A SPECIALIST ASSET MANAGEMENT COMPANY

Transcription

1 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

2 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

3 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 Extensive timber operations Sao Paulo 2

4 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

5 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

6 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

7 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 investments reflects: A conscious effort to invest in non-depreciating, hard assets An expectation of moderate capital appreciation reflecting a belief in a future scarcity of supply Expectations of additional cash yields from carbon credits This popularity has led to significant cap rate compression for timberlands investments over the past 5+ years Annualized Cash Yielde 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% Five-Year Cash Yield Of Plum Creek & TimberWest Shows Trend of Declining Cash Yields Relative to US REITs Mar- 99 Aug- 99 Jan- 00 Jun- 00 Morgan Stanley REIT Index PCL TWF.UN Nov- 00 Apr- 01 Sep- 01 Feb- 02 Jul- 02 Dec- 02 May- 03 Oct- 03 Mar- 04 Aug- 04 Jan- 05 Jun- 05 Nov- 05 6

8 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 ISLAND TIMBERLANDS 635,000 acres Recent acquisition of highly productive timberlands distinguished by their productivity, species value and market access. Actively managed freehold timberlands in coastal British Columbia. 100% owned since BRAZILIAN COMFLORESTA TIMBERLANDS 150,000 acres A leading fibre source for solid-wood focused forest products companies in southern Brazil. Actively managed freehold timberlands in Brazil (50,000 acres in pine and eucalyptus plantations). 100% owned since 1971 ACADIAN TIMBER INCOME FUND LP 1,086,000 acres Public timberlands fund (ADN.UN) established in 2006 focused on eastern Canada and the NE US 765,000 acres of freehold timberlands in New Brunswick 311,000 acres of freehold timberlands in Maine Brookfield acts as Manager and owns 29% equity 7

9 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 scalerelated synergies Exit opportunities must exist Must be patient and prepared to act quickly 8

10 BC COASTAL EXAMPLE Tricap Restructuring Fund WEYERHAEUSER S COASTAL BUSINESS Acquired May 2005 Offered Weyerhaeuser a clean exit from its coastal business Deal risk was reduced by BAM providing a fully financed offer DOMAN INDUSTRIES ISLAND TIMBERLANDS High quality large scale timberlands investment opportunity (255,000 ha) Target investment category Manage the business for institutional investors for the very long-term Focus on operations excellence Core private equity investment where Brookfield can deploy its own capital and grow its asset management business CASCADIA FOREST PRODUCTS 3.6Mm 3 Coastal AAC 5 sawmills (+ 600mmfbm/yr) 4 Remanufacturing plants 2100 employees Wholly-owned by Brookfield Non-Core Business Options Wholly owned by BAM Sell as is Restructure and operate or exit Amalgamate with WFP CCAA process led by Tricap Senior secured bond holders paid out Unsecured bond holders converted to equity New high yield bond secured Interim capital structure established New management team in place 3.2Mm 3 Crown AAC 5 sawmills (± 850mmfbm/yr) 1 pulp mill Public company No real access to capital Tricap owns 20% of shares 9

11 BC COASTAL EXAMPLE Canfor s Coastal Business 950,000 m 3 AAC WFP Management acquisition initiative Added 950,000 m 3 AAC Allowed closure of Squamish Pulp mill $35M Cash paid to WFP as price premium on future chip deliveries Improved fibre security for WFP mills Improved fibre security for HSPP Cascadia Forest Products 3.6M m 3 AAC 5 Sawmills; 4 Reman. Plants Specialty wood products focus WFP Management negotiates Cascadia acquisition BAM Bridge Fund secures $308 M facility to replace US$221 M15% Secured Bonds Tricap underwrites $295M Rights Offering 7.7Mm 3 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 % Improved Market Cap (+ $430M) Public Company (Tricap owns + 70%) 10

12 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

13 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