A SPECIALIST ASSET MANAGEMENT COMPANY
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A SPECIALIST ASSET MANAGEMENT COMPANY A SPECIALIST ASSET MANAGEMENT COMPANY Presentation Transcript

  • A SPECIALIST ASSET MANAGEMENT COMPANY FOCUSED ON PROPERTY, POWER AND INFRASTRUCTURE ASSETS Brookfield’s Activities in the Timberlands and Restructuring Side of the Industry Presentation to: PWC 19th Annual Global Forest and Paper Industry Conference 11 May 2006
  • ABOUT BROOKFIELD Brookfield Asset Management (NYSE: BAM; TSX: BAM.LV.A) is an asset management company, focused on property, power and infrastructure assets Formerly known as Brascan Our clients include pension funds, life insurance companies, financial institutions, corporations, high net-worth individuals and retail investors Nearly US$50 billion of assets owned and under management – Greater than US$800 million of annual free cash flow – S&P and DBRS ratings of A- and A(low) – US$4 billion of cash, short-term financial assets and undrawn bank lines 1 Private & Confidential
  • ABOUT BROOKFIELD Headquartered in Toronto and New York – 10 offices worldwide Group-wide more than 3,500 employees – Over 80 investment professionals Current operations include: – 95 commercial properties with over 65 million square feet – Over 130 power generating facilities with 3,300 MW of installed capacity Sao Paulo – Extensive timber operations 2 Private & Confidential
  • FOCUS ON WHAT WE KNOW… Currently a global surplus of capital; challenge is to identify positive opportunities for investment Passive investment and participation in auctions offer few opportunities for value creation. As a result, Brookfield aims to actively identify and create investment opportunities Our investment platform allows us to capitalize on unique market opportunities – Entrepreneurial senior management team with long tenure – Investments managed by experienced professionals with operational expertise Expertise is in Property, Power, and Infrastructure as well as business restructuring, M&A and asset management A basic tenet is that we target companies in businesses we understand with assets we would be comfortable owning at the right price 3 Private & Confidential
  • BROOKFIELD’S INTEREST IN THE PAPER & FOREST PRODUCTS SECTOR Timberlands – Non-depreciating asset class capable of providing stable returns – Focus is on Canada, U.S. and Brazil Bridge Lending – Strategic, asset-backed lending to businesses with tangible assets we would be comfortable owning » Bridge Loans » Debtor-in-possession loans » Long-term debt » Equity, or equity type securities Restructuring Opportunities – Companies with attractive tangible assets, proven operating histories in short term distress, requiring: » Financial resources or operational assistance » Strategic redirection » Management expertise 4 Private & Confidential
  • TIMBERLANDS INVESTMENT CONSIDERATIONS Timberlands’ attractive investment characteristics include: Diversification attributes Total return Inflation hedge Renewable growing asset Available investment management expertise Accepted asset with strong appeal 5 Private & Confidential
  • TIMBERLANDS INVESTMENT Timberlands investments have become increasingly popular Pension funds began investing + 20 years ago, followed by Endowments (+ 15 years) and high net worth individuals (5-10 years) Historic capital appreciation reflects change in ownership from low multiple P&FP industrial companies to higher multiple institutional ownership with a focus on HBU value capture and move from larger, “wholesale” timberlands to “retail” parcels The popularity of Timberlands Five-Year Cash Yield Of Plum Creek & TimberWest Shows investments reflects: Trend of Declining Cash Yields Relative to US REITs – A conscious effort to invest in 12.00% non-depreciating, hard assets 10.00% Annualized Cash Yielde – An expectation of moderate 8.00% capital appreciation reflecting a belief in a future scarcity of supply 6.00% Morgan Stanley REIT Index – Expectations of additional cash 4.00% PCL TWF.UN yields from carbon credits 2.00% Mar- Aug- Jan- Jun- Nov- Apr- Sep- Feb- Jul- Dec- May- Oct- Mar- Aug- Jan- Jun- Nov- 99 99 00 00 00 01 01 02 02 02 03 03 04 04 05 05 05 This popularity has led to significant cap rate compression for timberlands investments over the past 5+ years 6 Private & Confidential
  • BROOKFIELD’S TIMBERLANDS PORTFOLIO Brookfield currently has investments in North American and Brazilian timberlands totaling over $1.2 billion – 1.8 million acres of B.C. Coastal, Northeastern North American and Brazilian timberlands Two new North American timberland ventures have been launched in past year: currently creating a US$500 million Brazilian timberlands fund BRAZILIAN COMFLORESTA ACADIAN TIMBER ISLAND TIMBERLANDS INCOME FUND LP TIMBERLANDS 635,000 acres 150,000 acres 1,086,000 acres Public timberlands fund (ADN.UN) Recent acquisition of A leading fibre source established in 2006 focused on highly productive timberlands for solid-wood focused forest eastern Canada and the NE US distinguished by their productivity, products companies in species value and market access. southern Brazil. 765,000 acres of freehold timberlands in New Brunswick Actively managed freehold Actively managed freehold timberlands in coastal British timberlands in Brazil (50,000 acres 311,000 acres of Columbia. in pine and eucalyptus plantations). freehold timberlands in Maine 100% owned since 2005. 100% owned since 1971 Brookfield acts as Manager and owns 29% equity 7 Private & Confidential
  • BRIDGE LENDING AND RESTRUCTURING OPPORTUNITIES Very little interest in pulp and paper: – Too capital intensive Look for: – Good fibre and deep, competitive markets – Internal opportunities for cost savings through active management and/or scale- related synergies – Exit opportunities must exist Must be patient and prepared to act quickly 8 Private & Confidential
  • BC COASTAL EXAMPLE… Tricap Restructuring Fund WEYERHAEUSER’S COASTAL BUSINESS DOMAN INDUSTRIES • Acquired May 2005 • Offered Weyerhaeuser a clean exit from its coastal business • Deal risk was reduced by BAM providing a fully financed offer CCAA process led by Tricap • Senior secured bond holders paid out • Unsecured bond holders converted to equity ISLAND TIMBERLANDS CASCADIA FOREST • New high yield bond secured PRODUCTS • Interim capital structure • High quality large scale timberlands investment • 3.6Mm3 Coastal AAC established opportunity (255,000 ha) • New management team in place • 5 sawmills (+ 600mmfbm/yr) • Target investment category • 4 Remanufacturing plants • Manage the business for • 2100 employees institutional investors for the • Wholly-owned by Brookfield very long-term • 3.2Mm3 Crown AAC • Focus on operations Non-Core Business Options excellence • Wholly owned by BAM • 5 sawmills (± 850mmfbm/yr) • Sell as is • 1 pulp mill Core private equity investment • Restructure and operate or where Brookfield can deploy its exit • Public company own capital and grow its asset • Amalgamate with WFP • No real access to capital management business • Tricap owns 20% of shares 9 Private & Confidential
  • BC COASTAL EXAMPLE… Cascadia Forest Products Canfor’s Coastal Business 3.6M m3 AAC 950,000 m3 AAC 5 Sawmills; 4 Reman. Plants Specialty wood products focus • WFP Management acquisition initiative • Added 950,000 m3 AAC • WFP Management negotiates Cascadia • Allowed closure of Squamish Pulp mill acquisition • $35M Cash paid to WFP as price premium • BAM Bridge Fund secures $308 M facility to on future chip deliveries replace US$221 M15% Secured Bonds • Improved fibre security for WFP mills • Tricap underwrites $295M Rights Offering • Improved fibre security for HSPP • 7.7Mm3 AAC • 9 Sawmills; 5 Remanufacturing Plants • Balanced Product Focus • Estimated $65M in Synergies • Improved Capital Structure • Debt to Total Cap. + 48% (before return of duties) • WACC + 12.5% • Improved Market Cap (+ $430M) • Public Company (Tricap owns + 70%) 10 Private & Confidential
  • FOR THOSE WONDERING WHY THIS TAKES SO LONG..? WFP, Tricap and BAM have been very busy A short list of significant initiatives that have required very significant attention: – External Initiatives: » Negotiate all aspects of transactions (Weyco, WFP, Tricap, BAM, CFP) » HSR and Competition Canada Review » Approval of tenure transfer » Arranging Bridge loan » Arranging Rights Offering – Internal Initiatives: » DoC anti-dumping investigation » Sarbanes-Oxley compliance preparation » Trying to successfully integrate three large companies into an effective organization » … all in a very difficult operating environment 11 Private & Confidential
  • WHY..? Brookfield’s decision to invest in the Coastal business reflects: – Opportunity to acquire a high quality private timberlands – Valuations of Coastal integrated P&FP companies had declined by + 65% (bad news was largely priced in) – Operating environment was improving » Friendlier government » Improving regulatory environment » Improved flexibility (removal of appurtenant obligations and divisibility and salability of tenure) – A belief that an integrated Coastal business was still viable… 12 Private & Confidential