EX-99.2 3 d298002dex992.htm EX-99.2 EX-99.2
Table of Contents

Exhibit 99.2











A Global Alternative Asset Management Company  


Annual Report  
















Table of Contents



Brookfield Asset Management Inc. is a global alternative asset manager with approximately $150 billion in assets under management.


We have over a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. We offer a range of public and private investment products and services, which leverage our expertise and experience and provide us with a distinct competitive advantage in the markets where we operate.


Brookfield is co-listed on the New York and Toronto Stock Exchanges under the symbols BAM and BAM.A, respectively, and on the NYSE Euronext under the symbol BAMA.




Renewable Power




Private Equity







Letter to Shareholders

     3         Sustainable Development      150   

MD&A of Financial Results

     11         Corporate Governance      151   

Internal Control Over Financial Reporting

     90         Shareholder Information      152   

Consolidated Financial Statements

     94         Board of Directors and Officers      153   

Cautionary Statement Regarding Forward-Looking Statements




Table of Contents




total return

on equity




per share

of intrinsic

equity value



total AUM


AS AT AND FOR THE YEARS ENDED DECEMBER 31    2011        2010   



Total return

   $ 5.33         $ 3.23    

Net income

     2.89           2.33    

Funds from operations

     1.51           1.76    

Intrinsic value of common equity

     40.99           37.45    

Market trading price – NYSE

     27.48           33.29    



Total assets under management

   $       151,720         $       121,558    

Consolidated balance sheet assets

     91,030           78,131    

Intrinsic value of common equity

     26,098           22,261    

Total return for common equity

     3,345           2,054    

Consolidated results



     15,921           13,623    

Net income

     3,674           3,195    

Funds from operations

     2,355           2,196    

For Brookfield equity


Net income

     1,957           1,454    

Funds from operations

     1,052           1,106    

Diluted number of common shares outstanding

     657.2           616.1    

Note: See “Use of Non-IFRS Measures” on page 12.



Statement Regarding Forward-looking Statements and Use of Non-IFRS Accounting Measures

This Report to Shareholders contains forward-looking information within the meaning of Canadian provincial securities laws and applicable regulations and “forward-looking statements” within the meaning of the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995. We may make such statements in the report, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission or in other communications. See “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 148.

We make use of non-IFRS measures in this Report as disclosed further on page 12.

This Report and additional information, including the Corporation’s Annual Information Form, are available on the Corporation’s website at www.brookfield.com and on SEDAR’s website at www.sedar.com. We make use of non-IFRS measures in this report as disclosed further on page 12.



Table of Contents


Brookfield’s approach to investing is disciplined and straightforward. With a focus on value creation and capital preservation, we invest opportunistically in high quality, real assets within our areas of expertise, manage them proactively and finance conservatively to generate stable, predictable and growing cash flows for clients and shareholders. Our approach to investing is anchored by a set of core investment principles that guide our decisions and how we measure success.

Business Philosophy

Build the business and all our relationships based on integrity

Attract and retain high calibre individuals who will grow with us over the long term

Ensure our people think and act like owners in all their decisions

Treat our client and shareholder money like it’s our own



Investment Guidelines

Invest where we possess competitive advantages

Acquire assets on a value basis with a goal of maximizing return on capital

Build sustainable cash flows to provide certainty, reduce risk and lower our cost of capital

Recognize that superior returns often require contrarian thinking



Measurement of our Corporate Success

Measure success based on total return on capital over the long term

Encourage calculated risks, but compare returns with risk

Sacrifice short-term profit, if necessary, to achieve long-term capital appreciation

Seek profitability rather than growth, as size does not necessarily add value



Table of Contents



During 2011, we integrated many of the operations and assets that we acquired during the last three years, invested incremental capital in these businesses and acquired a number of assets for our operations.

We continue to deploy significant resources in raising new private funds. We are also in the final stages of implementing our listed issuer strategy, by creating flagship public entities and private funds deployed in the asset classes where we enjoy a distinct competitive advantage. In this regard, we achieved a meaningful milestone in 2011 with the launch of Brookfield Renewable Energy Partners.

We succeeded in recycling significant amounts of capital in our property operations last year, acquired and developed several new projects in our renewable power group and invested capital to expand a number of facilities in our infrastructure group.

Overall, we believe that 2012 will be a good year to invest capital and therefore we are focused on profitably deploying the capital we manage for clients and shareholders, while raising additional capital from clients backed by our strong performance over the past number of years.

The total return for each Brookfield share was $5.33 in 2011, a 14% return on our calculated intrinsic value of the business. This return was generated 28% from cash flow and 72% from the increase in value of our assets. While satisfactory, these results continue to be impacted by the unsettled global economy, the capital invested by us in new investments which are in the early stages of surfacing value, and our exposure to a number of U.S. housing related businesses. We are confident though, that as the global economy recovers, our results will grow disproportionately on the upside.

Market Environment

North American equity markets were flat in 2011, down in Europe and off significantly in the emerging markets. This was largely due to concerns about sovereign debt issues, sluggish economic growth, a potential credit crisis in Europe, and fears about renewed inflation in developing economies. The debt markets generally performed well, benefitting from investor anxiety.

As we head into 2012, many of the concerns prevalent last year appear to have abated. The U.S. economy is growing again and fears about Europe and inflation appear to have been overstated. Nevertheless, investors are now facing the stark reality that growth rates in the developed world will remain sluggish until sovereign debt levels have been significantly reduced. This bodes well for our real asset investment strategy and the types of investments that we own and manage.

With interest rates remaining low, real assets such as our property, power and infrastructure investments offer strong risk-adjusted returns to investors. These investments produce cash returns well in excess of prevailing bond yields and provide investors with a valuable hedge against inflation. Moreover, unlike bonds, they also offer the potential for further capital appreciation.

In contrast to the developed world, the emerging markets continue to experience exceptional growth. Many of these emerging economies also present less risk than developed markets on a relative basis as they have attractive fiscal balances, well-capitalized banks, rapidly increasing levels of investment and favourable demographics. As a point of reference, in 1990, the emerging markets represented approximately 25% of global GDP, whereas today they are now over 40%, and growing.



Table of Contents

Our positive investment performance over the past number of years can be partially attributed to this dramatic rise in the contribution to global GDP from emerging market countries. We have a substantial portion of our equity capital invested in Australia, Brazil and Canada. These three countries benefit from the strong economic growth in the developing world. They are all major commodity producers and are enjoying record commodity prices for their outputs. Brazil in particular, as one of the BRIC countries, has seen remarkable growth in the past decade.

Overall, we own or manage over $50 billion of investments in these three countries including approximately $15 billion in Brazil. In general, these countries offer higher investment returns as many investors do not have global operations that enable them to invest in these economies and despite their name, Brazil and many of other emerging countries have “fully arrived” and are in fact now less risky than some of their “more developed” country counterparts.

This growth and resulting diversification of the world’s economy has also had a related benefit of raising the per capita GDP for many of the world’s population. This has caused a great expansion in market size for goods and services previously only purchased by the more developed world. The opportunities that this new global environment presents for the world at large and to companies such as ours are tremendous as more people become economic participants in the global economy.

Overall Investment Performance

Our share price was off 16% in 2011, compared to flat performance from the S&P 500 index. The economic turmoil in the global financial markets, our issuance of shares early in the year, and the strong performance by our shares in the two preceding years were all likely part of the reasons for this performance.

More importantly, the past five years bring to mind other periods of relatively flat performance for our shares, when substantial value was being built within our business as we expanded, but not recognized in the share price until the value creation became more visible. We believe this is occurring today and at some point will be recognized in the share price.

Long-Term Compound Return





      S&P 500       




    24%     13%     5%


    1%     2%     5%


    20%     1%     5%


    16%     9%     7%

Our 10-year and 20-year compound returns of 20% and 16%, respectively, compare favourably to most other investments, and we see no reason why we should not be able to continue to compound our long-term returns at these attractive levels in the future.

Furthermore, our two flagship spin-off entities, Brookfield Infrastructure Partners and Brookfield Renewable Energy Partners, achieved returns well in excess of 20% over the past three years by building portfolios of long duration assets with strong cash flows. Notwithstanding this performance, we see significant upside for both of these entities going forward.



Table of Contents

Summary of 2011

We had an excellent year building intrinsic value within the company. On behalf of you and our clients we own one of the highest quality global income property portfolios, among the largest independent hydro power companies, and one of the most diversified global infrastructure businesses. In each of these operations we achieved a number of milestones which included operational improvements, strategic repositionings, expansions and acquisitions. The most meaningful highlights follow:


With over 300 million square feet of property assets, this is our largest business. We are focused on premier office and retail properties, but also own a number of other income properties. Highlights of the year include the successful leasing of 11 million square feet of office space with a 10% uplift to former rental rates achieved, and leasing of 5 million square feet of retail space.

We sold $1.8 billion of properties, recycling this capital into new, higher return acquisitions, including a two million square foot office property in midtown Manhattan, two office properties in Australia and an office property in each of Denver and Washington, D.C. Across our property portfolio, we refinanced $8 billion of loans to extend maturity and fix interest rates at attractive levels.

We focused our U.S. shopping mall portfolio by separating our large regional malls from a portfolio of smaller, neighbourhood malls. We also increased our interest in our Brazilian shopping mall portfolio, and doubled our effective investment in our U.S. malls through stock market purchases.

Our property portfolio also includes a number of development assets that have yet to generate cash, but will do so in the near future, such as our signature 1.3 million square foot office project in Perth, where the first tower will open in June 2012. Our opportunistic real estate funds acquired control of various portfolios of office, multi-family and hotel properties.

As a result of our global investment in real estate, we were recently able to acquire a $1 billion portfolio of defaulted property loans in New Zealand from a European bank. We also acquired a defaulted loan backed by 40% of an Australian public company which owns a prime office development site in Sydney.

Renewable Power

This business encompasses 178 power facilities which include 172 hydro facilities and six wind farms. The portfolio generates 16.8 terawatt hours of electricity, producing close to $1 billion of net operating income annually.

Major initiatives within our renewable power operations included the completion of four construction projects for $700 million which have or shortly will bring on 280 megawatts of capacity. We received the necessary permits to construct a $200 million hydro project in western Canada, and we acquired a number of early stage wind developments and one 30 megawatt hydro plant in Brazil for R$300 million. We completed close to $1 billion of financings in our renewable power group, extending term and fixing rates.

We have offset the significant pressure on power rates that is being driven by low natural gas prices by continuing to emphasize the superior benefits of our energy compared to other forms of power because of its renewable nature.



Table of Contents

The merger of our wholly-owned power assets with those within our former income fund to form Brookfield Energy Renewable Partners was well received, with strong unitholder support and positive performance of the shares since announcement. We are very excited about the future growth we expect to achieve with this global entity.


We own a globally diverse group of real return infrastructure assets totalling $18 billion, including transmission lines, gas pipelines, sea ports, roads, rail lines, timber, toll roads and other types of infrastructure. These businesses are experiencing strong organic growth, and given that government balance sheets around the world are strained, we believe we will have excellent opportunities to expand our asset base in the years ahead.

One highlight of our activity in 2011 was the signing of take-or-pay contracts for the expansion of our rail lines in Western Australia. These contracts secure a A$600 million railway expansion project which should result in exceptional returns over the next few years from these operations.

In Australia, we also secured the lands required to expand our coal terminal’s annual capacity from 85 million to close to 160 million tonnes, which will make it the largest facility in the world. Contract negotiations are taking place with a number of global mining companies to support a construction start in 2013 on this $5 billion project.

We acquired a 54% interest in a 33-kilometre portion of the ring-road around Santiago, the capital city of Chile, for a total value of approximately $760 million which positions us well for future growth in this business. We also purchased an electrical distribution network in Colombia for $440 million, our first acquisition in our Colombia Fund, and began construction on our $750 million electricity transmission project in Texas.

We continue to expand our northern UK port to accommodate container traffic growth, which has continued to capture increased shipments due to its location, despite the European economic slowdown.

Our flagship private infrastructure fund is now close to 50% committed. Based on our initial returns and the positive environment for putting the balance of the capital to work, we expect strong performance from this fund.

Private Equity

Our private equity business encompasses approximately $8 billion of invested capital in opportunistic investments largely related to our operating businesses, and in businesses where we have operating experience. This business today is conducted mainly through various private equity and special situation funds.

Over the past year, we sold most of our Australian residential operations, merged our U.S. and Canadian housing units into a new public company and continued to expand our Brazilian housing businesses. We completed a $500 million bond offering in one of our Special Situations Fund II investments and distributed the proceeds to our Fund investors, while continuing to own 100% of the company.



Table of Contents

New initiatives in our private equity business included a $125 million loan to an infrastructure manufacturer, and we completed a number of operational and recapitalization initiatives within our existing companies. We continued to put our capital into counter-cyclical investments related to the “out of favour” U.S. natural gas and residential housing sectors, both of which we believe have, or are close to bottoming.

Earnings Capacity and Dividends

We have approximately $26 billion of shareholder equity capital, which over time should earn an all-in compound return close to 15%. After costs and allowances for margin of error, we believe that we can compound our equity at 12% over the longer term. This enables us to earn for shareholders approximately $3 billion annually or about $4.60 per share, which will continue to grow over time as a result of compounding.

Of the $3 billion, about $1.25 billion is cash flow generated from the assets. The balance of $1.75 billion represents the intrinsic value that builds within the assets over time and is recognized as cash when we monetize assets either through sale, refinancing or other forms of monetization such as taking a company public and reducing our interests. In addition, some of this wealth creation is recognized each year through our income statement or equity statement, as value is recognized under IFRS accounting, or otherwise marked to market. For example, in 2011, we generated a 14% return or $5.33 per share, approximately 28% from cash flows received and 72% from asset appreciation.

We use a portion of the value created annually to distribute dividends to you. This year we are increasing our annual dividend by four cents per share, bringing the dividend to 14 cents per quarter or 56 cents on an annualized basis. This increase reflects the resumption of our policy from years ago of increasing the distributions over time by an amount that corresponds to the growth in cash flow generated from the business, while ensuring we retain sufficient capital to build our equity base, and maintain strong investment grade ratings.

We have the capacity to pay larger dividends over time, although generally we believe that re-investment back into our four major businesses is more accretive to long-term shareholder returns than payment of substantially higher dividends.

We currently distribute about $350 million annually to you as shareholder dividends and believe this proportion is appropriate for a long-term business such as ours, where growth relies on having capital available to capitalize on opportunities as they arise, and especially when others do not have the same access to funding. Our acquisitions in 2009 – 2010 of General Growth Properties and Babcock & Brown Infrastructure, and recent purchases of defaulted loan portfolios and other assets from European corporations, illustrate why having strength to act when others cannot, generally leads to exceptional returns.

Global Interest Rates and Real Asset Returns

We have been living through the lowest interest rates experienced in living memory. This has allowed governments, corporations and individuals to slowly work through debt issues that would otherwise have resulted in a broader and more extensive financial correction. The resultant low level of interest rates should continue for a number of years, but eventually this presents one of the greatest investment risks for global investors.



Table of Contents

In short, the risk reflects the fact that when interest rates increase in the future, all assets which are long-tailed in nature will have their perceived values adjusted downward. However, our portfolio is different. Because of the real return nature of the assets we own, within a relatively short period of time, our portfolio will earn back the adjustments as the rate of growth in the underlying cash flows increases due to economic expansion and the inflationary pressures that will give rise to the increase in interest rates.

As a result, we believe real assets will protect against long-term interest rate increases, and will outperform asset classes such as government bonds. Real assets generate cash on an annual basis, and the cash flow from premium assets generally increases over time so that the capitalized value of this cash flow stream becomes even greater. This real return protection is particularly valuable in periods of sustained inflation.

Furthermore, we believe that the capitalized values of real assets today are not reflective of the low interest rates due to the expanded risk premiums which currently exist, among other factors, and therefore the first 2% to 3% of increases in long-term interest rates will have virtually no effect on values for real assets. Nonetheless, we continue to utilize this environment to fix the long-term financing of our real assets at historically low interest rates, thus further protecting current values and enhancing real returns if interest rates rise.

The Next 10 Years

Most management teams have a high estimate of the value of the assets they are responsible for managing. This is usually because they are emotionally attached to the business, but also because they exercise control over achieving the plans. Furthermore, as they work in the business daily, they usually have access to more information and therefore understand the long-term potential of the business.

With the above proviso, we estimate that the underlying value of our business is conservatively valued today at approximately $41.00 per share, although we suspect that if assets were sold judiciously over a period of time, values in excess of this could be achieved, and after taxation would result in distributions of at least that amount. This takes into account our IFRS valuations, adjustments to businesses that are not valued under IFRS, premiums for control, and a value for our asset management business and other operations we own.

To be clear, we have no intention of liquidating the company in this fashion as we believe this would be a poor long-term decision for shareholders and would undervalue the overall franchise built up in the company. Instead, we intend to continue building the business and expect that over five to seven years, the value of the company will compound at values in the range of at least 12% per share starting with today’s intrinsic value. Compared to alternatives, we believe this offers shareholders an excellent risk-adjusted investment. The value we are creating results from increases in cash flow on our core assets, the hard work by our 23,000 operating people, and our asset management operations ultimately being valued on a multiple of cash flow traditionally accorded to these types of well-established franchises.

Lastly, and maybe most importantly, in five to 10 years we believe that our asset management operations will mature to a point that if its intrinsic value is not reflected in the share price, we will be able to separate this business from our real assets to ensure the values are surfaced. Of course, this value may be recognized in the stock market as more investors better understand our strategies, but we will always have the option to take steps to sell assets and repurchase shares, or spin-off assets to shareholders in order to surface value.



Table of Contents

Structure of our Organization

One significant step towards maximizing our business flexibility was the launch of our publicly traded flagship infrastructure and renewable power companies, over the past five years.

The first step was the listing of Brookfield Infrastructure in 2008. The second step was the merger of our power operations into our recently launched Brookfield Renewable Energy Partners, completed in 2011. The next step, expected in 2012, if we can achieve it, would be the launch of a similar flagship public entity for our property group, which is currently one of the largest diversified real estate businesses in the world. If launched, this entity would likely be created through the partial spin-off of shares of our currently 100% owned property group to our shareholders, as we did with Brookfield Infrastructure in 2008. Like our other two flagship entities, this entity would have a mandate to expand globally, be managed by us and have a strong dividend payout policy. As with the others, we would retain a very meaningful investment in this business.

And, while it is possible that our flagship property entity, like Brookfield Infrastructure, will take time to find a base of global income and growth oriented investors who wish to be our partners, we expect that its global profile and asset values will enable the company to take advantage of both scale and global diversity to enhance capital allocation decisions and therefore returns for its shareholders.

Once the full re-alignment is completed, and with our flagship private funds working in conjunction with these sector specific listed entities, we believe that we will have created a global asset manager with access to long-term capital that few will rival. This competitive advantage of structure and scale, our operating knowledge from our business platforms, and our mindset of longer term capital returns should provide us with the ability to deliver top tier returns to you, as well as our investment partners on a consistent basis.

Strategy and Goals

Our business strategy is to provide world-class alternative asset management services on a global basis, focused on real assets such as property, renewable power, infrastructure, and private equity investments. Our business model is to utilize our global reach to identify and acquire high quality assets at favourable valuations, finance them prudently, and then enhance the cash flows and values of these assets through our established operating platforms to achieve reliable attractive long-term total returns for the benefit of our shareholders and clients.

Our primary long-term goal remains achieving 12% to 15% compound annual growth in the underlying value of our business measured on a per share basis. This increase will not occur consistently each year, but we believe we can achieve this objective over the longer term by:



Operating a world-class asset management firm, offering a focused group of products on a global basis to our investment partners.



Focusing the majority of our investments on high quality, long-life, cash-generating real assets that require minimal sustaining capital expenditures and have some form of barrier to entry, and characteristics that lead to appreciation in the value of these assets over time.



Table of Contents

Differentiating our investing by utilizing our operating experience, global platform, scale and extended investment horizons to generate greater returns over the long-term for our shareholders and partners.



Maximizing the value of our operations by actively managing our assets to create operating efficiencies, lower our cost of capital and enhance cash flows. Given that our assets generally require a large initial capital investment, have relatively low variable operating costs, and can be financed on a long-term, low-risk basis, even a small increase in the top-line performance typically results in a proportionately larger contribution to the bottom line.



Actively managing our capital. Our strategy of operating our businesses as separate units provides us with opportunities from time to time to enhance value by buying or selling parts of a business. In addition to the underlying value being created in the business, this strategy allows us to re-allocate capital to new opportunities in order to achieve the optimal overall returns.


We remain committed to being a world-class 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 of the capital employed. With interest rates still low, our chosen areas of real assets continue to offer attractive options for alternative investment portfolios.

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 over the longer term.

And, while I personally sign this letter, I respectfully do so 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 discuss or share with us.



J. Bruce Flatt

Chief Executive Officer

February 17, 2012



Table of Contents



Part 1  


Part 2  

Financial Review

Part 3  

Review of Operations

Part 4  


Part 5  

Operating Capabilities, Environment and Risks




Brookfield is a global alternative asset manager with approximately $150 billion in assets under management. For more than 100 years we have owned and operated assets on behalf of shareholders and clients with a focus on property, renewable power, infrastructure and private equity.

Our business model is simple: utilize our global reach to identify and acquire high quality real assets at favourable valuations, finance them on a long-term low-risk basis, and enhance the cash flows and values of these assets through our leading operating platforms to earn reliable, attractive long-term total returns for the benefit of our clients and ourselves.

We have a range of public and private investment products and services which leverage our expertise and experience and provide us with a distinct competitive advantage in the markets where we operate.


We focus on “real assets” and businesses that form the critical backbone of economic activity, whether they provide high quality office space and retail malls in major urban markets, generate reliable clean electricity, or transport goods and resources to or from key locations.



These assets and businesses typically benefit from some form of barrier to entry, regulatory regime or other competitive advantage that provides stability in cash flows, strong operating margins and value appreciation over the longer term.

As an asset manager, we raise and manage capital for our clients that is invested in assets we own, alongside our own capital.



This generates an increasing stream of base management and performance-based income that increases the value to our business and adds further value to the company by providing us with additional capital to grow the business and compete for larger transactions.

We are active managers of capital.



We strive to add value by judiciously and opportunistically reallocating capital among our businesses to continuously increase returns.

We maintain leading operating platforms (with over 23,000 employees worldwide) in order to maximize the value and cash flows from our assets.



Our track record shows that we can add meaningful value and cash flow through “hands-on” operational expertise, through the negotiation of property leases, energy contracts or regulatory agreements, asset development, operations and other activities.



Table of Contents

We finance our operations on a long-term, investment-grade basis, with most of our operations financed on a stand-alone asset-by-asset basis with minimal recourse to other parts of the organization. We also strive to maintain excess liquidity at all times in order to be in a position to respond to opportunities.



This provides us with considerable stability and enables our management teams to focus on operations and other growth initiatives. It also enables us to weather financial cycles and provides the strength and flexibility to react to opportunities.

We prefer to invest in times of distress and in situations which are time consuming.



We believe these situations provide much more attractive valuations than competitive auctions and we have considerable experience in this specialized field.

We maintain a large pipeline of attractive development and expansion investment opportunities.



This provides us flexibility in deploying growth capital, as we can invest in both acquisitions and organic developments, depending on the relative attractiveness of returns.

Value Creation

As an asset manager, we create value for shareholders in the following ways:



We offer attractive investment opportunities to our clients that will, in turn, enable us to earn base management fees based on the amount of capital that we manage for them, and additional returns such as incentive distributions and carried interests based on our performance. Accordingly, we create value by increasing the amount of capital under management and by achieving strong investment performance that leads to increased cash flows and intrinsic value;



We also invest significant amounts of our own capital, alongside our clients in the same assets. This creates a strong alignment of interest and enables us to create value by directly participating in the cash flows generated by these assets and increases in their values, in addition to the performance returns that we earn as the manager;



Our operating capabilities enable us to increase the value of the assets within our businesses, and the cash flows they produce, through our operating expertise, development capabilities and effective financing. We believe this is one of our most important competitive advantages as an asset manager; and



Finally, as an investor and capital allocator with a value investing culture and expertise in recapitalizations and operational turnarounds, we strive to invest at attractive valuations, particularly in situations that create opportunities for superior valuation gains and cash flow returns.


This Report makes reference to Total Return, Funds From Operations (“funds from operations” or “FFO”), Net Tangible Asset Value and Intrinsic Value, all on a total and per share basis. Management uses these metrics as key measures to evaluate performance and to determine the net asset value of its businesses. These measures are not generally accepted measures under International Financial Reporting Standards (“IFRS”) and may differ from definitions used by other companies.

We do not utilize net income on its own as a key metric in assessing the performance of our business because, in our view, it does not provide a consistent or complete measure of the ongoing performance of the underlying operations. For example, net income includes fair value adjustments for our commercial office and retail properties, standing timber and financial assets, whereas fair value adjustments for our renewable power, and many assets within our infrastructure business, are included in Other Comprehensive Income. Nevertheless, we recognize that others may wish to utilize net income as a key measure and therefore provide a discussion of net income and a reconciliation to funds from operations in this section and elsewhere in our MD&A.

We provide additional information on how we determine Total Return, Funds From Operations, Net Tangible Asset Value and Intrinsic Value in the balance of this document. We provide reconciliations between Common Equity to Net Tangible Asset Value and to Intrinsic Value on page 25, as well as Total Return and Funds from Operations to Comprehensive Income on pages 34 to 35.




Table of Contents

Unless the context indicates otherwise, references in this Report to the “Corporation” refer to Brookfield Asset Management Inc., and references to “Brookfield” or “the company” refer to the Corporation and its direct and indirect subsidiaries and consolidated entities. The information in the MD&A is presented on both a consolidated and deconsolidated basis and organized by operating platform. This is consistent with how we review performance internally and, in our view, represents the most straightforward approach. The U.S. dollar is our functional and reporting currency for purposes of preparing our consolidated financial statements, given that we conduct more of our operations in that currency than any other single currency. Accordingly, all figures are presented in U.S. dollars, unless otherwise noted.

Total Return

Total Return represents the amount by which we increase the intrinsic value of our common equity and is our most important performance metric. Our objective is to earn in excess of a 12% annualized total return on the intrinsic value of our common equity, when measured over the long term, which we define as a period of not less than five years. We believe that our businesses can achieve this rate of growth without taking on undue risk, and that compounding capital at this rate for a very long time, and protecting it against loss, will create tremendous wealth.

We define Total Return to include funds from operations plus the increase or decrease in the value of our assets over a period of time. We believe that our performance is best assessed by considering these two components in aggregate, and over the long term, because that is the basis on which we make investment decisions and operate the business. In fact, if we were solely focused on short-term financial results it is quite likely that we would operate the business very differently and, in our opinion, in a manner that would produce lower long-term returns.

Funds From Operations represent the cash flow generated on an ongoing “normal course” basis. This measure is often used to assess the value and performance of the mature assets within several of our larger asset classes, most notably our commercial office and retail operations and our renewable power and infrastructure businesses, which benefit from steady recurring cash flows. However, funds from operations is a less effective measure for assessing the performance of our businesses that are more opportunistic in nature, or our development activities and repositioning initiatives, due to the inherent volatility, or even absence, of operating cash flows. Furthermore, the majority of our capital is invested in assets that have been demonstrated to increase in value over time, due to the impact of the expected growth in the real return and contracted cash flows on their compounded value, and therefore the “current” FFO yield typically understates the long-term returns for many of our assets.

Accordingly, we believe that while FFO is a relevant metric, a complete assessment of our performance must include changes in the values of our capital, and not just the annual FFO. These valuation gains reflect our ability to invest and allocate capital wisely, take advantage of pricing anomalies and opportunities to acquire assets at less than their long-term values, and use our operating skills to enhance value for the long term.

Intrinsic Value

Our intrinsic value has two main components:



The net tangible asset value of our equity. This is based on the appraised value of our net tangible assets as reported in our audited financial statements, with adjustments to eliminate deferred income taxes and revalue the assets which are not otherwise carried at fair value in our financial statements. We refer to this as Net Tangible Asset Value and use this basis of presentation throughout the MD&A; and



The value of our asset management franchise. Asset management franchises are typically valued using multiples of fees or assets under management. We have provided an assessment of this value, based on our current capital under management, associated fees and potential growth. We refer to this as Asset Management Franchise Value.



Table of Contents

The total of these two components is what we refer to as our Intrinsic Value.

The foregoing does not include our overall business franchise, which to us represents our ability to maximize values based on our extensive operating platforms and global presence, our execution capabilities, and relationships which have been established over decades. This value has not been quantified and is not reflected in our calculation of Intrinsic Value but may be the most valuable part of our business.

We provide additional information on how we determine Total Return, Funds From Operations, Intrinsic Value and Net Tangible Asset Value in the balance of this document. We provide a reconciliation from Total Return and Funds from Operations to Consolidated Financial Statements on pages 34 and 35.


We recorded strong financial and operational performance during 2011, and remain well positioned for future growth. We expect to increase the cash we generate and the value of our assets through both organic expansion and new initiatives, using our strong balance sheet and operational expertise. The following list summarizes our more important achievements during the year:



We generated Total Return for Brookfield shareholders of $3.3 billion (or $5.33 per share), representing a 14% return, compared to $2.1 billion or 10% in the prior year.

Improved performance and economic conditions in most of our operations contributed to this favourable result. Valuation gains contributed $2.4 billion compared to $ 1.0 billion in the prior year, while funds from operations were relatively unchanged at $1.0 billion.



Net income on a consolidated basis totalled $3.7 billion, of which $2.0 billion (or $2.89 per share) accrued to Brookfield shareholders and represented an important component of Total Return.

This result compares favourably to the $3.2 billion of consolidated net income recorded in 2010, of which $1.5 billion ($2.33 per fully diluted share) accrued to Brookfield shareholders. Comprehensive income, which includes valuation adjustments to our power generation and infrastructure assets in addition to net income, increased to $4.6 billion from $3.4 billion, of which $2.8 billion accrued to Brookfield shareholders (2010 – $1.2 billion).



Funds from operations totalled $2.4 billion on a consolidated basis, of which $1.1 billion ($1.51 per share) accrued to Brookfield shareholders.

We achieved improved results across our major business platforms. Investments in certain cyclical businesses that are tied to long-term growth remain below historic levels due to economic weakness, but are expected to outperform over the long term. Our strategy of building global operating units continues to generate strong risk-adjusted returns. Our commercial office business achieved record leasing volumes, our retail unit acquired in 2010 has successfully emerged from its restructuring, our hydro power unit now ranks among the world’s largest public renewable power companies and our infrastructure business is well positioned as a global leader, with a number of growth opportunities.



We continued to expand our asset management franchise with both listed and private entities.

We launched a listed global renewable power business that ranks as one of the world’s leading hydro power companies and are advancing capital campaigns for eight private funds with a goal of obtaining further third party commitments of approximately $5 billion.



We raised $27 billion of capital in 2011 through asset sales, equity issuance, fund formation and debt financings.

Low interest rates, receptive credit markets and strong investor interest in our income-generating, high quality assets continued to support our capital raising and refinancing initiatives. Our financing activities enhanced our liquidity, refinanced near-term maturities, lowered our cost of capital and extended terms, and funded new investment initiatives. Core liquidity was $3.9 billion at December 31, 2011.




Table of Contents

Our operating teams delivered strong organic growth that increased the value and cash flows of our assets.

We leased a record 11 million square feet of commercial office properties, with new rental rates that were on average 10% higher than expiring rents. We recycled capital in our property business by reinvesting $0.6 billion in the acquisition of six office buildings and additional interest in the U.S. Office Fund. We completed construction on four power facilities for close to $1 billion, adding 280 megawatts of power to a portfolio that now generates energy valued at approximately $1 billion annually.

Our Australian railway began a $600 million expansion that is expected to be completed by 2014, underpinned by take-or-pay contracts with major resource companies. Our Brazilian residential property businesses completed a record R$3.9 billion of launches and R$4.4 billion of contracted sales, reflecting demand for housing from an increasingly affluent population. Our U.S. retail business, focused on high quality destination shopping centres, is benefitting from continued sales growth and improving terms on leases, after spinning out a portfolio of 30 smaller, neighbourhood malls as a new listed entity, which we assisted in forming.

We expanded our real estate services and global relocation businesses through an acquisition that made both among the largest companies, respectively, in their sectors. Our private equity business has approximately $8 billion invested in promising opportunities, including investments in residential homebuilding, lumber and natural gas, all out of favour sectors which we think will each turn in the foreseeable future.



We are working on a number of attractive growth opportunities, including entry into new sectors and regions and the launch of new projects.

We acquired part of the toll road that circles Santiago, Chile, and made our first investment in our Colombia Fund by purchasing an electrical distribution network for $440 million. Australian regulators approved plans to double the size of our coal terminal, already among the largest in the world, and we are now doing a feasibility study on its expansion. We have begun construction on our Texas electricity transmission system, a $750 million project launched two years ago, and expect to complete the network in 2013.

We are moving forward with four new hydro and wind projects in North America and a number of renewable power developments in Brazil that are expected to add 195 megawatts of installed capacity to our operations and cost a total of $650 million. Commercial office development activities are focused on five projects in North America, Australia and the UK that comprise approximately nine million square feet, with a total value once constructed of approximately $7 billion. We launched three new international funds and platforms, two in India and one in Dubai with proven local partners.



We are executing our strategy of having flagship public entities in each of our major areas of operational expertise.

The successful launch of our listed global renewable energy partnership and solid performance from our public infrastructure business since it was created in 2008 show there is strong investor support for high quality public entities that deliver growth and attractive cash distributions. The next step in our plan would be the launch of a flagship public real estate partnership this year that would hold all our property assets, and rank among the largest and most diversified real estate businesses, with favourable access to capital. We would maintain a meaningful ownership interest in this entity, which would have a global growth strategy, a market capitalization of approximately $10 billion and a high dividend payout policy, and be listed on the New York and Toronto Stock Exchanges. This initiative should enhance our asset management franchise, and create value for both Brookfield and unitholders in the partnership.



We increased our dividend by 8%.

This increase reflects the resumption of our policy of increasing the distributions over time by an amount that corresponds to the growth in cash flow generated from the business, while ensuring we retain additional capital to reinvest in our business.



Table of Contents



The following table summarizes our annual operating performance and the components of total return:

Total Return






          Renewable            Private            Total3      Total3   
   Services1      Property2      Power      Infrastructure      Equity      Corporate      2011      2010   

Total revenues

   $     3,333       $ 2,760       $     1,140       $     1,690       $   6,770       $  228       $   15,921       $   13,623    

Funds from operations


Net operating income4

     402         2,118         778         949         625         –         4,872         4,017    

Investment and other income

     –         76         –         16         58         126         276         441    
























     402         2,194         778         965         683         126         5,148         4,458    

Interest expense

     –         (1,014)        (394)        (340)        (237)        (345)        (2,330)        (1,810)   

Operating costs

     –         (82)        –         (49)        –         (350)        (481)        (417)   

Current income taxes

     –         (10)        (13)        (4)        (45)        (10)        (82)        (94)   

Non-controlling interests

     –         (530)        (158)        (378)        (137)        –         (1,203)        (1,031)   

























Total funds from operations

     402         558         213         194         264         (579)        1,052         1,106    

Valuation gains


Included in IFRS statements5


Fair value changes

     –         3,010         1,719         665         (65)        (159)        5,170         1,020    

Depreciation and amortization

     (34)        (33)        (455)        (147)        (227)        (8)        (904)        (795)   

Other items

     –         (109)        –         –         (22)        (28)        (159)        (44)   

Non-controlling interests

     –         (923)        (423)        (247)        122         –         (1,471)        (773)   

Not included in IFRS statements


Incremental values

     100         (300)        (300)        125         75         (100)        (400)        1,200    

Asset management franchise value

     –         –         –         –         –         250         250         500    

Other gains

     –         (13)        (13)        –         (61)        –         (87)        (85)   

























Total valuation gains

     66         1,632         528         396         (178)        (45)        2,399         1,023    

























Preferred share dividends

     –         –         –         –         –         (106)        (106)        (75)   

























Total Return

   $ 468       $ 2,190        $ 741       $ 590       $   86       $ (730)      $   3,345       $   2,054    

























– Per share

               $   5.33       $   3.23    









Excludes net unrealized performance fees which are included in incremental values


Disaggregation of property segment into office, retail and other is presented on page 42


Reconciled to IFRS financial statements on page 34 and 35


Includes funds from operations from equity accounted investments


Includes items in consolidated statements of operations, comprehensive income and changes in equity

Funds from Operations and Realized Gains

The following table presents funds from operations, as well as the accumulated valuation gains realized during the year on major dispositions. Gains included in this metric are discussed further on page 20.




   Total      Net      Per Share  
   2011       2010       2011       2010       2011       2010   

Funds from operations (see table above)

   $     2,355        $     2,196        $     1,052        $     1,106        $     1.51        $     1.76    

Realized gains

     318          424          159          357          0.25          0.61    



















Funds from operations and realized gains

   $   2,673        $   2,620        $   1,211        $   1,463        $   1.76        $   2.37    






















Table of Contents

Review of Total Return

The table below presents our total return on a segmented basis, which facilitates the following summarized review of our operating results:


      2011      2010  



   Funds from       Valuation       Total       Funds from       Valuation       Total   
   Operations       Gains       Return       Operations       Gains       Return   

Asset management services

   $         402        $         66        $         468        $         348         $         409        $         757    


     558          1,632          2,190          421          838          1,259    

Renewable power

     213          528          741          257          (964)         (707)   


     194          396          590          130          152          282    

Private equity

     264          (178)         86          277          92          369    

Investment and other income

     126          (295)         (169)         311          (4)         307    


















     1,757          2,149          3,906          1,744          523          2,267    

Interest and operating costs1

     (705)         —          (705)         (638)         —          (638)   


















     1,052          2,149          3,201          1,106          523          1,629    

Asset management franchise value

     —          250          250          —          500          500    

Preferred share dividends

     (106)         —          (106)         (75)         —          (75)   


















   $ 946         $         2,399        $         3,345        $     1,031        $         1,023        $     2,054    



















– Per share

   $ 1.51        $         3.82        $         5.33        $         1.76        $         1.47        $         3.23    





















Not allocated to specific activities

We recognized a total return during the year of $3.3 billion compared to $2.1 billion in the prior year, reflecting annual total returns of 14% and 10%, respectively, on average intrinsic value during each year.

Funds from operations were $1.1 billion prior to preferred share dividends, representing a slight decrease from the prior year. Our operations performed well in almost all areas, although we did record a lower level of investment gains.

Valuation gains totalled $2.4 billion, a substantial increase over the $1.0 billion recorded in 2010. Improved business fundamentals, increases in contractual cash flows and lower discount rates gave rise to increased valuations, particularly in our property and power operations.

Asset Management Services: Our asset management and other services contributed a total return of $468 million compared to $757 million in 2010. The prior year included a higher level of valuation gains related to accumulated carried interests. Funds from operations increased by 16% to $402 million.

Asset management revenues totalled $252 million compared to $228 million in 2010. Base management fees increased by $23 million to $190 million, and are tracking at approximately $200 million on an annualized basis. The largest contributor to this growth was the expansion of our listed and unlisted infrastructure funds. Investment banking and transaction fees increased to $58 million from $36 million representing favourable outcomes and an increased number of mandates.

Accumulated performance returns and carried interests that have not been recorded in our financial statements increased by $119 million during the year. This increase is taken into account in the determination of the $66 million of valuation gains from these activities. The total amount of accumulated performance returns and carried interest to date now stands at $379 million, prior to associated accrued expenses of $51 million. During the year we recorded $4 million of performance income compared to $25 million in 2010.

We increased the valuation of our asset management franchise by $250 million, or 6%, to reflect the continued growth in our fee base, investment performance and progress in launching new funds.

Construction and property services provided a net contribution after direct expenses of $150 million, compared to $120 million, representing growth in both operations. The construction margin for the year was 9.3% compared to 9.0% in 2010. Our construction work in hand totals $5.4 billion of projected contracted revenues for projects to be completed over the next three years compared to $4.3 billion at the beginning of the year. We concluded an important acquisition just prior to year end to meaningfully expand our relocation and brokerage services operations.



Table of Contents

Property: Our property segment includes our office and retail operations as well as our opportunistic investments, real estate finance and commercial property development activities, as set forth in the following table:


     2011      2010  



   Funds from       Valuation       Total       Funds from       Valuation       Total   
   Operations       Gains       Return       Operations       Gains       Return   

Office properties

   $ 255        $ 818        $ 1,073        $ 311        $ 423        $ 734    

Retail properties

     239          816          1,055          (1)         461          460    

Office development, opportunity, and finance

     64          (2)         62          111          (46)         65    


















   $ 558        $ 1,632        $     2,190        $ 421        $ 838        $     1,259    



















Office Properties: Total return from our office property business was $1,073 million, which consists of $255 million in funds from operations and $818 million in valuation gains for the year. This compares to $734 million of total return in 2010, which consists of $311 million in funds from operations and $423 million in valuation gains for 2010.

The reduction in funds from operations reflects the reduced interest in our Australian operations following their merger into our 50% owned office property subsidiary, as well as lower occupancy levels in our U.S. operations throughout much of the year, consistent with our expectations. We made considerable progress towards increasing occupancy levels with a record year of leasing, signing approximately 11 million square feet of leases. These included 7.2 million square feet of leasing renewals and 3.8 million square feet of new leasing, which led to a reduction in our 2012-2016 lease rollover exposure by 550 basis points. The new lease rates were on average 10% higher than the expiring rents, increasing our in-place rents to $28.57 per square foot and setting the stage for future growth in funds from operations.

We finished the year with overall occupancy of 93.3% compared to 94.8% at the beginning of 2011 and our goal is to be 95% leased by the end of 2012. The in-year decrease was due in part to several large leases expiring at the beginning of the year, as well as our strategy of selling well leased stabilized properties at favourable prices and reinvesting the proceeds in underleased properties where we can add value through our operating capabilities to achieve better long-term returns.

The improved growth profile and lower discount rates resulted in increased property appraisals in all of our major regions. Our share of valuation gains totalled $818 million. This comes on top of $423 million of gains in 2010. We sold three core properties during 2011 and crystallized $159 million of valuation gains.

Retail Properties: Total return from retail properties was $1,055 million, including $239 million of funds from operations and $816 million of valuation gains. We completed the financial reorganization of General Growth Properties (or “GGP”) in late 2010 and began recording our proportionate share of their operating results at the beginning of 2011. Our share of GGP’s funds from operations based on their IFRS results was $213 million. Tenant sales at GGP were $505 per square foot on a trailing 12-month basis as of the end of 2011, representing a 7.9% increase over the 2010 result on a comparable basis, and we have experienced eight consecutive quarters of increased sales. Our overall mall portfolio was 94.6% leased, an increase of 110 basis points during the year, and initial rents on leases executed during 2011 averaged $65.67 per square foot, up 8.3% or $5.04 per square foot over the comparable expiring leases.

As this is our first full year of ownership we do not report comparable results for 2010; however, GGP’s core net operating income increased 2.4% year-over-year and 7.0% in the fourth quarter illustrating the positive momentum within the business. The improved operating results, high quality of the malls, and lower discount rates gave rise to valuation gains of $0.7 billion, of which approximately 50% was due to improved cash flows and 50% to lower discount rates.

Our retail operations in Brazil contributed $14 million to funds from operations, despite much of our sales growth being offset by increased interest and development costs. We completed the sale of three properties during the year and our share of valuation gains for the portfolio, including the dispositions, was $70 million.

Opportunistic, Finance and Development Activities: We recorded $64 million of funds from operations from these activities compared to $111 million in 2010, which included $58 million of disposition gains compared to $19 million in the current year.




Table of Contents

We completed several acquisitions of property assets within our opportunity strategies through direct acquisitions as well as the purchase of distressed loan portfolios, which we believe will result in very attractive outcomes. Total investment was $2.7 billion on behalf of ourselves and our clients, and our share was $1.0 billion.

We are near completion of our 926,000 square foot City Square office project in Perth, and are pursuing major developments in New York City and London. In total, we are focused on five development projects totalling approximately nine million square feet that could add more than $7.2 billion in assets.

Renewable Power: Funds from operations totalled $213 million in the current year, and were 17% lower than the $257 million produced in 2010 due in large part to our reduced ownership level during the year. We sold a partial interest in our Canadian power fund and a development project in 2010, recognizing disposition gains of $291 million and generating cash proceeds of $341 million.

We recorded $528 million of valuation gains, which are due primarily to improvements in expected long-term prices. In the previous year, the positive impact of lower discount rates was more than offset by a reduction in expected future cash flows due to a decline in short-term electricity prices, particularly in the U.S. northeast, giving rise to an overall valuation loss of $1.0 billion.

Hydroelectric generation levels were 8% higher year-over-year, although still 4% below long-term averages. We estimate that FFO would have been approximately $25 million higher had we achieved long-term average wind and hydroelectric generation. Net operating income declined by 13% on a per megawatt basis relative to 2010 due to lower spot prices, an increase in the proportion of power generated in lower cost markets, offset in part by a 5% increase in the average Brazilian exchange rate during the year.

We ended 2011 with 83% of our expected generation for 2012 contracted at pre-determined prices, compared to 93% at the beginning of the year. We have elected to lock in less of our short-term power revenues with financial contracts as we believe we can benefit from higher electricity prices as markets improve. We have a number of attractive growth opportunities which we believe will lead to cash flow growth in 2012 and future years. These include five hydroelectric and wind facilities currently under development. We also have a further development pipeline of 2,000 megawatts of installed capacity and are also actively pursuing a number of small and large acquisition opportunities.

Infrastructure: We recorded total return of $590 million, compared to $282 million in 2010. Funds from operations increased by nearly 50% to $194 million in the current year as a result of our increased ownership in a number of our operations at the end of 2010 as well as strong operational growth within most of the business units.

The operational growth reflects the impact of capital expansion projects in our transmission, ports and rail operations as well as favourable regulatory rate reviews and contract extensions. Collectively, our share of the FFO from our transmission, transport and energy operations increased by $35 million. Higher volumes and pricing led to a $29 million increase in FFO from our timber operations, driven largely by strong demand from Asian markets.

A large contributor to the valuation gains of $396 million was the increase in value of our Western Australian rail operations resulting from the procurement of the necessary contracts and approvals to commence a $600 million expansion. We also benefitted from improved valuations of our timber operations and utility businesses.

We recently completed acquisitions of interests in a toll road in Santiago, Chile and an electrical distribution business in Colombia.

Private Equity: This segment includes our special situations, residential and agricultural development operations. Funds from operations for 2011 totalled $264 million compared to $277 million in 2010. The results reflect a similar level of disposition gains in each year, as well as improving operating results.

The profile of our residential development businesses was mixed, with Brazil experiencing very strong growth, our Canadian operations continuing to produce solid results, while our U.S. operations continued to face a slow market, but at least we believe we are now coming off the bottom. The overall contribution to funds from operations from these businesses totalled $78 million compared with $100 million in 2010.



Table of Contents

Our Brazilian operations continue to perform very strongly, with an increase in contracted sales of 21% to R$4.4 billion; however, reported results do not reflect this as profits are not booked until projects are completed. We estimated that our share of the results would have been $60 million higher if reported on a percentage-of-completion basis consistent with U.S. GAAP and Brazilian industry standards. North American results declined due to a lower level of closings in the U.S. and some Canadian closings slipping into 2012. We closed 528 homes and 912 lots in North America during 2011, compared to 1,295 homes and 2,301 lots, respectively, during 2010.

Our backlog of undelivered homes in North America increased to 659 at year-end with a sales value of $264 million, compared to 377 homes with a value of $ 151 million at the same time last year which provides a better outlook for 2012.

Other Items: Investment and other income declined as the more steady contribution from dividends and interest was offset by approximately $62 million of market value adjustments on financial assets investments. We benefitted from $177 million of positive market value adjustments in 2010.

Unallocated interest expense increased to $345 million from $313 million in 2010, reflecting higher borrowing levels in respect of our larger asset base. The increase in operating costs from $304 million to $350 million reflects the continued expansion of our asset management operations, and a higher level of transaction costs arising from several major initiatives undertaken during the year.

Approximately 45% of our funds from operations is denominated in non-U.S. currencies. Average exchange rates were 6% higher over the course of 2011 compared to 2010, based on the currency profile of our operations, and this had an aggregate favourable impact of $27 million on our funds from operations relative to 2010 exchange rates.

Realized Gains: We separately report gains on the disposition of assets that we typically otherwise hold for extended periods of time. These gains represent the realization of valuation gains that have been recorded through net income or equity, but not previously included in funds from operations. As such, they represent a crystallization of the accrued gains and we feel it is helpful to include these as part of our overall funds from operations and realized gains measures, which is consistent with how we previously reported operating cash flow.

Funds from operations does include gains that occur as a normal part of our business such as gains within our private equity businesses and opportunistic property investments, as well as other non-core assets that we acquire and sell from time to time. We identify and discuss these items within the relevant operating segment reviews.

The following table shows the major disposition gains which occurred during the years ended December 31, 2011, and 2010, and which are not included in funds from operations:




   Operating Platform    Total      Net  
        2011       2010       2011       2010   

Core office property dispositions

   Property    $ 318        $ 57        $ 159        $ 28    

Brookfield Office Properties Canada equity sale

   Property      —          76          —          38    

Brookfield Renewable Power Fund equity sale

   Power      —          212          —          212    

Partial sale of wind energy project

   Power      —          79          —          79    












      $     318        $     424        $     159        $     357    
















Table of Contents


The following table summarizes by principal operating segment the assets that we manage for ourselves and our clients along with the components of our invested capital:


Managem Managem Managem Managem Managem Managem Managem
AS AT DECEMBER 31         Renewable           Private     Asset
    Total     Total  
(MILLIONS, EXCEPT PER SHARE AMOUNTS)   Property     Power     Infrastructure     Equity     Corporate     2011     2010  

Assets under management

  $     82,579       $ 17,758       $ 19,258       $ 25,343       $ 6,782       $ 151,720       $ 121,558    






















Operating assets

    37,839         15,567         11,807         8,945         2,039         76,197         62,910    

Accounts receivable and other

    2,302         1,047         1,725         4,090         3,551         12,715         13,437    






















Consolidated assets1

    40,141         16,614         13,532         13,035         5,590         88,912         76,347    

Corporate borrowings

    —         —         —         —         3,701         3,701         2,905    

Property-specific borrowings

    15,696         4,197         4,802         3,174         546         28,415         23,454    

Subsidiary borrowings

    743         1,323         114         1,273         988         4,441         4,007    

Capital securities

    994         —         —         —         656         1,650         1,707    

Accounts payable and other

    1,827         913         1,947         3,333         2,698         10,718         11,304    





















    20,881         10,181         6,669         5,255         (2,999)        39,987         32,970    

Non-controlling interests

    9,797         2,504         4,319         2,125         104         18,849         16,301    

Preferred equity

    —         —         —         —         2,140         2,140         1,658    





















    11,084         7,677         2,350         3,130         (5,243)        18,998         15,011    

Incremental values

    25         300         250         1,400         875         2,850         3,250    






















Net tangible asset value1

    11,109         7,977         2,600         4,530         (4,368)        21,848         18,261    

Asset management franchise value

    —         —         —         —         4,250         4,250         4,000    






















Intrinsic value

  $ 11,109       $ 7,977       $ 2,600       $ 4,530       $ (118)      $ 26,098       $ 22,261    






















– Per share

            $ 40.99       $ 37.45    









Excludes deferred income taxes

The following table summarizes change in the intrinsic value of our common equity during 2011:


YEAR ENDED DECEMBER 31           Renewable             Private      Asset
Services and
(MILLIONS, EXCEPT PER SHARE  AMOUNTS)    Property      Power      Infrastructure      Equity      Corporate      Total      Per Share  

Total return

   $ 2,190        $ 741        $ 590        $ 86        $ (262)       $ 3,345        $ 5.33    

Foreign currency revaluation

     (137)         (224)         (37)         (52)         (52)         (502)         (0.86)   

Class A shares issued, net of repurchases

     —          —          —          —          1,313          1,313          (0.41)   

Capital invested (returned)

     1,504          (32)         142          (225)         (1,708)         (319)         (0.52)   






















Change in intrinsic value

     3,557          485          695          (191)         (709)         3,837          3.54    

Intrinsic value – beginning of year

     7,552          7,492          1,905          4,721          591          22,261          37.45    






















Intrinsic value – end of year

   $ 11,109        $ 7,977        $ 2,600        $ 4,530        $ (118)       $ 26,098        $ 40.99    






















The largest contributor to equity growth in both 2011 and 2010 was our total return. We issued 45.1 million Class A Limited Voting Shares at an average price of $32.53 per share, or $1.5 billion in total, in connection with our acquisition of an additional stake in General Growth Properties. We repurchased 6.1 million Class A Limited Voting Shares at an average price of $30.27 per share, or $186 million in total, for net issuance of $1.3 billion. We also returned $319 million (2010 – $298 million) to shareholders in the form of dividends on our common equity.

The impact of lower exchange rates for the Australian, Brazilian and Canadian currencies against the U.S. dollar reduced net invested capital by $502 million during 2011, representing a 4% decrease in our natural (i.e., unhedged) foreign currency positions.



Table of Contents

This retraces a $351 million increase in the prior year. We estimate that we have recovered all of this reduction at the date of this report as the exchange rates have strengthened since year end.

The following table reconciles common equity in our IFRS financial statements to net tangible asset value for the years ended December 31, 2011 and 2010:



   Property      Renewable
     Infrastructure      Private

Common equity per IFRS

   $ 10,943       $ 5,109       $ 2,169       $ 2,954       $ (4,424   $ 16,751       $ 12,795   

Add back: deferred income taxes

     141         2,568         181         176         (819     2,247         2,216   

Incremental values

     25         300         250         1,400         875        2,850         3,250   

Net tangible asset value

   $ 11,109       $ 7,977       $ 2,600       $ 4,530       $ (4,368   $ 21,848       $ 18,261   

Assets and Invested Capital

Our capital continues to be invested primarily in (i) commercial office properties located predominantly in central business districts of major international centres, and well-located, high quality retail properties, (ii) renewable hydroelectric power plants in North America and Brazil; and (iii) a global portfolio of regulated or contracted infrastructure assets.

The following table presents Assets Under Management (“AUM”), Consolidated Assets and Invested Capital at the end of 2011 and 2010 for comparative purposes. Invested Capital represents the capital that we have invested in our various activities on a deconsolidated basis, consistent with the Deconsolidated Capitalization presented in the table on page 24.




   Assets Under Management1      Consolidated
     Invested Capital3  
   2011      2010      2011      2010      2011      2010  

Operating platforms





   $ 32,848        $ 31,712        $ 26,478        $ 21,214        $ 5,493        $ 4,810    


     33,160          13,249          7,444          4,680          4,625          1,931    

Opportunity, finance and development

     16,571          12,301          6,219          5,324          991          786    


















     82,579          57,262          40,141          31,218          11,109          7,527    

Renewable power

     17,758          15,835          16,614          14,584          7,977          7,492    


     19,258          16,634          13,532          13,264          2,600          1,905    

Private equity

     25,343          26,848          13,035          12,682          4,530          4,721    

Services activities

     3,326          1,930          2,946          1,930          2,274          1,800    

Cash and financial assets

     1,975          1,850          1,975          1,850          1,461          1,543    

Other assets

     1,481          1,199          669          819          669          919    

Asset management franchise value

     n/a          n/a          n/a          n/a          4,250          4,000    


















   $     151,720        $     121,558        $     88,912        $     76,347       $     34,870        $     29,907    





















Excludes incremental values, asset management franchise value and deferred tax assets


Excludes $2,118 million (2010 — $1,784 million) of deferred tax assets


Includes incremental values not otherwise included in IFRS and asset management franchise value, and excludes deferred tax balances

Assets under management increased by $30 billion to $152 billion. AUM within our retail operations increased by $20 billion, representing our proportionate interest in the assets of General Growth Properties that are working for us and our clients. The increase in opportunity property AUM reflects the expansion of our multi-residential operations. Renewable power AUM increased by $1.9 billion due to acquisitions and developments and improved valuations.

Consolidated assets, excluding deferred taxes, increased by $12.6 billion to $88.9 billion at the end of 2011. Commercial office assets increased by $5.3 billion, which includes the impact of consolidating our U.S. Office Fund following ownership changes during the year. Retail assets increased by $2.8 billion which includes our follow-on investment of $1.8 billion in GGP and the $2.0 billion increase in renewable power assets reflects acquisitions and developments within these operations as noted above. All three of these asset groups also benefitted from improved valuations.

Invested capital increased by $5.0 billion or 17% during the year to $34.9 billion. Valuation gains were responsible for a large portion of the increase. In addition, net issuances of common and preferred equity was $1.3 billion and $0.5 billion, respectively, to fund additional investments. In particular, the amount of capital invested in our retail operations increased by $2.7 billion, including $1.9 billion of incremental cash invested into this area of our operations and $0.8 billion of valuation gains.




Table of Contents

Asset Valuations

Asset valuations assume normal transaction circumstances and are discussed in more detail elsewhere in this report. Net tangible values are based for the most part on appraised values of our operating assets and to a lesser extent on observed values for financial assets. Appraisal values are impacted primarily by discount rates (and therefore the underlying risk free rate and applicable risk premium) and anticipated forward cash flows (such as net lease payments and power prices).

Our operating base consists largely of real return assets that are typically financed with non-recourse fixed rate debt. Accordingly the circumstances that give rise to changes in discount rates will typically be mitigated to varying degrees over the longer term through the impact of these same circumstances (i.e., inflation, economic growth) on our revenue streams and financings. This provides important stability and capital protection over the long term. These characteristics, however, are not always reflected in short-term valuations which provides meaningful opportunities to increase returns by reallocating capital when short-term values deviate from long-term values.

Capital Deployment

We invested $7.6 billion of capital during the year for ourselves and our clients through acquisitions and development. The major items are highlighted in the following table together with our proportionate share of the invested capital:


YEAR ENDED DECEMBER 31, 2011           Brookfield’s  
(MILLIONS)    Total      Share  


   $ 3,515        $ 3,110    

Renewable power

     875          715    


     1,305          795    

Private equity

     1,700          1,380    


     250          250    






   $     7,645        $ 6,250    








We finance our operations on an investment-grade basis. The high quality and stable profile of our asset base and the strength of our financial relationships has enabled us to continuously refinance maturities in the normal course.

Core liquidity, which represents cash and financial assets and undrawn credit facilities at the Corporation and our principal operating subsidiaries, was approximately $3.9 billion at December 31, 2011. This includes $2.4 billion at the corporate level and $1.5 billion at our principal operating units. We continue to maintain an elevated level of liquidity as we see a substantial number of highly promising investment opportunities. We also have undrawn allocations of capital from clients totalling $5.4 billion to finance qualifying acquisitions.



Table of Contents

The following table presents our capitalization on three bases of presentation: corporate (i.e., deconsolidated), proportionally consolidated and on a consolidated basis using the same methodology as our IFRS financial statements:


AS AT DECEMBER 31    Corporate      Proportionate      Consolidated  
(MILLIONS)    2011      2010      2011      2010      2011      2010  

Corporate borrowings

   $ 3,701        $ 2,905        $ 3,701        $ 2,905        $ 3,701        $ 2,905    

Non-recourse borrowings


Property-specific mortgages

     —          —          19,083          15,956          28,415          23,454    

Subsidiary borrowings1

     988          858          3,679          3,610          4,441          4,007    


















     4,689          3,763          26,463          22,471          36,557          30,366    



















Accounts payable and other2

     1,287          1,556          8,615          7,577          12,836          13,088    

Capital securities

     656          669          1,153          1,188          1,650          1,707    



Non-controlling interests

     —          —          —          —          18,849          16,301    

Preferred equity

     2,140          1,658          2,140          1,658          2,140          1,658    

Shareholders’ equity3

     26,098          22,261          26,098          22,261          26,098          22,261    



















Total equity

     28,238          23,919          28,238          23,919          47,087          40,220    



















Total capitalization

   $     34,870        $     29,907        $     64,469        $     55,155        $     98,130        $     85,381    



















Debt to capitalization4

     15%           15%         44%          44%          39%          37%    





















Includes $988 million (December 31, 2010—$858 million) of contingent swap accruals which are guaranteed by the Corporation and are accordingly included in Corporate Capitalization


Excludes deferred income taxes


Pre-tax basis and includes incremental values and asset management franchise value


Excludes asset management franchise value of $4.25 billion in 2011 and $4.0 billion in 2010

Corporate Capitalization

Our corporate (deconsolidated) capitalization shows the amount of debt that is recourse to the Corporation, and the extent to which it is supported by our invested capital and remitted cash flows. Corporate borrowings increased by $800 million to fund business development; however, we also raised additional equity of $1.8 billion which, together with total return, kept our deconsolidated debt-to-capitalization ratio at 15%. Our strategy is to maintain a relatively low level of debt at the parent company level and finance our operations primarily at the asset or operating unit level with no recourse to the Corporation. Subsidiary borrowings included in our corporate capitalization are contingent swap accruals, issued by a subsidiary, that are guaranteed by the Corporation.

Equity capital totals $28.2 billion and represents 80% of our corporate capitalization. The average term to maturity of our corporate debt is seven years.

Proportionate Capitalization

Proportionate consolidation, which reflects our proportionate interest in the underlying entities, depicts the extent to which our underlying assets are leveraged, which is an important component of enhancing shareholder returns. We believe the 44% debt-to-capitalization ratio at December 31, 2011 (December 31, 2010 – 44%) is appropriate given the high quality of the assets, the stability of the associated cash flows and the level of financings that assets of this nature typically support, as well as our liquidity profile. Property-specific borrowings on this basis increased by $3.1 billion which is principally due to our increased ownership of General Growth Properties.

Consolidated Capitalization

Consolidated capitalization reflects the full consolidation of partially-owned entities, notwithstanding that our capital exposure to these entities is limited. The debt-to-capitalization ratio on this basis is 39% (December 31, 2010 – 37%).

We note, however, that in many cases our consolidated capitalization includes 100% of the debt of the consolidated entities, even though in most cases we only own a portion of the entity and therefore our pro rata exposure to this debt is much lower.




Table of Contents

For example, we have access to the capital of our clients and co-investors through public market issuance and, in some cases, contractual obligations to contribute additional equity. In other cases, this basis of presentation excludes some or all of the debt of partially owned entities that are equity accounted or proportionately consolidated, such as our investment in General Growth Properties and several of our infrastructure businesses.

The increase in borrowings on this basis reflects the consolidation of our U.S. Office Fund and several other assets and businesses since the beginning of 2011. These changes had little impact on our proportionate consolidation as the borrowings were already reflected in that basis of presentation.

Shareholders’ Equity

We added $4.3 billion to equity during the year, representing the accumulation of cash flows generated, increases in the value of our invested capital and $1.8 billion in common and preferred equity issuances.

– Preferred Equity

We issued C$235 million and C$250 million of perpetual rate-reset preferred shares with initial coupons of 4.6% and 4.8% respectively, during February and October 2011, with the proceeds used to reduce bank and commercial paper borrowings.

– Common Equity

The following table reconciles common equity per our IFRS financial statements to Net Tangible Asset Value and Intrinsic Value:


AS AT DECEMBER 31    2011      2010  
(MILLIONS, EXCEPT PER SHARE AMOUNTS)    Total      Per Share      Total      Per Share  

Common equity per IFRS financial statements

   $ 16,751        $ 26.77        $ 12,795        $ 22.09    

Add back deferred income taxes1

     2,247          3.42          2,216          3.60    

Incremental values

     2,850          4.33          3,250          5.27    













Net tangible asset value

     21,848          34.52          18,261          30.96    

Asset management franchise value

     4,250          6.47          4,000          6.49    













Total intrinsic value

   $     26,098        $     40.99        $     22,261        $     37.45    













1. Net of non-controlling interests

Values not Recognized Under IFRS

Values not recognized under IFRS relate to certain assets that are not reflected at fair value under IFRS. As a result, we have provided an estimate of the incremental value of these items over their carried values to arrive at a more complete and consistent determination of net tangible asset value. These include items carried at historical book values, such as the values for our property services and construction businesses, certain of our renewable power and infrastructure assets, assets acquired at distressed values that are not otherwise revalued and development land carried at the lower of cost or market.

The incremental values in the following table are reviewed in each of the relevant operating segments:




   2011      2010  

Asset management and other services

   $ 875        $ 775    

Operating platforms



     25          325    

Renewable power

     300          600    


     250          125    

Private equity

     1,400          1,325    

Other assets

     —          100    






   $     2,850        $     3,250    









Table of Contents

The largest amounts relate to:



our asset management and service businesses, which include approximately $330 million in respect of net carried interests payable to us based on current values, as well as incremental values of approximately $545 million attributable to our construction and property services;



$875 million of incremental value in our residential development business, included in our private equity segment, that relates to the value of development lands that are carried at historical cost in our IFRS statements; and



$525 million in respect of private equity investments, the assets of which we typically acquire at a discount to long-term value and which are, for the most part, carried at depreciated historical book values.

The overall decline of $400 million is due primarily to the elimination of incremental values recorded at the end of 2010 that were recorded in our IFRS statements during 2011. These included $325 million in respect of valuation increases within General Growth Properties and $350 million in respect of renewable power development projects. These decreases were partially offset by increases in other incremental values, such as deferred performance income.

Asset Management Franchise Value

Over the past 10 years we have increased the scale of our asset management operations to the point where we have substantial capital for investment from clients. The value of this franchise is derived from both the cash flows it generates, and the capital it allows us to operate with. This size enables us to compete where few others can, and therefore offers us a competitive advantage in generating greater returns for our clients. Global asset management franchises are generally valued at very high multiples of income, in particular those in areas where substantial growth in assets under management is expected to be achieved and where margins are high.

As we provide valuations of our tangible assets through our financial statements, and given the growing value of this “intangible” business, we felt that we should also attempt to produce an estimate of the current value of our operation based on the existing capital under management and the franchise we have. Our estimate is approximately $4.3 billion, or $6.47 per share, and we have included this value in our estimate of the intrinsic value of our common equity.

While we have specific assumptions and plans on how we derive this value in each of our operations, in general, we assume capital under management in our unlisted funds and managed listed issuers growing at a rate of 10% over the next 10 years and our annualized gross margin migrates to 150 basis points, as we can add meaningfully to managed capital without a commensurate increase in expenses. We then capitalize the resultant annualized return at a 15 times multiple, and discount the cash flows and terminal value at 15%. We will continue to provide information to enable readers to assess our progress and consider these values and assumptions.

Financing Activities and Liquidity

We issued or raised $26.6 billion of capital during 2011 to finance growth activities, extend our maturity profile and supplement our liquidity as shown in the following table:


(MILLIONS)    Proceeds       Rate       Term   




   $ 5,950          3.32%          4 years    

Asset specific

     13,755          5.22%          6 years    

Equity/asset sales

     2,945          n/a          Perpetual    

Common share issuance

     1,460          –          Perpetual    

Preferred share issuance

     740          4.84%          Perpetual    

Private funds

     1,750          n/a          9 years    



   $     26,600          








Table of Contents

The refinancing activities have enabled us to extend or maintain our average maturity term at favourable rates. Approximately $7.3 billion of the asset specific financings and the $740 million of preferred shares issued have fixed rate coupons. The continued steepness in the yield curve and prepayment terms on existing debt continues to reduce the attractiveness of pre-financing a number of our future maturities; however, we are actively refinancing short-dated maturities and longer-dated maturities when the opportunities present themselves.

We have also locked in the reference rates for approximately $2.8 billion of anticipated future financings in the United States and Canada over the next four years.

Core liquidity, which represents cash and financial assets and undrawn credit facilities at the Corporation and our principal operating subsidiaries, was approximately $3.9 billion at December 31, 2011. This includes $2.4 billion at the corporate level and $1.5 billion at our principal operating units. We continue to maintain an elevated level of liquidity as we see a substantial number of highly promising investment opportunities. We also have undrawn allocations of capital from clients totalling $5.4 billion to finance qualifying acquisitions.

Capital Under Management

The following table summarizes total assets under management and the capital managed for clients and co-investors:


     Total Assets Under      Client Capital  
     Management      2011      2010   
                   Fee Bearing      Other                 



   2011       2010       Private 
     Total       Total   


   $ 82,579        $ 57,262        $ 7,014        $ 1,851        $ 6,266        $ 4,552        $ 19,683        $ 21,596    

Renewable power

     17,758          15,835          587          1,869                  –          2,456          2,015    


     19,258          16,634          5,422          3,665          1,474                  10,561          7,937    

Private equity

     25,343          26,848          2,666          –          12,093          2,934          17,693          18,385    

Corporate and other

     6,782          4,979          –          –          –          –          –          –    

























December 31, 2011

   $     151,720          n/a        $     15,689        $     7,385        $     19,833        $     7,486        $     50,393          n/a     

























December 31, 2010

     n/a        $     121,558        $ 16,859        $ 5,425        $ 21,069        $ 6,580          n/a        $     49,933    

























Private Funds

Third-party capital commitments to private funds decreased by $1.2 billion during the year to $15.7 billion. The decrease reflects distributions of capital and expiry of uninvested commitments offset by $1.5 billion of new commitments. Our approach to value investing means that we will on occasion let investment periods lapse without fully investing available capital if we are not satisfied with potential returns, although our objective is to fully invest the capital entrusted to us by our clients. The invested capital within our private funds of $10.3 billion has an average term of nine years. Private fund capital includes $5.4 billion that has not been invested to date but which is available to pursue acquisitions within each fund’s specific mandate. Of the total uninvested capital, $1.1 billion relates to property funds and $2.4 billion relates to infrastructure funds. This uncalled capital has an average term, during which it can be called, of approximately two years.

Listed Issuers

The increase in Listed Issuer capital of $2.0 billion includes the issuance of $0.5 billion of new capital from our Infrastructure entity and a $1.5 billion increase in the market value of our three principal listed issuers. All three entities recorded favourable performance and increased distributions during the year.



Table of Contents

Public Securities

In our public securities operations, we manage fixed income and equity securities with a particular focus on real estate and infrastructure, including high yield and distress securities. Capital under management in this business line decreased by $1.2 billion during the year, of which $0.8 billion represents net outflows and approximately $0.4 billion represents a valuation decrease. We have continued to refocus the business on higher margin products and have eliminated several lower margin offerings.

The following table summarizes client capital under management within these operations. We typically do not invest our own capital in these strategies as the assets under management tend to be securities rather than physical assets.




   2011       2010   

Public securities


Fixed income

   $ 12,093        $ 13,862    


     7,740          7,207    






   $     19,833        $     21,069    







Other Listed Entities

We have established a number of our business units as listed public companies to allow other investors to participate and provide us with additional capital to expand these operations. This includes common equity issued to others by Brookfield Office Properties, Brookfield Residential and Brookfield Incorporações. In addition, certain of our portfolio investments are also listed public companies. We do not earn fees from this capital but it forms an important component of our overall capitalization and enables us to conduct our business at a greater scale than would otherwise be possible.




Table of Contents


Comprehensive income consists of two components: Net Income and Other Comprehensive Income. Together, these two components constitute most of the elements that comprise our Total Return as illustrated in the table below, which also serves as a reconciliation between Funds from Operations and Net Income, and between Comprehensive Income and Total Return and to facilitate a discussion of major components of Comprehensive Income that are not covered elsewhere in this report.


     Comprehensive Income      Total Return  
     Total      Net1      Net1  



   2011       2010       2011       2010       2011       2010   

Funds from operations

   $ 2,355        $ 2,196        $ 1,052        $ 1,106        $     1,052        $     1,106    







Less: disposition gains not included in IFRS

     (181)         (85)         (87)         (85)         (87)         (85)   

Add: fair value changes included in equity accounted income

     1,529          271          1,268          167          1,268          167    













Net income prior to the following items

     3,703          2,382          2,233          1,188          

Fair value changes

     1,286          1,651          479          990          479          990    

Depreciation and amortization

     (904)         (795)         (659)         (693)         (659)         (693)   

Deferred income taxes

     (411)         (43)         (96)         (31)         n/a          n/a    













Net income

     3,674          3,195          1,957          1,454          













Other comprehensive income


Fair value changes

     1,920          (906)         1,244          (955)         1,244          (955)   

Foreign currency translation

     (837)         653          (443)         276          n/a          n/a    

Deferred income taxes

     (147)         448          (6)         453          n/a          n/a    













Other comprehensive income

     936          195          795          (226)         













Comprehensive income

   $     4,610        $     3,390        $     2,752        $     1,228          













Items recorded directly in IFRS equity

                 304          (101)   

Items not included in IFRS statements


Changes in incremental values

                 (400)         1,200    

Asset management franchise value

                 250          500    







Total valuation gains

                 2,399          1,023    







Preferred share dividends

                 (106)         (75)   







Total return

               $ 3,345        $ 2,054    









Net of non-controlling interests

Our definition of total return includes funds from operations together with valuation gains. The valuation gains include fair value changes and other gains recorded in our IFRS financial statements as well as depreciation and amortization. As discussed elsewhere, we include incremental values for items that are not fair valued in IFRS.

Fair Value Changes

Fair value changes are recorded primarily in four areas of our financial statements:



Fair value changes related to our commercial office and retail properties, standing timber and agricultural assets are recorded in net income, as are changes in the values of financial contracts and instruments and power sales agreements that do not qualify for hedge accounting treatment.



We include our proportionate share of fair value changes recorded by equity accounting investees as a component of equity accounted income.



Fair value changes relating to property, plant and equipment employed within our renewable power generating business and many of our infrastructure businesses are recorded in other comprehensive income, along with changes in the values of financial contracts and power sales agreements that do not qualify for hedge accounting treatment.



Table of Contents

Fair value changes recorded directly in equity typically relate to changes in ownership because IFRS requires that any gains arising from the partial sale of consolidated operations be recorded in equity if the operations are still consolidated following the sale.

Fair value changes totalled $5.2 billion in 2011, prior to $131 million of disposition gains which were recognized in funds from operations. After considering the amounts attributable to non-controlling interests, fair value changes totalled $3.3 billion. The following table allocates the fair value changes to the relevant operating segments in which they are recorded, according to the various line items within our financial statements.





  Property      Renewable 
    Infrastructure      Private 
    Corporate      Total      Total 

Included in Net Income


Equity accounted

  $ 1,620       $ (13)      $ (78)      $ –       $ –       $ 1,529       $ 271    






















Fair value changes


Operating assets

    1,556         71         305         48         –         1,980         1,729    

Less: Disposition gains

    (109)        –         –         (22)        –         (131)        (105)   

Other items

    –         (376)        (19)        (110)        (58)        (563)        27    





















    1,447         (305)        286         (84)        (58)        1,286         1,651    






















Included in OCI


Revaluation of PP&E

    –         2,293         328         29         –         2,650         (948)   

Other items

    (238)        (465)        129         (55)        (101)        (730)        42    





















    (238)        1,828         457         (26)        (101)        1,920         (906)   






















Recorded directly in equity

    72         209         –         23         –         304         (101)   





















  $  2,901       $ 1,719       $ 665       $       (87)      $     (159)      $     5,039       $     915    






















– Included in Net Income

Fair value changes within equity accounted investments totalled $1.5 billion and represent our share of increases in property valuations within General Growth Properties ($1.1 billion) and our U.S. Office Fund ($0.4 billion) prior to its consolidation during 2011. In 2010, equity accounted fair value changes relate almost entirely to the U.S. Office Fund.

Fair value changes recorded as a specific line item in Net Income are segregated between operating assets and other items. Operating asset gains include $1.1 billion of increases in our office properties, of which our U.S. office properties totalled $0.7 billion. The remaining $0.4 billion of increases in our property operations were primarily from our retail malls in Brazil. We also recorded changes in the fair values of our standing timber which totalled $292 million. Fair value changes in the prior year related primarily to increases in the value of U.S. office properties reflecting improved leasing and lower discount rates.

Other fair value items include a $376 million downwarded revaluation in our renewable power operations, reflecting the increase in the liability representing the units held by other investors in our Canadian renewable power fund. Prior to the reorganization of the fund in late 2011, the carrying value of these interests was based on market prices and recorded as a liability. Other items in 2010 reflect an increase in the value of power sales agreements.

Revaluation gains included in other comprehensive income include an increase of $2.3 billion in the carrying value of our renewable power assets, reflecting increases in the property, plant and equipment while “other items” include an offsetting reduction in the carrying values associated power sales agreements. Revaluation gains also include $300 million in respect of renewable power development projects that was not previously included in IFRS fair values.




Table of Contents

Fair value gains within infrastructure totalled $457 million and related primarily to our rail and transmission operations.

Other items in Other Comprehensive Income include changes in the fair values of contracts pursuant to which we manage interest rate and currency risks, which occurred primarily in our property and corporate segments.

Revaluation charges within other comprehensive income during 2010 related to our power generating operations in North America as the impact of lower discount rates was more than offset by lower expected prices.

– Items Recorded Directly in Equity

In 2011, we recorded a gain of $304 million directly in equity. This includes a $209 million gain that occurred upon the reorganization and expansion of our renewable power fund in November 2011 to include our entire global portfolio of renewable power facilities. One consequence of the reorganization was that the units became equity interests for IFRS purposes, with their carrying value based on the carrying value of the net assets of the fund, whereas prior to that time they were recorded as liabilities and the carrying value based on stock market prices. As noted above, increases in the quoted market price of the units gave rise to a $376 million increase in the associated liability, recorded as a charge in net income. The gain represents the partial reversal of this charge upon the realignment of the carrying value of the units with their proportionate share of the net assets of the fund.

Depreciation and Amortization

Depreciation and amortization for each principal operating segment is summarized in the following table:


     Total      Net1  



   2011       2010       2011       2010       Variance   


   $ 33        $ 12        $ 28        $ 11        $ 17   

Renewable power

     455          488          445          488          (43)   


     147          33          46          12          34    

Private equity

     227          197          98          128          (30)   

Asset management and corporate

     42          65          42          54          (12)   















   $     904        $     795        $     659        $     693        $ (34)   


















Net of non-controlling interests

Depreciation relates mostly to our renewable power generating operations, with smaller amounts arising from infrastructure operations and industrial businesses held within our private equity operations. We do not recognize depreciation or depletion on our commercial office and retail properties, standing timber, and agricultural assets, respectively, as each of these asset classes are revalued on a quarterly basis in net income as part of “fair value changes.” Depreciation within our infrastructure operations increased due to the consolidation of operating units following the Prime merger, and decreased within our renewable power operations due to lower carrying values at the beginning of 2011 compared to 2010.

The depreciation relating to our renewable power facilities and infrastructure operations is recorded in net income on a quarterly basis during the year and then the assets are revalued at the end of the year through other comprehensive income, resulting in a mismatch until the two results are both reflected in our statement of comprehensive income at year end. This is why we consider these items together in determining total return and discussing our results. In 2011, the fair value adjustments relating to these assets totalled $2.7 billion, more than offsetting the depreciation recorded during the year.



Table of Contents

Foreign Currency Translation

We record the impact of changes in foreign currencies on the carrying value of our net investment in non-U.S. operations in other comprehensive income. During 2011, the value of our principal non-U.S. currencies (Australia, Brazil and Canada) all declined against the U.S. dollar, giving rise to a total decrease of $837 million after the mitigating impact of hedges, or $443 million after non-controlling interests.

This differs from the decrease of $ 502 million included in our continuity of intrinsic common equity value because we calculate total return on a pre-tax basis.

Deferred Income Taxes

The provision for deferred income taxes in net income increased to $411 million from $43 million in 2010. Our net share, after deducting amounts attributable to non-controlling interests, was $96 million in 2011 and $31 million in 2010. The total amount includes the impact of increase in the fair value of assets relative to their tax basis. Our effective tax rate of 13% differs from the average statutory rate of 28%. We provide additional information on our tax profile and a reconciliation to our statutory rate in Note 13 to our consolidated financial statements.

Items not Included in IFRS Statements

The $150 million reduction in fair values of non-IFRS balances includes:



the elimination of $325 million relating to the fair value of our investment in GGP that is now included in our IFRS statements;



the elimination of a $300 million amount that was previously recorded in respect of renewable power developments. Following the formation of our global power fund, we now carry projects such as these at fair value within our financial statements;



a $125 million increase in the fair value of infrastructure operations that is not otherwise reflected in IFRS;



a $100 million increase in net carried interests payable to us; and



a $250 million increase in the franchise value of our asset management activities to reflect continued growth in base fees and fund formation.





   2011       2010   

Asset management and other services

   $ 3,333        $ 2,521    


     2,760          2,589    

Renewable power

     1,140          1,161    


     1,690          867    

Private equity and development

     6,770          6,011    

Cash, financial assets and other

     228          474    







Total consolidated revenues

   $     15,921        $     13,623    







Revenues increased in all segments as a result of the strengthening of non-U.S. currencies relative to the U.S. dollar. Asset management and other services reflect higher activity levels in our construction business. Commercial properties and infrastructure revenues include the consolidation of the U.S. Office Fund and the consolidation of several business units following the Prime merger in November 2010, respectively. Development revenues increased due to a higher amount of projects completed in our Brazilian operations.




Table of Contents


A large portion of our funds from operations is generated by our office, retail, renewable power and infrastructure businesses which we manage for ourselves and our clients. The revenues in all of these businesses are largely contracted through leases, power sales agreements and regulated rate base or operating agreements. This provides stability to the cash flows. In addition, these businesses are also financed largely with long-term asset specific borrowings which provides for additional stability. Our asset management contracts provide for base management fees earned on capital committed to our funds, many of which have initial terms of 10 years or more.

Property: We continue to have significant momentum in our leasing activities, coming off a record year in which we leased approximately 11 million square feet. The resulting increase in in-place rents and the reduction in lease roll-over during the next five years provide further stability to our cash flows while, at the same time, we have the ability to increase occupancy further at higher net rents, particularly in the U.S.

Our properties are primarily high quality urban assets in the most dynamic markets in the U.S., Canada, Australia and UK, and in all of these markets we continue to see strong demand from tenants for space in our properties. We also have an attractive pipeline of development projects and continue to see a high volume of transaction activity that will enable us to monetize existing assets and redeploy capital into high quality properties that provide the opportunity to achieve greater returns over the long term.

Renewable Power: Water inflows and generation during the beginning of 2012 have been consistent overall with long-term average and reservoir levels are slightly above average. Accordingly, we are in a position to achieve long-term generation targets for 2012, should normal water conditions prevail. We also expect to benefit in future years from the contribution from the development and acquisition of additional hydroelectric and wind facilities. We have 83% of our expected generation under contract for 2012, and 70% under long-term contracts with an average term of 14.5 years. This significantly reduces our exposure to short-term or spot pricing, which continues to be at low levels. Over the longer term, we expect that renewable energy, such as the hydroelectric and wind power we produce, will continue to command a premium in the market and lead to extended increases in realized prices and funds from operations.

Infrastructure: Our focus remains on investing in expansion opportunities within our Infrastructure businesses, as well as pursuing the demonstrable increase in transaction activity. Cash flows from our Utilities, Transport and Energy businesses are resilient and are expected to remain stable in the foreseeable future. We have a number of expansion projects underway that we expect will contribute meaningful to growth in funds from operations through 2012 and 2013, in particular, our rail expansion in Western Australia. We expect our timber operations to be positively impacted in the mid-to-long term due to supply constraints and ongoing demand from Asian markets.

Private Equity Activities: The cash flows from operations are supplemented by earnings from businesses that are more closely correlated with the U.S. economic cycle. Some of these are producing results that are significantly below normalized levels as a result of the recent recession and ongoing low growth in areas, such as U.S. homebuilding, although others are experiencing improving results due to operational restructuring and improving fundamentals. We are encouraged by a number of positive signals of recovery and expect to benefit from growth in these businesses both in terms of operating cash flow and monetization proceeds.

We record gains from time to time on the monetization of investments. These are, by their nature, difficult to predict with certainty but the breadth of our operations and active management of our assets have resulted in a meaningful amount of gains being realized in most periods.

Our businesses are located in a number of regions, including a substantial presence in the United States, Australia, Brazil and Canada. Accordingly, cash flows and net asset values will vary with changes in the applicable foreign exchange rates. Other factors that could impact our performance in 2012, both positively and negatively, are reviewed in Part 4 of this Report.

We believe Brookfield is well positioned for continued growth through 2012 and beyond. This is based on the stability and growth potential of our operating businesses, the strength of our capitalization and liquidity, our execution capabilities and our expanded relationships, as discussed elsewhere in this MD&A.



Table of Contents


Reconciliation of Total Return and Funds from Operations to Comprehensive Income – 2011




    Fair Value 

& Analysis 

Asset management and services

     $ 388         $ –         $ 14         $ –         $ –         $ 402    

Revenues less direct operating costs



       1,678           –           430           –           13           2,121    

Renewable power

       740           –           25           –           13           778    


       756           –           193           –           –           949    

Private equity

       538           –           23           –           61           622    

Equity accounted income

               2,205           –                   (2,205)          –           –           –    


















       6,305               (1,520)          –           87           4,872     

Investment and other income

       328           –           (9)          –           (43)          276    


















       6,633           –           (1,529)          –           44           5,148    




       2,352           –           –           –           (22)          2,330    

Operating costs

       481           –           –           –           –           481    

Current income taxes

       97           –           –           –           (15)          82    

Non-controlling interests

       –           1,209           –           –           (6)          1,203    



















Net income prior to other items/FFO

       3,703                   (1,209)          (1,529)          –           87           1,052    
















Other Items/Valuation gains


Fair value changes

       1,286           –           1,529           1,920           435           5,170    

Depreciation and amortization

       (904)          –           –           –           –           (904)   

Deferred income tax

       (411)          –           –           –           411           –    

Other items

       –           –           –           –           (159)          (159)   

Non-controlling interests

       –           (508)          –           (676)          (287)          (1,471)   




Net income





Other comprehensive income


Fair value changes

       1,920           –           –                   (1,920)          –           –    

Foreign currency

       (837)          –           –           –           837           –    

Deferred taxes

       (147)          –           –           –           147           –    

Non-controlling interests

       –           (141)          –           676           (535)          –    




Other comprehensive income





Comprehensive income





Items not included in IFRS


Incremental values

       n/a           –           –           –           (400)          (400)   

Assets management franchise value

       n/a           –           –           –           250           250    

Less: amounts recorded in FFO

       n/a           –           –           –           (87)          (87)   



















Total valuation gains

       n/a           (649)          1,529           –           612                   2,399    



















Preferred share dividends

       –           –           –           –                   (106)          (106)   



















Comprehensive income/Total return

     $ 4,610         $ (1,858)        $ –         $ –         $ 593         $ 3,345    





















Allocates non-controlling interests between funds from operations and valuation gains


Allocated equity-accounted income to operating segments and between funds from operations and valuation gains


Aggregates fair value changes and associated non-controlling interest in net income and other comprehensive income


Includes amounts recorded directly in equity under IFRS and excludes impact foreign currency revaluation and deferred taxes from calculation of total return




Table of Contents


Reconciliation of Total Return and Funds from Operations to Comprehensive Income – 2010


00000000 00000000 00000000 00000000 00000000 00000000
     Consolidated              Equity                     Management   
YEAR ENDED DECEMBER 31, 2010    Financial       Non-controlling       Accounted       Fair Value       Other       Discussion   
(MILLIONS)    Statements       Interests1       Income2       Changes3       Items4       & Analysis   

Asset management and services

   $ 365        $ (17)       $ –        $ –        $ –        $ 348    

Revenues less direct operating costs



     1,495          –          256          –          –          1,751    

Renewable power

     748          –          23          –          –          771    


     221          –          204          –          –          425    

Private equity

     628          –                  –          85          722    

Equity accounted income

     765          –          (765)         –          –          –    


















     4,222          (17)         (273)         –          85          4,017    

Investment and other income

     503          –                  –          (64)         441    


















     4,725          (17)         (271)         –          21          4,458    




     1,829          –          –          –          (19)         1,810    

Operating costs

     417          –          –          –          –          417    

Current income taxes

     97          –          –          –          (3)         94    

Non-controlling interests

     –          1,073          –          –          (42)         1,031    



















Net income prior to other items/FFO

     2,382          (1,090)         (271)         –          85          1,106    
















Other Items/Valuation gains


Fair value changes

     1,651          –          271          (906)                 1,020    

Depreciation and amortization

     (795)         –          –          –          –          (795)   

Deferred income tax

     (43)         –          –          –          43              

Other items

     –          –          –          –          (44)         (44)   

Non-controlling interests

     –          (651)         –          (313)         191          (773)   




Net income





Other comprehensive income


Fair value changes

     (906)         –          –          906          –          –    

Foreign currency

     653          –          –          –          (653)         –    

Deferred taxes

     448          –          –          –          (448)         –    

Non-controlling interests

     –          (421)         –          313          108          –    




Other comprehensive income





Comprehensive income





Items not included in IFRS


Incremental values

     n/a          –          –          –          1,200          1,200    

Assets management franchise value

     n/a          –          –          –          500          500    

Less: amounts recorded in FFO

     n/a          –          –          –          (85)         (85)   



















Total valuation gains

     n/a          (1,072)         271         –          816          1,023    



















Preferred share dividends

     –          –