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Author: BenGrahamMan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 400  
Subject: a little more BAM Date: 12/16/2008 8:11 PM
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Brookfield Renewable sells some Assets

http://www.globeinvestor.com/servlet/story/CCNM.20081215.502...

Great Lakes Hydro Income Fund Announces Strategic Acquisitions and $75 Million Bought-Deal Offering
Fund to Acquire 189 MW Prince Wind facility and 50% interest in 45 MW Pingston Hydro joint venture

16:35 EST Monday, December 15, 2008

GATINEAU, QUEBEC--(Marketwire - Dec. 15, 2008) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Great Lakes Hydro Income Fund (the "Fund") (TSX:GLH.UN) today announced its intention to acquire indirectly from Brookfield Renewable Power Inc. ("BRPI") a 49.9% interest in the following:

i. the 189 MW Prince Wind farm in Ontario; and

ii. a 50% joint venture interest in the 45 MW Pingston Hydro station in British Columbia.

Consideration for the proposed acquisitions is $130 million, of which 49.9% will be financed through the issuance of Fund units to the public under a bought-deal financing, as well as a subscription by BRPI, on the closing of the acquisitions, of $65 million of shares exchangeable into Fund units on a one-for-one basis (the "Exchangeable Shares") at a price equivalent to the pricing of the bought-deal financing. Following closing of the proposed acquisition, BRPI will own a 50.01% interest in the Fund on a fully exchanged basis. Definitive agreements for the proposed acquisitions by the Fund are expected to be entered into on or about January 6, 2009 and the entering into of such definitive agreements are subject to satisfactory due diligence, the closing of the bought deal financing and the receipt of a written fairness opinion from the Fund's independent financial advisor, as described below. Closing of the acquisitions is expected to occur in the first quarter of 2009.

Investment Highlights of the Projects:

- Enterprise value of approximately $462 million with existing project debt in place at each project

- High-quality, long-life renewable power assets with stable and predictable cash flows

- Long-term power purchase agreements with strong government counterparties

- Assets generate an average of $42 million in EBITDA and $13 million of distributable cash flow annually

- Favourable tax attributes including capital cost allowance and other expenses in excess of $240 million

- Increased resource and geographic diversification

"Prince Wind and Pingston Hydro are an excellent strategic fit within our existing portfolio and complement our strategy of owning high-quality, Canadian contracted renewable power assets," said Richard Legault, President and Chief Executive Officer. "We know and understand these assets and their operating characteristics very well. Moreover, the addition of our first wind farm brings resource diversification, while Pingston Hydro expands our footprint in western Canada and adds geographical and seasonal diversification."

While these acquisitions are immediately accretive to distributable cash flow by approximately three cents per unit, the Fund intends to retain near-term excess cash flow to offset the impact of the Fund's taxability beginning in 2011. As a result, the Fund's payout ratio and liquidity in the near-term will be enhanced and the current annual distribution of $1.25 per unit is expected to be sustainable after 2011.

The Fund will continue to seek opportunities for accretive growth in the renewable power sector.


I guess we will learn more as time goes on. I'm going to guess that time will show that the recent asset sales by BAM have been at great prices. I would include the recent sales of Longview, Canary Wharf, Prince Wind and Pingston in that statement. BAM has sold a lot of assets recently at what I guess are excellent prices for the seller.

Devils advocate my question as to whether these asset sales have a real relation to true fair value, as the buyers have all been related to BAM the seller.


Again, better viewed at the link for purposes of tables, etc.

http://rbcpa.com/companies/BAM_notes.html



December 15, 2008 (13.67) Reading some old annual reports



Some Information compiled from Brookfield Properties Annual Reports



  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








Brascan 2001 Annual Report



"Brascan and its operating businesses endeavor to maintain sufficient financial liquidity at all times in order to participate in attractive investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances."



"We finance our operations through diversified sources of capital. "Attractive low-risk financial leverage for common shares is achieved through the use of property specific mortgages that have no recourse to Brascan and the issuance of low-rate permanent non-participating securities such as preferred shares."



Brookfield Properties 2003 Annual Report



"Debt Management Strategy from Brookfield Properties 2003 Annual Report

• Maintain debt to market capitalization of 50% or less.
• Move toward long-term goal of 95% non-recourse debt.
• Maintain interest expense coverage of 2.3x or greater.
• Match the duration of our commercial debt portfolio with that of our lease portfolio."



?During October 2003 BPO sold 49% of 245 Park Avenue NYC for Gross Proceeds of $438M. This was $195M net of debt. BPO wrote, "The disposition of partial interests reflects Brookfield’s strategy to acquire undervalued assets in its core markets, enhance the value through re-leasing and financing initiatives, and sell partial interests in stable, long-term leased properties to institutional investors seeking consistent yields. Capital generated through the sale of these interests is targeted for reinvestment in office properties, share repurchases or repayment of debt."



2005 Brookfield Properties Annual Report -



Our financing targets are as follows:



1. Maintain debt to total market capitalization of 50% or less

2. Move toward long-term goal of 95% non-recourse debt

3. Maintain interest expense coverage of 2.3x or greater

4. In addition, we attempt to match the maturity of our commercial property debt portfolio with the average lease term of our properties.
At December 31, 2005, both the average term to maturity of our commercial property debt and our average lease term was nine years.



2006 Brookfield Properties Annual Report



"On October 5, 2006, we, together with our partner in this transaction, The Blackstone Group, completed the acquisition of all of the shares
of Trizec Properties, Inc. (“Trizec”), a publicly-traded U.S. Office REIT. We also completed the acquisition of Trizec Canada Inc. (“Trizec
Canada”), a Canadian company that held, among other assets, an approximate 38% stake in Trizec. The outstanding shares of common
stock of Trizec not already owned by Trizec Canada were acquired at $29.0209 per share in cash. All of the outstanding subordinate voting
shares and multiple voting shares of Trizec Canada were acquired at $30.9809 per share in cash. The total purchase price, including
transaction costs, was $5.7 billion. Our share of the transaction’s equity following syndication to institutional partners was $857 million.


The portfolio, acquired in our U.S. Office Fund, consists of approximately 29 million square feet in New York, Washington, D.C., Los
Angeles and Houston. These markets are consistent with Brookfield Properties’ strategy to invest in cities with strong financial services,
government and energy sector tenants."

"Our acquisition of the Trizec portfolio accounts for the majority of the increase in book value of commercial properties from December 31,
2005. The total value assigned to the Trizec commercial property assets was $7.5 billion at December 31, 2006. 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."



"Interest expense relating to commercial property debt increased to $424 million in 2006, from $273 million in 2005 and $258 million in
2004. These increases relate to additional interest carry on the Trizec portfolio and Washington, D.C. acquisitions and the cessation of
interest capitalization on Three World Financial Center in the first quarter of 2005."



2007 Brookfield Properties Annual Report



"Interest expense relating to commercial property debt increased to $697 million in 2007 from $422 million in 2006. This increase is
related to additional interest carry on the debt associated with the Trizec portfolio as well as the acquisitions in Washington, D.C. in 2006
and in Houston in 2007 and various upward refinancings that took place during 2007, including One Liberty Plaza."







December 15, 2008 (13.67) Multiplex Debt According to BAM is in AUD not USD



I had asked BAM the following question in regards to what I thought was a US$1.6B bridge loan which was recently both paid down, intent to pay down, and extended:



Is the Multiplex loan in AUD or USD? I was thinking the balance was $1.6B USD, prior to recent changes. Either way, would you please send me a quick reconciliation of the loan. I think that Wachovia wrote a piece that mentioned the loan was in AUD. I was trying to reconcile the $1.6B. Here it is quickly below.



Loan Extension $800

Pay Down in April 2009 $140

Pay down in Nov/Dec 2008 $335



Total $1,275



Hence, I am having difficulty reconciling the difference between $1.6B and $1.275B of $325.



I responded with the following: Is most of the difference in the currency? Can you estimate how much of the $325M difference is currency and how much is pay-down. Also, I seem to recall seeing the $1.6B liability being disclosed in USD in your filings. Is there a section in any of the filings that mentions the debt in AUD? Is there a source I could find that indicates what currency each of the identified loans are in? I was incorrectly assuming that most loans were denominated in USD. This assumption I think (would have to check my files) include Brookfield Renewable, etc.



BAM responded with the following response: "The loan is denominated in AUD, so currency fluctuations relative to the USD would represent some of the difference in your reconciliation. There were also some relatively modest pay-downs arising from asset sales. " "The currency for loans is disclosed in the notes to our annual financial statements on an aggregate basis."



In essence, this is not a very material situation, yet I have read the annual reports and never recall seeing the $1.6B being denominated in anything other than USD. I could be incorrect.



The following quote was from the 40-F/A. "Property-specific mortgages and other debt secured by our commercial property interests includes $1.6 billion of debt associated with the Multiplex acquisition in 2007 and $2.7 billion of assumed debt. The loan to value for the Multiplex acquisition debt and assumed debt represents a relatively conservative loan to value of less than 65%."



The following quote was from the 6-K filed with the SEC on March 27, 2008. "The second is a $1.6 billion loan secured by our Multiplex operations, which we acquired during 2007. This loan does not mature until March 2009 and represents a loan-to-value of less than 60%. We plan to repay a portion of this loan with asset sales and refinance the balance on a traditional long-term financing basis during 2008 and early 2009."



The same 6-K had the following, which might clear up some of the questions. "Commercial property debt includes $2.8 billion of mortgage financing assumed with our acquisition of Multiplex which has no recourse to the Corporation."



Again, this is not incredibly material and very confusing.





Canary Wharf Question on Sale



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."



"On December 3, 2008, the board of directors of the Company approved the sale of its 15% interest in CWG to Brookfield Europe LP. CWG owns a complex of commercial properties in the United Kingdom. As consideration, the Company will receive 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 Europe LP is being formed as part of an initiative by the Company’s parent, Brookfield Asset Management Inc. (“Brookfield”), to combine all of its European operations into a single operating platform in the commercial office property, property development and asset management sectors. The sale of the CWG interest is expected to close on or about December 5, 2008. The Company is expected to significantly increase its available liquidity and diversify its real estate portfolio as a result of the sale."



"The Independent Committee retained Koger Valuations Inc., an independent financial advisor and qualified valuator, to provide a valuation of the CWG interest and the approximately 42% limited partnership interest in Brookfield Europe LP. Koger Valuations Inc. concluded that the value of the CWG interest is between £430,000,000 and £450,000,000, and that the terms of the sale of the CWG interest are fair to the Company from a financial point of view."







December 15, 2008 (13.67) BAM shares bought back through December 5, 2008



Through 12/05/08 BAM has bought back YTD 13,558,600 shares at an average price of $20.45 per share. Hence they spent $277,273,370 on buy-backs YTD through 12/05/08. The value of those shares right now using current price of $13.56 is $183,854,616. BAM bought back 181,500 shares at an average price of $13.46 from 12/01 - 12/05/08.



Here are specifics on purchase from www.sedi.ca



Date Shares USD per Share
12/01/08 31,500 $13.995
12/03/08 80,000 $12.9656
12/03/08 20,000 $16.67
12/05/08 50,000 $12.6489









December 15, 2008 (13.67)





I previously presented this on December 11, 2008, using 583M shares outstanding. The fully diluted common shares outstanding as of September 30, 2008 is 620,312,975 Shares. The following are some updated share calculations. I used same price of $14.14, even though current price as I write this is $13.58.







Price To Tangible Book Value







Common Equity or book value $5,821M
subtract: intangibles and goodwill (3,649)
add: Intangible liabilities 963
Adjusted Tangible Book Value $3,135

Current Market Cap of Common using $14.14 per share and 620.3M shares $8,771M







If you had a price to tangible book of 1.8X you would have market cap of $5,643 or $9.09 per share.



Various price to tangible book calculations



Share Price using 620.3M shares at adjusted tangible book Values:





Price To Book Assumptions Share Price if based on Price to Book Assumption

0.75X $ 3.79
1.00X $ 5.05
1.50X $ 7.58
1.80X $ 9.09
2.00X $10.11
2.50X $12.64
3.00X $15.16



Keep in mind the above does not account for any potential future impairments. Potential impairments could include the following:



A. Sales of assets below cost.

B. Loss of specific assets due to non-recourse defaults.

C. Future losses on operations.

D. Write downs of financial assets

E. Derivative losses

F. higher operating costs, lower occupancy rates, higher debt servicing costs.
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