Brookfield
A Global Asset Management Company
ANNUAL
REPORT
2
0
0
9
InVeStMent prInCIpleS anD FInanCIal hIghlIghtS
Business philosophy
• Build the business and all relationships based on integrity
• Attract and retain high calibre individuals who will grow with us over the long-term
• Ensure our people think and act like owners in all their decisions
• Treat our clients’ money like it is our own
InvEsTmEnT GUIDELInEs
• Invest where we possess competitive advantages
• Acquire assets on a value basis with a goal of maximizing return on capital
• Build sustainable cash flows to provide certainty, reduce risk and lower the cost of capital
• Recognize that superior returns often require contrarian thinking
mEAsUREmEnT of oUR coRpoRATE sUccEss
• measure success based on total return on capital over the long-term
• Encourage calculated risks, but compare returns with risk
• sacrifice short-term profit, if necessary, to achieve long-term capital appreciation
• seek profitability rather than growth, because size does not necessarily add value
aS at anD For the yearS enDeD DeCeMber 31
(MIllIonS, exCept per Share aMountS)
2009
2008
2007
2006
2005
Per fully diluted common share
Cash flow from operations
underlying value – adjusted IFrS basis1
Market trading price – nySe
net income
Dividends paid
Total
$
2.43
$
2.33
$
3.11
$
2.95
$
1.46
28.53
22.18
0.71
0.52
26.56
15.27
1.02
1.452
—
35.67
1.24
0.47
—
32.12
1.90
0.39
—
22.37
2.72
0.26
total assets under management 1,3
$ 108,342
$ 89,753
$ 94,340
$ 71,121
$ 49,700
Consolidated balance sheet assets
underlying value – adjusted IFrS basis1
revenues
operating income
Cash flow from operations
net income
Diluted number of common shares outstanding
61,902
17,850
12,082
4,515
1,450
454
608
53,597
16,369
12,909
4,616
1,423
649
600
55,597
40,708
26,058
—
9,343
4,356
1,907
787
611
—
6,897
3,653
1,801
1,170
611
—
5,220
2,214
908
1,662
608
1. reflects carrying values on a pre-tax basis prepared in accordance with procedures and assumptions expected to be utilized to prepare the
company’s IFrS financial statements, adjusted to reflect asset values not recognized under IFrS (see Management’s Discussion and analysis
of financial results)
2. Includes brookfield Infrastructure special dividend of $0.94 and regular dividends of $0.51 per share
3. assets under management for 2005 through 2007 reflect the combination of fair values and Canadian gaap carrying values
conTEnTs
Letter to shareholders
management’s Discussion and
Analysis of financial Results
Internal control over financial Reporting
consolidated financial statements
five-Year financial Review
cautionary statement Regarding
forward-Looking statements
corporate Governance
sustainable Development
shareholder Information
Board of Directors and officers
2009 annual report
4
13
90
92
128
129
131
131
132
133
1
an owner, operator anD Manager oF real aSSetS
operatIng platForMS
Key FeatureS anD StrengthS
REnEwABLE powER
Hydroelectric, wind
one of the largest independent producers of renewable hydro power
in north America
• 164 hydroelectric power plants with approximately 4,200 mw capacity
• 189 mw wind farm
• Long-life assets with minimal carbon emissions
• 80% of generation under contract, providing stable and predictable
cash flows
pRopERTY
one of the largest property investors globally
office, Retail, Residential, Development
• 125 million square feet of commercial space (office and retail)
• Long-term leases with high credit quality tenants
• Long duration financing
• stable and predictable cash flows
InfRAsTRUcTURE
over 100 years experience owning and operating infrastructure assets
Utilities, Transportation,
Timberlands, social Infrastructure
• Long-life assets providing essential services with high barriers to entry
• Long-term contracts, many with regulated rate bases
• competitive positions in key global markets
• stable and sustainable cash flows
spEcIAL sITUATIons
specialty products that leverage our best-in-class operating platforms and expertise:
Restructuring, Real Estate finance,
Bridge Lending
• Deal sourcing networks and access to deal flow
• Track record of transaction execution to fuel growth
pUBLIc sEcURITIEs AnD
ADvIsoRY sERvIcEs
• focus on value creation and profitability with downside protection
• Investment management of equity and debt securities
• Investment banking, residential brokerage, global relocations, property
management services, home valuations
ASSETS UNDER MANAGEMENT
Total - $108 billion
AssETs UnDER mAnAGEmEnT
Total – $108 billion
Infrastructure
$15 billion
Special Situations
$8 billion
Development
Activities
$9 billion
Renewable
Power
$15 billion
Property
$33 billion
Asset Management
Activities
$25 billion
Cash, Financial Assets
and Other
$3 billion
SOURCES OF CAPITAL
Total - $64 billion
soURcEs of cApITAL
Total – $64 billion
Capital Markets - Listed Issuers
$9 billion
Institutional -
Unlisted Funds
$9 billion
Brookfield’s
Invested Capital
$22 billion
Institutional - Public Securities
$24 billion
operatIng platForMS
Key FeatureS anD StrengthS
REnEwABLE powER
one of the largest independent producers of renewable hydro power
Hydroelectric, wind
• 164 hydroelectric power plants with approximately 4,200 mw capacity
in north America
• 189 mw wind farm
• Long-life assets with minimal carbon emissions
• 80% of generation under contract, providing stable and predictable
cash flows
pRopERTY
one of the largest property investors globally
office, Retail, Residential, Development
• 125 million square feet of commercial space (office and retail)
• Long-term leases with high credit quality tenants
• Long duration financing
• stable and predictable cash flows
InfRAsTRUcTURE
over 100 years experience owning and operating infrastructure assets
Utilities, Transportation,
Timberlands, social Infrastructure
• Long-life assets providing essential services with high barriers to entry
• Long-term contracts, many with regulated rate bases
• competitive positions in key global markets
• stable and sustainable cash flows
spEcIAL sITUATIons
specialty products that leverage our best-in-class operating platforms and expertise:
Restructuring, Real Estate finance,
Bridge Lending
• Deal sourcing networks and access to deal flow
• Track record of transaction execution to fuel growth
pUBLIc sEcURITIEs AnD
ADvIsoRY sERvIcEs
• focus on value creation and profitability with downside protection
• Investment management of equity and debt securities
• Investment banking, residential brokerage, global relocations, property
management services, home valuations
With a focused global reach, and local presence in 20 countries on five continents, we strive to
identify and execute on investment opportunities that deliver long-term value and superior
risk-adjusted returns.
Map Legend: Renewable Power Real Estate Infrastructure
20 private equity funds
BAM: NYSE, TSX, Euronext
15,000 employees
BROOKFIELD’S INVESTED CAPITAL
BRookfIELD’s InvEsTED cApITAL1
Total - $22 billion
Total – $22 billion
1
Infrastructure
$2 billion
Special Situations
$2 billion
Renewable
Power
$8 billion
Development
Activities
$3 billion
Property
$5 billion
OPERATING CASH FLOW
Total - $2.0 billion
opERATInG cAsH fLow 2
Total – $2.0 billion
2
Infrastructure
$64 million
Special Situations
$112 million
Development Activities
$134 million
Renewable
Power
$660 million
Property
$356 million
Investment
and Other
$346 million
Cash, Financial Assets
and Other $2 billion
Fee Revenues
$298 million
1. prior to Corporate liabilities
2. prior to interest and operating costs
letter to ShareholDerS
Overview
After a slow start, 2009 turned out to be one of our
more active in the past few years. we made substantial
progress in most of our businesses, laying the seeds for
future growth. And while it may be some time before
we see the full positive impact from these investments,
we believe that as the economic recovery takes hold,
we will benefit increasingly from our newly acquired
assets, the people we have attracted to our operations
and the capital we have raised.
we recorded $1.45 billion of cash flow from operations
or $2.43 per share. This is slightly higher than 2008,
which is indicative of the consistency and resilience of
our operating cash flows, particularly those produced
by our renewable power generating and commercial
office operations.
we have entered into the recovery phase of this economic
cycle with our balance sheet in excellent shape, and our
franchise bolstered by our performance over the last two
years. we have more assets working for each common
share outstanding today because we have been able to
add substantial assets to the company during these last
few years, and because we did not have to dilute our
common shareholders at a low point in the market, to
ensure our franchise survived the downturn. This should
bode well for future cash flow and asset value growth.
Investment Performance
our share performance in 2009 recovered significantly
but remains well below 2007 levels. The share price
ended the year up 51%; however we note that this merely
represents a partial recovery from the extremely low
values registered in 2008 as a result of the overall market
sell-off that took virtually all share prices to levels which
in most cases bore no resemblance to intrinsic values.
our 20-year compound return, including this recent sell-
off and partial recovery, is 13%, while the 10-year return
is 22%. As noted in the table below, this substantially
exceeds comparative returns on the principal north
American stock indices, but has been reduced as a
result of the last few volatile years. In the future, we
are going to add our International financial Reporting
standards’ (IfRs) valuations to this table as we believe
this will be the most relevant measure for the company.
over time, we will focus our reporting to you on this
basis as opposed to share price, as from time to time
the trading price of the shares may not reflect the true
value of the business.
Annualized Total Returns
brookfield
brookfield
years
(nySe)
(tSx)
1
5
10
20
51%
9%
22%
13%
30%
6%
19%
12%
S&p
26%
0%
-1%
8%
tSx
35%
8%
6%
8%
our senior management group has never been more
positive on the potential for our business and we
continue to hold a substantial majority of our net worth
in shares of the company. we do this as we believe that
our investment should compound at very respectable
risk-adjusted returns over the long term, and as a result
we are even more excited about the next decade than
we were about the previous one.
During 2009, our approximately $20 billion of private
investment funds performed generally as anticipated
with virtually no significant fund underperformance for
investors in what was an otherwise difficult year. we
further expect that any short-term underperformance
should be made up with the rebound of values ahead.
As a result, we believe we are well positioned following
this challenging period to continue attracting capital to
the private funds we are marketing.
The investment performance in our public securities
group, which manages $25 billion of fixed income
and equity investments for third-party clients, was
exceptionally strong given the rebound in the capital
markets. moreover, each of our investment teams
4
brooKFIelD aSSet ManageMent
handily beat their respective investment benchmarks.
A standout performer was our Real Estate Long/short
Equities fund which produced a return in excess of
100% for the year.
2009 – A Year of Opportunity
2009 was a year of outstanding opportunity for us as the
global credit crisis peaked at the start of the year with
a wholesale liquidation of risky investments by many
investors. Investors sought shelter in the form of risk-
free government bonds and cash, and this drove short-
term interest rates to zero, and the yield curve to its
steepest level in history.
our investment posture over this period was focused
foremost on ensuring we had more than sufficient
capital to support our existing businesses; and once
that was accomplished, to acquire control of new assets
and businesses at discounts to their intrinsic value. As
a result of supporting a number of rights offerings and
acquiring various distressed assets, largely through
the purchase of debt for conversion to equity, we have
a significantly expanded asset base working for our
shareholders and clients.
simply stated, we believe that acquiring assets through
distress situations offers one of the few ways to acquire
assets at meaningful discounts to their intrinsic value.
most often these investments are made in a “distress”
period for the specific industry or the company owning
the assets, and almost always the capital structure is
over leveraged. As a result, we are generally investing
when markets are pessimistic, and the current cash
flows from the assets we are acquiring have been
substantially reduced. furthermore, financing for the
investments is not easily found, and therefore ensures
competition is limited.
the
investments we also prepare ourselves
market environment, and sometimes the investment
performance to get worse before it gets better.
for
our ultimate goal from these investments is to acquire
control of assets at a meaningful discount to their
intrinsic values, made possible because many others
are valuing them using overly pessimistic predictions of
future cash flow growth.
The second half of 2009 presented us with many
restructuring opportunities. Accordingly, we focused
most of our investing on acquiring distress debt
positions or positioning ourselves to acquire a number
of distress assets. To date, we have been able to
capitalize on converting some of these opportunities to
investments. The following illustrates the extent of these
investments, made possible by our strong financial
position and the lack of competitive bids, particularly
for assets requiring complex restructurings.
Shipping Terminals
we acquired the world’s largest metallurgical coal
shipping terminal, Dalrymple Bay coal Terminal. This
shipping terminal on the northeast coast of Australia
serves as a critical link in the export of metallurgical
coal (used for steel making) from the Bowen Basin
in Queensland, Australia, the most prolific low-cost
metallurgical coal basin in the world. The rate base
of this asset is approximately $2 billion and the rated
capacity is 85 million tonnes per annum, most of
which is shipped to steel companies in Japan, korea,
India and china. for context of size, this terminal
ships approximately $8 billion of coal annually,
which represents approximately 20% of the seaborne
metallurgical coal in the world. on average two ships
load daily, or about 700 ships annually, each carrying
approximately $150 million of coal.
when investing in restructurings, we believe it is
important to focus on asset classes we know well
and have experience in operating. In making these
we acquired the third-largest port in the Uk. This port
was historically used for bulk shipping (steel, coal
and other commodities) but has been in recent years
2009 annual report
5
expanded to handle containers for shipments into the
northern half of the Uk. Recently, both Asda (walmart)
and Tesco have opened major distribution facilities at
the port, and we intend to support growth of these and
other similar operations over time. To this end, we own
approximately 1,800 acres of land around this port which
we lease or sell to users, and we also own the right to
operate and receive revenue from shippers who utilize
the river.
we also acquired concessions on 17 other bulk and
container shipping terminals, predominantly in Europe,
as well as one in Asia. we own the exclusive right to
move various goods at these terminals such as bulk
commodities, liquids, general cargo and containers,
which should benefit substantially as the global
economic recovery takes hold.
Renewable Power Generation
we began construction of a new wind farm in north
America and constructed and commissioned two
hydroelectric plants in Brazil. we are focused in this
business on organic growth and margin expansion as
fossil fuel prices drive electricity prices higher over
time.
The most significant milestone during 2009 was the
restructuring of our power sales in ontario with the
signing of a 20-year contract with the ontario power
Authority. we expect that in the first year of this
contract, the combination of the contracted energy
price and peaking premiums, together with ancillary
revenues that we will continue to earn in the market,
will provide us with pricing of approximately c$80 per
megawatt hour. The contract covers the significant
portion of the power generated by us in ontario, that
was previously uncontracted, and contains inflation
provisions that will increase the price annually over the
contract life. As a result, cash flows from this contract,
based on long-term average generation, should be in the
range of $180 million in 2010 and grow steadily over time.
Office Properties
we increased our ownership of an office property
portfolio in Australia through the restructuring of
approximately A$500 million of debt issued by a fund
which we acquired management rights to in 2007. The
debt came due in the fund in 2009, but we were able to
negotiate new terms with the lenders and completed a
rights offering which resulted in our interest increasing
from approximately 20% to 70%. This fund owns four
6
brooKFIelD aSSet ManageMent
high quality properties in sydney and melbourne
encompassing one million square feet of office space,
to add to our sizable presence in these cities.
we foreclosed on a 540,000 square foot, ±$250 million
office property in san francisco through a defaulted
intend to re-lease and
mezzanine mortgage. we
reposition the property over the next few years in a city
which we believe will be an attractive office market
longer term.
In early 2010, we closed the purchase of a 16-property
portfolio of office properties encompassing approxi-
mately three million square feet of space. This portfolio
is 60% let to Jpmorgan chase on a long-term basis and
is the third similar transaction we have completed with
Jpmorgan in the last five years.
we have also acquired a number of other property
debt positions which situates us well to sponsor the
recapitalization of these portfolios through 2010 and
2011.
Multi-family Apartments
we converted $140 million of defaulted debt into an
ownership interest in approximately 4,000 apartment
units predominantly around washington, D.c., but also
in the new York area, chicago, and Los Angeles. we
restructured the senior loan subsequent to foreclosure
in the amount of $550 million with a 2016 maturity, and
expect that over the next five years substantial value
will surface as apartment vacancies are reduced and
capitalization rates return to more normalized levels.
Retail Properties
we acquired a substantial amount of defaulted bank
debt issued by General Growth properties (GGp) at a
discount to par value. GGp is currently in U.s. chapter
11 protection but owns a large portfolio of high-quality
shopping malls. The debt currently trades at par value.
Rail Infrastructure
we acquired 5,100 kilometres of rail infrastructure in
western Australia. we operate these rail tracks under
a long-term arrangement with the government, and
provide services to companies that operate trains
and use the tracks to ship bulk commodities (iron ore,
coal, minerals, grain) to ports along the west coast of
Australia. These operations will benefit from increased
iron ore and other mining operations coming on stream
in western Australia, and their need to transport their
production to the coast. These are the only rail tracks
located in western Australia, and are therefore governed
under a secure rate base regime.
Natural Gas Pipelines
we acquired a 26% interest in natural Gas pipeline
company of America (nGpL). nGpL is one of the largest
natural gas pipelines and storage systems in the U.s.,
extending over 15,500 kilometres from the Gulf coast of
mexico, and through many of the new shale gas deposits
in the south, up to chicago. This gas distribution system
delivers 60% of the gas to the chicago and northern
Indiana markets, and includes 7% of the U.s. natural
gas storage capacity. The system is regulated by the
federal Energy Regulatory commission, with 60% of
its capacity utilized by 10 of the major gas shippers
in the U.s. we also acquired 100% of a 730-kilometre
gas pipeline and the distribution network with 6,500
customers in Tasmania.
Electricity and Natural Gas Distribution
we acquired the sole gas distribution rights for
liquefied propane and natural gas in the channel
Islands and the Isle of man. we also acquired a natural
gas and electricity connections business that serves
400,000 residential customers in the Uk. This business
is the second largest in the Uk and growth over the
last number of years has been significant. we also
acquired a 42% interest in the second-largest provider of
electricity and gas distribution services in new Zealand
with over 400,000 customers on the north Island. we
service 40% of new Zealand’s gas connections and 16%
of the electrical connections.
Global Relocation Operations
we have completed the restructuring and integration
of last year’s purchase of GmAc’s relocation business.
As a result, we now operate one of the largest global
relocations firms. In simple terms, when a company
or government institution wants to move an employee
from one global location to another, they contact us and
we work with the employee and their family to make
the move as seamless as possible. currently, we move
approximately 50,000 families annually in 120 countries,
and we offer one of the few global relocation services for
corporations. our recent expansion has added offices in
the Uk, U.s., singapore, India and Australia, which will
increase the growth of this business in the future.
Property Brokerage Operations
we own the fifth-largest property brokerage operation in
the world with close to 40,000 brokers in approximately
2,000 offices across canada, the U.s. and the Uk. we
built this operation through the acquisition, restructuring
and integration of a number of brands over the past 10
years, with our acquisition last year of Real Living in
the U.s. the latest. As the global transaction market for
secondary sales of housing recovers, the profitability of
these operations should correspondingly benefit.
Construction Operations
we build a substantial number of infrastructure and
commercial real estate properties on a global basis.
some of this construction is for our own account, and the
balance is for third parties. In Brazil, our construction
operations build virtually exclusively for our own
needs. In Australia, the middle East and in the Uk, we
operate large third-party construction operations. we
have traditionally focused on commercial properties,
but in the past three years we have expanded our
focus to infrastructure projects, such as hospitals and
desalination plants. In this regard, and on the back of
the successful near completion of the peterborough
Hospital in greater London, we were recently awarded
a £700 million hospital construction project in Glasgow,
scotland and launched a A$1.8 billion hospital project in
perth, Australia in early 2009.
Brazilian Development Operations
we have been in the development business in Brazil
for over 30 years, building both residential and office
properties for sale, largely as condominium units
(traditionally office space in Brazil has been sold floor
by floor in a condominium form; and not leased as is
standard in the rest of the world). we restructured this
business during the last 18 months by merging with
two competitors, and completed two follow-on equity
offerings in 2009. The company currently has a market
capitalization of over Us$2 billion of which we own 43%.
Last year, we sold approximately 15,000 condominium
units, largely in são paulo, Rio de Janeiro, Brasilia and
Goiânia; and 2010 appears stronger than 2009.
2009 annual report
7
Summarized Operating Base
Fundraising
After these investments, we have more than 15,000
people and the following assets working for you:
• 164 hydroelectric power plants generating close to
16,000 gigawatt hours of electricity, which will benefit
substantially as carbon emissions are priced into the
cost of electricity production;
• over 100 premium office properties encompassing
125 million square feet of space in world-class global
cities;
• 20 shipping terminals across Europe and Australia
including one of the largest metallurgical coal shipping
terminals in the world, handling 20% of the seaborne
metallurgical coal;
• over 5,000 kilometres of rail
lines transporting
agricultural and other commodities in Australia;
• 2.9 million acres of high value timber and prime
agricultural lands in canada, the U.s., and Brazil;
• 1 million electricity and natural gas distribution
customers in the Uk and new Zealand;
• 9,000 kilometres of electrical transmission lines,
predominantly in chile;
• A part of 16,000 kilometres of natural gas pipelines,
predominantly in the U.s.;
• A land development and home construction business
which sells close to 20,000 units annually in Brazil,
canada and the U.s.;
• many property, power and infrastructure service
businesses, which earn us excellent returns and
provide
information to guide our
leading edge
business decisions; and
• A global client relationship organization which
sources and takes care of all of our valued investment
relationships.
within each of our businesses, we intend to continue
to drive increased cash flows through both operational
improvements, organic growth, and acquisitions when
opportunities are available.
we completed a large number of private institutional and
public capital market fundraisings in 2009. In total, we
raised approximately $14 billion of third-party capital for
investment. This should enable us to continue to acquire
assets in the recovery phase of this market cycle while
competitive bidding is still relatively restrained. Access
to these significant amounts of capital from a variety of
sources places us within a select group of investors who
have both the ability and human resources to pursue
complex recapitalization transactions on a global basis.
MIllIonS
third-party
Capital raisings
Power and Infrastructure
private fundraisings
public market issuances (three placements)
Debt issuances
Property
private fundraisings
public market issuances (two placements)
Debt and preferred share issuances
Special Situations
private fundraisings
Corporate and Other
$ 1,500
1,500
1,200
4,000
1,000
2,500
1,200
1,100
$ 14,000
In a year in which the market for private fundraising was
severely constrained due to global market conditions,
we were very pleased to have received the support of
a significant number of domestic and international
institutions, including some of the world’s largest and
most sophisticated pension and sovereign wealth funds.
our flexibility in approaching the market enabled us to
close a number of funds. Including our commitments,
we closed a c$1.2 billion Debtor-In-possession fund,
two infrastructure funds focused on south American
country-specific opportunities, and our Us$5.5 billion
Real Estate Turnaround consortium. Early indications
are that 2010 will see us receive even greater support
from the institutional market as investors across the
globe are once again in a position to invest additional
capital.
8
brooKFIelD aSSet ManageMent
IFRS Financial Reporting
Beginning in 2010, our financial reporting will conform to
International financial Reporting standards (IfRs). our
first full report to you on this basis will be for the first
quarter of 2010, although we have included IfRs-related
information in our supplemental report, which should
help you assess the impact and because it provides
underlying values for much of our business.
we adopted IfRs earlier than required because we
believe that over the longer term, wealth creation as
measured by the increase in net asset value per share,
is the most important metric for our company, and IfRs
accounting enables a company such as ours to show
our shareholders both cash flows and wealth created
in a more transparent fashion. This method of reporting
is probably more relevant for our type of company than
many others and, we believe, more appropriate than
current U.s. or canadian GAAp requirements.
what was not historically reported in our financial
results on a consistent basis were the increases in
the values of our investments over the amount of the
original invested capital. The value of assets such
as ours typically increases by an amount equal to the
capitalized value of the increase in the cash flows
generated by the assets. This appreciation in value
was generally not reflected in our financial results until
such time as we sold the asset (if ever), at which point
we recorded a realization gain. Under IfRs, the value
increase, or decrease will be assessed regularly and
added to net income or the capital base. As a result, the
income and equity statement will more or less serve as
a total return statement.
There are some assets which are not re-valued under
IfRs as no accounting regime is perfect. for these
assets, we will attempt to periodically provide you with
an estimate of their value and you can choose whether
or not to incorporate these amounts in assessing the
value of our business. You may also wish to adjust our
underlying values up or down based on whether you
assess the company on a liquidation basis, or as a
long-term going concern. on a liquidation basis, you
may take the view that realized values would be less
than the underlying values, as we own a lot of assets
and liquidating them all at once might be difficult.
(Definitely, this would have been the case in october,
2008.) Alternatively, if you believe that a company should
be valued as a going concern at the value willing buyers
and sellers would pay for assets or businesses in a
normal market, then you might conclude that achievable
sales prices are above their appraised values (this has
been our experience in the past).
for reference, a 100-basis point change to discount
rates applied to our renewable power plants and our
commercial office properties would add or subtract
approximately $3.7 billion or about $6.09 per share to our
equity values.
The following table summarizes our tangible underlying
values, as described above, although no value is
attributed in this table to our asset management
franchise.
aS at DeCeMber 31, 2009 (MIllIonS, exCept per Share aMountS)
underlying value, IFrS basis
add: estimated excess value of assets over book value that
are not included within the IFrS fair value framework
(such as historical cost of land and other inventories)1
underlying value
100-basis point change to power and property discount rates
total
$ 14,956
1,750
base Case
$ 25.65
2.88
$ 16,706
$ 28.53
per Share
business
liquidation
Value
Value
$ 28.53
6.09
$ 34.62
$ 28.53
(6.09)
$ 22.44
1. Management estimate and based on trading prices of public securities which are owned but not revalued under IFrS
2009 annual report
9
Market Environment
The capital markets have made a rapid recovery
from the depths of 2008 and early 2009. Investment
grade companies once again have access to capital
at acceptable spreads, although still high relative to
government yields. capital is also available to high yield
issuers at low all-in coupons and spreads. Equity markets
are generally open to quality corporations, although
probably at discounts to the true underlying values.
our view is that the capital markets will continue to be
volatile as the economic recovery takes hold. we expect
most economic statistics to represent quarterly positive
comparisons, because of both the lows experienced
by the economy in 2008 and the remedial actions taken
since then.
Unemployment appears to be peaking and while the
recovery of employment levels is always slow, this bodes
well for our short-cycle housing-related businesses, such
as residential development and timberlands, which are
dependent on consumer confidence and the employment
outlook.
The most worrisome macro factor is the over-leverage
of many of the world’s largest developed economies. we
believe that the U.s., however, will be able to deal with its
issues through a combination of economic growth, cost
containment and higher taxes (hopefully a consumption
tax); as well as the sale of assets, which should drive
private infrastructure funding to levels never seen
before. such extreme fiscal initiatives are only made
possible when a country’s choices are limited. Given the
dire alternatives, we hope that over the next 10 years, the
U.s. will find a way to make these tough choices.
Goals and Strategy
our primary long-term goal remains to achieve 12% to
15% compound annual growth in the underlying value
of our business measured on a per share basis. This
increase will not occur consistently each year, but we
believe we can achieve this objective over the longer
term by continuing to focus on four key strategies:
• operate a world-class asset management firm,
offering a focused group of products on a global basis
to our investment partners.
• focus our investments on high quality, long-life, cash-
generating real assets that require minimal sustaining
capital expenditures and have some form of barrier to
10
brooKFIelD aSSet ManageMent
entry, and characteristics that lead to appreciation in
the value of these assets over time.
• Differentiate our investing by utilizing our operating
experience, our global platform, and our extended
investment horizons, to generate greater returns over
the long-term for our shareholders and partners.
• maximize the value of our operations by actively
managing our assets to create operating efficiencies,
lower our cost of capital and enhance cash flows.
Given that our assets generally require a large initial
capital
low variable
operating costs, and can be financed on a long-term,
low-risk basis, even a small increase in the top-
line performance typically results in a much more
meaningful contribution to the bottom line.
investment, have relatively
we believe we can continue to successfully grow our
global asset management business, because underlying
fundamentals for asset management, particularly within
the property and infrastructure areas, continue to be
very positive. we have seen a substantial shift by our
investment partners towards our fund products, and
believe our lower-risk, lower-volatility assets should
become even more appealing, especially as investors
continue to re-price risk in the marketplace and seek
yield as compared to the minimal returns on cash and
the risk with longer duration government investments.
Summary
we remain committed to being a world-class asset
manager, and investing capital for you and our investment
partners in high-quality, simple-to-understand assets
which earn a solid cash-on-cash return on equity,
while emphasizing downside protection of the capital
employed.
The primary objective of the company continues to be
generating increased cash flows on a per share basis,
and as a result, higher intrinsic value over the longer term.
And, while I personally sign this letter, I respectfully
do so on behalf of all of the members of the Brookfield
team, who collectively generate the results for you.
please do not hesitate to contact any of us, should you
have suggestions, questions, comments, or ideas.
J. Bruce flatt
chief Executive officer
february 19, 2010
Financial inFormation and analysis
Basis of Presentation
Management’s Discussion and Analysis of Financial Results
Consolidated Financial Statements
Five-Year Financial Review
Cautionary Statement Regarding Forward-Looking Statements
12
13
92
128
129
2009 annual report
11
cautionary statement regarding forward-looking statements
This Annual Report to Shareholders contains forward-looking information within the meaning of Canadian
provincial securities laws and other “forward-looking statements” within the meaning of certain securities
laws including Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities
Exchange Act of 1934, as amended, “safe harbour” provisions of the United States Private Securities
Litigation Reform Act of 1995 and in any applicable Canadian securities regulations. We may make such
statements in the report, in other filings with Canadian regulators or the SEC or in other communications.
Please refer to additional disclosure regarding forward-looking statements on page 129.
Basis of Presentation
use of non-gaap accounting measures
This Annual Report, including the Management’s Discussion and Analysis (“MD&A”), makes reference to
cash flow from operations on a total and per share basis. Management uses cash flow from operations as a
key measure to evaluate performance and to determine the underlying value of its businesses. Brookfield’s
consolidated statements of cash flow from operations enables a full reconciliation between this measure
and net income so that readers are able to consider both measures in assessing Brookfield’s results.
Operating cash flow is not a generally accepted accounting principle measure and differs from net income,
and may differ from definitions of operating cash flow used by other companies. We define operating cash
flow as net income prior to such items as depreciation and amortization, future income tax expense and
certain non-cash items that in our view are not reflective of the underlying operations.
information regarding the annual report
Unless the context indicates otherwise, references in this Annual Report to the “Corporation” refer
to Brookfield Asset Management Inc., and references to “Brookfield” or “the company” refer to the
Corporation and its direct and indirect subsidiaries and consolidated entities.
We utilize operating cash flow and underlying values in the Annual Report when assessing our operating
results and financial position, and do this on a deconsolidated basis organized by operating platform.
Operating cash flow is derived from the information contained in our consolidated financial statements,
which are prepared in accordance with Canadian generally accepted accounting principles, and is
reconciled to net income within the MD&A. This is consistent with how we review performance internally
and, in our view, represents the most straightforward approach.
This year we have measured invested capital based on underlying value unless otherwise stated,
using the procedures and assumptions that we intend to follow in preparing our financial statements
under International Financial Reporting Standards (“IFRS”), which we believe provides a much better
representation of our financial position than historical book values. These values are reported on a pre-
tax basis, meaning that we have not reflected adjustments that we expect to make in our IFRS financial
statements to reflect the difference between carrying values of assets and their tax basis. We do this
because we do not expect to liquidate the business and, until any such taxes become payable, we have the
ability to invest this capital to generate cash flow and value for shareholders.
The IFRS related disclosures and values in this document have been prepared using the standards and
interpretations currently issued and expected to be effective at the end of our first annual IFRS reporting
period, which we intend to be December 31, 2010. Certain accounting policies expected to be adopted under
IFRS may not be adopted and the application of such policies to certain transactions or circumstances
may be modified and as a result the December 31, 2009 and December 31, 2008 underlying values prepared
on a basis consistent with IFRS are subject to change. The amounts have not been audited or subject to
review by our external auditor.
The U.S. dollar is our functional and reporting currency for purposes of preparing our consolidated financial
statements, given that we conduct more of our operations in that currency than any other single currency.
Accordingly, all figures are presented in U.S. dollars, unless otherwise noted.
The Annual Report and additional information, including the Corporation’s Annual Information Form, is
available on the Corporation’s web site at www.brookfield.com and on SEDAR’s web site at www.sedar.com.
12
BrookField asset management
management’s discussion and analysis oF Financial results
contents
PART 1
summary
PART 2
review oF operations
PART 3
analysis oF consolidated Financial statements
PART 4
Business strategy, environment and risks
PART 5
international Financial reporting standards
PART 6
supplemental inFormation
13
22
54
68
81
86
part 1
SUMMARY
our Business
Brookfield is a global asset management company with over $100 billion of assets under management.
Our business strategy is to provide world-class asset management services on a global basis, focused on
real assets such as property, renewable power and infrastructure assets. Our business model is simple:
utilize our global reach to identify and acquire high quality assets at favourable valuations, finance them
effectively, and then enhance the cash flows and values of these assets through our leading operating
platforms to achieve reliable attractive long-term total returns for the benefit of our partners and ourselves.
We focus on assets and businesses that form part of the critical backbone of economic activity, whether
they generate reliable clean electricity, provide high quality office space in major urban markets, or
transport goods and resources to or from key locations. These assets and businesses typically benefit from
some form of barrier to entry, regulatory regime or other competitive advantage that provides stability in
cash flows, strong operating margins and value appreciation over the longer term.
The majority of our assets are invested in high quality commercial office properties, hydroelectric power
generating facilities and infrastructure assets. We also develop commercial and residential properties,
conduct restructuring, real estate finance and other investment activities through our special situations
group; and manage fixed income and equity securities through our public securities operations.
Our business is organized into a number of leading operating groups that we have established over many
years, and is comprised of more than 15,000 employees. These groups, with their broad operating capabilities
and expertise, enable us to maximize the value of our operating assets, businesses and investments.
We have established a number of private and public entities to enable our clients and other investors to
participate with us in the ownership of these assets. Our clients are sovereign wealth funds, pension
funds, insurance companies, high net worth individual investors and retail customers on a global basis.
This provides us with an important source of additional cash flow and other opportunities to create value
that we believe will enable us to increase operating cash flow per share at a faster rate than if we relied
solely on deploying our own capital. These activities also provide us with additional capital to pursue a
broader range of transactions and expand our operating base without straining our own resources, as well
as establishing important relationships with many of the world’s premier global investors.
We have two principal financial performance metrics: operating cash flow and total return, both measured
on a per share basis. We define total return as the change in underlying value together with distributions
to shareholders. Our goal is to achieve cash flow growth and total return over the longer term of between
12% and 15%.
2009 annual report
13
Total assets under management at year end were $108 billion and were underpinned by $64 billion of
capital. We provided approximately $22 billion of this capital from our balance sheet. Institutions have
invested $24 billion in our public securities portfolios and $9 billion in our unlisted funds and $9 billion is
represented by the equity of various publicly listed issuers that we own and manage. The following charts
illustrate the allocation of our assets under management and the related sources of capital:
ASSETS UNDER MANAGEMENT
Total - $108 billion
SOURCES OF CAPITAL
Total - $64 billion
Infrastructure
$15 billion
Special Situations
$8 billion
Development
Activities
$9 billion
Renewable
Power
$15 billion
Property
$33 billion
Asset Management
Activities
$25 billion
Cash, Financial Assets
and Other
$3 billion
Capital Markets - Listed Issuers
$9 billion
Institutional -
Unlisted Funds
$9 billion
Brookfield’s
Invested Capital
$22 billion
Institutional - Public Securities
$24 billion
We differ from most other asset management companies in three important ways. The first is the industry
leading operating platforms we have built up over many years. Our commitment to maintaining these
platforms has enabled us to attract and retain best-in-class people and gives us the capability to maximize
the long-term cash flows and values of our assets.
The second difference is our substantial capital base and the significant amount of capital we have
committed to the same investment strategies alongside our clients. This invested capital aligns our
interests with our clients, generates substantial cash flows to reinvest and provides a solid capitalization
to further enhance our role as a reliable sponsor of investment transactions.
The third difference is how we seek to benefit from managing assets for our clients and investment
partners. The cash flow that we receive from our capital, and the breadth of our operations allow us to
fund our activities without being overly dependent on large base management fee streams to cover the
operating costs that we incur. This enables us to seek returns in the form of equity participations or other
long-term interests which typically align well with our clients and co-investors.
The following are some of the ways we benefit from our asset management activities:
• In many cases, we are compensated in a traditional manner, which includes a base management fee
and some form of incentive return that is based on performance. As noted above, our strong cash flow
position allows us to skew our returns towards performance based compensation if we choose.
• In the case of our 50%-owned Canadian Renewable Power Fund, we purchase almost all of the electricity
generated by it at a fixed rate. This provides the other investors in the Fund with cash flow stability
to support a reliable high payout distribution policy, consistent with the profile of the Fund, and also
provides us with additional electricity and an increased opportunity to participate in future increases (or
decreases) in electricity prices.
• We list some of our business units on public stock exchanges. For example, we took our Brazil residential
business public in 2006 and since then have completed two mergers and two further equity financings.
While we earned no direct compensation in respect of the capital provided by other shareholders in
the business, these financings enabled us to expand the business into new geographic markets and
the important middle-income segment without committing additional capital resources from our own
balance sheet. The company had a record year in 2009 and we have benefitted from our participation in
these increased returns as an investor. We further augmented the returns of this business for the benefit
of all shareholders by utilizing our global franchise to assist it to earn higher returns than otherwise
available to another local entity.
14
BrookField asset management
Principal Business activities and sources of operating cash flows
As at year-end, we had invested approximately $22 billion alongside our clients and co-investors. This
capital generated $2.0 billion of operating cash flow and gains during 2009, prior to interest and operating
costs.
Our capital is invested primarily in renewable hydroelectric power plants, commercial office properties
in central business districts of major international centres and regulated infrastructure assets. These
segments, together with cash and financial assets, represent over 70% of our invested capital and
contribute to the strength and stability of our capitalization and underlying values.
BROOKFIELD’S INVESTED CAPITAL
Total - $22 billion
1
OPERATING CASH FLOW
Total - $2.0 billion
2
Infrastructure
$2 billion
Special Situations
$2 billion
Infrastructure
$64 million
Special Situations
$112 million
Development Activities
$134 million
Development
Activities
$3 billion
Property
$5 billion
Renewable
Power
$660 million
Property
$356 million
Investment
and Other
$346 million
Renewable
Power
$8 billion
Cash, Financial Assets
and Other $2 billion
Fee Revenues
$298 million
1. prior to corporate liabilities
2. prior to interest and operating costs
Asset Management and Other Service Revenues
Asset management revenues include the fees and performance returns that we earn for managing capital
on behalf of investment clients. As noted above, we also receive other benefits that are reflected in
our operating returns from our various platforms. We also include a broad range of property services,
investment banking and construction services which we provide to customers.
Renewable Power Generation
We have one of the largest privately owned hydroelectric power generating portfolios in the world, located on
river systems in the U.S., Canada and Brazil. We have chosen to focus on hydroelectric generation because
of the long-life, exceptional reliability and low operating costs of these facilities. As at December 31, 2009,
we owned and managed 164 hydroelectric generating stations which generate on average approximately
16,000 gigawatt hours of electricity each year. We also own and operate a 189 megawatt wind energy
project as well as two natural gas-fired plants. Overall, our assets have 4,198 megawatts of generating
capacity.
Commercial Properties
We own and manage one of the highest quality commercial office portfolios in the world located in major
financial, energy and government centre cities in North America, Australasia and Europe. Our strategy is
to concentrate our operations in high growth, supply-constrained markets that have high barriers to entry
and attractive tenant bases. Our goal is to maintain a meaningful presence in each of our primary markets
in order to maximize the value of our tenant relationships. At December 31, 2009, our portfolio consisted
of 166 properties containing approximately 95 million square feet of commercial space, which includes a
number of high quality shopping centres in Brazil, the United Kingdom and Australia.
2009 annual report
15
Infrastructure
During 2009, we completed a transaction that significantly expanded the scale of our infrastructure
operations. Our infrastructure group now manages approximately $15 billion of total assets in the
following sectors: transportation (ports, rail lines); utilities (electrical and natural gas transmission);
and timberlands. Our strategy is to acquire and operate high quality assets and operations that provide
essential services or products and which generate cash flows that are supported by regulatory regimes
or some form of barrier to entry.
Development Activities
We develop commercial properties on a selective basis, and are active in residential development throughout
North America, Australasia, Brazil and the United Kingdom. We also develop agricultural lands in Brazil.
These activities encompass 41 million square feet of developable commercial space, 61 million square feet
of residential condominiums, 123,000 lots for residential land and 370,000 acres of agricultural land. We also
conduct development activities within our renewable power generation and timberland activities.
Special Situations
We conduct a wide range of restructuring, real estate finance and bridge lending activities through
investment funds with total committed capital of $5.0 billion. Total invested capital at year end was
$6.9 billion of which our share was $1.6 billion. We also hold a number of investments that are mostly
temporary in nature and will be sold once value is maximized or integrated into our core operations or new
fund strategies.
Public Securities and Advisory Services
We manage fixed income and equity securities for institutional clients with a focus on the real estate and
infrastructure asset classes. Assets under management in this segment totalled $24 billion at year end.
We also provide specialized investment banking and transaction advisory services in North America, the
United Kingdom and Brazil. The associated revenues are included in asset management revenues. We
have minimal capital invested in these activities.
16
BrookField asset management
oPerating Performance
summary
We recorded solid financial and operational performance during 2009, and achieved many of our objectives.
We undertook a number of initiatives to protect and enhance the long-term value of our existing businesses
and to better position the company to capitalize on opportunities that we expect will arise in the coming
years. We invested $2.4 billion of equity capital in undervalued opportunities which, together with the
$1.7 billion invested in similar opportunities in 2008, should provide very favourable returns over the longer
term.
Operating cash flow was $2.43 per share. We were pleased with the resiliency of our two largest businesses,
renewable power generation and commercial office properties, and the excellent performance of our Brazil
residential business. Several of our smaller, more economically sensitive businesses, such as timberlands
and our U.S. residential operations, continue to report low levels of cash flow although we believe that
they will benefit as the economic recovery continues to take hold. As a result, the increase in cash flow per
share was only 4.3%, below our long-term target. We have achieved a 19% growth in cash flow per share,
over the past five years, which is a more appropriate time frame for measuring performance in a business
such as ours.
Total return during 2009 was $2.49 per share, or 9.4%. Total return consists of our operating cash flows and
the impact of unrealized valuation changes on the underlying value of our common equity. We distributed
$0.52 of this return to shareholders as common share dividends and the remaining $1.97 is represented
by the increase in underlying values from $26.56 per share at the beginning of the year to $28.53 at year-
end. We do not have historical information to calculate a long-term growth rate for total return, but will
continue to report to you on this basis in the future.
The following table summarizes the underlying values of our invested capital and our share of net operating
cash flows generated by our operations over the past two years on a deconsolidated basis:
as at and For the year ended decemBer 31
(millions, eXcept per share amounts)
asset management and other services
operating platforms
renewable power generation
commercial properties
infrastructure
development activities
special situations
cash and financial assets
other assets
less: corporate borrowings/interest
contingent swap accruals
accounts payable and other/expenses
capital securities/interest
shareholders’ equity – iFrs basis
unrecognized value under iFrs
shareholders’ equity – underlying value
per share
assets
under management 1
Brookfield’s
invested capital 1
net operating
cash Flow
2009
2008
$ 25,386
$ 19,460
$
2009
803
2008
534
$
2009
298
$
2008
289
$
15,280
32,433
15,388
9,010
7,730
1,996
1,119
$ 108,342
13,793
31,790
7,322
6,973
7,162
2,185
1,068
$ 89,753
8,318
4,841
1,546
2,403
1,631
1,645
945
22,132
(2,593)
(779)
(2,028)
(632)
8,478
4,702
1,174
1,426
1,622
1,903
771
20,610
(2,284)
(675)
(2,239)
(543)
660
356
64
134
112
346
—
1,970
(151)
(84)
(253)
(32)
16,100
1,750
$ 17,850
$ 28.53
14,869
1,500
$ 16,369
$
26.56
1,450
—
$ 1,450
$
2.43
$
$
466
297
141
60
283
425
—
1,961
(163)
(72)
(272)
(31)
1,423
—
1,423
2.33
1. at underlying value, excludes accounting provisions for future tax liabilities
2009 annual report
17
operating cash flow
Operating cash flow totalled $1.45 billion for the year compared to a similar result in 2008 and $1.9 billion
in 2007. The 2007 results included a particularly large number of disposition gains.
For the years ended decemBer 31 (millions, eXcept per share amounts)
2009
2008
2007
operating cash flow
total
– per share
$ 1,450
2.43
$
1,423
2.33
$
1,907
3.11
Power generating operations produced net operating cash flow of $660 million, a significant increase over
the $466 million generated in 2008. This increase reflects $369 million in gains realized on the sale of
50% of renewable assets in Ontario, offset by the impact of lower generation and spot electricity prices.
Operating results in 2009 were lower than 2008, which was an exceptional year in terms of both pricing and
hydro generation. Short-term electricity prices, which impacted approximately 20% of long-term average
generation in 2009, were lower in part because the downturn in the economy led to decreased energy
demand. We were able to secure a 20-year power sales agreement in the fourth quarter of 2009 for all of the
previously uncontracted output of our Ontario operations on favourable terms, which reduces our reliance
on the short-term market. Longer term, we continue to believe that demand and pricing for renewable
energy will rise.
Commercial properties produced solid results during 2009. Operating cash flow increased to $356 million
from $297 million. The increased contribution reflects a 2% increase in the cash flows from existing
properties in local currency terms, reflecting the stability of our leasing profile, as well as the impact of
lower interest rates on floating rate debt and improved results from our retail properties. The 2008 results
included a higher level of realization and disposition gains as well as a dividend from our interest in Canary
Wharf that did not recur in 2009. The overall occupancy level of our properties was 95.3% at year end, with
an average lease term of seven years with high quality tenants and average in-place rents that are below
comparable average market rents.
These two businesses continue to provide significant stability to our results as they are underpinned by
high quality contractual cash flows. This stability has allowed us to grow the business over the last two
years. In particular, we expanded our infrastructure operations during the year and meaningfully increased
the level of third-party capital allocated to our various fund initiatives, positioning us well for growth as
the economy recovers.
Infrastructure operations contributed $64 million in 2009 compared to $141 million in 2008. Timberlands
results were $49 million lower as we elected to let our trees grow (and essentially build inventory for future
sales at higher prices) rather than selling them at low prices. Transmission results were higher in 2008 due
to favourable operating results and the monetization of Brazilian transmission interests. We expect the
contribution from this sector to increase meaningfully in 2010 following our acquisition of an $8 billion
diversified infrastructure business in late 2009.
Development cash flows increased substantially, to $134 million from $60 million, due to the increased
activity and expansion of our Brazilian residential operations as well as the stabilization of asset values
in our U.S. residential business.
Special situations cash flows were higher in 2008 than in 2009 as we recorded a number of investment
gains during 2008. In addition, we recorded losses from investments in industrial businesses that faced an
extremely challenging operating environment during 2009.
The contribution from cash and financial assets in 2008 reflected gains from investment strategies
initiated to protect our business from adverse economic circumstances such as widening credit spreads.
We eliminated most of these strategies during 2009 as capital markets recovered and, accordingly, did not
benefit from gains of this nature in 2009.
Corporate expenses did not change significantly in the year and include the costs associated with running
our business, including our asset management activities and carrying charges on corporate financial
obligations.
18
BrookField asset management
underlying Values
We are adopting IFRS as our primary basis of presentation in 2010 and, as a result, the carrying values of
most of our tangible assets will be revalued periodically based on fair market values. We believe this will
be an important indicator of the underlying values of the company and will enable us to report to you on
our progress in building value on a total return basis over a very long period of time.
Our invested equity capital was $28.53 per share at year end on an underlying value basis. Underlying
values increased by $1.97 per share during 2009, which together with $0.52 of common share dividends
paid to shareholders, represents a total return of $2.49, or 9.4%.
The following table presents the changes in underlying value of our common equity (i.e., shareholders’
equity excluding preferred shares) during 2009:
as at and For the year ended decemBer 31 (millions, eXcept per share amounts)
total
per share
underlying value, iFrs basis – beginning of year
unrecognized value – beginning of year
underlying value – beginning of year
operating cash flow
less: realization gains
dividends paid
unrealized valuation changes
Foreign currency changes
other
changes in unrecognized value during the year
total changes
underlying value, iFrs basis – end of year
unrecognized value – end of year
$ 13,999
1,500
$
15,499
1,450
(413)
(341)
(1,319)
1,614
(34)
250
1,207
14,956
1,750
24.06
2.50
26.56
2.43
(0.68)
(0.56)
(2.17)
2.66
(0.09)
0.38
1.97
25.65
2.88
underlying value – end of year
impact of a 100 bps change in discount rates on commercial office and renewable power generation values
$ 16,706
+/- $3,700
28.53
$
+/- $ 6.09
The principal contributors to unrealized valuation changes were increases in the discount rates applicable
to our commercial office and renewable power operations, as well as the impact of lower office rents on
projected renewals and energy prices on uncontracted power sales. We provide further details on the
changes in underlying values within each of our major operating platforms in the relevant platform review
section.
Unrecognized values under IFRS include the value relating to assets that cannot be recognized under
IFRS, such as land inventory positions that have been held for many years. We estimate these to total $1.75
billion at year end, or $2.88 per share.
Foreign currency changes relate to revaluation of our net capital invested in non-U.S. dollar terms. For
example, our renewable power, commercial properties and infrastructure operating platforms manage a
substantial amount of capital invested in Canada, Australia and Brazil, and each currency has appreciated
against the U.S. dollar during the year by 16%, 27% and 33%, respectively.
The assumptions used in valuing our tangible assets are based on market conditions during 2009 and at
year end. We believe that these values would be lower on a liquidation basis (which we have no intention of
undertaking) and higher if assessed in the context of normalized economic circumstances.
We provide more details on the assumptions utilized in valuing each of our major asset classes in each of
the operating segment reviews. In aggregate, however, we believe that a 100-basis point decrease in the
discount rates used to value our two largest asset classes, commercial office properties and renewable
power generating facilities, would increase share values by $3.7 billion, or $6.09 per share, for a total value
of $34.62 per share. A corresponding 100-basis point increase would have the opposite effect on share
values.
2009 annual report
19
Balance sheet, liquidity and capitalization
Our conservative approach to financing enables us to concentrate on running our businesses and executing
our strategies. We maintain substantial financial liquidity and finance our operations primarily at the asset
level on a long-term, investment grade, non-recourse basis.
We continued to strengthen our balance sheet, liquidity and capitalization during 2009. We completed
$4.8 billion of financings, including $700 million at the corporate level, to supplement our liquidity and
extend our maturity profile. We also invested $2.4 billion in our business to provide for further growth and
value enhancement.
The following table presents a number of the key metrics we consider in assessing our financial position:
as at decemBer 31 (millions)
assets under management
invested capital 1
corporate debt 2
core liquidity
equity capital 1
– per share
debt-to-capitalization
– deconsolidated
– proportionately consolidated
2009
$ 108,342
22,132
3,372
4,048
16,100
28.53
2008
$ 89,753
20,610
2,959
3,779
14,869
26.56
15%
44%
14%
44%
1. Based on pre-tax underlying values
2. includes subsidiary obligations guaranteed by the corporation
Assets under management measured at underlying values totalled $108 billion at year end, compared
to $90 billion at the end of 2008. Assets under management reflect the scale of our operations and the
total assets we have working for us and our clients to generate cash flows, operating cash flows and
management income.
Invested capital increased by approximately $1.5 billion, or 7%, to $22.1 billion reflecting the increase in
our underlying values. The increase in corporate debt principally reflects the impact of a higher Canadian
dollar on borrowings denominated in that currency, as well as long-term debt issued during the year.
Core liquidity, which represents cash and financial assets and undrawn credit facilities at the Corporation
and our principal operating subsidiaries, was approximately $4.0 billion at year end, compared to
$3.8 billion at the beginning of 2009. This includes $2.6 billion at the corporate level and $1.4 billion at
our principal operating units. We continued to maintain a higher level than prior years as we continue to
pursue a number of investment initiatives, notwithstanding the capital deployed during the year.
Deconsolidated and proportionately consolidated debt-to-total capitalization ratios were relatively
unchanged year-over-year at 15% and 44%, respectively. The average term of our corporate debt is eight
years.
DECONSOLIDATED
PROPORTIONATE CONSOLIDATION
FULL CONSOLIDATION
Shareholders’
Equity 73%
Borrowings
15%
Accounts
Payable and
Other 9%
Capital
Securities 3%
Shareholders’
Equity 36%
Capital
Securities 2%
Shareholders’
Equity 36%
Borrowings
44%
Borrowings
45%
Capital
Securities 2%
Accounts
Payable and Other 18%
Accounts
Payable and Other 17%
20
BrookField asset management
fee revenues and asset management activities
We continued to expand our asset management activities during the year, increasing the number of funds,
third-party capital under management and associated revenues. The following table presents key metrics
relating to our asset management activities over the past three years:
as at and For the years ended decemBer 31 (millions)
Fee and other revenues
Base management
performance returns and transaction fees
property and construction services
third-party capital allocations
unlisted fund and specialty issuers
Fixed income and real estate securities
listed entities
2009
2008
2007
$
$
131
78
209
89
298
$ 14,848
23,787
8,552
$ 47,187
$
$
$
134
38
172
117
289
8,843
18,040
5,046
$
$
$
104
155
259
43
302
7,666
26,237
5,285
$ 31,929
$ 39,188
The contribution from fees increased by $9 million during the year. Performance returns and transaction
fees increased by $40 million which was offset by one-time costs incurred in relation to the expansion of
our property services business.
Capital managed for others increased to $47 billion from $32 billion. Capital allocated by third-party clients
to our unlisted funds and specialty issuers increased by $6.0 billion, reflecting new mandates in property,
infrastructure and restructuring.
Capital in our listed entities totalled $8.6 billion at year end including the capital from co-investors in
partially-owned public companies at underlying value. The increase of $3.5 billion was primarily the result
of public offerings by our North American and Brazilian property companies and the expansion of our
listed infrastructure businesses.
net income
The following table presents net income for the past three years determined in accordance with Canadian
GAAP. We do not utilize net income as a key metric in assessing the performance of our business because,
in our view, it contains measures that may distort the ongoing performance and intrinsic value of the
underlying operations. Nevertheless we recognize the importance of net income as a key measure for
many users and provide a discussion of net income and a reconciliation to operating cash flow on page 55
of this MD&A.
The following table reconciles operating cash flow and gains to net income for the past three years:
For the years ended decemBer 31 (millions, eXcept per share amounts)
operating cash flow and gains
depreciation and other non-cash provisions, net of non-controlling interests
net income
– per share (diluted)
2009
$ 1,450
(996)
454
0.71
$
$
2008
1,423
(774)
649
1.02
$
$
$
2007
1,576
(789)
787
1.24
$
$
$
Items not included in operating cash flow include non-cash items such as depreciation and amortization,
accounting provisions in respect of future tax liabilities and other revaluation items that we do not consider
appropriate to include in operating cash flow. These items are presented net of interests of others in
partially owned business units.
2009 annual report
21
part 2
REVIEW OF OPERATIONS
oPerating Platforms
renewable Power generation
highlights:
• Generated cash flow of $660 million, including $369 million of realization gains, compared to $466 million
in 2008;
• Merged remaining directly-held Canadian renewable facilities into 50%-owned Brookfield Renewable
Power Fund, establishing premier listed renewable energy company and generating $525 million of
liquidity;
• Secured 20-year contract for all previously uncontracted Ontario generation with attractive, fixed rate
indexed pricing to increase stability of cash flows;
• Invested $120 million to expand our operating base through development activities;
• Completed approximately $1.0 billion of unsecured and project financings to extend maturity profile and
optimize returns for shareholders.
The following table presents certain key metrics that we consider in assessing the performance of our
power business:
as at and For the year ended decemBer 31, 2009
realized price
annual generation
long-term average generation
% of contracted (2010) revenue
– total
– long-term contracts
duration of long-term contracts
debt to capitalization
$ 70 Per mwh
15,819 gwh
15,599 gwh
84%
70%
14 years
38%
Business development
During the year we transferred the remainder of our directly held Canadian operations to 50%-owned
Brookfield Renewable Power Fund in two separate transactions. The fund in turn raised C$760 million
in two equity issues, of which we purchased C$380 million to maintain our 50% ownership interest in the
fund. As a result, all of our Canadian renewable energy facilities are now owned by this company and we
generated $525 million of liquidity. At year-end, the fund had an equity market capitalization, including
our 50% interest, of approximately $1.9 billion, making it the premier Canadian listed renewable energy
company. This resulted in $369 million of realization gains, representing 50% of the difference between the
transaction value and our historical book values.
During the fourth quarter we entered into a 20-year power sales agreement with the Ontario Power
Authority for the previously uncontracted output of our Ontario operations, which is approximately 2,300
gigawatt hours annually. The contract has a base price plus an additional amount in respect of on-peak
production, both of which escalate annually on a predetermined basis. We are entitled to retain any
ancillary revenues such as capacity payments and carbon credits. This agreement increased the amount
of generation currently under long-term contract from 51% to approximately 70% and reduces our reliance
on shorter-term contracts, consistent with our objectives that we set a few years ago.
22
BrookField asset management
We invested $120 million during the year to expand our operating base through a number of development
initiatives including two facilities commissioned in Brazil with total capacity of 59 megawatts, and the
expected commissioning of another 26 megawatt facility in Brazil in the first half of 2010. We also continued
to advance development of a 50 megawatt wind energy project in Ontario and have now secured all of the
necessary construction, credit and energy sales agreements to proceed to completion, which is expected
at the end of 2010.
summarized Financial results
The following table summarizes our capital invested in our renewable power operations during 2009 and
2008 and our share of the operating cash flows:
as at and For the years ended decemBer 31 (millions)
hydroelectric generation
other forms of generation
Facilities under development
realization gains
other assets, net
Financial leverage
co-investor interests
Brookfield's net interest
assets under management
underlying value
operating cash Flow
2009
$ 13,222
412
230
—
13,864
1,416
—
—
2008
$ 11,839
346
253
—
12,438
1,355
—
—
2009
$ 13,222
412
230
—
13,864
577
(5,275)
(848)
2008
$ 11,839
346
253
—
12,438
785
(4,240)
(505)
$
2009
705
64
—
369
1,138
(25)
(342)
(111)
$
2008
796
90
—
—
886
(21)
(313)
(86)
$ 15,280
$ 13,793
$
8,318
$
8,478
$
660
$
466
operating results
Variances in our cash flows are primarily the result of changes in the prices that we realize for our power
and the level of water flows, which determines the amount of electricity that we can generate from our
hydroelectric facilities.
The following table presents operating cash flows by principal region during 2009 and 2008:
For the years ended decemBer 31
(millions)
hydroelectric
united states
canada
Brazil
other generation
realization gains
other
$
total
362
184
159
705
64
369
1,138
(25)
$
$
2009
interest
expense
co-investor
interests
145
68
53
266
16
—
282
60
342
$
$
33
69
9
111
—
—
111
—
111
net
total
$
184
47
97
328
48
369
745
(85)
$
397
271
128
796
90
—
886
(21)
2008
interest
expense
co-investor
interests
151
72
36
259
14
—
273
40
313
$
$
29
49
8
86
—
—
86
—
86
$
net
217
150
84
451
76
—
527
(61)
$
466
$ 1,113
$
$
660
$
865
$
The results from our Canadian operations declined by $103 million due to lower generation, lower spot
electricity prices and a lower average currency during the year. In the United States, lower prices were
offset by higher generation levels while Brazil reflects expanded capacity.
2009 annual report
23
Realized Prices – Hydroelectric Generation
The following table illustrates revenues and operating costs for our hydroelectric facilities:
2009
2008
For the years ended decemBer 31
(gigawatt hours and $ millions)
united states
canada
Brazil
total
per mwh
Production
(gwh)
6,881
4,723
2,860
realized
revenues
494
$
289
227
$
operating
costs
132
105
68
$
operating
cash flows
362
184
159
production
(gwh)
6,681
5,277
2,267
realized
revenues
551
$
360
182
14,464
$ 1,010
$
70
$
$
305
21
$
$
705
49
14,225
$ 1,093
$
77
$
operating
costs
154
89
54
$
$
297
21
$
operating
cash Flows
397
271
128
$
$
796
56
The average realized price per unit of electricity sold in 2009 declined to $70 per megawatt hour (“MWh”)
from $77 per MWh in 2008 due to the impact of lower spot prices on the portion of generation that we leave
unhedged so as to manage variability in water flows. In addition, the above average water flows resulted
in a larger amount of unhedged generation which reduced the average realized price, although it did result
in additional revenues overall. This had the opposite effect in 2008 because excess generation was sold at
prices higher than previously contracted sales which increased the average realized price.
Realized prices also include ancillary revenues from selling capacity reserves and from re-contracting
power sales into higher priced markets. Lower realized prices contributed $102 million to the overall
negative variance in the contribution from hydroelectric facilities, of which $28 million was due to a lower
level of ancillary revenues and other power sales initiatives, $34 million of which reflected the impact of
lower spot prices on unhedged electricity sales and the remaining $40 million reflected the impact of
foreign currency fluctuation relative to the U.S. dollar. Operating costs were unchanged on a per unit
basis.
Generation
The following table summarizes generation over the past two years:
For the years ended decemBer 31 (gigawatt hours)
existing capacity
acquisitions – during 2008 and 2009
total hydroelectric operations
wind energy
co-generation and pump storage
total generation
actual production
long-term average
2009
13,128
1,336
14,464
433
922
15,819
2008
13,532
693
14,225
456
1,249
15,930
2009
12,438
1,391
13,829
506
1,264
15,599
2008
12,465
730
13,195
534
1,264
14,993
variance of results
vs. long-term
average
actual
vs. prior year
2009
690
(55)
635
(73)
(342)
220
2008
1,067
(37)
1,030
(78)
(15)
937
2009
(404)
643
239
(23)
(327)
(111)
Hydroelectric generation was 239 gigawatt hours above the production levels of 2008 as the overall base
of generation grew in the year through acquisition and development. Generation in 2008 exceeded long-
term average by 8% compared to 5% in 2009, although storage levels were 13% above usual levels at year
end. The increased storage levels reflect our decision to shift production into the first quarter of 2010 in
anticipation of higher prices. The higher generation levels impacted operating cash flows by $11 million
over the year, compared to 2008.
The following table presents the capital invested in our hydroelectric facilities by major geographic region
based on underlying values:
as at decemBer 31, 2009
(millions)
hydroelectric
united states
canada
Brazil
2009
2008
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
$
6,044
5,069
2,109
$
2,035
1,475
621
$
$ 13,222
$
4,131
$
158
630
60
848
$
3,851
2,964
1,428
$
6,286
4,248
1,305
$
2,056
1,150
379
$
$
8,243
$ 11,839
$
3,585
$
163
297
45
505
$
4,067
2,801
881
$
7,749
24
BrookField asset management
non-hydroelectric generation
Cash flows from our non-hydro facilities, as shown in the following table, decreased due to lower generation
levels at our pump storage and gas fired facilities which was in response to lower price differentials
between peak and off-peak pricing and the expiry of favourable gas supply contracts.
2009
2008
For the years ended decemBer 31
(gigawatt hours and $ millions)
co-generation and pump storage
wind energy
total
per mwh
actual
Production
922
433
1,355
realized
revenues
110
$
36
$
$
146
108
operating
costs
76
6
$
operating
cash flows
34
30
$
actual
production
1,249
456
$
$
82
61
$
$
64
47
1,705
realized
revenues
156
$
40
$
$
196
115
operating
costs
98
8
$
operating
cash Flows
58
32
$
$
$
106
62
$
$
90
53
underlying value
The underlying value of our power generation operations was $8.3 billion as at December 31, 2009 after
deducting borrowings and minority interests. The following table presents the major changes in underlying
value during 2009:
as at and For the year ended decemBer 31, 2009 (millions)
underlying value – beginning of year
operating cash flow
less: realization gains
unrealized valuation change
capital distributed
Foreign exchange
working capital and other
underlying value – end of year
$ 8,478
660
(369)
(188)
(962)
795
(96)
$ 8,318
The key valuation metrics of our hydro and wind generating facilities at the end of 2009 and 2008 are set
out in the following tables:
as at decemBer 31
discount rate
terminal capitalization rate
exit date
united states
canada
Brazil
2009
8.2%
8.4%
2029
2008
8.0%
8.2%
2028
2009
7.3%
7.9%
2029
2008
7.7%
8.1%
2028
2009
11.0%
11.0%
2029
2008
10.4%
10.4%
2028
The valuations are impacted primarily by the discount rate and long-term power prices. A 100-basis point
change in the discount and terminal capitalization rates and a $10.00 change in long-term power prices
will impact the value of our net invested capital by $2.2 billion and $0.7 billion, respectively.
contract profile
Approximately 84% of our 2010 long-term average generation is hedged from fluctuating energy prices
which provides us with significant certainty in respect of energy revenues, notwithstanding variable water
levels.
2009 annual report
25
The following table sets out the profile of our contracts over the next five years from our existing facilities,
assuming long-term average hydrology:
years ended december 31
2010
2011
2012
2013
2014
generation (gwh)
contracted
power sales agreements
hydro
wind
gas and other
Financial contracts
total contracted
uncontracted
long-term average generation
contracted generation – as at december 31, 2009
% of total generation
revenue ($millions)
price ($/mwh)
9,967
535
397
10,899
2,216
13,115
2,490
15,605
84%
1,075
82
9,599
685
396
10,680
—
10,680
5,213
15,893
67%
887
83
8,839
685
398
9,922
—
9,922
5,999
8,604
685
398
9,687
—
9,687
6,225
8,603
685
134
9,422
—
9,422
6,245
15,921
15,912
15,667
62%
852
86
61%
845
87
60%
820
87
We increased the percentage of expected power generation sold under contract in 2010 from 70% to
84% and by approximately 15% in the years 2011 through 2014. This was due primarily to the OPA sales
agreement, which covers approximately 2,300 GWh of expected annual production from our Ontario
facilities and represents 15% of our expected overall generation. The average selling price for contracted
power increases to $87 per megawatt hour from $82 per megawatt hour over the next five years, reflecting
contractual step-ups in long duration contracts with locked-in prices and the expiry of lower priced
contracts during the period as well as the new long-term contract with Ontario Power.
Financing
We completed $1.3 billion of financings during the year, including $663 million of corporate unsecured
financings with terms of three to seven years and $490 million of project level financings. These extended
the average term of financing to ten years. The debt to capitalization based on underlying values was
38%. The corporate unsecured notes bear interest at an average rate of 6.3%, have an average term of
seven years and are rated BBB by S&P, BBB (high) by DBRS and BBB by Fitch.
Our average cost of debt was 7.2% at year-end, compared to 6.9% at the end of 2008. With the exception of
bank borrowings and a $125 million project level financing, all of our North American financings are fixed
rate. Interest rates on our Brazilian financings are all at floating rates.
The maturity profile of borrowings within our power operations on a proportionate basis is set out in the
following table:
proportionate
consolidated
as at decemBer 31, 2009 (millions)
2010
2011
2012
2013 & after
total
total
unsecured
Bank facilities
term debt
project specific
canada
united states
Brazil
% of total outstanding
$
$
28
—
201
125
41
395
9%
$
$
122
—
18
34
43
217
5%
$
$
—
380
122
319
58
879
$
—
614
$
150
994
$
150
994
515
1,242
461
856
1,720
603
1,475
2,035
621
$
2,832
$
4,323
$
5,275
20%
66%
100%
100%
The 2010 project maturities include a $95 million first mortgage on a New England facility put in place
three years ago, and $200 million backed by our Canadian facilities which we refinanced in early 2010 with
a C$250 million perpetual preferred share issue. Maturities in 2012 include a C$400 million public bond
that we expect to refinance in the normal course given the cash flows and ratings profile of the business.
26
BrookField asset management
commercial Properties
highlights:
• Generated cash flow of $356 million versus $297 million in 2008;
• Leased 4.6 million square feet in North America in 2009, approximately twice the amount scheduled to
expire at an average rate of $21 per square feet, replacing expiring leases with an average rate of $17 per
square foot;
• Global occupancy level of 95.3% (2008 – 96.9%);
• Completed $2.8 billion of financings, including common and preferred equity, corporate debt and
mortgages;
• Disposed of non-core properties for proceeds of $272 million to provide capital for redeployment; and
• Established $5 billion investment consortium to invest in turnaround real estate investments.
The following table presents certain key metrics that we consider important in assessing the performance
of our commercial properties operations:
as at decemBer 31, 2009
occupancy
average lease term
average “in-place” rental rate
average “market” rental rate
average financing term
debt to capitalization
95%
7.2 years
$ 27 / sq. ft.
$ 30 / sq. ft.
4 years
57%
Business development
We leased 4.6 million square feet in our core North American portfolio during 2009 at an average net rent of
$21.41 per square foot, representing a 24% premium over the expiring leases, leading to increased in-place
rent. We continue to manage our portfolios and tenant relationships on a proactive basis which can lead to
opportunities to re-lease space for increased yields while minimizing vacancies.
In our commercial office development activities, we concentrated our efforts and capital on properties
that were well leased and well advanced in the development process. We completed seven properties in
Australia, United States and Canada at a total cost of $755 million. We have one building under construction
in Perth that is 82% pre-leased to BHP Billiton, the world’s largest mining company. Overall, we added
2.1 million square feet to our portfolio and the occupancy of these properties upon completion totalled
92%. On a full year basis, these buildings should add $53 million of operating income to our earnings.
We recapitalized a portfolio of Australian office properties owned within a managed fund and increased
our interest from 22% to 68%. This portfolio, which encompasses approximately one million square feet and
is 99% leased, is now included in our operating portfolio.
Financings completed during the year totalled $2.8 billion, including $785 million of common and preferred
equity raised from minority shareholders in our North American operations. These actions significantly
strengthened the capitalization and liquidity of these operations and position us well to pursue investment
opportunities and manage forthcoming debt maturities.
2009 annual report
27
summarized Financial results
The following table summarizes the capital invested by us in our commercial properties operations based
on underlying values and our share of the operating cash flows:
as at and For the years ended decemBer 31 (millions)
2009
2008
2009
2008
2009
2008
assets under management
underlying value
net operating cash Flow
office properties
north america
australia
europe
realization gains
working capital
mortgage debt
subsidiary debt
capital securities
co-investor interests
development properties
retail properties
Brookfield’s net interest
$ 19,477
3,845
1,062
—
24,384
2,336
—
—
—
—
26,720
2,489
3,224
$ 32,433
$ 20,479
3,889
919
—
25,287
1,702
—
—
—
—
26,989
2,092
2,709
$ 31,790
$ 16,932
2,699
1,062
—
20,693
1,105
(13,169)
(259)
(1,009)
(3,857)1
3,504
791
546
$ 19,124
1,418
919
—
21,461
418
(12,122)
(267)
(882)
(4,937)1
3,671
470
561
$ 1,332
186
31
89
1,638
(71)
(651)
(35)
(53)
(496)2
332
—
24
$ 1,334
170
69
151
1,724
(23)
(793)
(62)
(57)
(485)2
304
—
(7)
$ 4,841
$ 4,702
$
356
$
297
1.
2.
includes $415 million (2008 – $711 million) of co-investor interests that are classified as liabilities for accounting purposes
includes $47 million (2008 – $23 million) attributable to co-investor interests classified as interest expense for accounting purposes
commercial office properties
Operating Cash Flows
Variances in our cash flows are primarily the result of changes in contracted rental rates, occupancy
levels and financing costs, each of which is described in more detail below.
The following table sets out the variances in operating cash flows:
For the years ended decemBer 31 (millions)
existing properties (assuming no change in foreign exchange rates)
2009
2008
variance
united states
canada
australasia
united kingdom
developed or sold properties
dividend from canary wharf
realization gains and other
impact of current year change in foreign exchange rates
total operating cash flow
interest expense and other
co-investor interests
impact of current year change in foreign exchange rates
net operating cash flow
$
$ 1,130
216
189
37
1,572
18
—
125
(33)
1,682
(923)
(449)
22
1,114
208
170
38
1,530
12
31
237
—
1,810
(1,044)
(462)
—
$
16
8
19
(1)
42
6
(31)
(112)
(33)
(128)
121
13
22
$
332
$
304
$
28
Cash flow from existing properties prior to changes in foreign exchange rates and asset additions and
dispositions increased by $35 million or 2% during the year which is to be expected given the stable nature
of our long-term lease portfolio and the high credit quality of our tenants.
Disposition gains occurred largely in our North American portfolio. In 2009, we sold two properties in
Washington D.C. in the fourth quarter realizing $50 million in gains ($25 million net of co-investor interests)
and in 2008 we realized a $164 million ($80 million net of co-investor interests) gain from the sale of a
partial interest in the Canada Trust office property in Toronto.
Interest expense decreased by $121 million over 2008 due largely to the impact of lower interest rates on
floating rate debt in both North America and Australia. We continue to look for opportunities to lock in
lower short-term rates in respect of future financings.
28
BrookField asset management
The following table shows the sources of operating cash flow by geographic region:
For the years ended
decemBer 31 (millions)
north america
u.s. core office fund
realization gains
australasia
europe
dividend from canary wharf
unallocated costs
2009
total
interest
expense
co-investor
interests
$
$
757
575
89
193
32
—
36
$ 1,682
$
384
221
—
95
38
—
115
853
$
$
176
2801
45
19
—
—
(23)
$
497
$
net
197
74
44
79
(6)
—
(56)
332
2008
interest
expense
co-investor
interests
$
total
781
553
151
164
38
31
92
$
$
420
310
—
148
34
—
109
$ 1,810
$ 1,021
$
182
1821
76
41
—
—
4
485
$
$
net
179
61
75
(25)
4
31
(21)
304
1.
includes $47 million (2008 – $23 million) attributable to co-investor interests that are classified as interest expense for accounting purposes
Financial Profile
The following table presents capital invested in our office properties by region:
as at decemBer 31 (millions)
office properties
north america
u.s. core office Fund
australasia
europe
2009
2008
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
$ 11,553
7,147
3,770
1,103
$ 7,438
5,457
2,653
664
$ 2,150
1,2441
463
—
$ 1,965
446
654
439
$ 11,565
8,234
2,534
932
$ 7,447
5,494
1,518
438
$ 2,073
2,2001
424
—
$ 2,045
540
592
494
$ 23,573
$ 16,212
$ 3,857
$ 3,504
$ 23,265
$ 14,897
$ 4,697
$ 3,671
1.
includes $415 million (2008 – $711 million) of co-investor interests that are classified as liabilities for accounting purposes
Consolidated office property assets increased to $23.6 billion from $23.3 billion. Consolidated assets
and liabilities within our Canadian and Australian operations increased due to higher currency exchange
rates and the addition of four properties in Australia previously included in commercial developments that
reached practical completion during the year. In addition, net invested capital increased in Australia due
to reduced debt levels. This was offset by a reduction in capital in North America due to the monetization
of two Washington properties in the fourth quarter of 2009.
During the year we completed $2.1 billion of financings to refinance existing properties. In North America,
core office property debt at December 31, 2009 had an average interest rate of 4.8% (December 31, 2008 –
5.1%) and an average term to maturity of four years. In Australia, core office property debt had an average
interest rate of 5.6% (December 31, 2008 – 6.5%) and an average term of two years.
Underlying Value
The following table illustrates the changes in underlying value of our commercial office interests during
the year:
as at and For the year ended decemBer 31, 2009 (millions)
underlying value – beginning of year
operating cash flow
less: realization gains
unrealized valuation change
capital (distributed)/contributed
Foreign exchange
working capital and other
underlying value – end of year
total
$ 3,671
332
(44)
(1,073)
184
367
67
$ 3,504
2009 annual report
29
The key valuation metrics of our commercial office properties at the end of 2009 and 2008 are set out as
follows:
as at decemBer 31
discount rate
terminal capitalization rate
exit date
united states
canada
australia
united kingdom
2009
8.8%
6.9%
2019
2008
8.6%
7.0%
2018
2009
7.4%
6.7%
2019
2008
7.3%
6.6%
2018
2009
9.3%
7.8%
2019
2008
8.4%
6.8%
2018
2009
9.6%
n/a
n/a
2008
9.6%
n/a
n/a
The valuations are most sensitive to changes in the discount rate. A 100-basis point change in the discount
rate and terminal capitalization rate results in an aggregate $1.5 billion change in our common equity
value after reflecting the interests of minority shareholders.
Leasing Profile
Our total portfolio worldwide occupancy rate in our office properties at the end of 2009 decreased to 95.3%
compared to 96.9% at December 31, 2008. The average term of the leases was seven years, unchanged from
the prior year.
as at decemBer 31, 2009
north american markets
united states
canada
australia
united kingdom
total/average
percentage of total
%
leased
average
term
net rental
area
currently
available
2010
2011
2012
2013
2014
2015
2016+
expiring leases (000’s sq. ft.)
94%
99%
97%
100%
95%
7.1
6.8
7.5
17.1
7.2
42,765
16,561
8,882
556
68,764
100%
2,766
229
248
—
1,394
851
344
—
2,723
1,284
567
—
3,546
1,154
361
—
7,145
3,425
327
—
2,913
512
708
—
4,034 18,244
6,489
2,617
5,507
820
556
—
3,243
2,589
4,574
5,061 10,897
4,133
7,471
30,796
5%
4%
6%
7%
16%
6%
11%
45%
As at December 31, 2009, the average term of our in-place leases in North America was seven years.
Annual lease expiries average 9% over the next four years with only 4% expiring in 2010. Average in-place
net rents across the North American portfolio have increased to $24 per square foot from $23 at the end
of last year, and represent a discount of approximately 15% to the average market rent of $27 per square
foot. This discount provides greater assurance that we will be able to maintain or increase our net rental
income in the coming years as we did in the current year.
Average in-place rents in our Australian portfolio are A$47 per square foot, approximately 13% below market
rents, and 12% higher than the average in-place rent of A$42 per square foot at the end of 2008. During the
year we leased 0.2 million square feet of space at higher rates than the expiring leases. The occupancy rate
across the portfolio remains high at 97% and the weighted average lease term is approximately eight years.
Our fifteen largest tenants have a weighted average lease life of nine years and account for approximately
70% of our leaseable area. These tenants have an average rating profile of A+.
The high quality of our properties has enabled us to sign long-term leases with high quality tenants that
have strong credit profiles. The contractual terms of these leases provide a high level of assurance that
rents will be paid as expected unless a bankruptcy event occurs. Notwithstanding the recent economic
turmoil, only 700,000 square feet, representing approximately 1% of our net rentable area, were returned to
us as a result of credit events, and we subsequently re-leased approximately 90% of this space at equivalent
or better rents. Furthermore, the competitive positions of our properties in their respective markets enable
us to attract new tenants from lower quality buildings to fill any excess in vacant space and we are in
active negotiations to lease the remainder of the space returned.
With the exception of 2013, where we have a large lease maturity with Bank of America/Merrill Lynch, no
more than 7% of our total net rental area expires in any year prior to 2015 and we expect to roll over most
of this space with the existing tenants and do not anticipate undue difficulty locating replacement tenants
for the balance. The high quality and location of our buildings give us a high degree of confidence in this
regard. Our net exposure to Bank of America/Merrill Lynch space is 1.6 million square feet, or 0.8 million
square feet when reflecting our 50% ownership interest in our North American property operations. We are
engaged in active discussion with Bank of America/Merrill Lynch and the sub-lease tenants to secure new
leasing arrangements for this space well in advance of the 2013 maturity.
30
BrookField asset management
Financing
We raised a total of $2.8 billion in financings and property dispositions during 2009, including extensions
and renewals and excluding capital contributed by the Corporation:
For the year ended decemBer 31, 2009 (millions)
corporate bank facilities
mortgages
preferred shares
common shares
$
751
1,273
265
520
$ 2,809
We hold substantial liquidity within these operations, principally at our North American property subsidiary.
We finance our commercial office operations primarily with non-recourse mortgages and equity from our
co-investors. We supplement this with appropriate levels of subsidiary borrowings and capital securities
(which are preferred shares classified as liabilities for accounting purposes) in order to create a levelized
capitalization profile to offset mortgage amortization.
The weighted average rates on our borrowings, inclusive of capital securities, by principal operating region
are as follows:
as at and For the years ended decemBer 31 (millions)
north america
australia
united kingdom
average
Borrowings
$ 12,179
1,614
672
2009
interest
expense
605
$
95
38
yield
5%
6%
6%
average
Borrowings
$ 12,931
1,635
583
2008
$
interest
expense
730
148
34
$ 14,465
$
738
5%
$ 15,149
$
912
yield
6%
6%
6%
6%
Excluding our U.S. Core Fund, fixed rate financings comprise approximately 53% of our North American
borrowings. The Australian financing market consists primarily of shorter-dated floating rate mortgages,
however we are exploring ways to lock in interest costs at attractive prices.
The following table presents the maturity profile of our commercial office portfolio on a proportionate
basis:
proportionate
consolidated
2012
2013 & after
total
total
as at decemBer 31, 2009 (millions)
subsidiary level
north america
united kingdom
asset specific
north america
australia
united kingdom
% of total outstanding
2010
49
—
49
41
566
—
607
656
10%
$
$
$
2011
—
159
159
1,146
405
—
1,551
$
1,710
$
27%
$
—
—
—
151
678
—
829
829
13%
$
—
—
—
2,470
309
459
3,238
$
49
159
208
3,808
1,958
459
6,225
$
100
159
259
11,1671
1,958
459
13,584
$
3,238
$
6,433
$ 13,843
50%
100%
100%
1.
includes $415 million of liabilities that are classified as co-investor interests in our segmented disclosures.
2009 annual report
31
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 continue to refinance
most of these maturities in the normal course at similar or higher levels.
We have minimal financing requirements in North America, Europe and Brazil in 2010. We have very
few maturities in our North American operations over the next three years relative to the scale of our
business, with the exception of $3.7 billion of aggregate maturities within our U.S. Core Fund that mature
in October 2011. Our proportionate share of these borrowings is $855 million, taking into consideration
the interests of our investment partners, and consists of $648 million of property-specific mortgages and
$210 million secured by a pool of commercial properties. Operating cash flows from the assets managed
by us within the portfolio have improved by 37% based on in-place leases since acquiring the portfolio,
which have improved the credit metrics of the portfolio. Nevertheless, our business plans permit us to
deleverage the portfolio between now and maturity and we raised considerable equity capital with this in
mind.
In Australia, we have three asset-specific financings coming due in 2010 which are all backed by high quality
buildings which have an average lease duration of eight years and 99% occupancy levels. Accordingly,
although the Australian property market typically utilizes shorter duration financing, we are comfortable
that we can roll over all the debt in the normal course and on a long-term basis where possible. We also
have a subsidiary borrowing of $588 million that matures in 2010 within our Australian operations which
we are in the process of refinancing at a reduced level as part of establishing a long-term capitalization
for this business.
commercial office development properties
The following table presents capital invested in our commercial office development activities by region
based on underlying values:
as at decemBer 31
north america
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
2009
2008
Bay adelaide centre, toronto
ninth avenue, new york
other
australia
$
macquarie tower
city square
other
$
692
286
487
—
247
777
$
367
227
—
—
186
481
$
163
30
244
—
—
—
$ 2,489
$ 1,261
$
437
$
162
29
243
—
61
296
791
$
510
269
295
230
94
694
$
226
227
60
173
75
580
$
$ 142
21
118
—
—
—
$ 2,092
$ 1,341
$ 281
$
142
21
117
57
19
114
470
We opened Bay Adelaide Centre for occupancy during the year and it is currently 74% leased. All major
construction work has been completed ahead of schedule and under budget and the property will be
transferred into our operating portfolio in the first quarter of 2010.
We own development rights on Ninth Avenue between 31st Street and 33rd Street in New York City which
is entitled for 5.4 million square feet of commercial office space. We will commence construction of this
property once the necessary pre-leasing has occurred, similar to our strategy with other commercial
developments.
In Australia, we completed the Macquarie Tower and three other properties during the year and transferred
them to our operating portfolios. The buildings are 100% leased in aggregate. We continue development
of the City Square project in Perth, which has a total projected construction cost of A$864 million, is 82%
pre-leased to BHP Billiton and is scheduled for completion in August 2012.
Property-specific financing includes debt secured by Bay Adelaide Centre in North America as well as debt
associated with developments in Australia and the United Kingdom, all of which we expect to refinance on
a long-term basis once the properties are fully completed.
32
BrookField asset management
retail operations
as at and For the years ended decemBer 31 (millions)
retail properties
working capital/operating costs
Borrowings/interest expense
co-investor interests
invested capital
operating cash Flow
2009
$ 2,774
11
(1,580)
(659)
$
2008
2,329
(177)
(1,186)
(405)
$
2009
172
(19)
(104)
(25)
$
2008
152
(15)
(155)
11
$
546
$
561
$
24
$
(7)
Operating cash flows prior to debt service and co-investor interests increased to $172 million in 2009 from
$152 million in 2008. We benefitted from reduced debt levels, lower short-term interest rates and currency
appreciation. Many of the properties continue to undergo significant redevelopment, which continued to
reduce net rent and increased costs during the year, but positions the portfolio well for cash flow growth
going forward.
The following table presents the capital we have invested in our retail operations based on underlying
values:
2009
2008
as at decemBer 31 (millions)
Brazil
united kingdom
australia
$
consolidated
assets
2,275
305
644
consolidated
liabilities
1,406
$
256
357
co-investor
interests
659
$
—
—
net invested
capital
210
49
287
$
$
consolidated
assets
1,713
389
607
consolidated
liabilities
1,168
$
257
318
co-investor
interests
405
$
—
—
$
net invested
capital
140
132
289
$
3,224
$
2,019
$
659
$
546
$
2,709
$
1,743
$
405
$
561
Consolidated assets and net invested capital increased during the year due to higher currency rates across
all jurisdictions. We also invested an additional $43 million of capital in our Brazilian business. The average
duration of financing on our properties is 5 years and $383 million as a proportionate share matures in 2010
and 2011.
2009 annual report
33
infrastructure
highlights:
• Acquired $8 billion of global infrastructure assets focused on the utility and transportation sectors;
• Funded the acquisition with $1.8 billion of equity capital, of which Brookfield’s share totalled approximately
$400 million;
• Established three private infrastructure funds with $1.9 billion of total commitments;
• Completed sale of Brazil transmission interests for $275 million and a 32% return;
• Secured mandate to build $500 million transmission project in Texas;
• Completed $0.5 billion of debt financings; and
• Produced $64 million of operating cash flow despite challenging conditions in our timber operations.
Business development
We acquired an $8 billion portfolio of global infrastructure assets consisting primarily of utility and
transportation businesses which significantly expanded the breadth of our operations and assets under
management in this segment (the “Prime Acquisition”). The acquisition was completed by our principal
infrastructure entity, Brookfield Infrastructure, and consists of a 40% interest in the restructured
Australian listed entity named Prime Infrastructure that owns most of the acquired portfolio, as well as
a direct 49% interest in a major Australian coal terminal and a 100% interest in a UK port business. We
funded the acquisition with $1.8 billion of equity, of which $0.8 billion was funded by other shareholders of
Prime, $0.6 billion was funded by other investors in Brookfield Infrastructure, and $0.4 billion was funded
by us in the form of additional investment in Brookfield Infrastructure.
This increases our net investment in infrastructure by $0.4 billion, increases the co-investor equity in
Brookfield Infrastructure on which we earn management fees, and expands our operating base significantly.
The transaction closed in mid-November therefore the contribution to cash flows in 2009 was modest. The
acquired businesses are largely regulated, with the effect that approximately 80% of our operating cash
flows are now generated from businesses that are regulated or underpinned by long-term contracts.
We were awarded a major contract to construct a $500 million transmission project in Texas, together with
our joint venture partner. Construction is scheduled to commence in late 2010 and the project is expected
to start contributing to cash flow in early 2013.
We established three unlisted infrastructure funds during 2009 with total capital commitments of
$1.9 billion, including $0.5 billion from Brookfield. They include a $400 million fund focused on Colombia
and our $460 million Brazil Agriland fund, as well as a larger fund focused more broadly on the Americas.
summarized Financial results
The following table summarizes the capital we have invested in our infrastructure operations as well as
our share of the operating cash flows:
as at and For the years ended decemBer 31 (millions)
utilities
transportation
timber
assets under management
underlying value
net operating cash Flow
2009
$ 7,097
4,027
4,264
$ 15,388
$
2008
3,083
—
4,239
$
2009
443
290
813
$
2008
449
—
725
$
$
7,322
$ 1,546
$
1,174
$
2009
47
5
12
64
2008
80
—
61
141
$
$
The consolidated debt to capitalization of this business is approximately 70% and the average term to
maturity is seven years. Our proportionate share of maturities over the next three years is $36 million.
34
BrookField asset management
utilities
The following table presents the capital invested by us in our utility operations based on underlying values:
2009
2008
as at decemBer 31 (millions)
north america
south america
australasia/europe
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
$
$
413
360
219
992
$
$
123
—
—
123
$
$
155
140
131
426
$
$
135
220
88
443
$
$
382
610
—
992
$
$
256
22
—
278
$
$
(3)
268
—
265
$
$
129
320
—
449
Consolidated assets and net invested capital held within our utilities operations increased during the year
as the sale of our Brazilian transmission lines was offset by the acquisition of interests in the following
two operations through the Prime acquisition. Co-investor interests represent the interests of others in
Brookfield Infrastructure, through which most of these businesses are owned.
Natural Gas Pipeline Company of America (“NGPL”): A natural gas transmission pipeline and storage
system in the United States, with over 15,500 kilometres of pipeline and approximately 270 billion cubic
feet of storage capacity. The system provides gas transportation and storage to approximately 60% of the
Chicago and Northern Indiana market.
Powerco: New Zealand’s second largest provider of regulated electricity and gas distribution services.
Powerco accounts for approximately 40% of the gas and approximately 16% of the electricity connections
throughout New Zealand.
International Energy Group (“IEG”): The second largest independent provider of “last-mile” gas and
electricity connection services in the UK and the sole provider of natural gas and liquid propane gas in the
Channel Islands and the Isle of Man.
Tasmania Gas Network (“TGN”): The sole provider of gas distribution services in Tasmania, Australia. TGN
owns approximately 730 kilometres of distribution pipeline and services approximately 6,500 customers
throughout Tasmania.
We continue to hold 100% of our North American transmission business, although we sold the distribution
business during 2009. We also continue to hold our 28% interest in our Chilean transmission business, of
which 18% is held by Brookfield Infrastructure.
The following table presents operating cash flows for our utilities business:
For the years ended decemBer 31
(millions)
north america
south america
australasia/europe
south america – sold in 2009
2009
2008
net
operating
income
interest
expense
co-investor
interests
net
operating
cash flow
net operating
income
interest
expense
co-investor
interests
net
operating
cash Flow
$
$
32
55
7
94
15
$
109
$
18
—
—
18
11
29
$
$
5
21
5
31
2
33
$
$
9
34
2
45
2
47
$
$
38
56
—
94
91
$
185
$
28
—
—
28
8
36
$
$ —
19
—
19
50
$
69
$
10
37
—
47
33
80
Our utilities operations generate stable revenues that are largely governed by regulated frameworks and
long-term contracts. Accordingly, we expect this segment to produce consistent revenue and margins
that should increase with inflation and other factors such as operational improvements. We also expect
to achieve continued growth in revenues and income by investing additional capital into our existing
operations.
Utilities operations, excluding the results of Brazil transmission interests sold at the beginning of 2009,
contributed $45 million of net operating cash flow, after deducting carrying charges and co-investor
interests, compared with $47 million during 2008. We exercised our rights to sell the Brazilian transmission
interests in 2008 pursuant to our original purchase agreement for an inflation adjusted return of 14.8%, and
completed the transaction in mid 2009 for total proceeds of approximately $275 million.
2009 annual report
35
The contribution from our Chilean transmission operations was $34 million in 2009 and $37 million in 2008.
The decrease reflects $5 million of non-recurring revenue in 2008 resulting from a retroactive rate base
increase, offset by the ongoing benefit of inflation indexation and growth capital expenditures which earn
regulated returns. After adjusting for non-recurring items, the operating margins were 81% which is in line
with historical levels.
Net operating cash flows in our North America operations declined as we sold our distribution business in
the third quarter of 2009. The transmission business performed as expected.
North American and Australasia results reflect only six weeks’ contribution from NGPL and Powerco.
The valuation of our transmission operations is based on an independent valuation of our Chilean
transmission business and an internal valuation of our Northern Ontario operations based on the regulated
rate base. In valuing our Chilean transmission business, key assumptions included a weighted average real
discount rate and terminal capitalization rates of 8.1% and a terminal valuation date of 2023. The valuation
of interests in NGPL and Powerco are based on their November 2009 acquisition price.
transportation
The following table presents the capital invested by us in our transportation operations, based on
underlying values:
2009
2008
as at decemBer 31 (millions)
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
australasia
europe
$
469
849
$
1,318
$
$
1
593
594
$
$
251
183
434
$
$
217
73
290
$
$
—
—
—
$
$
—
—
—
$
$
—
—
—
$
$
—
—
—
Our transportation segment was established in November 2009 as part of the previously described Prime
Acquisition and is held through 40% owned Brookfield Infrastructure. Co-investor interests in the foregoing
table represent the 60% interest in these businesses held by our co-investors in Brookfield Infrastructure.
It is comprised of the following investments:
australasia:
Dalrymple Bay Coal Terminal (DBCT”): One of the world’s largest coal terminals, accounting for 21% of global
metallurgical seaborne coal exports. DBCT provides access to the export market for the Bowen Basin in
Queensland, Australia, which is one of the lowest cost sources of coal in the world. DBCT is owned up
to 49% by Brookfield Infrastructure and 51% by Prime. Consolidated assets includes our proportionate
interest in this investment, which is equity accounted.
WestNet Rail: Leases and operates approximately 5,100 kilometres of network track and related infrastruc-
ture in South Western Australia. WestNet Rail provides exclusive rail access to market for minerals and
grain businesses that underpin Western Australia’s economy. Prime owns 100% of WestNet which we have
included in our proportionate interest in this investment in consolidated assets.
europe:
PD Ports: The third largest port operator in the UK by volume. Mainly operating as the statutory harbour
authority out of the Port of Tees and Hartlepool in the north of the UK. We acquired 100% of PD Ports and
therefore include the associated balances and results on a consolidated basis.
Euroports: A portfolio of seven port concession businesses in key strategic locations throughout Europe
and in China, handling over 70 million tonnes per year. We own 24% interest in Euroports through Prime.
Accordingly, assets include our pro-rata interest in the investment, which is equity accounted.
Underlying values for this segment are based on the November 2009 acquisition prices.
36
BrookField asset management
timber
The following table sets out the assets and liabilities deployed in our Timber segment based on underlying
values:
as at decemBer 31 (millions)
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
2009
2008
north america
western
eastern
Brazil
working capital
$
3,092
295
161
716
$
1,477
78
7
685
$
1,010
72
122
—
$
$
4,264
$
2,247
$
1,204
$
605
145
32
31
813
$
3,187
202
103
747
$
1,478
66
6
708
$
1,195
61
—
—
$
$
4,239
$
2,258
$
1,256
$
514
75
97
39
725
Consolidated assets held within our timber operations and related borrowing levels were relatively
unchanged during the year. We consolidated the results of all these businesses. Net invested capital rose
as we increased our ownership in the U.S. Pacific Northwest operations in the first quarter of 2009. This
was offset by the sale of a portion of our interest in Brazil timberlands in the second quarter of 2009 to our
newly established Brazil Timber Fund. Co-investor interests reflect direct interests of others in our timber
operations as well as in Brookfield Infrastructure, through which most of these businesses are held.
For the years ended
decemBer 31 (millions)
net operating
income
interest
expense
co-investor
interests
net operating
cash flow
net operating
income
interest
expense
co-investor
interests
net operating
cash Flow
2009
2008
north america
western
eastern
Brazil
$
$
67
13
9
89
$
$
85
3
—
88
$
$
(15)
4
—
(11)
$
$
(3)
6
9
12
$
$
141
15
8
164
$
$
86
3
—
89
$
$
11
3
—
14
$
$
44
9
8
61
Net operating cash flow decreased from $61 million to $12 million in 2009 due to weak pricing and reduced
harvest levels. The current pricing environment is related to the slowdown in the U.S. homebuilding
industry, which has resulted in lower demand for premium species such as high quality Douglas-fir.
Realized prices across our operations declined by approximately 17% while operating costs per unit
were higher due to product mix and to a lesser extent, higher fuel costs. The average realized price for
Douglas-fir decreased by 11% compared to the prior year.
We continue to exploit the flexibility inherent in timber management which allows us to defer harvesting
until prices recover and also allows the trees to continue to grow. Our Western North American operations
were able to increase exports to Asia, which provides higher margins. We sold 5.8 million cubic metres
of timber during 2009, compared to 6.8 million cubic metres in 2008, with all of the decrease occurring in
Western North America, primarily reflecting reduced harvest levels to preserve value.
Interest costs were in line with the prior year while co-investor interests represented a recovery due
to lower cash flows. The average interest rate on Timber borrowings is 5% and the overall duration of
borrowings is seven years.
We are beginning to see some positive signs of recovery. Prices have improved from the lows experienced
in the second quarter of 2009 as strong supply management has resulted in very low inventories of saw logs
and finished wood products. In addition, the decline in U.S. housing stocks appears to have slowed down
in pace as the inventory of new and foreclosed homes continues to decline.
The valuation of our timberlands is based on independent appraisals. Key assumptions include a weighted
average discount and terminal capitalization rate of 6.5% and an average terminal valuation date of
72 years. Timber prices were based on a combination of forward prices available in the market and the
price forecasts of each appraisal firm.
2009 annual report
37
development activities
Development activities include the following:
• “Residential Development” activities, which involve the development and sale of residential properties.
• “Opportunity Investment” activities throughout, which we acquire undervalued properties with the
objective of increasing their value over a three to four year horizon through leasing, re-development or
other activities.
• “Development Lands” which represent land positions, air rights and other entitlements for development
activities in the future, typically three years or longer. In addition, we also develop agricultural lands in
Brazil.
We also develop power generation facilities, commercial office and retail properties and ancillary land
holdings within our timber operations, the results of which are included in the analysis of each respective
operating platform.
highlights:
• Significantly expanded our Brazilian residential business through acquisitions and equity issues and
achieved record sales and operating cash flows;
• Achieved strong sales in our Alberta residential business; and
• Acquired a 16 property portfolio in North America for repositioning in our Opportunity Fund.
Business development
We significantly expanded our Brazilian residential development business over the past eighteen months
through two merger transactions and two equity issues. This enabled us to expand into new geographic
markets and added greater scale in the middle income market. The combined businesses generated record
sales and cash flows during 2009 as a result of these initiatives as well as the continued strength of the
Brazilian economy.
summarized Financial results
as at and For the years ended decemBer 31 (millions)
residential
opportunity investments
development land
assets under management
net invested capital
operating cash Flow
2009
$ 5,320
1,413
2,277
$ 9,010
$
2008
3,678
1,308
1,987
$
6,973
2009
$ 1,117
262
1,024
$ 2,403
$
2008
418
267
741
$
2009
90
32
12
$
$
1,426
$
134
$
2008
35
45
(20)
60
Capital invested in development activities increased by $1.0 billion during the year, due primarily to equity
invested into our U.S. residential business, profits retained in our Brazilian residential business, and the
repayment of shorter term revolving credit facilities in our Canadian residential business with surplus
cash. We completed a number of properties under development for our own use and transferred the
invested capital to our commercial office portfolio.
The increase in operating cash flows is due primarily to the record results in our Brazilian operations and
reduced impairment charges within our U.S. operations. We typically do not generate any operating cash
flow from development lands, other than our agricultural business, until they are transferred into third-
party development activities or operating portfolios.
38
BrookField asset management
residential development
2009
2008
as at decemBer 31 (millions)
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
Brazil
canada
australia
united states
united kingdom
$
$ 2,897
814
491
926
192
$ 2,224
325
264
415
110
$ 5,320
$ 3,338
$
473
247
—
145
—
865
$
200
242
227
366
82
$
1,413
720
504
939
102
$
1,106
573
381
653
85
$
$ 1,117
$
3,678
$
2,798
$
222
76
—
164
—
462
$
$
85
71
123
122
17
418
Total assets, which include property assets as well as housing inventory, cash and cash equivalents and
other working capital balances, increased since 2008 reflecting expansion within our Brazil operations
and the impact of higher currency revaluation in Canada, Australia and Brazil. Subsidiary borrowings
consist primarily of construction financings which are repaid with the proceeds received from sales of
building lots, single-family houses and condominiums, and are generally renewed on a rolling basis as
new construction commences. Borrowings in our Canadian operations decreased in 2009 as proceeds
from asset sales and various equity offerings by our subsidiary Brookfield Properties were used to reduce
working capital debt.
The net operating cash flows attributable to each of these business units are as follows:
For the years ended decemBer 31
(millions)
total
interest
expense
co-investor
interests
net
total
2009
2008
interest
expense
co-investor
interests
operating margins
Brazil
canada
australia
united states
revaluation items
$
$
153
114
2
(12)
(28)
229
$
$
48
—
20
(33)
—
35
$
$
63
57
—
(1)
(15)
$
104
$
42
57
(18)
22
(13)
90
$
$
87
144
4
(15)
(182)
$
38
$
26
—
—
(93)
—
(67)
$
$
29
72
—
33
(64)
70
$
net
32
72
4
45
(118)
$
35
Brazil
We have expanded our Brazilian residential business significantly over the last three years through
acquisition and organic growth. This growth has increased our market position in São Paulo and Rio de
Janeiro and also established a major presence in the mid-west region of Brazil, focused on Brasilia and
Goiânia. We have also extended our product offerings into the important middle income segment, thereby
providing a strong complement to our traditional focus on the higher income segment. We also develop
mixed use projects that include commissioned developments for sale to others.
Contracted sales during 2009 totalled R$2.3 billion ($1.3 billion) (2008 – R$1.1 billion and $600 million)
representing gross sales revenues to be earned in current and future periods. The net operating cash
flow from the business during 2009 was $42 million compared with $32 million during 2008. The increase
is due to a higher level of construction, which increased the amount of income recognized under the
percentage-of-completion basis. Combined launches of new projects totalled R$2.7 billion ($1.5 billion)
(2008 – R$2.7 billion and $1.4 billion) of sales value, which positions this business well into 2010.
Canada
The Canadian operations contributed $57 million of net operating cash flow for the year, compared to
$72 million in 2008. The decrease in cash flows is due primarily to lower pricing and product may offset by
increased lot sales, which increased from 1,399 in 2008 to 1,756 in 2009 and by the impact of the strengthened
Canadian dollar. Operating margins remained stable at 25% (29% in 2008).
We continue to benefit from our strong market position and low-cost land bank, particularly in Alberta
where we hold a 27% market share in Calgary. We own approximately 15,016 acres (December 31, 2008
– 15,538 acres) of which approximately 693 acres (December 31, 2008 – 901 acres) were under active
2009 annual report
39
development at year end. The balance of 14,323 acres (December 31, 2008 – 14,637 acres) is included in “Held
for Development” because of the length of time that will likely pass before they are actively developed.
Australia
Our Australian operations generated $2 million of operating cash flow in 2009 compared with $4 million in
2008; however the 2009 and 2008 results were offset by an impairment charge of $18 million and $11 million,
respectively. The carrying values of projects reflect our acquisition of this business in 2007 and therefore
already much of the expected development profits were capitalized into the carrying values at that time.
Accordingly, margins are expected to be lower in the first few years of ownership and interest costs are
more likely to be expensed than capitalized.
United States
Our U.S. operations incurred $12 million of cash outflows before interest, taxes and non-controlling
interests during 2009 as demand for new homes remained low. This was a modest improvement over the
$15 million of cash outflows recorded during 2008. Our share of the net operating income, after taking into
consideration interest, taxes and non-controlling interests was $nil, compared with a net operating loss
of $44 million during 2008. The gross margin from housing sales was approximately 13%, unchanged from
last year. We closed on 703 units during the year (2008 – 750 units) at an average selling price of $488,000
(2008 – $562,000). We are encouraged by the increase in the backlog, which at the end of 2009 was 187
units compared to 134 units in 2008. In aggregate, we own or control 24,245 lots through direct ownership,
options and joint ventures.
Revaluation Items
During 2009 we recorded a net charge of $13 million (2008 – $118 million) in respect of revaluation items.
These included a gain of $27 million on the dilution of our interests in our Brazilian operations arising
from an equity offering (2008 – $18 million charge on dilutions arising from a merger). This was offset by
our share of impairment charges in respect of higher cost land positions, including options, recorded in
our U.S. and Australian operations of $22 million (2008 – $89 million net charge) and $18 million (2008 –
$11 million net charge), respectively.
opportunity investments
We operate two niche real estate opportunity funds with $515 million of invested capital. Our current
investment in the funds is $262 million and our share of the underlying cash flow during 2009 was
$32 million (2008 – $45 million). In February 2010, we acquired a 2.9 million square foot portfolio from a major
financial institution which has in turn leased the majority of the space. This is the third such transaction
we have completed in the past two years comprised of 16 properties throughout the United States.
development land
The following table presents the capital invested by us in longer term development land. The values of
residential lots in this table are based on historical book values consistent with both IFRS and Canadian
GAAP whereas rural development lands, are carried at underlying values under IFRS.
as at decemBer 31 (millions)
residential lots
north america
Brazil
australia and uk
rural development lands
Brazil
2009
2008
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
consolidated
assets
consolidated
liabilities
co-investor
interests
net invested
capital
$
$
797
691
398
391
$
—
129
396
9
$ 2,277
$
534
$
399
320
—
—
719
$
398
242
2
382
$
718
660
353
256
$
—
367
344
7
$
359
167
—
2
$
$ 1,024
$
1,987
$
718
$
528
$
359
126
9
247
741
1.
includes rural development lands based on iFrs underlying values and residential lots based on management prepared estimates
40
BrookField asset management
Residential Lots
Residential development properties include land, both owned and optioned, which is in the process of
being developed for sale as residential lots, but not expected to enter the homebuilding process for more
than three years. We utilize options to control lots for future years in our higher land cost markets in order
to reduce risk. To that end, we hold options on approximately 11,500 lots which are located predominantly
in California and Virginia. We invested additional capital into development land in Alberta to maintain our
market position and hold 14,323 acres in total. We also hold approximately 16,000 residential lots, homes
and condominium units in our markets in Australia and New Zealand, which will provide the basis for
continued growth. We increased our holdings in Brazil through a corporate acquisition and a merger
during the year.
Rural Development Lands
We own approximately 370,000 acres of prime agricultural development land in the Brazilian States of São
Paulo, Minas Gerais, Mato Grosso do Sul and Mato Grosso. These properties are being used for agricultural
purposes, including the harvest of sugar cane for its use in the production of ethanol, which is used largely
as a gasoline and additive substitute. We also hold 32,800 acres of potentially higher and better use land
adjacent to our Western North American timberlands, included within our Timberlands segment, which we
intend to convert into residential and other purpose land over time. The increase in carrying values during
2009 reflects an increase in the annual revaluation of the land and the impact of higher currency exchange
rates during the year.
underlying value
The historical book value of our development assets after deducting borrowings and minority interests
was $2.4 billion as at December 31, 2009 equal to our invested capital.
The valuation of residential development assets and residential lots within the Development Land segment,
are considered inventory for these purposes, and are recorded at the lower of the existing carrying value
discounted and their expected net realizable value. Net realizable value is determined as the value at
the anticipated time of sale less costs to complete. Many of our land holdings were acquired many years
ago and we believe the underlying value of these lands exceeds the carrying values for IFRS purposes
by approximately $0.6 billion, net of minority interests. Accordingly, we reflect this excess value as
“unrecognized value under IFRS” in determining the underlying value of our shareholders’ equity.
Rural development lands for agricultural purposes are carried at fair value under IFRS.
2009 annual report
41
special situations
Special Situations include our restructuring, real estate finance, bridge lending activities, which are
conducted primarily through funds that we manage, and other investments that fall outside of our main
strategies and operating platforms.
highlights:
• Operating cash flow of $112 million compared to $283 million in 2008;
• Arranged the sale of Concert Industries (“Concert”), a restructuring investment, for C$247 million,
representing a total return of 20% over a five and a half year period (representing an approximate
$30 million gain to Brookfield) and net proceeds to us of $83 million. This transaction closed in February
2010;
• Acquired interests in three groups of properties within our real estate finance operations through
foreclosures and consensual restructurings;
• Collected $297 million of bridge loans, providing liquidity for new initiatives; and
• Invested $120 million in Norbord Inc. as part of a rights offering to reduce leverage in the company,
increasing our fully diluted interest from 62% to 79%.
summarized Financial results
The following table presents the underlying value of the capital invested in our Special Situations activities,
together with our share of the operating cash flows:
as at and For the years ended decemBer 31 (millions)
restructuring
real estate finance
Bridge lending
– disposition gain
other investments
assets under management
underlying value
net operating cash Flow
2009
$ 2,050
3,170
585
—
5,805
1,925
$
2008
1,759
2,497
695
—
4,951
2,211
$
2009
613
336
100
—
1,049
582
$
2008
426
299
188
—
913
709
$
2009
36
20
13
—
69
43
$
$ 7,730
$
7,162
$ 1,631
$
1,622
$
112
$
2008
13
26
39
48
126
157
283
Operating cash flow in 2009 was $112 million, which included a $69 million contribution from our specialty
funds and $43 million from our portfolio of other investments. The 2008 results reflected $126 million from
our specialty fund operations, including a $48 million gain on convertible debentures acquired as part of
a bridge financing, and $157 million from our other investments, which included a number of disposition
gains.
Capital invested in these activities was largely unchanged year over year. We increased the amount of
capital deployed in our restructuring and real estate finance businesses to take advantage of investment
opportunities and reduced the capital in other investments as a result of dispositions.
restructuring
We operate two restructuring funds with total invested capital of $1.3 billion and remaining uninvested
capital commitments from clients of $110 million. Our share of the invested capital is $613 million.
The portfolio consists of 10 investments in a diverse range of industries. Our average exposure to a
specific company is $62 million and our largest single exposure is $213 million. We concentrate our
investing activities on businesses with tangible assets and cash flow streams that protect our capital.
As noted above, we sold our investment in Concert in February 2010 to a strategic purchaser, and will
recognize a gain in the first quarter of 2010. The investment is included in our portfolio at year-end at its
book value.
Our share of the operating cash flow produced by these businesses during the year was $36 million,
compared to $13 million in 2008. The increase reflects continued improvement at Concert and our
U.S. containerboard manufacturing operations, including tax credits and incentives relating to energy
conservation practices. We expect that the majority of our investment returns will come in the form of
disposition gains as operating cash flows during the restructuring period are typically below normalized
returns.
42
BrookField asset management
The continued economic uncertainty and the strain on many corporate balance sheets from the recent
recession continue to give rise to opportunities for us to assess.
real estate Finance
We operate three real estate finance funds with total committed capital of approximately $1.9 billion, of
which our share is approximately $400 million. We had $336 million of capital invested in these operations
at year end (2008 – $299 million). There are $211 million of uncalled capital commitments, of which our
clients have committed $153 million and we have committed $58 million.
These activities contributed $20 million of net operating cash flow during 2009 compared to $26 million in
2008.
as at and For the years ended decemBer 31 (millions)
total fund investments
less: borrowings
less: co-investor interests
net investment in real estate finance funds
securities – directly held
underlying value
net operating cash Flow
2009
$ 2,787
(1,699)
(755)
333
3
$
2008
2,023
(1,129)
(617)
277
22
$
2009
67
(25)
(22)
20
—
$
2008
126
(58)
(44)
24
2
$
336
$
299
$
20
$
26
All of our real estate securities were performing at year-end with the exception of three positions
representing invested capital of $205 million (our share – $64 million). We have acquired the underlying
assets in two of these situations and are in the process of restructuring the third position and expect
to earn a favourable return on our original capital in each of these circumstances. This resulted in
consolidation of the assets and associated initiatives.
We have been careful to structure our financing arrangements to provide sufficient duration and flexibility
to manage our investments with a longer term horizon. We have matched terms in respect of asset and
liability positions with an overall asset and a liability duration of three years. In addition, both our asset
returns and net corresponding liabilities are subject to changes in short-term floating rates.
Notwithstanding the continued stress in the real estate debt capital markets, market values for real estate
securities have strengthened considerably, which has reduced the number of acceptable investments.
We believe, however, that the magnitude of commercial real estate loan maturities in the coming years
will give rise to attractive investment opportunities and we are executing strategies to provide us with
additional capital for this purpose.
Bridge lending
The net capital invested by us in bridge loans declined to $100 million from $188 million due to collections
and our adoption of a more cautious approach to new loan commitments. In addition to our own capital,
we also manage $412 million in loan commitments on behalf of clients, which include a number of major
financial institutions. During the year, we arranged $37 million in financings on their behalf and co-invested
$26 million alongside them.
Our portfolio at year end was comprised of six loans, and our largest single exposure at that date was
$54 million. Our share of the portfolio at year end has an average term of seven months excluding extension
privileges.
other investments
We own a number of investments which will be sold once value has been maximized, integrated into
our core operations or used to seed new funds. Although not core to our broader strategy, we expect to
continue to make new investments of this nature and dispose of more mature assets.
2009 annual report
43
The net operating cash flow generated by these investments declined to $43 million from $157 million in
2008. We realized a gain in each of 2009 and 2008 related to the disposition of 20 million common shares
of Norbord Inc. (“Norbord”) as settlement for exchangeable debentures issued in September 2004. In
addition, in 2009 we concluded the sale of our U.S. insurance operations for proceeds of $130 million and
a gain of $15 million.
as at and For the years ended decemBer 31 (millions)
industrial
infrastructure
Business services
property and other
underlying value
net operating cash Flow
2009
256
81
174
71
582
$
$
2008
271
70
337
31
709
$
$
2009
41
6
1
(5)
43
$
$
2008
20
6
131
—
157
$
$
industrial
We hold a 79% fully diluted interest in Norbord, which is the second largest and lowest cost manufacturer
of oriented strand board in North America. The substantial downturn in the U.S. housing market resulted
in lower volumes and prices for Norbord’s products, resulting in operating losses, however both prices and
volumes have recovered significantly in recent months. We invested a further $200 million to increase our
interest to its current level through participation in a rights offering of common shares to all shareholders,
of which $120 million was funded in early 2009 and $80 million was funded in late 2008. The market value of
our investment in Norbord at year end was $550 million based on the stock market prices.
Fraser Papers Inc. (“Fraser Papers”) and our privately held forest products operations faced a particularly
difficult environment for their products in recent years, which resulted in substantial operating losses.
Fraser Papers entered bankruptcy protection during 2009. We have put forward a plan that will allow the
viable portions of the business to continue, thereby providing continued employment to a number of the
present employees, and expect to preserve the value of our invested capital.
infrastructure
Our infrastructure investments represent coal rights that entitle us to royalties and net profit interests in
central Alberta and British Columbia.
Business services
Business services include the provision of property and casualty products in Canada. We are winding
down our re-insurance business through an orderly runoff and completed the sale of our U.S. property
and casualty operations during the year. We manage the securities portfolios of these operations, which
totalled $0.8 billion and consist primarily of highly rated government and corporate bonds, through our
investment management operations. These operations generated operating cash flow of $1 million in
addition to a disposition gain of $15 million.
We recorded $131 million of cash flows in 2008, which included $96 million of gains on the dispositions of a
medical software business, a joint venture interest in Brazil with Accor S.A., and an interest in a Brazilian
panelboard manufacturer.
underlying value
The net asset value of our special situations operations was $1.6 billion as at December 31, 2009 for the
purposes of preparing our pro forma IFRS balance sheet consistent with 2008. The values are based on
publicly available share prices where available as well as comparable valuations and internal calculations.
Certain investments continue to be carried at historical book value for IFRS purposes, which we estimate
as having the incremental unrecognized value of approximately $0.4 billion that we include in “unrecognized
value under IFRS”.
44
BrookField asset management
asset management and otHer serVices
We earn fees and other sources of income for providing a wide range of asset management and related
services to our clients. These include fees in respect of managing private funds, listed issuers and portfolios
of fixed income and equity securities, investment banking services and a broad range of property and
construction services including leasing, relocation services and facilities management.
For the years ended decemBer 31 (millions)
Base management fees1
performance returns1
transaction fees1
investment banking1
property services2
construction services2
1. revenues
2. net of direct expenses
asset management fees
operating cash Flow
2009
131
22
44
12
209
18
71
298
$
$
2008
134
6
15
17
172
43
74
289
$
$
Base management Fees
Base management fees remained stable as additional fees from new funds launched during the past two
years and an increase in the capital committed to existing mandates, were offset by lower fees in our
investment management business due to a decline in the market values of assets managed and lower average
foreign exchange rates on non-U.S. funds. Fees earned within our Infrastructure activities increased due
to the issuance of additional equity by Brookfield Infrastructure Partners to fund a major acquisition and
increased capital commitments to private funds. As at December 31, 2009, annualized base management
fees on existing funds and assets under management amounted to $140 million (2008 – $130 million).
The following table presents the base management fees earned in respect of each of our operating
platforms:
For the years ended decemBer 31 (millions)
unlisted funds and specialty issuers
commercial properties
infrastructure
development activities
special situations
other
investment management – public securities
Base management Fees
2009
2008
$
28
26
5
23
6
88
43
$
27
21
4
26
6
84
50
$
131
$
134
performance returns and transaction Fees
We earned $22 million of performance returns from clients, compared to $6 million in 2008, largely within our
public securities activities, as a result of exceeding performance targets. The level of performance returns
recorded in our results continues to be modest because they tend to materialize later in the life cycle of a
fund and because we have elected to follow accounting guidelines that typically defer recognition in our
financial statements. Accumulated performance returns, which represent amounts that we would receive
from funds based on performance to date but which cannot be recognized for accounting purposes,
totalled $36 million at the end of 2009, compared to $65 million at the end of 2008.
2009 annual report
45
transaction Fees
Transaction fees include investment fees earned in respect of financing activities and include commitment
fees, work fees and exit fees. During the year, we earned an $11 million fee in connection with our
sponsorship and recapitalization of a large infrastructure business, which we subsequently relaunched as
Prime Infrastructure (see our Infrastructure segment review). In addition, we earned $25 million in fees
from the expansion of our real estate brokerage network.
investment Banking Fees
Our investment banking services are provided by teams located in Canada and Brazil and contributed
$12 million of fees during 2009. The group advised on transactions totalling $9.3 billion in value during the
year, and secured a number of prominent mandates.
other services
property services income
Property services fees include property and facilities management, leasing and project management and
a range of real estate services. Although revenues increased due to a higher level of activity within our
facilities management operations and the expansion of our operating base in Australia and the acquisition
of GMAC’s North American real estate services business, the net contribution was reduced by $31 million
of restructuring charges associated with the acquisitions.
construction services
We completed a number of major projects, recorded positive cash flow and secured a number of major
contracts that added $2.4 billion to our order book and positions us for profitable growth.
The following table summarizes the operating results from our construction operations during the past
two years:
For the years ended decemBer 31 (millions)
australia
middle east
united kingdom
net operating cash flow
2009
18
46
7
71
$
$
2008
25
48
1
74
$
$
The revenue work book totalled $6.5 billion at the end of the year (December 31, 2008 – $4.8 billion) and
represented approximately two years of scheduled activity. The increase reflects new contracts awarded
totalling $2.4 billion and the impact of foreign exchange revaluation on Australian and UK revenues.
The following table summarizes the work book at the end of the year:
as at decemBer 31 (millions)
australia
middle east
united kingdom
2009
$ 2,743
1,969
1,742
$ 6,454
$
2008
2,254
1,828
727
$
4,809
46
BrookField asset management
third-Party capital
The following table summarizes third-party commitments at the end of the past two years:
as at decemBer 31 (millions)
unlisted funds and specialty issuers
2009
opportunity
and Private
equity
core and
Value added
total
core and
value added
2008
opportunity
and private
equity
total
commercial properties
$ 2,380
$ 4,600
$ 6,980
$
2,361
$
600
$
2,961
infrastructure
development
special situations
public securities
other listed entities
3,818
—
3,098
9,296
—
—
—
291
661
5,552
—
—
3,818
291
3,759
14,848
23,787
8,552
2,657
—
2,476
7,494
—
—
—
185
564
1,349
—
—
2,657
185
3,040
8,843
18,040
5,046
$ 9,296
$ 5,552
$ 47,187
$
7,494
$
1,349
$ 31,929
unlisted Funds and specialty issuers
This segment includes the unlisted funds and specialty listed issuers through which we own and manage
a number of property, power, infrastructure and specialized investment strategies on behalf of our clients
and ourselves.
Third-party capital commitments to these funds increased by $6 billion during the year. We established a
$5 billion real estate turnaround consortium, with $4 billion of capital allocations from a group of major
global institutions and $1 billion from ourselves. The consortium is structured in a similar manner as co-
investment rights, with each investor committing capital on a transaction by transaction basis, but with
the fee arrangements determined in advance.
Commitments to our infrastructure funds increased with the issuance of additional equity by Brookfield
Infrastructure Partners to fund a major acquisition and additional capital commitments to unlisted funds,
including funds targeted at each of Peru and Colombia. We launched a C$1 billion debtor-in-possession fund
within our Special Situations group that targets Canadian companies undergoing financial restructurings.
public securities
We specialize in fixed income and equity securities with a particular focus on distress real estate and
infrastructure. Our fixed income mandates are managed in New York and our equity mandates are
managed in Chicago. Our clients are predominantly pension funds and insurance companies throughout
North America and Australia.
The following table summarizes assets under management within these operations. We typically do not
invest our own capital in these strategies as the assets under management tend to be securities as opposed
to physical assets.
as at decemBer 31 (millions)
real estate and fixed income securities
Fixed income
equity
total assets under
management
third-party commitments
2009
2008
2009
2008
$ 17,589
6,218
$ 23,807
$ 15,199
2,962
$ 18,161
$ 17,589
6,198
$ 23,787
$ 15,078
2,962
$ 18,040
Co-investor commitments increased by $5.7 billion during 2009 primarily due to an increase in value of
securities under management. We secured $4.0 billion of new advisory mandates during the year offset by
$3.1 billion of redemptions.
2009 annual report
47
other listed entities
We have established a number of our business units as listed public companies to allow other investors
to participate and to provide us with additional capital to expand these operations. This includes common
equity held by others in Brookfield Properties, Brookfield Incorporações, Brookfield Infrastructure
Partners and Brookfield Renewable Power, among others.
unallocated operating costs
Operating costs include the costs of our asset management activities as well as corporate costs which are
not directly attributable to specific business units.
For the years ended decemBer 31 (millions)
operating costs
cash income taxes
2009
250
3
253
$
$
net
$
$
2008
263
9
272
variance
(13)
$
(6)
$
(19)
corPorate caPitalization, liquidity and oPerating costs
In this section, we review our corporate (i.e., deconsolidated) capitalization, liquidity profile and operating
costs.
liquidity Profile
We maintain a high level of liquidity to ensure that we are in a strong position to execute our business plans
and react quickly to potential investment opportunities and adverse economic circumstances.
Our core liquidity consists primarily of cash and financial assets as well as committed lines of credit. This
liquidity is regularly supplemented by the free cash flow generated within Brookfield’s operations, which
is typically in the range of $1.5 billion annually, and the periodic monetization of assets and financing
transactions.
As at December 31, 2009, our consolidated core liquidity was approximately $4 billion, consisting of
$2.6 billion at the corporate level and $1.4 billion within our principal operating subsidiaries.
We have maintained significantly higher liquidity levels over the past two years as a result of the challenging
economic circumstances and increased potential for attractive investment opportunities. We increased
the liquidity at our North American property company, as we expect that commercial office transactions
will be a primary area of activity for us over the next 24 months.
In addition to our core liquidity, we have $6.7 billion of uninvested capital allocations from our investment
partners that is available to fund qualifying investments.
cash and Financial assets
We hold financial assets, cash and equivalents that are available to fund operating activities and investment
initiatives.
We acquire selective positions in common shares, high yield bonds and distressed debt that are supported
by attractive businesses and assets when we believe they trade at meaningful discounts to their underlying
value. The ownership of these investments may facilitate our participation in future restructuring or
acquisition transactions.
48
BrookField asset management
We also establish positions in respect of broader economic and capital markets trends such as credit
spreads, foreign currencies and interest rates. These positions may be established to protect our existing
capital or to create additional value.
as at and For the years ended decemBer 31 (millions)
Financial assets
government bonds
corporate bonds
other fixed income
high-yield bonds and distressed debt
preferred shares
common shares
loans receivable/deposits
total financial assets
cash and cash equivalents
deposits and other liabilities
net investment
underlying value
operating cash flow
2009
2008
2009
2008
$
547
290
115
694
282
184
(150)
1,962
34
(351)
$
521
411
172
88
272
202
368
2,034
151
(282)
$
$ 1,645
$
1,903
$
376
—
(30)
346
$
$
476
—
(51)
425
Net cash and financial asset balances decreased to $1.6 billion during 2009 from $1.9 billion at the end
of 2008 due to the sale of government and corporate bonds which is partially offset by the acquisition of
distressed debt securities. In addition to the carrying values of financial assets, we hold common equity
positions with a notional value of $75 million (2008 – $nil) through total return swaps and hold protection
against widening credit spreads through credit default swaps with a total notional value of $0.4 billion
(2008 – $2.5 billion). The market value of these derivative instruments reflected in our financial statements
at December 31, 2009 was $3 million (2008 – $30 million). Net invested capital includes liabilities such as
broker deposits and a small number of borrowed securities that have been sold short.
The 2009 operating results include $181 million of investment gains, compared to $278 million in 2008.
The balance of the income is derived primarily from dividends and interest. The gains include $62 million
(2008 – $151 million gains) from foreign currency positions and $8 million of losses from our portfolio of
credit default swaps (2008 – $134 million of gains).
corporate capitalization
Our corporate capitalization consists of financial obligations of (or guaranteed by) the Corporation as set
forth in the following table:
as at and For the years ended decemBer 31 (millions)
corporate borrowings
Bank borrowing and commercial paper
term debt
contingent swap accruals
accounts payable and other accruals
capital securities
shareholders’ equity
preferred equity
common equity
total corporate capitalization
debt to capitalization
interest coverage
Fixed charge coverage
underlying value
operating cash Flow
2009
2008
2009
2008
$
388
2,205
2,593
779
2,028
632
1,144
14,956
16,100
$
649
1,635
2,284
675
2,239
543
870
13,999
14,869
$
21
130
151
84
253
32
43
1,407
1,450
$
33
130
163
72
272
31
44
1,379
1,423
$ 22,132
$ 20,610
$ 1,970
$
1,961
15%
14%
7x
6x
7x
5x
2009 annual report
49
corporate Borrowings
Bank borrowing and commercial paper represent shorter term borrowings that are pursuant to or backed
by $1,445 million of committed corporate revolving term credit facilities. Approximately $125 million
(2008 – $104 million) of the facilities were also utilized for letters of credit issued to support various
business initiatives. The facilities are periodically renewed and extended for three to four year periods at
a time. Currently, $1,195 million of the facilities are scheduled to expire in 2012 and the balance in 2011.
Term debt consists of public bonds and private placements, all of which are fixed rate and have maturities
ranging from 2012 until 2035. These financings provide an important source of long-term capital and an
appropriate match to our long-term asset profile.
Our corporate borrowings have an average term of eight years (2008 – nine years) and over 90% of the
maturities extend into 2012 and beyond. The average interest rate on our corporate borrowings was 6%
at year end, compared to 5% at the end of 2008. As shown in the table below, we have a $200 million bond
maturity in 2010 and borrowings under a small number of bank facilities in 2011 that expire if not renewed
earlier.
as at decemBer 31, 2009 (millions)
commercial paper and bank borrowings
term debt
average term
2
9
8
2010
$ —
200
$
200
$
2011
18
—
$
2012
370
422
$
18
$
792
2013
& after
$ —
1,583
$ 1,583
$
total
388
2,205
$ 2,593
Corporate debt levels increased by $212 million during the year to fund investment activities and $97 million
due to foreign exchange. We decreased our bank borrowings by $261 million and replaced the financing
with the issuance of C$500 million of 8.95% publicly traded term debt due June 2014 in order to extend our
maturity profile.
contingent swap accruals
We entered into interest rate swap arrangements with AIG Financial Products (“AIG-FP”) in 1990, which
include a zero coupon swap that was originally intended to mature in 2015. Our financial statements include
an accrual of $779 million in respect of these contracts which represents the compounding of amounts
based on interest rates from the inception of the contracts. We have also recorded an amount of $122 million
in accounts payable and other liabilities which represents the difference between the present value of
any future payments under the swaps and the current accrual. We believe that the financial collapse of
American International Group (“AIG”) and AIG-FP triggered a default under the swap agreements, thereby
terminating the contracts with the effect that we are not required to make any further payments under the
agreements, including the amounts which might, depending on various events and interest rates, otherwise
be payable in 2015. AIG disputes our assertions and therefore we have commenced legal proceedings
seeking a declaration from the court confirming our position. We recognize this may not be determined for
a considerable period of time, and consistent with the principle of conservatism will continue to account
for the contracts as we have in prior years until we receive clarification.
capital securities
Capital securities are preferred shares that are classified as liabilities for Canadian GAAP purposes
because the holders of the preferred shares have the right, after a fixed date, to convert the shares into
common equity based on the market price of our common shares at that time unless previously redeemed
by us. The dividends paid on these securities, are recorded as interest expense.
The carrying values of capital securities increased to $632 million from $543 million due to the higher
Canadian dollar, in which most of these securities are denominated. The average distribution yield on the
capital securities at December 31, 2009 was 6% (2008 – 6%) and the average term to the holders’ conversion
date was four years (2008 – five years).
50
BrookField asset management
shareholders’ equity
as at decemBer 31 (millions)
preferred equity
common equity
underlying value 1
Book value 2
2009
$ 1,144
14,956
$ 16,100
$
2008
870
13,999
$ 14,869
2009
$ 1,144
6,403
$ 7,547
$
2008
870
4,911
$
5,781
1. Based on procedures and assumptions, excluding future tax provisions and underlying values not otherwise recognized under iFrs
2. Based on canadian gaap financial statements
Preferred equity consists of perpetual preferred shares that represent an attractive form of leverage for
common shareholders, and was unchanged during the year. The average dividend rate at December 31, 2009
was 5%. We issued C$300 million ($274 million) of perpetual preferred shares during 2009 with an initial
coupon of 7% that resets every five years unless previously redeemed by the Corporation.
We repurchased 1.5 million common shares during the year at prices ranging from $11.46 per share to
$16.05 per share, with an average price of $12.09 per share. Further details on the components of our equity
and related distributions can be found on pages 66 and 67.
The underlying value of our equity is $16.1 billion ($25.65 per share) on a pre-tax basis. The market
capitalization of our equity, reflecting our share price at year end, was $12.7 billion. Our book value
of $7.5 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.
interest expenses
Interest costs include interest expense on corporate obligations and average rates are set out in the
following table:
as at and For the years ended decemBer 31 (millions)
Bank facilities and commercial paper
term debt
contingent swap accruals
capital securities
$
average
outstanding
373
1,951
723
579
2009
interest
expense
21
$
130
84
32
average
rate
6%
7%
11%
6%
$
average
outstanding
480
1,821
627
566
2008
$
interest
expense
33
130
72
31
$ 3,626
$
267
7.4%
$
3,494
$
266
average
rate
7%
7%
11%
6%
7.6%
The average rate declined from 7.6% to 7.4% due to lower rates on floating rate debt.
working capital
other assets
The following is a summary of other assets:
as at decemBer 31 (millions)
accounts receivable
restricted cash
intangible assets
prepaid and other assets
underlying value
2009
193
207
43
502
945
$
$
2008
243
97
31
400
771
$
$
Other assets include working capital balances employed in our business that are not directly attributable
to specific operating units.
2009 annual report
51
other liabilities
as at decemBer 31 (millions)
accounts payable
insurance liabilities
other liabilities
underlying value
$
2009
278
721
1,029
$
2008
208
991
1,040
$ 2,028
$
2,239
Other liabilities include $122 million of mark-to-market adjustments in respect of contingent swap accruals
(see page 50).
outlook
We continue to organize our operations in a manner that we believe provides an important measure of
stability, consistent with our long-term business strategy. This has enabled us to avoid many, although
not all, of the consequences of the recent downturn in the economy. While we are not immune to these
factors, which include a rise in unemployment, a drop in consumer and business confidence and spending,
we believe we are positioned to produce favourable returns overall and to complete favourable growth
initiatives in the near future.
The majority of our capital is invested in high quality long duration assets whose outputs and cash flows are
underpinned by either long-term contracts with high credit quality counterparties or regulated rate base
arrangements. We match fund our long-life assets with predominantly non-recourse long-term financing
to ensure a stable capital structure and reduced exposure to refinancing risk and changing interest rates.
These assets generate a substantial portion of our operating cash flow annually and provide significant
stability to our operating results. We have, however, invested a portion of our capital into higher yielding
cyclical or shorter duration assets whose outputs and cash flows tends to be significantly impacted by
changes in either the macroeconomic environment or industry specific conditions. We pursue opportunistic
investments during difficult economic times with the objective of acquiring high quality assets at relatively
higher yields. Accordingly, we maintain a high level of liquidity to ensure we are prepared for short term
capital requirements and have the financial flexibility to pursue growth initiatives.
While the current environment may constrain our ability to increase operating cash flows in the near term,
we remain confident in our ability to achieve our long-term objectives in that regard. Furthermore, we
believe we have been, and will continue to have the opportunity to make investments during this period at
very favourable values that will create attractive shareholder value in the future.
Our renewable power operations entered 2010 with water levels that were 13% above long-term averages.
As a result, we believe we are well positioned to achieve our targets of long-term average generation in
2010 based on current storage levels if normal hydrology conditions prevail. We have contracted pricing
for approximately 84% of our generation over 2010, which significantly mitigates the impact of lower spot
electricity prices and as a low cost producer of electricity, we are able to sell electricity at a favourable
margin under most market conditions.
In our office property sector, leasing demand has recovered from the lows of 2009, but is still suffering from
the effects of the economic slowdown. Our occupancy levels, however, are at 95% across our portfolio and
only 4% of the space within our managed portfolio is scheduled to come off lease in 2010 of which a large
portion is customarily renewed in the normal course. The high quality of our properties relative to others
in our markets should enable us to attract new tenants if we are unsuccessful in extending leases with the
existing tenants. Furthermore, we believe our in-place rents continue to be below market. In North America,
the average expiring rates in 2010 are $23 per square foot compared with an estimated average market rate
of $27 per square foot, representing a significant margin of safety to ensure we can at least maintain and
hopefully increase rental rates. A general lack of development, especially in central business districts, has
also created stability from a supply perspective. Nevertheless, a prolonged economic downturn could lead
to tenant bankruptcies and lower market rents which could reduce our cash flows. Our strong tenant lease
profile, low vacancies and rental rates that in most properties are substantially below current market rates
give us a high level of confidence that we can achieve our operating targets in 2010.
52
BrookField asset management
We expect our infrastructure businesses to provide increased operating returns, consisting of stable
returns from our existing regulated businesses and a full year’s contribution from businesses acquired in
late 2009. We expect our timber operations to continue to experience demand and pricing weakness in 2010
due to the state of the U.S. homebuilding sector, which has caused us to reduce harvest levels in order to
preserve value. We expect to increase harvest levels once timber prices recover and our current surplus
of merchantable inventory should allow us to harvest in excess of long-run sustainable yield for a period of
10 years in both Canada and the U.S.
Residential markets in Brazil and Canada continue to perform well but remain difficult in the United States.
The current supply/demand imbalance in U.S. markets has reduced operating margins and must be worked
through before we experience margin improvements and volume growth. Most of the land holdings within
our Canadian land operations were purchased at favourable values and therefore have an embedded cost
advantage today. This has led to favourable margins in this region. We expanded our Brazilian operations
and are well positioned to benefit from our increased contribution from these operations during 2010.
We continue to expand our special situations operations by committing additional resources and launching
new funds. We will focus on maintaining or increasing the level of invested capital by deploying the capital
from new funds. We expect that the current difficulties in credit markets will lead to a greater number
of opportunities for our restructuring operations, and more attractive pricing for our real estate finance
group, although the same conditions will likely reduce opportunities to monetize investments and the
opportunity to recognize disposition gains.
The value of the U.S. dollar against various currencies can significantly impact the contribution from our
operations that are denominated in these other currencies, notably the Canadian dollar, the Brazilian real
and the Australian dollar. The prevailing low interest rate environment in most economies has a beneficial
impact on our results, although this is limited because most of our financings are fixed rate in nature.
Similarly, the long-term nature of our borrowing base and the relatively low proportion of annual debt
maturities lessens the impact of changing credit spreads on new financings.
The investment market has become less competitive and acquisition prices have declined due in large
part to reduced availability of capital for many owners and investors. The access to liquidity from our
own balance sheet as well as from our clients, financial partners and the capital markets has provided us
with funds to invest in our existing operations as well as new opportunities. We believe the breadth of our
operating platform and our disciplined approach should enable us to invest this capital on a favourable
basis.
We have endeavoured to extend debt maturities on a proactive basis and reduce near-term financing
requirements. Although we expect to renew or replace most of our existing financings at equivalent levels,
we may reduce leverage in certain areas of our business. While we expect that any deleveraging will
likely have a limited impact on our short term operating results it would reduce the capital available for
investment. We maintain a high level of liquidity as further discussed in Part 3 of this MD&A, and regularly
replenish our liquidity through operating cash flow and asset monetizations.
There are many factors that could impact our performance in 2010, both positively and negatively. We
describe the material aspects of our business environment and risks in Part 4 of this MD&A.
summary
We believe we are emerging from the recession and as a result our businesses which were affected by the
recession should see expanded margins and increasing cash flows over the next few years. There should
also be further opportunities over the next two years to invest capital in our existing operations as well as
in new assets and businesses at values which will generate increased cash flow per share and shareholder
values over the longer term.
As a result, we believe that our businesses are well positioned to not only withstand the difficult short term
environment but to invest and build for the future. This provides us with confidence that we will meet our
long-term performance objectives with respect to cash flow growth and value creation, and continue to
build Brookfield as a world-class asset manager.
2009 annual report
53
part 3
ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
This section contains a review of our consolidated financial statements prepared in accordance with
Canadian GAAP. It also contains information to enable the reader to reconcile the basis of presentation
in our consolidated financial statements to that employed in the MD&A. The tables presented on pages 66
and 67 provide a detailed reconciliation between our consolidated financial statements and the basis of
presentation throughout the balance of this MD&A.
consolidated statements of income
The following table summarizes our consolidated statements of net income and reconciles them to
operating cash flow and gains:
For the years ended decemBer 31 (millions)
revenues
net operating income
expenses
interest
current income taxes
asset management and other operating costs
non-controlling interests in the foregoing
operating cash flow and gains
other items, net of non-controlling interests
net income
2009
2008
$ 12,082
4,515
$ 12,909
4,616
$
2007
9,343
4,377
(1,784)
4
(393)
(892)
1,450
(996)
(1,984)
7
(406)
(810)
1,423
(774)
(1,786)
(68)
(311)
(636)
1,576
(789)
$
454
$
649
$
787
Net income was $454 million in 2009, compared to $649 million in 2008. Operating cash flows and gains
were relatively unchanged, however net non-cash charges increased by $222 million. The largest variance
was future income taxes, which in 2008 included a one-time tax recovery of $238 million (our share) related
to the conversion of our U.S. property subsidiary into a REIT. Net depreciation and amortization charges
declined by $80 million.
revenues
For the years ended decemBer 31 (millions)
asset management and other services
renewable power generation
commercial properties
infrastructure
development activities
special situations
investment income and other
2009
$ 1,691
1,206
2,967
418
1,962
3,347
491
$ 12,082
$
2008
2,149
1,286
3,226
613
1,634
3,387
614
$ 12,909
2007
782
971
2,501
611
1,676
2,506
296
9,343
$
$
Total revenues declined to $12.1 billion in 2009 from $12.9 billion in 2008. This was in large measure due to
the impact of lower average foreign currency rates on non-U.S. revenues over the year, notwithstanding the
higher spot rates at year end. The decrease in asset management and other service revenues reflects lower
construction revenues offset by the expansion of our Australian and North American property services
business. Renewable power revenues declined from the prior year due to lower spot electricity prices and
lower water levels compared to the exceptional levels in 2008. Infrastructure revenues were lower in 2009
due primarily to reduced harvest levels in our Timber operations in response to weaker pricing.
54
BrookField asset management
net operating income
Net income is equal to “operating cash flow and gains” less “other items, net of non-controlling interests”,
which consists largely of non-cash items such as depreciation and amortization, provisions in respect of
future tax liabilities and other provisions that we do not consider to be relevant in measuring operating
cash flow performance.
Operating cash flow and gains is discussed in Part 2 – Review of Operations on a segmented basis, and
are reconciled to a consolidated basis in the tables on pages 66 and 67 in this section.
other items, net of non-controlling interests
The following table summarizes the major components of other items on a total basis and also by presenting
them net of the associated non-controlling and minority interests:
For the years ended decemBer 31 (millions)
other items
depreciation and amortization
provisions and other
Future income taxes
non-controlling interests
1. net of non-controlling and minority interests
total
2009
2008
2009
2008
variance
net 1
$ (1,275)
(370)
(24)
673
$ (1,330)
(342)
461
437
$
(693)
(282)
(21)
—
$
(773)
(275)
274
—
$
80
(7)
(295)
—
$
(996)
$
(774)
$
(996)
$
(774)
$
(222)
depreciation and amortization
Depreciation and amortization for each principal operating segment is summarized in the following table:
For the years ended decemBer 31 (millions)
renewable power generation
commercial properties
infrastructure
development activities
specialty situations
other
1. net of non-controlling and minority interests
$
total
2009
199
596
112
158
204
6
$
2008
191
700
137
159
137
6
$
$ 1,275
$
1,330
$
2009
154
237
44
118
133
6
692
net 1
$
$
2008
168
297
94
120
88
6
773
variance
(14)
$
(60)
(50)
(2)
45
—
$
(81)
Depreciation expenses throughout most of our businesses is generally stable year-over-year except for
currency fluctuations. Depletion in our timber business (included in Infrastructure) is based on the volume
of harvest in the year, and therefore declined in line with the current slowdown. Depreciation in our special
situations investments increased as we began to consolidate the results of two additional businesses in
this segment during the year.
2009 annual report
55
provisions and other
Provisions and other are comprised primarily of revaluation items which are non-cash accounting
adjustments that we are required to record under GAAP to reflect changes in the value of certain
contractual arrangements.
For the years ended decemBer 31 (millions)
norbord exchangeable debentures
interest rate contracts
power contracts
commercial office revaluation
equity accounted results
other
1. net of non-controlling and minority interests
total
net 1
$
2009
68
(74)
55
169
—
152
$
2008
(65)
252
(94)
147
68
34
$
2009
68
(69)
52
146
—
85
$
2008
(65)
244
(70)
73
68
25
variance
133
$
(313)
122
73
(68)
60
$
370
$
342
$
282
$
275
$
7
We recorded a $68 million accounting loss on the settlement of debentures issued by us that are
exchangeable into Norbord common shares, and are valued based on the Norbord share price. The loss
represents the reversal of non-cash gains previously recorded in this segment. On an economic basis, we
realized a $65 million gain on the settlement of the debentures which is reflected in our operating cash
flow.
We hold interest rate contracts to provide an economic hedge against the impact of possible higher interest
rates on the value of our long duration, interest sensitive physical assets. The U.S. 10-year treasury rate
moved from 2.21% to 3.84% during 2009, which led to a $74 million increase in the net value of these
contracts of which our share was $69 million. Accounting rules require that we revalue these contracts
each period even if the corresponding assets are not revalued.
In our power operations, we enter into long-term contracts to provide generation capacity, and are required
to record changes in the market value of these contracts through net income whereas we are not permitted
to record the corresponding increase in the value of the capacity and generation that we have pre-sold.
We adjusted the carrying value of commercial office properties located in Australia in 2009 and the U.S.
in 2008 based on our intention to restructure the ownership of these properties. This led to a non-cash
provision of $146 million (2008 – $73 million).
We recorded net equity accounted losses of $68 million in the prior year from our investment in Norbord.
Norbord faced a weak price environment for its principal products due to the weakness in the U.S.
homebuilding sector, in addition to higher input costs. We increased our interest in Norbord to 60% at the
end of 2008 and commenced accounting for this business on a consolidated basis at that time.
Future income taxes
The 2008 future income taxes reflected a non-recurring benefit of $238 million ($479 million prior to
non-controlling interests) arising from the conversion of the entity owning a number of our U.S. office
properties to a REIT, thereby lowering the applicable effective tax rate on future taxable income from
these properties.
56
BrookField asset management
consolidated Balance sHeets
assets
We review changes in our financial position on a segmented basis in Part 2 – Review of Operations and
reconcile this basis to our consolidated balance sheets on pages 66 and 67 in this section. We also provide
an analysis in this section of the major classifications of balances that differ from those utilized in our
segmented review.
Total assets at book value increased to $62.0 billion as at December 31, 2009 from $53.6 billion and
$55.6 billion at the end of 2008 and 2007 as shown in the following table:
as at decemBer 31 (millions)
assets
cash and cash equivalents and financial assets
loans and notes receivable
investments
accounts receivable and other
intangible assets
goodwill
property, plant and equipment
Book value
2009
2008
2007
$ 3,748
1,796
1,924
8,605
1,822
2,343
41,664
$ 61,902
$
3,313
2,061
890
6,925
1,632
2,011
36,765
$
4,918
909
1,352
6,972
2,026
1,528
37,892
$ 53,597
$ 55,597
The impact of higher currency exchange rates on the carrying values of assets located outside of the
United States was a major contributor to the increase in total assets.
We commenced accounting for several investments within our special situations activities on a consolidated
basis during the year, which reduced Investments and increased Property, Plant and Equipment as well as
Loans and Notes Receivable.
Financial assets
Financial assets include $0.8 billion (2008 – $1.0 billion) of largely fixed income securities held through our
insurance operations, as well as our $158 million (2008 – $143 million) common share investment in Canary
Wharf Group, which is included in our commercial office property operations in our segmented analysis,
and is carried at historic cost, adjusted to reflect current exchange rates. The decrease reflects the sale
of insurance businesses in early 2009.
investments
Investments represent equity accounted interests in partially owned companies as set forth in the following
table, which are discussed further within the relevant business segments in Part 2 – Review of Operations.
as at decemBer 31 (millions)
prime infrastructure
transelec
property funds
dBct
other
Brazil transmission
total
Business segment
infrastructure
transmission
commercial office
infrastructure
various
transmission
% of investment
Book value
2009
40%
28%
13-25%
49%
various
—
2008
—
28%
20-25%
—
various
7-25%
$
2009
657
378
480
254
155
—
$
$ 1,924
$
2008
—
324
233
—
126
207
890
During 2009, our subsidiary Brookfield Infrastructure Partners, acquired a 39.9% interest in Prime
Infrastructure and a 49.9% interest in the Dalrymple Bay Coal Terminal (“DBCT”) as part of our acquisition
and restructuring of a major global infrastructure portfolio. Our investment in property funds increased as
we put additional capital in our Multiplex Prime Property Fund and began consolidating that fund’s equity
accounted investments. In addition, we benefitted from higher Australian currency rates at the end of the
year. We sold our investment in a group of Brazilian transmission lines in early 2009.
2009 annual report
57
accounts receivable and other
as at decemBer 31 (millions)
accounts receivable
prepaid expenses and other assets
restricted cash
inventory
Book value
2009
$ 4,201
3,239
704
461
$ 8,605
$
2008
3,056
2,650
610
609
$
6,925
These balances include amounts receivable by the company in respect of contracted revenues owing but
not yet collected, and dividends, interest and fees owing to the company. Prepaid expenses and other assets
include amounts accrued to reflect the straight-lining of long-term contracted revenues and capitalized
lease values in accordance with accounting guidelines. Restricted cash represents cash balances placed
on deposit in connection with financing arrangements and insurance contracts, including the defeasement
of long-term property-specific mortgages. The balances increased as a result of higher foreign currency
exchange rates on non-U.S. balances and the acquisition of several businesses during the year. The
distribution of these assets among our business units is presented in the tables on pages 66 and 67.
intangible assets
Intangible assets increased to $1.8 billion at year end from $1.6 billion at the end of 2008 due to the
acquisition of a large UK port business. The intangibles in this business primarily relate to long-term
concession agreements and rights of way. Other intangible assets at year end represent primarily balances
associated with above market leases and tenant relationships within our commercial office business and
customer relationships within our property services and construction businesses.
goodwill
Goodwill represents purchase consideration that is not specifically allocated to the tangible and intangible
assets being acquired. Goodwill allocated to our Australian, European and Middle East operations increased
to $1.0 billion from $0.8 billion during the year as a result of foreign currency revaluation.
property, plant and equipment
as at decemBer 31 (millions)
renewable power generation
commercial properties
infrastructure
development activities
other plant and equipment
Book value
2009
$ 5,638
24,248
3,247
6,426
2,105
$ 41,664
$
2008
4,954
21,517
2,879
5,423
1,992
$ 36,765
Commercial properties includes office and retail property assets. Development activities includes
opportunity investments, residential properties, properties under development and properties held for
development. The increase in other plant and equipment is largely due to the consolidation of Norbord
during 2008.
loans and notes receivable
Loans and notes receivable consist largely of loans advanced by our bridge lending operations and real
estate securities. and declined as a result of collections and dispositions.
58
BrookField asset management
liabilities and shareholders’ equity
The analysis of our liabilities and shareholders’ equity is based on our consolidated balance sheet, and
therefore includes the obligations of consolidated entities, including partially owned funds and subsidiaries.
We note, however, that in many cases our consolidated capitalization includes 100% of the debt of the
consolidated entities, even though in most cases we only own a portion of the entity and therefore our
pro rata exposure to this debt is much lower. For example, we have access to the capital of our clients and
co-investors through public market issuance and, in some cases, contractual obligations to contribute
additional equity.
Accordingly, we believe that the two most meaningful bases of presentation to use in assessing our
capitalization are proportionate consolidation and deconsolidation. The following tables depict the
composition of our capitalization on these bases, along with our consolidated capitalization, all based on
the underlying value of our equity and the interests of other investors.
Our deconsolidated capitalization depicts the amount of debt that is recourse to the Corporation, and the
extent to which it is supported by our deconsolidated invested capital and remitted cash flows. At year
end, our deconsolidated debt to capitalization was 15% (2008 – 14%) which is a prudent level in our opinion.
This reflects our strategy of having a relatively low level of debt at the parent company level.
Proportionate consolidation which reflects our proportionate interest in the underlying entities, depicts
the extent to which our underlying assets are leveraged, which is an important component of enhancing
shareholder returns. We believe the 44% debt-to-capitalization ratio at year end (2008 – 44%) is appropriate
given the high quality of the assets, the stability of the associated cash flows and the level of financings
that assets of this nature typically support, as well as our liquidity profile.
Our consolidated debt-to-capitalization ratio is slightly higher at 46%, which reflects the full consolidation of
several more highly leveraged partially-owned entities, notwithstanding that our capital exposure to these
entities is limited. This is in part why we believe that the consolidated capitalization is less meaningful and
can only be assessed in the context of the overall asset base of the company, and taking into consideration
the full ownership base, including minority shareholders and institutional fund investors, which can be
difficult to assess in the context of consolidated financial statements.
The following table presents the components of our capitalization on a deconsolidated, proportionately
consolidated and fully consolidated basis, based on underlying values.
as at decemBer 31, 2009 (millions)
corporate borrowings
non-recourse borrowings
property-specific mortgages
subsidiary borrowings1
accounts payable and other
capital securities
non-controlling interests2
shareholders’ equity2
debt to capitalization
deconsolidated
proportionate
consolidated
2009
$ 2,593
2008
2,284
$
2009
$ 2,593
2008
2,284
$
2009
$ 2,593
2008
2,284
$
—
779
2,028
632
—
16,100
—
675
2,239
543
—
14,869
13,905
3,430
7,931
1,136
—
16,100
12,389
3,242
7,061
984
—
14,869
26,731
3,663
10,866
1,641
10,319
16,100
24,398
3,593
9,360
1,425
9,082
14,869
$ 22,132
15%
$ 20,610
14%
$ 45,095
44%
$ 40,829
44%
$ 71,913
46%
$ 65,011
47%
includes $779 million (2008 – $675 million) of contingent swap accruals which are guaranteed by the corporation and are accordingly included in
1.
corporate capitalization.
2. Based on fair values prepared for iFrs purposes
The ratios on a book value basis would be higher, however we do not consider them as meaningful for
the purpose of this analysis because they reflect the impact of accounting depreciation on our long-life
assets as well as the relatively low acquisition prices of assets purchased on an opportunistic basis over
the years.
The table above also illustrates our use of subsidiary and property-specific financings to minimize risk.
As at December 31, 2009, only 10% of our consolidated debt capitalization is issued or guaranteed by the
Corporation, whereas 79% is recourse only to specific assets or groups of assets and 11% is issued by
subsidiaries and has no recourse to the Corporation.
2009 annual report
59
The cash flows generated within our operations provides favourable interest and fixed charge coverage
ratios, as shown on a consolidated basis in the following table:
For the years ended decemBer 31 (millions)
corporate borrowings
contingent swap accruals
property-specific borrowings
accounts payable and accruals
capital securities
non-controlling interest
shareholders’ equity
preferred equity
common equity
total cash flows
interest coverage1
Fixed charge coverage2
deconsolidated
consolidated
$
$
2009
151
84
—
253
32
—
43
1,407
$ 1,970
$
7x
6x
2008
163
72
—
272
31
—
44
1,379
1,961
7x
5x
$
2009
151
84
1,189
664
85
892
43
1,407
$ 4,515
8x
6x
$
$
2008
163
72
1,349
711
88
810
44
1,379
4,616
8x
6x
1. total cash flows divided by interest on corporate and subsidiary borrowings
2. total cash flows divided by interest on corporate and subsidiary borrowings and distributions on capital securities and preferred equity
corporate Borrowings
We discuss corporate borrowings on pages 50 and 51.
subsidiary Borrowings
We capitalize our subsidiary entities to enable continuous access to the debt capital markets, usually on
an investment grade basis, thereby reducing the demand for capital from the Corporation and sharing the
cost of financing equally among other equity holders in partly owned subsidiaries.
Subsidiary borrowings have no recourse to the Corporation with only a limited number of exceptions.
As at December 31, 2009, subsidiary borrowings included $779 million (2008 – $675 million) of financial
obligations that are guaranteed by the Corporation.
as at decemBer 31 (millions)
subsidiary borrowings
renewable power generation
commercial properties
infrastructure
development activities
special situations
other
contingent swap accruals 1
total
1. guaranteed by the corporation
average term
2009
2008
2009
2008
proportionate
consolidated
7
3
1
1
2
4
6
4
$ 1,144
500
—
475
497
35
779
$ 3,430
$
652
666
55
394
498
86
675
$
3,026
$ 1,144
551
—
475
679
35
779
$ 3,663
$
652
831
140
394
815
86
675
$
3,593
Subsidiary borrowings were largely unchanged in aggregate on both a consolidated and proportionate
basis. Carrying values of non-U.S. borrowings generally increased as a result of higher currency exchange
rates compared to the beginning of 2009. We also issued incremental term debt to fund growth initiatives
and to reflect expansion in the borrowing base.
60
BrookField asset management
The following table presents our proportionate share of subsidiary borrowing maturities, based on our
ownership interest in the borrowing entity:
as at decemBer 31, 2009 (millions)
renewable power generation
commercial properties
infrastructure
development activities
special situations
other
contingent swap accruals
2010
28
341
—
296
67
35
—
767
$
$
2011
122
159
—
179
88
—
—
548
$
$
2012
380
—
—
—
180
—
—
560
$
$
2013
& after
proportionate
total
$
614
—
—
—
162
—
779
$
1,144
500
—
475
497
35
779
$
1,555
$
3,430
Development includes borrowings within our Canadian and U.S. residential business. The residential
and property development borrowings are largely of a working capital nature, financing the ongoing
development and construction activities, and are typically repaid as the projects, lots or homes being
financed are completed and sold, and then re-drawn against any new projects that we elect to pursue.
property-specific Borrowings
As part of our financing strategy, we raise the majority of our debt capital in the form of property-specific
mortgages that have recourse only to the assets being financed and have no recourse to the Corporation.
as at decemBer 31 (millions)
renewable power generation
commercial properties
infrastructure
development activities
special situations
total
average term
10
4
7
2
5
5
proportionate
consolidated
2009
$ 3,179
7,735
879
1,412
700
$ 13,905
$
2008
3,043
6,930
587
1,476
568
$ 12,604
2009
$ 4,131
16,133
2,066
2,431
1,970
$ 26,731
$
2008
3,588
15,219
1,648
2,490
1,453
$ 24,398
Property-specific borrowings increased due to the impact of higher foreign currency rates on non-U.S.
borrowings as well as the consolidation of investee companies within our special situations operations as
a result of increased ownership levels.
The following table presents our proportionate share of property-specific borrowings maturities, based on
our ownership interests in the borrowing entity, adjusted to reflect amortization and repayments to the
date of this report:
as at decemBer 31, 2009 (millions)
renewable power generation
commercial properties
infrastructure
development activities
special situations
$
2010
367
1,064
3
673
31
$
2011
95
1,625
33
426
97
$
2012
499
1,237
—
199
198
$
2013
& after
2,218
3,809
843
114
374
$
proportionate
total
3,179
7,735
879
1,412
700
$
2,138
$
2,276
$
2,133
$
7,358
$ 13,905
Renewable power generation and commerical properties borrowings are described in greater detail on
pages 26 and 31, respectively. Development includes borrowings associated with our commercial office
developments in North America and Australia and properties within our Opportunity fund.
2009 annual report
61
capital securities
Capital securities are preferred shares that are convertible into common equity at our option, but are
classified as liabilities for GAAP purposes, because the holders of the preferred shares have the right,
after a fixed date, to convert the shares into common equity based on the market price of our common
shares at that time unless previously redeemed by us.
(millions)
issued by the corporation
issued by Brookfield properties corporation
proportionate
consolidated
average term
to conversion
4
5
$
2009
632
504
5
$ 1,136
2008
543
441
984
$
$
$
2009
632
1,009
$
2008
543
882
$ 1,641
$
1,425
The carrying values of existing capital securities increased slightly due to the higher Canadian dollar, in
which most of these securities are denominated. The average distribution yield on the capital securities at
December 31, 2009 was 6% (December 31, 2008 – 6%) and the average term to the holders’ conversion date
was five years (December 31, 2008 – six years).
non-controlling interests in net assets
Interests of co-investors in net assets are comprised of two components: participating interests held by
other holders in our funds and subsidiary companies, and non-participating preferred equity issued by
subsidiaries.
as at decemBer 31 (millions)
participating interests
renewable power generation
commercial properties
Brookfield properties corporation
property funds and other
infrastructure
timberlands
utilities/transportation
development activities
Brookfield homes corporation
Brookfield incorporações s.a.
Brookfield real estate
opportunity Funds
specialty situations
investments
non-participating interests
Brookfield australia
Brookfield properties corporation
number of shares /% interest
Book value
2009
2008
2009
2008
various
various
$
148
$
192
252.0 / 49%
various
196.6 / 49%
various
various
various
various
various
11.2 / 40%
249.7 / 57%
various
11.2 / 47%
149.4 / 57%
various
various
various
various
various
2,438
783
1,166
718
147
909
166
1,479
228
8,182
392
395
787
1,760
437
995
246
176
446
127
1,186
310
5,875
324
122
446
$
8,969
$
6,321
The value of non-controlling interests in net assets held by other investors increased from $6.3 billion
at the end of 2008 to $9.0 billion at the end of 2009 on a book value basis. The increase in the book value
of participating interests in Brookfield Properties of $678 million reflects $500 million of common equity
to shareholders other than the Corporation as part of a $1 billion common equity issue completed in
2009. Non-participating interests in Brookfield Properties increased due to a C$288 million preferred
equity issue. We issued $530 million of common equity from Brookfield Incorporações S.A. to minority
shareholders during the year. The increase in the special situations segment reflects the consolidation of
several businesses in which we increased our interest during the year. Balances associated with non-U.S.
businesses also increased in line with the higher foreign currency rates.
62
BrookField asset management
contractual obligations
The following table presents the contractual obligations of the company by payment periods:
as at decemBer 31, 2009 (millions)
long-term debt
property-specific mortgages
other debt of subsidiaries
corporate borrowings
capital securities
lease obligations
commitments
interest expense1
long-term debt
capital securities
interest rate swaps
total
26,731
3,663
2,593
1,641
1,599
1,285
6,085
480
329
less than
one year
2,777
842
200
—
36
1,285
1,677
22
82
payments due by period
2 – 3
years
9,936
1,204
810
425
43
—
2,449
267
230
4 – 5
years
4,656
224
582
614
32
—
1,537
132
14
after 5
years
9,362
1,393
1,001
602
1,488
—
422
59
3
1.
represents aggregate interest expense expected to be paid over the term of the obligations. variable interest rate payments have been calculated
based on current rates
Commitments of $1,285 million (2008 – $1,269 million) represent various contractual obligations of the
company and its subsidiaries assumed in the normal course of business, including commitments to
provide bridge financing, and letters of credit and guarantees provided in respect of power sales contracts
and reinsurance obligations, of which $244 million (2008 – $211 million) is included as liabilities in the
consolidated balance sheets.
corporate dividends
The distributions paid by Brookfield on outstanding securities during the past three years are as follows:
class a common shares
class a common shares – special 1
class a preferred shares
series 2
series 4 + series 7
series 8
series 9
series 10
series 11
series 12
series 13
series 14
series 15
series 17 2
series 18 3
series 21 4
series 22 5
preferred securities
due 2050 6
due 2051 7
issued november 20, 2006
issued may 9, 2007
issued June 25, 2008
issued June 4, 2009
1. represents the book value of Brookfield infrastructure special dividend
2.
3.
4.
5.
6. redeemed January 2, 2007
7. redeemed July 3, 2007
distribution per security
$
2009
0.52
—
0.39
0.39
0.56
0.96
1.26
1.21
1.19
0.39
1.47
0.25
1.04
1.04
1.10
0.92
—
—
$
2008
0.51
0.94
0.83
0.83
1.18
1.02
1.35
1.29
1.27
0.83
3.06
0.99
1.12
1.12
0.58
—
—
—
$
2007
0.47
—
0.99
0.99
1.10
1.01
1.34
1.28
1.26
0.99
3.57
1.15
1.11
0.71
—
—
0.01
0.95
2009 annual report
63
off Balance sheet arrangements
We conduct our operations primarily through entities that are fully or proportionately consolidated in our
financial statements. We do hold non-controlling interests in entities which are accounted for on an equity
basis, as are interests in some of our funds, however we do not guarantee any financial obligations of
these entities other than our contractual commitments to provide capital to a fund, which are limited to
predetermined amounts.
We utilize various financial instruments in our business to manage risk and make better use of our capital.
The fair values of these instruments that are reflected on our balance sheets, are disclosed in Note 17 to
our Consolidated Financial Statements and under Financial and Liquidity Risks beginning on page 74.
Basic and diluted earnings Per share
The components of basic and diluted earnings per share are summarized in the following table:
operating cash Flow
net income
For the years ended decemBer 31 (millions)
net income/operating cash flow
preferred share dividends
net income available for common shareholders
weighted average – common shares
dilutive effect of the conversion of options using treasury stock method
common shares and common share equivalents
2009
$ 1,450
(43)
$
2008
1,423
(44)
$ 1,407
$
1,379
$
$
572
8
580
581
11
592
issued and outstanding common shares
The number of issued and outstanding common shares changed as follows:
For the years ended decemBer 31 (millions)
outstanding at beginning of year
issued (repurchased)
dividend reinvestment plan
management share option plan
issuer bid purchases
outstanding at end of year
unexercised options
total diluted common shares at end of year
2009
454
(43)
411
572
8
580
2009
572.6
0.2
1.6
(1.5)
572.9
34.9
607.8
$
$
2008
649
(44)
605
581
11
592
2008
583.6
0.2
3.0
(14.2)
572.6
27.7
600.3
In calculating our book value per common share, the cash value of our unexercised options of
$634 million (2008 – $446 million) is added to the book value of our common share equity of $6,403 million
(2008 – $4,911 million) prior to dividing by the total diluted common shares presented above.
As of March 30, 2010 the Corporation had outstanding 573,790,494 Class A Limited Voting Shares and
85,120 Class B Limited Voting Shares.
64
BrookField asset management
consolidated statements of casH flows
The following table summarizes the company’s cash flows on a consolidated basis:
For the years ended decemBer 31 (millions)
operating activities
Financing activities
investing activities
increase / (decrease) in cash and cash equivalents
2009
$ 1,175
1,344
(2,386)
$
2008
1,612
(1,121)
(810)
$
133
$
(319)
operating activities
Cash flow from operating activities is reconciled to the operating cash flow measure utilized elsewhere in
this report as follows:
For the years ended decemBer 31 (millions)
operating cash flow
adjust for:
net change in working capital balances and other
realization gains
undistributed non-controlling interests in cash flow
cash flow from operating activities
2009
$ 1,450
2008
1,423
$
(519)
(413)
657
(234)
(164)
587
$ 1,175
$
1,612
The operating cash flow generated within consolidated entities that is attributable to other investors,
and therefore not included in our own operating cash flow, exceeded the amounts distributed to those
investors by $657 million (2008 – $587 million). This cash flow is available to reinvest in the businesses,
reduce debt or to fund future distributions.
financing activities
We generated $1.3 billion of cash from financing activities in 2009, compared to the utilization of $1.1 billion
in 2008. We raised $2.6 billion (2008 – $410 million) of net equity from investors from the public and private
markets through the issuance of common and preferred shares, capital securities and fund capital. These
proceeds were used to pursue acquisition and development activities included under Investing Activities,
to delever certain business units and to temporarily repay revolving credit facilities, as reflected in the
cash used to reduce property-specific borrowings and other debt of subsidiaries.
investing activities
We invested net capital of $2.4 billion in 2009 on a consolidated basis, compared with $0.8 billion in 2008. We
acquired a global portfolio of infrastructure assets in the fourth quarter of 2009 for $1.1 billion. In addition,
we continued to invest in renewable power and commercial properties developments and completed a
number of smaller investments across our operating platforms.
2009 annual report
65
Balance sheet
(millions)
assets
operating assets
property, plant and equipment
renewable power generation
commercial properties
infrastructure
development activities
other plant and equipment
cash and cash equivalents
Financial assets
loans and notes receivable
investments
accounts receivable and other
intangible assets
goodwill
total assets
liabilities
corporate borrowings
non-recourse borrowings
renewable
power
commercial
properties
infrastructure
development
activities
special
situations
cash and
Financial
assets
other
assets
corporate
consolidated
Financial
statements
as at decemBer 31, 2009
$ 5,638
—
—
—
—
155
(37)
—
—
1,256
—
31
$ — $ — $ — $ — $ — $ — $ — $ 5,638
22,263
3,247
8,411
2,105
1,375
2,373
1,796
1,924
8,605
1,822
2,343
21,339
—
2,007
7
390
489
—
535
1,768
764
419
—
—
5,961
4
316
(148)
—
28
2,845
439
311
—
3,247
256
—
58
10
—
1,320
184
312
591
924
—
76
2,068
324
370
1,639
17
1,314
127
34
—
—
—
—
41
1,689
157
24
—
—
—
—
—
111
26
91
—
—
—
1,238
180
957
—
—
—
—
—
—
—
—
—
—
—
$ 7,043
$ 27,718
$ 5,978
$ 9,756
$ 6,893
$ 1,911
$ 2,603
$ — $ 61,902
$ — $ — $ — $ — $ — $ — $ — $ 2,593
$ 2,593
property-specific borrowings
subsidiary borrowings
accounts payable and other liabilities
capital securities
non-controlling interests
shareholders’ equity
preferred equity
common equity / net invested capital
4,131
1,144
806
—
147
—
815
16,133
551
2,374
1,009
3,386
—
4,265
2,066
—
806
—
1,882
—
1,224
2,431
475
2,754
—
1,867
—
2,229
1,844
679
1,003
—
1,630
—
1,737
126
33
38
—
57
—
2
765
—
—
—
779
2,212
632
—
26,731
3,663
10,758
1,641
8,969
—
1,657
—
1,836
1,144
(7,360)
1,144
6,403
total liabilities and shareholders’ equity
$ 7,043
$ 27,718
$ 5,978
$ 9,756
$ 6,893
$ 1,911
$ 2,603
$ — $ 61,902
net invested capital at underlying value
$ 8,318
$ 4,841
$ 1,546
$ 2,403
$ 1,631
$ 1,645
$ 1,748
$ (6,032)
$ 16,100
results from operations
For the year ended decemBer 31, 2009
asset
management
renewable
power
commercial
properties
infrastructure
development
activities
special
situations
investment
income / gains
corporate
consolidated
Financial
statements
$
298
$ — $ — $ — $ — $ — $ — $ — $
298
—
—
—
—
—
—
298
—
—
—
—
1,138
—
—
—
—
—
1,138
342
—
25
111
660
—
1,772
—
—
—
82
1,854
888
120
13
477
356
$
—
—
109
9
—
96
214
98
9
12
31
64
$
—
—
—
320
—
6
326
72
—
(14)
134
—
(2)
—
—
119
192
309
85
14
(43)
141
—
—
—
—
—
376
376
32
—
—
(2)
—
—
—
—
—
—
—
267
250
3
—
1,138
1,770
109
329
119
752
4,515
1,784
393
(4)
892
$
134
$
112
$
346
$
(520)
$ 1,450
(millions)
Fees earned
revenues less direct operating costs
renewable power generation
commercial properties
infrastructure
development activities
special situations
investment and other income
expenses
interest
operating costs
current income taxes
non-controlling interests
cash flow from operations
$
298
$
66
BrookField asset management
Balance sheet
(millions)
assets
operating assets
property, plant and equipment
renewable power generation
commercial properties
infrastructure
development activities
other plant and equipment
cash and cash equivalents
Financial assets
loans and notes receivable
investments
accounts receivable and other
intangible assets
goodwill
total assets
liabilities
corporate borrowings
non-recourse borrowings
renewable
power
commercial
properties
infrastructure
development
activities
special
situations
cash and
Financial
assets
other
assets
corporate
consolidated
Financial
statements
as at decemBer 31, 2008
$ 4,954
—
—
—
—
138
219
—
—
1,135
—
27
$
— $
19,274
—
2,324
27
433
(71)
—
252
1,446
911
321
— $
—
2,879
105
—
61
—
—
544
228
5
591
— $
—
—
5,066
—
125
(305)
—
37
1,666
460
234
— $
—
—
47
1,933
293
384
1,921
29
1,353
125
46
— $
—
—
—
—
156
1,844
140
28
—
—
—
— $
—
—
124
32
36
—
—
—
1,097
131
792
— $ 4,954
19,274
—
2,879
—
7,666
—
1,992
—
1,242
—
2,071
—
2,061
—
890
—
6,925
—
1,632
—
2,011
—
$ 6,473
$ 24,917
$ 4,413
$ 7,283
$ 6,131
$ 2,168
$ 2,212
$
— $ 53,597
$
— $
— $
— $
— $
— $
— $
— $ 2,284
$ 2,284
property-specific borrowings
subsidiary borrowings
accounts payable and other liabilities
capital securities
non-controlling interests
shareholders’ equity
preferred equity
common equity / net invested capital
3,588
652
826
—
192
—
1,215
15,219
831
2,556
882
2,207
—
3,222
1,648
140
624
—
1,241
—
760
2,490
394
1,804
—
1,184
—
1,411
1,298
815
937
—
1,409
—
1,672
155
86
—
—
88
—
—
754
—
—
—
675
2,294
543
—
—
1,839
—
1,458
870
(6,666)
24,398
3,593
9,795
1,425
6,321
870
4,911
total liabilities and shareholders’ equity
$ 6,473
$ 24,917
$ 4,413
$ 7,283
$ 6,131
$ 2,168
$ 2,212
$
— $ 53,597
net invested capital at underlying value
$ 8,478
$ 4,702
$ 1,174
$ 1,426
$ 1,622
$ 1,903
$ 1,305
$ (5,741)
$ 14,869
results from operations
For the year ended decemBer 31, 2008
asset
management
renewable
power
commercial
properties
infrastructure
development
activities
special
situations
investment
income / gains
corporate
consolidated
Financial
statements
$
289
$ — $ — $ — $ — $ — $ — $ — $
289
(millions)
Fees earned
revenues less direct operating costs
renewable power generation
commercial properties
infrastructure
development activities
special situations
investment and other income
expenses
interest
operating costs
current income taxes
non-controlling interests
—
—
—
—
—
—
289
—
—
—
—
cash flow from operations
$
289
$
886
—
—
—
—
—
886
313
—
21
86
466
—
1,831
—
(1)
—
132
1,962
1,090
109
15
451
$
297
$
—
—
196
5
—
153
354
102
15
13
83
141
—
—
—
160
—
(25)
135
50
—
(73)
98
$
60
$
—
—
—
2
304
208
514
107
19
8
97
283
—
—
—
—
—
476
476
56
—
—
(5)
—
—
—
—
—
—
—
266
263
9
—
886
1,831
196
166
304
944
4,616
1,984
406
(7)
810
$
425
$
(538)
$ 1,423
2009 annual report
67
part 4
BUSINESS STRATEGY, ENVIRONMENT AND RISKS
In this section we discuss our business strategy, our capabilities as they relate to our ability to execute
our strategy and our approach to financings, the key performance factors that form an integral part of this
strategy and key financial measures that are indicative of our progress. This section also contains a review
of certain aspects of the business environment and risks that could affect our performance.
Business strategy
We are a global asset management company focused on property, renewable power and infrastructure
assets. We have spent many years building high quality operating platforms that enable us to acquire,
finance and optimize the value of assets for our own benefit, and for our clients whose capital we manage.
We believe that the best way to create long-term shareholder value is to generate increasing operating
cash flows and net asset value, measured on a per share basis, over a very long period of time. Accordingly,
we concentrate on high quality long-life assets that generate sustainable cash flows, require minimal
sustaining capital expenditures and tend to appreciate in value over time. Often these assets will benefit
from some form of barrier to entry due to regulatory, physical or cost structure factors. While high quality
assets may initially generate lower returns on capital, we believe that the sustainability and future growth
of their cash flows are more assured over the long term, and as a result, warrant higher valuation levels.
We also believe that the high quality of our asset base protects the company against future uncertainty
and enables us to invest with confidence when opportunities arise.
Consistent with this focus, we own and operate large portfolios of hydroelectric power generating stations,
office properties, private timberlands and regulated transportation and utility systems that, in our opinion,
share these common characteristics. These assets represent important components of the infrastructure
that supports the global economy.
We believe the demand from institutional investors to own assets of this nature is increasing as they
seek to earn increasing yields to meet their investment objectives. These assets, in our view, represent
attractive alternatives to traditional fixed income investments, providing in many cases a “real return” that
increases over time, relatively low volatility and strong capital protection. There is a substantial supply of
investment opportunities in the form of existing assets as well as the need for continued development in an
ever expanding global economy. At the same time, we believe there are relatively few global organizations
focused on managing assets of this nature as a primary component of their strategy.
Accordingly, an important component of our long-term strategy for growth is centred around expanding
our assets under management, which should lead to increased fee revenues and long-term opportunities
to earn performance returns. We plan to achieve this within our existing operating platforms, and by
developing and acquiring platforms to operate new asset classes that demonstrate characteristics that
are similar to our existing assets. We also plan to achieve growth by expanding our distribution capabilities
to access a broader range of investment partners, thereby increasing our access to capital. This increased
capital, when coupled with new investment opportunities, should increase our assets under management
and the associated income as well as direct investment returns, thereby increasing shareholder value.
68
BrookField asset management
capabilities
We believe that we have the necessary capabilities to execute our business strategy and achieve our
performance targets. We focus on disciplined and active hands-on management of assets and capital. We
strive for excellence and quality in each of our core operating platforms in the belief that this approach
will produce superior returns over the long term.
We endeavour to operate as a value investor and follow a disciplined investment approach. Our management
team has considerable capabilities in investment analysis, mergers and acquisitions, divestitures and
corporate finance that enable us to acquire assets for value, finance them effectively, and to ultimately
realize value created during our ownership.
Our operating platforms and depth of experience in managing these assets differentiate us from some
competitors that have shorter investment horizons and more of a financial focus. Over time we have
established a number of high quality operating platforms that are fully integrated into our organization.
This has required considerable investment in building the management teams and the necessary resources;
however, we believe these platforms enable us to optimize the cash returns and values of the assets that
we manage.
We have established strong relationships with a number of leading institutions and believe we are well
positioned to expand our sources of co-investment capital and clients. In order to expand our assets under
management, we are investing in our distribution capabilities to encourage existing and potential clients
to commit capital to our investment strategies. We are devoting expanded resources to these activities,
and our efforts continue to be assisted by strong investment performance.
The diversification within our operations allows us to offer a broad range of products and investment
strategies to our clients. We believe this is of considerable value to investors with large amounts of capital
to deploy. In addition, our commitment to transparency and governance as a well-capitalized public
company listed on major North American and European stock exchanges positions us as a desirable long-
term partner for our clients.
Finally, our commitment to invest a meaningful amount of capital alongside our investors creates a strong
alignment of interest between us and our investment partners and also differentiates us from many of our
competitors. Accordingly, our strategy calls for us to maintain considerable surplus financial resources
relative to other managers. This capital also supports our ability to commit to investment opportunities on
our own account when appropriate or in anticipation of future syndications.
financing approach
The strength of our capital structure and the liquidity that we maintain enable us to achieve a low cost of
capital for our shareholders and at the same time provide us with the flexibility to react quickly to potential
investment opportunities and adverse changes in economic circumstances, such as we have witnessed
over the past 18 months.
The following are the key elements of our capital strategy:
• Match fund our long-life assets with long-duration mortgage financings with a diversified maturity
schedule;
• Provide recourse only to the specific assets being financed, with limited cross collateralization or
parental guarantees;
• Limit borrowings to investment grade levels based on anticipated performance throughout a business
cycle;
• Structure our affairs to facilitate access to capital and liquidity at multiple levels of the organization;
and
• Maintain access to a broad range of financing markets.
As a result of the foregoing, most of our borrowings are in the form of long-term, property-specific
financings such as mortgages or project financings secured only by the specific assets. The diversification
of our maturity schedule means that financing requirements in any given year are manageable. Limiting
2009 annual report
69
recourse to specific assets or business units ensures that weak performance by one asset or business unit
does not compromise our ability to finance the balance of the operations.
Our focus on structuring financings with investment grade characteristics ensures that debt levels on any
particular asset or business can typically be maintained throughout a business cycle, and also enables
us to limit covenants and other performance requirements, thereby reducing the risk of early payment
requirements or restrictions on the distribution of cash from the assets being financed. Furthermore,
our ability to finance at the parent, operating unit, and asset level on a private or public basis means that
we are not overly dependent on any particular segment of the capital markets or the performance of any
particular unit.
To enable us to react to attractive investment opportunities and deal with contingencies when they arise,
we typically maintain a high level of liquidity at the corporate level and within our key operating platforms.
Our primary sources of liquidity, which we refer to as “core liquidity,” consist of our cash and financial
assets, net of deposits and other associated liabilities, and undrawn committed credit facilities.
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.
key Performance factors
Our ability to increase our operating cash flows is impacted by our ability to generate attractive returns
on the capital invested on behalf of ourselves and our clients, and our ability to increase the amount of
the capital that we manage on behalf of our clients. These two criteria are linked, in that the quality of our
investment returns will encourage clients to commit capital to us, and our access to this capital will enable
us to pursue a broader range of investment opportunities.
Investment returns are influenced by a number of factors that are specific to each asset and industry
segment. There are however, four key objectives that we focus on across the organization.
• Acquire assets “for value”: meaning that the projected cash flows and value appreciation of the asset
represent an attractive risk-adjusted return to ourselves and our co-investors.
• Optimize the cash returns and value of the asset on an ongoing basis. In most cases, this is the
responsibility of one of our operating platforms, and is evidenced by the return on asset metrics and
operating margins.
• Finance assets effectively, using a prudent amount of leverage. We believe the majority of assets are well
suited to support a relatively high level of investment grade secured debt with long maturity dates given
the predictability of the cash flows and tendency of these assets to retain substantial value throughout
economic cycles. This is reflected in our return on net capital deployed, our overall return on capital and
our cost of capital.
• Position our assets so that they can be easily monetized through a sale or refinancing. While we tend to
hold our assets for extended periods of time, we endeavor to maximize our ability to realize the value and
liquidity of our assets on short notice.
Expanding our client relationships is impacted not only by our investment returns, as discussed above, but
also by the quality of our distribution capabilities and by maintaining a high level of ongoing client service.
This involves transparent and timely communication of results, ongoing engagement and responsiveness
to client objectives and generation of attractive investment opportunities.
70
BrookField asset management
key financial measures
Our key performance measures are total return, which are the increase the underlying value together with
dividends, and the long-term growth rate of operating cash flow, both on a per share basis. We also measure
the cash return on book equity, which demonstrates how effective we are at deploying the capital with
which we have been entrusted by shareholders. Our goal is to achieve growth rates in these measures of
between 12% and 15%, measured over a long-term basis, respectively. We revisit these targets periodically
in light of the current operating environment to ensure that they are realistic and can be achieved without
exposing the organization to inappropriate risk.
The amount of co-investor capital commitments is also an important measure. One of our objectives is to
expand the amount of capital committed to us by our clients because this provides us with capital to expand
our business and also entitles us to earn asset management income based on our ability to successfully
invest this capital. Asset management income is an important measure in that it is indicative of the cash
flow generated from our asset management activities, which is an important source of potential growth in
our operating cash flows.
We utilize operating cash flow as a key operating metric as opposed to net income, principally because
operating cash flow does not include certain items such as depreciation and amortization expense, and
future income tax expense.
Depreciation as prescribed by GAAP, for example, implies these assets decline in value on a pre-determined
basis over time, whereas we believe that the value of most of our assets, as long as regular sustaining
capital expenditures are made, will typically increase over time. This increase in value will inevitably
vary based on a number of market and other conditions that cannot be determined in advance, and may
sometimes be negative in a particular period. Future income tax expense, in our case, is derived primarily
from changes in the magnitude and quality of our tax losses and the differences between the tax values
and book values of our assets, as opposed to current cash liabilities. Brookfield has access to significant
tax shields as a result of the nature of our asset base, and we do not expect to incur any meaningful cash
tax liability in the near future from ongoing operations.
definitions
The following are definitions of the key metrics used in this MD&A to measure performance, operating
profile and financial position.
Operating Cash Flow is a key measure of our financial performance. This is not a generally accepted
accounting principle (“GAAP”) measure and differs from net income, and may differ from definitions
of operating cash flow used by other companies. We define operating cash flow as net income prior to
such items as depreciation and amortization, future income tax expense and certain non-cash items that
in our view are not reflective of the performance of the underlying operations. We provide this measure
to investors as a measurement tool which we believe assists in analysis of the company, in addition to
other traditional measures, which we also provide. We recognize the importance of net income as a GAAP
measure to investors and provide a full reconciliation between these measures.
Invested Capital is the amount of capital, measured based on underlying values, that we have invested in
a particular business or asset. It is shown net of the associated financial obligations and interests of other
shareholders. We reconcile invested capital to our consolidated financial statements on pages 66 and 67
of the MD&A.
Underlying Values are prepared using the procedures and assumptions that we intend to follow in preparing
our financial statements under IFRS. They reflect most of our tangible assets at fair value with corresponding
adjustments to non-controlling interests and shareholders’ equity. We have included adjustments to
reflect the value of certain assets not carried at fair value under IFRS such as including residential land
inventories that are carried at the lower cost or market value and investments that are carried at historical
cost and designated these amounts as “unrecognized value under IFRS” in determining underlying value.
We utilize underlying values on a pre-tax basis in assessing the performance of our business. We do this
because the tax liabilities established under accounting guidelines are calculated on the basis that we
were to liquidate the business based on the same underlying values at the balance sheet date, whereas
we have no intention to do this. To the contrary, we expect to hold most of our assets for extended periods
2009 annual report
71
of time or otherwise defer this liability. We note that the deferred tax liability is similar in this sense to
the float in an insurance company which is available for investment to the benefit of shareholders for an
extended period of time or even indefinitely.
Assets Under Management include assets managed by us on behalf of our clients, as well as our own assets.
We invest capital alongside our clients in many of our funds, and we continue to own a number of assets
that we acquired prior to the formation of our asset management operations and are therefore not part of
any fund. Assets under management are based on underlying values consistent with the balance of the
MD&A values. Assets under management also include capital commitments that have not yet been drawn.
Our calculation of assets under management may differ from that employed by other asset managers and,
as a result, this measure may not be comparable to similar measures presented by other asset managers.
Co-investor Commitments represent capital that has been committed to us to invest on behalf of the client.
We typically, but not always, earn base management fees on this capital from the time that the commitment
to the fund is effective, during the period of time until the capital is invested (commonly referred to as
the investment period) until such time as the investments are monetized and the proceeds returned to
the client. In certain cases clients retain the right to approve individual investments before providing the
capital to fund them. In these cases, we refer to the capital as “pledged” or “allocated”. Committed capital
includes invested capital and commitments or allocations that have not yet been invested.
Uninvested commitments represent capital available to us to invest and form part of our overall liquidity
for these purposes.
Business enVironment and risks
The following is a review of certain risks that could adversely impact our financial condition, results of
operations and the value of our common shares. Additional risks and uncertainties not previously known
to the Corporation, or that the Corporation currently deems immaterial, may also impact our operations
and financial results.
general risks
We are exposed to the local, regional, national and international economic conditions and other events
and occurrences that affect the markets in which we own assets and operate businesses. In general, a
protracted decline in economic conditions will result in downward pressure on our operating margins and
asset values as a result of lower demand for the services and products that we provide. We believe that the
long-life nature of our assets and, in many cases, the long-term nature of revenue contracts mitigates this
risk to some degree.
Each segment of our business is subject to competition in varying degrees. This can result in downward
pressure on revenues which can, in turn, reduce operating margins and thereby reduce operating cash
flows and investment returns. In addition, competition could result in scarcity of inputs which can impact
certain of our businesses through higher costs. We believe that the high quality and low operating costs of
many of our assets and businesses provide some measure of protection in this regard.
A number of our long-life assets are interest rate sensitive: an increase in long-term interest rates will,
absent all else, tend to decrease the value of the assets. We mitigate this risk in part by financing assets
with long-term fixed rate debt, which will typically decrease in value as rates increase. In addition, we
believe that many conditions that lead to higher interest rates, such as inflation, can also give rise to
higher revenues which will, absent all else, tend to increase asset values.
The trading price of our common shares in the open market cannot be predicted. The trading price could
fluctuate significantly in response to factors such as: variations in our quarterly or annual operating results
and financial condition; changes in government regulations affecting our business; the announcement of
significant events by our competitors; market conditions and events specific to the industries in which
we operate; changes in general economic conditions; differences between our actual financial and
operating results and those expected by investors and analysts; changes in analysts’ recommendations
or projections; the depth and liquidity of the market for our common shares; investor perception of our
business and industry; investment restrictions; and our dividend policy. In addition, securities markets
have experienced significant price and volume fluctuations in recent years that have often been unrelated
72
BrookField asset management
or disproportionate to the operating performance of particular companies. These broad fluctuations have,
in the past, and may, in the future, adversely affect the trading price of our common shares.
execution of strategy
Our strategy for building shareholder value is to acquire or develop high quality assets and businesses that
generate sustainable and increasing cash flows on behalf of ourselves and co-investors, with the objective
of achieving higher returns on our invested capital and our asset management activities over the long
term. Our diversified business base, liquidity and the sustainability of our cash flows provide important
elements of strength.
We consider effective capital allocation to be one of the most important components to achieving long-
term investment success. As a result, we apply a rigorous approach towards the allocation of capital among
our operations. Capital is invested only when the expected returns exceed pre-determined thresholds,
taking into consideration both the degree and magnitude of the relative risks and upside potential and, if
appropriate, strategic considerations in the establishment of new business activities.
The successful execution of a value investment strategy requires careful timing and business judgment,
as well as the resources to complete asset purchases and restructure them as required, notwithstanding
difficulties experienced in a particular industry.
We endeavour to maintain an appropriate level of liquidity in order to invest on a value basis when
attractive opportunities arise. Our approach to business entails adding assets to our existing businesses
when the competition for assets is lowest, either due to depressed economic conditions or when concerns
exist relating to a particular industry. However, there is no certainty that we will be able to acquire or
develop additional high quality assets at attractive prices to supplement our growth. Conversely, overly
favourable economic conditions can limit the number of attractive investment opportunities and thereby
restrict our ability to increase assets under management and the related benefits. Competition from other
well-capitalized investors may significantly increase the purchase price or prevent us from completing
an acquisition. We may be unable to finance acquisitions on favourable terms, or newly acquired assets
and businesses may fail to perform as expected. We may underestimate the costs necessary to bring an
acquisition up to standards established for its intended market position or may be unable to quickly and
efficiently integrate new acquisitions into our existing operations.
We develop property, power generation and other infrastructure assets. In doing so, we must comply with
extensive and complex regulations affecting the development process. These regulations impose on us
additional costs and delays, which may adversely affect our business and results of operations. In particular,
we are required to obtain the approval of numerous governmental authorities regulating matters such as
permitted land uses, levels of density, the installation of utility services, zoning and building standards.
We must comply with local, state and federal laws and regulations concerning the protection of health
and the environment, including laws and regulations with respect to hazardous or toxic substances. These
environmental laws and regulations sometimes result in delays, which cause us to incur additional costs,
or severely restrict development activity in environmentally sensitive regions or areas.
Our ability to successfully expand our asset management activities is dependent on our reputation with
our current and potential investment partners. We believe that our track record and recent investments, as
well as adherence to operating principles that emphasize a constructive management culture, will enable
us to continue to develop productive relationships with institutional investors. However, competition for
institutional capital, particularly in the asset classes on which we focus, is intense. Although we seek to
differentiate ourselves there is no assurance that we will be successful in doing so and this competition
may reduce the margins of our asset management business and may decrease the extent of institutional
investor involvement in our activities.
The decline in market value of financial instruments and other investments has had an adverse effect on
the investment portfolios of the insurance companies, pension funds, endowments, sovereign wealth funds
and other institutional investors that we seek to partner with in our investments although this situation
improved somewhat due to strong capital market returns during the second half of 2009. In the long run, we
believe that investors will be increasingly attracted to our approach to asset management which focuses
on high quality real assets, conservative financing and an operations-based approach to creating value. In
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the nearer term, however, the financial market dynamics may reduce the ability of our investment partners
to commit to new investments unless they are pursuant to existing commitments.
Our executive and other senior officers have a significant role in our success. Our ability to retain our
management group or attract suitable replacements should any members of the management group
leave is dependent on the competitive nature of the employment market. The loss of services from key
members of the management group or a limitation in their availability could adversely impact our financial
condition and cash flow. Further, such a loss could be negatively perceived in the capital markets. The
conduct of our business and the execution of our growth strategy rely heavily on teamwork. Co-operation
amongst our operations and our team-oriented management structure is essential to responding promptly
to opportunities and challenges as they arise. We believe that our hiring and compensation practices
encourage retention and teamwork, and reward executives for performance over the long term in a manner
that places an appropriate emphasis on risk management, and encourages, and appropriately matches
rewards, with long-term value creation.
We participate in joint ventures, partnerships, co-tenancies and funds affecting many of our assets and
businesses. Investments in partnerships, joint ventures, co-tenancies or other entities may involve risks
not present were a third party not involved, including the possibility that our partners, co-tenants or co-
venturers might become bankrupt or otherwise fail to fund their share of required capital contributions.
Additionally, our partners, co-venturers or co-tenants might at any time have different economic or other
business interests or goals. In addition, we do not have sole control of certain major decisions relating
to these assets and businesses, including: decisions relating to the sale of the assets and businesses;
refinancing; timing and amount of distributions of cash from such entities to the Corporation; and capital
expenditures.
Some of our management arrangements permit our partners to terminate the management agreement
in limited circumstances relating to enforcement of the managers’ obligations. In addition, the sale or
transfer of interests in some of our assets or entities is subject to rights of first refusal or first offer and
some agreements provide for buy-sell or similar arrangements. Such rights may be triggered at a time
when we may not want to sell but may be forced to do so because we may not have the financial resources
at that time to purchase the other party’s interest. Such rights may also inhibit our ability to sell our
interest in an entity within our desired time frame or on any other desired basis.
financial and liquidity risks
We employ debt and other forms of leverage in the ordinary course of our business in order to enhance
returns to shareholders and our co-investors. We attempt to match the profile of the leverage to the
associated assets and accordingly typically fund shorter-duration floating rate assets with shorter-term
floating rate debt and fund long-term fixed rate and equity-like assets with long-term fixed rate and equity
capital. Most of the debt within our business has recourse only to the assets or subsidiary being financed
and has no recourse to the Corporation.
Accordingly, we are subject to the risks associated with debt financing. These risks, including the following,
may adversely affect our financial condition and results of operations: our cash flow may be insufficient
to meet required payments of principal and interest; payments of principal and interest on borrowings
may leave us with insufficient cash resources to pay operating expenses; we may not be able to refinance
indebtedness on our assets at maturity due to company and market factors including: the estimated cash
flow of our assets; the value of our assets; liquidity in the debt markets; financial, competitive, business
and other factors, including factors beyond our control; and if refinanced, the terms of a refinancing may
not be as favourable as the original terms of the related indebtedness. We attempt to mitigate these risks
through the use of long-term debt and by diversifying our maturities over an extended period of time. We
also strive to maintain adequate liquidity to refinance obligations.
The terms of our various credit agreements and other financing documents require us to comply with
a number of customary financial and other covenants, such as maintaining debt service coverage and
leverage ratios, insurance coverage and, in limited circumstances, rating levels. These covenants may
limit our flexibility in our operations, and breaches of these covenants could result in defaults under the
instruments governing the applicable indebtedness even if we had satisfied our payment obligations.
If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to utilize
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available liquidity, which would reduce our ability to pursue new investment opportunities, or dispose of
one or more of our assets upon disadvantageous terms. Moreover, prevailing interest rates or other factors
at the time of refinancing could increase our interest expense, and if we pledge assets to secure payment
of indebtedness and are unable to make required payments, the creditor could foreclose upon such asset
or appoint a receiver to receive an assignment of the associated cash flows.
A large proportion of our capital is invested in physical assets which can be hard to sell, especially if local
market conditions are poor. Such liquidity could limit our ability to vary our portfolio or assets promptly in
response to changing economic or investment conditions. Additionally, financial or operating difficulties
of other owners resulting in distress sales could depress asset values in the markets in which we operate
in times of illiquidity. These restrictions could reduce our ability to respond to changes in the performance
of our investments and market conditions and could adversely affect our financial condition and results of
operations.
We periodically enter into agreements that commit us to acquire assets or securities. In some cases we
may enter into such agreements with the expectation that we will syndicate or assign all or a portion of our
commitment to other investors prior to, at the same time as, or subsequent to the anticipated closing. We
may be unable to complete this syndication or assignment which may increase the amount of capital that
we are required to invest. These activities can have an adverse impact on our liquidity which may reduce
our ability to pursue further acquisitions or meet other financial commitments.
We periodically enter into joint venture, consortium or other arrangements that have contingent liquidity
rights in our favour or in favour of our counterparties that may have implications for us. These include
buy-sell arrangements, put and call rights, en-bloc sale rights, registration rights and other customary
arrangements. A counterparty may seek to exercise these rights in response to their own liquidity
considerations or other reasons internal to the counterparty. Our agreements generally have embedded
protective terms that mitigate the risk to us. However, in some circumstances we may need to utilize some
of our own liquidity in order to preserve value or protect our interests.
We enter into financing commitments in the normal course of business and, as a result, may be required
to fund these. Although we do not typically do so, we from time to time guarantee the obligations of funds
or other entities that we manage and/or invest in. If we are unable to fulfill any of these commitments, this
could result in damages being pursued against us or a loss of opportunity through default of contracts that
are otherwise to our benefit.
Our business is impacted by changes in currency rates, interest rates, commodity prices and other financial
exposures. We selectively utilize financial instruments to manage these exposures. The company’s risk
management and derivative financial instruments are more fully described in the notes to our Consolidated
Financial Statements.
We have pursued and intend to continue to pursue growth opportunities in international markets and often
invest in countries where the U.S. dollar is not the notional currency. As a result, we are subject to foreign
currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S.
dollar. A significant depreciation in the value of the foreign currency of one or more countries where we
have a significant investment may have a material adverse effect on our results of operations and financial
position.
We typically finance assets that generate predictable long-term cash flows with long-term fixed rate debt
in order to provide stability in cash flows and protect returns in the event of changes in interest rates. We
also make use of fixed rate preferred equity financing as well as financial contracts to provide additional
protection in this regard. Similarly, we typically finance shorter-term floating rate assets and assets that
are being repositioned or restructured with floating rate debt.
As at December 31, 2009, our net floating rate liability position was $4.4 billion (2008 – liability position of
$1.8 billion). As a result, a 10-basis point increase in interest rates would decrease operating cash flow
by $18 million. We are required to record certain financial instruments at market value and any changes
in value recorded as current income, with the result that a 10-basis point increase in long-term interest
rates will result in a corresponding increase in income of $44 million before tax and vice versa, based on
our year end positions.
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We selectively utilize credit default swaps and other derivatives to hedge financial positions and may
establish unhedged positions from time to time. These instruments are typically utilized as a hedge or an
alternative to purchasing or selling the underlying security when they are more effective from a capital
employment perspective.
renewable Power generating operations
Our power generating operations, which are primarily hydroelectric generating facilities, are subject to
changes in hydrology and price, but also include equipment and dam failure, counterparty performance,
water rental costs, changes in regulatory requirements and other material disruptions.
The revenues generated by our power facilities are correlated to the amount of electricity generated,
which in turn is dependent upon available water flows. Hydrology varies naturally from year to year and
may also change permanently because of climate change or other factors, and a natural disaster could
impact water flows within the watersheds in which we operate.
A significant portion of our power generating operation revenues are tied, either directly or indirectly, to
the wholesale market price for electricity in the markets in which we operate. Wholesale market electricity
prices are impacted by a number of external factors. As a result, we cannot accurately predict future
electricity prices.
A significant portion of the power we generate is sold under long-term power purchase agreements,
shorter-term financial instruments and physical electricity and natural gas contracts that may be above
market. These contracts are intended to mitigate the impact of fluctuations in wholesale electricity prices.
If, however, for any reason any of the counterparties are unable or unwilling to fulfill their contractual
obligations, we may not be able to replace the agreement with an agreement on equivalent terms and
conditions.
There is a risk of equipment failure or dam failure due to wear and tear, latent defect, design error or
operator error, among other things. The occurrence of such failures could result in a loss of generating
capacity and repairing such failures could require the expense of significant amounts of capital and other
resources. Such failures could result also in exposure to significant liability for damages.
We are required to make rental payments and pay property taxes for water rights or pay similar fees for
use of water. Significant increases in water rental costs or fees or changes in the way that governments
regulate water supply could have a material adverse effect on our financial condition.
The operation of our generation assets is subject to extensive regulation by various government agencies
at the municipal, provincial, state and federal level. As legal requirements frequently change and are
subject to interpretation and discretion, we are unable to predict the ultimate cost of compliance with
these requirements or their effect on our operations. Any new law or regulation could require additional
expenditure to achieve or maintain compliance. In addition, we may not be able to renew, maintain or
obtain all necessary licenses, permits and governmental approvals required for the continued operation
or further development of our projects.
Our power generation assets could be exposed to effects of significant events, such as severe weather
conditions, natural disasters, major accidents, acts of malicious destruction, sabotage or terrorism, which
could limit our ability to generate or sell power. In certain cases, some events may not excuse us from
performing our obligations pursuant to agreements with third parties and we may be liable for damages
or suffer further losses as a result. In addition, many of our generation assets are located in remote areas
which makes access for repair of damage difficult.
commercial office Properties
Our strategy is to invest in high quality commercial office properties as defined by the physical
characteristics of the assets and, more importantly, the certainty of receiving rental payments from
large corporate tenants which these properties attract. Nonetheless, we remain exposed to certain risks
inherent in the commercial office property business.
Commercial office property investments are generally subject to varying degrees of risk depending on the
nature of the property. These risks include changes in general economic conditions (such as the availability
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and cost of mortgage funds), local conditions (such as an oversupply of space or a reduction in demand for
real estate in markets in which we operate), the attractiveness of the properties to tenants, competition
from other landlords and our ability to provide adequate maintenance at an economical cost.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments,
insurance costs and related charges, must be made regardless of whether or not a property is producing
sufficient income to service these expenses. Our commercial office properties are subject to mortgages
which require substantial debt service payments. If we become unable or unwilling to meet mortgage
payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its rights
of foreclosure or of sale. We believe the stability and long-term nature of our contractual revenues is an
effective mitigant to these risks.
Our commercial office properties generate a relatively stable source of income from contractual
tenant rent payments. We endeavour to stagger our lease expiry profile so that we are not faced with a
disproportionate amount of space expiring in any one year. Continued growth of rental income is dependent
on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to
fill vacancies. While we believe the long-term outlook for commercial office rents is positive, it is possible
that rental rates could decline, tenant bankruptcies could increase or that renewals may not be achieved
particularly in the event of a protracted disruption in the economy such as the onset of a recession. The
company is, however, substantially protected against short-term market conditions, since most of our
leases are long-term in nature.
Our commercial office portfolio is concentrated in large metropolitan areas, some of which have been or
may be perceived to be subject to terrorist attacks. Furthermore, many of our properties consist of high-
rise buildings, which may also be subject to this actual or perceived threat, which could be heightened in
the event that the United States continues to engage in armed conflict. This could have an adverse effect
on our ability to lease office space in our portfolio. Each of these factors could have an adverse impact on
our operating results and cash flows. Our commercial office property operations have insurance covering
certain acts of terrorism for up to $2.5 billion of damage and business interruption costs. We continue
to seek additional coverage equal to the full replacement cost of our assets; however, until this type of
coverage becomes commercially available on a reasonably economic basis, any damage or business
interruption costs as a result of uninsured acts of terrorism could result in a material cost to the company.
timberlands
The financial performance of our timberland operations depends on the state of the wood products and
pulp and paper industries. Decreases in the level of residential construction activity generally reduce
demand for logs and wood products, resulting in lower revenues, profits and cash flows for our customers.
Depressed prices for wood products, pulp or paper or market irregularities may cause mill operators to
temporarily or permanently shut down their mills if their product prices fall to a level where mill operation
would be uneconomic. Any of these circumstances could significantly reduce the prices that we realize
for our timber and the amount of timber that such operators purchase from us. We endeavour to keep
our harvest plans flexible so that we can reduce harvest levels when prices are low with the objective of
deferring sales until prices recover, however there is no certainty that we will be successful in this regard.
Weather conditions, timber growth cycles, access limitations, aboriginal claims and regulatory
requirements associated with forestry practices, sale of logs and environmental matters, may restrict our
harvesting, as may other factors, including damage by fire, insect infestation, disease, prolonged drought
and other natural and man-made disasters. Although management believes it follows best practices with
regard to forest sustainability and general forest management, there can be no assurance that our forest
management planning, including silviculture, will have the intended result of ensuring that our asset
base appreciates in value over time. If management’s estimates of merchantable inventory are incorrect,
harvesting levels on our timberlands may result in depletion of our timber assets.
utilities
Our utilities infrastructure, which includes electricity transmission systems, natural gas pipeline and
storage system and electricity and gas distribution companies, are located in Canada, the United States,
Chile, Europe, New Zealand and Australia.
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Some of our utilities infrastructure operations are regulated with respect to revenues and they recover
their investment in assets through tolls or regulated rates which are charged to third parties. If our
utilities operations in these jurisdictions require significant capital expenditures to maintain our asset
base, we may not be able to cover such costs through the regulatory framework. In addition, we may be
exposed to disallowance risk in other jurisdictions to the extent that capital expenditures and costs are
not fully recovered through the regulatory framework.
Some of our utilities infrastructure operations have customer contracts as well as concession agreements
in place with public and private sector clients. There is a risk of default on those contractual arrangements
by such clients. As well, our operations with customer contracts could be materially adversely affected by
any material change in the assets, financial condition or results of operations of its customers.
Our utilities operations require large areas of land on which to be constructed and operated. The rights
to use the land can be obtained through freehold title, leases and other rights of use. Although we
believe that we have valid rights to all easements, licences and rights of way necessary for our utilities
operations, not all of our easements, licences and rights of way are registered against the lands to which
they relate and may not bind subsequent owners.
transportation
Our transportation infrastructure, which includes port facilities and a rail operation, are primarily located
in Europe and Australia.
The current economic environment has impacted demand for rail and port services. Further decline in
general domestic and global economic conditions may affect international demand for the commodities
handled by our transportation operations and may lead to bankruptcies or liquidations of one or more
large customers of our transportation operations which could reduce our revenues, increase our bad debt
expense, reduce our ability to make capital expenditures or have other adverse effects.
Some of our transportation operations are subject to a review of their respective access and pricing
arrangements on a periodic basis. The terms of new access and pricing arrangements may result in
changes to the revenue or profitability of such operations.
Our transportation operations may require substantial capital expenditures in the future. Any failure to
make necessary capital expenditures to maintain our operations in the future could impair the ability of our
transportation operations to serve existing customers or accommodate increased volumes. In addition,
we may not be able to recover such investments based upon the rates our operations are able to charge.
Our transportation operations require large areas of land on which to be constructed and operated. The
rights to use the land can be obtained through freehold title, leases and other rights of use. Although
we believe that we have valid rights to all easements, licences and rights of way necessary for our
transportation operations, not all of our easements, licences and rights of way are registered against the
lands to which they relate and may not bind subsequent owners.
residential Properties
We have residential land development and homebuilding operations located in Canada, Brazil, United
States and Australia. These operations are concentrated in areas which we believe have positive long-term
demographic and economic characteristics. Despite this, 2009 was another challenging year for the U.S.
housing industry, as the downturn in the housing market remained intense, further adversely affecting our
operations.
The residential homebuilding and land development industry is cyclical and is significantly affected by
changes in general and local economic and industry conditions, such as consumer confidence, employment
levels, availability of financing for homebuyers and interest rates, levels of new and existing homes for sale,
demographic trends and housing demand. Competition from rental properties and resale homes, including
homes held for sale by investors and foreclosed homes, may reduce our ability to sell new homes, depress
prices and reduce margins for the sale of new homes. Homebuilders are also subject to risks related
to availability and cost overruns. Furthermore, the market value of undeveloped land, buildable lots and
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housing inventories held by us can fluctuate significantly as a result of changing economic and real estate
market conditions. If there are significant adverse changes in economic or real estate market conditions,
we may have to sell homes at a loss or hold land in inventory longer than planned. Inventory carrying
costs can be significant and can result in losses in a poorly performing project or market. Our residential
property operations may be particularly affected by changes in local market conditions in California,
Virginia, Alberta and Brazil where we derive a large proportion of our residential property revenue.
Virtually all of our customers finance their home acquisitions through lenders providing mortgage financing.
Mortgage rates have recently been at or near their lowest levels in many years. Despite this, and given the
dramatic issues being experienced in the mortgage markets in the U.S. and by many lenders, fewer loan
products and tighter loan qualification requirements have made it more difficult for borrowers to procure
mortgages.
Even if potential customers do not need financing, changes in interest rates and mortgage availability
could make it harder for them to sell their homes to potential buyers who need financing, which in the U.S.
has resulted in reduced demand for new homes. As a result, rising mortgage rates could adversely affect
our ability to sell new homes and the price at which we can sell them.
special situations operations
Our special situations operations are focused on the ownership and management of securities and
businesses that are supported by underlying tangible assets and cash flows. The principal risks in this
business are potential loss of invested capital as well as insufficient investment or fee income to cover
operating expenses and cost of capital.
Unfavourable economic conditions could have a significant impact on the value and liquidity of our
investments and the level of investment income. Since most of our investments are in our areas of expertise
and given that we strive to maintain adequate supplemental liquidity at all times, we believe we are well
positioned to assume ownership of and operate most of the assets and businesses that we finance.
Furthermore, if this situation does arise, we typically acquire the assets at a discount to the underwritten
value, which may protect us from loss.
other risks
As an owner and manager of real property, we are subject to various federal, provincial, state and municipal
laws relating to environmental matters. These laws could hold us liable for the costs of removal and
remediation of certain hazardous substances or wastes released or deposited on or in our properties or
disposed of at other locations. The failure to remove or remediate such substances, if any, could adversely
affect our ability to sell our real estate or to borrow using real estate as collateral, and could potentially
result in claims or other proceedings against us. We are not aware of any material non-compliance with
environmental laws at any of our properties. We are also not aware of any material pending or threatened
investigations or actions by environmental regulatory authorities in connection with any of our properties
or any material investigations or actions by environmental regulatory authorities in connection with any
of our properties or any material pending threatened claims relating to environmental conditions at our
properties. We have made and will continue to make the necessary capital expenditures for compliance
with environmental laws and regulations. Environmental laws and regulations can change rapidly and we
may become subject to more stringent environmental laws and regulations in the future. Compliance with
more stringent environmental laws and regulations could have an adverse effect on our business, financial
condition or results of operation.
The ownership and operation of our assets carry varying degrees of inherent risk of liability related to
worker health and safety and the environment, including the risk of government imposed orders to remedy
unsafe conditions and/or to contravention of health, safety and environmental laws, licenses, permits
and other approvals, and potential civil liability. Compliance with health, safety and environmental
laws (and any future laws or amendments enacted) and the requirements of licenses, permits and other
approvals will remain material to our business. We have incurred and will continue to incur significant
capital and operating expenditures to comply with health, safety and environmental laws and to obtain and
comply with licenses, permits and other approvals and to assess and manage potential liability exposure.
Nevertheless, from time to time it is possible that we may be unsuccessful in obtaining an important
license, permit or other approval or become subject to government orders, investigations, inquiries or other
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proceedings (including civil claims) relating to health, safety and environmental matters. The occurrence
of any of these events or any changes, additions to or more rigorous enforcement of, health, safety and
environmental laws, licenses, permits or other approvals could have a significant impact on operations
and/or result in additional material expenditures. As a consequence, no assurance can be given that
additional environmental and workers’ health and safety issues relating to presently known or unknown
matters will not require unanticipated expenditures, or result in fines, penalties or other consequences
(including changes to operations) material to our business and operations.
We carry various insurance coverages that provide comprehensive protection for first-party and third-party
losses to our properties. These coverages contain policy specifications, limits and deductibles customarily
carried for similar properties. We also self-insure a portion of certain of these risks. We believe all of our
properties are adequately insured.
There are certain types of risks (generally of a catastrophic nature such as war or environmental
contamination such as toxic mold) which are either uninsurable or not economically insurable. Should
any uninsured or underinsured loss occur, we could lose our investment in, and anticipated profits and
cash flows from, one or more of our assets or operations, and would continue to be obligated to repay any
mortgage or other indebtedness on such properties to the extent the borrowers have recourse beyond the
specific asset or operations being financed.
In the normal course of our operations, we become involved in various legal actions, including claims
relating to personal injuries, property damage, property taxes, land rights and contract and other
commercial disputes. We endeavour to maintain adequate provisions for outstanding or pending claims.
The final outcome with respect to outstanding, pending or future actions cannot be predicted with
certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on
our financial position or results of our operations in a particular quarter or fiscal year. We believe that we
are not currently involved in any litigation, claims or proceedings in which an adverse outcome would have
a material adverse effect on our consolidated financial position or results.
Ongoing changes to the physical climate in which we operate may have an impact on our business. In
particular, changes in weather patterns may impact hydrology levels thereby influencing generation levels
and power generation levels. Climate change may also give rise to changes in regulations and consumer
sentiment that could impact other areas of our business.
The U.S. Investment Company Act of 1940 (the “Act”) requires the registration of any company which holds
itself out to the public as being engaged primarily in the business of investing, reinvesting or trading in
securities. In addition, the Act may also require the registration of a company that is engaged or proposes
to engage in the business of investing, reinvesting, owning, holding or trading in securities and which owns
or proposes to acquire investment securities with a value of more than 40% of the company’s assets on
an unconsolidated basis. We are not currently an investment company in accordance with the Act and we
believe we can continue to arrange our business operations in ways so as to not become an investment
company within the meaning of the Act. If we were required to register as an investment company under
the Act, we would, among other things, be restricted from engaging in certain businesses and issuing
certain securities. In addition, certain of our contracts may become void.
There are many other laws and governmental regulations that apply to us, our assets and businesses.
Changes in these laws and governmental regulations, or their interpretation by agencies or the courts,
could occur. Further, economic and political factors, including civil unrest, governmental changes and
restrictions on the ability to transfer capital across borders in the United States, but primarily in the
foreign countries in which we have invested, can have a major impact on us as a global company.
A portion of the workforce in our operations is unionized and if we are unable to negotiate acceptable
contracts with any of our unions as existing agreements expire, we could experience a significant disruption
of the affected operations, higher ongoing labour costs and restriction of our ability to maximize the
efficiency of our operations, which could have an adverse effect on our operations and financial results.
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part 5
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Accounting Standards Board (“AcSB”) confirmed in February 2008 that International Financial
Reporting Standards (“IFRS”) will replace Canadian GAAP for publicly accountable enterprises for financial
periods beginning on and after January 1, 2011. We applied to the Canadian Securities Administrators
(“CSA”) and were granted exemptive relief to prepare our financial statements in accordance with IFRS
earlier and intend to do so for periods beginning January 1, 2010 and prepare our first financial statements
in accordance with IFRS for the three month period ended March 31, 2010. These financial statements will
also include comparative IFRS results for the periods commencing January 1, 2009.
The following discussion has been organized on a basis consistent with the presentation and classification
under Canadian GAAP for ease of reference, although the classification and components of account
balances under IFRS will be different than under Canadian GAAP. Additionally, as we continue to assess
the impact of our transition to IFRS, additional differences may be identified which could impact the above
amounts.
IFRS are premised on a conceptual framework similar to Canadian GAAP, however, significant differences
exist in certain matters of recognition, measurement and disclosure. While we believe that the adoption
of IFRS will not have a material impact on our reported cash flows, it will have a material impact on our
consolidated balance sheets and statements of income. In particular, our opening balance sheet will reflect
the revaluation of substantially all property, plant and equipment to fair value at that time. In addition, a
significant portion of our intangible assets and liabilities will no longer be recognized. Finally, all changes
to the opening balance sheet will require that a corresponding tax asset or liability be established based
on the resultant differences between the carried value of assets and liabilities and their associated tax
bases. Our estimate of the impact of all of these differences to common equity totals approximately $10.1
billion before related changes to tax assets and liabilities, of $3.7 billion, resulting in a net increase in our
common equity to shareholders of $6.4 billion.
The following disclosure highlights the initial adjustments required to be made on adoption of IFRS in
order to provide an opening balance sheet and the significant accounting policies, required or expected
to be applied by us subsequent to adoption that will be significantly different from our current accounting
policies. This discussion has been prepared using the standards and interpretations currently issued
and expected to be effective at the end of our first annual IFRS reporting period, which we intend to be
December 31, 2010. Certain accounting policies expected to be adopted under IFRS may not be adopted
and the application of such policies to certain transactions or circumstances may be modified and as
a result the pro-forma January 1, 2009 and December 31, 2009 underlying values prepared on a basis
consistent with IFRS are subject to change. The amounts have not been audited or subject to review by our
external auditor.
ifrs 1: first-time adoption of international financial reporting standards
Adoption of IFRS requires the application of IFRS 1 First-time Adoption of International Financial Reporting
Standards (“IFRS 1”), which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally
requires that an entity apply all IFRS effective at the end of its first IFRS reporting period retrospectively.
However, IFRS 1 does require certain mandatory exceptions and limited optional exemptions in specified
areas of certain standards from this general requirement. The following are the optional exemptions
available under IFRS 1 significant to us that we expect to apply in preparing our first financial statements
under IFRS.
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Fair value or revaluation as deemed cost
IFRS 1 allows an entity to initially measure an item of property, plant and equipment upon transition to IFRS
at fair value or under certain circumstances using a previous GAAP revaluation, as opposed to recreating
depreciated cost under IFRS. For items of property, plant and equipment, we will use either fair value or a
previous GAAP revaluation as deemed cost. We expect to use fair value as a measure of deemed cost for
certain of our property, plant and equipment, the cumulative effect of which is expected to result in higher
carrying values under IFRS compared to those under Canadian GAAP. This increase in carrying value is
primarily the result of the accounting depreciation taken under Canadian GAAP no longer attributed to the
assets at transition, and appreciation in value of such assets in aggregate since acquisition.
Business combinations
IFRS 1 allows for the guidance under IFRS 3 Business Combinations (“IFRS 3”) to be applied either
retrospectively or prospectively. We expect to adopt IFRS 3 prospectively meaning that only business
combinations that occur on or after January 1, 2009 would be accounted for in accordance with IFRS 3.
cumulative translation differences
IAS 21 The Effects of Changes in Foreign Exchange Rates requires an entity to determine the translation
differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. IFRS
allows cumulative translation differences for all foreign operations to be deemed zero at the date of
transition to IFRS, with future gains or losses on subsequent disposal of any foreign operations to exclude
translation differences arising from periods prior to the date of transition to IFRS. We expect to deem all
cumulative translation differences to be zero on transition to IFRS.
employee Benefits
Certain of the company’s subsidiaries have actuarial gains and losses related to their employee benefit
plans. Cumulative actuarial gains and losses that existed at the transition date will be recognized in
opening retained earnings for all of the employee benefit plans.
IFRS 1 allows for certain other optional exemptions; however, we do not expect such exemptions to be
significant to our adoption of IFRS.
impact of ifrs on the Balance sheet
The following paragraphs quantify and describe the expected impact of significant differences between
our balance sheet under Canadian GAAP and our balance sheet under IFRS for both our January 1, 2009
opening balance sheet and our December 31, 2009 balance sheet.
property, plant and equipment
We expect the book value of our property, plant and equipment at January 1, 2009 and December 31, 2009
to increase by approximately $13.8 billion and $12.4 billion, respectively under IFRS compared to the book
value as prepared in accordance with Canadian GAAP. This increase is primarily related to recording
the majority of property, plant and equipment at fair value for purposes of establishing deemed cost on
transition or because the assets are required to be measured at fair value under IFRS. The following
describes the impact of this change on the major components of our property, plant and equipment.
Certain of this increase in the carrying value of property, plant and equipment relates to assets of entities
that are consolidated or proportionately consolidated under Canadian GAAP that for IFRS will be equity
accounted. These entities will be recorded as investments under IFRS.
Power Generating Stations
We have chosen to measure substantially all of the property, plant and equipment of our power generation
business using the revaluation method under IAS 16 Property, Plant and Equipment (“IAS 16”), which
requires property, plant and equipment to be measured at their fair values. We determined the fair value
of our power generation assets to be approximately $7.9 billion greater than their carrying value under
Canadian GAAP at December 31, 2008 and $8.6 billion greater at December 31, 2009. These valuations were
generally completed by discounting the expected future cash flows of each station over a 20 year term and
using the discount and terminal capitalization rates provided on page 25.
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BrookField asset management
Commercial Properties
Our commercial properties are considered investment properties under IAS 40, Investment Property (“IAS
40”). Investment property includes land and buildings held primarily to earn rental income or for capital
appreciation or both, rather than for use in the production or supply of goods or for sale in the ordinary
course of business. Similar to Canadian GAAP, investment property is initially measured at cost under
IAS 40. However, subsequent to initial recognition, IFRS requires that an entity choose either the cost or
fair value model to account for its investment property. We expect to use the fair value model to account
for investment property under IFRS. We determined the fair value of our commercial property portfolio at
December 31, 2008 to be approximately $4.8 billion greater than the carrying value under Canadian GAAP,
net of intangible assets and straight-line rent recorded under Canadian GAAP. The corresponding excess
at December 31, 2009 was $2.4 billion. We determined the fair value of each investment property based
upon, among other things, rental income from current leases and assumptions about rental income from
future leases reflecting current conditions less future cash outflows in respect of such leases. Fair values
were primarily determined by discounting the expected future cash flows, generally over a term of 10 years
and using the discount and terminal capitalization rates provided on page 30.
Timberlands
Under IFRS our timberlands are considered biological assets under IAS 41 Agriculture (“IAS 41”) and are
recorded at net fair value which is fair value less estimated point-of-sale costs. Currently under Canadian
GAAP our timberland assets are recorded at cost, less accumulated depletion which is based upon
harvested amounts. Changes in fair value or point-of-sale costs after initial recognition are recognized in
income in the period in which the change arises. Fair value has been determined as the future expected
market price for similar species and age of timberlands less costs to sell, discounted to the measurement
date. At December 31, 2008, we have initially determined the fair value of our timberland assets to be
approximately $0.5 billion greater than their carrying value under Canadian GAAP. At December 31, 2009
the carried value of timberlands assets under IFRS is $0.5 billion greater than under Canadian GAAP. Key
assumptions include a weighted average discount and terminal capitalization rate of 6.5% and a terminal
valuation date of 72 years, on average.
Transmission
We have chosen to measure the property, plant and equipment related to our transmission assets using the
revaluation method under IAS 16. At December 31, 2008 and December 31, 2009 we have initially determined
our transmission assets to be approximately equal to their carrying value under Canadian GAAP.
Other Property, Plant and Equipment
Additional differences also relate to the deconsolidation of certain property, plant and equipment related
to entities that are consolidated or proportionately consolidated under Canadian GAAP that are equity
accounted under IFRS. This decrease in property, plant and equipment is generally offset by increases
in the carried value of certain property, plant and equipment of investee companies initially recorded at
fair value, for purposes of establishing deemed cost, in addition to other adjustments. In aggregate these
differences increase property, plant and equipment by an additional $0.6 billion at both December 31, 2008
and December 31, 2009.
investments
We expect investments at December 31, 2008 to increase by approximately $3.8 billion under IFRS than
as prepared in accordance with Canadian GAAP. The increase primarily relates to entities that are
consolidated or proportionately consolidated under Canadian GAAP that will be equity accounted under
IFRS and accordingly included in the investments account.
2009 annual report
83
accounts receivable, other and intangible assets and liabilities
We expect accounts receivable and other and intangible assets and liabilities at January 1, 2009 to decrease
on a net basis by approximately $5.4 billion under IFRS relative to Canadian GAAP and by a similar amount
at December 31, 2009. This decrease primarily relates to the deconsolidation of assets held by entities
that are consolidated or proportionately consolidated under Canadian GAAP that will be equity accounted
under IFRS and the removal of certain assets otherwise included in the fair value of commercial properties,
such as straight-line rent receivables and above-market leases that are separately accounted for under
Canadian GAAP but are reflected as part of the fair value of investment property under IFRS.
accounts payable and other liabilities
We expect accounts payable and other liabilities at January 1, 2009 to increase by approximately $2.9 billion
under IFRS relative to Canadian GAAP. This change primarily relates to an increase in future income tax
liabilities associated with the increased carrying values of assets within our commercial properties,
power generation and transmission businesses and differences in the rates used to determine future
income tax under Canadian GAAP and IFRS. The increase in future income tax liabilities is offset by the
deconsolidation of balances that are consolidated or proportionately consolidated under Canadian GAAP
that will be equity accounted under IFRS in addition to certain other adjustments.
corporate Borrowings, property-specific mortgages, subsidiary Borrowings, and capital securities
Under IFRS we expect property-specific mortgages and subsidiary borrowings at January 1, 2009 to
decrease by approximately $6.2 billion under IFRS relative to Canadian GAAP. The decrease primarily
relates to the deconsolidation of debt held by entities that are consolidated or proportionately consolidated
under Canadian GAAP that will be equity accounted under IFRS.
goodwill
We expect goodwill at January 1, 2009 and December 31, 2009 to decrease by approximately $0.2 billion
relative to Canadian GAAP. This decrease primarily relates to the allocation of goodwill previously recorded
on acquisition of investment properties that under IFRS are recorded at fair value. As the investment
properties to which goodwill relates are carried at fair value, goodwill is reduced accordingly under IFRS.
non-controlling interests
We expect non-controlling interests at January 1, 2009 and December 31, 2009 to increase by approximately
$1.8 billion and $1.1 billion, respectively under IFRS relative to Canadian GAAP. The change in non-
controlling interests is primarily related to the recognition of others’ interests in the increased asset
values offset by deconsolidation of certain entities.
Basis of consolidation
Under Canadian GAAP we determine whether we should consolidate an entity using two different
frameworks: the variable interest entity (“VIE”) and voting control models. Under IFRS we will consolidate
an entity only if it is determined to be controlled by us. Control is defined as the power to govern the
financial and operating policies of an entity to obtain benefit. Control is presumed to exist when the parent
owns, directly or indirectly through subsidiaries, more than one half of an entity’s voting power, but also
exists when the parent owns half or less of the voting power but has legal or contractual rights to control,
or de facto control. This change in policy will result in certain entities being consolidated by us that were
not consolidated under Canadian GAAP as a result of our legal or contractual rights to control the entity,
as defined by IFRS. This change will also result in certain entities that are currently consolidated by us
under the VIE model to be deconsolidated.
Joint ventures
The International Accounting Standards Board (“IASB”) is currently considering Exposure Draft 9 Joint
Arrangements (“ED 9”) which is intended to modify IAS 31 Interests in Joint Ventures (“IAS 31”) which
sets out the current requirements for the accounting for interests in joint ventures under IFRS. The IASB
has indicated that it expects to issue a new standard to replace IAS 31 and we expect to apply this new
standard in our IFRS financial statements for 2010. Currently, under Canadian GAAP we proportionately
consolidate our interests in joint ventures. ED 9 proposes to eliminate the option to proportionately
consolidate interests in jointly controlled entities and requires an entity to recognize its interest, which is
84
BrookField asset management
considered its share of the outcome generated by the activities of a group of assets and liabilities subject
to joint control, using the equity method.
impact of ifrs on the income statement
commercial properties
Investment property under IFRS will be measured using the fair value model under IAS 40, which requires
us to record a gain or loss in income arising from a change in the fair value of investment property in the
period of change. Income related to commercial properties may be greater or less than as determined
under Canadian GAAP depending on whether an increase or decrease in fair value occurs during the
period of measurement. Furthermore, under the fair value model for investment property no depreciation
would be recognized whereas depreciation is recorded under Canadian GAAP. Accordingly, net income
would be greater under IFRS than as determined under Canadian GAAP, to the extent there is no change
in fair value of the underlying property, as no depreciation is recorded. Upon recognition of commercial
property at fair value for IFRS, all intangible assets and liabilities recorded under Canadian GAAP related to
previous business combinations will be de-recognized and will no longer be amortized into income. Under
Canadian GAAP approximately $0.6 billion was charged to income annually in respect of depreciation and
amortization of intangible assets, prior to minority interests, related to our commercial property portfolio.
For the year ended December 31, 2009, under the fair value model we would have recognized a loss of
$0.8 billion under IFRS, after deferred tax and non-controlling interests.
use of deemed cost
We have chosen to initially measure certain property, plant and equipment upon transition to IFRS at
fair value or under certain circumstances using a previous GAAP revaluation, as opposed to recreating
depreciated cost under IFRS or as a result of the policy choices relating to such assets that require
recognition at fair value. In most cases the resulting carrying value under IFRS will be higher than the
carrying value under Canadian GAAP. As a result, the amount of depreciation recorded under IFRS related
to such assets will be greater than what would be charged to income under Canadian GAAP. We expect
annual depreciation to be approximately $0.2 billion greater under IFRS than Canadian GAAP in aggregate
for all property, plant and equipment and in particular for our hydroelectric power generating facilities, but
excluding our commercial property portfolio (see “Commercial Properties” discussion above).
timberlands
As described above under IFRS, our timberlands are considered biological assets under IAS 41. At each
reporting period our timberland assets will be measured at fair value, less estimated point-of-sale costs
with changes in net fair value recognized in income in the period in which the change arises. Certain
expenditures capitalized under Canadian GAAP, such as silviculture and other conservation costs, will be
expensed under IFRS. These amounts are approximately $0.1 billion annually. Depending on the change in
net fair value of timberland assets during each reporting period, income could either be greater or less
than under Canadian GAAP.
2009 annual report
85
part 6
SUPPLEMENTAL INFORMATION
critical accounting Policies and estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to select appropriate accounting policies to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. In particular, critical accounting policies and estimates utilized in the normal course
of preparing the company’s financial statements require the determination of future cash flows utilized
in assessing net recoverable amounts and net realizable values; depreciation and amortization; value of
goodwill and intangible assets; ability to utilize tax losses; the determination of the primary beneficiary
of variable interest entities; effectiveness of financial hedges for accounting purposes; and fair values for
recognition, measurement and disclosure purposes.
In making estimates, management relies on external information and observable conditions where possible,
supplemented by internal analysis as required. These estimates have been applied in a manner consistent
with that in the prior year and there are no known trends, commitments, events or uncertainties that we
believe will materially affect the methodology or assumptions utilized in this report. The estimates are
impacted by, among other things, movements in interest rates and other factors, some of which are highly
uncertain, as described in the analysis of Business Strategy, Environment and Risks beginning on page
68 and in the section entitled Financial and Liquidity Risks beginning on page 74. The interrelated nature
of these factors prevents us from quantifying the overall impact of these movements on the company’s
financial statements in a meaningful way. For further reference on critical accounting policies, see our
significant accounting policies contained in Note 1 to the Consolidated Financial Statements and Changes
in Accounting Policies as described below.
cHanges in accounting Policies
(i) goodwill and intangible assets
In February 2008, the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Section
3064, Goodwill and Intangible Assets, replacing Handbook Sections 3062, Goodwill and Other Intangible
Assets and 3450, Research and Development Costs. Various changes have been made to other sections
of the CICA Handbook for consistency purposes. Section 3064 establishes standards for the recognition,
measurement, presentation and disclosure of goodwill subsequent to the initial recognition of intangible
assets by profit-oriented enterprises. The new section became effective for the company on January 1,
2009, and consistent with transition provisions in Section 3064, the company has adopted the new standard
retrospectively with restatement. The impact of adopting this new standard was a $7 million reduction of
opening retained earnings as at January 1, 2008.
(ii) financial instruments
In January 2009, the Emerging Issues Committee issued Abstract No. 173, Credit Risk and the Fair Value
of Financial Assets and Financial Liabilities (“EIC-173”). EIC-173 requires an entity to determine the fair
value of all financial instruments, including derivative instruments by taking into account the credit risk
of the instrument. In particular, an entity is required to factor into fair value its own credit risk in addition
to the credit risk of the counterparties to the instrument. EIC-173, which was effective for the company
on January 1, 2009, did not have a material impact to the company’s financial statements and the related
disclosures.
86
BrookField asset management
In June 2009, the CICA issued amendments to Section 3862, Financial Instruments – Disclosures to provide
improvements to fair value disclosures to align with disclosure rules established under United States
GAAP and International Financial Reporting Standards (“IFRS”). The new rules result in enhanced fair
value disclosure and require entities to assess the reliability and objectivity of the inputs used in measuring
fair value. All financial assets and liabilities measured at fair value must be classified into one of three
levels of a fair value hierarchy as follows: Level 1) unadjusted quoted prices in active markets for identical
instruments; Level 2) inputs other than quoted prices that are observable for the asset or liability, either
directly or indirectly; and Level 3) inputs based on unobservable market data. The new disclosures are
included in Note 3 to the consolidated financial statements. This section has also been amended to require
additional liquidity risk disclosures which are included in Note 17 to the consolidated financial statements.
On August 20, 2009, the CICA issued amendments to Section 3855, Financial Instruments – Recognition
and Measurement to align with IFRS. The amendments include: 1) changing the categories into which debt
instruments are required and permitted to be classified; 2) changing the impairment model for held-to-
maturity instruments; and 3) requiring the reversal of impairment losses relating to available-for-sale debt
instruments when the fair value of the debt instrument increases in a subsequent period. The impact of
adopting this standard was a reclassification of debt securities from available-for-sale bonds to loans and
notes receivables which resulted in a $28 million increase to financial assets, and a $28 million increase to
accumulated other comprehensive income.
(iii) inventories
In June 2007, the CICA issued Section 3031, Inventories, replacing Section 3030, Inventories. This standard
provides guidance on the determination of the cost of inventories and subsequent recognition as an
expense, including any write-down to net realizable value. This new standard became effective for the
company on January 1, 2008. The impact of adopting this new standard was a $4 million reduction of
opening retained earnings as at January 1, 2008.
future cHanges in accounting Policies
(i) Business combinations, consolidated financial statements and non-controlling interests
In January 2009, the CICA issued three new accounting standards, Section 1582, “Business Combinations,”
Section 1601, “Consolidated Financial Statements” and Section 1602, “Non-controlling Interests.” Section
1582 provides clarification as to what an acquirer must measure when it obtains control of a business, the
basis of valuation and the date at which the valuation should be determined. Acquisition-related costs
must be accounted for as expenses in the periods they are incurred, except for costs incurred to issue debt
or share capital. This new standard will be applicable for acquisitions completed on or after November
1, 2011 although adoption in 2010 is permitted to facilitate the transition to IFRS in 2011. Section 1601
establishes standards for preparing consolidated financial statements after the acquisition date and
Section 1602 establishes standards for the accounting and presentation of non-controlling interest. These
standards must be adopted concurrently with Section 1582.
(ii) international financial reporting standards
The Accounting Standards Board (“AcSB”) confirmed in February 2008 that IFRS will replace GAAP for
publicly accountable enterprises for financial periods beginning on or after January 1, 2011. The company
applied to the Canadian Securities Administrators (“CSA”) and was granted exemptive relief to prepare
its financial statements in accordance with IFRS earlier than required and intends to do so for periods
beginning January 1, 2010, preparing its first interim financial statements in accordance with IFRS for the
three month period ending March 31, 2010.
2009 annual report
87
quarterly results
Net income and operating cash flows for the eight recently completed quarters are as follows:
(millions)
total revenues
Fees earned
revenues less direct operating costs
renewable power generation
commercial properties
infrastructure
development activities
special situations
investment and other income
expenses
interest
operating costs
current income taxes
non-controlling interest in net income before
the following
net income before the following
depreciation and amortization
revaluation and other items
Future income taxes
non-controlling interests in the foregoing items
q4
$ 3,457
123
182
510
25
161
24
217
1,242
456
120
(44)
329
381
(325)
(102)
(75)
223
2009
Q3
Q2
Q1
Q4
2008
Q3
Q2
Q1
$ 2,996
65
$ 2,978
58
$ 2,651
52
$ 3,015
66
$ 3,226
60
$ 3,449
90
$ 3,219
73
506
436
28
74
21
144
1,274
461
90
(2)
205
520
(321)
(192)
(48)
153
211
424
16
83
35
222
1,049
452
89
31
201
276
(300)
(73)
97
147
239
400
40
11
39
169
950
415
94
11
157
273
(329)
(3)
2
150
158
388
68
(11)
49
216
934
447
107
(47)
180
247
(355)
(276)
545
10
213
595
36
47
32
252
1,235
535
103
2
240
355
(333)
88
(105)
166
264
427
44
80
119
155
1,179
475
86
21
219
378
(328)
(70)
3
127
251
421
48
50
104
321
1,268
527
110
17
171
443
(314)
(84)
18
134
net income
$ 102
$ 112
$ 147
$
93
$ 171
$ 171
$ 110
$ 197
Cash flow from operations for the last eight quarters are as follows:
(millions, eXcept per share amounts)
cash flow from operations and gains
preferred share dividends
cash flow to common shareholders
common equity – book value
common shares outstanding
Per common share
cash flow from operations
net income
dividends
Book value
market trading price (nyse)
q4
$ 381
14
$ 367
$ 6,403
572.9
$ 0.63
0.15
0.13
11.58
22.18
2009
Q3
Q2
Q1
Q4
2008
Q3
Q2
Q1
$ 520
12
$ 508
$ 6,251
572.1
$ 0.88
0.17
0.13
11.32
22.71
$ 276
9
$ 267
$ 5,756
572.0
$ 0.46
0.24
0.13
10.44
17.07
$ 273
8
$ 265
$ 4,976
571.8
$ 0.46
0.15
0.13
9.09
13.78
$ 247
9
$ 238
$ 4,911
572.6
$ 0.41
0.27
0.13
8.92
15.27
$ 355
11
$ 344
$ 5,814
583.4
$ 0.58
0.27
0.13
10.20
27.44
$ 378
12
$ 366
$ 6,277
583.8
$ 0.62
0.17
0.13
11.14
32.54
$ 443
12
$ 431
$ 6,133
581.7
$ 0.72
0.31
0.12
10.93
26.83
Commercial office property operations tend to produce consistent results throughout the year due to
the long-term nature of the contractual lease arrangements subject to the intermittent recognition of
disposition and lease termination gains as was the case in the fourth quarter of 2009 and the third quarter
of 2008.
Quarterly seasonality does exist in our renewable power generation and residential development
operations. With respect to our power generation operations, seasonality exists in water inflows and
pricing. During the fall rainy season and spring thaw, water inflows tend to be the highest leading to
higher generation during those periods; however prices tend not to be as strong as the summer and winter
seasons due to the more moderate weather conditions during those periods and associated reductions in
demand for electricity. We recorded disposition gains in our renewable power operations of $340 million
and $29 million, respectively, in the third and first quarters of 2009.
88
BrookField asset management
With respect to our residential operations, the fourth quarter tends to be the strongest as this is the
period during which most of the construction is completed and homes are delivered, although in 2008
the company recorded provisions in respect of higher priced land positions in the U.S. We periodically
record realization and other gains, special distributions, as well as gains and losses on unhedged financial
positions throughout our operations and, while the timing of these items is difficult to predict, the dynamic
nature of our asset base tends to result in these items occurring on a relatively frequent basis.
related-Party transactions
In the normal course of operations, the company enters into various transactions on market terms with
related parties, which have been measured at exchange value and are recognized in the consolidated
financial statements. In particular, we sold a number of Canadian Renewable Power generating assets to
50% owned publicly listed renewable power subsidiary during 2009, as further discussed in Part 2 of this
MD&A.
assessment and cHanges in internal control oVer financial rePorting
Management has evaluated the effectiveness of the company’s internal control over financial reporting.
Refer to Management’s Report on Internal Control over Financial Reporting. There have been no changes in
our internal control over financial reporting during the year ended December 31, 2009 that have materially
affected, or are reasonably likely to materially affect the internal control over financial reporting.
disclosure controls
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in the Canadian Securities
Administrators National Instrument 52-109). Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that such disclosure controls and procedures were effective as of
December 31, 2009 in providing reasonable assurance that material information relating to the company
and the consolidated subsidiaries would be made known to them within those entities.
2009 annual report
89
internAl Control oVer finAnCiAl rePorting
ManageMent’s report on internal control over financial reporting
Accountants, who also audited Brookfield’s consolidated
financial statements for the year ended December 31,
2009. As stated in the Report of Independent Registered
Chartered Accountants, Deloitte & Touche LLP expressed
an unqualified opinion on Brookfield’s internal control
over financial reporting as of December 31, 2009.
Toronto, Canada
March 30, 2010
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
is responsible
Inc.
Management of Brookfield Asset Management
(“Brookfield”)
for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the
Chief Executive Officer and the Chief Financial Officer
and effected by the Board of Directors, management
and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles as defined in Regulation 240.13a-15(f) or
240.15d-15(f).
financial
Management assessed the effectiveness of Brookfield’s
internal control over
reporting as of
December 31, 2009, based on the criteria set forth in
Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management
believes that, as of December 31, 2009, Brookfield’s
internal control over financial reporting is effective.
Management excluded from its assessment the internal
control over financial reporting at Brookfield Ports (UK)
Ltd. (“PD Ports”), which was acquired during 2009, and
whose total assets, net assets, total revenues, and net
income constitute approximately 1%, 1%, nil% and nil%
respectively of the consolidated financial statement
amounts as of and for the year ended December 31, 2009.
Management’s assessment of the effectiveness of
Brookfield’s internal control over financial reporting
as of December 31, 2009, has been audited by Deloitte
Independent Registered Chartered
& Touche LLP
90
Brookfield Asset MAnAgeMent
report of independent registered chartered accountants
To the Board of Directors and Shareholders of Brookfield
Asset Management Inc.
We have audited the internal control over financial
reporting of Brookfield Asset Management Inc. and
subsidiaries (the “Company”) as of December 31, 2009,
based on the criteria established in Internal Control –
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
As described in Management’s Report on Internal
Control over Financial Reporting, management excluded
from its assessment the internal control over financial
reporting at Brookfield Ports (UK) Ltd. (“PD Ports”)
which was acquired in November 2009 and whose
financial statements constitute approximately 1% of net
and total assets and nil% of revenues and net income of
the consolidated financial statement amounts as of and
for the year ended December 31, 2009. Accordingly, our
audit did not include the internal control over financial
reporting at PD Ports. The Company’s management is
responsible for maintaining effective internal control
over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report
on
Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance
about whether effective internal control over financial
reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control
based on the assessed risk, and performing such
other procedures as we considered necessary in the
circumstances. We believe that our audit provides a
reasonable basis for our opinion.
reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that
receipts and expenditures of the company are being made
only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on
the financial statements.
Because of the inherent limitations of internal control
over financial reporting, including the possibility of
collusion or improper management override of controls,
material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods
are subject to the risk that the controls may become
inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures
may deteriorate.
internal control over
In our opinion, the Company maintained, in all material
financial
respects, effective
reporting as of December 31, 2009, based on the criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with Canadian
generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements
as of and for the year ended December 31, 2009 of the
Company and our report dated March 30, 2010 expressed
an unqualified opinion on those financial statements
and includes a separate report titled Comments by
Independent Registered Chartered Accountants on
Canada-United States of America Reporting Differences
referring to changes in accounting principles.
A company’s internal control over financial reporting is
a process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar
functions,
and effected by the company’s board of directors,
management, and other personnel to provide reasonable
assurance
financial
reporting and the preparation of financial statements
for external purposes in accordance with generally
accepted accounting principles. A company’s internal
control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reliability of
regarding
the
Toronto, Canada Independent Registered Chartered Accountants
March 30, 2010
Licensed Public Accountants
2009 AnnuAl rePort
91
ConsolidAted finAnCiAl stAteMents
ManageMent’s responsibility for the financial stateMents
The accompanying consolidated financial statements and other
financial information in this Annual Report have been prepared
by the company’s management which is responsible for their
integrity, consistency, objectivity and reliability. To fulfill this
responsibility, the company maintains policies, procedures
and systems of internal control to ensure that its reporting
practices and accounting and administrative procedures are
appropriate to provide a high degree of assurance that relevant
and reliable financial information is produced and assets are
safeguarded. These controls include the careful selection and
training of employees, the establishment of well-defined areas
of responsibility and accountability for performance and the
communication of policies and code of conduct throughout
the company. In addition, the company maintains an internal
audit group that conducts periodic audits of all aspects of the
company’s operations. The Chief Internal Auditor has full access
to the Audit Committee.
These consolidated financial statements have been prepared
in conformity with Canadian generally accepted accounting
principles, and where appro priate, reflect estimates based on
management’s judgment. The financial information presented
throughout this Annual Report is generally con sistent with
the information contained in the accompanying consolidated
financial statements.
Deloitte & Touche, LLP, the independent registered chartered
accountants appointed by the shareholders, have examined the
consolidated financial statements set out on pages 94 through
127 in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting
Oversight Board (United States) to enable them to express to
the shareholders their opinion on the consolidated financial
statements. Their report is set out below.
The consolidated financial statements have been further
reviewed and approved by the Board of Directors acting through
its Audit Committee, which is comprised of directors who are
not officers or employees of the company. The Audit Committee,
which meets with the auditors and management to review
the activities of each and reports to the Board of Directors,
oversees management’s responsibilities
financial
reporting and internal control systems. The auditors have full
and direct access to the Audit Committee and meet periodically
with the committee both with and without management present
the
for
to discuss their audit and related findings.
Toronto, Canada
J. Bruce Flatt
Brian D. Lawson
March 30, 2010
Chief Executive Officer
Chief Financial Officer
report of independent registered chartered accountants
To the Board of Directors and Shareholders of Brookfield Asset
Management Inc.
We have audited the accompanying consolidated balance
sheets of Brookfield Asset Management Inc. and subsidiaries
(the “Company”) as at December 31, 2009 and 2008 and
the related consolidated statements of
income, retained
earnings, comprehensive income (loss), accumulated other
comprehensive income (loss) and cash flows for the years then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States). These
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
92
Brookfield Asset MAnAgeMent
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at December 31, 2009 and 2008 and the results of
its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting
principles.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of
December 31, 2009, based on the criteria established in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 30, 2010 expressed an unqualified opinion on
the Company’s internal control over financial reporting.
Toronto, Canada
Independent Registered Chartered Accountants
March 30, 2010
Licensed Public Accountants
coMMents by independent registered chartered accountants on canada-
united states of aMerica reporting differences
The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory
paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect
on the comparability of the Company’s financial statements. As described in Note 1, the Company has changed its method
of accounting for intangible assets and deferred costs in 2009 due to the adoption of the Canadian Institute of Chartered
Accountants’ (CICA) Handbook Section 3064, “Goodwill and Intangible Assets”. In addition, as described in Note 1,
the Company has adopted amendments to CICA Handbook Section 3862, “Financial Instruments – Disclosures”, which
require the Company to make disclosures surrounding fair value financial instruments based on a three-level hierarchy
that distinguishes between fair values obtained from independent sources versus the Company’s own assumptions about
market values, and which require the Company to make additional liquidity risk disclosures. Finally, as described in Note
1, the Company has adopted amendments to CICA Handbook Section 3855, “Financial Instruments – Recognition and
Measurement”, which clarify the application of Section 3855 with respect to the effective interest method, reclassification
of financial instruments with embedded derivatives, elimination of the distinction between debt securities and other debt
instruments, and changes in the categories to which debt instruments are required or are permitted to be classified.
Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States), our report to the Board of Directors and
Shareholders, dated March 30, 2010, is expressed in accordance with Canadian reporting standards which do not require
a reference to such changes in accounting principles in the auditors’ report when the change is properly accounted for
and adequately disclosed in the financial statements.
Toronto, Canada
March 30, 2010
Independent Registered Chartered Accountants
Licensed Public Accountants
2009 AnnuAl rePort
93
consolidated balance sheets
As At deCeMBer 31 (Millions)
Assets
Cash and cash equivalents
financial assets
loans and notes receivable
investments
Accounts receivable and other
intangible assets
goodwill
Property, plant and equipment
liabilities
Corporate borrowings
non-recourse borrowings
Property-specific mortgages
subsidiary borrowings
Accounts payable and other liabilities
intangible liabilities
Capital securities
non-controlling interests
shareholders’ equity
Preferred equity
Common equity
On behalf of the Board:
note
2009
2008
3
4
5
6
7
2
8
9
10
10
11
12
13
14
15
16
$
1,375
2,373
1,796
1,924
8,605
1,822
2,343
41,664
$
1,242
2,071
2,061
890
6,925
1,632
2,011
36,765
$
61,902
$
53,597
$
2,593
$
2,284
26,731
3,663
10,017
741
1,641
8,969
1,144
6,403
24,398
3,593
8,904
891
1,425
6,321
870
4,911
$
61,902
$
53,597
Robert J. Harding, FCA, Director
Marcel R. Coutu, Director
94
Brookfield Asset MAnAgeMent
consolidated stateMents of incoMe
YeArs ended deCeMBer 31 (Millions, exCePt Per shAre AMounts)
total revenues
fees earned
revenues less direct operating costs
renewable power generation
Commercial properties
infrastructure
development activities
special situations
investment and other income
expenses
interest
operating costs
Current income taxes
non-controlling interests in net income before the following
other items
depreciation and amortization
Provisions and other
future income taxes
non-controlling interests in the foregoing items
net income
net income per common share
diluted
Basic
note
20
$
2009
12,082
298
$
2008
12,909
289
1,138
1,770
109
329
119
3,763
752
4,515
1,784
393
(4)
892
1,450
(1,275)
(370)
(24)
673
454
0.71
0.72
$
$
$
886
1,831
196
166
304
3,672
944
4,616
1,984
406
(7)
810
1,423
(1,330)
(342)
461
437
649
1.02
1.04
$
$
$
22
21
22
21
16
2009 AnnuAl rePort
95
consolidated stateMents of retained earnings
YeArs ended deCeMBer 31 (Millions)
retained earnings, beginning of year
Change in accounting policies
net income
Preferred equity issue costs
shareholder distributions – preferred equity
– common equity
Amount paid in excess of book value
of common shares purchased for cancellation
note
1(m)
$
2009
4,361
—
454
(8)
(43)
(298)
(15)
$
2008
4,867
(11)
649
—
(44)
(843)
(257)
$
4,451
$
4,361
consolidated stateMents of coMprehensive incoMe (loss)
YeArs ended deCeMBer 31 (Millions)
net income
other comprehensive income (loss)
foreign currency translation
Available-for-sale securities
derivative instruments designated as cash flow hedges
future income taxes on above items
Comprehensive income (loss)
note
3
2009
454
$
$
2008
649
(780)
(277)
(45)
(113)
(1,215)
$
(566)
1,124
162
93
(4)
1,375
1,829
$
consolidated stateMents of accuMulated other coMprehensive incoMe (loss)
YeArs ended deCeMBer 31 (Millions)
Balance, beginning of year
other comprehensive income (loss)
Balance, end of year
2009
(770)
1,375
605
$
$
2008
445
(1,215)
(770)
$
$
96
Brookfield Asset MAnAgeMent
consolidated stateMents of cash flows
YeArs ended deCeMBer 31 (Millions)
operating activities
net income
Adjusted for the following non-cash items
depreciation and amortization
future income taxes, provisions and other
realization gains
non-controlling interest in non-cash items
net change in non-cash working capital balances and other
undistributed non-controlling interests in cash flows
financing activities
Corporate borrowings, net of repayments
Property-specific borrowings, net of issuances
other debt of subsidiaries, net of issuances
Capital securities issuance
Corporate preferred equity issuance
Preferred shares of subsidiaries issuances
Common shares repurchased, net of issuances
Common shares of subsidiaries issued, net of repurchases
shareholder distributions
investing activities
investment in or sale of operating assets, net
renewable power generation
Commercial properties
infrastructure
development activities
loans and notes receivable
financial assets
investments
restricted cash and deposits
other property, plant and equipment
Cash and cash equivalents
increase/(decrease)
Balance, beginning of year
Balance, end of year
note
2009
2008
$
454
$
649
21
25
25
25
25
25
25
25
25
25
25
1,275
394
(413)
(673)
1,037
(519)
657
1,175
106
(687)
(382)
—
266
261
(4)
2,125
(341)
1,344
(195)
(629)
(906)
(139)
150
(258)
(13)
(206)
(190)
(2,386)
133
1,242
1,375
$
1,330
(119)
(164)
(437)
1,259
(234)
587
1,612
333
(1,138)
(384)
143
—
—
(249)
516
(342)
(1,121)
(529)
(502)
361
(124)
(159)
604
(187)
(45)
(229)
(810)
(319)
1,561
$
1,242
2009 AnnuAl rePort
97
notes to consolidated financial stateMents
1. suMMary of accounting policies
These consolidated financial statements are prepared in accordance with generally accepted accounting
principles (“GAAP”) as prescribed by the Canadian Institute of Chartered Accountants (“CICA”).
(a) basis of presentation
All currency amounts are in United States dollars (“U.S. dollars”) unless otherwise stated. The consolidated
financial statements include the accounts of Brookfield Asset Management Inc. (the “company”) and the
entities over which it has voting control, as well as Variable Interest Entities (“VIEs”) for which the company
is considered to be the primary beneficiary.
The company accounts for investments over which it exercises significant influence, however does not
control, using the equity method. Interests in jointly controlled partnerships and corporate joint ventures
are proportionately consolidated. Measurement of investments in which the company does not have
significant influence depends on the financial instrument classification.
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Significant
estimates are required in the determination of cash flows and probabilities in assessing net recoverable
amounts and net realizable values, tax and other provisions, hedge effectiveness, and fair values.
(b) reporting currency
The U.S. dollar is the functional currency of the company’s head office operations and the U.S. dollar is
the company’s reporting currency.
The accounts of self-sustaining subsidiaries having a functional currency other than the U.S. dollar are
translated using the current rate method. Gains or losses on translation are deferred and included in
other comprehensive income in the cumulative translation adjustment account. Gains or losses on foreign
currency denominated balances and transactions that are designated as hedges of net investments in
these subsidiaries are reported in the same manner.
Foreign currency denominated monetary assets and liabilities of the company and integrated subsidiaries
are translated at the rate of exchange prevailing at year end and revenues and expenses at average
rates during the year. Gains or losses on translation of these items are included in the Consolidated
Statements of Income. Gains or losses on transactions which hedge these items are also included in
the Consolidated Statements of Income. Gains or losses on translation of foreign currency denominated
available-for-sale financial instruments are included in other comprehensive income.
(c) cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits and are highly liquid short-term
investments with original maturities less than 90 days.
Renewable Power Generation
(d) property, plant and equipment
(i)
Power generating facilities are recorded at cost, less accumulated depreciation. Depreciation on power
generating facilities and equipment is provided at various rates on a straight-line basis over the estimated
service lives of the assets, which are up to 60 years for hydroelectric generation assets.
Power generating facilities under development are recorded at cost, including pre-development expenditures,
unless an impairment is identified requiring a write-down to estimated fair value.
(ii) Commercial Properties
Commercial Properties consist of commercial properties held for investment and commercial development
activities. Commercial properties held for investment are carried at cost less accumulated depreciation.
98
Brookfield Asset MAnAgeMent
Depreciation on buildings is provided during the year on a straight-line basis over the estimated useful
lives of the properties to a maximum of 60 years. Depreciation is determined with reference to the carrying
value, remaining estimated useful life and residual value of each property. Tenant improvements and re-
leasing costs are deferred and amortized over the lives of the leases to which they relate. Commercial
development activities are recorded at cost, including pre-development expenditures, unless an impairment
is identified requiring a write-down to estimated fair value.
CICA Handbook EIC-140, Accounting for Operating Leases Acquired in either an Asset Acquisition or a
Business Combination and CICA Handbook EIC-137, Recognition of Customer Relationships Acquired in
a Business Combination require that when a company acquires real estate in either an asset acquisition
or business combination, a portion of the purchase price should be allocated to the in-place leases to
reflect the intangible amounts of leasing costs, above or below market tenant and land leases, and tenant
relationship values, if any. These intangible costs are amortized over their respective lease terms.
Infrastructure
(iii)
Infrastructure consists of Timberlands, Utilities and Energy assets, and Transportation assets.
(a) Timberlands: Timber assets are carried at cost, less accumulated depletion. Depletion of timber
assets is determined based on the number of cubic metres of timber harvested annually at a fixed
rate.
(b) Utilities and Energy: Utilities and energy assets are carried at cost, less accumulated depreciation.
Depreciation is provided at various rates on a straight-line basis over the estimated service lives of
the assets, which are up to 40 years.
(c) Transportation: Transportation assets are carried at cost, less accumulated depreciation.
Depreciation on transportation assets is determined on a straight-line basis over the estimated
service lives of the assets, which is up to 35 years.
(iv) Development Activities
Development activities consist of residential properties, residential land, and residential properties which
are under construction. These properties are recorded at cost, including pre-development expenditures.
Homes and other properties held for sale, which include properties subject to sale agreements, are
recorded at the lower of cost and net realizable value. Income received relating to homes and other
properties held for sale is applied against the carried value of these properties. Costs are allocated to the
saleable acreage of each project or subdivision in proportion to the anticipated revenue. Also included in
development activities are real estate opportunity investments which are depreciated over the estimated
useful lives of the properties.
Financial Assets and Investments
(v)
Financial assets are designated as either held-for-trading or available-for-sale and are recorded at fair
value, with changes in fair value accounted for in net income or other comprehensive income as applicable.
Equity instruments, designated as available-for-sale financial assets, that do not have a quoted market
price from an active market are carried at cost.
Investments include investments in the securities of affiliates and are accounted for using the equity
method of accounting.
Provisions are established in instances where, in the opinion of management, the carrying values of financial
assets classified as available-for-sale and investments have been other than temporarily impaired.
Loans and Notes Receivable
(vi)
Loans and notes receivable are recorded initially at their fair value and, with the exception of receivables
designated as held-for-trading, are subsequently measured at amortized cost using the effective interest
method, less any applicable provision for impairment. A provision for impairment is established when
there is objective evidence that the company will not be able to collect all amounts due according to the
original terms of the receivables. Loans and notes receivable designated as held-for-trading are recorded
at fair value with changes in fair value accounted for in net income in the period in which they arise.
2009 AnnuAl rePort
99
(e) asset impairment
For assets other than financial assets, investments, and loans and notes receivable, a write-down to
estimated fair value is recognized if the estimated undiscounted future cash flows from an asset or group
of assets are less than their carried value. The projections of future cash flows take into account the
relevant operating plans and management’s best estimate of the most probable set of economic conditions
anticipated to prevail in the market.
(f) accounts receivable and other
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using
the effective interest method, less any allowance for uncollectibility. Included in accounts receivable and
other are restricted cash and inventories which are carried at the lower of average cost and net realizable
value and materials and supplies which are valued at the lower of average cost and replacement cost.
intangible assets and liabilities
(g)
Intangible assets and liabilities with a finite life are amortized on a straight-line basis over their estimated
useful lives, generally not exceeding 20 years, and are tested for impairment when conditions exist which
may indicate that the estimated undiscounted future net cash flows from the asset are less than its
carrying amount.
(h) goodwill
Goodwill represents the excess of the price paid for the acquisition of a consolidated entity over the fair
value of the net identifiable tangible and intangible assets acquired.
Goodwill is evaluated for impairment annually, or more often if events or circumstances indicate there may
be an impairment. If the carrying value of a subsidiary, including the allocated goodwill, exceeds its fair
value, goodwill impairment is measured as the excess of the carrying amount of the subsidiary’s allocated
goodwill over the implied fair value of the goodwill, based on the fair value of the assets and liabilities of
the subsidiary. Any goodwill impairment is charged to income in the period in which the impairment is
identified.
Asset Management Fee Income
(i) revenue and expense recognition
(i)
Revenues from performance-based incentive fees are recorded on the accrual basis based upon the amount
that would be due under the incentive fee formula at the end of the measurement period established by the
contract where it is no longer subject to adjustment based on future events. In some cases this will require
that the recognition of performance-based incentive fees be deferred to the end, or towards the end of the
contract at which point performance can be more accurately measured.
(ii) Renewable Power Generation
Revenue from the sale of electricity is recorded at the time power is provided based upon output delivered
and capacity provided at rates specified under contract terms or prevailing market rates.
(iii) Commercial Property Operations
Revenue from a commercial property is recognized upon the earlier of attaining a break-even point in cash
flow after debt servicing, or the expiration of a reasonable period of time, not to exceed one year, following
substantial completion. Prior to this, the property is categorized as a property under development, and
related revenue is applied to reduce development costs.
The company has retained substantially all of the risks and benefits of ownership of its rental properties
and therefore accounts for leases with its tenants as operating leases. The total amount of contractual
rent to be received from operating leases is recognized on a straight-line basis over the term of the lease; a
straight-line or free rent receivable, as applicable is recorded for the difference between the rental revenue
recorded and the contractual amount received. Rental revenue includes percentage participating rents and
recoveries of operating expenses, including property, capital and similar taxes. Percentage participating
rents are recognized when tenants’ specified sales targets have been met. Operating expense recoveries
are recognized in the period that recoverable costs are chargeable to tenants.
100
Brookfield Asset MAnAgeMent
Revenue from commercial land sales is recognized at the time that the risks and rewards of ownership
have been transferred, possession or title passes to the purchaser, all material conditions of the sales
contract have been met, and a significant cash down payment or appropriate security is received.
(iv)
Infrastructure
(a) Timberlands: Revenue from timberlands is derived from the sale of logs and related products. The
company recognizes sales to external customers when the product is shipped and title passes, and
collectibility is reasonably assured.
(b) Utilities and Energy: Revenue from utilities and energy assets is derived from the transmission and
distribution of electricity to industrial and retail customers. Revenue is recognized at contracted
rates when the electricity is delivered, and as collectibility is reasonably assured.
(c) Transportation: Revenue from transportation infrastructure is derived from assets such as seaports
and rail networks and consists primarily of terminal charges, handling charges and freight services
revenue. Terminal charges are charged at set contracted rates per tonne of coal shipped. Handling
charges and freight services revenue are recognized at the time of the provision of services.
(v) Development Activities
Revenue from residential land sales is recognized at the time that the risks and rewards of ownership have
been transferred, possession or title passes to the purchaser, all material conditions of the sales contract
have been met, and a significant cash down payment or appropriate security is received.
Revenue from the sale of homes is recognized when title passes to the purchaser upon closing and at
which time all proceeds are received or collectibility is assured.
Revenue from the sale of condominium units is recognized using the percentage-of-completion method
at the time that construction is beyond a preliminary stage, sufficient units are sold and all proceeds are
received or collectibility is assured.
Revenue from construction projects is recognized by the percentage-of-completion method at the time
that construction is beyond a preliminary stage, there are indications that the work will be completed
according to plan and all proceeds are received or collectibility is assured.
(vi) Financial Assets and Loans and Notes Receivable
Revenue from financial assets, loans and notes receivable, less a provision for uncollectible amounts, is
recorded on the accrual basis.
(vii) Other
The net proceeds recorded under reinsurance contracts are accounted for as deposits until a reasonable
possibility that the company may realize a significant loss from the insurance risk does not exist.
(j) derivative financial instruments
The company and its subsidiaries selectively utilize derivative financial instruments primarily to manage
financial risks, including interest rate, commodity and foreign exchange risks. Hedge accounting is applied
when the derivative is designated as a hedge of a specific exposure and there is reasonable assurance that
it will continue to be effective as a hedge based on an expectation of offsetting cash flows or fair value.
Hedge accounting is discontinued prospectively when the derivative no longer qualifies as a hedge or the
hedging relationship is terminated. Once discontinued, the cumulative change in fair value of a derivative
that was previously deferred by the application of hedge accounting is recognized in income over the
remaining term of the original hedging relationship. Balances in respect of unrealized mark-to-market
gains or losses on derivative financial instruments are recorded in Accounts Receivable and Other or
Accounts Payable and Other Liabilities.
Items Designated as Hedges
(i)
Realized and unrealized gains and losses on foreign exchange forward contracts and currency swap
contracts designated as hedges of currency risks are included in other comprehensive income when the
currency risk relates to a net investment in a self-sustaining subsidiary and are otherwise included in
income in the same period as when the underlying asset, liability or anticipated transaction affects income.
2009 AnnuAl rePort 101
Unrealized gains and losses on interest rate forward and swap contracts designated as hedges of
future interest payments are included in other comprehensive income when the interest rate risk relates
to anticipated interest payments. Unrealized gains and losses on interest rate swaps carried to offset
corresponding changes in the values of assets and cash flow streams that are not reflected in the
consolidated financial statements at December 31, 2009 and 2008 are recorded in other comprehensive
income. The periodic exchanges of payments on interest rate swap contracts designated as hedges of debt
are recorded on an accrual basis as adjustments to interest expense. The periodic exchanges of payments
on interest rate contracts designated as hedges of future interest payments are amortized into income
over the term of the corresponding interest payments.
Unrealized gains and losses on electricity forward and swap contracts designated as hedges of future power
generation revenue are included in other comprehensive income. The periodic exchanges of payments on
power generation commodity swap contracts designated as hedges are recorded on a settlement basis as
an adjustment to power generation revenue.
Items not Designated as Hedges
(ii)
Derivative financial instruments that are not designated as hedges are carried at estimated fair value, and
gains and losses arising from changes in fair value are recognized in income in the period the changes
occur. Realized and unrealized gains and losses on equity derivatives used to offset the change in share
prices in respect of vested Deferred Share Units and Restricted Share Appreciation Units are recorded
together with the corresponding compensation expense. Realized and unrealized gains or losses on other
derivatives not designated as hedges are recorded in Investment and Other Income.
income taxes
(k)
The company uses the asset and liability method whereby future income tax assets and liabilities are
determined based on differences between the carrying amounts and tax bases of assets and liabilities,
and measured using the tax rates and laws that will be in effect when the differences are expected to
reverse.
Capitalized Costs
(l) other items
(i)
Capitalized costs on assets under development and redevelopment include all expenditures incurred in
connection with the acquisition, development and construction of the asset until it is available for its
intended use. These expenditures consist of costs and interest on debt that are related to these assets.
Ancillary income relating specifically to such assets during the development period is treated as a
reduction of costs.
(ii) Pension Benefits and Employee Future Benefits
The costs of retirement benefits for defined benefit plans and post-employment benefits are recognized as
the benefits are earned by employees. The company uses the accrued benefit method pro-rated using the
length of service and management’s best estimate assumptions to value its pension and other retirement
benefits. Assets are valued at fair value for purposes of calculating the expected return on plan assets. For
defined contribution plans, the company expenses amounts as paid into the plans.
Liabilities and Equity
(iii)
Financial instruments that must or could be settled by a variable number of the company’s common shares
upon their conversion by the holders as well as the related accrued distributions are classified as liabilities
on the Consolidated Balance Sheets under the caption “Capital Securities” and are translated into U.S.
dollars at period end rates. Dividends on these instruments are classified as Interest expense.
(iv) Asset Retirement Obligations
Obligations associated with the retirement of tangible long-lived assets are recorded as liabilities when
those obligations are incurred, with the amount of the liabilities initially measured at fair value. These
obligations are capitalized to the book value of the related long-lived assets and are depreciated over the
useful life of the related asset.
102
Brookfield Asset MAnAgeMent
Stock-Based Compensation
(v)
The company and most of its consolidated subsidiaries account for stock options using the fair value
method whereby compensation expense for stock options is determined based on the fair value at the
grant date using an option pricing model and charged to income over the vesting period. The company’s
publicly traded U.S. and Brazilian homebuilding subsidiaries record the liability and expense of stock
options based on their intrinsic value using variable plan accounting, reflecting differences in how these
plans operate. Under this method, vested options are revalued each reporting period, and any change in
value is included in income.
(m) changes in accounting policies adopted
(i) Goodwill and Intangible Assets
In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets, replacing
Handbook Sections 3062, Goodwill and Other Intangible Assets and 3450, Research and Development Costs.
Various changes have been made to other sections of the CICA Handbook for consistency purposes.
Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to the initial recognition of intangible assets by profit-oriented enterprises. The new
section became effective for the company on January 1, 2009, and consistent with transition provisions in
Section 3064, the company has adopted the new standard retrospectively with restatement. The impact of
adopting this new standard was a $7 million reduction of opening retained earnings as at January 1, 2008.
(ii) Financial Instruments
In January 2009, the Emerging Issues Committee issued Abstract No. 173, Credit Risk and the Fair Value
of Financial Assets and Financial Liabilities (“EIC-173”). EIC-173 requires an entity to determine the fair
value of all financial instruments, including derivative instruments by taking into account the credit risk
of the instrument. In particular, an entity is required to factor into fair value its own credit risk in addition
to the credit risk of the counterparties to the instrument. EIC-173, which was effective for the company
on January 1, 2009, did not have a material impact to the company’s financial statements and the related
disclosures.
In June 2009, the CICA issued amendments to Section 3862, Financial Instruments – Disclosures to provide
improvements to fair value disclosures to align with disclosure rules established under United States
GAAP and International Financial Reporting Standards (“IFRS”). The new rules result in enhanced fair
value disclosure and require entities to assess the reliability and objectivity of the inputs used in measuring
fair value. All financial assets and liabilities measured at fair value must be classified into one of three
levels of a fair value hierarchy as follows: Level 1) unadjusted quoted prices in active markets for identical
instruments; Level 2) inputs other than quoted prices that are observable for the asset or liability, either
directly or indirectly; and Level 3) inputs based on unobservable market data. The new disclosures are
included in Note 3 to the consolidated financial statements. This section has also been amended to require
additional liquidity risk disclosures which are included in Note 17 to the consolidated financial statements.
On August 20, 2009, the CICA issued amendments to Section 3855, Financial Instruments – Recognition
and Measurement to align with IFRS. The amendments include: 1) changing the categories into which debt
instruments are required and permitted to be classified; 2) changing the impairment model for held-to-
maturity instruments; and 3) requiring the reversal of impairment losses relating to available-for-sale debt
instruments when the fair value of the debt instrument increases in a subsequent period. The impact of
adopting this standard was a reclassification of debt securities from available-for-sale bonds to loans and
notes receivables which resulted in a $28 million increase to financial assets, and a $28 million increase to
accumulated other comprehensive income.
(iii) Inventories
In June 2007, the CICA issued Section 3031, Inventories, replacing Section 3030, Inventories. This standard
provides guidance on the determination of the cost of inventories and subsequent recognition as an
expense, including any write-down to net realizable value. This new standard became effective for the
company on January 1, 2008. The impact of adopting this new standard was a $4 million reduction of
opening retained earnings as at January 1, 2008.
2009 AnnuAl rePort 103
(n) future changes in accounting policies
(i) Business Combinations, Consolidated Financial Statements and Non-controlling Interests
In January 2009, the CICA issued three new accounting standards, Section 1582, “Business Combinations,”
Section 1601, “Consolidated Financial Statements” and Section 1602, “Non-controlling Interests.” Section
1582 provides clarification as to what an acquirer must measure when it obtains control of a business, the
basis of valuation and the date at which the valuation should be determined. Acquisition-related costs
must be accounted for as expenses in the periods they are incurred, except for costs incurred to issue debt
or share capital. This new standard will be applicable for acquisitions completed on or after November
1, 2011 although adoption in 2010 is permitted to facilitate the transition to IFRS in 2011. Section 1601
establishes standards for preparing consolidated financial statements after the acquisition date and
Section 1602 establishes standards for the accounting and presentation of non-controlling interest. These
standards must be adopted concurrently with Section 1582.
(ii) International Financial Reporting Standards
The Accounting Standards Board (“AcSB”) confirmed in February 2008 that IFRS will replace GAAP for
publicly accountable enterprises for financial periods beginning on or after January 1, 2011. The company
applied to the Canadian Securities Administrators (“CSA”) and was granted exemptive relief to prepare
its financial statements in accordance with IFRS earlier than required and intends to do so for periods
beginning January 1, 2010, preparing its first interim financial statements in accordance with IFRS for the
three month period ending March 31, 2010.
2. acquisitions of consolidated entities
The company accounts for business combinations using the purchase method of accounting which
establishes specific criteria for the recognition of intangible assets separately from goodwill. The cost
of acquiring a business is allocated to its identifiable tangible and intangible assets and liabilities on the
basis of the estimated fair values at the date of purchase with any excess allocated to goodwill.
(a) completed during 2009
In the fourth quarter of 2009, the company increased its infrastructure investments by sponsoring the
recapitalization of Babcock & Brown Infrastructure (the “BBI Transaction”). As part of the transaction,
the company made direct and indirect investments in utility and transportation operations. The company
acquired control of, and began consolidating Brookfield Ports (UK) Ltd. (“PD Ports”), a large port operator
in the United Kingdom (“UK”).
Also in the fourth quarter of 2009, the company increased its 22% interest in the Multiplex Prime Property
Fund (“MAFCA”) to 68%. As a result, the company ceased equity accounting for its investment and
commenced consolidation. MAFCA is a listed unit trust and owns commercial properties in Australia.
The company also acquired $28 million of net assets which relate to its commercial property and timber
operations.
The following table summarizes the balance sheet impact of significant acquisitions in 2009 that resulted
in consolidation accounting:
(Millions)
Cash, accounts receivable and other
intangible assets
Property, plant and equipment
investments
non-recourse and corporate borrowings
Accounts payable and other liabilities
future income tax liability
non-controlling interests in net assets
Pd Ports
51
$
306
435
—
(392)
(140)
(96)
(102)
$
62
MAfCA
7
$
—
193
339
(425)
(27)
—
(56)
$
31
$
other
12
—
35
—
—
(19)
—
—
$
total
70
306
663
339
(817)
(186)
(96)
(158)
$
28
$
121
(b) completed during 2008
During the first quarter of 2008, the company increased its ownership interest in Brookfield Real Estate
Finance Partners (“BREF I”) to 33%. As a result, the company began to consolidate BREF I under the VIE
rules. BREF I originates high quality real estate finance investments on a leveraged basis.
104
Brookfield Asset MAnAgeMent
The company completed the acquisition of Itiquira Energetica S.A. (“Itiquira”) during the second quarter
of 2008. Itiquira owns and operates a 156 megawatt hydroelectric facility located on the Itiquira River in
Mato Grosso, Brazil.
During the second quarter of 2008, the company acquired MB Engenharia S.A. (“MB”). MB’s operations
include land development and homebuilding in the middle and middle-low segments throughout Brazil.
In the fourth quarter of 2008, a subsidiary of the company merged with Company S.A. (“Company”),
decreasing Brookfield’s ownership in the consolidated entity. Company’s operations include land
development and residential.
In December 2008, the company increased its ownership interest in Norbord Inc. (“Norbord”) from 36%
to 60% through the purchase of 99 million common shares and 50 million warrants issued as a result of
a rights offering. As a result of the increase in ownership, the company ceased equity accounting for its
investment in Norbord and commenced consolidating Norbord. Norbord is an international producer of
wood-based panels and oriented strand board.
In addition, the company also acquired $222 million of net assets which primarily relate to its timber,
residential, retail mall and power generation operations.
The following table summarizes the balance sheet impact of the significant acquisitions in 2008:
(Millions)
Cash, accounts receivable and other
intangible assets
goodwill
Property, plant and equipment
non-recourse and corporate borrowings
Accounts payable and other liabilities
future income tax asset (liability)
non-controlling interests in net assets
Bref i
$ 1,389
—
—
—
(977)
(134)
—
(246)
$
32
itiquira
67
$
—
—
436
(44)
(7)
(59)
—
$ 393
MB
$ 212
—
57
246
(277)
(174)
6
(41)
$
29
Company
$ 396
—
172
181
(418)
(45)
—
(165)
$ 121
norbord
$ 127
—
—
791
(507)
(160)
(73)
(106)
$
72
other
8
$
28
13
477
(108)
(21)
(4)
(171)
$ 222
total
$ 2,199
28
242
2,131
(2,331)
(541)
(130)
(729)
$
869
fair value of financial instruMents
3.
The fair value of a financial instrument is the amount of consideration that would be agreed upon in an
arm’s-length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair
values are determined by reference to quoted bid or ask prices, as appropriate, in the most advantageous
active market for that instrument to which the company has immediate access. Where bid and ask prices
are unavailable, the closing price of the most recent transaction of that instrument is used. In the absence
of an active market, fair values are determined based on prevailing market rates (bid and ask prices, as
appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation
models, such as option pricing models and discounted cash flow analysis, using observable market inputs.
Fair values determined using valuation models require the use of assumptions concerning the amount and
timing of estimated future cash flows and discount rates. In determining those assumptions, the company
looks primarily to external readily observable market inputs such as interest rate yield curves, currency
rates, and price and rate volatilities as applicable. The fair value of interest rate swap contracts which
form part of financing arrangements is calculated by way of discounted cash flows using market interest
rates and applicable credit spreads. In limited circumstances, the company uses input parameters that
are not based on observable market data and believes that using alternative assumptions will not result in
significantly different fair values.
fair value of financial instruments
Financial instruments classified or designated as held-for-trading or available-for-sale are carried at fair
value on the Consolidated Balance Sheets except for equity instruments designated as available-for-sale
that do not have a quoted price from an active market, which are carried at cost. The carrying amount of
available-for-sale financial assets that do not have a quoted price from an active market was $158 million
at December 31, 2009 (2008 – $143 million). Changes in the fair values of financial instruments classified
as held-for-trading and available-for-sale are recognized in Net Income and Other Comprehensive
2009 AnnuAl rePort 105
Income, respectively. The cumulative changes in the fair values of available-for-sale securities previously
recognized in Accumulated Other Comprehensive Income are reclassified to Net Income when the
security is sold or there is a decline in value that is considered to be other-than-temporary. During the
year ended December 31, 2009, $29 million of net deferred losses (2008 – $26 million) previously recognized
in Accumulated Other Comprehensive Income were reclassified to Net Income as a result of a sale or a
determination that a decline in value was an other-than-temporary impairment.
Available-for-sale securities measured at fair value or cost are assessed for impairment at each reporting
date. As at December 31, 2009, unrealized gains and losses in the fair values of available-for-sale
financial instruments measured at fair value amounted to $84 million (2008 – $25 million) and $59 million
(2008 – $169 million) respectively. Unrealized gains and losses for debt and equity securities are primarily
due to changing interest rates, market prices and foreign exchange movements.
Gains or losses arising from changes in the fair value of held-for-trading financial assets are presented
in the Consolidated Statements of Income, within Investment and Other Income, in the period in which
they arise. Dividends on held-for-trading and available-for-sale financial assets are recognized in the
Consolidated Statements of Income as part of Investment and Other Income when the company’s right
to receive payment is established. Interest on available-for-sale financial assets is calculated using the
effective interest method and recognized in the Consolidated Statements of Income as part of Investment
and Other Income.
carrying value and fair value of selected financial instruments
The following table provides a comparison of the carrying values and fair values for selected financial
instruments as at December 31, 2009 and December 31, 2008.
financial instrument classification
trading
available-for-sale
Maturity
liabilities
total
(fair
(fair
(amortized
(carrying
held-for-
held-to-
and other
2009
loans
receivable
/ payable
2008
total
(Carrying
MeAsureMent BAsis (Millions)
value)
value)
(cost)
cost)
value)
(fair value)
Value)
(fair Value)
financial assets
Cash and cash equivalents
financial assets
government bonds
Corporate bonds
fixed income securities
Common shares
loans receivable
loans and notes receivable
Accounts receivable and other1
total
financial liabilities
Corporate borrowings
$ 1,375 $ — $ — $ —
$
— $ 1,375
$
1,375
$
1,242
$ 1,242
109
621
4
36
—
—
1,029
451
308
309
152
—
—
—
—
—
—
158
—
—
—
—
—
—
—
—
1,560
—
—
89
—
—
136
236
3,876
560
1,018
313
346
136
1,796
4,905
560
990
313
664
136
1,703
4,905
557
573
431
336
174
2,061
3,666
557
573
431
639
174
1,596
3,666
$ 3,174 $ 1,220 $ 158 $ 1,560
$ 4,337
$ 10,449
$ 10,646
$
9,040 $
8,878
$ — $ — $ — $ —
$ 2,593
$ 2,593
$ 2,659
$
2,284 $
2,144
Property-specific mortgages
subsidiary borrowings
Accounts payable and other
liabilities1
Capital securities
—
—
674
—
—
—
—
—
—
—
—
—
—
—
—
—
26,731
3,663
7,689
1,641
26,731
3,663
8,363
1,641
26,236
3,666
8,363
1,632
24,398
3,593
7,441
1,425
23,885
3,354
7,441
1,293
$
674 $ — $ — $ —
$ 42,317
$ 42,991
$ 42,556
$ 39,141 $ 38,117
1.
includes $292 million of Accounts receivable and other and $424 million of Accounts Payable and other liabilities which are elected for hedge accounting
hedging activities
The company uses derivatives and non-derivative financial instruments to manage or maintain exposures
to interest, currency, credit and other market risks. When derivatives are used to manage exposures,
the company determines for each derivative whether hedge accounting can be applied. Where hedge
accounting can be applied, a hedge relationship is designated as a fair value hedge, a cash flow hedge or
106
Brookfield Asset MAnAgeMent
a hedge of foreign currency exposure of a net investment in a self-sustaining foreign operation. To qualify
for hedge accounting the derivative must be highly effective in accomplishing the objective of offsetting
changes in the fair value or cash flows attributable to the hedged risk both at inception and over the life
of the hedge. If it is determined that the derivative is not highly effective as a hedge, hedge accounting is
discontinued prospectively.
cash flow hedges
The company uses the following cash flow hedges: energy derivative contracts primarily to hedge the
sale of power; interest rate swaps to hedge the variability in cash flows related to a variable rate asset or
liability; and equity derivatives to hedge the long-term compensation arrangements. All components of each
derivative’s change in fair value have been included in the assessment of cash flow hedge effectiveness.
For the year ended December 31, 2009, pre-tax net unrealized gains of $100 million (2008 – $3 million) were
recorded in Other Comprehensive Income for the effective portion of the cash flow hedges.
net investment hedges
The company uses foreign exchange contracts and foreign currency denominated debt instruments to
manage its foreign currency exposures to net investments in self-sustaining foreign operations having a
functional currency other than the U.S. dollar. For the year ended December 31, 2009, unrealized pre-tax
net losses of $251 million (2008 – gains of $285 million) were recorded in Other Comprehensive Income for
the effective portion of hedges of net investments in self-sustaining foreign operations.
financial instrument disclosures
In June 2009, the CICA issued amendments to its Financial Instruments Disclosure standard to expand
disclosures of financial instruments measured at fair value consistent with new disclosure requirements
made under IFRS. Fair value hierarchical levels that are directly determined by the amount of subjectivity
associated with the valuation inputs of these assets and liabilities, are as follows:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date.
Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable
for the asset or liability through correlation with market data at the measurement date and for the duration
of the instrument’s anticipated life. Fair valued assets and liabilities that are included in this category are
interest rate swap contracts and other derivative contracts.
Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing
the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation
technique and the risk inherent in the inputs to determining the estimate. Fair valued assets and liabilities
that are included in this category are power purchase contracts, subordinated mortgaged-backed
securities, interest rate swap contracts, and other derivative contracts.
2009 AnnuAl rePort 107
Assets and liabilities measured at fair value on a recurring basis include $604 million (2008 – $452 million)
of financial assets and $410 million (2008 – $381 million) of financial liabilities which are measured at fair
value using valuation inputs based on management’s best estimates. The table below categorizes financial
assets and liabilities, which are carried at fair value, based upon the level of input to the valuations as
described above:
(Millions)
financial assets
Cash and cash equivalents
financial assets
government bonds
Corporate bonds
fixed income securities
Common shares
Accounts receivable and other
total
financial liabilities
Accounts payable and other liabilities
total
level 1
level 2
level 3
total
2009
2008
total
$ 1,375
$ —
$ —
$ 1,375
$ 1,242
190
508
38
133
723
370
398
—
55
—
—
23
275
—
306
560
929
313
188
1,029
557
573
431
193
610
$ 2,967
$
823
$
604
$ 4,394
$ 3,606
$
$
97
97
$
$
167
167
$
$
410
410
$
$
674
674
$
$
371
371
loans and notes receivable
4.
Loans and notes receivable include corporate loans, bridge loans and other loans, either advanced directly
or acquired in the secondary market.
The fair value of the company’s loans and notes receivable at December 31, 2009 is below the carrying
value by $93 million (2008 – $465 million) based on expected future cash flows, discounted at market rates
for assets with similar terms and investment risks.
The loans and notes receivable mature over the next seven years (2008 – eight years), with an average
maturity of approximately one year (2008 – one year) and include fixed rate loans totalling $94 million
(2008 – $107 million) with an average yield of 7.7% (2008 – 7.4%).
The company acquired the underlying assets of two real estate loans receivable and recorded a $12 million
loan impairment representing the difference between the carrying value of the loans and the estimated
value of the net assets acquired.
investMents
5.
Equity accounted investments include the following:
(Millions)
transelec
Property funds
Prime infrastructure
dBCt
other
Brazil transmission
total
% of investment
Book Value
2009
28%
13 - 25%
40%
49%
various
—
2008
28%
20 - 25%
—
—
Various
7 - 25%
$
2009
378
480
657
254
155
—
$
$ 1,924
$
2008
324
233
—
—
126
207
890
In the fourth quarter of 2009, the company acquired a 40% interest in Prime Infrastructure which is
comprised of a number of utility, energy and transportation assets as part of the BBI Transaction. As part
of the same transaction, the company acquired a 49% indirect ownership interest in Dalrymple Bay Coal
Terminal (“DBCT”). See Note 2 for further information.
Also in the fourth quarter of 2009, the company increased its ownership interest in MAFCA and commenced
accounting for its investment in the fund on a consolidated basis. This resulted in the company consolidating
the fund’s $339 million of equity accounted investments as “property fund investments” in the foregoing
table. See Note 2 for further information.
108
Brookfield Asset MAnAgeMent
The company sold its Brazilian transmission investment in the second quarter of 2009 for proceeds of
$275 million.
6. accounts receivable and other
(Millions)
Accounts receivable
Prepaid expenses and other assets
restricted cash
future tax assets
total
note
(a)
(b)
(c)
2009
$ 4,201
2,781
704
919
$ 8,605
2008
$ 3,056
2,548
610
711
$ 6,925
(a) accounts receivable
Accounts receivable includes $2,447 million (2008 – $1,351 million) of work-in-process related to contracted
sales from the company’s residential development operations. Also included in accounts receivable are loans
receivable from employees of the company and consolidated subsidiaries of $6 million (2008 – $6 million).
(b) prepaid expenses and other assets
Prepaid expenses and other assets includes $803 million (2008 – $778 million) of levelized receivables
arising from straight-line revenue recognition for commercial property leases and power sales contracts.
Also included is $461 million (2008 – $609 million) of inventory primarily related to industrial businesses.
(c) restricted cash
Restricted cash relates primarily to commercial property and power generating financing arrangements
including defeasement of debt obligations, debt service accounts and deposits held by the company’s
insurance operations.
intangible assets
7.
Intangible assets includes $1,341 million (2008 – $1,470 million) related to leases and tenant relationships
allocated from the purchase price on the acquisition of commercial properties which is presented net of
$575 million (2008 – $526 million) of accumulated amortization.
8. property, plant and equipMent
note
(a)
(b)
(c)
(d)
(e)
(Millions)
renewable power generation
Commercial properties
infrastructure
development activities
other plant and equipment
total
(a) renewable power generation
(Millions)
hydroelectric power facilities
Wind energy
Co-generation and pumped storage
less: accumulated depreciation
generating facilities under development
total
2009
$ 5,638
24,270
3,247
6,404
2,105
$ 41,664
2009
$ 6,235
319
179
6,733
1,328
5,405
233
$ 5,638
2008
$ 4,954
21,598
2,879
5,342
1,992
$ 36,765
2008
$ 5,240
291
188
5,719
1,018
4,701
253
$ 4,954
Generation assets includes the cost of the company’s 163 hydroelectric generating stations, one wind
energy farm, one pumped storage facility and two natural gas-fired cogeneration facilities. The company’s
hydroelectric power facilities operate under various agreements for water rights which extend to or are
renewable over terms through the years 2009 to 2046.
2009 AnnuAl rePort 109
(b) commercial properties
(Millions)
Commercial properties
less: accumulated depreciation
Commercial developments
total
2009
$ 24,163
1,900
22,263
2,007
$ 24,270
2008
$ 20,711
1,437
19,274
2,324
$ 21,598
Included in commercial properties is $3,961 million (2008 – $3,934 million) of land held under leases or other
agreements largely expiring after the year 2099. Minimum rental payments on land leases are approximately
$29 million (2008 – $29 million) annually for the next five years and $1,750 million (2008 – $1,804 million) in
total on an undiscounted basis.
Construction costs of $125 million and interest costs of $132 million were capitalized to the commercial
property portfolio for properties undergoing development in 2009 (2008 – $397 million and $157 million,
respectively).
note
(i)
(ii)
(iii)
(c)
infrastructure
(Millions)
timber
utilities and energy
transportation
total
(i)
Timber
(Millions)
timber
other property, plant and equipment
less: accumulated depletion and amortization
total
(ii) Utilities and Energy
(Millions)
utilities and energy assets
other property, plant and equipment
less: accumulated depreciation
total
2009
$ 2,802
144
301
$ 3,247
2009
$ 3,166
16
3,182
380
$ 2,802
2009
216
—
216
72
144
$
$
2008
$ 2,721
158
—
$ 2,879
2008
$ 2,987
19
3,006
285
$ 2,721
2008
167
82
249
91
158
$
$
The company’s utilities and energy assets are comprised of power transmission and distribution networks,
which are operated under regulated rate base arrangements that are applied to the company’s invested
capital.
In the fourth quarter of 2009, the company disposed of its Canadian distribution assets for consideration
of C$75 million.
(iii) Transportation
(Millions)
transportation assets
less: accumulated depreciation
total
2009
302
1
301
$
$
2008
—
—
—
$
$
In connection with the BBI Transaction, the company acquired PD Ports, the third largest port operator in
the UK by volume. See Note 2 for further information.
110
Brookfield Asset MAnAgeMent
(d) development activities
Development activities include properties relating to the company’s opportunity investments, residential
properties, residential land and other, and construction operations.
note
(i)
(ii)
(iii)
(Millions)
opportunity investments
residential properties
residential land and other
Construction
total
(i)
Opportunity Investments
(Millions)
Commercial and other properties
less: accumulated depreciation
total
(ii) Residential Properties
(Millions)
residential properties – owned
– optioned
total
$
2009
917
3,059
2,317
111
$
2008
850
2,431
1,937
124
$ 6,404
$ 5,342
2009
$ 1,016
99
$
917
2009
$ 2,933
126
$ 3,059
2008
926
76
850
$
$
2008
$ 2,362
69
$ 2,431
Residential properties include infrastructure, land under option, and construction in progress for
single-family homes and condominiums. During 2009, the company capitalized $104 million of interest
(2008 – $148 million) to its residential land operations.
(iii) Residential Land and Other
Residential land and other includes rural lands held for future development in agricultural or residential
areas.
(e) other plant and equipment
Other plant and equipment includes capital assets associated primarily with the company’s investments in
Fraser Papers Inc., Norbord Inc., Western Forest Products Inc., and other consolidated entities within the
company’s restructuring funds.
9. corporate borrowings
(Millions)
term debt
term debt
term debt
term debt
term debt
term debt
term debt
term debt
term debt
term debt
Commercial paper and bank borrowings
deferred financing costs1
total
Market
Maturity
Annual rate
Currency
2009
2008
March 1, 2010
Public – u.s.
June 15, 2012
Public – u.s.
Private – u.s. october 23, 2012
Private – u.s. october 23, 2013
April 30, 2014
June 2, 2014
April 25, 2017
April 25, 2017
March 1, 2033
June 14, 2035
Private – Canadian
Public – Canadian
Public – u.s.
Public – Canadian
Public – u.s.
Public – Canadian
5.75%
7.13%
6.40%
6.65%
6.26%
8.95%
5.80%
5.29%
7.38%
5.95%
l + 62.5 b.p.
us$
us$
us$
us$
C$
C$
us$
C$
us$
C$
us$/C$
$
200
350
75
75
35
475
240
238
250
285
388
(18)
$
200
350
75
75
—
—
250
205
250
246
649
(16)
$ 2,593
$ 2,284
1. deferred financing costs are amortized to interest expense over the term of the borrowing following the effective interest method
l – one month liBor b.p. – Basis Points
Term debt borrowings have a weighted average interest rate of 5.9% (2008 – 6.3%), and include $1,099 million
(2008 – $451 million) repayable in Canadian dollars equivalent to C$1,157 million (2008 – C$550 million).
2009 AnnuAl rePort 111
The fair value of corporate borrowings at December 31, 2009 was above the company’s carrying values by
$66 million (2008 – below by $140 million), determined by way of discounted cash flows using market rates
adjusted for the company’s credit spreads. Corporate borrowings are recorded initially at their fair value,
net of transaction costs incurred, and are subsequently reported at their amortized cost calculated using
the effective interest method.
In 2009, the company issued C$500 million of 8.95% publicly traded term debt due June 2014, as well as a
C$40 million secured private placement.
In March 2010, the company repaid $200 million of corporate term debt and issued C$300 million of
corporate term debt at 5.2%, which matures in September 2016.
10. non-recourse borrowings
(a) property-specific Mortgages
Principal repayments on property-specific mortgages due over the next five years and thereafter are as
follows:
(Millions)
2010
2011
2012
2013
2014
thereafter
total – 2009
total – 2008
$
renewable Power
generation
390
126
700
138
288
2,489
$
$
4,131
3,588
Commercial
Properties
1,281
$
5,329
1,793
2,317
1,185
4,228
$ 16,133
$ 15,219
$
infrastructure
10
74
—
454
—
1,528
$ 2,066
$ 1,648
development
$ 1,032
722
430
157
41
49
$ 2,431
$ 2,490
The local currency composition of property-specific mortgages are as follows:
(Millions)
u.s. dollars
Canadian dollars
Australian dollars
Brazilian reais
British pounds
new Zealand dollars
european union euros
n/A - not applicable
2009
$ 16,489
3,507
2,879
2,431
1,201
176
48
$ 26,731
local
currency
$ 16,489
3,690
3,208
4,233
743
243
33
$ n/a
special
situations
64
$
126
636
76
—
1,068
$
$
1,970
1,453
2008
$ 16,906
3,085
2,074
1,460
725
101
47
$ 24,398
$
total Annual
repayments
2,777
6,377
3,559
3,142
1,514
9,362
$ 26,731
$ 24,398
local
Currency
$ 16,906
3,766
2,943
3,415
496
171
33
$ n/A
The weighted average interest rate at December 31, 2009 was 5.2% per annum (2008 – 5.8%).
Property-specific mortgages are recorded initially at their fair value, net of transaction costs incurred, and
are subsequently reported at their amortized cost calculated using the effective interest method.
The fair value of property-specific mortgages was below the company’s carrying values by $495 million
(2008 – $513 million), determined by way of discounted cash flows using market rates adjusted for credit
spreads applicable to the debt.
Residential property debt represents amounts drawn under construction financing facilities which are
typically established on a project-by-project basis. Amounts drawn are repaid from the proceeds on the
sale of building lots, single-family homes and condominiums and redrawn to finance the construction of
new homes.
112
Brookfield Asset MAnAgeMent
$
843
578
626
5
218
1,393
$ 3,663
$ 3,593
$
local
Currency
1,865
1,166
1,078
10
6
(b) subsidiary borrowings
Principal repayments on subsidiary borrowings over the next five years and thereafter are as follows:
renewable
Power generation
Commercial
Properties
infrastructure
development
special
situations
other
total Annual
repayments
(Millions)
2010
2011
2012
2013
2014
thereafter
total – 2009
total – 2008
$
28
122
380
—
—
614
$ 1,144
$
652
$ 392
159
—
—
—
—
$ 551
$ 831
$ —
—
—
—
—
—
$ —
$ 140
$ 296
179
—
—
—
—
$ 475
$ 394
$
$
$
92
118
246
5
218
—
679
815
$
$
$
35
—
—
—
—
779
814
761
The local currency composition of subsidiary borrowings are as follows:
(Millions)
u.s. dollars
Canadian dollars
Australian dollars
Brazilian reais
British pounds
$
2009
1,723
1,191
588
—
161
$
local
currency
1,723
1,253
655
—
100
$
2008
1,865
955
760
4
9
$
3,663
$
n/a
$
3,593
$ n/A
The fair value of subsidiary borrowings was above the company’s carrying values by $3 million (2008 –
was below $239 million), determined by way of discounted cash flows using market rates adjusted for
applicable credit spreads.
Commercial properties includes $nil (2008 – $240 million) invested by investment partners in the form of
debt capital in entities that are required to be consolidated into the company’s accounts.
Subsidiary borrowings include contingent obligations pursuant to financial instruments which are
recorded as liabilities. These amounts include $779 million (2008 – $675 million) of subsidiary obligations
relating to the company’s international operations that are subject to credit rating provisions and which
are supported by corporate guarantees.
Subsidiary borrowings are recorded initially at their fair value, net of transaction costs incurred, and are
subsequently reported at amortized cost calculated using the effective interest method.
11. accounts payable and other liabilities
(Millions)
Accounts payable
future tax liabilities
other liabilities
total
2009
$ 5,052
1,654
3,311
$ 10,017
2008
$ 4,494
1,461
2,949
$ 8,904
Included in accounts payable and other liabilities is $1,674 million (2008 – $1,045 billion) and $696 million
(2008 – $453 million) of accounts payable and deferred revenue, respectively, related to the company’s
residential development operations. Accounts payable also includes $735 million (2008 – $1,014 million) of
insurance deposits, claims and other liabilities incurred by the company’s insurance subsidiaries.
intangible liabilities
12.
Intangible liabilities represent below-market tenant leases and above-market ground leases assumed on
acquisitions, net of accumulated amortization. At December 31, 2009, $741 million (2008 – $891 million)
of below-market tenant leases and above-market ground leases were recorded net of $476 million of
amortization (2008 – $374 million).
2009 AnnuAl rePort 113
13. capital securities
The company has the following capital securities outstanding:
(Millions)
Corporate preferred shares
subsidiary preferred shares
total
(a) corporate preferred shares
note
(a)
(b)
(Millions, exCePt shAre inforMAtion)
Class A preferred shares
deferred financing costs
total
shares
outstanding
10,000,000
4,032,401
7,000,000
6,000,000
description
series 10
series 11
series 12
series 21
Cumulative
dividend rate
Currency
5.75%
5.50%
5.40%
5.00%
C$
C$
C$
C$
$
2009
632
1,009
$ 1,641
$
2009
238
96
166
142
(10)
$
2008
543
882
$ 1,425
$
2008
205
83
143
123
(11)
$
632
$
543
Subject to approval of the Toronto Stock Exchange, the Series 10, 11, 12 and 21 shares, unless redeemed by
the company for cash, are convertible into Class A common shares at a price equal to the greater of 95%
of the market price at the time of conversion and C$2.00, at the option of either the company or the holder,
at any time after the following dates:
ClAss A Preferred shAres
series 10
series 11
series 12
series 21
(b) subsidiary preferred shares
earliest Permitted
redemption date
september 30, 2008
June 30, 2009
March 31, 2014
June 30, 2013
Company’s
Conversion option
september 30, 2008
June 30, 2009
March 31, 2014
June 30, 2013
holder’s
Conversion option
March 31, 2012
december 31, 2013
March 31, 2018
June 30, 2013
(Millions, exCePt shAre inforMAtion)
Class AAA preferred shares of
Brookfield Properties Corporation
deferred financing costs
total
shares
outstanding
8,000,000
4,400,000
8,000,000
8,000,000
8,000,000
6,000,000
description
series f
series g
series h
series i
series J
series k
Cumulative
dividend rate
6.00%
5.25%
5.75%
5.20%
5.00%
5.20%
Currency
C$
us$
C$
C$
C$
C$
$
2009
190
110
190
190
190
143
(4)
$
2008
164
110
164
164
164
123
(7)
$ 1,009
$
882
The subsidiary preferred shares are redeemable at the option of either the company or the holder, at any
time after the following dates:
earliest Permitted
redemption date
september 30, 2009
June 30, 2011
december 31, 2011
december 31, 2008
June 30, 2010
Company’s
Conversion option
september 30, 2009
June 30, 2011
december 31, 2011
december 31, 2008
June 30, 2010
holder’s Conversion option
March 31, 2013
september 30, 2015
december 31, 2015
december 31, 2010
december 31, 2014
december 31, 2012
december 31, 2012
december 31, 2016
ClAss AAA Preferred shAres
series f
series g
series h
series i
series J
series k
114
Brookfield Asset MAnAgeMent
14. non-controlling interests
Non-controlling interests represent the common and preferred equity in consolidated entities that is
owned by other shareholders.
(Millions)
Common equity
Preferred equity
total
2009
$ 8,182
787
$ 8,969
2008
$ 5,875
446
$ 6,321
Non-controlling interests in common equity increased by $2,125 million during 2009 as a result of equity
issuances in the company’s consolidated subsidiaries.
15. preferred equity
Preferred equity represents perpetual preferred shares and consists of the following:
(Millions, exCePt shAre inforMAtion)
rate
term
2009
2008
2009
2008
issued and outstanding
Class A preferred shares
series 2
series 4
series 8
series 9
series 13
series 15
series 17
series 18
series 22
total
70% P
70% P/8.5%
Variable up to P
4.35%
70% P
B.A. + 40 b.p.1
4.75%
4.75%
7.00%
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
10,465,100
2,800,000
1,805,948
2,194,052
9,297,700
2,000,000
8,000,000
8,000,000
12,000,000
10,465,100
2,800,000
1,805,948
2,194,052
9,297,700
2,000,000
8,000,000
8,000,000
—
$
169
45
29
35
195
42
174
181
274
$
$ 1,144
$
169
45
29
35
195
42
174
181
—
870
1. rate determined in a quarterly auction
P – Prime rate B.A. – Bankers’ Acceptance rate b.p. – Basis Points
The company is authorized to issue an unlimited number of Class A preferred shares and an unlimited
number of Class AA preferred shares, issuable in series. No Class AA preferred shares have been issued.
The Class A preferred shares have preference over the Class AA preferred shares, which in turn are
entitled to preference over the Class A and Class B common shares on the declaration of dividends and
other distributions to shareholders. All series of the outstanding preferred shares have a par value of
C$25 per share.
In June 2009, the company issued 12,000,000 Class A series 22, 7% preferred shares for cash proceeds of
C$300 million, and incurred transaction costs of C$9 million.
In January 2010, the company issued 11,000,000 Class A series 24, 5.4% preferred shares for cash proceeds
of C$275 million, and incurred transaction costs of C$8 million.
16. coMMon equity
The company is authorized to issue an unlimited number of Class A Limited Voting Shares (“Class A
common shares”) and 85,120 Class B Limited Voting Shares (“Class B common shares”), together referred
to as common shares.
2009 AnnuAl rePort 115
The company’s common shareholders’ equity is comprised of the following:
(Millions)
Class A and B common shares
Contributed surplus
retained earnings
Accumulated other comprehensive income (loss)
Common equity
nuMBer of shAres
Class A common shares
Class B common shares
unexercised options
total diluted common shares
2009
$ 1,289
58
4,451
605
$ 6,403
572,782,819
85,120
572,867,939
34,883,426
607,751,365
2008
$ 1,278
42
4,361
(770)
$ 4,911
572,479,652
85,120
572,564,772
27,761,269
600,326,041
(a) class a and class b common shares
The company’s Class A common shares and its Class B common shares are each, as a separate class,
entitled to elect one-half of the company’s Board of Directors. Shareholder approvals for matters other
than for the election of directors must be received from the holders of the company’s Class A common
shares as well as the Class B common shares, each voting as a separate class.
During 2009 and 2008, the number of issued and outstanding common shares changed as follows:
outstanding at beginning of year
shares issued (repurchased)
dividend reinvestment plan
Management share option plan
repurchases
other
outstanding at end of year
2009
2008
572,564,772
583,612,701
178,962
1,622,444
(1,498,249)
10
161,386
3,014,077
(14,224,303)
911
572,867,939
572,564,772
In 2009, the company repurchased 1,498,249 (2008 – 14,224,303) Class A common shares under normal course
issuer bids at a cost of $18 million (2008 – $287 million). Proceeds from the issuance of common shares
pursuant to the company’s dividend reinvestment plan and management share option plan (“MSOP”),
totalled $14 million (2008 – $33 million).
(b) earnings per share
The components of basic and diluted earnings per share are summarized in the following table:
(Millions)
net income
Preferred share dividends
net income available for common shareholders
Weighted average outstanding common shares
dilutive effect of options using treasury stock method
Common shares and common share equivalents
$
$
2009
454
(43)
411
572.2
8.1
580.3
$
$
2008
649
(44)
605
581.1
10.8
591.9
The holders of Class A common shares and Class B common shares rank on parity with each other with
respect to the payment of dividends and the return of capital on the liquidation, dissolution or winding
up of the company or any other distribution of the assets of the company among its shareholders for
the purpose of winding up its affairs. With respect to the Class A and Class B common shares, there
are no dilutive factors, material or otherwise, that would result in different diluted earnings per share.
This relationship holds true irrespective of the number of dilutive instruments issued in either one of the
respective classes of common shares, as both classes of common shares participate equally, on a pro
rata basis in the dividends, earnings and net assets of the company, whether taken before or after dilutive
instruments, regardless of which class of common shares is diluted.
116
Brookfield Asset MAnAgeMent
(c) stock-based compensation
Options issued under the company’s MSOP typically vest proportionately over five years and expire 10
years after the grant date. The exercise price is equal to the market price at the grant date. During 2009, the
company granted 10,154,850 (2008 – 3,823,000) options with an average exercise price of $14.31 (C$17.78)
(2008 – C$31.47) per share. The cost of the options granted was determined using the Black-Scholes model
of valuation, assuming a 7.5 year term to exercise (2008 – 7.5 year), 32% volatility (2008 – 27%), a weighted
average expected annual dividend yield of 3.7% (2008 – 1.7%), a risk-free rate of 2.3% (2008 – 3.9%) and a
liquidity discount of 25% (2008 – 25%). The cost of $21 million (2008 – $21 million) is charged to employee
compensation expense on an equal basis over the five-year vesting period of the options granted.
The changes in the number of options during 2009 and 2008 were as follows:
outstanding at beginning of year
granted
exercised
Cancelled
outstanding at end of year
exercisable at end of year
2009
2008
number of
options
(000’s)
weighted
average
exercise price
number of
options
(000’s)
Weighted
Average
exercise Price
27,761
10,155
(1,623)
(1,410)
34,883
18,408
c$
19.61
17.78
7.76
32.37
c$
19.11
27,344
3,823
(3,014)
(392)
27,761
16,671
C$
17.12
31.47
10.18
34.54
C$
19.61
At December 31, 2009, the following options to purchase Class A common shares were outstanding:
nuMBer outstAnding
(000’s)
2,129
6,210
12,839
7,946
5,759
34,883
exercise Price
C$4.90 – C$6.73
C$7.61 – C$9.84
C$13.37 – C$19.03
C$20.21 – C$30.22
C$31.62 – C$46.59
Weighted
Average
remaining life
0.6 years
2.4 years
8.0 years
5.7 years
7.7 years
number
exercisable
(000’s)
2,129
6,210
2,958
5,446
1,665
18,408
A Restricted Share Unit Plan provides for the issuance of Deferred Share Units (“DSUs”), as well as
Restricted Share Appreciation Units (“RSAUs”). Under this plan, qualifying employees and directors
receive varying percentages of their annual incentive bonus or directors’ fees in the form of DSUs. The
DSUs and RSAUs vest over periods of up to five years, and DSUs accumulate additional DSUs at the
same rate as dividends on common shares based on the market value of the common shares at the time
of the dividend. Participants are not allowed to convert DSUs and RSAUs into cash until cessation of
employment. The value of the DSUs, when converted to cash, will be equivalent to the market value of the
common shares at the time the conversion takes place. The value of the RSAUs when converted into cash
will be equivalent to the difference between the market price of equivalent numbers of common shares
at the time the conversion takes place, and the market price on the date the RSAUs are granted. The
company uses equity derivative contracts to offset its exposure to the change in share prices in respect of
vested and unvested DSUs and RSAUs. The value of the vested DSUs and RSAUs as at December 31, 2009
was $215 million (2008 – $132 million).
Employee compensation expense for these plans is charged against income over the vesting period of the
DSUs and RSAUs. The amount payable by the company in respect of vested DSUs and RSAUs changes
as a result of dividends and share price movements. All of the amounts attributable to changes in the
amounts payable by the company are recorded as employee compensation expense in the period of the
change, and for the year ended December 31, 2009, including those of operating subsidiaries, totalled
$26 million (2008 – $61 million), net of the impact of hedging arrangements.
2009 AnnuAl rePort 117
17. derivative financial instruMents
The company’s activities expose it to a variety of financial risks, including market risk (i.e. currency risk,
interest rate risk, and other price risk), credit risk and liquidity risk. The company and its subsidiaries
selectively use derivative financial instruments principally to manage these risks.
The aggregate notional amount of the company’s derivative positions at the end of 2009 and 2008 are as
follows:
(Millions)
foreign exchange
interest rates
Credit default swaps
equity derivatives
Commodity instruments (energy)
note
(a)
(b)
(c)
(d)
(e)
2009
$ 2,220
6,503
365
567
365
$ 10,020
2008
$ 3,607
8,085
2,465
417
198
$ 14,772
(a) foreign exchange
The company held the following foreign exchange contracts with notional amounts at December 31, 2009
and December 31, 2008.
(Millions)
foreign exchange contracts
Canadian dollars
British pounds
Australian dollars
european union euros
danish kroner
Brazilian reais
Cross currency interest rate swaps
Canadian dollars
Australian dollars
Brazilian reais
foreign exchange options
notional Amount (u.s. dollars)
Average exchange rate
$
2009
192
364
389
176
54
3
569
24
—
449
$
2008
278
960
1,053
121
—
249
669
141
136
—
$
2009
0.95
1.61
0.81
1.46
0.19
1.75
0.79
0.66
—
0.73
$
2008
0.82
1.48
0.67
1.49
—
1.92
0.67
0.77
1.71
—
$ 2,220
$
3,607
$ n/a
$
n/A
Included in net income, are net gains on foreign currency balances amounting to $16 million
(2008 – $37 million) and included in the cumulative translation adjustment account in other comprehensive
income are gains in respect of foreign currency contracts entered into for hedging purposes amounting to
$1 million (2008 – $139 million).
interest rates
(b)
At December 31, 2009, the company held interest rate swap contracts having an aggregate notional amount
of $650 million (2008 – $400 million). The company’s subsidiaries held interest rate swap contracts having
an aggregate notional amount of $4,953 million (2008 – $3,292 million). The company’s subsidiaries held
interest rate cap contracts with an aggregate notional amount of $900 million (2008 – $4,393 million).
(c) credit default swaps
As at December 31, 2009, the company held credit default swap contracts with an aggregate notional amount
of $365 million (2008 – $2,465 million). Credit default swaps are contracts which are designed to compensate
the purchaser for any change in the value of an underlying reference asset, based on measurement in
credit spreads, upon the occurrence of predetermined credit events. The company is entitled to receive
payments in the event of a predetermined credit event for up to $245 million (2008 – $2,407 million) of the
notional amount and could be required to make payments in respect of $120 million (2008 – $58 million) of
the notional amount.
118
Brookfield Asset MAnAgeMent
(d) equity derivatives
At December 31, 2009, the company and its subsidiaries held equity derivatives with a notional amount
of $567 million (2008 – $417 million) recorded at an amount equal to fair value. A portion of the notional
amount represents a $366 million (2008 – $263 million) hedge of long-term compensation arrangements
and the balance represents common equity positions established in connection with the company’s
investment activities. The fair value of these instruments was reflected in the company’s consolidated
financial statements at year end.
(e) commodity instruments
The company has entered into energy derivative contracts primarily to hedge the sale of generated power.
The company endeavours to link forward electricity sale derivatives to specific periods in which it expects
to generate electricity for sale. All energy derivative contracts are recorded at an amount equal to fair
value and are reflected in the company’s consolidated financial statements at year end.
other information regarding derivative financial instruments
The following table classifies derivatives elected as either fair value hedges, cash flow hedges or net
investment hedges, and records changes in the value of the effective portion of the hedge in either Other
Comprehensive Income or Net Income, depending on the hedge classification and records changes in the
value of the ineffective portion of the hedge in Net Income during the year:
(Millions)
fair value hedges
Cash flow hedges
net investment hedges
net gain (losses)
$
effective
Portion
8
100
(92)
$
ineffective
Portion
2
1
5
$
notional
447
4,684
1,064
$
6,195
$
16
$
8
The following table presents the change in fair values of the company’s derivative positions during the
years ended December 31, 2009 and 2008, for both derivatives that are held-for-trading and derivatives that
qualify for hedge accounting:
(Millions)
foreign exchange derivatives
interest rate derivatives
interest rate swaps
interest rate caps
Credit default swaps
equity derivatives
Commodity derivatives
unrealized gains
during 2009
87
$
unrealized losses
during 2009
(70)
$
net change
during 2009
17
$
2008
net Change
176
$
212
4
216
—
66
83
452
$
(8)
(3)
(11)
(4)
(47)
(112)
(244)
$
204
1
205
(4)
19
(29)
208
$
(180)
2
(178)
27
(219)
147
(47)
$
2009 AnnuAl rePort 119
The following table presents the notional amounts underlying the company’s derivative instruments by
term to maturity, as at December 31, 2009, for both derivatives that are held-for-trading and derivatives
that qualify for hedge accounting:
(Millions)
held-for-trading
foreign exchange derivatives
interest rate derivatives
interest rate swaps
interest rate caps
Credit default swaps
equity derivatives
Commodity derivatives
elected for hedge accounting
foreign exchange derivatives
interest rate derivatives
interest rate swaps
interest rate caps
equity derivatives
Commodity derivatives
residual term to Contractual Maturity
< 1 year
1 to 5 years
> 5 years
Amount
total notional
$
316
$
473
$ —
$
789
798
356
1,154
—
37
37
1,544
1,065
1,100
160
1,260
10
93
2,428
198
28
226
365
336
100
1,500
366
3,024
356
3,380
—
16
3,762
478
—
478
—
184
119
781
—
5
—
5
—
—
5
1,474
384
1,858
365
557
256
3,825
1,431
4,129
516
4,645
10
109
6,195
$ 3,972
$ 5,262
$
786
$ 10,020
18. risK ManageMent
The company is exposed to the following risks as a result of holding financial instruments: market risk (i.e.
interest rate risk, currency risk and other price risks that impact the fair values of financial instruments);
credit risk; and liquidity risk. The following is a description of these risks and how they are managed:
(a) Market risk
Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial
instrument held by the company will fluctuate because of changes in market prices. Market risk includes
the risk of changes in interest rates, currency exchange rates and changes in market prices due to factors
other than interest rates or currency exchange rates such as changes in equity prices, commodity prices
or credit spreads.
The company manages market risk from foreign currency assets and liabilities and the impact of changes
in interest rates, floating rate assets and liabilities by funding assets with financial liabilities in the same
currency and with similar interest rate characteristics and holding financial contracts such as interest
rate and foreign exchange derivatives to minimize residual exposures. Financial instruments held by the
company that are subject to market risk include securities and loans and notes receivable, borrowings, and
derivative instruments such as interest rate, currency, equity and commodity contracts. The categories
of financial instruments that can potentially give rise to significant variability in net income and other
comprehensive income are described in the following paragraphs.
Interest Rate Risk
The observable impacts on the fair values and future cash flows of financial instruments that can be
directly attributable to interest rate risk include changes in the net income from financial instruments
whose cash flows are determined with reference to floating interest rates and changes in the value of
financial instruments whose cash flows are fixed in nature.
The company’s assets largely consist of long duration interest sensitive physical assets. Accordingly, the
company’s financial liabilities consist primarily of long-term fixed rate debt or floating rate debt that has
been swapped with interest rate derivatives. These financial liabilities are, with few exceptions, recorded
120
Brookfield Asset MAnAgeMent
at their amortized cost. The company also holds interest rate caps to limit its exposure to increases in
interest rates on floating rate debt that has not been swapped and holds interest rate contracts to lock
in fixed rates on anticipated future debt issuances and as an economic hedge against the values of long
duration interest sensitive physical assets that have not been otherwise matched with fixed rate debt.
The result of a 50-basis point increase in interest rates on the company’s net floating rate assets and
liabilities would have resulted in a corresponding decrease in net income before tax of $29 million on an
annualized basis.
Changes in the value of held-for-trading interest rate contracts are recorded in net income and changes
in the value of contracts that are elected for hedge accounting together with changes in the value of
available-for-sale financial instruments are recorded in other comprehensive income together with the
change in the value of the item being hedged. The impact of a 10-basis point parallel increase in the yield
curve on the aforementioned financial instruments is estimated to result in a corresponding increase in
net income of $1 million and an increase in other comprehensive income of $2 million, before tax for the
year ended December 31, 2009.
Currency Exchange Rate Risk
Changes in currency rates will impact the carrying value of financial instruments denominated in
currencies other than the U.S. dollar.
The company holds financial instruments with net unmatched exposures in several currencies, changes
in the translated value of which are recorded in net income. The impact of a 1% increase in the U.S. dollar
against these currencies would have resulted in a $16 million increase in the value of these positions on
a combined basis, of which $20 million relates to the Canadian dollar. The impact on cash flows from
financial instruments would be insignificant. The company holds financial instruments to hedge the net
investment in self-sustaining operations whose functional and reporting currencies are other than the
U.S. dollar. A 1% increase in the U.S. dollar would increase the value of these hedging instruments by
$32 million as at December 31, 2009, which would be recorded in other comprehensive income and offset
by changes in the U.S. dollar carrying value of the net investment being hedged.
Other Price Risk
Other price risk is the risk of variability in fair value due to movements in equity prices or other market
prices such as commodity prices and credit spreads.
Financial instruments held by the company that are exposed to equity price risk include equity securities
and equity derivatives. A 5% decrease in the market price of equity securities and equity derivatives
held by the company, excluding equity derivatives in respect of compensation arrangements, would have
increased net income by $6 million and decreased other comprehensive income by $8 million, prior to
taxes. The company’s liability in respect of equity compensation arrangements is subject to variability
based on changes in the company’s underlying common share price. The company holds equity derivatives
to hedge almost all of the variability. A 5% change in the common equity price of the company in respect
of compensation agreements would increase the compensation liability and compensation expense
by $16 million. This increase would be offset by a $17 million change in value of the associated equity
derivatives of which $16 million would offset the above mentioned increase in compensation expense and
the remaining $1 million would be recorded in other comprehensive income.
The company sells power and generation capacity under long-term agreements and financial contracts to
stabilize future revenues. Certain of the contracts are considered financial instruments and are recorded
at fair value in the financial statements, with changes in value being recorded in either net income or other
comprehensive income as applicable. A 5% increase in energy prices would have decreased net income
for the year ended December 31, 2009 by approximately $21 million and other comprehensive income
by $4 million, prior to taxes. The corresponding increase in the value of the revenue or capacity being
contracted, however, is not recorded in net income until subsequent periods.
The company held credit default swap contracts with a net notional amount of $125 million at
December 31, 2009. The company is exposed to changes in the credit spread of the contracts’ underlying
2009 AnnuAl rePort 121
reference asset. A 10-basis point increase in the credit spread of the underlying reference assets would
have increased net income by $0.3 million for the year ended December 31, 2009, prior to taxes.
(b) credit risk
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual
obligations. The company’s exposure to credit risk in respect of financial instruments relates primarily to
counterparty obligations regarding derivative contracts, loans receivable and credit investments such as
bonds and preferred shares.
The company assesses the credit worthiness of each counterparty before entering into contracts and
ensures that counterparties meet minimum credit quality requirements. Management evaluates and
monitors counterparty credit risk for derivative financial instruments and endeavours to minimize
counterparty credit risk through diversification, collateral arrangements, and other credit risk mitigation
techniques. The credit risk of derivative financial instruments is generally limited to the positive fair
value of the instruments, which, in general, tends to be a relatively small proportion of the notional value.
Substantially all of the company’s derivative financial instruments involve either counterparties that are
banks or other financial institutions in North America, the United Kingdom and Australia, or arrangements
that have embedded credit risk mitigation features. The company does not expect to incur credit losses in
respect of any of these counterparties. The maximum exposure in respect of loans receivables and credit
investments is equal to the carrying value.
(c) liquidity risk
Liquidity risk is the risk that the company cannot meet a demand for cash or fund an obligation as it
comes due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at
a reasonable price.
To ensure the company is able to react to contingencies and investment opportunities quickly, the company
maintains sources of liquidity at the corporate level. The primary source of liquidity consists of cash and
financial assets, net of deposits and other associated liabilities, and undrawn committed credit facilities.
The company is subject to the risks associated with debt financing, including the ability to refinance
indebtedness at maturity. The company believes these risks are mitigated through the use of long-term
debt secured by high quality assets, maintaining debt levels that are in management’s opinion relatively
conservative, and by diversifying maturities over an extended period of time. The company also seeks
to include in its agreements terms that protect the company from liquidity issues of counterparties that
might otherwise impact the company’s liquidity.
19. capital ManageMent
The capital of the company consists of the components of shareholders’ equity in the company’s
consolidated balance sheet (i.e. common and preferred equity) as well as the company’s capital securities,
which consist of corporate preferred shares that are convertible into common shares at the option of
either the holder or the company. As at December 31, 2009, these items totalled $8.2 billion on a book value
basis (2008 – $6.3 billion).
The company’s objectives when managing this capital are to maintain an appropriate balance between
holding a sufficient amount of capital to support its operations, which includes maintaining investment-
grade ratings at the corporate level, and providing shareholders with a prudent amount of leverage to
enhance returns. Corporate leverage, which consists of corporate debt as well as subsidiary obligations
that are guaranteed by the company or are otherwise considered corporate in nature, totalled $3.4 billion
based on book values at December 31, 2009 (2008 – $3.0 billion). The company monitors its capital base
and leverage primarily in the context of its deconsolidated debt-to-total capitalization ratios. The ratio as
at December 31, 2009 was 27% (2008 – 28%), which is within the company’s target of between 20% and 30%
on a book value basis.
The consolidated capitalization of the company includes the capital and financial obligations of
consolidated entities, including long-term property-specific financings, subsidiary borrowings, capital
securities as well as common and preferred equity held by other investors in these entities. The capital in
these entities is managed at the entity level with oversight by management of the company. The capital
122
Brookfield Asset MAnAgeMent
is typically managed with the objective of maintaining investment-grade levels in most circumstances
and is, except in limited and carefully managed circumstances, without any recourse to the company.
Management of the company also takes into consideration capital requirements of consolidated and non-
consolidated entities that it has interests in when considering the appropriate level of capital and liquidity
on a deconsolidated basis.
The company is subject to limited covenants in respect of its corporate debt and is in full compliance
with all such covenants as at December 31, 2009. The company and its consolidated entities are also
in compliance with all covenants and other capital requirements related to regulatory or contractual
obligations of material consequence to the company.
20. revenues less direct operating costs
Direct operating costs include all attributable expenses except interest, depreciation and amortization,
taxes, other provisions and non-controlling interests in income. The details are as follows:
(Millions)
renewable power generation
Commercial properties
infrastructure
development activities
special situations
realization gains
revenue
1,156
$
2,918
339
1,965
1,754
—
2009
expenses
387
$
1,192
230
1,636
1,635
—
$
net
769
1,726
109
329
119
413
$
revenue
1,286
2,761
455
1,990
2,090
—
2008
expenses
400
$
1,094
259
1,824
1,786
—
$
net
886
1,667
196
166
304
164
$
8,132
$
5,080
$
3,465
$
8,582
$
5,363
$
3,383
21. non-controlling interests in incoMe
Non-controlling interests of others in income is segregated into the non-controlling share of income before
certain items and their share of those items, which include depreciation and amortization, income taxes
and other provisions.
(Millions)
non-controlling interests’ share of net income prior to the following
non-controlling interests’ share of depreciation and amortization, provisions and other, and
future income taxes
non-controlling interests in net income
distributed as recurring dividends
Preferred
Common
(overdistributed)/undistributed
non-controlling interests in net income
22.
incoMe taxes
(Millions)
Current
future
Current and future income tax expense/(recovery)
2009
892
(673)
219
4
235
(20)
219
2009
(4)
24
20
$
$
$
$
$
$
2008
810
(437)
373
2
203
168
373
2008
(7)
(461)
(468)
$
$
$
$
$
$
Future income tax assets relate primarily to non-capital losses available to reduce taxable income which
may arise in the future. The company and its Canadian subsidiaries have future income tax assets of
$433 million (2008 – $215 million) that relate to non-capital losses which expire over the next 20 years, and
$129 million (2008 – $82 million) that relate to capital losses which have no expiry date. The company’s U.S.
subsidiaries have future income tax assets of $165 million (2008 – $177 million) that relate to net operating
losses which expire over the next 20 years. The company’s international subsidiaries have future income
tax assets of $273 million (2008 – $237 million) that relate to operating losses which generally have no
expiry date. The benefit of these tax losses is reduced by $81 million (2008 – nil) for future tax liabilities
that are expected to reverse at the same time. The amount of non-capital and capital losses and deductible
2009 AnnuAl rePort 123
temporary differences for which no future income tax assets have been recognized is approximately
$2,829 million (2008 – $2,887 million). The future income tax liabilities represent the cumulative amount of
income tax payable on the differences between the book values and the tax values of the company’s assets
and liabilities at the rates expected to be effective at the time the differences are anticipated to reverse.
The future income tax liabilities relate primarily to differences between book values and tax values of
property, plant and equipment due to different depreciation rates for accounting and tax purposes. The
future income tax assets and liabilities are recorded in accounts receivable and other and accounts
payable and other liabilities on the balance sheet.
The following table reflects the company’s effective tax rate at December 31, 2009 and 2008:
statutory income tax rate
increase/(reduction) in rate resulting from
dividends subject to tax prior to receipt by the company
Portion of income not subject to tax
international operations subject to different tax rates
Change in tax rates on temporary differences
recognition of future tax assets/(liabilities)
foreign exchange gain and losses
non-recognition of the benefit of current year’s tax losses
other
effective income tax rate
2009
33%
(15)%
(14)%
(19)%
5%
(6)%
3%
14%
3%
4%
2008
33%
(19)%
(6)%
(26)%
(99)%
7%
(27)%
27%
13%
(97)%
23. Joint ventures
The following amounts represent the company’s proportionate interest in incorporated and unincorporated
joint ventures that are reflected in the company’s accounts:
(Millions)
Assets
liabilities
operating revenues
operating expenses
net income
Cash flows from operating activities
Cash flows used in investing activities
Cash flow from financing activities
2009
$ 4,434
2,292
548
376
35
179
(35)
4
2008
$ 5,615
2,912
693
454
92
104
(145)
105
24. post-eMployMent benefits
The company offers pension and other post employment benefit plans to employees of certain of its
subsidiaries. The company’s obligations under its defined benefit pension plans are determined periodically
through the preparation of actuarial valuations. The benefit plans’ income for 2009 was $15 million
(2008 – expense of $13 million). The discount rate used was 6% (2008 – 6%) with an increase in the rate of
compensation of 4% (2008 – 3%) and an investment rate of 8% (2008 – 7%).
(Millions)
Plan assets
less accrued benefit obligation:
defined benefit pension plan
other post-employment benefits
net liability
less: unamortized transitional obligations and net actuarial losses
Accrued benefit asset
2009
$ 1,063
2008
983
$
(1,186)
(34)
(157)
264
(1,094)
(62)
(173)
291
$
107
$
118
124
Brookfield Asset MAnAgeMent
25. suppleMental cash flow inforMation
(Millions)
Corporate borrowings
issuances
repayments
net commercial paper and bank borrowings (repaid)/issued
$
2009
459
(20)
(333)
$
2008
150
(300)
483
$
106
$
333
Property-specific mortgages
issuances
repayments
other debt of subsidiaries
issuances
repayments
Common shares
issuances
repurchases
renewable power generation
Proceeds of dispositions
investments
Commercial properties
Proceeds of dispositions
investments
infrastructure
Proceeds of dispositions
investments
development activities
Proceeds of dispositions
investments
loans and notes receivable
loans collected
loans advanced
financial assets
securities sold
securities purchased
$ 2,465
(3,152)
$
(687)
$ 1,302
(1,684)
$
(382)
$
$
14
(18)
(4)
$ —
(195)
$
(195)
$
33
(662)
$
(629)
$
314
(1,220)
$
(906)
$
128
(267)
$
(139)
$
286
(136)
$
150
$
874
(1,132)
$
(258)
$ 4,830
(5,968)
$ (1,138)
$ 1,169
(1,553)
$
(384)
$
32
(281)
$
(249)
$ —
(529)
$
(529)
$
768
(1,270)
$
(502)
$
613
(252)
$
361
$
216
(340)
$
(124)
$
781
(940)
$
(159)
$ 1,269
(665)
$
604
Cash taxes paid were $5 million (2008 – $78 million) and are included in current income taxes. Cash interest
paid totalled $1,867 million (2008 – $2,163 million). Sustaining capital expenditures in the company’s
renewable power generating operations were $70 million (2008 – $70 million), in its property operations
were $49 million (2008 – $48 million) and in its infrastructure operations were $13 million (2008 – $9 million).
Included in cash and cash equivalents is $1,109 million (December 31, 2008 – $863 million) of cash and
$266 million of short-term deposits at December 31, 2009 (December 31, 2008 – $379 million).
2009 AnnuAl rePort 125
26. segMented inforMation
The company’s presentation of reportable segments is based on how management has organized the
business in making operating and capital allocation decisions and assessing performance. The company
has five reportable segments:
(a) renewable power generation operations, which are predominantly hydroelectric power generating
facilities on river systems in North America and Brazil;
(b) commercial properties operations, which are principally commercial office properties, retail properties
and commercial developments located primarily in major North American, Brazilian, and Australian
and European cities;
(c) infrastructure operations, which are predominantly transportation, utilities and timberland operations
located in Australia, North America, the United Kingdom and South America;
(d) development activities operations, which are principally residential development, opportunistic
investing and homebuilding operations, located primarily in major North American, Brazilian and
Australian cities; and
(e) special situations operations include the company’s restructuring funds, real estate finance, bridge
lending and other investments.
Non-operating assets and related revenues, cash flows and income are presented as cash and financial
assets.
Revenue, net income (loss) and assets by reportable segments are as follows:
As At And for the YeArs ended deCeMBer 31
(Millions)
Asset management and other
renewable power generation
Commercial properties
infrastructure
development activities
special situations
Cash and financial assets
revenue
$ 1,691
1,206
2,967
418
1,962
3,347
491
2009
net
income
(loss)
$
135
489
95
(8)
(43)
(179)
(35)
$ 12,082
$
454
assets
$ 2,603
7,043
27,718
5,978
9,756
6,893
1,911
$ 61,902
2008
net
income
(loss)
$
71
328
154
33
8
86
(31)
revenue
$ 2,149
1,286
3,226
613
1,634
3,387
614
$ 12,909
$
649
Revenue and assets by geographic segments are as follows:
As At And for the YeArs ended deCeMBer 31
2009
2008
(Millions)
united states
Canada
Australia
Brazil
europe
other
revenue
$ 5,774
2,262
1,587
1,345
716
398
$ 12,082
assets
$ 30,688
10,403
7,967
9,249
3,093
502
$ 61,902
revenue
$ 5,639
3,005
1,826
1,092
543
804
$ 12,909
Assets
$ 2,212
6,473
24,917
4,413
7,283
6,131
2,168
$ 53,597
Assets
$ 28,203
10,757
6,031
5,749
1,901
956
$ 53,597
126
Brookfield Asset MAnAgeMent
27. other inforMation
(a) commitments, guarantees and contingencies
In the normal course of business, the company and its subsidiaries enter into contractual obligations
which include commitments to provide bridge financing, and letters of credit and guarantees provided
in respect of power sales contracts and reinsurance obligations. At the end of 2009, the company and
its subsidiaries had $1,285 million (2008 – $1,269 million) of such commitments outstanding of which
$244 million (2008 – $211 million) is included in liabilities in the consolidated balance sheets.
In addition, the company and its consolidated subsidiaries execute agreements that provide for
indemnifications and guarantees to third parties in transactions or dealings such as business dispositions,
business acquisitions, sales of assets, provision of services, securitization agreements, and underwriting
and agency agreements. The company has also agreed to indemnify its directors and certain of its officers
and employees. The nature of substantially all of the indemnification undertakings prevents the company
from making a reasonable estimate of the maximum potential amount the company could be required to
pay third parties, as in most cases the agreements do not specify a maximum amount, and the amounts
are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot
be determined at this time. Neither the company nor its consolidated subsidiaries have made significant
payments in the past nor do they expect at this time to make any significant payments under such
indemnification agreements in the future.
The company periodically enters into joint venture, consortium or other arrangements that have contingent
liquidity rights in favour of the company or its counterparties. These include buy-sell arrangements,
registration rights and other customary arrangements. These agreements generally have embedded
protective terms that mitigate the risk to us. The amount, timing and likelihood of any payments by the
company under these arrangements is in most cases dependent on either further contingent events or
circumstances applicable to the counterparty and therefore cannot be determined at this time.
The company and its subsidiaries are contingently liable with respect to litigation and claims that arise in
the normal course of business.
The company has $2.5 billion of insurance for damage and business interruption costs sustained as a
result of an act of terrorism. However, a terrorist act could have a material effect on the company’s assets
to the extent damages exceed the coverage.
The company, through its subsidiaries within the residential properties operations, is contingently liable
for obligations of its associates in its land development joint ventures. In each case, all of the assets of
the joint venture are available first for the purpose of satisfying these obligations, with the balance shared
among the participants in accordance with predetermined joint venture arrangements.
insurance
(b)
The company conducts insurance operations as part of its asset management activities. As at December 31,
2009, the company held insurance assets of $717 million (2008 – $926 million) in respect of insurance
contracts that are accounted for using the deposit method which were offset in each year by an equal
amount of reserves and other liabilities. During 2009, net underwriting losses on reinsurance operations
were $8 million (2008 – $18 million) representing $102 million (2008 – $363 million) of premium and other
revenues offset by $110 million (2008 – $381 million) of reserves and other expenses.
2009 AnnuAl rePort 127
fiVe-YeAr finAnCiAl reVieW
As At And for the YeArs ended deCeMBer 31
(Millions, exCePt Per shAre AMounts; unAudited)
per common share (fully diluted)
Book value – Canadian gAAP
underlying value - adjusted ifrs basis1
Cash flow from operations
net income
Market trading price – nYse
dividends paid
Common shares outstanding
Basic
diluted
total (millions)
total assets under management1,3
Consolidated balance sheet assets
Corporate borrowings
Common equity – Canadian gAAP
underlying value – adjusted ifrs basis1
revenues
operating income
Cash flow from operations
net income
2009
2008
2007
2006
2005
$
11.58
28.53
2.43
0.71
22.18
0.52
572.9
607.8
$ 108,342
61,902
2,593
6,403
17,850
12,082
4,515
1,450
454
$
8.92
26.56
2.33
1.02
15.27
1.452
572.6
600.3
$ 89,753
53,597
2,284
4,911
16,369
12,909
4,616
1,423
649
$
11.64
—
3.11
1.24
35.67
0.47
583.6
611.0
$ 94,340
55,597
2,048
6,644
—
9,343
4,356
1,907
787
$
9.37
—
2.95
1.90
32.12
0.39
581.8
610.8
$ 71,121
40,708
1,507
5,395
—
6,897
3,653
1,801
1,170
$
7.87
—
1.46
2.72
22.37
0.26
579.6
608.0
$ 49,700
26,058
1,620
4,514
—
5,220
2,214
908
1,662
1. reflects carrying values on a pre-tax basis prepared in accordance with procedures and assumptions expected to be utilized to prepare the
company’s ifrs financial statements, adjusted to reflect asset values not recognized under ifrs (see Management’s discussion and Analysis
of financial results)
2. includes Brookfield infrastructure special dividend of $0.94 and regular dividends of $0.51 per share
3. Assets under management for 2005 through 2007 reflect the combination of fair values and Canadian gAAP carrying values
128
Brookfield Asset MAnAgeMent
CAutionArY stAteMent regArding forWArd-looking stAteMents
This Annual Report contains forward-looking information within the meaning of Canadian provincial securities laws and other “forward-looking
statements” within the meaning of certain securities laws including Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the
U.S. Securities Exchange Act of 1934, as amended, “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995 and
in any applicable Canadian securities regulations. We may make such statements in this Annual Report, in other filings with Canadian regulators or
the SEC or in other communications. The words “bodes,” “enable,” “usually,” “probably,” “objective,” “hope,” “become,” “beginning,” “often,” “seek,”
“position,” “protect,” “coming,” “provide,” “predominantly,” “leading,” “ensure,” “increasing,” “achieve,” “strategy,” “intend,” “extend,” “projected,”
“periodically,” “enable,” “enhance,” “maintain,” “objective,” “pursue,” “generate,” “build,” “capitalize,” “create,” “largely,” “continue,” “believe,”
“typically,” “expect,” “potential,” “primarily,” “generally,” “anticipate,” “goal,” “might,” “estimated,” “expand,” “scheduled,” “tend,” “opportunity,”
“likely,” “growth,” “regularly,” derivations thereof and other expressions of similar import, or the negative variations thereof, and similar expressions of
future or conditional verbs such as “would,” “may,” “will,” “can,” “could” or “should” are predictions of or indicate future events, trends or prospects or
identify forward-looking statements.
Forward-looking statements in this Annual Report include, among others, statements with respect to: the future impact of our investments; the people
we have attracted to our operations and the capital we have raised; our intention to focus reporting on International Financial Reporting Standards
(“IFRS”) valuations instead of share price; compound risk-adjusted returns over the long-term; our expectations with respect to short-term
underperformance of our private investment funds; the timing of our investments; our belief that acquiring assets through distress situations offers a
way to acquire assets at meaningful discounts to their intrinsic value; growth of our distribution facilities and other similar operations at our shipping
terminal; our view that fossil fuel prices will drive electricity prices higher over time; our 20-year Ontario power contract and future cash flows generated
from it; our intention to re-lease an office property in San Francisco; recapitalization of property debt positions; expected increases in value of our
multi-family apartments; global opportunities; benefits to our hydro electric power plants as carbon emissions are priced into the cost of electricity
production; our intention to drive increased cash flows through operational improvements, organic growth and acquisitions; our predictions about the
institutional market in 2010; our adoption of IFRS in 2010; our belief that IFRS enables the company to show cash flows and wealth created in a more
transparent fashion; the assessment of value increase or decrease under IFRS; estimated values for assets that are not re-valued under IFRS; procedures
and assumptions that we intend to follow in preparing our pro-forma opening balance sheet for our adoption of IFRS; accounting policies expected to
be adopted under IFRS; income and equity statements serving as a total return statement; our view that the value of our assets increases by an amount
equal to the capitalized value of the increase in cash flows generated by the assets; projections about the impact of a 100-basis point change to discount
rates applied to our renewable power plants and commercial office properties; our expectation that most economic statistics will represent quarterly
positive comparisons; the impact of the recovery of employment levels on our short cycle housing-related businesses; our primary long-term goal to
achieve 12%-15% compound annual growth in the underlying value of our business; creating operating efficiencies; lowering our cost of capital;
enhancing cash flows; the appeal of our assets; our goal of growing operating cash flow and total return over the longer term; our role as a reliable
sponsor of investment transactions; how we differ from other asset management companies; investment of our capital; investments by our Special
Situations group; future returns on our investments in undervalued opportunities; future reporting on long-term growth rates for total return; our belief
that expansion of our infrastructure operations and allocation of third party capital to our various fund initiatives positions us well for growth; our
expectations regarding our infrastructure business; future maturation of loans and notes receivable; periodic revaluation of the carrying values of our
tangible assets based on fair market values resulting from our adoption of IFRS; our beliefs that fair market values will be an important indicator of
underlying values and will enable us to report on building value on a total return basis; future investment initiatives and growth and value enhancement
of our business; contributions from base management fees; expected completion of our wind energy project in Ontario; variances in cash flows due to
changes in prices for power and water flows; increases in water storage levels in anticipation of future higher prices for hydroelectric power; our
contracted renewable power generation; the purchase of approximately 15% of our expected power generation by the Ontario Power Authority; expected
maturities of certain borrowings within our power operations; our level of assurance that rents will be paid in the future; our expectations with respect
to our ability to roll our net rental area in the future; discussions with Bank of America/Merrill Lynch to secure advance leasing arrangements for a large
lease maturity in 2013; our intention and ability to refinance commercial property debt and subsidiary borrowings in Australia; maturities in our North
American operations; future cash flow growth in our retail operations; construction of a transmission project in Texas and its future contribution to
cash flow; our expectations of our infrastructure operations to produce increasing revenue and income; debt maturities related to our infrastructure
operations; deferring harvesting of our timberlands to allow the trees to continue to grow; development opportunities; objectives with respect to our
opportunity investments; future profitable growth in our construction activities; future gross sales revenues in our Brazilian residential business;
timing of the development of our land bank in Calgary, Alberta; the transfer of Bay Adelaide Centre to our operating portfolio; the projected construction
cost of City Square in Perth, Australia and its scheduled completion; timing of the commencement of construction of our property on Ninth Avenue in
New York City; property-specific financings; our use of options to control lots for future years in our residential development properties; residential
property lots in Australia and New Zealand as a basis for continued growth; our intention to convert land adjacent to our Western North American
timberlands into residential and other purpose land over time; the future gain from the sale of Concert Industries; our expectation that most of our
investment returns from our restructuring business will be from disposition gains; restructuring opportunities; expected returns of our real estate
financing activities; the impact of potential changes in short-term floating rates on asset returns and net corresponding liabilities in our real estate
financing activities; other investments that will be sold in the future once value has been maximized, integrated into our core operations or used to seed
new funds, and our expectation to continue to make such investments; our plans with respect to the continuation of the viable portions of Fraser Papers
Inc., continued employment of certain employees and preservation of the value of our invested capital in Fraser Papers Inc.; our entitlement to royalties
and net profit interests in our infrastructure investments in coal rights in Alberta and British Columbia; the expected commissioning a of 26 megawatt
facility in Brazil; our expectation that commercial office transactions will be a primary area of activity for us over the next 24 months; future use of our
liquidity as well as broader capital markets trends such as credit spreads, foreign currencies and interest rates; periodic renewal and extension of our
corporate borrowings and scheduled expiries; future determination of our legal proceedings with AIG Financial Products; potential future tax payments
upon liquidation of the company; our beliefs about the future benefits of our newly acquired assets, future cash flows and asset value growth, IFRS
valuations, the next decade, our objectives when managing capital, future income tax liabilities, benefits to our rail operations in Western Australia from
increased mining operations, values of our asset classes and their corresponding impact on share value, IFRS being a better representation of our
financial position than historical book values, the U.S. economy and private infrastructure funding, wealth creation as measured by the increase in net
asset value per share, volatility of the capital markets, long-term increases in demand and pricing for renewable energy, focusing on asset classes we
know well and have experience in operating, recovery of cash flow in our timberlands and U.S. residential operations, the fair value of our land holdings;
our ability to execute our business plans and act on potential investment opportunities and adverse economic circumstances, continue to acquire assets
in the recovery phase of the market cycle; attract capital to our private funds, grow our global asset management business, seek returns in the form of
equity participations or other long-term interests, increase operating cash flow per share through our asset management activities, pursue a broad
range of transactions and expand our operating base, capitalize on opportunities, pursue investment opportunities and manage forthcoming debt
maturities in our commercial properties business; manage our portfolios and tenant relationships on a proactive basis leading to opportunities to
2009 AnnuAl rePort 129
re-lease space and minimize vacancies, secure lower short-term rates for future financings, attract new tenants to fill our vacant office property space,
maintain or increase our net rental income in the future as well as the outlook for the company’s businesses and other statements with respect to our
beliefs, outlooks, plans, expectations and intentions.
Although Brookfield believes that the anticipated future results, performance or achievements expressed or implied by the forward-looking statements
and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements
and information because they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the company to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-
looking statements and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include: economic
and financial conditions in the countries in which we do business; rate of recovery of the current economic downturn; the behaviour of financial
markets, including fluctuations in interest and exchange rates; availability of equity and debt financing; strategic actions including dispositions; the
ability to effectively integrate acquisitions into existing operations and the ability to attain expected benefits; the company’s continued ability to
attract institutional partners to its specialty funds; adverse hydrology conditions; defaults by customers on contractual arrangements in our utilities
infrastructure operations, future rights to easements, licenses and rights of way for land required for our transportation and utilities infrastructure
operations, demand for our transportation operations, timber growth cycles; environmental matters; regulatory and political factors within the
countries in which the company operates; tenant renewal rates; availability of new tenants to fill office property vacancies; tenant bankruptcies; acts
of God, such as earthquakes and hurricanes; the possible impact of international conflicts and other developments including terrorist acts; changes in
accounting policies to be adopted under IFRS; and other risks and factors detailed from time to time in the company’s form 40-F filed with the Securities
and Exchange Commission and Management’s Discussion and Analysis of Financial Results as well as other documents filed by the company with the
securities regulators in Canada and the United States.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements
to make decisions with respect to Brookfield, investors and others should carefully consider the foregoing factors and other uncertainties and potential
events. Except as may be required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements or
information, whether written or oral, that may be as a result of new information, future events or otherwise.
130
Brookfield Asset MAnAgeMent
Corporate GoVernanCe
Management and the Board of Directors are committed to working together to achieve strong and effective
corporate governance. Our Board of Directors is of the view that our corporate governance policies and
practices and our disclosure in this regard are appropriate, effective and consistent with the guidelines
established by Canadian and U.S. securities regulators. We continue to review our corporate governance
policies and practices in relation to evolving legislation, guidelines and best practices.
Our Statement of Corporate Governance Practices is set out in full in the Management Information Circular
prepared each year and distributed to shareholders who requested it along with the Notice of our Annual
Meeting. This Statement is also available on our website, www.brookfield.com, at “About Brookfield /
Corporate Governance.”
You can also access the following documents referred to in the Statement on our website – our Board of
Directors Charter, the Charter of Expectations for Directors, the Charters of the Board’s three Standing
Committees (Audit, Governance & Nominating and Management Resources & Compensation), Board
Position Descriptions, our Code of Business Conduct and Ethics and our Corporate Disclosure Policy.
sustainable deVelopment
Management and the Board of Directors are committed to the principle that our business decisions
will consider a broad range of issues, including the long-term sustainability of our local communities in
which we operate, taking into account current and future environmental, safety, health and economic
considerations. The review and improvement of our sustainability practices is an ongoing process that we
take very seriously throughout our organization.
Environmental initiatives across our operations include energy reduction, water conservation, recycling, air
quality standards, wildlife preservation, timber harvesting techniques and erosion control. We believe that
these initiatives will benefit the company over the long term from an economic perspective by increasing
competitiveness and strengthening the local communities in which we operate. While an appropriate
balance is sometimes difficult to achieve, the initiatives we undertake and the investments we make in
building our company are guided by our core set of values around sustainable development.
Our renewable energy business is focused on hydroelectricity and wind power generation, while our office
properties contain building features, systems and programs that foster environmental responsibility, cost
and energy savings for tenants, and the health and safety of all those who work at and visit our properties.
We implement comprehensive environmental initiatives in existing properties as well as new development
projects to ensure industry standards are achieved and exceeded. For example, our most recent office
development, the Bay Adelaide Centre in Toronto, was built to a Leadership in Energy and Environmental
Design (“LEED”) Gold standard. The LEED® Green Building Rating System is the internationally accepted
scorecard for sustainable sites, water efficiency, energy and atmosphere, materials and resources, and
indoor environmental quality.
2009 annual report
131
sHareHolder information
Shareholder Enquiries
Shareholder enquiries should be directed to our Investor Relations
group at:
Brookfield Asset Management Inc.
Suite 300, Brookfield Place, Box 762, 181 Bay Street
Toronto, Ontario M5J 2T3
Telephone: 416-363-9491
Facsimile:
416-365-9642
Web site: www.brookfield.com
E-Mail:
inquiries@brookfield.com
Shareholder enquiries relating to dividends, address changes and
share certificates should be directed to the company’s Transfer
Agent:
CIBC Mellon Trust Company
P.O. Box 7010, Adelaide Street Postal Station
Toronto, Ontario M5C 2W9
Telephone: 416-643-5500 or
1-800-387-0825 (toll free throughout North America)
Facsimile:
Web site: www.cibcmellon.com
E-Mail:
inquiries@cibcmellon.com
416-643-5501
Stock Exchange Listings
Symbol
Stock Exchange
Class A Common Shares BAM
BAM.A
BAMA
Class A Preference Shares
New York
Toronto
Euronext – Amsterdam
Series 2
Series 4
Series 8
Series 9
Series 10
Series 11
Series 12
Series 13
Series 14
Series 17
Series 18
Series 21
Series 22
Series 24
BAM.PR.B Toronto
BAM.PR.C Toronto
BAM.PR.E Toronto
BAM.PR.G Toronto
BAM.PR.H Toronto
Toronto
BAM.PR.I
BAM.PR.J
Toronto
BAM.PR.K Toronto
BAM.PR.L
Toronto
BAM.PR.M Toronto
BAM.PR.N Toronto
BAM.PR.O Toronto
BAM.PR.P Toronto
BAM.PR.R Toronto
Investor Relations and Communications
We are committed to informing our shareholders of our progress
through our comprehensive communications program which
includes publication of materials such as our annual report,
quarterly interim reports and news releases. We also maintain
a website that provides ready access to these materials, as well
as statutory filings, stock and dividend information and other
presentations.
Meeting with shareholders is an integral part of our communica-
tions program. Directors and management meet with Brookfield’s
shareholders at our annual meeting and are available to respond to
questions. Management is also available to investment analysts,
financial advisors and media.
The text of the company’s 2009 Annual Report is available in
French on request from the company and is filed with and available
through SEDAR at www.sedar.com.
Annual Meeting of Shareholders
The company’s 2010 Annual Meeting of Shareholders will be held
at 2:00 p.m. on Wednesday, May 5, 2010 at Roy Thomson Hall,
60 Simcoe Street, Toronto, Ontario, Canada.
Dividend Reinvestment Plan
Registered holders of Class A Common Shares who are resident
in Canada may elect to receive their dividends in the form of newly
issued Class A Common Shares at a price equal to the weighted
average price at which the shares traded on the Toronto Stock
Exchange during the five trading days immediately preceding the
payment date of such dividends.
The Dividend Reinvestment Plan allows current shareholders
to acquire additional Class A Common Shares in the company
without payment of commissions. Further details on the Dividend
Reinvestment Plan and a Participation Form can be obtained from
our Toronto office, our transfer agent or from our web site.
Dividend Record and Payment Dates
Record Date
Payment Date
Class A Common Shares 1
First day of February, May, August and November
Last day of February, May, August and November
Class A Preference Shares 1
Series 2, 4, 10, 11, 12, 13, 17,
18, 21, 22 and 24
15th day of March, June, September and December
Last day of March, June, September and December
Series 8 and 14
Series 9
Last day of each month
12th day of following month
5th day of January, April, July and October
First day of February, May, August and November
1. All dividend payments are subject to declaration by the Board of Directors
132
brookfield asset manaGement
board of direCtors and offiCers
board of direCtors
Robert J. Harding, f.c.a.
Chairman
Brookfield Asset Management Inc.
Jack L. Cockwell
Group Chairman
Brookfield Asset Management Inc.
David W. Kerr
Corporate Director
Marcel R. Coutu
President and Chief Executive Officer
Canadian Oil Sands Limited
Lance Liebman
Director
American Law Institute
The Hon. J. Trevor Eyton, o.c.
Corporate Director and former
Member of the Senate of Canada
Philip B. Lind, c.m.
Vice-Chairman
Rogers Communications Inc.
Maureen Kempston Darkes, o.c., o.ont.
Corporate Director, and former President
Latin America, Africa and Middle East
General Motors Corporation
The Hon. Frank J. McKenna,
p.c., o.c., o.n.b.
Deputy Chair
TD Bank Financial Group
Dr. Jack M. Mintz
Palmer Chair in Public Policy
University of Calgary
Patricia M. Newson, c.a.
President and Chief Executive Officer
AltaGas Utility Group Inc.
James A. Pattison, o.c., o.b.c.
Chief Executive Officer
The Jim Pattison Group
J. Bruce Flatt
Chief Executive Officer
Brookfield Asset Management Inc.
G. Wallace F. McCain, o.c., c.c., o.n.b.
Chairman
Maple Leaf Foods Inc.
George S. Taylor
Corporate Director
James K. Gray, o.c.
Founder and former Chairman and CEO
Canadian Hunter Exploration Ltd.
Details on Brookfield’s Directors are provided in the Management Information Circular and on Brookfield’s website
senior manaGinG partners
Barry S. Blattman
Jeffrey M. Blidner
Richard B. Clark
Steven J. Douglas
J. Bruce Flatt
Joseph S. Freedman
Harry A. Goldgut
Brian W. Kingston
Brian D. Lawson
Richard J. Legault
Luiz Ildefonso Lopes
Cyrus Madon
George E. Myhal
Samuel J.B. Pollock
Corporate offiCers
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
Catherine J. Johnston
Corporate Secretary
Brookfield incorporates sustainable development practices within our
corporation. This document was printed in Canada using vegetable based
inks on FSC certified stock.
Brookfield Asset Management Inc.
CORPORATE OFFICES
REGIONAL OFFICES
New York – United States
Three World Financial Center
200 Vesey Street, 10th Floor
New York, New York
10281-0221
T 212.417.7000
F 212.417.7196
Toronto – Canada
Brookfield Place, Suite 300
Bay Wellington Tower
181 Bay Street, Box 762
Toronto, Ontario M5J 2T3
T 416.363.9491
F 416.365.9642
Sydney – Australia
Level 22
135 King Street
Sydney, NSW 2001
T 61.2.9322.2000
F 61.2.9322.2001
Hong Kong
Lippo Centre, Tower Two
26/F, 2601
89 Queensway, Hong Kong
T 852.2810.4538
F 852.2810.7083
Dubai – UAE
Level 12, Al Attar Business Tower
Sheikh Zayed Road
Dubai, UAE
T 971.4.3158.500
F 971.4.3158.600
London – United Kingdom
23 Hanover Square
London W1S 1JB
United Kingdom
T 44 (0) 20.7659.3500
F 44 (0) 20.7659.3501
Rio de Janeiro – Brazil
Rua Lauro Müller 116, 21° andar,
Botafogo - Rio de Janeiro - Brasil
22290 - 160
CEP: 71.635-250
T 55 (21) 3527.7800
F 55 (21) 3527.7799
Brookfield
www.brookfield.com NYSE: BAM TSX: BAM.A EURONEXT: BAMA