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Brookfield profit jumps on higher property values

Brookfield Asset Management Inc. Chief Executive Officer Bruce Flatt speaks at their annual general meeting for shareholders in Toronto, May 5, 2010.


With the fight to save General Growth from its massive debt now won, Brookfield Asset Management Inc. is turning its attention to ensuring the large U.S. mall operator is able to compete in the future.

Brookfield began buying debt in the troubled company as General Growth Properties Inc. looked set to default on more than $28-billion (U.S.) of loans last year. General Growth's shares had fallen from $65 to less than a dollar, but Brookfield amassed a position and helped guide the company through the Chapter 11 bankruptcy proceedings.

Now free of the proceedings, Brookfield, which has built a 40-per-cent equity stake in the company, is set to help General Growth refinance about $13-billion in mortgage debt. More importantly from a retail perspective, the stable ownership has allowed the company to begin negotiating long-term leases with the retailers who had taken advantage of the uncertainty to sign cheap, short-term rental agreements.

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The renewal efforts have started to pay off with increased leasing. General Growth - which has ownership stakes or management contracts at more than 200 shopping malls in 43 states - will report its fourth-quarter results on March 1, providing further insight into the restructuring efforts.

"The Brookfield consortium has already made billions on the deal," said CIBC World Markets analyst Alex Avery. "Now that they're done bagging the big game, they can exert the influence and apply their expertise to re-establish General Growth as the leading U.S. mall company."

Saying Brookfield intends to "assist the company in every way we can," chief executive officer Bruce Flatt said the next year could include the sale of non-core General Growth assets as well as rent increases and an increased effort to fill vacant storefronts.

As Brookfield announced its fourth-quarter results Friday, Mr. Flatt said the company will start to turn its attention to troubled European companies "that could benefit from our restructuring experience and capital."

And while the company would like to increase its exposure to hot Asian markets, it would prefer to do so by investing in countries such as Australia that benefit from strong trading relationships with nations such as China.

The company said profit was $2.07-billion in its most recent quarter, as it posted a big gain related to fair value changes. That was $1.80 a share, compared with $709-million or 35 cents a share in the prior-year period. The results included a one-time gain of $1.79-billion due to the annual revaluations of its real estate holdings.

BMO Nesbitt Securities analyst Neil Downey said the results are a little weaker than he expected, with gains in the property business offset by weakness in other areas.

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"The shortfall appears to primarily stem from weaker-than-expected operating results from renewable power [due to]low water levels and low spot prices as well as a lower-than-expected contribution from the notably volatile investment and other income line," he said.

Meanwhile, investors shouldn't expect a boost to the company's 13-cent dividend, Mr. Flatt said in response to an analyst's question during the conference call.

"We could easily afford an increase," he said, "but when we talk to most shareholders they'd rather us reinvest it back into the business."

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