Fitch Rates Brookfield Incorporacoes' First Debentures Issuance 'A+(bra)'.

SAO PAULO & RIO DE JANEIRO -- Fitch Ratings has assigned the national long-term debt rating of 'A+(bra)' to the proposed first simple debentures issuance, not convertible into shares, of Brookfield Incorporacoes S.A. (Brookfield Incorporacoes), in the total amount of BRL100 million, with final maturity on Sept. 1, 2013. The proceeds will be used for company general purposes. Fitch has already rated Brookfield Incorporacoes' foreign and local currency Issuer Default Ratings (IDRs) 'BB-', and national long-term rating 'A+(bra)'. The Rating Outlook of the corporate ratings is Negative.

Brookfield Incorporacoes' ratings reflect the integration of the company's operations, which include a solid and geographically diversified land bank (Potential Sales Value (PSV) of BRL14.4 billion in June 2009); the strong shareholders structure and the capital support of the controlling group; and its operating scale expansion through strategic acquisitions carried out in 2008, which led the company to rank among the country's four largest real estate developers. The ratings also consider Brookfield Incorporacoes' satisfactory liquidity position and financial flexibility, resulting from the robust reserve of receivables of completed units not linked to debt, among other factors. The ratings further factor in the fact that Brookfield Incorporacoes should gradually return to more conservative credit measures, compatible with its ratings, after the significant impact on these measures from the merger of the formerly Company S.A. in October 2008, which had its name changed to Brookfield Sao Paulo Empreendimentos Imobiliarios S.A. The company also has as a major challenge the management of its consolidated operations in a scenario of weaker operating margins as a result of its greater focus on residential projects for the medium-low income segment, with lower margins.

Brookfield Incorporacoes' Negative Outlook is consistent with the rating action taken by Fitch for the overall homebuilding sector on Jan. 21, 2009, reflecting the expectation that homebuilders in Brazil will face a challenging operating environment as well as significant financial pressures in 2009 and 2010.

The ratings incorporate the negative impact that the merger of the formerly Company S.A. had on the Brookfield Incorporacoes' financial profile. For the last 12 months (LTM) ending June 30, 2009, adjusted consolidated EBITDA margin was 20.3%, well below Brookfield Incorporacoes' 39.1% stand-alone margin in LTM ending Sept. 30, 2008, before the incorporation of the formerly Company S.A. This result, however, remains compatible with the sector average. Despite the uncertainties created by a weaker macroeconomic environment and the retracted demand for residential properties in the last quarter of 2008, the volume of pre sales remained high. The consolidated results also reflect the negative accounting effects deriving from Law 11.638. The expectation is that the expansion of operations of Brookfield Incorporacoes in the medium-low and economic income segments, with higher growth potential and demand stimulated by the federal government measures, should increase EBITDA in 2009 and 2010, with operating margins remaining, however, at lower levels.

The merger with the formerly Company S.A. and expansion of project launches increased Brookfield Incorporacoes' leverage. As of June 30, 2009, total consolidated debt reached BRL1,148 million, compared to BRL473 million of Brookfield Incorporacoes, on a stand-alone basis, at end-September 2008. This increase resulted from Brookfield Incorporacoes' strategy to maintain its project launching goals, notwithstanding the global crisis, in the fourth quarter of 2008, raising BRL549 million of working capital lines in the period. Leverage, measured by total debt/adjusted EBITDA and net debt/adjusted EBITDA ratios, increased to 4.6 times (x) and 3.7x at end-June 2009, respectively, from 1.8x and 1.0x in September 2008, considering only Brookfield Incorporacoes. Such ratios are weak for the rating category, and Fitch's expectation is that the EBITDA increase expected for 2009 and 2010 and the future transfer of receivables contribute to reduce leverage ratios to levels more compatible with the ratings. The BRL251 million EBITDA in LTM ending in June 2009 considers BRL25 million of interest allocated to costs.

Higher working capital requirements and the BRL200 million dividend payment to Company S.A.'s former controllers resulted in a strong cash disbursement in the last quarter of 2008. In January 2009, cash was reinforced through the issuance of new shares, in the amount of BRL200 million, subscribed by the Brookfield group, by Company S.A.'s former shareholders and by minority shareholders. As of June 30, 2009, cash and marketable securities were at BRL230 million, close to the BRL248 million balance reported at year-end 2008, however, lower than the combined balance of the two companies in September 2008, of BRL336 million. Brookfield Incorporacoes also relies on a robust liquidity reserve from the receivables of concluded units not linked to debt, in the amount of BRL837 million at end-June 2009. With the company's strong liquidity reserve, combined with the ongoing debentures issuance and the expectation of a gradual replacement of corporate debt by financings from the Housing Financial System (SFH), Fitch understands that the high debt amortizations in 2009 and 2010, of BRL381 million and BRL389 million, respectively, is manageable.

Brookfield Incorporacoes includes three traditional brands of the Brazilian real estate sector: Brascan Residential Properties, Company S.A. and MB Engenharia S.A. It is specialized in residential projects for the various income segments, from the economic to high income levels and office buildings. Brookfield Incorporacoes is indirectly controlled (51.1%) by Brookfield Asset Management (BAM), an international asset manager of USD80 billion, including USDL35 billion in real estate assets. BAM is rated 'BBB+' by Fitch, with a Stable Outlook.

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