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Todd Sullivan
Todd Sullivan
Articles (5983) 

What are the boys at Brookfield Asset (BAM) are saying about Real Estates

August 12, 2009 | About:

When the boys at Brookfield Asset (NYSE:BAM) are buying, I am intrigued.

August 08, 2009 David Friend


Executives at investment giant Brookfield Asset Management Inc. are confident they can scour the international market for distressed assets and acquisition deals for at least two more years, even if the economy starts to recover and the U.S. housing market rebounds.

"While the capital markets are more positive than they have been for a long period of time, that doesn't mean that people who overfinance their properties – or are in extreme distress – are fixed," chief executive Bruce Flatt said on a conference call. "There are still a lot of opportunities out there, and we think there will be for 24 months minimum. I don't think we feel any rush to be doing anything."

Flatt told analysts that the company has spent the last year and a half buying out partners, acquiring rights offerings and making other deals for distressed assets. "We still believe this is one of the greatest investment periods for these type of assets that we've seen in a long time," he said. He also said Toronto-based company wants to put capital into "distressed opportunities as we find them, and where we have an operating base."

Brookfield said profits in the second quarter rose by 33 per cent to $147 million (U.S.), or 24 cents per share for the quarter ended June 30, up from a year-earlier profit of $110 million or 17 cents per share.Cash flow from operations declined during the period to $276 million or 46 cents per share, compared to $378 million or 62 cents. Brookfield said last year's cash flow was boosted by special items. Total quarterly revenue fell to $3 billion from $3.4 billion a year ago.

Brookfield's massive office property portfolio – including Brookfield Place and the Exchange Tower in Toronto, Bankers Hall in Calgary, New York's World Financial Center in and Bank of America Plaza in Los Angeles – is 95 per cent occupied. The company reported that it has also contracted about 80 per cent of its renewable power generation until the end of 2010.

Chief financial officer Brian Lawson expressed some optimism for the company's residential business.

"The results from our number of our shorter duration businesses, such as our residential operations, appear to have bottomed out, albeit at pretty low levels," he said. Flatt said Brookfield has spent the past six months buying residential land, and invested $250 million in its U.S. residential business. "We believe we are past the worst of the down cycle in housing," he said. "While we don't expect a robust return, we believe we have or will soon see a bottom in many of the key U.S. housing markets."

Brookfield controls Fraser Papers Inc., wood panel producer Norbord Inc., Great Lakes Hydro Income Fund and the Brookfield Real EstateServices Fund, that includes Royal LePage and other brands. The holding company's forestry assets have been battered by the global economic downturn, with Fraser Papers being forced to file for creditor protection in Canada and the United States in June. Fraser Papers reported that it lost $8 million or 36 cents a share for the quarter ended June 30, down from $15.6 million or 31 cents a share for the same 2008 period.

During the second quarter, Fraser booked a net gain of $12.5 million from unwinding its foreign exchange hedging program.

Shares in the company gained 12 cents to close at $21.86 yesterday on the Toronto Stock Exchange.

What does it all mean? Notice what he said "the next 12-24 months". No matter what anyone says, housing NEVER has a "V" recovery. It is a Nike Swoosh recovery. A steep fall followed by a long bottom and then a very gradual climb out. What Flatt is saying is that we are nearing that bottom part and will enter the prolonged bottom dredge. 

This goes to what we have been saying here for a while, 2010 will be the bottom in housing and then we will sit and then begin the climb out. 

Why is all this positive? It means the dramatic price falls are a thing of the past. We more than likely have some more downside 10%-15% and then we flatline before climbing out. When do prices recover to 2006-07 levels? If history tells us, it will be 7 years based on the 1990-91 housing bust. Now, it should be noted that fall was from far less loftier levels that this one. Because of that 7-10 years would seem to be the more realistic scenario.

Todd Sullivan


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Todd Sullivan
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