BAM Brookfield Asset Management Ltd

 

 

FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

 

 

For the month of February, 2016

 

Commission File Number: 033-97038

 

 

BROOKFIELD ASSET MANAGEMENT INC.

(Translation of Registrant’s Name into English)

 

 

Suite 300, Brookfield Place, 181 Bay Street, P.O. Box 762, Toronto, Canada M5J 2T3

(Address of Principal Executive Offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F o

Form 40-F x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes o

No x

 

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .

 

 

 

 

DOCUMENTS FILED AS PART OF THIS FORM 6-K

 

See the Exhibit Index to this Form 6-K.

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		BROOKFIELD ASSET MANAGEMENT INC.
Date: February 12, 2016		By:		/s/ Brian D. Lawson
		Name:		Brian D. Lawson
		Title:		Chief Financial Officer

 

 

 

EXHIBIT INDEX

 

Exhibit		Description
99.1		BROOKFIELD ASSET MANAGEMENT REPORTS 2015 RESULTS
99.2		LETTER TO SHAREHOLDERS

 

 

 

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Brookfield Asset Management Reports 2015 Results

Net Income of $4.7 Billion in 2015; $1.2 Billion in Fourth Quarter

Funds From Operations of $2.6 Billion or $2.49 per Share for 2015; Dividend Increased by 8%

Brookfield, News, February 12, 2016 – Brookfield Asset Management Inc. (NYSE: BAM, TSX: BAM.A, Euronext: BAMA) today announced financial results for the quarter and year ended December 31, 2015.

Bruce Flatt, CEO of Brookfield, said, "Our global portfolio of real assets performed well during the year, and we delivered strong results for our clients and shareholders. We deployed $21 billion, announcing or completing several acquisitions, including some signature assets – Canary Wharf and Center Parcs in the UK, TDF Communications in France, hydroelectric facilities in the U.S. and Brazil, and more recently Isagen hydroelectric in Colombia. This year, we intend to launch our new listed partnership, Brookfield Business Partners, and close a number of flagship private funds, enhancing our ability to make value investments in attractive opportunities around the world."

·

Net income for 2015 was $4.7 billion, or $2.26 per share. Favourable operating results across most of our portfolio and the expansion of our operations contributed a higher level of earnings compared to the prior year. Net income continued to benefit from increases in the value of our global commercial property portfolio, which was enhanced by strong leasing activity and strengthening market valuations for high quality properties, as evidenced by recent transactions.

·

Funds from operations ("FFO") for Brookfield shareholders increased 18% over 2014 to $2.6 billion, or $2.49 per share, during the year. FFO prior to realized disposition gains and carried interest increased to $1.7 billion, representing substantial growth in fee-based revenues and solid operating results across most of our portfolio, reflecting the accretive contribution from our diversified capital deployment initiatives and operating expertise. We generated $842 million of disposition gains during the year, compared to $569 million in the previous year, as we continue to monetize assets at excellent valuations.

·

Fee-bearing capital increased by more than $10 billion year over year to nearly $100 billion through strong fundraising and capital deployment initiatives. We are currently raising six private funds targeting an additional $13 billion of commitments; we anticipate completing our fundraising for our follow-on real estate and private equity funds in early 2016.

·

We committed or deployed $21 billion of capital to new investments during the year as we continue to leverage our global operating platform to identify and close on investment opportunities. Significant recent investments include hydroelectric facilities in Colombia and the U.S., a toehold position in a leading rail and port logistics business in Australia, toll roads in India and high quality office properties and multifamily buildings in the U.S., Europe and Brazil.

Financial Results

1.	Excludes amounts attributable to non-controlling interests

2.	See Basis of Presentation on pages 3 and 4

3.	Consolidated basis – includes amounts attributable to non-controlling interests

 

 

 

 

2015 Operating Highlights

Operating results were favourable across most of our major businesses, despite facing several headwinds such as lower water levels, energy prices and currency exchange rates. FFO for the year increased by $399 million, of which $97 million reflected the overall improvement in operating results and $302 million reflects a higher level of disposition gains as we continue to monetize the increasing value of our asset base.

1.	Excludes amounts attributable to non-controlling interests

2.	Non-IFRS measure – see Basis of Presentation on pages 3 and 4

Inflows of capital across all of our investment categories over the last year contributed to a 24% growth in fee revenues to $943 million and a 37% increase in fee-related earnings to $519 million for the year. Increases in private fund commitments and capital invested over the last year primarily contributed to the increased fee-based earnings. Incentive distributions earned by us increased 50% as our listed partnerships continue to raise cash distributions to all unitholders. Furthermore, the ability of our
listed partnerships to recycle capital enables them to both enhance liquidity and fund growth initiatives with internally generated capital, without having to access public markets. We also realized $32 million of carried interest.

Our property business generated $1.4 billion of FFO and benefitted from the contribution from new investments and positive same-property growth in our office and retail portfolios. We monetized interests in core office assets during the year, capitalizing on attractive global asset valuations for high quality properties, which contributed to $785 million of realized disposition gains. We used the proceeds of these asset sales to repay in full the $1.5 billion facility which partially funded the privatization of our office company, meaningfully decreasing leverage in these operations. Cash flows benefitted from the completion of 36 million square feet of leasing activities across the portfolio, capturing market rent uplifts and increasing occupancy, specifically in Lower Manhattan. All of these initiatives enabled our listed property partnership to increase its annual distribution to unitholders by 5.7% and obtain an investment grade corporate debt rating.

Our renewable energy business produced FFO of $233 million. Water levels were well below historic averages and the prior year's, although generation benefitted due to production from newly acquired facilities. Subsequent to year end, we acquired a controlling interest in 3,032 MW of hydroelectric facilities and 3,800 MW of development projects in Colombia for approximately $2.2 billion, along with facilities in the northeastern U.S. Following these highly accretive acquisitions and completion of internal growth initiatives, we announced a 7% distribution increase in our listed renewable energy partnership.

FFO from our infrastructure group increased to $252 million during the year, benefitting from the contribution of our newly acquired communications infrastructure assets, in addition to internal growth initiatives across our business, which produced a 12% increase in same-store FFO on a constant currency basis. We acquired a minority position in Australia's leading ports and logistics business and are attempting to acquire the rest of the company for approximately A$12 billion, and are moving forward with our substantial capital investment program. Based on our operating performance, significant liquidity and growth prospects, we recently announced a 7.5% increase in unitholder distributions, consistent with our targeted annualized level.

 

 

 

Our private equity businesses generated FFO of $446 million, including $171 million from our North American residential development business. Our industrial and business services operations generated $242 million of FFO, representing a 14% increase over the prior year, and our directly held industrial business generated $21 million of FFO on higher volumes. We continue to expand our private equity operations and invested over $2 billion in the energy, metals and real estate sectors during the past year.

We continue to expand our listed and private funds.

Fee-bearing capital was approximately $100 billion at year end; net inflows of $14 billion included
$12 billion of new commitments to our private funds and $1 billion of capital in both our listed partnerships and public markets accounts. This asset growth was partly offset by a declining global equity market, which reduced the quoted value of the capital we manage in our listed partnerships and public
markets funds. We returned $3 billion to our listed and private fund partners through dividends and asset sales. The higher level of fee-bearing capital increased our annualized fee base and target carried interest to $1.6 billion.

We have nearly completed fundraising for the next series of two of our flagship private funds, and recently launched our follow-on infrastructure fund. We expect these three funds to achieve over $20 billion of commitments, of which we have already invested or committed to invest nearly $6 billion. We are also moving forward with new specialized private funds, seeking more than $2 billion of commitments.

Our fourth listed partnership, Brookfield Business Partners, continues to move forward to being listed and we anticipate the successful launch of this public entity in the first half of 2016, further enhancing our listed and private fund strategy and providing perpetual capital for the expansion of our private equity platform.

We announced or completed acquisitions over the year that will deploy $21 billion of capital, and continued to raise funds by selling mature assets.

During the year, we expanded our portfolio by acquiring high quality real assets at attractive valuations, including office buildings in Germany and Brazil, multifamily portfolios in the U.S., hydroelectric facilities in the U.S. and Colombia, an energy business in Australia and toll roads in India.

Continued strong demand for high quality cash flowing assets enabled us to sell assets at attractive valuations, including office buildings in North America, Australia, Europe and Asia, North American wind farms and electrical transmission networks in the U.S. We will continue to recycle capital by selling mature assets at these attractive valuations and redeploying the proceeds in growth initiatives that we source across our global platform.

We currently hold approximately $5.7 billion of core liquidity across our business and an additional $9.3 billion of capital to invest for clients, with a further $10 - $15 billion to come in the next few quarters.

Dividend Declaration

The Board declared a quarterly dividend of US$0.13 per share (representing US$0.52 per annum), payable on March 31, 2016 to shareholders of record as at the close of business on February 29, 2016. This represents an increase of 8% over the current dividend rate. The Board also declared all of the regular monthly and quarterly dividends on its preferred shares.

Information on our dividends can be found on our website under Investors/Stock and Dividend Information.

Basis of Presentation

This news release and accompanying financial statements are based on International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"), unless otherwise noted and make reference to Funds From Operations ("FFO").

We define FFO as net income attributable to shareholders prior to fair value changes, depreciation and amortization, and deferred income taxes, and include realized disposition gains that are not recorded in net income as determined under IFRS. FFO also includes the company's share of equity accounted investments' FFO on a fully diluted basis. FFO consists of the following components:

 

 

·

FFO from Operating Activities represents the company's share of revenues less direct costs and interest expenses; excludes realized carried interest and disposition gains, fair value changes, depreciation and amortization and deferred income taxes; and includes our proportionate share of FFO from operating activities recorded by equity accounted investments on a fully diluted basis. We present this measure as we believe it assists in describing our results and variances within FFO.

·	Realized Carried Interest represents our contractual share of investment gains generated within a private fund after considering our clients minimum return requirements. Realized carried interest is determined on third party capital that is no longer subject to future investment performance.

·

Realized Disposition Gains are included in FFO because we consider the purchase and sale of assets to be a normal part of the company's business. Realized disposition gains include gains and losses recorded in net income and equity in the current period, and are adjusted to include fair value changes and revaluation surplus balances recorded in prior periods which were not included in prior period FFO.

We use FFO to assess our operating results and the value of Brookfield's business and believe that many shareholders and analysts also find this measure of value to them.

We note that FFO, its components, and its per share equivalent are non-IFRS measures which do not have any standard meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies.

We provide additional information on the determination of FFO and reconciliation between FFO and net income attributable to Brookfield shareholders in the Supplemental Information available at www.brookfield.com.

Additional Information

The Letter to Shareholders and the company's Supplemental Information for the Fourth Quarter and year ended December 31, 2015 contain further information on the company's strategy, operations and financial results. Shareholders are encouraged to read these documents, which are available on the company's website.

The attached statements are based primarily on information that has been extracted from our financial statements for year ended December 31, 2015, which have been prepared using IFRS, as issued by the IASB. The amounts have not been audited by Brookfield's external auditor.

* * * * *

Brookfield Asset Management Inc. is a global alternative asset manager with over $225 billion in assets under management. The company has more than a 100-year history of owning and operating assets with a focus on property, renewable energy, infrastructure and private equity. Brookfield offers a range of public and private investment products and services, and is co-listed on the New York, Toronto and Euronext stock exchanges under the symbol BAM, BAM.A and BAMA, respectively. For more information, please visit our website at www.brookfield.com.

Please note that Brookfield's previous audited annual and unaudited quarterly reports have been filed on EDGAR and SEDAR and can also be found in the investor section of its website at www.brookfield.com. Hard copies of the annual and quarterly reports can be obtained free of charge upon request.

 

 

 

For more information, please visit our website at www.brookfield.com or contact:

Forward-Looking Statements

Note: This news release contains "forward-looking information" within the meaning of Canadian provincial securities laws and "forward-looking statements" within the meaning of 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. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook of Brookfield and its subsidiaries, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods, and include words such as "expects," "anticipates," "plans," "believes," "estimates," "seeks," "intends," "targets," "projects," "forecasts" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may," "will," "should," "would" and "could."

Although we believe that our 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, many of which are beyond our control, which may cause the actual results, performance or achievements of Brookfield 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, but are not limited to: the impact or unanticipated impact of general economic, political and market factors in the countries in which we do business; the behavior of financial markets, including fluctuations in interest and foreign exchange rates; global equity and capital markets and the availability of equity and debt financing and refinancing within these markets; strategic actions including dispositions; the ability to complete and effectively integrate acquisitions into existing operations and the ability to attain expected benefits; changes in accounting policies and methods used to report financial condition (including uncertainties associated with critical
accounting assumptions and estimates); the ability to appropriately manage human capital; the effect of applying future accounting changes; business competition; operational and reputational risks; technological change; changes in government regulation and legislation within the countries in which we operate; governmental investigations; litigation; changes in tax laws; ability to collect amounts owed; catastrophic events, such as earthquakes and hurricanes; the possible impact of international conflicts and other developments including terrorist acts and cyber terrorism; and other risks and factors detailed from time to time in our documents filed 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, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required by law, Brookfield 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.

This release does not constitute an offer of any Brookfield fund.

 

 

 

 

CONSOLIDATED BALANCE SHEETS

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

SUMMARIZED FINANCIAL RESULTS

The following financial results include non-IFRS measures. See Basis of Presentation on page 3 and 4.

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS¹

Notes:

1.	Non-IFRS measure – see Basis of Presentation on pages 3 and 4

2.	Excludes amounts attributable to non-controlling interests

3.	Excludes carried interest generated that is subject to future investment performance

4.	FFO includes gains recorded in net income, directly in equity as well as the realization of appraisal gains recorded in prior years

5.	Includes the portion of disposition gains recorded in fair value changes and prior years

 

Brookfield Asset Management Inc.

Letter to Shareholders

Overview

We reported strong net income and funds from operations (FFO) in 2015. Net income was $4.7 billion or $2.26 per share. FFO for shareholders was $2.6 billion or $2.49 per share. This was achieved through continued growth in asset management activities and results from a number of our operations. During the year, our London and New York real estate performed very well, and our UK utility business was a stand-out. At the same time, the conversion of results from non-U.S. operations detracted from the growth that occurred in local currency terms, power prices were low, and around the edges, lower commodity prices affected some of our businesses.

Our institutional and sovereign fund partners continue to increase their allocations to real asset strategies. We are completing the marketing of two of our flagship funds, which will close early in the new year with approximately $12 billion of commitments. We also expect to complete the first close of one of our other flagship funds at approximately $10 billion in the first half of the year. With each of these funds at least 50% larger than their respective predecessor, we are well positioned for continued growth in the business.

We are also launching a select number of other funds in our public securities and private fund businesses, including core funds and credit funds in our areas of expertise. These are in addition to our listed strategies, which are always open. While our listed strategies had a tough year with performance, consistent with most listed funds, we still had net inflows into both our public securities funds, and our flagship listed partnerships.

Our general themes today are focused on investing in opportunities around the dramatic sell-off in high yield bonds, non-U.S. currencies, commodities and South America. In addition, we are focused on monetizing cash from mature assets and on ensuring we are in excellent financial shape across all of our operations in these volatile times.

Investment Performance

Our one-year stock performance, inclusive of dividends, was slightly down. In addition to the general market sentiment, this isn't surprising, given the 31% return in 2014 on the NYSE. For our large base of Canadian investors, our performance was up 12% on the TSX in 2015 as we are a U.S. dollar denominated security, and we therefore provided them with additional returns in their home currency.

While we are cognizant of short-term performance, we always manage our business for the long term, and therefore focus more on those metrics. To that end, we are pleased that our returns compare well with most other investment alternatives and are consistent with our goal of generating 12% to 15% compound returns over the longer term.

 

 

Aside from the stock markets, we believe that substantial intrinsic value was added to the business this year and that the investments we are making today will pay off very handsomely in the future. Our fee-bearing capital is continuing to grow with major step changes, and most of the assets owned in our investment strategies should continue to do well in this low interest rate environment.

Our asset management franchise continues to establish itself as a global leader, and we believe we can deploy capital at returns to meet client expectations. As a result, we see no reason why we should not be able to achieve our financial goals over the next ten years, and believe it is possible we could exceed them.

Market Environment

Since 2009, we have been in a recovery from extreme global financial distress. It hasn't been smooth, but we have come a long way from where we were. The U.S. economy continues to improve, making 2015 the first year of interest rate increases since 2006. We expect more in 2016, but this will only happen in the event of continued growth in the U.S. economy. Jobless claims in the U.S. recently came in at their lowest number in 40 years, and many industries are doing well. Despite this, we are likely not going back to robust growth in the U.S. for a while, if ever, and we are mindful of the global growth issues that can reverberate back to the U.S. via currency exchange, trade balances and other items.

Given that, our view is that U.S. interest rates will eventually slowly grind upward. In this environment, real assets perform extremely well – and will, we believe, continue to do so. They should continue to hold their value as cash flows increase and, at a minimum, offset any interest rate increases, and for most assets, exceed them. We continue to see exceptional pricing for mature high quality real assets; therefore, we will continue to sell these types of assets and redeploy the capital, lock in returns, return capital to our partners, and make our balance sheets even stronger.

Europe recovered from the precipice and is ever so slowly seeing life. With the Euro at closer to par to the U.S. dollar, many businesses are doing better. The European market will exhibit very slow growth for a long time, and real assets may be the only place to find yield in a market where trillions of dollars of government bonds have been forced to negative yields by quantitative easing. We have been finding exceptional assets to acquire and are able to finance them with very long-term low-rate financing, generating strong cash yields to equity.

The U.S. dollar was strong against almost every other currency in 2015. This was caused in part by the divergence of monetary policy, but also because emerging markets and commodity currencies were dragged downward with the unrelenting pressure of declining commodity prices. Oil catches the headlines, but there were worse performers. While the lower currencies hurt our short-term results as a result of converting foreign currency cash flow into fewer U.S. dollars, we had many of our assets hedged. We have been scaling out of these hedges and will likely continue to do so in 2016. In essence, we have been selling U.S. dollars in this more mature stage of the U.S. dollar bull run, and buying back into assets in their local currencies such as Australia and Canada. In Brazil, we were unhedged, which hurt us in the short term; however, we think we will gain back much of the currency losses with inflation adjustments in our contracts, and long-term values should recover as they have in past.

Priorities for 2016

The top priorities for 2016 are investing capital for our funds, fundraising for our private funds, and redeploying capital within our listed partnerships.

Compared to the last few years, we are seeing very substantial numbers of investment opportunities that meet our investment criteria. This is the result of the accentuated macro themes of the last few years – namely: (1) lack of capital in emerging markets; (2) enormous declines in virtually all commodities; (3) currency rate movements against the U.S. dollar; and (4) the broad sell-off in U.S. high yield bonds.

 

 

Our private fundraising capacity continues to strengthen, with our institutional relationships deepening. Increasingly we are offering our largest partners a range of products, which include participation in our funds as well as both co-investments in transactions and direct investments alongside our listed partnerships. This integrated approach, which often involves large transactions, can only be offered by the largest managers with scale.

Based on our pipeline, we should be able to complete fundraising in 2016 for all of our new flagship funds, raise capital for other investments from our institutional partners, and advance fundraising for a number of other funds.

Each of our flagship listed partnerships is self-funding and these entities will continue to grow – both organically and by redeploying capital invested in more mature assets. None of the business plans in our partnerships depend on issuance of equity. Despite this, we are always working to establish trading values of these entities at their intrinsic values so that we can, if we desire, issue equity for transactions. We plan on listing our latest entity, Brookfield Business Partners, in the second quarter of 2016 and will work hard this year to establish this entity in the stock market.

Wealth Creation and Cash Generation

The wealth creation capacity of our permanent capital is approximately $7.5 billion annually, based on the approximately $60 billion of permanent capital we have in the overall business. This assumes that this equity can generate a 12.5% compound annual return, consistent with the low end of our overall return objectives. The overall earnings of our business are far greater, as these numbers do not count the vast sums we earn on behalf of the institutional partners in our private funds that get distributed to them.

Most importantly, we have total discretion over the above wealth creation when generated. We can invest it in new assets, repay debt, or distribute cash flows to our listed equity unitholders and shareholders. This gives us significant freedom to grow our business organically, fund operations, or distribute generously to our constituents.

Based on the type of assets we own, at IFRS values they generate approximately 7% leveraged cash-on-cash returns. As a result, we generate an annual equity cash flow of approximately $4 billion. The other $3.5 billion of wealth creation shows up as increased valuations of assets.

On an annual basis, we roll over 10% to 20% of our financings. When we do so, we generally increase the financing amount to an investment grade level, and this releases a portion of the aforementioned wealth creation in cash. We estimate that of the $3.5 billion of wealth creation that is not operating cash flow, we access approximately $1 billion of this annually by completing refinancings of assets. In addition, we sell assets from time to time and turn the accumulated wealth creation, as well as the initial investment, into cash. This converts another approximately $1 billion of wealth creation annually into cash. The balance continues to accumulate in assets and accrues to shareholders through increases in the underlying value of the business. This is why our values tend to grow over time.

As an example, we acquired a utility business in the United Kingdom in 2009. We invested $100 million in the equity in this business and assumed $300 million of debt. Since that time we have achieved considerable growth within the business through operational improvements and by adding product lines. This was all funded by financing in the company. In 2012, we injected a further $525 million into the business, primarily to purchase another similar company, and at the same time, we decided to sell 20% of the entire company to a partner for $235 million, resulting in a net investment of $390 million for our 80%. Over the ownership period, we have received dividends of approximately $240 million, resulting in only $150 million of net capital invested today.

Today, this investment is a formidable utility franchise in one of the most highly sought-after jurisdictions in the world. We still own 80% of this business which generates $175 million of FFO annually, and our investment is worth many billions.

 

 

 

Capital Recycling

We invest two forms of capital. The first is private capital on behalf of largely institutional and sovereign fund partners. The second is listed markets capital on behalf of retail oriented investors, which is either deployed in our three listed Brookfield partnerships or our listed markets business.

Our private funds have time durations (usually 10 to 12 years), and as a result capital recycling occurs naturally. As we continue to harvest capital from earlier generation funds, we return capital to clients and our portion is then available for investment into new funds or investments. As our private funds have become larger, we have been decreasing our commitment to each fund on a percentage basis, although the quantum is still very meaningful. As a result, the capital harvested from earlier funds should be sizable enough to fund the commitments we have made to later funds on a self-sustaining basis.

Our listed partnerships have now achieved critical mass to the point where they can grow themselves, either through internally generated cash or by refinancing or selling assets that have matured. This means that each of these entities is self-sustaining and doesn't need to fund their business model by accessing the capital markets, unless for some reason we believe the right strategy is to issue equity.

Brookfield Property Partners now has an equity base of $22 billion. We have raised more than $2 billion in net proceeds from asset sales over the last twelve months and plan to sell about the same in 2016. These sales have been done, on average, at 13% above the IFRS values we mark our assets to in our financial statements, largely because the market for private assets is extremely robust. We expect this to continue into 2016. It has enabled us to repay 100% of the acquisition facility put in place to acquire the other half of our office company, fund our development pipeline, and make a number of acquisitions.

Brookfield Infrastructure has increased its equity base to $8 billion and has been re-deploying capital from more mature assets into ones with greater upside over the longer term. This included selling electrical transmission lines in the U.S., New Zealand and more recently Canada. These sales will selectively continue in 2016, and we do not need to access the public markets to fund our operations.

Brookfield Renewable is also a self-sustaining business and has been for the last 10 years. To fund further investments over and above our operations and developments, we utilize the operating cash generated. We have also been up-financing assets as the values increase, and selling some more mature assets. For example, we developed and built a number of wind facilities in the United States and Canada over the past several years. We have sold some of these facilities and may continue to sell others if we can continue to achieve premium prices.

Brazil

We have been an investor in Brazil for a very long time. We have experienced many cycles there, and while the situation is currently more difficult than many of those previous periods, we do not believe this changes the long-term fundamentals of the country. As a value based investor, we see significant opportunity. Because of this, we continue to invest capital across our businesses and believe that when we look back five years from now, the values will be substantially higher. At this time, as in any other market where most investors have fled, there are assets being offered to us that would never otherwise have been available, assets that are being offered at fractions of tangible value, or both.

Political distress, scandals, and a deep recession are causing extreme duress in the country. Despite this, we believe a number of long-term fundamental issues are now being right-sized. First, the deficits are beginning to turn around, currency devaluation has made the manufacturing sector competitive once again, and export businesses are doing well. Longer-term, Brazil also has an immense young middle class and vast agriculture lands and other resources which will serve the country well.

Leaving aside the issues that have surfaced in a number of organizations in Brazil, the country has proven it has a rule of law and a judiciary that is separate from political and business influence. As a foreign investor in an emerging market, these are the most important factors. We are also hopeful that a number of positive reforms will come out of this crisis, which should lead to even better governance in the future.

 

 

The pricing of opportunities in Brazil today have discounted almost every negative scenario. We are buying at fractions of replacement cost and therefore believe we have enough margin of safety that we will be fine in almost any reasonable economic scenario. Our upside cases are based on modest recovery of the country over the next five years. Should we be fortunate enough to see more than that, returns could be exceptional.

In the context of $225 billion of assets under management, we have approximately $10 billion of assets in Brazil, with approximately $6 billion of equity invested. Of the equity invested, about ±10% of our deconsolidated balance sheet, or approximately $3 billion of capital is from our Brookfield balance sheet, and $3 billion is from our clients.

While not without risk, we believe our Brazil investments will earn very high returns on capital from this point in time in U.S. dollar terms. We are always vigilant about not over exposing any one fund, or our business more broadly; however, we will continue to use this period to expand our operations in the country, establishing ourselves as the pre-eminent investment manager there, and adding some phenomenally strategic assets to our portfolio that would otherwise never have become available.

Global Operations

Our global business is built out for the scale of our operations, but we will continue to grow around the edges when we see the opportunity to deepen relationships and enhance both our deal sourcing and execution capabilities. We currently have operations in 35 countries with major investments in 20 of those.

Our 700 investment professionals and client service executives are largely based in New York, Toronto, London, Sydney, São Paulo, Mumbai and Shanghai. We have been expanding our Shanghai office, as we expect this will lead to a greater number of transactions over the next 10 years. Next year we will also move more people to Dubai to augment our resources in the Middle East and South Asia.

Over the last couple of years we opened small offices in Singapore, Tokyo, Seoul, Hong Kong, Munich, Berlin, Paris and Mexico City. These offices most often facilitate our client servicing functions initially, but also allow us the opportunity to have people on the ground for business and relationship development. The only area of the world where we will continue to build our resources over the next 10 years is Asia. Our build-out will be slow and methodical, but given the negativity around these markets today, we believe that this is the ideal time to expand our presence there.

A side benefit of the deep and often very strategic relationships we have with many sovereign plans is that they often result in access to opportunities in their home market – with arguably the best local partner possible. The benefit of this longer term may be very substantial as we continue to build out our global operations. As an example, we have a long-time relationship with Investment Corporation Dubai (ICD) and as a result recently launched, with them, the construction of a premier quality 1.2 million square foot mixed-use office project in the Dubai International Financial Centre (DIFC). The DIFC is the heart of commerce in the Middle East. Without this relationship, this opportunity would never have been available to us.

 

 

Performance Across Our Platforms

Our asset management business contributed $551 million of FFO for the full year, up 45% from last year, reflecting strong flows of capital from our clients. Assets under management are over $225 billion and net fee-bearing capital increased by 12% to $100 billion. Combined with base fees and incentive distributions, the annualized run-rate of fees and carried interests for our franchise is now $1.6 billion and growing rapidly as we continue to expand our business.

The growth of our asset management business is not linear, but grows in step functions as we close new and larger funds and expand our listed partnerships. We have a number of private funds in the market, and strong demand throughout the year enabled us to add $9 billion in new third-party commitments to our private funds. By mid-year we expect to complete fundraising for each of our successor flagship funds. Within our listed partnerships, the launch of Brookfield Business Partners (BBP) will establish our fourth listed entity. BBP will focus on business services and industrial companies, and is expected to be distributed to shareholders in the first half of 2016.

We announced or completed acquisitions over the year that will deploy $21 billion of capital by utilizing our global reach to identify and acquire high-quality real assets across all of our platforms. We fully invested or committed the balance of capital in our three flagship funds; Strategic Real Estate Partners I, Infrastructure Fund II and Capital Partners Fund III, and are now investing on behalf of their successor funds. Our listed partnerships have proven to be valuable when we find attractive opportunities that either do not fit a specific fund mandate or exceeds the fund's concentration limits. With broader mandates, we executed several large scale transactions in these entities, with some of our larger clients investing directly beside us as partners.

We generated $219 million of carried interest during the year, bringing our cumulative carried interest to more than $650 million. We only realize carried interest when we have distributed proceeds to our partners in excess of hurdle rates and there is no additional risk of clawback. As we are still in a growth phase, raising and deploying capital, we are not yet seeing that contribution in our current results, but this value is accruing and will show up in our financial results in the future.

It was a tough year for securities priced in the public markets, and the pricing of our listed partnerships were not immune from this. However, while this did lessen the attractiveness of accessing equity capital markets, we saw compelling values for many of our assets and businesses in the private markets which enabled us to raise considerable capital through disposition activities described later in this letter. This broad access to multiple capital sources is the major benefit of having a diversified multi-product offering and asset base.

We also achieved continued growth in the cash flows within our listed partnerships arising from operational improvements, including new leasing, increased business volumes and productivity initiatives, as well as the contribution from new investments and completed development projects. This led to increases in FFO and increases in distributions across all of our partnerships in line with our targets.

Brookfield Property Group

 

 

Our core office operations benefitted from leases executed at Brookfield Place New York, the increase in our ownership of the Canary Wharf Estate in London, and the completion of several office development projects in Canada and Australia.

Our retail operations had strong same-store sales growth, maintaining a healthy 96% occupancy rate. While there has been a great deal of discussion regarding the impact of increased online retail spending in the U.S. on traditional bricks and mortar, fortress shopping centres continue to attract the vast majority of consumer spending and are an important part of our tenants supply chain. Longer term, we believe that for most products, there will be a merger of online, and bricks and mortar retail. As a result, we believe that the attractiveness of high quality retail centres will only get better.

We deployed over $8 billion of equity capital over the last twelve months, in markets where we saw mispriced assets and scarce capital, making investments in a Brazilian office portfolio, industrial properties in Europe and a large mixed-used complex in Germany. We also continued to expand our multifamily platform with the acquisition of a 13,000-unit apartment REIT in the U.S., the launch of an 844-unit tower in Manhattan, and three apartment buildings on the Canary Wharf Estate in London, totalling 650 units.

We continue to see a great deal of interest from our institutional clients seeking to put more capital to work in real estate, driving a record year of fundraising for our flagship real estate strategies. We also took advantage of strong pricing in private markets to sell down partial interests in balance sheet assets to some of our partners, including an interest in our Manhattan West project in New York as well as mature office buildings in London, Melbourne, Boston and Washington D.C. In total, this generated $2 billion of net proceeds.

Brookfield Renewable Energy Group

Our renewable energy group contributed $403 million of FFO in 2015. We faced headwinds that included below average hydrology and wind resources, as well as weakness in the Brazilian and Canadian currencies. As we begin the year, hydrology is improving in both North and South America and currencies have stabilized. We were pleased to announce a 7% distribution increase within our flagship listed partnership, Brookfield Renewable Energy Partners, and are confident in our continued ability to raise distributions over time in line with our targets.

We deployed nearly $5 billion of capital in the last twelve months, acquiring almost 4,000 megawatts of renewable energy, which will be additive to future FFO. This includes the 58% controlling interest in Isagen S.A., a 3,000 megawatt portfolio in Colombia, acquired subsequent to year end for $2.2 billion of equity. This extremely high-quality renewable energy business comprises six hydro plants, including the country's largest generation facility and its largest reservoir by volume, as well as a 3,800 megawatt development portfolio. We believe the potential for this business over time is significant, and we expect to shortly make a tender offer to the remaining shareholders.

Additional acquisitions in the last year included a nearly 300 megawatt hydroelectric portfolio in Pennsylvania on the same river as our 417 megawatt Safe Harbor facility, which allows us to better manage generation at both facilities. We doubled the size of our Brazilian platform with the integration of a nearly 500 megawatt, multi-technology renewable portfolio that also allowed us to enter the wind and biomass segments in that country. Our European platform has recorded impressive growth, now exceeding 600 megawatts of capacity after integrating a 125 megawatt portfolio of wind facilities acquired in Portugal. We also acquired a portfolio of development projects in Scotland, and have approximately 200 megawatts of advanced development in place in Ireland.

 

 

Looking ahead, we have a strong pipeline of potential acquisitions, and in total an additional 3,000 megawatts of projects available for development. We continue to monitor the solar power sector, where we believe the falling cost of technology will create attractive investment opportunities in the near future. All of this should significantly increase our future FFO in addition to positioning our current portfolio to benefit from the eventual rise in electricity prices from their current cyclical lows.

Brookfield Infrastructure Group

Our infrastructure group reported $843 million of FFO. Results were solid, benefitting from strong organic growth initiatives across a number of our businesses, and contributions from new investments that we completed in the last 18 months. FFO increased by 12% on a 'same store' constant currency basis. Our flagship listed partnership, Brookfield Infrastructure Partners, recently announced a 7.5% distribution increase, marking the seventh consecutive year of distribution growth.

We committed nearly $4 billion of capital to expand the size of our business and add to future FFO. We also replenished our strong pipeline of organic growth opportunities with nearly $2 billion expected to be deployed in the next 36 months.

In our energy transmission platform, we are pleased to have partnered to acquire the remaining 53% of Natural Gas Pipeline Company of America LLC (NGPL) that we did not collectively own with Kinder Morgan. With the changing dynamics in the North American natural gas market, we see significant potential across NGPL's system. We have received considerable interest regarding our Gulf Coast reversal project that enables the southbound flow of natural gas to delivery points in Texas and Louisiana where several LNG projects and new hubs are developing. Our pipeline is also well positioned to connect with new natural gas infrastructure being developed in Mexico to access low cost U.S. shale gas production.

Our transportation platform added a number of operations which, upon completion, should significantly increase the scale and diversity of the business. We negotiated an agreement to acquire a leading Australian port and rail logistics business for A$12 billion, and are currently working on various undertakings to satisfy local regulators in order to complete the transaction. Asciano provides rail haulage services to the containerized and bulk markets, and its terminals and logistics business operates in the four largest container ports in Australia. We also expanded our toll road business with the acquisition of a portfolio of six roads in India for $230 million.  

We raised more than $2 billion of capital in Brookfield Infrastructure Partners in 2015 and we continue to be active in recycling capital, having initiated two sale processes for businesses that we expect to sell at attractive valuations in the first quarter of 2016. We are fortunate to have significant liquidity in our flagship listed partnership, as well as strong interest in the sector from our institutional clients which will allow us to be active in the coming year. We see great value opportunities in Brazil across a number of infrastructure sectors, and the volatility in the energy sector should provide a number of opportunities to further build out our North American midstream business for value.

Brookfield Private Equity Group

Our private equity operations generated FFO of $446 million for the year. This includes our business services, industrial and residential development businesses. The latter two segments tend to be more cyclical in nature, and operating results vary more than our other businesses for a few reasons. The performance of a number of these businesses varies with business and economic cycles, and we expect them to have some volatility in earnings. In addition, we often buy underperforming companies because we see better long-term value. Often these companies generate minimal earnings at the outset, but the long-term gain is substantial. Lastly, some of our businesses are in sectors subject to cyclical economic factors and we are often entering investments when results are poor.

Our private equity group had a busy year, deploying more than $2 billion in the energy, metals, and real estate services sectors. In the case of our Australian energy investment, we removed substantially all revenue risk through a combination of take or pay offtake agreements and commodity hedges. Throughout the year, oil and gas markets continued to weaken and our decision to contract revenues appears to have been prudent. Oil and gas markets are currently suffering from oversupply globally, and are very much out of favour. We hope to continue to take advantage of this backdrop by investing in securities around this sector that are trading at levels reflecting this current supply imbalance.

 

 

Our priority in the coming year is successfully launching Brookfield Business Partners (BBP) as our fourth flagship listed partnership. We expect this will take place in the second quarter through a special dividend to you of approximately $0.50 per share, or $500 million. The overall business is expected to have an equity value upon launch of approximately $2 billion.

BBP's initial business platforms will be business services and industrial companies, and through BBP our shareholders will have the opportunity to invest directly in these businesses with us. BBP will provide balanced exposure to both high quality businesses with consistent cash flows, as well as other value investments that together we hope will provide an attractive return to BBP unitholders. BBP should enhance our access to investment opportunities and capital, and given the growth in our business, we believe it is the right time to launch this.

Closing

It is with great sadness and respect that we report that we lost one of our great leaders in 2015. John Zuccotti, our Chair of Global Operations, was a big part of the heart and soul of our company for the past 20 years. John was a bedrock of New York for his whole life, in many capacities, including as First Deputy Mayor. John is sadly missed by all of us.

We remain committed to being a world-class alternative asset manager, and investing capital for you and our investment partners in high quality, simple to understand assets which earn a solid cash return on equity, while emphasizing downside protection for 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 per share over the longer term.

And, while I personally sign this letter, I respectfully do 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 you wish to share with us.

J. Bruce Flatt

Chief Executive Officer

February 12, 2016

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