Brookfield (BAM, BPY, BIP, BEP) June Update

Longview Sale: On June 16, 2013 Brookfield Asset Management announced the sale of Longview Timber and Longview Fibre Paper and Packaging for $3.675 Billion [Source]:

BAM HeadquartersBrookfield has agreed to sell 100% of Longview Timber to Weyerhaeuser Co. for $2.65 billion including the assumption of debt. Longview Timber consists of approximately 645,000 acres of high quality timberlands in the U.S. Pacific Northwest and is held through a Brookfield managed global timber fund in which Brookfield is an investor alongside Brookfield Infrastructure Partners and private institutional investors. After repayment of debt and distribution of proceeds to private fund investors, net cash proceeds to Brookfield will be approximately $600 million, on account of its investment. In addition, Brookfield Infrastructure will receive net proceeds of approximately $470 million.

Back on April 20, 2007, Brookfield Asset Management acquired Longview Fibre Company for approximately $2.3 billion including assumed debt and recorded $593 million of goodwill. At that time the transaction included 588,000 acres of prime, freehold timberlands in Washington and Oregon and an integrated manufacturing operation that produces specialty papers and containers.

This transaction is consistent with management’s 4Q12 Letter to Shareholders where Bruce Flatt, CEO wrote [Source]: We sold half of our 50% investment in our western Canadian timberlands and are considering a number of alternatives for our timber assets, which could include further institutional ownership or listing in the public market.”

Brookfield Property Acquires European Logistics Company:

On June 11, 2013 Brookfield Property Partners (BPY) and institutional partners announced the acquisition [Source] of EZW Gazeley Limited (Gazeley) from Economic Zones World (EZW), part of Dubai World. Brookfield Property Partners will own an approximate 30% interest in Gazeley.

Gazeley[Source] Gazeley Portfolio

Gazeley is a specialist developer of large scale logistics warehouses and distribution parks in key strategic locations across the UK, Western Europe and China. Over the past 25 years, Gazeley has completed approximately 7 million square meters (75 million square feet) of high quality, cost effective warehouses.

Gazeley’s current portfolio includes 524,000 square meters (5.64 million square feet) of existing assets and a substantial land bank of 1.3 million square meters (14 million square feet) with a further 1.1 million square meters (11.84 million square feet) held under option agreements.

The acquisition of Gazeley provides Brookfield exposure to high quality assets, which offer potential growth and value enhancement. Brookfield will seek to build upon Gazeley’s extensive European footprint while capitalizing on its experience and growing presence in the Middle East and China. Brookfield’s capital base, property operating experience and global platform will transform Gazeley from a developer of logistics warehouses to a full-service logistics asset manager, allowing Gazeley to offer a wider range of services to its customers.

Bruce Flatt in the 4Q12 Letter to Shareholders: In Europe, the banking system is still contracting, with both the amount and availability of credit shrinking. The economy will not start to grow until this trend is reversed. We expect, however, to find attractive investment opportunities in Europe as we assist corporations in recapitalizing their operations“.

Brookfield Renewable now Trading on the New York Stock Exchange as BEP:

BEP Dam SiteOn June 6, 2013, Brookfield Renewable Energy Partners announced [Source] that it would  begin trading on the New York Stock Exchange (NYSE) on June 11, 2013, under the trading symbol BEP. The Limited Partner units will continue to be listed for trading on the Toronto Stock Exchange under the symbol BEP.UN.

The listing on the NYSE will provide more: liquidity and global visibility that a NYSE listing will bring to our growing business,” said Richard Legault, President and Chief Executive Officer of Brookfield Renewable. Accordingly, going forward, well drop our BREP acronym for Brookfield Renewable Energy Partners and adopt the NYSE trading symbol BEP.

Brookfield Renewable Public Offering and 2Q Outlook:

On June 18, 2013 Brookfield Renewable announced it commenced a public offering of limited partnership units [Source]. Brookfield Renewable expects to offer 12,178,785 L.P. units in the offering and has granted the underwriters an option to purchase up to 1,826,818 additional L.P. units to cover over-allotments, if any. Following its announcement on the commenced a public offering BEP provided a preliminary outlook for its 2Q13 [Source].

Seasonal inflows and wind conditions across the portfolio are expected to result in generation approximating long-term average (“LTA”) levels. Accordingly, Brookfield Renewable expects total generation in the second quarter of 2013 to approximate 6,151 gigawatt hours (GWh), as compared to LTA of 6,171 GWh, and generation of 4,101 GWh in the second quarter of 2012.

This is a continuation of the improvement in generation during 4Q12 from prior quarters where reservoirs were at expected levels for that time of year and an positive sign for the first half of 2013.

Preliminary Outlook – 2Q2013 Generation:

BEP 2Q13 Preliminary Outlook

  1.  In Brazil, assured generation levels are used as a proxy for long-term average. 
  2. Includes 100% of generation from equity-accounted investments.

In the !Q13 Letter to Unit Holders, management said, “In North America, we continue to monitor announced sales processes by a variety of market participants, including strategic owner-operators and financial sponsors, and expect this to result in more renewable power assets being available for sale in 2013. In Brazil, we expect that current market conditions will provide opportunities to grow the business and achieve operating synergies”.

Brookfield Infrastructure (BIP) Announces the Proportionate Sale of the Timber Assets:

BIP TimberlandConcurrent with Brookfield Asset Management’s Longview Sale BIP announced on June 16, 2013 agreements to sell its interests in its U.S. Pacific Northwest timberland operations for $790 million [Source].

The buyer will assumes BIP’s proportionate debt of approximately $320 million resulting in net proceeds of $470 million. This transaction is expected to be completed in July 2013. On June 7, 2013, BIP sold the remainder of its Canadian BC Coastal timberland operations for net proceeds of approximately $170 million. Both transactions generate proceeds before taxes of
approximately $640 million and after closing BIP will not hold any timberland assets. Timber returns were below total return targets of 12-15% [Source]:

 BAM Timberland Returns

“The sale of our timberland assets was an opportunity to further our strategy of monetizing lower yielding assets to recycle capital into our utilities, transport and energy businesses,” said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure. “These transactions enabled us to monetize our remaining timberland assets at attractive prices reflecting their most recent third-party appraisals. With our strong pipeline of investment opportunities, we will seek to re-invest these proceeds at our targeted, after-tax return on equity of 12% to 15% per annum.”

North American Timber returns at Brookfield, on a corporate basis, were running between 6.5% to 10.6%.  There are not many companies that can move $1 billion from lower return projects to 12-15% returns in today’s environment without the risk of changing business models or strategies. This is a huge competitive edge for the Brookfield companies and their shareholders.

BIP Announces Equity Issuance to Fund Growth:

To further fun growth on May 7, 2013 BIP announced [Source] it would issue $296 million equity offering.

BIP UK PortThe issue of 5,677,100 L.P. units at a price of $37.75 per L.P. unit would generate gross proceeds of $214 million. Brookfield Asset Management (BAM) would purchase 2,262,900 units of BIP at the Offering Price  to maintain its approximate 30% interest in Brookfield Infrastructure. The gross proceeds of the offering and the placement to BAM will be $296 million.

Exercise of Over Allotment Option:

On May 9, 2013 – Brookfield Infrastructure BIP advised [Source] that the underwriters exercised their option to purchase an additional 851,565 units at a price of $37.75 per LP Unit. BIP received an additional $31 million from the exercise of the option.

It is encouraging to see BIP’s investment opportunities for 12-15% total return projects and the markets continued enthusiasm for the opportunity to invest along with them.

Disclosures: Long BAM, BPY, BIP, BEP

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