DBRS Confirms Brookfield Investments at Pfd-2 (low), Stable Trend

DBRS has today confirmed the rating of Pfd-2 (low) with a Stable trend for the Senior Preferred Shares of Brookfield Investments Corporation (Brookfield Investments or the Company).

The rating confirmation reflects Brookfield Investments’ strong asset coverage and dividend coverage for the period ended Q1 2011. Overall asset coverage (based on market values) for the Senior Preferred Shares has improved over the past few years to 11.34 times from 10.92 times in 2009 with recovering investment values, particularly the Company’s investment in Brookfield Office Properties Inc. (Brookfield Properties) and Brookfield Europe L.P. (Brookfield Europe or BELP). The major change to the portfolio holdings over the past year took place during Q1 2011 at which time Brookfield Europe completed an equity issuance in which the Company did not participate and accordingly diluted its ownership to 36% from 42%.

As a result of recovering market values and investment in Brookfield Europe in 2009, the Company’s exposure to real estate investments has increased to a current 83.5% from 75.2% in 2008. In addition, Brookfield Properties now represents 55.8% of the Company’s investment portfolio, up from 19.1% in 2008, which should continue to support overall market values and provide stable dividends going forward. Looking ahead, DBRS expects asset coverage for the Senior Preferred Shares of 11.34 times (based on market values as at March 31, 2011) and Senior Preferred dividend coverage of 5.41 times will remain supportive of the current rating category, given the quality of the underlying investments. DBRS also expects that the Company will focus investments in stable, income-producing assets such as preferred shares or common shares in real estate and power.

The current rating is supported by the following: (1) Brookfield Investments’ senior debt not exceeding 10% of the market value of Brookfield Investments’ portfolio; (2) No dividends being paid on the Brookfield Investments common shares unless, after giving effect to such dividend, the asset coverage for the Brookfield Investments Senior Preferred Shares would be at least three times. Excess cash flows beyond the Senior Preferred Shares are available to Brookfield Investments as sole holder of the Junior Preferred Shares and as sole common shareholder. The Junior Preferred Shares rank subordinate to the Senior Preferred Shares with respect to the payment of dividends and the Senior Preferred Shares are entitled to receive quarterly fixed, non-cumulative dividends equal to $0.31 per share.

The rating also takes into consideration the following challenges to the rating including: (a) 33.9% of the value of the underlying shares is unlisted and may be illiquid. Upon retraction by the holder, the principal amount of Senior Preferred Shares may be repaid by liquidating the assets, which may have an impact on the realized value of Portfolio Shares; (b) there are no restrictions on the contents of the underlying portfolio and volatile market conditions could cause significant reductions in the net asset value of the Portfolio Shares (especially common shares).

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Real Estate which can be found on our website under Methodologies.