Brookfield Asset Management (BAM) 40-F2019 Q4 Annual report (Canada)

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: (i) investment returns that are lower than target; (ii) the impact or unanticipated impact of general economic, political and market factors in the countries in which we do business; (iii) the behavior of financial markets, including fluctuations in interest and foreign exchange rates; (iv) global equity and capital markets and the availability of equity and debt financing and refinancing within these markets; (v) strategic actions including dispositions; the ability to complete and effectively integrate acquisitions into existing operations and the ability to attain expected benefits; (vi) changes in accounting policies and methods used to report financial condition (including uncertainties associated with critical accounting assumptions and estimates); (vii) the ability to appropriately manage human capital; (viii) the effect of applying future accounting changes; (ix) business competition; (x) operational and reputational risks; (xi) technological change; (xii) changes in government regulation and legislation within the countries in which we operate; (xiii) governmental investigations; (xiv) litigation; (xv) changes in tax laws; (xvi) ability to collect amounts owed; (xvii) catastrophic events, such as earthquakes, hurricanes, and pandemics/epidemics; (xviii) the possible impact of international conflicts and other developments including terrorist acts and cyberterrorism; (xix) the introduction, withdrawal, success and timing of business initiatives and strategies; (xx) the failure of effective disclosure controls and procedures and internal controls over financial reporting and other risks; (xxi) health, safety and environmental risks; (xxii) the maintenance of adequate insurance coverage; (xxiii) the existence of information barriers between certain businesses within our asset management operations; (xxiv) risks specific to our business segments including our real estate, renewable power, infrastructure, private equity, and residential development activities; and (xxv) factors detailed from time to time in our documents filed with the securities regulators in Canada and the United States.

Subsequent to year-end, we held the final close of our fourth flagship infrastructure fund (“BIF IV”), bringing the total fund size to $20 billion. BIF IV attracted total capital commitments exceeding the original $17 billion fundraising target. BIF IV’s predecessor fund closed in 2016 with $14 billion of total capital commitments. Brookfield committed $5 billion to the fund, and will be funded through BIP and BEP.

On September 30, 2019, we completed our acquisition of an approximate 61% interest in Oaktree Capital Group, LLC’s (“Oaktree”) business (the “Oaktree Transaction”). Purchase consideration for the acquisition was $2.4 billion of cash and the issuance of 52.8 million Brookfield Class A Shares. As part of the transaction, we received a distribution from Oaktree for $306 million, and recognized deferred consideration of $365 million related to the settlement of certain pre-existing agreements. The investment is equity-accounted by the Corporation.

The additional fee-bearing capital during the year contributed to a 42% increase in fee revenues from the prior year to $2.0 billion, excluding performance fees. Performance fees during 2019 were $nil compared to $278 million in the prior year. We also generated $707 million of unrealized carried interest, net of direct costs, on third party capital across our private funds, including the contribution from Oaktree, and realized a further $403 million into income during the year.

We invested $31.8 billion over the year across our business groups, including $6.5 billion from our perpetual strategies, $11.8 billion from our long-term private funds, $6.6 billion from co-investments, and $6.9 billion in direct investments.

As at December 31, 2019, we had total uncalled private fund commitments of $50.7 billion.

The additional fee-bearing capital during the year contributed to a 17% increase in fee revenues from the prior year to $1.4 billion, excluding performance fees. Performance fees during 2018 totaled $278 million compared to $142 million in the prior year. We also generated $600 million of unrealized carried interest on third-party capital across our private funds.

As at December 31, 2018, we had total uncalled private fund commitments of $23.6 billion.

As at December 31, 2017, we had total uncalled private fund commitments of $18.6 billion.

Our Real Estate segment generated “funds from operations” (“FFO”) of $1.2 billion, representing a decrease of approximately $601 million. FFO increases from lease commencements and same-store growth, were more than offset by lower disposition gains, our reduced ownership interest in BPY following the GGP Inc. (“GGP”) privatization as well as lower dividends from the Class B Junior Preferred Shares of Brookfield BPY Holdings Inc. following their redemption.

On February 11, 2019, BPY and BPYU announced that they formally commenced their substantial issuer bid to purchase up to $405 million of limited partnership units of BPY (“BPY LP Units”) and $95 million of Class A stock of BPYU (“BPYU Units”), respectively, for a total of $500 million from the unitholders for cash. The offer to purchase the BPY LP Units and the BPR Units expired on March 25, 2019. BPY purchased for cancellation 13,981,839 BPY LP Units at a purchase price of $21.00 per BPY LP Unit, for an aggregate cost of approximately $294 million. BPYU purchased for cancellation 4,679,802 BPYU Units at a purchase price of $20.30 per BPYU Unit, for an aggregate cost of approximately $95 million.

On May 31, 2019, BPY sold its interest in 2001 M Street in Washington, D.C. for approximately $121 million and realized a gain of approximately $32 million. Also, on May 31, 2019, BPY sold a portfolio of office assets in California in the Brookfield Strategic Real Estate Partners I (“BSREP I”) fund, for approximately $270 million and realized a gain of approximately $114 million.

On July 11, 2019, BPY sold a portfolio of triple-net lease assets in the U.S. in the BSREP I fund, for approximately $585 million and realized a gain of approximately $36 million.

On August 6, 2019, BPY sold its interest in the Darling Park office complex in Sydney for approximately A$638 million and realized a gain of approximately A$247 million.

On August 26, 2019, BPY acquired an incremental 49.7% interest in 730 Fifth Avenue in New York for approximately $779 million and as a result BPY gained control of the investment.

On September 13, 2019, BPY sold 3 Spring Street in Sydney for approximately A$173 million and realized a gain of approximately A$98 million.

On October 23, 2019, BPY sold five multifamily assets in the U.S. in the BSREP I fund for approximately $1.1 billion and realized a gain of approximately $203 million.

On November 1, 2019, BPY acquired their joint venture partners’ incremental interest in four properties including Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, and Shops at Merrick Park in Florida, bringing BPY’s ownership in each of the malls to 100%. Concurrently, BPY sold its interest in Bridgewater Commons in New Jersey to the joint venture partner.

On November 1, 2019, BPY sold its interest in Jessie Street Centre in Sydney for approximately A$412 million and realized a gain of approximately A$82 million.

On November 20, 2019, BPY acquired an incremental 50% interest in One and Two London Wall Place in London for approximately £177 million and as a result gained control of the assets.

Our Real Estate segment generated FFO of $1.8 billion during the year, representing a decrease of approximately $218 million compared to the prior year due to a lower level of disposition gains on the sale of mature assets, partially offset by greater contributions from new acquisitions, most notably the privatization of GGP as well as a higher level of leasing activity across BPY’s portfolio.

On January 5, 2018, BPY acquired 333 West 34th Street in New York for approximately $255 million through a joint venture with Brookfield Premier Real Estate Partners Pooling LLC.

On March 14, 2018, BPY sold a 50% interest in Bay Adelaide Centre East and West Towers in Toronto for approximately C$850 million.

On March 30, 2018, in a Brookfield-sponsored debt fund, BPY sold the Hard Rock Hotel and Casino in Las Vegas for $510 million. Also, on March 30, 2018 BPY sold its interest in 1801 California Street in Denver for $286 million.

In the second quarter of 2018, in the BSREP II fund, BPY acquired an office portfolio in Mumbai for consideration of approximately ₨2,726 million.

On April 12, 2018, in the BSREP II fund, BPY acquired an office building in Chicago for consideration of $35 million.

On July 6, 2018, in the BSREP III fund, BPY acquired two community malls in Shanghai for consideration of C¥728 million.

On July 6, 2018, BPY sold 27.5% of its interest in a portfolio of operating and development assets in New York. BPY retains control over and will continue to consolidate these assets after the sale.

On August 3, 2018, in the BSREP III fund, BPY acquired a 100% leasehold interest in 660 Fifth Avenue, a commercial office asset in New York, for $1.3 billion.

On August 28, 2018, BPY acquired all of the outstanding shares of common stock of GGP , a U.S. retail shopping business, other than those shares previously held by the partnership and its affiliates, which represented a 34% interest in GGP prior to the acquisition.

On September 5, 2018, BPY acquired a development in the South Bronx, New York for consideration of $166 million.

On September 6, 2018, BPY sold a portfolio of 112 self-storage properties in the BSREP II fund for approximately $1.3 billion and realized a gain of approximately $292 million.

On October 1, 2018, BPY sold a 49% interest in Fashion Place in Utah for approximately $291 million. BPY retained joint control of the resulting joint venture.

On October 4, 2018, BPY sold Queen’s Quay Terminal in Toronto for C$261 million and realized a gain of C$173 million.

On October 18, 2018, BPY sold its 25% interest in Jean Edmonds Tower in Ottawa for C$47 million and realized a gain of C$5 million.

On November 30, 2018, BPY sold a logistics portfolio in the U.S. in the BSREP I fund for approximately $3.4 billion and realized a gain of approximately $1.1 billion.

In December 2018, BPY launched Brookfield Premier Real Estate Partners Pooling LLC Australia (“BPREP Australia”), an open-ended fund. BPY contributed interests in Jessie Street, 52 Goulburn Street and 680 George Street in Sydney and 235 St Georges Terrace in Perth to BPREP Australia. BPY’s interest in BPREP Australia is 39%, with the remaining interest of 61% held by external investors.

On December 7, 2018, in the BSREP III fund, BPY acquired a portfolio of mixed-use assets across the U.S. for consideration of approximately $6,948 million.

On December 19, 2018, in the BSREP III fund, BPY acquired a student housing portfolio in France for consideration of €279 million.

On December 21, 2018, in the BSREP III fund, BPY acquired a hotel in Florida for consideration of $222 million.

On December 21, 2018, BPY sold 10 Shelley Street in Sydney for A$533 million and realized a gain of A$149 million. BPY also sold 12 Shelley Street in Sydney for A$270 million and realized a gain of A$111 million.

Our Real Estate segment generated FFO of approximately $2 billion during the year, representing an increase of approximately $443 million compared to the prior year due to a higher level of disposition gains on the sale of mature assets, increased level of leasing activity in BPY’s core office and core retail portfolios, same-property FFO growth, the incremental contributions from lease commencements at BPY’s recently completed developments, as well as incremental contributions from BPY’s recent acquisitions to BPY’s opportunistic portfolio.

On December 20, 2017, BPY sold its interest in Gazeley, a European business which owns and operates logistics warehouses and distribution parks, held in the BSREP I fund for €2.4 billion.

In March 2020, BEP and TerraForm Power, Inc. (“TerraForm Power”, listed under the symbol “TERP”) entered into a definitive merger agreement for BEP to acquire all of the outstanding shares of Class A common stock of TerraForm Power not currently held by BEP and its affiliates. BEP and its affiliates currently own an approximate 62% interest in TerraForm Power.

Each share of Class A common stock of TerraForm Power will be acquired for consideration equivalent to 0.381 of a BEP unit (as defined below). For each share of TerraForm Power’s Class A common stock held, TerraForm Power’s shareholders will be entitled to receive, at their election, either Class A shares of Brookfield Renewable Corporation (“BEPC shares”) or limited partnership units of BEP (“BEP units”). As previously announced, BEP also intends to make a special distribution of BEPC shares to its unitholders. Brookfield Renewable Corporation is a Canadian corporation and will be listed on the TSX and NYSE. The BEPC shares are structured with the intention of being economically equivalent to a BEP unit, including identical distributions, as and when declared, and will be fully exchangeable at any time, at the shareholder’s option, for a BEP unit on a one-for-one basis. The exchange ratio for the transaction will proportionally reflect the contemplated special distribution of BEPC shares to BEP unitholders, which BEP expects to close concurrently with the closing of the transaction.

A special committee of the board of directors at TerraForm Power, comprised solely of non-executive, independent directors of TerraForm Power, has unanimously recommended that TerraForm Power shareholders approve the transaction. A transaction could only proceed upon approval by a majority of TerraForm Power’s stockholders not affiliated with BEP and other customary approvals. There can be no assurance that TerraForm Power stockholders not affiliated with BEP will approve any transaction, that the other conditions to the transaction will be satisfied or satisfied on the anticipated schedule or that the transaction will be completed, including as a result of potential litigation in connection with the transaction.

In February 2020, BEP issued 8 million Class A Preferred Limited Partnership Units, Series 17 at a price of $25.00 per unit, for gross proceeds of $200 million.

Our Renewable Power segment generated FFO of approximately $333 million during the year, an increase of $5 million from the prior year. FFO was positively impacted by contributions from recent acquisitions, higher realized pricing at BEP and greater realized disposition gains; however, this was partially offset by lower realized margins on generation sold within our directly held energy contracts.

In March 2019, BEP sold an additional 25% non-controlling, indirect interest in its 413 megawatt (“MW”) Canadian hydroelectric portfolio to a consortium of buyers, retaining a 50% economic interest in this portfolio which it will continue to manage and operate.

In March 2019, BEP issued 7 million Class A Preferred Limited Partnership Units, Series 15 at a price of C$25.00 per unit, for gross proceeds of C$175 million ($130 million).

In March 2019, BEP and its institutional partners agreed to invest C$750 million in TransAlta Corporation (“TransAlta”), the largest power producer in Alberta, through the purchase of exchangeable securities with an annual coupon of 7.0%. The investment will occur in two tranches; C$350 million of which was funded at the initial closing in May 2019, and C$400 million is expected to be funded in October 2020, subject to customary closing conditions. The exchangeable securities include the option to convert into an interest in TransAlta’s 813 MW portfolio of high quality hydroelectric assets in Alberta commencing in 2025, based on a valuation multiple equal to 13 times the average annual EBITDA of the portfolio during the three years prior to conversion. In addition, subject to certain conditions, BEP and its institutional partners have committed to purchase TransAlta common shares on the open market to increase its share ownership in TransAlta to 9%.

In September 2019, BEP completed the issuance of C$300 million ($230 million) of Series 12 and C$300 million ($230 million) of Series 13 medium-term notes.

In November 2019, BEP announced that it intends to distribute to existing holders of its BEP units, by way of special distribution, BEPC shares. Current BEP unitholders are expected to receive one BEPC share for every four BEP units pursuant to the Special Distribution. Each BEPC share will be structured with the intention of providing an economic return equivalent to one BEP unit, including identical dividends on a per share basis to the distributions paid on each BEP unit. Each BEPC share will be exchangeable, at the BEPC shareholder’s option, for one BEP unit. Following completion of the special distribution, the aggregate quarterly distributions and dividends from BEP and BEPC will correspond to the quarterly distributions made on BEP units as if the special distribution did not take place. Upon completion of the special distribution, it is anticipated that the share capital of BEPC will be comprised of class A shares, class B multiple voting shares and class C non-voting shares. The class A shares and class B shares are expected to control 25% and 75%, respectively, of the aggregate voting rights of the shares of BEPC. We expect to hold approximately

60% of the class A shares, which is equivalent to our effective ownership of BEP units, and BEP will own all of the class B shares and class C shares. The completion of the special distribution is subject to the receipt of normal course regulatory approvals.

On January 14, 2020, BIP completed the sale of its 17% interest in a Colombian regulated distribution operation for total consideration of approximately $90 million.

Our Infrastructure segment generated FFO of $464 million during the year, a decrease of $138 million from the prior year. This is primarily as a result of lower amounts of realized disposition gains being partially offset by contributions from capital deployed across the operations and solid same-store growth.

In January 2019, BIP acquired 100% of DCI Data Centers, an Australian-based data center business, for approximately $50 million.

On February 5, 2019, a wholly-owned subsidiary of BIP issued four million Senior Preferred Shares, Series 1 (“Series 1 Shares”), at an offering price of C$25.00 per share in a public offering in Canada. Holders of the Series 1 Shares are entitled to receive a cumulative quarterly fixed dividend at a rate of 5.85% annually for the initial period ending March 31, 2024. Net proceeds from this offering totaled approximately C$97 million or $73 million.

On February 7, 2019, BIP completed the sale of one third of its interest (approximately 17%) in its Chilean toll roads business for total consideration of approximately $365 million. Proceeds included a $200 million distribution from a local financing completed at the business prior to the sale of our interest. BIP received $165 million.

On March 22, 2019, BIP alongside institutional partners (the “EWPL consortium”) acquired East West Pipeline, a 1,480 kilometer cross-country gas pipeline in India, for total consideration of approximately $225 million (EWPL consortium total of $960 million).

On March 29, 2019, BIP alongside its institutional partners, acquired an effective 12% interest in a Brazilian data center operation, Ascenty Participacoes S.A. for approximately $190 million.

On April 12, 2019, BIP through a Brookfield-sponsored infrastructure fund, acquired an additional 15% interest in Esperanza Transmissiora de Energia S.A. for approximately $10 million.

On June 25, 2019, BIP closed the sale of its 40% interest in its European port business for net proceeds of approximately $135 million.

On July 17, 2019, BIP issued 13,529,750 limited partnership units at an offering price of $42.5 per unit in public offerings in the U.S. and Canada. In a concurrent private placement, the Corporation acquired 6,128,000 redeemable partnership units at the offering price, net of commissions. Gross proceeds from this equity offering totaled approximately $825 million ($801 million net of issuance costs). Net proceeds were used primarily to fund an active and advanced pipeline of new investment opportunities and for general working capital purposes.

On July 31, 2019, BIP alongside a strategic partner, acquired Vodafone New Zealand, an integrated telecommunications provider in New Zealand for $2.3 billion. BIP contributed approximately $175 million of equity for our 17% interest in the company.

On August 8, 2019, BIP through a Brookfield-sponsored infrastructure fund acquired an additional 15% interest in Odoya Transmissora de Energia S.A. for approximately $10 million.

On September 5, 2019, BIP agreed to sell 33% of its interest in a Chilean toll road business for total consideration of approximately $100 million.

On September 25, 2019, BIP announced that it intends to distribute to its existing unitholders, by way of special distribution, class A exchangeable subordinate voting shares (“exchangeable shares”) of a newly-formed subsidiary, BIPC. BIP unitholders of record as of March 20, 2020 will receive one exchangeable share for every nine of BIP’s limited partnership units (“BIP units”) held pursuant to the special distribution. Each exchangeable share will be structured with the intention of providing an economic return equivalent to one unit, including identical dividends on a per share basis to the distributions paid on each BIP unit. Each exchangeable share will be exchangeable, at the BIPC shareholder’s option, for one BIP unit (subject to adjustment to reflect certain capital events) or its cash equivalent. Following completion of the special distribution, the aggregate quarterly distributions and dividends from BIP and BIPC will approximately correspond to the quarterly distributions made on BIP units as if the special distribution did not take place.

Upon completion of the special distribution, the share capital of BIPC will comprise of exchangeable shares, class B multiple voting shares and class C non-voting shares. The exchangeable shares and class B shares will control 25% and 75%, respectively, of the aggregate voting rights of the shares of BIPC. The Corporation is expected to hold approximately 29.6% of the exchangeable shares, which would be approximately equivalent to its effective ownership of BIP units, and BIP will own all of the class B shares and class C shares.

BIPC announced on March 10, 2020 that it received conditional approval to list the exchangeable shares on the NYSE and the TSX under the symbol BIPC. Listing of the exchangeable shares on the NYSE and the TSX is subject to BIPC fulfilling all of the requirements of the NYSE and the TSX, respectively. The Special Distribution will be completed on March 31, 2020.

On October 7, 2019, Brookfield Infrastructure Finance ULC issued C$500 million of medium-term notes maturing October 9, 2029 with a coupon of 3.4%. Net proceeds were used to early redeem C$375 million of medium-term notes maturing October 30, 2020.

On October 7, 2019, and October 21, 2019, BIP acquired a 13% interest in Ramones II Norte and an 11% interest in Ramones II Sur, respectively, for approximately $140 million. Collectively, these are the regulated natural gas transmission businesses in Mexico.

In November 2019, BIP completed the sale of 100% of its interest in its district energy and distribution business in Australia for approximately $275 million.

On November 13, 2019, BIP completed the sale of 100% of its interest in the Carlsbad plant of its California water desalination business for $22 million.

On December 16, 2019, BIP alongside its institutional partners, agreed to acquire a 10% stake in a telecom tower company in India from Reliance Industrial Investments and Holdings Limited, for total consideration of $3.7 billion (BIP’s share of equity, approximately $375 million). Closing of the transaction is subject to certain closing conditions and regulatory approvals.

On December 19, 2019, BIP agreed to sell its 11% interest in a Texas electricity transmission operation for total consideration of approximately $65 million. The transaction is expected to close in mid-2020, subject to the satisfaction of customary closing conditions.

On December 19, 2019, BIP alongside its institutional partners, acquired an effective 25% interest in a U.K. telecommunications infrastructure operation, Wireless Infrastructure Group, for total consideration of approximately $140 million.

On December 23, 2019, BIP, alongside its institutional partners, agreed to acquire an approximate interest of 29% in Cincinnati Bell in a transaction valued at a total of $2.6 billion, including debt. Following further correspondence with Cincinnati Bell and its advisors in response to competing offers received by Cincinnati Bell, it was announced on March 12, 2020 that Cincinnati Bell’s board of directors determined that a new binding offer from Macquarie Infrastructure and Real Assets Inc. valuing the company at $2.9 billion was superior to our transaction. BIP and its institutional partners have determined not to exercise the right to match this new binding offer under our agreement and instead will cease pursuing the transaction, but will receive a termination fee of approximately $25 million as a result.

On December 30, 2019, BIP alongside its institutional partners, acquired an effective 9% interest in U.S.-listed railroad operator Genesee & Wyoming Inc. in a take-private transaction for approximately $500 million.

On December 31, 2019, BIP alongside its institutional partners, acquired an effective 29% interest in the federally regulated portion of Enbridge Inc’s Western Canadian natural gas gathering and processing business for approximately $500 million.

Our Infrastructure segment generated FFO of $602 million during the year, representing an increase of $257 million compared to the prior year. This increase is due to initial contributions from recently acquired investments and organic growth from existing operations, as well as realized disposition gains of $244 million relating to the sale of BIP’s Chilean electricity transmission business during the first quarter.

On March 15, 2018, BIP completed the sale of its 27.8% interest in a Chilean electricity transmission operation to a third party for gross proceeds of $1.3 billion and net proceeds of $1.1 billion.

On May 15, 2018, BIP’s Brazilian regulated gas transmission business completed the issuance of $1.5 billion five-year senior notes in the local market at a rate of 7.1% at the time of issuance. The proceeds of approximately $440 million were distributed to BIP.

On July 4, 2018, BIP alongside institutional partners agreed to acquire Enbridge Inc.’s Western Canadian natural gas gathering and processing business for total consideration of $3.3 billion (BIP’s share of equity, approximately $540 million). The facilities subject to provincial regulation reached financial close in October 2018 and the facilities subject to federal regulation closed in December 2019. Under BIP’s ownership, the business was renamed NorthRiver Midstream Inc.

On October 16, 2018, BIP alongside institutional partners (the “Enercare consortium”) acquired an effective 30% interest in Enercare Inc., a North American residential energy infrastructure business, for total consideration of $723 million (Enercare consortium total of $2.4 billion). The acquisition was funded through cash consideration of $491 million (Enercare consortium total of $2.2 billion) and $232 million of exchangeable units issued by a subsidiary of BIP (“Exchange LP”) (5.7 million units issued by Exchange LP).

On December 31, 2018, BIP alongside institutional partners (the “Evoque consortium”) acquired an effective 29% interest in AT&T Inc.’s large-scale, multi-tenant data center portfolio for approximately $163 million (Evoque consortium total of $577 million).

On November 17, 2017, BIP agreed to acquire alongside institutional partners 59.1% of Gas Natural SDG, S.A.’s equity interest in its Columbian natural gas distribution and commercialization business for approximately €482 million. Completion of this transaction is subject to certain closing conditions and regulatory approvals.

On January 31, 2020, BBU alongside institutional partners acquired a 45% interest in Brand Industrial Services (“BrandSafway”) from Clayton, Dubilier & Rice (“CD&R”) for $1.3 billion of equity. CD&R will continue to own 45% of BrandSafway, with the BrandSafway management team continuing to own a minority interest in the business.

Our Private Equity segment generated FFO of approximately $844 million during the year, representing an increase of approximately $49 million from the prior year. FFO increased as a result of contributions from the acquisition of Clarios International (“Clarios”) and Healthscope Limited (“Healthscope”) during the year, as well as a full year contribution from Westinghouse Electric Company, LLC (“Westinghouse”). The increase was partially offset by the absence of contributions from businesses sold during the year and compared with 2018.

On May 31, 2019, BBU alongside institutional partners sold its 100% ownership interest in BGIS, a leading global provider of facilities management services, to CCMP Capital Advisors, LP for approximately $1 billion.

On June 6, 2019, BBU alongside institutional partners acquired 100% of Healthscope the second largest private hospital operator in Australia and the largest pathology services provider in New Zealand, in a take-private transaction of an Australian Stock Exchange listed company for A$5.7 billion ($4.1 billion).

On April 30, 2019, BBU alongside institutional partners, including Caisse de dépôt et placement du Québec, acquired 100% of Johnson Controls’ Power Solutions business for $13.2 billion. This business, now rebranded as Clarios International, produces batteries for global automakers and aftermarket distributors and retailers for use in nearly all types of vehicles, including hybrid and electrical models.

On December 12, 2019, BBU alongside institutional partners acquired a 57% controlling interest in Genworth MI Canada Inc. (“MIC”), the largest private residential mortgage insurer in Canada, from Genworth Financial, Inc. for approximately C$2.4 billion ($1.8 billion). The remaining 43% interest in MIC is widely held on the TSX.

On December 13, 2019, BBU alongside institutional partners sold an 81% controlling interest in North American Palladium Inc. (“NAP”), a Canadian mining company and the only pure-play palladium producer in the world, to Impala Platinum Holdings Limited (“Implats”) for approximately $570 million. The agreement was part of a broader transaction whereby Implats also acquired the remaining 19% of NAP’s issued and outstanding shares not owned by us.

On May 15, 2018, BBU alongside institutional partners acquired a 75% controlling interest in Schoeller Allibert Group B.V., a European manufacturer of returnable plastic packaging systems, for €205 million.

On September 26, 2017, BBU completed a public offering of 6,670,000 limited partnership units at a price of $30.00 per unit. In concurrent private placements, OMERS purchased an additional 5,077,000 limited partnership units of BBU and the Corporation purchased an additional 6,945,000 redeemable-exchangeable units of BBU’s holding limited partnership. On October 26, 2017, BBU sold an additional 1,000,500 limited partnership units through the exercise of an over-allotment option. The aggregate gross proceeds from the offering and concurrent private placements were approximately $630 million and resulted in the Corporation’s ownership of BBU being reduced from 75% to approximately 68%. The Corporation currently owns approximately 63% of BBU.

On February 13, 2020, the Corporation announced a three-for-two stock split. The split will be implemented by way of a stock dividend whereby shareholders will receive one-half of the Corporation’s Class A Share for each Class A and Class B Share held (i.e. one additional share for every two shares held). The stock dividend will be payable on April 1, 2020 to shareholders of record at the close of business on February 28, 2020.

On February 21, 2020, the Corporation closed a $600 million note offering with a coupon of 3.45%, issued at a price equal to 99.058% of their face value for an effective yield of 3.501%. Part of the note issuance was used to redeem a C$350 million 5.30% notes due March 1, 2021.

On May 21, 2019, the Corporation announced the TSX approval of a normal course issuer bid to purchase up to 82.5 million Class A Shares, representing at the time approximately 10% of the public float of Class A Shares, through open market purchases on the NYSE and TSX. Under the bid, which commenced on May 24, 2019 and is set to expire on May 23, 2020, the Corporation has, as of March 23, 2020, purchased 6,394,165 Class A Shares at an average price of $55.85.

On August 16, 2019, the Corporation announced the TSX approval of a normal course issuer bid to purchase up to 10% of the public float of each series of the Corporation’s outstanding Class A Preference Shares that are listed on the TSX, through open market purchases on the TSX. Under the bid, which commenced on August 20, 2019 and is set to expire on August 19, 2020, the Corporation has not purchased any Class A Preference Shares as of the date of this Annual Information Form.

On May 18, 2018, the Corporation announced the TSX approval of a normal course issuer bid to purchase up to 82.3 million Class A Shares, representing at the time approximately 10% of the public float of Class A Shares, through open market purchases on the NYSE and TSX. Under the bid, which commenced on May 24, 2018 and expired on May 23, 2019, the Corporation purchased 5,139,491 Class A Shares at an average price of $41.88.

On August 15, 2018, the Corporation announced the TSX approval of a normal course issuer bid to purchase up to 10% of the public float of each series of the Corporation’s outstanding Class A Preference Shares that are listed on the TSX, through open market purchases on the TSX. Under the bid, which commenced on August 20, 2018 and expired on August 19, 2019, the Corporation purchased 7,415 Class A Preference Shares, Series 2 at an average price of C$13.79, 4,090 Class A Preference Shares, Series 4 at an average price of C$13.68, 3,400 Class A Preference Shares, Series 8 at an average price of C$19.54, 3,134 Class A Preference Shares, Series 9 at an average price of C$18.92, 7,604 Class A Preference Shares, Series 13 at an average price of C$13.85, 110,552 Class A Preference Shares, Series 17 at an average price of C$20.45, 99,409 Class A Preference Shares, Series 18 at an average price of C$20.42, 115,356 Class A Preference Shares, Series 24 at an average price of C$18.29, 4,000 Class A Preference Shares, Series 25 at an average price of C$16.96, 132,420 Class A Preference Shares, Series 26 at an average price of C$18.22, 125,460 Class A Preference Shares, Series 28 at an average price of C$16.59, 146,960 Class A Preference Shares, Series 30 at an average price of C$22.58, 232,269 Class A Preference Shares, Series 32 at an average price of C$22.94, 101,154 Class A Preference Shares, Series 34 at an average price of C$20.99, 106,115 Class A Preference Shares, Series 36 at an average price of C$20.90, 118,992 Class A Preference Shares, Series 37 at an average price of C$21.21, 93,868 Class A Preference Shares, Series 38 at an average price of C$20.29, 158,975 Class A Preference Shares, Series 40 at an average price of C$21.68, 112,500 Class A Preference Shares, Series 42 at an average price of C$21.39, 113,260 Class A Preference Shares, Series 44 at an average price of C$25.71, 154,993 Class A Preference Shares, Series 46 at an average price of C$25.44 and 114,028 Class A Preference Shares, Series 48 at an average price of C$24.44.

We are a leading global alternative asset manager with a 120-year history and over $540 billion of assets under management across a broad portfolio of real estate, infrastructure, renewable power, private equity and credit assets. Our $290 billion in fee-bearing capital is invested on behalf of some of the world’s largest institutional investors, sovereign wealth funds and pension plans, along with thousands of individuals.

We provide a diverse product mix of flagship private funds and dedicated public vehicles, which allow investors to invest in our five key asset classes and participate in the strong performance of the underlying portfolio. We invest in a disciplined manner, targeting 12-15% returns with strong downside protection, allowing our investors and their stakeholders to meet their goals and protect their financial futures.

In addition, we maintain significant invested capital on the Corporation’s balance sheet where we invest alongside our investors. This capital generates annual cash flows that enhance the returns we earn as an asset manager, creates a strong alignment of interest, and allows us to bring the following strengths to bear on all our investments.

Our financial returns are represented by the combination of the earnings of our asset manager as well as capital appreciation and distributions from our invested capital. Our primary performance measure is FFO which we use to evaluate the performance of our segments.

Our operations are organized into our asset management business, five operating groups and our corporate activities, which collectively represent seven operating segments for internal and external reporting purposes. We measure operating performance primarily using FFO generated by each operating segment and the amount of capital invested by the Corporation in each segment using common equity. Common equity relates to invested capital allocated to a particular business segment which we use interchangeably with segment common equity. To further assess operating performance for our Asset Management segment we also provide unrealized carried interest which represents carried interest generated on unrealized changes in value of our private fund investment portfolios.

Our operating segments are global in scope and are as follows:

In assessing results, we separately identify the portion of FFO and common equity within our segments that relate to our primary listed partnerships: BPY, BEP, BIP and BBU. We believe that identifying the FFO and common equity attributable to our listed partnerships enables investors to understand how the results of these public entities are integrated into our financial results and is helpful in analyzing variances in FFO between reporting periods. Additional information with respect to these listed partnerships is available in their public filings. We also separately identify the components of our asset management FFO and realized disposition gains included within the FFO of each segment in order to facilitate analysis of variances in FFO between reporting periods.

We manage our liquidity and capitalization on a group-wide basis; however it is organized into three principal tiers:

The following are key elements of our capital strategy:

We have approximately 150,000 operating employees worldwide who are instrumental in maximizing the value and cash flows from our operations.

As an asset manager, the starting point is forming new funds and other investment products to which investors are willing to commit capital. This in turn will provide us with capital to invest and the opportunity to earn base management fees, incentive distributions and performance-based returns such as carried interest. Accordingly, we create value by increasing the amount of fee-bearing capital and by achieving strong investment performance that leads to increased cash flows and asset values.

We follow a value-based approach to investing and allocating capital. We believe our disciplined approach, global reach and our expertise in recapitalizations and operational turnarounds enable us to identify a wide range of potential opportunities, some of which are challenging for others to pursue, and allow us to invest at attractive valuations and generate superior risk-adjusted returns. We also have considerable expertise in executing large development and capital projects, providing additional opportunities to deploy capital.

We finance our operations predominantly on a long-term, investment-grade basis, and most of our capital consists of equity and standalone asset-by-asset financing with minimal recourse to other parts of the organization. We utilize relatively modest levels of corporate debt to provide operational flexibility and optimize returns. This provides us with considerable stability, improves our ability to withstand financial downturns and enables our management teams to focus on operations and other growth initiatives.

Our operating capabilities enable us to increase the value of the assets within our businesses and the cash flows they produce, and they protect capital better in adverse conditions. Our operating expertise, development capabilities and effective financing can help ensure that an investment’s full value creation potential is realized by optimizing operations and development projects. We believe this is one of our most important competitive advantages as an asset manager.

We actively monitor opportunities to sell or refinance assets to generate proceeds that we return to investors in the case of limited life funds and redeploy to enhance returns in the case of perpetual entities. In many cases, returning capital from private funds completes the investment process locking in investor returns and giving rise to performance income.

We create value from earning robust returns on our investments that compound over time and grow our fee-bearing capital. By generating value for our investors and shareholders, we increase fees and carried interest received in our asset management business and grow cash flows that compound value in our invested capital.

Managing risk is an integral part of our business. We have a well-established and disciplined risk management approach that is based on clear operating methods and a strong risk culture. Brookfield’s risk management program emphasizes the proactive management of risks, ensuring that we have the necessary capacity and resilience to respond to changing environments by evaluating both current and emerging risks. We have implemented a risk management framework and methodology that is designed to enable comprehensive and consistent management of risk across the organization.

We believe that acting responsibly toward our stakeholders is fundamental to operating a productive, profitable and sustainable business. This is consistent with our philosophy of conducting business with a long-term perspective in a sustainable and ethical manner. Our bottom line is that having robust environmental, social and governance (“ESG”) principles and practices is good business for a wide variety of reasons. Accordingly, we have embedded ESG principles and practices into both our asset management activities and encouraged them at the underlying business operations.

We incorporate ESG factors into our investment decisions, starting with the due diligence of a potential investment through to the exit process. During the initial due diligence phase, we utilize our operating expertise to identify material ESG opportunities or risks relevant to the potential investment and then perform deeper due diligence if required, where we utilize internal experts and, as needed, third-party consultants. All investments made by the Corporation must be approved by our investment committees based on a set of predetermined criteria that evaluate potential risks, mitigants and opportunities. ESG matters are part of this evaluation, including anti-bribery and corruption, health and safety, and other environmental, social and governance considerations.

As part of each acquisition, the investment teams create a tailored integration plan that, among other things, includes material ESG-related matters for review or execution. ESG risks and opportunities are actively managed by the portfolio companies with support from the investment team responsible for the investment. This recognizes the importance of local expertise, which provides valuable insight given the wide range of asset types and locations in which we invest, coupled with the broad Brookfield investment expertise. We believe there is a strong correlation between actively managing these considerations effectively and enhancing investment returns.

With respect to environmental considerations, we believe that our operating businesses are well positioned as the world transitions toward lower carbon and more sustainable economies. Our renewable power business is one of the largest pure-play global owners and operators of hydroelectric, wind and solar generation facilities and is committed to supporting the global transition toward a low-carbon economy; we also benefit by having negligible fossil fuel inputs and enhanced revenues. Further, we are one of the world’s largest owners of real estate; our office and retail portfolios are heavily weighted towards properties that meet high environmental sustainability standards consistent with the expectations of our tenants, which enhances rental revenues and lowers operating costs. Our infrastructure and private equity businesses include a wide variety of businesses, many of which are well positioned to have a positive environmental impact and benefit from our focus on operational efficiency, including energy efficiency.

Health and safety in the workplace forms an integral part of how our businesses are managed. As health and safety risk varies across industry sectors and the nature of operations, we emphasize the importance of having operating businesses directly accountable and responsible for managing and reporting risks within their operations, while Brookfield provides an important level of support. Our focus on health and safety is embedded within all stages of our investment process from due diligence through to the exit process:

Health and safety is embedded in our workplaces and is supported by well-established programs, which are applied across our operating businesses by their respective senior management, who are charged with, and accountable for, all aspects of the management of their individual businesses, including health and safety performance.

Regarding the management of social considerations, we would not be able to operate our businesses without our approximately 150,000 operating employees and 1,900 employees within our asset management operations. Therefore, we are constantly focused on human capital development. We believe that diversity adds significant benefits to a workplace and so we are continuing to introduce measures to increase diversity. Diversity is about having a workplace that reflects a variety of perspectives, but a diverse work environment is not enough. We also are focused on maintaining an inclusive environment—meaning one in which all are encouraged to contribute, enabling the organization as a whole to benefit from different perspectives in order to achieve better business outcomes.

We also recognize that we must be positive contributors to the communities in which we operate and not just an employer. We encourage and support numerous community and philanthropic initiatives across Brookfield, and we believe that these programs have a positive impact not just on the communities but on our many employees that participate.

Finally, we understand that good governance is critical to sustainable business operations. We have developed a comprehensive governance framework across Brookfield. This is greatly assisted by operating through public companies, including the Corporation as well as within the regulatory requirements of a global asset manager. Governance extends to all facets of our activities, including those related to ESG matters. We maintain a committee of senior executives representing each of our major business operations to coordinate ESG initiatives across our business groups, share best practices and encourage a firm-wide effort to constantly improve our activities in these regards. While the Board has always had oversight over ESG matters, ESG management is now formally embedded into the various board and committee mandates to acknowledge these areas as priorities.

Given our continued focus on ensuring that ESG is integrated into our decision-making and investment management processes, subsequent to year end, we became a signatory to the Principles for Responsible Investment (“PRI”). The PRI, one of the world’s leading proponents of ESG practices, aiming to provide a framework for companies to demonstrate and report on how ESG is integrated into the investment process. While we believe that we have always been broadly aligned with the PRI principles, becoming a signatory formalizes our ongoing commitment to ESG best practice.

S&P further modifies its ratings by indicating the stability and future direction of an assigned rating with terms such as “stable”, “positive”, “negative” and “developing”. A rating outlook assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years). An outlook is not necessarily a precursor of a rating change or future CreditWatch action.

S&P’s global scale for preferred shares. According to the S&P rating system, securities rated P-2 exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitment on the obligation.

The F2 rating assigned to the Corporation’s commercial paper indicates that the Corporation has good intrinsic capacity for timely payment of financial commitments. An F2 rating is the second highest of the five categories on Fitch’s short-term rating scale.