pvf report_vf

Partners Value Investments

Brookfield Asset Management

Analyst: Braydon Myers

Portfolio Manager: Derek Cangiano

Faculty Advisor: Dr. Brian Smith

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Page 1

Table of Contents 1.0 Introduction .................................................................................................................................................................. 2

1.1 Investment Thesis .................................................................................................................................................... 2

2.0 Company Overview ................................................................................................................................................... 3

2.1 Lonestar West Inc. - the “Mini-Badger” ........................................................................................................... 3

2.2 What is Hydro-Excavation? ................................................................................................................................. 4

2.3 The Hydro-Excavation Value Proposition ....................................................................................................... 4

2.4 Business Segment Overview .............................................................................................................................. 7

2.5 Ownership ............................................................................................................................................................. 12

3.0 Industry Overview .................................................................................................................................................... 13

3.1 Sizing the Market ................................................................................................................................................. 14

3.2 The U.S Market ..................................................................................................................................................... 17

3.3 The Competitive Landscape A.K.A Badger Daylighting ............................................................................ 19

4.0 Discounted Cash Flow Valuation ......................................................................................................................... 21

4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23

4.3 Selling, General and Admin (SG&A) ...............................................................................................................24

4.4 CAPEX ..................................................................................................................................................................... 25

4.5 Sustainable Cash Return on Capital Invested (SCROCI) Forecast .......................................................... 27

4.6 Weighted Average Cost of Capital (WACC) ................................................................................................ 30

5.0 Alternative Valuation Methodologies ................................................................................................................. 31

5.1 Relative Valuation ................................................................................................................................................. 31

5.2 Lonestar as a Takeout Target........................................................................................................................... 32

Appendices................................................................................................................................................................... 33

TABLE OF CONTENTS

1.0 Introduction .......................................................................................... 3 1.1 Investment Thesis ..................................................................................................... 4 1.2 Road Map ..................................................................................................................... 4

2.0 Company Overview .............................................................................. 5

2.1 Brookfield Asset Management ........................................................................... 10 2.2 BAM’s Business Model .......................................................................................... 14

2.2.1 Asset Management ............................................................................................ 15 2.2.2 Invested Capital .................................................................................................. 19 2.2.3 Brookfield Capital Partners (Private Equity) .................................................... 19 2.2.4 Property, Renewable Energy, and Infrastructure Revenue .......................... 20 2.2.5 Other Sources of Revenue ................................................................................ 20

2.3 Breakdown of Major Business Segments .......................................... 21 2.3.1 Brookfield Property Partners ............................................................................. 21 2.3.2 Brookfield Infrastructure Partners ..................................................................... 23 2.3.3 Brookfield Renewable Energy Partners ........................................................... 25 2.3.4 Brookfield Capital Partners (Private Equity) .................................................... 26 2.3.5 Public Securities Group .............................................................................. 27

2.4 Management Team ............................................................................ 28 2.4.1 Executive Compensation ................................................................................... 29

2.5 BAM Led Turnarounds ....................................................................... 31 2.5.1 Babcock & Brown Infrastructure ....................................................................... 32 2.5.2 General Growth Properties (GGP) ................................................................... 32 2.5.3 Energy Future Holdings ..................................................................................... 34

3.0 Real Assets .......................................................................................... 35 4.0 DCF Valuation ...................................................................................... 38

4.1 Asset Management Fees Forecast .................................................................. 38 4.2 Distributions Forecast ............................................................................................ 41 4.3 WACC ................................................................................................ 42 4.4 DCF Cases ......................................................................................... 42 4.5 PVF DCF ............................................................................................ 43

5.0 SotP Valuation ..................................................................................... 44 6.0 Conclusion ........................................................................................... 45 Appendix I ............................................................................................................................. 46 Appendix II ........................................................................................................................... 47

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

1.0 INTRODUCTION Partners Value Investments (TSXV: PVF) is a levered investment vehicle for Brookfield Asset Management (NYSE: BAM & TSX: BAM-A). In order to analyze the merit of PVF as an investment, it is crucial to understand the attractiveness of BAM. BAM is a global alternative asset manager with over $218B in assets under management (AUM). Founded in 1899 under the name Brascan, BAM has over 100 years of experience in owning and operating assets with a focus on property, renewable energy, infrastructure and private equity. BAM is a complex company that generates income through a variety of channels; however, this report focuses on the two major streams: (1) asset management franchise, and (2) its ownership interest in its flagship listed partnerships. This report clearly outlines that BAM has a strong business model that will continue to compound value over time. Additionally, PVF is the vehicle that the LSIF should use to own BAM, as the effects of leverage will enhance investment returns significantly over time. Therefore, I am initiating coverage of Partners Value Investments with a Buy.

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

1.1 Investment Thesis Scalable and reasonably priced business model with attractive value compounding dynamics BAM transitioned from an asset heavy to an asset light firm, which created a sticky stream of asset management fees that are generated on a much lower invested capital base. As BAM continues to raise funds with ease, these recurring revenue streams continuously grow, with little incremental costs associated with such growth. Additionally, BAM has ability to reinvest a material amount of this free cash flow back into the business organically. Finally, this attractive high-margin asset management franchise is reasonably priced as it trades at a ~9% discount to NAV, after applying a conservative valuation. Aligned management team with an excellent track record of creating value BAM is run by 16 senior managing partners led by Bruce Flatt, who was appointed CEO in 2002. Their expertise is truly exemplified by their exceptional track record of creating shareholder value as BAM shares have compounded 19% annually over the past 20 years. Management is aligned with the interests of shareholders as they collectively own 20% of BAM, representing a large portion of their net worth, and continue to invest in BAM annually. Unique ability to redeploy capital opportunistically to capitalize on relative valuations across the globe BAM’s true competitive advantage is its superior global reach consisting of over 700 investment professionals and their unique ability to redeploy capital to markets where resources are scarce. The ability to shift capital to the places where the best long-term results will be also reduces the risk of being sector or geographically specific. Some investors may believe real assets to be cyclical; however, BAM takes advantage of the fact that markets across the globe do not move in synchrony. BAM has a proven track record of creating value through allocating capital to acquire high-quality assets during illiquid times, improving the operational efficiency of these assets, and enjoying the value appreciation as the surrounding economy improves. BAM’s global scale and restructuring expertise, along with the $10B+ cash it always has available, will continue to drive value creation for many years to come.

1.2 Road Map The report begins by breaking down PVF and the benefits of using it as a vehicle to invest in BAM; however, the majority of the report focuses on explaining the complexity of BAM’s business model, including a detailed analysis of BAM’s asset management franchise and listed partnership agreements. Section 3 focuses on highlighting the benefits of investing in Real Assets. Concluding the report are the Discounted Cash Flow and Sum-of-the-Parts valuation sections.

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.0 COMPANY OVERVIEW Partners Value Investments Inc. (PVF) is an investment holding company that acts as a leveraged capital appreciation vehicle of Brookfield Asset Management (BAM) Class A Voting Shares. On a fully diluted basis, PVF owns 11.7 BAM shares for every 10 of its own shares (17% leverage). PVF provides shareholders with the opportunity to benefit from enhanced capital returns, rather than receive dividends from BAM. PVF’s principal investment is 86M Class A Shares in BAM. This section focuses on explaining the relationship between BAM and PVF’s wholly owned subsidiary, PVS. PVF’s assets are almost entirely financed with the retractable preferred shares issued by Partners Value Split Corp. (PVS). The main driver behind the leveraging effect of PVF is their ownership of PVS. The diagram below illustrates how shortly after the inception of PVS, it owned 9.612M shares of BAM and had 5M preferred shares outstanding.

How the Leverage Mechanism Works PVS uses the dividend stream it collects from the BAM shares to pay off all of its preferred share dividend obligations. Since preferred shares have fixed dividend payments, over time as BAM increases its dividends (see chart below), the gap between PVS’ dividend income and dividend outflows widens. The actions PVS take to reduce this gap is how this leveraging vehicle truly works.

PVF

Own 100% of Partners Value

Split Corp. (PVS), which own

79,740,966 Class A Shares of BAM and has ~$567m

of outstanding retractable

preferred shares

Own 90% of Brookfield New

Horizons Income Fund, which

invests in high-yield securities.

Also, PVF directly owns ~6M Class A

Shares of BAM

Own 100% interest in Global Champions Split

Corp., which owns a diversified investment portfolio of large cap

companies, including 2.2M LP units of BIP and 3.6M of BPY. It has $50m of outstanding retractable

preferred shares

PVF purchased all 5M of PVS’ capital

shares in exchange for

3,330,400 BAM Class A Voting

shares, along with $40,690,000 cash

PVS issued 5M 6.25% preferred shares, which

raised $121.25M after agent fees

PVS purchased 5M BAM Class A

voting shares from Trilon (later,

Brascan Financial Corp.) for $25

each

PVS purchased another 1,281,600 Class A shares of BAM from Trilon at the market rate of

~$28 per share

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Reducing the Gap Between Dividend Income and Dividend Payments

1. PVS has a policy where it pays quarterly dividends to capital shareholders (PVF) when the dividends received on the BAM Shares, less the administrative and operating expenses of PVS, exceed the Preferred Share dividend payments.

Since 2002, PVS has paid PVF (capital shareholders) ~$334M in dividends. This cash flow stream has provided PVF with the capital to purchase directly more than 6M BAM shares and other additional securities (i.e.; BIP & BPY) as well.

$0.00

$0.05

$0.10

$0.15

$0.20

Q3'

15

Q3'

13

Q3'

11

Q3'

09

Q3'

07

Q3'

05

Q3'

03

Q3'

01

Q3'

99

Q3'

97

$US Quarterly Dividends/Share

600 1,500 2,400 710 3,224 3,916

37,087

9,800 8,919

123,050

0

67,497 69,000

10,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015

$CAD (000s) Total Capital Share Dividends Paid by PVS to PVF

3/2 Stock Split and BAM issued 17.9M shares

BAM began share repurchase plan so decreased dividends

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2. Additionally, PVS can issue more preferred shares to increase dividend obligations, which effectively reduces the gap, and use the proceeds to purchase more Class A shares of BAM (the diagram below illustrates this).

Therefore, PVS started with about 9.6M shares in BAM, and due to this financial engineering play, it has been able to increase its holding to ~86M Class A Shares of BAM (adjusted for a 3/2 split) and has ~$567M of outstanding retractable preferred shares. Additionally, over time as PVF received capital distributions from PVS, it provided the capital for PVF to purchase directly an additional ~6M Class A Shares. Benefits of Using PVF as a Vehicle to Buy BAM From a structural standpoint, by using preferred shares as leverage instead of debt, if PVF cannot make the payments, they do not go into bankruptcy. Therefore, PVF will not have to completely restructure if BAM dividends were to decline for a prolonged period as PVF has the ability to simply sell BAM shares and redeem outstanding preferred shares for cash. Additionally, PVF’s CEO and President, as well as BOD member, George E. Myhal, was a Senior Managing Partner at BAM for many years and currently holds a 9% interest in PVF; therefore, his interests are aligned with the interests of PVF’s shareholders. Also, due to his in-depth experience and strong relationships with BAM executives, investors should be confident that he will make competent capital allocation decisions with regards to purchasing more BAM shares, or issuing or redeeming PVF preferred shares.

$

Time Total Dividend Income Total Dividend Payments

1. Significant gap: PVS issues more preferred shares, which increases dividend payments

2. PVS purchases more BAM shares using proceeds, which increases dividend income

Process continuously repeats

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Shareholders of PVF benefit from the clear leverage effect (see above chart); additionally, investors may benefit from a tax perspective. By investing in PVF, shareholders earn capital gains and the dividends BAM pays become an opportunity cost of such decision. With regards to taxes, earning capital gains rather than receiving dividends is typically more beneficial for shareholders. Shareholders must include dividends in their taxable income and pay taxes accordingly, while only half of a capital gain is included in taxable income; furthermore, a capital loss can be carried back to the 3 preceding years or applied to any future gains.1 For Canadian investors receiving dividends from Canadian companies, a slightly different tax structure exists (see chart below)2.

Risks of investing in PVF All of the risks that are associated with investing in BAM exist when investing in PVF. PVF is a leveraged investment in BAM and if it was to decline, so would the value of PVF. Risks of investing in BAM include:

1. Interest Rates: As investors see interest rates rise, they may begin to invest into fixed income, which would slow the AUM growth for BAM. Additionally, rising interest rates could decrease asset values. This risk is discussed in detail in Section 3.0.

2. Execution: Management’s ability to participate as primary investors in attractive opportunities is a main driver of value creation. If management is unable to find and participate in attractive investment opportunities, growth may be hindered.

1 About Tax. (n.d.). Retrieved August 20, 2015. 2 Dividends: Not as tax-friendly as you may think. (2012, January 23). Retrieved July 20, 2015.

134%

194%

50%

100%

150%

200%

250%

10-08-27 11-06-27 12-04-27 13-02-27 13-12-27 14-10-27 15-08-27

5 Year Return BAM PVF

Ontario Income Dividend Tax Rate Capital Gain Tax Rate$42,000 3.8% 12.0%$81,000 19.9% 19.7%

$132,000+ 30.0% 23.0%

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Additional risks for PVF include:

1. BAM could decrease the total amount of dividends it pays. If this scenario were to occur, it could result in PVS’ dividend income being too small to cover its preferred interest obligations; therefore, PVS would have to sell shares of BAM in order to meet such obligations. This scenario however, is very unlikely considering that BAM did not even decrease dividends per share during the financial crisis in 2008 (see chart at the top of page 6).

2. Since PVF provides a levered investment in BAM, a long period of decline in BAM’s share price could negatively impact PVF’s share price. However, PVF and BAM have a weak correlation of ~9.5%. This weak correlation is partially due to PVF’s low daily trading volume of 392 shares (average of last 3 months). The chart to the right compares the returns of PVF and BAM over time.

3. Shareholders’ retracting too many preferred shares in a short period of time

presents a risk. PVS may have to sell BAM shares to fund payouts if too many preferred shareholders retract their shares at once. This would reduce the amount of leverage PVF has and could also have a negative impact on the share price. However, if investors are retracting preferred shares due to interest rates rising, PVS can simply issue new preferred shares at yields that satisfy expected returns from investors.

BAM PVF2014 to 2015 -2% 13%2013 to 2014 43% 38%2012 to 2013 4% 29%2011 to 2012 37% 14%2010 to 2011 17% 28%5-Year CAGR 19% 24%YTD Return -6% 9%

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

4

Listed Partnerships45%

Private Funds36%

Public Markets19%

Property

Renewable Energy

Infrastructure

Private Equity

Other

Assets Under Management – $218 Billion • Focused on high quality real assets • ~30,000 employees • Diversified by asset class and region

Invested Capital – $28 Billion1

• Over 80% invested in listed entities • Generating $1.1 billion of annualized

distributable cash flow

Fee Bearing Capital – $99 Billion • Generates over $1.4 billion of annualized

fees and target carried interest • 700 investment professionals • Diversified by product mix and strategy

1) Prior to corporate leverage; using IFRS values as at June 30, 2015. See page 18 for detailed definition of Invested Capital

Property

Renewable Energy

Infrastructure

Private Equity

Public Markets

BPY

BREP

BIP

Various listed

Non-listed

BPY

BREP

BIP

Various listed

Invested Capital Distributable Cash Flow

Current Profile

4

Listed Partnerships45%

Private Funds36%

Public Markets19%

Property

Renewable Energy

Infrastructure

Private Equity

Other

Assets Under Management – $218 Billion • Focused on high quality real assets • ~30,000 employees • Diversified by asset class and region

Invested Capital – $28 Billion1

• Over 80% invested in listed entities • Generating $1.1 billion of annualized

distributable cash flow

Fee Bearing Capital – $99 Billion • Generates over $1.4 billion of annualized

fees and target carried interest • 700 investment professionals • Diversified by product mix and strategy

1) Prior to corporate leverage; using IFRS values as at June 30, 2015. See page 18 for detailed definition of Invested Capital

Property

Renewable Energy

Infrastructure

Private Equity

Public Markets

BPY

BREP

BIP

Various listed

Non-listed

BPY

BREP

BIP

Various listed

Invested Capital Distributable Cash Flow

Current Profile

2.1 Brookfield Asset Management (BAM) BAM is a global alternative asset manager with over $218 billion in assets under management (AUM), of which nearly $100B is fee-bearing capital. Fee-bearing capital is capital in which BAM earns asset management fees from.

AUM ($218B) Fee-Bearing Capital ($100B)

BAM follows a diversified investment philosophy by allocating capital all over the world and into various asset sectors (see chart to the right). Additionally, BAM has ~$30B of invested capital with over 80% of it held through BAM’s listed entities. BAM’s primary listed partnerships (LPs) are BPY, BEP, and BIP and are described in greater detail later in the report. BAM earns asset management fees for managing these entities; however, it also receives quarterly distributions, which represents BAM’s ownership interest in each LP. The distributions provide a sticky cash flow stream for BAM and are expected to grow 5%-9% per year (see chart below).

$M Assumes 5% Growth

Advisory 8%

Property 31%

Infrastructure 30%

Renewable Energy

10%

Private Equity 5%

Public Markets

16%

512 537 564 592 622 653

286 300 315 331 348 365

127$ 133$ 140$ 147$ 154$ 162$

2015E& 2016E& 2017E& 2018E& 2019E& 2020E&

Distributions from LPs

BPY& BEP& BIP&

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

BAM has over 100 years of experience owning and operating assets with a focus on property, renewable energy, infrastructure and private equity. In 2013, BAM completed its transformation from an asset heavy to an asset light company, spinning off the property, renewable energy, and infrastructure segments into listed public entities. This transformation is attractive as it left the parent company, BAM, with a valuable high-margin business model, while its subsidiaries are composed of all the assets, financing obligations, employees, etc. Another key competitive advantage of BAM’s business model is its ability to raise capital. Through the listed partnerships and private funds, BAM has superior access to capital that allows them to thrive during difficult economic periods such as the 2008 financial crash. Therefore, as the public and private funds continue to grow, BAM has greater access to capital and benefits from increasing streams of management fee revenues. BAM is aligned with its private funds investors (see chart to the right for a breakdown of private client capital by investor type)3 as it invests 20%-40% along with them in private funds and co-investments. As of Q12015, in the past 12 months, BAM has committed $15B (see chart below) of its own capital. Additionally, BAM has been actively investing, which is illustrated by its recent $9B takeover bid for Asciano, the Australian port owner and operator. BAM’s recent investment actively could potentially lead to significant value creation for investors in the coming years. Historically, investors have reaped the benefits from BAM’s transformational acquisitions, such as Babcock & Brown or General Growth Properties (GGP). See Section 2.5 for more information on said transactions.

How BAM’s Listed Partnership Agreements Work Brookfield has established Listed Partnerships within the property (BPY), infrastructure (BIP), and renewable energy (BEP) asset classes. These agreements vary slightly; however, this section will breakdown how BAM’s LP agreements are generally structured. Listed Partnerships have two main participants: (1) General Partner (BAM) and (2) Limited Partner (BPY, BIP and BEP). When the LPs are established, the shares of such agreements are called LP units and are publicly traded. For example, by purchasing

3 BAM Corporate Profile

$M North America South America Europe Asia & Other Total Property 4,272 27 2,377 350 7,026Infrastructure 524 193 1,000 0 1,717Renewable Energy 613 603 63 0 1,279Private Equity & Other 3,930 634 83 510 5,157Total 9,339 1,457 3,523 860 15,179

Investor TypePublic Pension 51%Sovereign Wealth 18%Financial 6%Insurance 8%Private Pension 9%Other 8%

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

shares of BPY on the NYSE, you are purchasing LP units in BPY. LP unit holders are entitled to receive quarterly distributions and the General Partner determines the size of the distribution. The General Partner initially owns about 1% of the LP, which is know as its General Partner Interest. Additionally, the General Partner contributes capital by purchasing LP units. Therefore, in each LP agreement, BAM has a ~1% GP interest, as well as a significant LP interest which entitles them to receive distributions.

Listed Partnerships are advantageous from a tax standpoint (see below); however, they also do an excellent job of aligning BAM’s interest with that of the LPs. BAM is aligned with its LPs through:

1. Incentive Distributions: As BAM actively manages the LPs, if FFO growth can support larger distributions, BAM will benefit from increased incentive distribution revenues.

2. Economic Interest in LP Units: Similar to IDs, as distributions grow, BAM and all the shareholders in the LPs benefit simultaneously.

3. Equity Enhancement Fees: As the market capitalizations of the LPs grow, so do equity enhancements fees earned by BAM as they represent 1.25% of the change in total capitalization.

Incentive Distributions and Equity Enhancement Fees are explained more thoroughly in various sections throughout the report. Ultimately, as this report will outline, this LP structure is optimal as it created a scalable business model that continuously unlocks substantial value for BAM shareholders. Tax Benefits of Listed Partnership Agreements4 By establishing these Listed Partnerships, BAM still is able to control the operations of each LP, hold a significant economic interest, as well as benefit from a tax perspective.

4 The Tax Advantages of Limited Partnerships. (n.d.). Retrieved July 14, 2015.

For BPY, BIP and BEP, BAM owns a significant amount of the LP units (62%, 29% and 63% respectively)

GP Interest 1%

LP Interest 99%

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

BAM

BPY

Brookfield Property Funds

BEP

Brookfield Infrastructure

Funds

BIP BCP

Brookfield Private Equity

FundsDirectly Held Investments

For example, if BAM spun-off each LP into a completely separate entity, then proceeded to purchase common shares in each, double taxation would exist. This means that BPY, BEP and BIP must pay corporate taxes on their profits, and then BAM would also have to pay taxes on the dividends it receives. With LP agreements, BPY, BEP and BIP do not have to pay corporate taxes but LP unit holders such as BAM do pay taxes. The tax rates that LP unit holders pay on distributions are typically the same as taxes on long-term capital gains, which are lower than ordinary income tax rates. Also, the losses of a limited partnership are passed directly to the limited partners who can use the losses to offset other passive income; therefore, a tax shield is created for BAM. For example, if BPY has a loss, but BIP does not, the loss from BPY could offset the distributions received from BIP. Passive losses can also be carried forward. Overall, the tax benefits from the listed partnership agreements further add to the attractiveness of BAM’s business model. Organizational Structure The listed partnerships, alongside capital provided by institutional investors, account for the majority of investments in the private funds. BAM’s structure is one of the keys to its success as an asset manager as it supports and enables its listed entities to complete transactions that they otherwise may have not been able to complete on their own. This access to capital is often the difference between completing the deal and not having the capital to do so. Therefore, BAM’s corporate structure is arguably its greatest competitive advantage. Below is a simplified diagram of BAM’s organizational structure:

Private Equity Turnaround/Distress

Residential Development

Service Activities

Utilities Transport

Energy Sustainable Resources

Hydroelectric Wind

Office, Retail, Industrial,

Multifamily, Hotel & Triple Net Lease

Listed Partnerships

Private Funds

Asset Classes

62% 63% 29% 100%

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.2 BAM’s Business Model BAM’s reported revenue model is divided into several segments, with the largest flows stemming from asset management, private equity, property, renewable energy, and infrastructure. Additional streams of revenue flow from their residential development and service activities. BAM uses consolidated financial statements, which results in its statements reflecting the performance of of all its listed partnerships as well as other investments. Additionally, BAM uses equity method to record certain investments, which effectively shows BAM’s theoretical portion of earnings for each. These investments in associates (equity method) include GGP and Canary Wharf. This financial reporting makes it difficult for shareholders to see the true value of BAM’s underlying business, the asset management franchise. An investor looking at BAM’s financial statements may assume that the asset management franchise only makes up a small portion of BAM’s revenue (see chart to the right)5; however, the asset management franchise is what makes BAM such an attractive investment opportunity and the majority of this report illustrates this. Additionally, the cash flows from LP distributions disappear in consolidation and are not disclosed in the financial statements (they are lost in the consolidated cash line item). It is extremely important that readers of this report are aware that the actual cash flow streams that BAM generates stem primarily from its asset management business and the distributions it receives from its interests in its listed entities (invested capital). For the purpose of this report, a high level description of each reported revenue stream is provided, with the focus of this section being on the asset management franchise.

5 From BAM Interim Report: Q2 2015 and info is for the 3 months ended June 30, 2015

Asset Management

5%

Property 26%

Renewable Energy

9% Infrastructure

10%

Private Equity 13%

Residential Development

10%

Service Activities

26%

Corporate Activies

1%

15

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2.5 Ownership ............................................................................................................................................................. 12



3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.2.1 Asset Management Fee bearing capital and carried interest are how BAM generates asset management fees. In order to understand how base management fees and incentive distributions are generated, the three LP agreements need to be examined. It should be noted that BAM also earns asset management revenues through realized disposition gains. Fee-Related Earnings Fee bearing capital (see chart below) represents the capital that is managed by BAM under contractual arrangements to earn asset management revenues (fee-related earnings). Fee-related earnings are broken down into base management fees, incentive distributions, performance fees, and advisory and transaction fees.

For each of the three Listed Partnership agreements, BAM owns the General Partner (GP), which entitles them to receive Base Management Fees (Incl. Equity Enhancement Fees) and Incentive Distributions.

16 21 33 42 46 45 48 20 23 26

29 28 37 37 20 16

21 18 19 18 19

57 60 79

89 93 100 104

2011 2012 2013 2014 Q12015 Q22015 2015E

Fee Bearing Capital

Listed Partnerships Private Funds Public Markets

16% CAGR

General Partner (BAM)

LPs

Private Funds

Incentive Distributions

Carried Interest

Base Management Fees = fixed (from BEP, BPY and private funds) + Equity Enhancement Fees (from LPs)

16

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Base Management Fees Base management fees from the LPs are recurring revenue streams and are either guaranteed or variable. Guaranteed streams include fixed base fees which are earned quarterly from BEP and BPY. Variable streams include equity enhancement fees, which are paid by each LP dependent on the amount by which the company’s total capitalization value at the end of each quarter exceeds its original total capitalization value. Therefore, as BAM continues to grow AUM and fee-bearing capital, this will be a significant driver of base management fees going forward. Refer to the chart above for a breakdown of the Base Management Fees earned by BAM from its LPs. In section 5 of this report, equity enhancement fees are explained in detail. Base fees also flow from Private Funds and Public Funds. These are contractual fees that BAM earns on behalf of managing capital invested by institutional clients. BAM manages over $37B in fee bearing capital through 32 private funds, as well $18B through numerous funds and separately-managed accounts on behalf of 3rd party public markets clients. As the AUM increases in these funds, BAM generates more base fees. Based on BAM’s financial reports, it yields ~0.95% in base fees on private funds; however, the chart in under the “Carried Interest” section below suggests that such funds yield 1.25%-1.50%. The discrepancy between these figures is that the 0.95% represents the base fee yield on all assets, including cash not yet invested.

Incentive Distributions BAM generates Incentive Distributions (IDs) from each of their LPs. Each LP Agreement clearly established two distribution thresholds (return hurdles) and corresponding incentive distribution rates (see chart to the right). The General Partner (GP) for each LP, which is owned by BAM, controls the size and growth of the quarterly distributions that each LP makes to its unit holders. For normal distributions, the GP is only entitled to about 1% of the distributable cash flow. Therefore, in order to incentivize the GP to increase distributions, IDs were created. By surpassing the first hurdle, the GP is entitled to receive 15% of the remaining distributable cash in excess of first distribution threshold. By surpassing the second

Fee Bearing AUM$B 2008 2009 2010 2011 2012 2013 2014 Q12015 Q22015 CAGR Base Fee %Private Funds 8 14 17 20 23 26 29 28 36 27% 0.95%Public Markets 18 24 21 20 16 21 18 19 19 1% 0.54%

Incentive(Distribution(RightsListed(Partnerships

Annual(Incentive(Distributions

Return(Hurdles((1st(&(2nd)

BPY 15%(/(25% 1.10(/(1.20BEP 15%(/(25% 1.50(/(1.69BIP 15%(/(25% 1.22(/(1.32

Base%Management%Fees Incentive%Distribution%RightsListed%Partnerships

Fixed%Base%Fees

Equity%Enhancement%Fees

BIP 0 1.25%BEP $20M 1.25%BPY $50M 1.25%

17

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

return hurdle, GPs receive 25% of all remaining distributable cash. If the first hurdle is not reached, the GP receives zero incentive distributions. Please refer to the beginning of section 4.1 for an example of how incentive distributions are calculated. Since 15% and 25% are significant increases compared to receiving 1% of distributable cash flows, incentive distributions effectively align the interests of the General Partner with the LPs. Additionally, it should be noted that the GP will only increase the distributions if it is financially feasible for the LP to do so; therefore, the LPs need to continue to grow in order to achieve the distribution growth targets set by BAM.

The more frequently that distribution targets are reached, the greater the compounding effect will be on incentive distributions (see chart to the right for ID CAGRs given various annual distribution growth). This will drive the value of the fee-bearing capital and investors will ultimately be more willing to pay a high multiple on these annuity streams. Additionally, as IDs continue to increase, operating margins will expand, as minimal incremental costs are associated with such growth. Therefore, incentive distributions are a clear driver of profitability for BAM and these will continue to compound value as LP distributions grow. Additional Asset Management Revenue BAM earns performance fees for managing public securities portfolios, based on exceeding performance thresholds in a number of strategies, particularly in real estate hedge funds and structured products funds. Also, BAM earns transaction and advisory fees through its pure-play investment banking arm, Brookfield Financial (BF). BF’s operations are primarily focused on real estate and infrastructure transactions. Since BF advises BAM on its many transactions, BF should be able to grow as BAM grows and has more capital to deploy.

83 107 135 168 203 88 116 154

195 239 92

127 174

223 276

97 140

194

252 315

2016E 2017E 2018E 2019E 2020E

Potential Incentive Distributions ($M)

8%

7%

6%

5%

Compounding effect 2015-20EDistribution Growth

5%6%7%8%

Compounding effect 2015-20EID Growth

24.63%28.74%32.52%36.03%

18

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Finally, BAM generates additional revenue from their Asset Management operations through realized disposition gains. For example, in 2014 they disposed of a low margin, fixed income insurance asset management business during the year, which reduced fee-bearing capital by $7B and generated a $6M realized disposition gain. Carried Interest BAM earns carried interest as they receive a fixed percentage of investment gains above a predetermined minimum return to private fund investors. For example, if the return hurdle is set at 12% and carried interest is 20%, if the fund returns 15%, BAM will earn 20% of the investment gain that exceeds the 12% return hurdle. Therefore, BAM is aligned with its private clients as it invests 20-40% into each fund and earns greater carried interest the larger the returns that funds generate. This high margin income stream however, is irregular as BAM can only recognize carried interest at the end of a funds life. All of the private funds can be broken down into two categories: (1) Core Plus and Value Add, (2) Opportunistic and Private Equity. The chart below outlines the average carried interest and return hurdles for the funds, among other information.

There is a significant amount of potential to increase carried interest as BAM continues to grow and deploy private fund capital. Management has a very optimistic outlook on carried interest (see the chart below for management’s expectations for Carried Interest

56

36

58 53 53

69 60

30 21 25

2009 2010 2011 2012 2013 2014 2015E 2013 2014 2015E

Private Funds Base Fees (bps)

Carried Interest Term Target Return Return

HurdlesGross

IRRNet IRR

Core Plus and Value Add

100-150 ~18% 10-12 yrs 10%-15% ~9% ~13% ~12%

Opportunistic and Private Equity

150-200 ~20% 10-12 yrs 18%-25% ~11% ~26% ~21%

Weighted Average 125-150 ~19%

Transaction & Advisory Fees ($M) Performance Fees ($M)

19

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

growth)6; however, if BAM can achieve even the low-end of the 2019 target carried interest, substantial value will be created for BAM shareholders.

2.2.2 Invested Capital BAM has ~$30B invested capital, which generates a significant amount of cash flow from its ownership interest in entities that pay distributions (see chart to the right). These cash flow distributions are primarily generated through BAM’s LP interests and are not asset management fees. The capital that BAM has invested in its public entities aligns BAM with investors. As the LPs grow and increase cash distributions, both BAM and investors benefit. 2.2.3 Brookfield Capital Partners (Private Equity) BAM’s private equity operations are conducted under Brookfield Capital Partners, a wholly owned subsidiary of BAM. Revenue flows from 16 private equity funds with total committed capital of $3.3B. There are also direct investments in several private companies and public companies, including a 52% interest in Norbord Inc., one of the world’s largest producers of orientated strand board (OSB). Additionally, realized disposition gains also contribute to revenue for this segment. An in depth look at Brookfield’s private equity platform can be found in section 2.3.4.

6 BAM Investor Day Presentation 2014

Management Expectations: Carried Interest Growth

Return Annualized Target Carried Interest (2019) Implied CAGR

250 bps under target return $560M 10.5%Meet Target Return $690M 16.5%

500 bps over target return $940M 25.8%

($M)Distributions BPY BEP BIP Norbord Acadian Timber BPY Preferred Share Financial AssetsCash Flow from Distributions

2015E

512286127

285

7673

$1,107

20

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.2.4 Property, Renewable Energy, and Infrastructure Revenue For property, almost all of the reported revenue comes from BAM’s 62% economic interest in BPY as well as realized disposition gains. In the renewable energy segment, the majority of reported revenue is recognized through BAM’s 63% economic interest in BEP as well as realized disposition gains. Additionally, BAM owns 100% of Brookfield Energy Marketing (BEMI), which entered into long-term purchase agreements and price guarantees with BEP. BEMI purchases electricity from BEP and redistributes it throughout North America. BEMI has had improving FFO; however, it is still operating at a loss. BAM’s infrastructure segment generates revenue primarily through its 28% economic interest in BIP. Additional revenue flows from BAM’s sustainable resources sub-segment, which includes investments in timberlands in northeastern U.S. and Canada, as well as capital in a number of BAM’s timber and agriculture private funds. It should be noted that realized disposition gains are very inconsistent streams of revenue for each segment and no clear patterns exist. Section 2.3 has a more detailed description of each of the three main listed partnerships, as well as Brookfield Capital Partners. 2.2.5 Other Sources of Revenue Residential Development Revenue in this segment is driven primarily from direct investments in Australia, as well as in two companies: Brookfield Residential Properties (BRP) and Brookfield Incorporcões S.A. (BISA). As of March 13th, 2015, BAM completed the privatization of BRP. BRP represents BAM’s North American operations, controlling 105,000 lots with the focus on developing land for building homes or to sell to other builders. Also, during November 2014, BAM increased its ownership in BISA from 45% to 87% and is working towards acquiring the remaining shares. BISA is one of the leading developers in Brazil’s real estate industry and it has a primary focus on middle-income residential housing. BAM’s increased investment in Brazil demonstrates its philosophy of buying assets during illiquid times; a strategy that has proven to generate substantial returns for BAM historically. Service Activities This segment can be broken down into 2 main areas, construction and property services. Property services fees include leasing management, property and facilities management, project management, residential brokerage services and several real estate services.

21

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.3 Breakdown of Major Business Segments BAM’s corporate structure truly allows it to create value as it earns sticky and growing cash flow streams, all while maintaining control of the operations for each LP. This structure is set up to let the LPs continue to expand their asset portfolios while BAM is supportive to ensure they complete transactions; therefore, BAM facilitates the growth of each LP, which drives value for BAM and benefits all unit holders. Each major business segment benefits from BAM’s experienced management team, restructuring capabilities, global reach and fundraising abilities. It should be noted that this is a two-way beneficial relationship as BAM uses these segments to raise capital to help fund various investment opportunities across the globe. 2.3.1 Brookfield Property Partners (NYSE: BPY & TSX: BPY-UN) BPY develops, operates and owns some of the highest quality properties across the globe (see chart to the right). BPY consistently purchases quality property at attractive valuations in locations that will be in high demand for years and years to come; therefore, these asset valuations consistently increase. However, BPY is willing to pay more for high quality properties, such as Canary Wharf. BPY has over $61.4B in assets allocated to three main segments: Core Office, Core Retail and Opportunistic (see chart below for breakdown). In total, BPY has over $3.6B in active development projects with an average expected yield on cost of 7%.

Core Office Core Retail Opportunistic% of BPY Portfolio 61% 31% 8%

Interests137 office properties

totaling 98 Million square feet (MSF)

171 regional malls and urban retail properties

with 155 MSF

27,787 multifamily units, 167 industrial assets totaling 44 MSF, 12 hotels with 8,859 rooms, 123 office park properties mainly in India, and a 16 MSF portfolio of about 300

properties leased to automotive dealerships on a triple net lease basis

Development 31 MSF in developments $540M in developments -Target Annual

ROE10-12% through current

yield + growth10-12% through current

yield + growth 20%+ primarily through capital appreciation

Canada 7%

UK 14%

Australia 7%

USA 69%

Other 3%

22

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Operating Strategy BPY is the lead investor in all transactions and it maximizes revenue by actively managing these investments. BPY strives to consistently increase occupancy rates and capitalize on synergies. Additionally, BPY has $1.4B in redevelopment projects, which are expected to generate an average yield on cost of 11%. Since 1989 BAM has invested >$30 billion of equity in properties, generating an estimated annual gross IRR of approximately 16%. BPY Adds Value to BAM Accretive Execution of Asset Sales These dispositions further enhance FFO and support growing distributions and a high payout ratio of >80%. Despite these being inconsistent, it still provides a significant revenue stream for BPY each year (see chart below).

Performance As market capitalization increases, so do the equity enhancement fees that BAM collects. In the two years since the spin-off, BPY has established itself as a major player in the global real estate market. BPY has engaged in several transactions, doubling its total assets to $62B and increasing its market cap by approximately 60% (~$15B).

$397

$1,325

$657 $871

$2,019

$405 $40

$357 $190 $141 $511

$104 ($17) ($1) $55 $16 $36 $4

2010 2011 2012 2013 2014 2015

Disposition Sales

Sales Price Realized Gains IFRS Gains

16

18

20

22

24

26

13-03-22 13-10-22 14-05-22 14-12-22 15-07-22

BPY Peformance

23

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

23%

16%

$1.03

$1.79

$2.41 $2.41

$3.30 $3.45 $3.56

$1.06 $1.10

$1.32 $1.50

$1.72 $1.92 $2.12

2009 2010 2011 2012 2013 2014 2015 FFO/unit Distribution/unit

2.3.2 Brookfield Infrastructure Partners (NYSE: BIP & TSX: BIP-UN) Brookfield Infrastructure Partners is a global owner and operator of high quality infrastructure assets. Operating Platform

Description Asset Type Primary Location

Utilities Regulated or contractual businesses which earn a return on their asset base

- Regulated Terminal - Electricity Transmission - Regulated Distribution

- Australia - North & South America - Europe

Transport Provide transportation for freight, bulk commodities and passengers, for which we are paid an access fee

- Railroad - Toll Roads - Ports

- Australia & South America - South America - Europe & North America

Energy Systems that provide energy transportation, distribution and storage services

- Energy Transmission, Distribution & Storage - District Energy

North America - Europe - Australia

Communications Infrastructure

Provides contracted transmission services and tower access rights

- Tower Infrastructure Operations

- Europe

Source: http://www.brookfieldinfrastructure.com/content/about_us/our_operations-3330.html BIP currently pays quarterly distributions of $0.53 per unit, which represents a 4.8% yield and these have grown at 12% y/y since 2009. BIP targets 5-9% distribution growth, so by exceeding these targets, BAM has generated significant capital from incentive distributions. BIP’s strong FFO generation allowed for this distribution to be feasible as FFO per unit has increased by 23% y/y since 2009 and BIP maintains ~68% payout ratio.

24

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Strong Cash Flow Generation BIP has a visible cash flow stream as 90% is regulated or contracted, while 70% is indexed to inflation. BIP operates under the same global scale as BAM and therefore can effectively allocate this steady cash flow globally as opportunities arise. The diagrams below7 illustrate BIP’s diverse portfolio and the stability of its cash flow. Stable Cash Flow Profile Segment Diversification Global Footprint

Performance BIP has performed exceptionally well as its share price has risen over 126% over the past 5 years. This continued growth combined with its very healthy FFO generation, will continue to drive equity enhancement and incentive distribution fees for BAM.

7 BIP Investor Presentation, May 2015

Regulated

47% Contracted 43%

Other 10%

Energy 43%

Utilities 44%

Transport

13% AU

32%

SA 28%

EU 29%

NA 11%

10

20

30

40

50

10-08-31 11-07-31 12-06-30 13-05-31 14-04-30 15-03-31

BIP Performance

25

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.3.3 Brookfield Renewable Energy Partners (NYSE: BEP & TSX: BEP-UN) Brookfield Renewable Energy Partners (BEP) is a world leader in renewable energy as they are one of the largest public pure-play renewable power businesses. Similar to BAM and the other LPs, BEP invests in very high quality, irreplaceable assets. BREP has about $20B AUM and operates primarily in North America, Latin America, and Europe. Strong Growth Prospects

BEP currently pays a quarterly distribution of $0.415/unit and maintains a FFO payout ratio between 60%-70%. The continuous growth of FFO (see above chart) will support greater distributions to LP unit holders; therefore, BAM will benefit from increased incentive distributions fees. Value Drivers BEP’s operating platform creates value as it has the ability to sell power in multiple markets due to its geographic diversity spread over 74 river systems. Also, a significant barrier to entry protects BEP, as building renewable energy facilities requires deep operational knowledge and marketing expertise.

| Brookfield Renewable Energy Partners LP 7

We have a long-term track record of accretive growth

• Over the last 10 years we have acquired or developed ~5,000 MW of capacity while building an integrated operating business

– 158 hydro and 28 wind facilities

– ~$9 billion of invested capital

• Launch of BREP as a dual-listed entity with a global mandate has enhanced our growth prospects

0

2,000

4,000

6,000

8,000

1999 2011 2014

Capacity (MW)

0

200

400

600

1999 2011 2014

FFO ($millions)

25% CAGR 22% CAGR

15

20

25

30

35

10-08-31 11-07-31 12-06-30 13-05-31 14-04-30 15-03-31

BEP Performance

26

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4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.3.4 Brookfield Capital Partners (Private Equity) Brookfield’s private equity arm, Brookfield Capital Partners (BCP), is comprised of 42 investment professionals with over 30 years of experience in PE investing and bridge financing. BCP follows a contrarian approach when allocating capital, typically targeting distressed businesses that are low cost producers or benefit from high barriers to entry. BCP actively manages the companies it acquires, taking advantage of its expertise by focusing on making operational and financial improvements. BCP’s sectors of expertise include:

• Building and Forest Products • Paper and Packaging • Metals and Mining • Industrial Manufacturing • Construction and Engineering • Financial Services • Energy • Real Estate Services

Bruce Flatt recently made public that BAM’s priority is to develop its private equity portfolio. BAM plans to expand into chemicals, agriculture supply chain and aerospace parts. Raising funds to support this expansion should not been an issue as BCP has a history of consistently strong returns. BCP has gross returns of 27% and net returns of 20% annually and ranks in the top quartile against benchmarks. Since inception, BCP has made over 100 investments and has not recorded a single realized loss (see the diagram below for a transaction timeline8). When potential investment opportunities require immediate capital, BCP is able to leverage BAM’s significant capital base, creating yet another capital advantage. This allows BCP to underwrite large investments or loans, without syndication.

Therefore, BAM has established a strong private equity business with a platform facilitated for future value creation. 8 BAM 2014 Investor Day

| Brookfield Asset Management Inc. 53

With a demonstrated ability to deploy and manage capital

Queensway Financial

2002

2009

2005 2007

2013 2008 2006

2014

Long history of investing in and managing companies across economic cycles

Capital deployment accelerating with $9 billion deployed over the past five years

2011

Prime (BBI)

2000 2004

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.3.5 Brookfield Investment Management (Public Securities Group) BAM’s has a 30-year history of investments in public markets. Unsurprisingly, this segment too focuses investment strategies on real assets. Brookfield Investment Management (BIM) operates Brookfield’s public market activities and currently has ~$19B in AUM (see the chart below and to the right for a breakdown of BIM’s AUM), all of which is fee-bearing capital for BAM. As BAM continues to grow, BIM should be able to grow alongside it, as it will contribute capital to BAM, as well as to BAM’s LPs. BIM’s consistent returns should encourage current investors, as well as new clients, to choose BIM to manage their assets. Therefore, there is a lot of potential for BAM to grow this business, which ultimately will drive base management fees higher. The chart below provides a brief look into BIM’s variety of products:

Brookfield Investment Management is yet another aspect of BAM’s business model that contributes to its competitive advantage of having superior access to capital.

Mutual Funds Closed-End Funds Non-US Funds

1. Brookfield US Listed Real Estate Fund

1. Brookfield Global Listed Infrastructure Income Fund (NYSE: INF)

1. UCITS 2. New Horizons Income Fund

2. Brookfield Global Listed Real Estate Fund

2. Brookfield Mortgage Opportunity Income Fund (NYSE: BOI)

3. Brookfield High Yield Strategic Income Fund

3. Brookfield Global Listed Infrastructure Fund

3. Brookfield High Income Fund (NYSE: HHY)

4. Brookfield Global Infrastructure Securities Income Fund

4. Brookfield Real Assets Securities Fund

4. Brookfield Total Return Fund (NYSE: HTR)

5. Brookfield Select Opportunities Income Fund

Equity Infrastru

cture 33%

Fixed Income

31%

Equity Real

Estate 36%

Performance Net Returns Long-term equity strategies 18.40% Global Infrastructure 19.60%

Long/short strategies Global real estate 18.10% Global Infrastructure 11.50%

28

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.4 Management Team BAM is run by a superior management team, which has led to BAM’s share price compounding 20% over the past 20 years. Bruce Flatt and the rest of management have proven to be very strong capital allocators, with Flatt being deemed the “Buffett of Canada”. Bruce Flatt was appointed CEO in 2002 and was groomed by his predecessor, Jack Cockwell, who started the transformation of BAM. Flatt finished Cockwell’s vision and added his own simplistic ideals, transforming BAM into an asset manager that focuses on 3 asset classes. BAM’s management is very aligned with creating shareholder value. The senior managing partners (current and past) own Partners Ltd., which owns about 20% of BAM’s common shares.

Clearly management’s interests are aligned with shareholders as they have a significant amount of their own capital invested in BAM, directly and indirectly. Bruce Flatt also personally owns 27M shares of BAM, which is worth nearly $1B and represents a significant portion of his families net worth. Brookfield’s management culture may serve as its greatest competitive advantage. BAM is a very flat and open organization with a management team that truly demonstrates this. Bruce Flatt is known for his open-door policy, eating lunch and discussing strategy with any employee wanting to learn9. Additionally, several of the most senior people constantly move around the company’s divisions as demand changes10. This open culture contributes to BAM’s ability to keep up with the ever-changing external environment. Further contributing to BAM’s success are the valuable relationships it has with its well-connected past senior executives. BAM’s relationships with past managers are maintained partly due to Partners Ltd., which is owned by 40 current and past senior executives. These well-connected individuals, even if not formally active in BAM’s operations, are more than willing to help BAM succeed as their interests are aligned

9 Globe Advisor (n.d.). Retrieved July 6, 2015. 10 Brookfield Asset Management: A perfect predator. (2010, August 16). Retrieved June 29, 2015.

Partners Ltd.

Owns approximately 49% of the common shares of PVF, which is

where a large portion of their holding in BAM stems from

The members of Partners Limited own approximately 41% of PVF on a personal basis, which includes Flatt’s

near 9% holding

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

with that of BAM’s. Therefore, this established network strategically positions BAM to hear about potential value-creating opportunities. Flatt and his management team have a clear history of buying high-quality assets that typically rise in value and generate steady income, making them relatively cheap to finance. Through BAM’s operational expertise, management improves the cash flows and ultimately, the value of these assets. This success is due to their ability to find great opportunities all over the globe, and Flatt’s focus on achieving goals. For example, Flatt lost the bid for Canary Wharf in the early 2000s, but decided to keep BAM’s 17% interest as he believed Morgan Stanley was a short-term owner. Canary Wharf is one of the finest pieces of real estate in the world and in 2014, BAM was able to acquire the rest of this property. Canary Wharf will be a huge driver of value for BPY for many years and this acquisition truly exemplifies the competence and persistence of Bruce Flatt. Bruce Flatt has been known to be conservative in his guidance, so the following is potentially great news for investors. Flatt said he expects Brookfield’s share price to reach $100-$135 by 2024, which is driven by capital compounding at 12%-15% and fee-earnings nearing $3B. BAM’s management team, specifically Bruce Flatt, is arguably BAM’s greatest strength. Bruce Flatt has an exceptional track record of making intelligent decisions and executing on deals that have lead to significant value creation. Investing in BAM is an investment in Bruce Flatt, which historically has proven to be an excellent decision. 2.4.1 Executive Compensation The executive compensation structure does a phenomenal job of aligning management with the interests of shareholders primarily through the Long-Term Share Ownership Plan Awards program. This program accounts for the majority of compensation executives receive and it awards them with ownership interests in BAM that have long-term vesting periods. Refer to the chart below for the compensation mix for BAM executives11.

As the chart above illustrates, by awarding executives with ownership interests, a large percentage of their total compensation is at risk. This simply implies that this percentage of compensation is dependent on the value of BAM Class A Shares. As the value of

11 BAM Management Information Circular 2015

$CADBase Salary Cash Incentive DSUs / Restricted

SharesLong-Term Share

OwnershipPercentage of

Compensation at Risk

2014 Chief Executive Officers 8% 0% 8% 84% 92% Other Named Executives 14% 0% 14% 72% 86%Five Years (2009-2013) Chief Executive Officers 11% 0% 11% 78% 89% Other Named Executives 16% 0% 16% 68% 84%

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4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Class A Shares increases over time, the interests of shareholders and BAM’s executives are mutually satisfied. The Compensation Committee does not have a set formula as to who gets awarded or by how much. The committee exercises judgment to ensure incentives reflect the assessment of risk in the decisions made by the executives. The committee also considers accomplishments and initiatives undertaken by each executive and whether these were aligned with BAM’s long-term value creation strategy. See the chart below for a brief description of the 4 types of Long-Term Share Ownership Plans6. Type of Award Description Basis for Award Vesting

Period Management Share Option Plans (MSOP)

Options to purchase Class A Shares which are settled in cash or Class A Shares

Number of options is based on the executive’s level of responsibility and performance

20% per year over 5 years

Deferred Share Unit Plan (DSUP)

DSUs are settled by a cash payment equal to the value of BAM’s Class A Shares upon retirement, resignation, termination, or death

Annual management incentive taken in the form of DSUs at the executive’s election. Are also given in lieu of cash bonuses.

Over 5 years

Restricted Stock Plan

Restricted Shares are Class A Shares purchased on the open market

Same as DSUP Over 5 years

Restricted Share Unit Plan

RSUs have a value equal to the increase in the market value of a Class A share

No awards have been made since 2005

Over 5 years

CEO Compensation Since being appointed CEO in 2002, 93% of Flatt’s total compensation is a result of an increase in the value of BAM Class A shares over this period. This demonstrates how Bruce Flatt’s compensation structure attributes a small percentage of total compensation to his base salary, while the rest of his compensation largely depends on the overall performance of BAM Class A Shares. Further aligning Flatt with long-term value creation is that 45% his total compensation cannot be redeemed until he retires from the company. Additionally, the majority of the remaining shares that Flatt owns have a minimum vesting period of 5 years. These vesting clauses help to ensure that Flatt makes decisions that are best for BAM’s long-term health.

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2.5 BAM Led Turnarounds “There is always a Real Asset sector or country out of favour”12 – Bruce Flatt Historically, Brookfield has created substantial value for shareholders by allocating capital to places where resources are scarce. Brookfield’s global scale, significant access to capital, and expertise in managing complex restructurings has allowed it to exploit several valuable opportunities that most firms avoid due to a lack of resources and capabilities. BAM is an expert at acquiring debt in great businesses that are distressed due to poor capital structures. When such businesses file for bankruptcy, BAM has an abundance of experience in guiding these companies through the restructuring process. Typically BAM acquires debt in these companies for cheap since it falls to nearly zero during bankruptcy, which creates a significant margin of safety. During the restructuring process, BAM is able to convert the debt it owns of the distressed company for equity. Therefore, this dilutes existing outstanding shares but it is great news for BAM as they are presented with an opportunity to acquire a large equity stake in a great business, for a very low cost. Additionally, sometimes BAM will make equity investments in distressed companies, which also allows them to purchase a large equity stake for a low cost. BAM’s expertise in taking on complex restructuring transactions is a significant competitive advantage. The majority of firms would not engage in this type of investment simply because they do not have the expertise to close the transaction successfully. Bruce Flatt was quoted saying, “we watch hundreds of companies all the time, if one of them gets into trouble, we visit them and see if there’s an opportunity for us to help”13. Great examples of execution of this strategy are BAM’s investments in Babcock & Brown Infrastructure, General Growth Properties (GGP), and Energy Future Holdings (EFH).

12 Investor Day Presentation 2014 13 Brookfield Asset Management: A perfect predator. (2010, August 16). Retrieved June 29, 2015.

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2.5.1 Babcock & Brown Infrastructure14,15 BAM’s $1.1B acquisition for ~40% of Babcock & Brown Infrastructure (BBI), a global portfolio of ports, railways and utilities, was its largest deal since the financial crisis. In this deal, BAM also acquired 60% of two direct investments (see below) from BPI and purchased the remaining 40% with co-investors. (1) 100% interest in a “landlord” port, which was the 3rd largest in the UK. (2) 49.9% interest the largest coal export terminal in the world, Dalrymple Bay Coal Terminal. The recapitalization and restructuring of BBI was announced on October 8th, 2009, and by November 20th, 2009, the recapitalization had already closed, which is remarkable considering BAM had to negotiate with 25 banks and many other stakeholders. BAM successfully transformed BBI’s debt leverage so that it is sustainable for the long term.

This restructuring transaction was transformational for BIP as it added nearly $8B US of assets under management for an investment of only $1.1B. This acquisition demonstrates how BAM’s competitive advantage of being able to complete complex restructuring transactions often leads to significant value creation. 2.5.2 General Growth Properties (GGP) Today, General Growth Properties (GGP) is the second largest retail property REIT in the US, with interests in 130 urban retail and regional malls, totaling ~127 million square feet and has an enterprise value of ~$46B. GGP owns ~25% of the high quality malls in the US and is one of the four players in the extremely concentrated US shopping mall market. GGP was in the middle of aggressively expanding when the financial crisis struck in 2008. The crisis left GGP with $27B in debt that it could not refinance, so about a year after the crash, GGP filed for chapter 11 bankruptcy. Brookfield saw this as a phenomenal opportunity to use its expertise to acquire a high-quality business. By March 2010, Brookfield succeeded as the primary investor of the ~$8B recapitalization

14 Brookfield Asset Management and Brookfield Infrastructure Partners Complete Recapitalization of Babcock & Brown Infrastructure. (n.d.). Retrieved July 16, 2015. 15 Investor Presentation. (n.d.). Retrieved June 16, 2015.

Pre PostCorporate Debt A$1,228 A$119Proportionate Debt A$8,864 A$3,762Total Debt Leverage 98% 68%Corporate Liquidity $0 A$439

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Appendices................................................................................................................................................................... 33

$0.88 $0.98 $1.16

$1.32 $1.43

$0.40 $0.42 $0.51 $0.63 $0.68

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

as part of the $30B restructuring, the largest real estate restructuring in North American history16. Brookfield and it’s partners invested $2.625B in exchange for ~26% of GGP. By acquiring GGP at a “substantial discount to stabilized net asset value”14 just after the financial crisis, it clearly demonstrates how BAM’s strong business model and willingness to take on complex restructurings deals, allows it to unlock value even during tough economic periods. This transaction also exemplifies BAM’s contrarian investment philosophy as well as its “hold forever” time frame. Brookfield invested in American shopping malls at a time when the majority of Americans were not looking to shop. Additionally, rent had dropped for 6 straight quarters and vacancies at regional malls were 11%, which was the highest it had been in 20 years. The short-term underperformance was insignificant to BAM as it saw the true value in acquiring leading shopping malls, at a substantial discount. Additionally, BAM knew that historically high quality shopping malls had very stable returns14. Flatt and his team believed that over time, as the economy recovered and the cities surrounding the malls grew, the shopping centres would become more valuable. Under the guidance of Brookfield, GGP has flourished since the restructuring (see the chart below and to the left17) and vacancy rates have returned to ~4%. In November 2013, BPY increased their ownership interest in GGP to 32% on a fully diluted basis, for $1.4B. Finally, GGP has been able to increase its dividend payments over the past 5 years (see the chart below and to the right15), which has provided another growing revenue stream for BPY. Currently, BPY owns 33% of GGP, on a fully diluted basis18, which has a market capitalization of ~$23B. Therefore, considering that BAM invested ~$4B, this transaction has proven to create a substantial amount of value and should continue to do so as GGP grows.

16 Brookfield Asset Management Case Studies (n.d.). Retrieved July 2, 2015 17 GGP Investor Presentation, June 2015 18 Brookfield Property Partners (n.d.). Retrieved July 11, 2015.

13% CAGR

14% CAGR

FFO per Diluted Share Annual Dividends per Share

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

2.5.3 Energy Future Holdings (EFH)19 In April 2014, Energy Future Holdings, the main distributor and generator of electricity in Texas, filed for chapter 11 bankruptcy after it was overwhelmed by ~$40B in debt. According to Flatt, Brookfield Capital Partners has since acquired a substantial amount of debt in EFH’s distribution and power generation subsidiary, Texas Competitive Electricity Holdings. Flatt believes that EFH is a great company, with a poor capital structure, and that EFH is very important to the infrastructure of Texas. Flatt also mentioned that he expects Brookfield will be a cornerstone investor once EFH emerges from bankruptcy. Flatt compared this transaction to the GGP deal due to its complexity and upside potential. Brookfield is already a major player in electricity generation in the USA and owns several malls and office properties in Texas. Also, Brookfield constructed electrical transmission lines that bring power from wind farms into the Houston area. The aforementioned reasons are why Brookfield is now one of EFH’s largest creditors and why Flatt believes this will be yet another transformative deal. Over a year has gone by since EFH filed for bankruptcy; however, if history is any predictor of the future, BAM shareholders should be excited for the potential value creation as EFH emerges from bankruptcy. 19 Q2 2014 Earnings Transcript

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4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

3.0 REAL ASSETS

Institutional investors have had a growing appetite for real assets, which has resulted in a significant amount of capital being allocated to the asset class in recent years. These investors have funded the majority of this growth, as they have realized the many benefits on investing in real assets. The assets of BAM’s Institutional clients have been growing exponentially20 and this will continue to drive investments into real assets (see chart to the right). For starters, real assets provide very steady cash flow streams, which are due to very attractive operating margins combined with contractual revenues. Steady cash flow generation allows institutional investors, such as pension funds, to meet their growing obligations, especially as the population ages. Not only do these assets provide steady income, but they also have long-term capital appreciation potential. Real assets give investors a way to diversity their portfolio as low correlation exists between traditional equity and real asset investments. Furthermore, with real assets, investment diversification is common as opportunities all around the globe are continuously arising. These opportunities will continue to arise as governments look to cut spending and become more liquid by allowing for the privatization of toll roads, airports, among other assets. Ultimately, BAM is well positioned to raise and deploy capital as it continues to flow into real assets.

Rising Interest Rates and the Implications on Real Asset Values Several investors fear that rising interest rates will negatively impact BAM on two fronts:

(1) Rising interest rates may increase cap rates, which will decrease asset values (2) Flow of funds may slow as more people allocate capital to fixed income

While it may be true that rising interest rates may negatively impact BAM, it is equally true that such impact will be minimal. During the Q2 2015 conference call, Bruce Flatt disputed the notion that rising interest rates will have a significant negative impact on BAM. Flatt stated that BAM’s operating expertise will continue to generate enhancements in cash flows that far outpace any extra interest costs. Additionally, he noted that BAM finances ~50% of its investments with debt and moving interest rates up

20 BAM AGM 2015

$5T

$30T

$45T

$70T

1970s 2000s 2012 2020s

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Appendices................................................................................................................................................................... 33

by 1% will at most impact returns by 1% to 2%. At the corporate level, BAM is already paying more interest now, with the expectations that rates will rise and they will be covered in the future. Furthermore, BAM has a lot of fixed rate debt, so cash flows will not change until that debt matures. Overall, an increase in interest rates will at worst, decrease returns from 20%, to a still unbelievable 18%. There are several additional reasons that refute the argument that BAM will take a substantial hit due to rising interest rates. Firstly, there has been little to no correlation between cap rates and interest rates historically. In five of the eight key periods where Baa corporate rates increased, cap rates actually moved in the opposite direction.21 Cap rates and interest rates are simply not directly correlated; however, a couple variables that do impact cap rate include:

(1) Rising credit availability (i.e. increased real estate lending) will drive down cap rates (and vice versa), as this will essentially increases the cost of property

(2) Supply-demand dynamics: oversupply and pullback of credit will increase cap rates while a fall in demand and low credit availability will also drive up cap rates.

Secondly, cap rates have a huge cushion (see chart to the right and below) over interest rates; therefore, if interest rates rise, it is less likely to impact cap rates. People will still be more likely to invest in real assets over fixed income due to the higher yield. Additionally, if rates rise due to an improving economy, cap rates are less likely to rise also. Showing this mathematically: Value= NOI / (r-g), were r is the discount rate and g is the NOI growth rate. Since Cap Rate = NOI / Value, higher growth implies lower cap rates. Therefore, this cushion will provide valuation support as rates rise22.

21 Frozen on the Rates (n.d.). Retrieved July 21, 2015. 22 Interest Rates and Cap Rates (n.d.). Retrieved July 21, 2015

2%

8%

7%-15%

Bond Yields Equity Yields Real Asset Yields

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Appendices................................................................................................................................................................... 33

Some investors believe that real assets are overvalued due to the heavy investments made into them the past couple of years. Real assets may not be at the low end of their cycle in terms of valuation; however, BAM cannot be thought of as just a real asset, they are an active manager that frequently sells mature assets and jumps into developing ones. Therefore, for the reasons mentioned above, BAM shareholders should not fear rising interest rates, as BAM will continue to generate significant returns over time.

Movement of Cap Rates Relative to Bond Yields

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4.0 DCF VALUATION The DCF model is not a traditional 3-statement model; however, it simply shows the earnings potential of BAM’s underlying business. BAM’s cash flow streams are broken down into two main segments: asset management fees and distributions. Overall, the assumptions used in this model are very conservative (see diagram to the right).

4.1 Asset Management Fees Forecast Incentive Distributions For this model, it was assumed that LP distributions would grow at 5% annually, which is at the low-end of the management’s target distribution growth rate. It is also assumed that BAM’s economic ownership interest does not change over time. Other assumptions include:

For all 3 LPs, passing the first hurdle rate entitles BAM to 15% of remaining distributable cash flow, while after the second threshold it receives 25%. As the LPs continue to increase distributions, BAM’s Incentive Distribution income stream will grow at a much faster rate. BAM’s LPs recently started to hit these incentive distribution rate thresholds, with BPY expected to start paying IDs in 2016. The following is an example of how Incentive Distributions are calculated:

• BIP pays an annual distribution of $1.40 per unit (assume there are 100 units) • LP unit holders receive $122 (100*1.22) and the GP receives 0 IDs yet • Since 1.40 is > 1.22 and > 1.32, BAM will earn 2 levels of IDs • First ID Calculation: BAM receives 15% of distributable cash in excess of the

first hurdle rate (up to the 2nd hurdle rate). So, the second distribution to LPs = (1st hurdle rate – 2nd hurdle rate) * # of units = (1.32-1.22) * 100 = $10. This $10

# of units (Mn)

% economic ownership

Implied # of units

1st Threshold

2nd Threshol

BPY 482.8 61.70% 782.50 1.10 1.20BEP 172.3 62.50% 275.68 1.50 1.69BIP 59.9 28.50% 210.18 1.22 1.32

Sanity Check

Line Item Projected CAGR

Historical CAGR

Cash flow from distributions 4.9% Proj. 5-9% growth

Base Fees: Private Funds 15.0% 24.2%

Base Fees: Public Markets 0.0% 0.0%

Total Base Management Fees 10.7% 29.2%

IDs 26.7% 128.9%

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Appendices................................................................................................................................................................... 33

represents 85% of the distributable cash flow (up to the 2nd hurdle rate), so BAM’s first ID = (10/0.85) - 10 = $1.76.

• Second ID Calculation: BAM receives 25% of the distributable cash flow in excess of the second hurdle rate. So, the second distribution to LPs = (Current distribution – 2nd hurdle rate) * # of units = (1.40 – 1.32) * 100 = $8. This $8 represents 75% of the distributable cash, so BAM’s second ID = (8/0.75) – 8 = $2.67.

• Therefore, BAM’s total IDs = $1.76 + $2.67 = $4.43 and LP unit holder received total distributions of $122 + $10 + $8 = 1.40*100 = $140.

• The LP structures certainly align BAM with the LPs; however, these ID rights make it more difficult for the LPs to raise distributions as which each increase, larger IDs are owed. Historically this has not impacted the LPs ability to increase distributions, it is just a small tradeoff between alignment and growth prospects that is worth noting.

Historically Incentive Distributions have been growing at a rapid rate (see the above chart) and will continue to do so if distribution growth achieves management’s expectations (see the chart below).

Equity Enhancements Calculations BPY: Equity enhancement fees = (Current total capitalization – $11,468M) * 125 bps, where current total capitalization = market capitalization + non-recourse debt. The initial total capitalization was $11,468M. BEP: Equity enhancement fees = (Current total capitalization – $8,100M) * 125 bps, where current total capitalization = market capitalization + non-recourse debt. The initial total capitalization was $8,100M. BIP: Equity enhancement fees = (Current market capitalization + non-recourse debt) * 125 bps. For each forecast, it was assumed that capitalizations will grow at 10% Y/Y. Historically the LPs have achieved even greater growth and they have had absolutely no problem

0 2 9

21

37

54

8 14

22 31

39 49

60 67

75 83

92 101

2015E 2016E 2017E 2018E 2019E 2020E

ID Forecast - 5% Dist. Growth ($M)

BPY BEP BIP

0 6

23

49

77

107

8 19

32 46

61

78

60 72

84 98

113 129

2015E 2016E 2017E 2018E 2019E 2020E

ID Forecast - 8% Dist. Growth ($M)

BPY BEP BIP

36% CAGR 25% CAGR

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Appendices................................................................................................................................................................... 33

raising capital during equity issuances. For the purpose of this model, Equity Enhancement fees were calculated annually; however, BAM actually calculates them quarterly.

Carried Interest Carried Interest is a difficult cash flow stream to forecast as no clear patterns exist as to when assets will be sold and the carried interests can be realized. Therefore, in order to forecast carried interest as accurately as possible, historical figures make up the basis of the assumptions. Unfortunately, only figures since 2011 are disclosed. Assumptions

Avg. Since 2011 (incl. Q2 2015) Direct Costs as a % of Generated Carried interest 19% Avg. Realized Carried Int. as a % of Net Unrealized 22% Direct Costs as a % of Realized Carried Int. 3% For the DCF model, average realized Carried Interest as a % of net unrealized Carried Interest is largely what drives this forecast. Also, this model assumes that $205M in Carried Interest is generated for 2015, which represents the average amount generated annually since 2011. It is forecasted that this figure will grow by a CAGR of 10.5%. This estimate is reasonable given that the AUM for private fund capital (the capital in which Carried Interest is generated off of) is expected to grow at 15% and management expects this figure to grow by a CAGR of 16.5% (see chart in section 2.2.1, bottom of page 18). Target carried interest generated annually is currently $375M which equates to ~200 basis points on $18 billion of third-party capital subject to Carried Interest. As this third-party capital continues to grow, so should Carried Interest.

108 119 131 144 158 174

31 34 37 41 45 49

182 200 220 242 266 293

2015E 2016E 2017E 2018E 2019E 2020E

Equity Enhancement Forecast ($M)

BPY BEP BIP

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Asset Management Profit Margin Margins in the asset management business will continue to improve as there are little incremental costs associated with growing asset management fees. Additionally, there have been a growing number of institutions that now invest in multiple BAM funds. This trend illustrates BAM’s ability to leverage its relationships to generate AUM growth by increasing the amount of commitment per client. As of Q2 2015, the percentage of investors that invest in multiple funds increased by 6% to 40%, up from the previous quarter. Management believes this number could increase to greater than 75%, which will significantly increase fee-bearing capital and therefore, generate more asset management fees, all while contributing to margin expansion. Asset Management margins improved from ~36% in 2011 to ~63% in 2015 (Q1 & Q2). This model assumes that this margin will stay at a 55% for 2015, and will increase to 60% by 2018. My assumptions for this margin expansion are aligned with management guidance provided in the Q2 2015 earnings transcript. This is a conservative assumption as margins could realistically expand even more as incentive distributions and other revenue streams grow at faster rates. Certain asset management revenue streams, such as incentive distributions, have virtually zero incremental costs associated with growth. Revenue streams such as equity enhancement and variable base fees generate incremental costs that are typically associated with growing AUM bases. 4.2 Distributions Forecast The main driver for this cash flow stream is the distribution growth rate. Management targets 5-8% growth in distributions for BPY, and 5-9% for BIP and BEP. This model assumes that only 5% growth will be achieved which is conservative based on historical growth, as well as when compared to management expectations. Additionally, further illustrating how conservative this 5% forecast is, is the assumption that LPs should grow by 10% annually.

Distribution*GrowthLPBPYBEPBIP

Distribution*GrowthInceptionQ3(2013Q1(2012Q1(2008

Distribution*GrowthCAGR2.96%6.35%10.41%

$1,107 $1,156 $1,206 $1,260 $1,315 $1,374

2015E 2016E 2017E 2018E 2019E 2020E

Cash Flow from Distributions

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4.3 WACC The assumptions for BAM’s WACC calculations are as followed: Risk Free Rate: 10-year US Treasury Bond was used Tax Rate: An effective tax rate of 35% was assumed. Beta: To be conservative, 1.14 was used, as it was the highest beta out of all of the websites that disclosed it Cost of Common Equity: The CAPM formula was used to calculate this. The 20-year return of the S&P 500 was used as the market return rate. Fully diluted shares outstanding and the current share price were used to calculate the weight of common equity Average Interest Rates: The weighted average interest rates for corporate borrowings and preferred equity were disclosed in the Q2 2015 report 4.4 DCF Cases For the DCF model of BAM, four different cases were applied, which resulted in an intrinsic value per share range between $24.26 and $47.07. All of the assumptions stated throughout the model refer to the Base Case; however, the chart below shows the various changes in assumptions that apply to each case. The changes in assumptions are very straightforward. The Bull Case represents a scenario where management meets every single growth target and the bear case illustrates a scenario where the flow of funds into BAM slows drastically and the LPs miss distribution targets.

Bear Case Base Case Moderate Case Bull CaseDistribution Growth BPY 3.0% 5.0% 6.5% 8.0% BIP 3.0% 5.0% 7.0% 9.0% BEP 3.0% 5.0% 7.0% 9.0%

Fee Bearing Capital Growth Private Funds 5% 15% 20% 25% Public Funds 0% 0% 5% 10%

Carried Interest Stays at $205M$205M generated in 2015 and grows by

10.5% annually

$205M generated in 2015 and grows by

16.5%

$205M generated in 2015 and grows by

25.8%

Fee Related Margin Stays at 55%Reaches 60% by

2019

Reaches 60% by 2018 and 65% by

2020

Reaches 60% by 2017 and 65% by

2019Terminal Growth Rate 3.0% 3.5% 3.5% 3.5%Intrinsic Value $24.26 $35.33 $41.09 $47.07

BAM's WACCCommon Equity Risk Free Rate 2.16% Market Return 6.26% Beta 1.14 Cost of Common Equity 6.83% Common Equity $35,041 Common Equity Weight 82.61%

5.65%Debt Avg int rate 4.90% Debt $3,826 Effective tax rate 35.00% After tax avg int rate 3.19% Debt Weight 9.02%

0.29%Preferred Equity Avg int rate 4.29% Preferred Equity $3,549 Preferred Equity Weight 8.37%

0.36%Total Capitalization 42,416 WACC 6.29%

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4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

4.5 PVF DCF An additional DCF model was created for PVF, as this is the company that is being proposed as a Buy. PVF generates the majority of its revenue from the dividends it receives from its economic interest in BAM (86M shares). PVF also receives dividends from BIP, BPY and other securities. Finally, PVF earns a small revenue stream from other investment revenue. For this model, driving these dividends steams was the main focus:

1. BAM Dividends: Has grown at a CAGR of 14.31% since 2005. This model assumes growth will continue at 5.1%, which is what it has grown at over the past 5 years.

2. BPY & BIP: Similarly to the BAM DCF, this model assumes that these dividends will grow at 5% annually. Management expects these dividends to grow at 5%-9% y/y.

3. Dividends from Other Securities: This small dividend stream is assumed to

simply grow at inflation (2%).

4. Other Investment Revenue: The model assumes that the 2015 value will equate the average other investment revenue earned since 2006. This figure will then simply grow at inflation (2%) from 2016 and onwards.

To get from revenue to EBIT, the average margin over the past 10 years was used. This DCF values PVF at $35.35, which is a 14% discount to the current share price. WACC The beta is .95, which represents the average beta of all the various figures pulled from a variety of websites. For PVF’s $617M of outstanding preferred shares, the weighted average interest rate was calculated. Overall, this model acts as a good sanity check as it computes PVF’s intrinsic value to be $35 per share, on a fully diluted basis. PVF’s current market price is $31.00 per share.

PVF's WACCCommon Equity Risk Free Rate 2.16% Market Risk Premium 4.00% Beta 0.95 Cost of Common Equity 5.96% Common Equity $2,390,274 Common Equity Weight 79.48%

4.73%Preferred Equity Weighted Avg Int Rate 4.52% Preferred Equity $617,138 Preferred Equity Weight 20.52%

0.93%Total Capitalization 3,007,412 WACC 5.66%

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3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

5.0 SOTP VALUATION BAM should trade a premium to NAV because Equity as an asset class will grow at about 10% and BAM has proven that they will most likely compound at a faster rate than this (see chart to the right)23

The Sum-of-the-Parts (SotP) valuation gives a great snapshot of what BAM is currently worth right now. This model valuates BAM based on its limited partner and general partner value.

The calculation of the equity value of LP is conservative as it assumes only a 10% future growth assumption, while BAM targets 12%-15% growth.

The GP valuation applies a 20x multiple to LTM Fee-Bearing Earnings and a 10x to Target Carried Interest:

After applying a reasonable valuation (10% LP growth assumption, 20x multiple on fee-bearing earnings, and 10x multiple on carried interest), this model shows that BAM’s current share price of $30.89 is actually trading at a slight discount to NAV. Therefore, buying this long-term value creation vehicle at its current price is certainly rational as it should trade at a premium to it’s current NAV valuation.

Please refer to Appendix I to see the full SotP model.

PVF SotP

Further adding to the attractiveness of investing in PVF is that it is currently trading at a 30% discount, according to the SotP valuation. Please refer to Appendix II for a SotP model of PVF.

23 2014 10K

Brookfield Asset Management SotP Valuation Value Per Share of BAMValue of Limited Partners 19,666 $20.48Value of General Partner 11,770 $12.26Total Value 31,436 $32.74

Earnings (LTM) Multiple Value Per Share of BAMFee Bearing Earnings 401 20x 8,020 $8.35Carried Interest 375 10x 3,750 $3.91Total Value of GP 11,770 $12.26

General Partner Valuation

Investment Performance

Brookfield Returns

S&P 500 10 Year Treasuries

1 31% 14% 9%5 21% 15% 6%10 15% 8% 6%20 19% 10% 6%

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3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

6.0 CONCLUSION “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price” – Warren Buffett Investors often look for two types of opportunities: (1) buying good companies at a significant discount to intrinsic value; or, (2) buying phenomenal businesses at a reasonable price that will compound value over a long period of time. BAM certainly exemplifies the latter of that statement. The bottom line is that BAM’s management team has an excellent track record of buying high quality assets at attractive valuations, which is supported by a business model that will provide the liquidity for this trend to continue. The continuous streams of free cash flow, along with BAM’s access to capital through its own fundraising activities or through its LPs, are what provide this liquidity. This superior access to capital allows BAM to constantly deploy capital, which is a major driving force behind its LPs and ultimately, will accelerate growth in equity enhancement and incentive distribution fees. Furthermore, this liquidity, combined with BAM’s global presence, minimizes its exposure to economic downturns. Complementing this lucrative business model is none other than Bruce Flatt. Flatt is a man with high integrity and he possesses the competence to continue to build this special asset management franchise. Flatt has done a fantastic job at leveraging BAM’s competitive advantages and most importantly, he has demonstrated great patience and discipline when it comes to bidding on various investments. BAM’s size and expertise, combined with its scalable business model, offers an opportunity for investors to be a part of something truly special. A levered investment in Brookfield Asset Management through PVF as the vehicle should be a staple in the LSIF portfolio for years to come. Not only does it provide diversification to the current portfolio, but it also should compound value in the high teens or 20%+ annually for a long period of time. I recommend that the LSIF invests in PVF at its current share price of $31.00.

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3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Appendix I

Brookfield Asset Management SotP Valuation

Last Updated: 15-09-18Current BAM Price $30.89Number of Shares (M) 960.3 1015.1Market Cap $29,664

Entity BBG Ticker # Units Owned Value/Unit Total Value Per Share of BAMBrookfield Property Partners BPY US Equity 483 $21.21 10,240 $10.66Brookfield Renewable Energy Partners BEP US Equity 172 $27.33 4,709 $4.90Brookfield Infrastructure Partners BIP US Equity 60 $38.25 2,291 $2.39BPY Preferred Shares N/A N/A 1,275 $1.33Norbord NBD CN Equity 35 $21.89 764 $0.80Acadian Timber ADN CN Equity 8 $19.90 149 $0.16Other N/A 434 $0.45Financial Assets N/A 919 $0.96Value of Listed Partners 20,782 $21.64Residential Development 2,143 $2.23Private funds 482 $0.50Directly Held Assets 468 $0.49Energy Marketing 997 $1.04Construction and Property Services 1,268 $1.32Value of Unlisted Units 5,358 $5.58Total Debt from LPs -7,366 -$7.67Equity Value of LP (Today) 18,774 $19.55Future Growth Assumption 10% 10%Equity Value of LP $20,651 $21.50

Earnings (LTM) Multiple Value Per Share of BAMFee Bearing Earnings 401 20x 8,020 $8.35Carried Interest 375 10x 3,750 $3.91Total Value of GP 11,770 $12.26

Brookfield Asset Management SotP Valuation Value Per Share of BAMValue of Limited Partners 20,651 $21.50Value of General Partner 11,770 $12.26Total Value 32,421 $33.76

General Partner Valuation

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3.2 The U.S Market ..................................................................................................................................................... 17



4.1 Sales Forecast ........................................................................................................................................................ 21

4.2 Margin Forecast ................................................................................................................................................... 23


4.4 CAPEX ..................................................................................................................................................................... 25






Appendices................................................................................................................................................................... 33

Appendix II

PVF SotP

Last Updated: 15-09-18Current PVF Price $31.00Number of Shares (M) 73.55Market Cap $2,280

Entity BBG Ticker # Units Owned Value/Unit Total Value Per Share of PVFBrookfield Asset Management BAM CAD Equity 85.84 $40.83 3,505 $47.65Brookfield Property Partners BPY CAD Equity 3.61 $28.01 101 $1.38Brookfield Infrastructure Partners BIP CAD Equity 2.22 $50.55 112 $1.53Value of Publicly Traded Entities 3,718 $50.56Brookfield New Horizons Income Fund portfolio 122 $1.66Global Champions portfolio 133 $1.80Other portfolio 22 $0.29Value of Other Portfolios 276 $3.75Net Debt (Preferred Equity o/s less cash) -597 -$8.12Equity Value of LP (Today) 3,397 $46.19

pvf report_vf

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