there's a lot of--you know, where they're probably below fair value, in my opinion. So I'm sympathetic. I think the best way to handle that, though, probably still, is to have the mark-to-market figures, but not have the regulators say, `We're going to force you to put a lot more capital based in on these mark-to-market figures.' I say in our annual report, I mark some--we mark everything to market. I say I don't agree with it in certain cases, and I explain my reasons and shareholders can decide whether they think the reasons are valid or not. I hate to give it up."

"QUICK: Starting off with this, there's a question that came in from Greg Martin in Roswell, Georgia. He says, "How do we best prepare for the inflation that will result from the stimulus, and how severe do you expect it to be?"

Mr. BUFFETT: It's hard to tell how severe it'll be. There will be things that government and Federal Reserve can do years from now that will try to counteract it. But we are certainly doing things that could lead to a lot of inflation, and the best asset during inflation is your own earning power. Anything you do to improve your own talents and make yourself more valuable will get paid off in terms of appropriate real purchasing power. If you do something well, whether you're a major league baseball player, you know, whatever it may be, if you're a good assistant, whatever it may be, that's the best asset. The--in my view, the second best asset is a good business. And you might own one yourself, but you might own it through equities."

"would say in 2008 it's been re-emphasized to me the dangers of extreme leverage, whether it's on an individual basis or whether it's societal. And leverage is a lot of fun on the way up, and what it produces on the way down when carried to extremes, whether individual--I mean--I mean the tragedy of somebody on a credit card, which is leverage, what it does to marriages, all kinds of things. Now, when you get where the entire economy, or much of the economy leverages up in a way that embodies societal dangers when it has to de-leverage, I think we should have learned a lesson on that. And if you're--if you're dealing--there are a lot of things in life where you don't know whether it's just a little too much or a little too little, but I think we've learned that we want to err on the side, next time, of not allowing people to go on--or big institutions to get as unchecked on leverage as we have allowed them to do here recently."

I was reading an article this morning, linked below. Here is a quote. Not saying CRE would follow the same path, just thought of current CRE and discussion when I read it.

"The Dow touched down at 608 in 1974, 40% below its peak and yielding more than 5%, and then took eight years to climb above 1972 heights. In the meantime, commercial real estate values fell off the page and the country suffered vicious inflation in everything but stocks and real estate."

No one knows when inflation will re-emerge. You just can't time these things. I do think that if inflation comes sooner than later, I would expect that CRE will not be a benefactor. There still seems to be a lot of overhang, vacancies increasing, rents dropping, affordability of tenant has changed. I think cap rates will continue to rise. I think published cap rates are based on trailing numbers or on optimistic assumptions. These would include occupancy percentages, projected rental increases, etc.

BAM has assigned a value of $7,798M on Commercial Properties. I think BPO is the only entity that would be consolidated and included in the $7,798M. The $7.8B does not seem to include Residential Properties owned by Brookfield Properties. The financial statements are not yet filed. When they are filed, perhaps we will get greater clarity into what is included in Commercial Properties. I imagine that the $7.8B includes the values of Multiplex and Canary Wharf.

Brookfield Properties has a market cap of $1.8B when using a share price of $4.60.

BAM owns 51% of BPO.

Erin Caddell, analyst, asked on the Conferecne call, "And then maybe going back to your underlying value calculation and specifically for commercial properties, you value that at $7.8 billion. You do have kind of an outside valuation of Brookfield Properties, in the market cap of Brookfield Properties.

Just based on my calculation, you're 51% stake in that would be valued at $1.3 billion. I'm sure you feel that number is too low. But essentially do you resolve in any way the kind of market value of any of your publicly traded entities with the underlying value? So for instance, what percentage of the $7.8 billion is the North American commercial properties that is represented by Brookfield Properties?"

Bruce Flatt (BAM) responded, "We don't specifically comment on how that relates to Brookfield Properties and the market value of a company isn't particularly relevant in preparing underlying values certainly for the purposes of IFRS. You look at the underlying assets and apply the values there."

I forget what % of BPO is residential operations, but even including it, you get such a vast difference of stated value.

On one hand the market has clearly placed a value on BPO of around $1.8B. Granted, in theory, there could possibly be an argument that market value is not intrinsic value. Yet, and I must be making an error, for BPO to be worth $7.9B, it would carry a share price of around $20.

"In our office property business, it performed as expected, as Brian noted. Although this probably is the least understood or where people worry more about this with respect to our Company."

"There's no doubt though that the office property business is a lagging indicator of the economy and that overall statistics will deteriorate over the next year or two and that financing issues for some borrowers will cause disruptions in the markets. But the long-term supply and demand balance in most markets was very solid entering into this period. And with respect to us, our long-duration leases, like many times before, should allow us to see through to the other side of an otherwise softer period."

Below, I found the wording of promising returns to be interesting.

"One should remember, like our shareholders, our institutional investors pay us to invest wisely in assets which will earn them the returns we promise them."

"We have few legacy issues which are draining our management time. And by and large, we have no major underperforming funds which have tainted our investment reputation."

"One was we redeemed a $300 million corporate bond. And second, we did retire the debt associated with our European operations, which was probably another [$300 some-odd million]. So those were two fairly significant cash outflows in the fourth quarter.

And we have been investing in our businesses as well. We mentioned $1.5 billion over the course of the year that we have put into the assets. Those would be some of the principal things that would -- where the liquidity that is flowing into the business would be deployed."

" I will make a couple of comments and Bruce may want to follow on. The game plan, frankly, is to -- on the one hand, we believe we are investing the capital as I mentioned in my comments earlier, at very attractive valuations and then we would expect to achieve very strong returns from these investments over time.

Second, it does assist in deleveraging and paying down the debt in some of those businesses. And in some cases, that was an appropriate thing -- we felt that was an appropriate thing to do. We have I'd say in aggregate committed roughly $500 million or so to rights offerings and that was the two largest ones would be with respect to Brookfield Homes and Norbord."

"It varies by country, but interestingly where you would think many institutions are not out lending, the fact is they are and even on commercial real estate which today people if you read all the papers, you would say people weren't funding commercial real estate. But in fact, in many places they are. So I think it depends on country and asset type. The assets that are less affected by this environment are highly financeable."

"Okay, in terms of the tax profile at the corporate level, and obviously it's a pretty complex area to delve into. But in general, we have, I would say, a very long runway before we will be in a position that our tax pools would be depleted and we would be in a cash taxable position. All things being equal, it would be at least six or seven years, absent some very significant realizations between now and then."

BAM was asked if they had concerns as it relates to mortgages or Multiplex. BAM responded, "I would say the quality of the assets gives us lot of comfort in that regard. So, we will work through that situation and fortunately we don't have a whole heck of a lot of maturities staring us in the face there. And we will get -- the quality of assets are such that we should have a pretty easy time refinancing them, we think."

(1. ) I think they are over leveraged and that increased credit costs, costs of capital, lower loan to values, could continue to stress BAM.

(2.) BAM has quite a few Joint Ventures or minority interests. On projects they have co-investors. Both Co-Investor and BAM commit capital. I would watch if JV's start failing to meet capital contribution requirements.

(3.) Incestual sales and potentially unusual uses of related parties. These include related party sales. Related party fundings, which include potential below market loans. Related party dividends, which are not necessarily in the best interest of the entity distributing dividends. Potential use of subsidiaries as a funding source, which might not be considered arms-length in nature. Recent items of such could be:

A. BHS rights offering $250M, will be used to pay off BAM loan. Speculation is that BAM will backstop nearly entire offering. On March 4, 2009 BHS(1.92) announced that they received a $25M commitment from BAM.

B. Norbord - In the CC they discussed that the $240M CDN rights offering was essentially fully paid for (at least most of it) by BAM. They took that money and paid back BAM. I forget the amount, but I think in the $90M range (I could be wrong.) They amended their credit line with BAM and brought it down to $50M from $100M. They stated that nothing is currently owed on the line.

C. Fraser Papers and Brookfield Paper LLC - Fraser Papers Inc. ("Fraser Papers" or the "Company") (TSX:FPS - News) announced today that it has agreed to sell approximately 10,500 tons of specialty printing, packaging and ground wood papers to Brookfield Paper LLC ("BPLLC") for proceeds of approximately $11.7 million, which will be used to repay amounts outstanding under the Company's working capital facility. In addition, the Company has agreed to supply paper to BPLLC through July 31, 2009, at market prices. The net proceeds to Fraser Papers reflect a customary merchant's discount of 3.5% to end user selling prices. As part of the transaction, Fraser Papers will provide sales and administrative support to BPLLC. BPLLC is a wholly-owned subsidiary of Brookfield Asset Management Inc. ("Brookfield") (TSX:BAM - News; NYSE:BAM - News; AEX:BAMA), the Company's majority shareholder.

D. Brascan Residential SA has a R$200M Rights Offering - I think, but am not certain that BAM backstopped this. “Rio de Janeiro, January 15, 2009 – Brascan Residential Properties S.A. (“Brascan” – Bovespa: BISA3), one of the largest integrated developers in Brazil, announced today that its Board of Directors has approved a rights issue of 100 million new common shares, within the limits of the authorized capital established by the EGM of November 24th, 2008, providing a capital increase of R$ 200 million.”

”In addition, one of the controlling shareholders, Brookfield Asset Management, an international asset management firm with approximately US$90 billion under management (of which around US$38 billion is in real estate assets), has committed to subscribe, through Brascan Brasil Ltda, any rights not taken up by the minority shareholders, thereby ensuring full subscription of the R$200 million offering. “This underlines the controlling shareholders’ commitment to the Brazilian real estate business, and their determination to strengthen Brascan’s position as one of the leading companies in the industry,” declared Nicholas Reade, Brascan’s CEO.”

E. Canary Wharf - On a separate issue BAM indicated to me that the sale of Canary Wharf Group to Brookfield Europe LP with the following: " The sale was by Brookfield Investments Corp., a 100% owned subsidiary. Therefore there is no income recognition on the transaction. "

The following is quoted from a SEDAR filing on December 9, 2008 for Brookfield Investments Corporation.

"On December 3, 2008, the board of directors of the Company approved the sale of its 15% interest in The Canary Wharf Group plc (“CWG”) to Brookfield Europe LP in exchange for an approximately 42% limited partnership interest in Brookfield Europe LP with a fair market value of £333,800,000 and cash proceeds in the amount of £107,600,000."

F. Brookfield Infrastructure Partners - Acquiring Public Private Partnerships (PPP) from Brookfield Multiplex. Purchase price of $20M. I asked if this was discount from BAM’s original purchase price, but presenter was not sure. Properties include 2 hospitals. Anticipated close is November / December 2008 (even though presentation was in December 2008.)

G. Longview and BIP - Invested in Longview to maintain 30% ownership level. This further investment of $103M was completed in November 2008.

(4.) Slowdown in Alberta CN real estate. (BPO). I previously had this as potential. Slowdown in Calgary. On 3/3/09 this was in the news, "Canada's Economy Shrinks 3.4%" http://online.wsj.com/article/SB12360230...

(5.) High occupancy rates in metro areas deteriorating because of reliance on financial service industry. Interestingly enough, BPO Properties in recent CC, claimed "business as usual."

(6.) Previous access to low cost capital with excess cash based on NAV, no longer available to BAM.

(7.) Industry credit tightness, and BAM's high leverage, could cause stress. Noting that $14 - $18B comes due on or before 2011. BAM has $32B of total debt.

(8.) Lower values of assets, which were bought at potentially elevated prices, with concerns that loans that are no longer available to such assets. This potential lack of credit is not just industry specific, but what I believe to be company specific.

Brookfield Properties has $5.6B of debt coming due on a consolidated level in less than 3 years. Most of this is from Trizec purchase in October 2006, which I think is now US Office Fund.

Those are just two items that make up almost $7B in less than 3 years.

In total on consolidated basis, BAM has over $14B coming due within three years.

Here is what BAM mentioned in their 4Q08 supplemental report in regards to non-recourse commercial property debt.

"Commercial property financings are secured by high quality office buildings. Many of the financings which mature in the next three years were arranged a number of years ago and, accordingly, represent a low loan to value. As a result, we expect to refinance these maturities in the normal course at the same or a higher level. Maturities in our North American, European and Brazilian operations, are extremely low relative to the scale of these operations, reflecting the long-term nature of the financing. The Australian property market typically utilizes shorter duration financing, which we are rolling over in the normal course and seeking to extend on a long-term basis where possible."

From above, not only does BAM expect to be able to refinance, they are expecting to refinance for the same amount of debt or greater. Yet, as JPM said today, it is a new ball game for lending. Cap rates, use of lending guidelines , loan to values have all changed. BAM has alluded long term ownership of assets, when indeed, they have $7B due before 2011 on assets that at the earliest were purchased in October of 2006.

If you review BAM and subsidiaries interest coverage ratios they are quite low and have been decreasing over the last few years. In the recent supplemental schedule BAM reported Interest Coverages on Operating Cash Flows, not on Net Income from Operations.

When looking at BAM remember to consider asset sales, debenture conversions and so forth, as non-recurring as well as being sold in most cases to related parties.

(9.) Funds that BAM manage are not performing within expectations. These include Crystal River, Some Hyperions, Brascan, Multiplex, Brookfield Properties (projected) and Brookfield Homes (projected).

Here is an example on Multiplex Funds on 3/2/09

On 3/2/09 MULTIPLEX ACUMEN PROPERTY FUND (MPF) closed at $0.03. This has lost 98% of its value since 12/31/07, and 77% of its value since 12/22/08. MULTIPLEX ACUMEN PROPERTY FUND (MPF) at 12/31/07 was priced at $1.25. It closed at $0.29 on 10/31/08, $0.20 on 11/24/08 and $0.10 on 12/22/08.

On 3/2/09 MULTIPLEX EUROPEAN PROPERTY FUND (MUE)closed at $0.12. This has lost 87% of its value since 12/31/07, and 30% of its value since 12/22/08.

MULTIPLEX EUROPEAN PROPERTY FUND (MUE)at 12/31/07 was priced at $0.90. It closed at $0.27 on 10/31/08, $0.20 on 11/24/08 and $0.17 on 12/22/08.

Here are some notes I had on potential debt breaches.

Brookfield’s Multiplex Acumen Fund May Breach Debt Agreements

Dec. 17 (Bloomberg) -- Multiplex Acumen Property Fund, a A$342 million ($238 million) money manager controlled by Brookfield Asset Management Inc.’s Australian unit, said sliding property values may force it to breach debt covenants on Dec. 31.

The fund started its yearly review with lenders and would have 90 days to rectify any breach, Multiplex Acumen said today in a statement to the Australian stock exchange.

“The deterioration in the asset value of a number of the fund’s underlying investments, together with a sector-wide reduction in distribution income, is expected to have a negative impact on the net tangible assets,” Multiplex Acumen said.

Brookfield, the Toronto-based manager of $90 billion in assets including real estate, paid A$5.7 billion last year to acquire Multiplex Group. Brookfield last month said it agreed to refinance $800 million of Australia-related debt.

Credit Suisse, a long time bull on BAM commented the following on 12/17/08.

A. Potential breach of covenants is a minor near-term negative for BAM. CS does not believe that BAM has significant exposure to the fund.

B. The poor market performance for the related funds presents "significant restructuring opportunities."

C. Concern over potential cash funding needs for some of the funds and concern over BAM's ability to raise new money for asset management because of poor performance.

D. Historically CS claims that BAM does well in these funds. I say, historically in depressed economic conditions BAM did not have the excess leverage and pending increases in costs of capital as in the past.

(10.) Previous business conditions with wind at tail no longer exist. Closer eye on Corporate responsibility.

(11.) I am reviewing a bunch of data. It seems as though their IFRS reporting could be potentially aggressive. They are using discount rates and other DCF techniques. All legal, all subject to interpretation. I only quickly glanced and need to further review, but I think the discount rates could be raised, which in turn would bring down asset values. Higher the cap rate, lower the asset value. Higher the discount rate assumption, lower the asset value.

(12) Use of cash via buy-backs - It will be interesting to see the Annual Report and 10K, when filed on 3/31/09. On one hand, going from memory, BAM has received money from employees exercising options. Then BAM spends the money on buybacks. At 12/31/07 they had 'Common shares and common share equivalents" of 599M shares, at 12/31/08 they had 592M shares. These numbers can not be determined until Annual or SEC filing. BAM repurchased per their supplemental 12/31/08 filing 14.2M shares. They spent $286.4M in 2008 at an average price of $20.17

Brookfield Renewable Power pays a $1.1B Dividend (PIK?)

"On February 25, 2009, the Company declared a $1,100 million dividend payable to its common shareholder. Payment of the dividend was effected by reducing the amount receivable from the Company’s common shareholder. Immediately prior to declaring the dividend, the Company issued preferred shares to Brookfield in the amount of $1,100 million with proceeds being a reduction in the balance owing to Brookfield."

Tower completes purchase of BAM Hermitage Insurance 3/9/09

"NEW YORK--(BUSINESS WIRE)--Tower Group, Inc. ( Tower ; NASDAQ: TWGP) announced today that it has completed the acquisition of HIG, Inc. (“Hermitage”), a specialty property and casualty insurance holding company, from a subsidiary of Brookfield Asset Management Inc. for $130 million. This transaction was previously announced on August 27, 2008."

"Through its insurance subsidiaries, Hermitage Insurance Company and Kodiak Insurance Company, Hermitage offers products both on an admitted and a non-admitted basis to commercial customers throughout the United States. The company produced $107 million in gross premiums written during 2008 through its distribution network of approximately 150 retail agents in the Southeast and key wholesale relationships throughout the East Coast. Hermitage writes business in 29 states and the District of Columbia on a non-admitted basis and in 14 states on an admitted basis."

This is what BAM wrote in 4Q08 Supplemental.

"Hermitage Insurance Company (“Hermitage”), a property and casualty insurer which operates principally in the Northeast United States; and Trisura Guarantee Insurance Company, a surety company based in Toronto. We manage the securities portfolios of these companies, which totalled $1.0 billion and consist primarily of highly rated Government and corporate bonds, through our public securities operations. We completed the sale of the United Kingdom reinsurance business within Imagine, thereby recovering capital of $200 million, and negotiated the sale of Hermitage for proceeds of $125 million, which is expected to close in the first quarter of 2009. We intend to recover the balance of the capital from the Imagine business over time through an orderly run-off of the business."

Interesting Article on Conference with Commercial Real Estate Heavyweights during March 2009

"Stalled transaction activity is inhibiting the market's ability to establish reliable property values, and vice versa. Occupancies, absorption, rents and other property fundamentals are weakening in tandem with the declining job market and shaky consumer confidence. REITs seek to preserve capital by cutting dividends,
writing down investments, trimming costs and canceling development projects. And perhaps most urgently, highly leveraged firms are still trying, with limited success, to navigate the frozen flows of capital markets, refinance or retire debt -- and at the same time, try to predict when to make a well-timed reentry
into the acquisitions arena."

"Even so, it was challenging to detect hope among the veteran CEOs in attendance. Interest rate spreads are still way too high for the economy to recover quickly and property prices are at a 10-year low, stated Steven Roth, CEO of Vornado Realty Trust (NYSE: VNO), owner of a diverse mix of New York City office
buildings and retail properties in the Northeast.

"We’re in a period where asset values are deflated, and that has driven out all normal-course lending because nobody wants to make a loan; nobody knows the value of the collateral of what they’re lending against," he said. "We say frequently, one of the things that makes a bottom is stupid, stupid, stupid low
[implied] asset values, and we’re getting to at least the first or second ‘stupid.’" Still, Roth predicts the "greatest opportunity in our lifetime to buy things extraordinarily cheap" will soon be within sight."

"If people have the liquidity and the smarts and intelligence to navigate, I think there are going to be some incredible buys whether in the public or private markets."

"Office Sector: NYC Hammered by Financial Meltdown"

"Brookfield Properties (NYSE: BPO) - were in agreement that midtown and downtown market fundamentals continue to erode, marked by declining rents and midtown vacancies up as much as 4% over last year."

"In a bit of news that would dump more space onto the Lower Manhattan if it comes to fruition, SL Green Chief Executive Officer Marc Holliday told the conference this week "it is our understanding that Merrill [Lynch] will be moving much of its banking, sales and trading" later this year from the World Financial
Center -- adjacent to the "Ground Zero" site where the World Trade Center buildings stood -- to fill available space in new ML owner Bank of America Corp.'s new $1 billion tower at 1 Bryant Park, among other Midtown locations."

"But as you look forward to 2011 or 2012, one thing is certain: there will be a shortage of new product in this country," Blair said. "There is virtually nothing being permitted or financed today, and little that will be started in ’09 or ’10. For those companies with a capacity from a balance sheet point of view to keep
their organization and development in place, I have no doubt there will be rewards for those who can deliver into that time period."

Improvement has shown up here. Maybe TAV buying more, other institution, BAM or sub? Improvement has shown up in spreads in the high yield market since 1/20/09. BAM continues to trade as a high yield, although it is rated Investment Grade.

1. BNN.GF cusip 10549PAE1 Maturity June 2012. Coupon 7.125%.

Traded3/4/09 6MM+ shares, last sale 81.00 to yield 14.636%.

Traded 2/27/09 3.66MM shares, last trade 81.25 to yield 14.495%.

Traded 1/7/09 Over 10MM shares, last trade 67.75 to yield 20.73%.

Traded 12/30/08 2.5M shares at $60 to yield 25.101%.

This bond traded in October 2008 at 74 yielding 10.51%, July 2008 at 99.512 yielding 7.268%, in May 2008 at 103.7 with a yield of 6.086%.

2. BAM.GA Description: BROOKFIELD ASSET MANAGEMENT INC Coupon Rate: 5.800 Maturity Date: 04/25/2017.

Traded 3/3 /09 5MM shares, last sale 67.375 to yield 12.241%.

Traded 2/27 /09 3.9MM+ shares, last trade 65.875 to yield 12.624%.

Traded 1/6/09 3MM shares, last trade 40.75 to yield 21.31%.

Traded on 12/30/08 1.2M shares at $40, yielding 21.66%.

Traded on 10/30/08 65,000 shares at $74, yielding 10.505%. Last trade before that, I forget the date was 87.17.

3. Issue: BNN.GH 10549PAF8 Description: BRASCAN CORPORATION Coupon Rate: 5.750 Maturity Date: 03/01/2010

Still haven't traded since 1/20/09.

Traded 1/20 /09 5MM+ shares, last sale 89.00 to yield 17.06%.

These bonds are due to mature in 14 months. They last traded until today in May of 2008 then were yielding 5.6%.

4. Issue: BNN.GG cusip 10549PAG6 Description: BRASCAN CORPORATION Coupon Rate: 7.375 Maturity Date: 03/01/2033

The following was presented to me today. The source has proven to have a fairly decent track record of information.

1. 2010 Office Vacancy expected to be similar to 1992, nearing 18%.

2. 2008 YE Mean Cap Rate nearing 6.8%. I don't think this has been adjusted for projected 2009 rents and vacancies.

3. Annual Percentage Change of SQ F Price decreased by 16.2% in North East.

4. CRE loans coming due in 2009 are $271 Billion.

5. 2009 projected CRE default rate for CMBS loans 8.8%.

6. Credit conditions not expected to change as economic downturn expected to be drawn out.

7. Unlike in the past, potential delinquencies can not be resolved via asset sales, since potential buyers do not exist. if credit restrictions ease, the spike-up could be less pronounced.

8. Fourth Quarter of 2008 showed an acceleration of deterioration.

9. Raising capital via debt or equity is tough, but pockets of possibilities exist. (did not elaborate) There are lenders who are well capitalized waiting for conditions to change.

10. Easy lending of the past will change permanently. No longer are pro-forma rents and increases being accepted. Vacancy rates if they don't exist are being imputed. Property fundamentals are being totally reasessed.

11. Credit standards have tightened dramatically.

12. NOI is coming in less than projected and less than modeled by lenders.

13. LTV's between 2Q05 and 3Q07 were around 71%. They were 62% at 2Q08. This is expected to continue a downward trend, and has not yet been updated. Yet, loan originations have been sparse.

14. Debt Service Coverage ratios have been decreasing since 2003. At 2Q08 stood at 1.36X. This link gives an explanation of DSC and its use

http://www.commercialbanc.com/commercial-loan-underwriting.html

"6% cap rate is not reasonable.

properties are not leasing at same rates.

cash flows are dropping

CRE is a revaluation of what these properties worth.

Still great real estate out there, but wont be worth what cap rates were."

I missed notes and will wait for transcript on what they mentioned on lending.

I asked BPO Properties the following questions on their conference call. Tom Farley is also high level employee at Brookfield Properties and Brookfield Asset Management. I have been reading that Calgary is having some setbacks, and I was surprised that BPO sees things "business as usual."

Q: Good afternoon. We have heard from those in the business that the fourth quarter of '08 was the worst they've ever experienced. And some of those companies are greater than 50 years old. Have you seen that it way, although your results show differently? And how are the first six weeks of 2009 looking in that question?

A: Tom Farley - BPO Properties - CEO

It's Tom Farley here. When you look at that time Canadian markets, we haven't seen that dramatic of a negative impact in the fourth quarter. As I mentioned, our occupancy rates actually went up, and our overall occupancy for our portfolio was close to 99%. There's no question that leasing demand -- the pace of leasing demand has slowed down. Several tenants are not making substantive decisions or just taking a wait-and-see approach. I think that that's typical in these times, but we haven't seen those kinds of negative consequences -- negative occurrences in Canada.

Q: Even the first six weeks of 2009, it's business as usual?

A: Tom Farley - BPO Properties - CEO

Business as usual. As I mentioned, the pace of activity is down, but we haven't seen those types of cracks.

From the Conference call. “A follow-up to a previous question on the IFRS value of the commercial property operations as it relates to Brookfield Properties specifically. I believe the current value is ascribed at about $1.8 million which would apply a roughly $9 per share value for BPO versus the current value in the marketplace which is approximately $6 per share.

You've clearly not taken any impairment charge on your carrying value of BPO. So I guess that implies that you think BPO is implicitly worth more than the current market price.”

Bruce Flatt - Brookfield Asset Management - CEO

”The underlying values that would come up would -- yes -- would translate into something that would be well in excess of the current market price.”

1. Throughout 2008 BAM claimed to have "over $95B of AUM" (Investor Day 9/16/08)

September 2008 wrote "generate +/-2B cash annually." Feb 2009 writes, "Free Cash Flow +/-1.5B annually."

Claims in Feb 2009 15% debt to capital at corporate level and 44% on affiliated. I need to test those numbers, using high/lows and pricing out preferreds rather than par.

"Having said that, the good news is that the Washington region continues to add jobs, albeit not at the rate of the past five years. The unemployment rate is low at 4.7%; the overall vacancy rate is manageable at 10.5%; and we believe the Washington region will lead the nation in recovery as the newly appointed financial capital of the world, and as a major beneficiary of the financial stimulus plan.”

“In addition, we purchased $16 million of our convertible debt at a discount of 25%, reducing our exposure to 2011 refinancing and achieving an attractive return on investment.”

“This quarter, WRIT acquired 2445 M Street, a Class A office building with a two-level parking garage in downtown Washington D.C., for $181.4 million. 2445 M Street is located in the established West End neighborhood between Georgetown and the Central Business District. The property measures 290,000 square feet and is 100% leased to the Advisory Board Company, and Patton Boggs, LLP under long-term leases.

We have assumed the $101.9 million loan with an interest rate of 5.619%, and the remaining balance was funded with proceeds from the sales of Sullyfield Commerce Center and Earhart Building, and the balance from our credit lines. WRIT expects to achieve a first-year leverage yield of 6.7% on the cash basis and 7.2% on a GAAP basis. 2445 M Street is an excellent downtown asset that will provide WRIT a stable long-term cash flow.”

The note below discusses a potential sale in the $375M - $390M square foot range. On February 18, 2009 it was reported as follows:

There has been debate in New York City CRE that prices are down 50% from the peak. The argument to this would be that sellers are distressed and prices are not showing true intrinsic value.

Another article in the WSJ mentioned, that a deal hasn't closed, but a person familiar with the matter said CBRE Investors, the asset-management unit of CB Richard Ellis Group Inc., would pay as little as $355 million, a major drop in value.

"That's a harsh price for a very well located building," said Dan Fasulo, managing director of property-tracking firm Real Capital Analytics.

According to city records and loan-marketing documents, Mr. Macklowe attributed the value of the office building to over $950 million when he bought it in February 2007 as part of a $7 billion skyscraper spending spree. The tower's 880,000 square feet of office space had sold in 2006 for $525 million."

Yet, I would think if you have debt to refinance, you do not necessarily have the leisure to wait for stabilized markets and return to alleged intrinsic value.

With BAM, I think there is excess leverage. They have over $14B coming due in less than 3 years. Refinancing if possible, will require greater amounts of costs. greater covenants, more difficult terms and more skin in the game.

We have considered lower amounts available for refinance. This could be caused by reduced availability of funds as well as lower LTV's. Also, higher cap rate assumptions by any lenders, and less proforma use of forward rents and so forth.

Non-recourse = BAM can theoretically walk away and stick the creditors with the office building if they don't want to pay the loan on it anymore. Clever gimmick no?

If they do that they might have a tough time borrowing in the future though. At least cheaply. That's the downside.

A creditor might rather have someone paying some sort of mortgage instead of getting stuck with another foreclosed empty office building. One of those "if you owe the bank $100 you're in trouble but if you owe the bank $100 billion the bank is in trouble" deals.

BPO claims the following, "The majority of these facilities are attached to high-quality well-leased assets with solid debt service coverage levels and relatively low loan to value ratios. Approximately 40% loan to value or so on average with debt service coverage ratio approximating two times leaving as on solid footing to refinance these facilities. Our discussion with lenders to this point having very constructive and we believe that these maturities will be refinanced at or near current financing levels with reasonable pricing."

If a bank can take over an asset they believe to be worth much more than current value, then maybe not such a great gimmick as you wrote. The whole world of CRE and Utilities was non-recourse. That is no longer the case. We are in a different ball game. If BAM were to lose an asset, one would think that there could be valuation impairment. BPO discussed Trizec and said, if worst case scenario they lost the asset. Here are some quotes from the recent CC..

"Looking past 2009, we have minimal maturities to deal with. And we will turn our attention to refinancing our 2011 maturities including the US Office Fund Mezzanine debt. Brookfield share the debt on the US office fund; approximately it's $1.6 billion which is recourse only to the assets of the fund. It is our intention to repay this facility through a combination of new asset level financing and through asset sales, following on our efforts to increase the underlying cash flows of these assets through our leasing initiatives. We have been actively positioning these assets, some assets for sale commencing later this year. But we anticipate a more robust environment at 2010 for asset sales.”

“But I did want to go through one thing that is troubling us when it comes to our view of common share price. And I will taking through sort of a hypothetical situation and I will start by saying this is absolutely not our view. But let's assume for a second that the US Office Fund and residential businesses go away and again this isn't our view. At our closing common share price yesterday of $5.16 per share, this would mean that our remaining assets are trading at an implied cap rate of about 9.5%, based on last year's net operating income. And 2009 NOI is projected to be even higher. This makes no sense to us. If you wanted to explore this further, I would encourage you to call Bryan Davis at some point and he can taking through our analysis on this situation.”

1540 Broadway in NYC was purchased in 2007 for $830M. It is 906,000 SF. It looks like it will sell for $375M and is set to close next month. This comes out to $390 SF. Macklowe building and now DB. This is in the heart of NYC Midtown West. My understanding is this is a prime location.

We recently heard of the potential of the deal falling through. Apparently that has been worked out and a contract is expected.

"Sources said a deal is looming to sell the office portion of the former Bertelsmann Building at 1540 Broadway - some 880,000 square feet - to an unidentified suitor, possibly by the end of the month.

Although no contract is signed yet, different sources valued the mostly cash deal at between $375-$450 a square foot - peanuts compared to what the property might have fetched in early 2008.

But Studley investment sale specialist Woody Heller, who is not involved at 1540 Broadway, noted, "If a deal is indeed concluded, while it would clearly reflect prices that are a dramatic departure from a short period ago, it will be very encouraging to see a transaction of this size completed in the current market."

"Major office tenants include Viacom and several law firms. Retailer Forever 21 recently signed a lease to take over Vornado's Virgin Megastore space. "

Class A building
Built in 1989
SF 889,092 - 906,000
Asking Rent $72.53
Vacancy 0.4%

Previously Midtown West had SF prices of $540 - $1045 per SF. This sale changes that bar. Perhaps this sets a precedent on CRE in Midtown West.

If < $400 is the new benchmark, consider Loan To Values for upcoming refinancings. I have a theory that CRE purchased between 2003 - 2005 is at best break even. Real Estate purchased 2006 - 2007 could have material devaluations.

Brookfield Properties increased their assets via purchases (Trizec for one) by $11B in 2006 and 2007. During the same period debt increased by $7B.

Here are some interesting and occasionally conflicting cap rate discussion by Brookfield Asset Management and Brookfield Properties. Notice how cap rate assumptions seem to jump around a bit.

Cap rate Assumptions by Brookfield Asset Management. A history of discussion by BAM and BPO.

At investor day, Bruce Flatt mentioned that he models using a 6.5% long term cap rate assumption. Ric Clark on the October 20, 2008 conference call mentioned he used a 6.5% to 7% cap rate to determine Loan to Values (LTV's).

With that said, in Brascan 2001 AR on page 19 mentions, "The underlying value of our commercial properties is based on a 7.75% capitalization rate applied to estimated 2002 net operating income, prior to lease termination income and other property gains, which is projected to be $1,025 million."

* Cap rates will remain in LOW SINGLE DIGITS for as long as interest rates are benign and the projection is for higher rental rollovers.

“Looking forward to 2009, the Company plans to further strengthen its balance sheet with the previously announced $250 million proposed rights offering to its common stockholders of up to 10 million shares of 8% convertible preferred stock. Proceeds from the rights offering will be used for general corporate purposes, including repayment on the credit facilities and Brookfield asset management. Further details are provided in the Company's year-end press release. “

Analyst asks, "Now, as it pertain to the rights offerings, I guess I'm kind of curious. It sounds like you guys are counting on that money to come in. I mean, when is that supposed to close and what happens if you don't get enough people that participate at the 250 level?"

BHS responds, “ Well, in terms of closing, there's obviously an entire process that we laid out in the press release, including proxy has to be reviewed by the SEC and then there has to be the mailing and the appropriate record dates and all those different things. So, to some extent, I couldn't give you a specific time frame but the goal would be the end of the first quarter or the beginning part of the second quarter.

If you went to the press release on the second page, the second last paragraph where we say that Brookfield Asset Management indicates the intention to exercise in full its subscription rights as well as any oversubscription rights to which it may be entitled.”

Analyst responds, "Okay. So you mean they are going to complete anything that's not done by other investors?"

Analyst says, "Okay. So it's just basically like a recap then. They would swap the debt for equity?"

BHS responds, “ It's two separate things. They would participate within the rights offering. It's just our intention that we would utilize that rights offering to pay general corporate purposes including paying down that line.”

Another Analyst asks, ". I guess just on the rights offering, thinking from a logical point of view. If you were BAM, why would you pay more for assets actually rather than if you took your line away the lender of last resort and pick up the assets cheaper? Trying to think through this out loud and just wondering if you could give me color on that, why would that benefit them?

If none of the other shareholders actually went had the offering or subscribed for the rights offering, did BAM, have they indicated they would take the entire 250 million?"

BHS responds, “I don't think we could speak specifically for BAM but I will say obviously they have been a very supportive major shareholder along the way supported by the BAM line and such.

As we mentioned, there is very specific language within the press release. I won't read it, but they had indicated -- I wont read it again, but there is language within the press release that describes what their intention would be.”

Analyst asks " I know for part of it , but I was just -- scenario where they are the only ones if they would just flip the entire 250?"

We asked Brookfield Homes the following questions, without response on several occasions.

“I was hoping to hear back from you on my questions from the other day. Please let me know when I will be hearing back. Here are my questions.

1. How much was owed to Brookfield Asset Management on 12/31/08? How much is now owed?

2. Are there any other related or controlled entities of BAM which have debt with BHS?

3. We discussed the rights offering. I am familiar with the press release indicating that the proceeds will be used to reduce debt and general corporate purposes. How much of the $250M would be used to pay back BAM. Would it be all of it, a substantial part of it? Please quantify your expectations if you could.

4. I had asked a hypothetical question in regards to the rights offering. Even though the intended purpose of the proceeds was to pay down debt and general corporate purposes. If BHS happened to see an unusually excellent opportunity in buying a distressed situation for pennies on the dollar, could the rights offerings proceeds ever be used for something like that, since it is not typically "general corporate purposes."

I hope to hear from you soon. I hope I am acknowledged on conference calls in the future, as my questions above would have been asked, had BHS not ignored me in the Que.”

"DBRS has today placed the ratings for Xstrata plc and its related entities (Xstrata or the Company) Under Review with Developing Implications following the Company’s announcement that it intends to (1) acquire Glencore International AG’s (Glencore) Prodeco thermal coal operations in Colombia for approximately $2 billion and (2) execute a rights issue, which is expected to raise approximately $5.9 billion to fully finance the coal acquisition, with the remainder to be used to pay down debt. Glencore (the owner of approximately 34.5% of Xstrata) has provided irrevocable undertakings to take up its rights in full and Xstrata has arranged for the remainder of the rights issue to be fully underwritten."

2008 BAM AR indicates a $331M debenture gain with Xstrata. I don't recall how that affected eps. Off the cuff sounds like earnings without sustainability or any cash impact. BAM seems to have much of these non cash converted debt earnings (ie Norbord, Fraser).

2007 Xstrata AR said, "In 2007, all of the remaining outstanding 3.95% convertible bonds due in 2010 were converted into Xstrata shares by 4 April, resulting in a $202 million reduction in debt. A further tranche of $375 million of 4% convertible bonds due in 2017 remain outstanding and relate to the convertible bond issued to Brookfield in part payment for a 20% stake in Falconbridge in August 2005."

2006 BAM AR Page 39 discusses Financial Assets, market value of $2.1B and cost of $1.7B. Includes Xstrata Convertibles of $375M. 13.6M shares convertible at £15.27. Claims to have “substantially higher value than our book value.”

Transelec's investment grade ratings reflect the company's low business risk profile as an electric transmission utility. The company's revenues and cash

flow are extremely stable and are concentrated in financially solid generation companies with investment grade ratings. Most of its revenues are under

long-term contracts (approximately 60%), with the remaining coming from regulated tariffs. As contract revenues roll-off they will be replaced with

regulated tariffs. The regulatory environment is consolidated and provides certainty in the determination of regulated transmission revenues and returns

on future investments. The majority of the revenues are not exposed to market based risk such as price and volume. The ratings are constrained by the

Brookfield Renewable Power Inc. ("Brookfield Renewable") today announced an offering of C$300 million of medium-term notes due February 3, 2012.

The notes will bear interest at an annual rate of 8.75% and will be issued pursuant to Brookfield Renewable's Short Form Base Shelf Prospectus dated July 28, 2008 and a related Prospectus Supplement to be filed before February 3, 2009. The offering is expected to close on February 3, 2009, subject to customary closing conditions.

Brookfield Renewable intends to use the net proceeds of the offering to repay indebtedness and for general corporate purposes.

The notes have been assigned a rating of BBB (high) with a Stable trend by Dominion Bond Rating Service Limited, a rating of BBB with a Stable outlook by Standard & Poor's Rating Services, and BBB with a Stable outlook by Fitch Ratings Ltd.

The notes are being offered through a syndicate of agents led by CIBC World Markets Inc. and Scotia Capital Inc.

“Fitch Ratings-New York-02 February 2009: Fitch Ratings has assigned a 'BBB' rating to Brookfield Renewable Power's (BRP; current Fitch Issuer Default Rating of 'BBB-') issuance of CAN$300 million medium-term notes due Feb. 3, 2012. This issue will rank equally with BRP's existing senior unsecured obligations. The proceeds of the issuance will be used to repay indebtedness and for general corporate purposes. The Rating Outlook is Stable.

BRP's ratings reflect the company's stable cash flow as a result of hedging, the low business risk of its unique portfolio of largely hydroelectric generation assets, limited debt at the parent company level, and strong parent-level credit metrics. Approximately 50% of BRP's generation is hedged under long-term power purchase agreements with an average life of more than 10 years. Another portion of generation is hedged under fixed-price financial contracts up to three years forward. The Stable Outlook reflects Fitch's expectation that credit metrics will remain adequate for the current rating category. While consolidated leverage is relatively high for the ratings category, BRP's current cash flow credit measures (such as cash flow interest coverage and debt to funds from operations) are strong and supportive of the ratings level even under stress scenarios.

BRP is a holding company for electricity assets, primarily located in the Northeast (Quebec, Ontario, New England, New York and PJM-Interconnection). BRP also owns a large portfolio of hydro plants in Brazil. BRP is owned by parent Brookfield Asset Management (rated 'BBB+' with a Stable Rating Outlook by Fitch).”

DBRS has today assigned a rating of BBB (high) with a Stable trend to Brookfield Renewable Power Inc.’s (BRP) prospective issue $300 million of 8.75% Medium Term Notes (unsecured) due February 3, 2012 (the Notes). The Notes are expected to close on February 3, 2009.

The Notes are being offered pursuant to a Prospectus Supplement to BRP’s Short Form Base Shelf Prospectus dated July 28, 2008, and will rank equally with all other unsecured indebtedness of BRP which is not subordinated. Proceeds from the offering will be used to repay indebtedness and for general corporate purposes.

DBRS notes that on September 8, 2008, a BBB (high) rating was assigned to a prospective BRP issue of up to $250 million of Medium Term Notes that did not close. The current up-sized Notes issue takes the place of that offering.

In the CC they discussed that the $240M CDN rights offering was essentially fully paid for (at least most of it) by BAM. They took that money and paid back BAM. I forget the amount, but I think in the $90M range (I could be wrong.)

They amended their credit line with BAM and brought it down to $50M from $100M. They stated that nothing is currently owed on the line.

"The shares acquired by Tricap include an aggregate of 236,500,018 shares of Western that are beneficially owned by Brookfield Asset Management Inc.

("Brookfield Asset Management") and its affiliates and associates on a consolidated basis ("Brookfield"). Following the rights offering, Brookfield

beneficially owns 49,124,547 common shares and 300,028,286 non-voting shares representing approximately 38% and 89% of the issued and outstanding common

Tricap holds the shares for investment purposes. Tricap will continue to review its investment alternatives and may acquire additional shares of

Western or may, subject to applicable securities laws, sell the shares it now holds in the open market or in privately negotiated transactions to one or

Tricap acquired the shares pursuant to the exercise of rights issued by Western in connection with a rights offering made by Western pursuant to a

prospectus dated December 1, 2008. Although Tricap entered into a standby agreement with Western dated December 1, 2008 pursuant to which Tricap had

agreed to purchase all shares which were not subscribed for under the rights offering, due to the exercise of the additional subscription privilege by rightholders, including Tricap, it was not necessary for Tricap to purchase shares pursuant to the terms of the standby purchase agreement.

Tricap will exercise control and direction over the shares acquired pursuant to the terms of a co-investment agreement entered into between Tricap Management Limited and each of the investors in the Tricap Restructuring Fund."

“Records show Robert and Nancy Johnson, owners of the Enzian Inn in Leavenworth, bought two of the tracts, grouped together as 1,224 acres, for $835,000.

The tracts are near the Alpine Lakes Wilderness, also near Leavenworth. Robert Johnson said the family already owned property nearby and bought the tracts to maintain the property's aesthetic value.

He says he has no immediate plans for the property — aside from hikes and family enjoyment.

Monitor resident George Reinhart bought an approximately 85-acre tract near Derby Canyon near Leavenworth. The sale became official Jan. 25.

Longview Timberlands spokesman Mike Volk said a third Chelan County tract — approximately 648 acres, 12 miles south of Leavenworth off Highway 97 and Ingalls Road — also sold.

A county assessor's official says Longview Timberlands still appears as the tract's owner. He said the latest sale documents may not yet have reached the office for recording.

In Okanogan County, the Confederated Tribes of the Colville Reservation bought an approximately 160-acre tract near Haden Creek County Road and Lyman Lakes-Moses Mountain Road, some 18 miles east of Omak.

A tribal official didn't immediately return a phone message for comment. The property lies within the boundaries of the Colville reservation, according to information in the auction catalog published by Portland-based auctioneer Realty Marketing Northwest.

The November auction included commercial and remote properties in Washington, Oregon, Idaho and California.

Longview Fibre operated Chelan County's last remaining sawmill in the town of Winton, north of Leavenworth. The company closed the mill in December 2006.

"Anytime you sell anything, it's successful," Volk said in a phone interview. "Obviously, we'd have liked to sell more properties."

"Acadian Timber Income Fund ("Acadian" or the "Fund") (TSX:ADN.UN - News) today reported that Brookfield Asset Management Inc. together with its affiliates ("Brookfield"), has converted its 4,507,030 Class B Interests of Katahdin Forest Management LLC ("KFM LLC") into Units of Acadian on February 3, 2009 on a one-for-one basis.

Subsequent to this conversion, the Fund has 16,571,453 Units issued and outstanding, of which 7,513,262 or 45.3% are held by Brookfield. Brookfield's ownership of Acadian on a fully diluted basis remains unchanged.

Acadian Timber Income Fund is a leading supplier of primary forest products in Eastern Canada and the Northeastern U.S. With a total of 2.4 million acres of land under management, Acadian is the second largest timberland operator in New Brunswick and Maine.

Acadian owns and manages approximately 1.1 million acres of freehold timberlands in New Brunswick and Maine, and provides management services relating to approximately 1.3 million acres of Crown licensed timberlands. Acadian also owns and operates a forest nursery in Second Falls, New Brunswick. Acadian's products include softwood and hardwood sawlogs, pulpwood and biomass by-products, sold to over 110 regional customers.

Acadian's units are listed for trading on the Toronto Stock Exchange under the symbol ADN.UN."

Brookfield Homes Corporation is disclosing that Joan H. Fallon resigned from the Board of Directors of the company effective January 26, 2009.

Fraser Papers Inc. ("Fraser Papers" or the "Company") (TSX:FPS - News) announced today that it has agreed to sell approximately 10,500 tons of specialty printing, packaging and ground wood papers to Brookfield Paper LLC ("BPLLC") for proceeds of approximately $11.7 million, which will be used to repay amounts outstanding under the Company's working capital facility. In addition, the Company has agreed to supply paper to BPLLC through July 31, 2009, at market prices. The net proceeds to Fraser Papers reflect a customary merchant's discount of 3.5% to end user selling prices. As part of the transaction, Fraser Papers will provide sales and administrative support to BPLLC. BPLLC is a wholly-owned subsidiary of Brookfield Asset Management Inc. ("Brookfield") (TSX:BAM - News; NYSE:BAM - News; AEX:BAMA), the Company's majority shareholder

Issue: BNN.GH Description: BRASCAN CORPORATION Coupon Rate: 5.750 Maturity Date: 03/01/2010

These bonds are due to mature in 14 months. They last traded until today in May of 2008 then were yielding 5.6%.

So far today they have traded 5MM+ bonds, with a price of $89. and a yield of 17.06%.

We now have 3 Brookfield Asset Management bonds trading at 1500+bps over 10 year treasuries. This is typical of junk bonds and not of currently A- rated Brookfield Asset Management. You have 2010's, 2012's and 2017's yielding between 17% to 21%. I think the bonds are pricing a potential expectation of ratings downgrade.

Don't know if I missed anything. Here are the open items I have on BAM looking for funds.

5. Norbord December 2008 $240M ( I think this may have been partially completed via BAM subscribing to these).

“Rio de Janeiro, January 15, 2009 – Brascan Residential Properties S.A. (“Brascan” – Bovespa: BISA3), one of the largest integrated developers in Brazil, announced today that its Board of Directors has approved a rights issue of 100 million new common shares, within the limits of the authorized capital established by the EGM of November 24th, 2008, providing a capital increase of R$ 200 million.”

”The issue price of the offering, R$2.00 per share, was established with reference to the market price. In view of the high volatility currently prevailing in the Brazilian stock market, and in order to provide an incentive for minority shareholders to subscribe their rights, Brascan decided to issue the shares at a discount to market. Relative to the volume weighted average closing price of BISA3 in the last thirty business days (from Nov. 28, 2008 to Jan. 14, 2009), the price of R$2,00 represents a discount of approximately 12%.”

”In addition, one of the controlling shareholders, Brookfield Asset Management, an international asset management firm with approximately US$90 billion under management (of which around US$38 billion is in real estate assets), has committed to subscribe, through Brascan Brasil Ltda, any rights not taken up by the minority shareholders, thereby ensuring full subscription of the R$200 million offering. “This underlines the controlling shareholders’ commitment to the Brazilian real estate business, and their determination to strengthen Brascan’s position as one of the leading companies in the ndustry,” declared Nicholas Reade, Brascan’s CEO.”

“The real estate market will continue to offer opportunities, but the recent international crisis has resulted in a shortening of loan maturities, which is not compatible with the company’s strategy to have long-term financing with staggered maturities over the entire business cycle. In response, we are raising capital to strengthen our financial position and provide us with a competitive advantage in the market,” concluded Reade.”

BAM has two bonds that trade every few days. The 2012's yielding 20.6% and 2017's have regained some price to yield 18.0%. Both have been fairly active lately. At least active for BAM.

Cash	$140
Deposit at BAM	$648
Preferred Securities in January 2010 in CDN$275	$261
Revolver due 12/10 BAM	$300
Corporate Revolver with BAM	$438
Residential Revolver	$250
Total	$2,037

Reported Gross Consolidated Total NOI	$571.50
Trizec Consolidated Debt	$5,677.00

If Cap Rate is:	Value w/b	LTV w/b

5	$11,430	49.67%
6	$9,525	59.60%
7	$8,164	69.53%
8	$7,144	79.47%
9	$6,350	89.40%
10	$5,715	99.34%

Reported Gross Consolidated Total Cash NOI	$440.60
Trizec Consolidated Debt	$5,677.00

If Cap Rate is:	Value w/b	LTV w/b

5	$8,812	64.42%
6	$7,343	77.31%
7	$6,294	90.20%
8	$5,507	103.09%
9	$4,896	115.95%
10	$4,406	128.85%

Trizec Properties
	Full Portion	US Office Fund Portion	BAM Portion
		73.00%	47.00%[RON1]

Original Purchase Price	$7,600	$5,548	$3,572

Original Cash NOI	$370	$270	$174

Going in Cap Rate	4.87%	4.87%	4.87%

	Full Portion	US Office Fund Portion	BAM Portion

Value at Cap Rate of 7	$7,229	$5,277	$3,397
Loan To Value 65%	$4,699,000,000	$3,430,000.000	$2,208,000,000
Monthly Loan Payment	$33,211,550
Annual Debt Cost (ADC)	398,538,600
Total Cash NOI	506,000,000
DSCR (Cash NOI /ADC)	1.27X

		units	unit price
Cash	$100
Debt	$342
Brookfield Office Properties Canada	$424	20.3	$20.90

	$866

Trizec Properties	31-Dec-11
	Full Portion		US Office Fund Portion		BAM Portion
	100.00%		73.00%		47.00%

Total Cash NOI	$506		$369		$238

Total Consolidated Debt	$5,677		$4,144		$2,668

Value based on Cap Rate	Value	LTV	Value	LTV	Value	LTV

5.00%	$10,120	56%	$7,388	56%	$4,756	56%
6.00%	$8,433	67%	$6,156	67%	$3,964	67%
6.50%	$7,785	73%	$5,683	73%	$3,659	73%
7.00%	$7,229	79%	$5,277	79%	$3,397	79%
7.50%	$6,747	84%	$4,925	84%	$3,171	84%
8.00%	$6,325	90%	$4,617	90%	$2,973	90%
8.50%	$5,953	95%	$4,346	95%	$2,798	95%
9.00%	$5,622	101%	$4,104	101%	$2,642	101%
9.50%	$5,326	107%	$3,888	107%	$2,503	107%
10.00%	$5,060	112%	$3,694	112%	$2,378	112%

	Sept 2009	March 2007 (12/06) Split Adjusted
Price	22.54	35.43
Total Debt	31,063	22,808
Debt Due in 5 Years	17,500	2,308
Total Interest Expense	1,770	1,100
Interest Coverage Ratio	1.1X	2.0X
Debt to Capital	82%	71%
Pension Assets	983	75
Pension Obligations	1,156	100
Common Stock O/S	571.91	598.98
Preferred Stock	1,144	689
Market Cap	12.9B	21.2B
Annual Revenues	11,000 est	6,897
EPS	0.75 est	1.90
Revs per share	19.20 est	11.51
Cash Flow Share	3.20 est	2.95
Book Value per Share	10.40 est	9.01
Operating Margin	36.0% est	54.8%
Depreciation	1,400 est	600
Net Profit	430 est	1,170
Tax Rate	8.0 % est	24.2%
Working Capital	(2,000) est	1,500
Shareholder Equity	7,000 est	6,084
Return on Total Capital	3.5% est	6.5%
Return on Share Equity	6.0% est	19.2%
Retained to Common Equity	2.5% est	17.2%
All Dividends to Net Profit	69% est	21%
Analyst	S. Abdou	S. Abdou
5 Year Price Projection High	50	47
5 Year Price Projection Low	35	33
Institutional Holders Shares	318,487	312,020

Hypothetical Value per SF	$350 SF	$500SF	$700SF	$1,000 SF	$1,163 SF
Building Value	$602M	$860M	$1,203M	$1,719M	$2,000M

Cap Rate	Value if NOI was 100%	Value if NOI was $439 (73%)

5%	$6.4B	$8.8B
6%	$5.3B	$7.3B
7%	$4.6B	$6.3B
8%	$4.0B	$5.5B
9%	$3.6B	$4.9B
10%	$3.2B	$4.3B

Property	Loan Description	Ownership Interest	Debt owed 12/31/06	Debt owed 3/31/09	Maturity Date
One World Financial Center	Floating rate, Recourse	100%	$300M 6.32%	$0	2009
Two World Financial Center	6.91% Fixed, Non- Recourse	100%	$607M	$370M	2013
Four World Financial Center	6.95% Fixed, Non- Recourse	51% (100% of debt)	$306M	$220M	2013
Two World Financial Center	Floating Rate, Non- Recourse	100%	$0	$114M 10.80%	2014
One World Financial Center	5.83% Fixed, Non- Recourse	100%	$0	$309M	2017
Total Direct Ownership			$1,213M	$1,013M

Agency	Current Credit Rating	Minimum Credit Rating Allowed
Fitch	BBB+	BBB-
S&P	A-	BBB-
Moody's	Baa2	Baa3
DBRS	A (low)	BBB (low)

Preferred Shares	$2,491
Common Shares	$ 622
Accumulated Deficit	( 1,550)
Contributed Surplus (Stock Options)	2
Accumulated Other Comprehensive Income (Loss)	( 71)
Shareholder's Equity (as presented)	$1,494

	12 Months
	ended 3/31/09

Net Income	330

Taxes	104

Interest Expense (not including capital securities)	320

Investment Income and Other Income	56

Derivative Gains (Losses)	179

Net Income After Taxes and Interest Expense	754

Coverage Ratio as presented	2.36

Coverage Ratio if related party gains, Investment Income	1.62
and Derivative Gains were eliminated

Wind Generation Equipment	424,414
Hydro Stations	90,236
Vehicles	19
Work in Progress	486
Total	515,155

4Q08		Millions

Net Income		$277

Subtract: Derivative Gain		($96)

Add: Interest On Capital Securities		$31

Adjusted Net Income		$212

Valuations using various multiples:

10		$2,120
12		$2,544
15		$3,180



Book Value

Shareholder's Equity		$1,373

Valuations using various multiples:

1.0		$1,373
1.5		$2,060
2.0		$2,746

			3 months		3 months		3 months		3 months
	YE 2008	% of Revs	12/31/2008	% of Revs	9/30/2008	% of Revs	6/30/2008	% of Revs	3/31/2008	% of Revs


Revenues	1184	100.00%	238	100.00%	289	100.00%	336	100.00%	321	100.00%

Operating Expenses (excluding depreciation and amortization)

Operations, Maintenance and Administration	226	19.09%	68	28.57%	57	19.72%	52	15.48%	49	15.26%

Fuel and Power Purchases	78	6.59%	11	4.62%	23	7.96%	25	7.44%	19	5.92%

Property, Capital and other Generation Taxes	73	6.17%	11	4.62%	24	8.30%	22	6.55%	16	4.98%

Operating Expenses (excluding depreciation and amortization)	377	31.84%	90	37.82%	104	35.99%	99	29.46%	84	26.17%


Net Operating Income (excluding depreciation and amortization)	807	68.16%	148	62.18%	185	64.01%	237	70.54%	237	73.83%

Investment and Other Income	20	1.69%	10	4.20%	11	3.81%	-3	-0.89%	2	0.62%

Unrealized Derivative Gain (loss)	96	8.11%	46	19.33%	136	47.06%	-39	-11.61%	-47	-14.64%

Net Income before Interest, Depreciation, Taxes and Non-Controlling Interests	923	77.96%	204	85.71%	332	114.88%	195	58.04%	192	59.81%

Expenses

Interest and Financing Fees	316	26.69%	80	33.61%	79	27.34%	79	23.51%	78	24.30%

Interest on Capital Securities	31	2.62%	0	0.00%	0	0.00%	0	0.00%	31	9.66%

Depreciation and Amortization	169	14.27%	42	17.65%	42	14.53%	44	13.10%	41	12.77%

Non-Controlling Interests	77	6.50%	12	5.04%	11	3.81%	40	11.90%	14	4.36%

Provision for (recovery of ) Income Taxes	53	4.48%	11	4.62%	52	17.99%	9	2.68%	-19	-5.92%

Total Expenses	646	54.56%	145	60.92%	184	63.67%	172	51.19%	145	45.17%

Net Income (Loss)	277	23.40%	59	24.79%	148	51.21%	23	6.85%	47	14.64%

	Maintenance Capex	Forward guidance of Capex from previous year AR	% Fixed debt	Average Interest Rate	Total Assets	Total Debt	Total Equity	Equity / Asset Ratio	Portfolio Size in Square Feet in Millions
2007	$49M	not disclosed	61%	6.65%	$20,473	$12,125	$3,033	14.81%	73
2006	$25M	not disclosed	56%	6.8%	$19,314	$11,185	$3,067	15.88%	76
2005	$21M	not disclosed	81%	6.5% 9 years	$9,513	$5,216	$1,898	19.95%	48
2004	$26M	not disclosed	"primarily"	6.5% 12 years	$8,491	$4,550	$2,027	23.87%	46
2003	$16M	$6 - $10M	"primarily"	6.6% 12 years	$8,097	$4,537	$1,915	23.65%	46
2002	$16M	$6 - $10M	"primarily"	7.0% 10 years	$8,329	$4,588	$2,093	25.13%	46
2001	$14M	$6 - $10M	96%	7.0%	$8,076	$4,606	$2,642	32.71%	45
2000	$12M	$6M	91%	7.3%	$8,624	$4,702	$1.787	20.72%	46

Catalyst Old River Hydroelectric Partnership	$ 40
Powell River Energy and sub	33
Great Lakes Hydro Income Fund	146
Bear Swamp Power	2
Subsidiaries of BESA	18

Total	$239

Interest Coverage Ratio


Net Operating Income (excluding depreciation and amortization)	807

Subtract:

Depreciation and Amortization	169

Non-Controlling Interests	77

Net Income Before Taxes	561

Add:

Interest and Financing Fees	316

Interest on Capital Securities	31


Interest Coverage Ratio

Net Income Before Taxes	561

Add:

Interest and Financing Fees	316

Interest on Capital Securities	31

Net Income Before Taxes and Interest Expenses	908

Divided by Interest Expenses	347

Interest coverage Ratio	2.62

Description	9/08 Value in Billions	2/09 Value in Billions

Office	$26	$24
Retail	2	1
Development	7	5
Residential	4	4
Services	1	1
Specialty Funds	6	5
Advisory	26	18