DBRS Confirms Brookfield Investments Corp. 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 continues to reflect Brookfield Investments’ strong asset and dividend coverage. Overall asset coverage (based on market values) for the Senior Preferred Shares improved to 14.72 times, for the twelve-month period ending September 30, 2012, from 10.97 times in 2010. This was mainly due to an increase in investment values, particularly the Company’s investment in Brookfield Office Properties Inc. That said, Brookfield Investments’ portfolio continues to have a high degree of exposure to the real estate sector. The portfolio also grew from new investments over the past year (financed primarily with Junior Preferred Shares issued in 2011), including the acquisition of a 49% economic interest in Western Forest Products Inc. for $162 million and the acquisition of six million Brookfield Residential Properties common shares, representing a 6% interest, for $57 million.

As a result of higher market values and the aforementioned new investments, the Company’s exposure to real estate investments decreased to 69.6% (on a market value basis as at September 30, 2012) from 83.5% in Q1 2011. Specifically, Brookfield Office Properties Inc. represents 41% of the Company’s investment portfolio on a market value basis. This should continue to support overall market values and provide stable dividends going forward. DBRS believes that asset coverage of 14.72 times for the Senior Preferred Shares (based on market values as at September 30, 2012) and dividend coverage of 6.07 times are strong for the current rating category and provide a reasonable level of downside protection. In terms of future investments, DBRS expects the Company will focus on stable, income-producing assets, such as preferred or common shares in real estate and power.

The rating also continues to be supported by the fact that: (1) Brookfield Investments’ senior debt does not exceed 10% of the market value of its portfolio, and (2) no dividends are paid to Brookfield Investments common shareholders, 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.

The rating also reflects the following challenges: (a) The principal amount of the Senior Preferred Shares may be repaid by liquidating the assets upon retraction by the holder. Since 29.9% of investments are in shares that are not publicly listed, the illiquidity of such investments could have negative implications for the value realized by the preferred shareholders. (b) As there are no restrictions on the contents of the underlying portfolio, 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 Entities, which can be found on our website under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.