Spotlight On Canada's Family-Owned Empires -- It's Bronfmans' Turn

TORONTO

After the unraveling of the family-owned real estate empires of Canadians Robert Campeau and the Reichmann brothers, investors are looking with growing concern at another large Canadian empire - that of Peter and Edward Bronfman of Toronto.

Attention is being focused not only on the Bronfmans' troubled real estate development firm, Bramalea Ltd., but on the broader question of the vulnerability of tightly held, family-controlled Canadian real estate enterprises that depend on webs of cross-financing among companies.

The Bronfman group of companies, like many of Canada's self-financing, family-owned business empires, is based on a complex system of "synergism," in which members of the parent group routinely shuttle preferred shares to provide tax-beneficial financing without diluting common equity values for all shareholders.

Because Canada's corporate and securities laws do not include U.S.-style disclosure requirements, creditors and investors often have little knowledge of a holding company's actual worth or which of its assets are pledged against individual debts.

This lack of access to information, coupled with newly shaken confidence in a real estate industry that had been viewed as almost invincible, has fueled rumors that some Bronfman properties may be in serious trouble.

Officials of the Bronfman group are reported to be making the rounds of institutional investors and money managers in an attempt to convince them that the Reichmann brothers' bankruptcy crisis is having no adverse effects on their group's financial stability.

But with a $4 billion debt burden and a shrinking cash flow because of the downturn in real estate markets, Bramalea has agreed to sell half its interest in two of its downtown Toronto office buildings, including its headquarters, in an effort to fend off a financial crisis.

The planned sale to a teachers union pension fund has intensified speculation about the financial condition of Bramalea, regarded for some time as the weakest of the Edper-Bronfman group of companies run by the Toronto branch of the Bronfman family.

Peter and Edward Bronfman's Montreal-based cousins, Charles and Edgar, control the giant Seagram empire, owner of the world's largest distillery.

Bramalea, which took a $115 million write-down in 1990 to make up for losses related to the real estate market's downturn, has denied that it is contemplating filing for court protection from its creditors.

It said in a statement that its sale of half its interest in the two Toronto buildings is part of the company's "continuing strategy of forming joint ventures with major financial institutions."

Bramalea, a major developer of office towers, shopping malls and upscale residential real estate in the Toronto area, has said it plans to sell about $1 billion of its assets over two years, although real estate analysts here said virtually all of the firm's property portfolio is on the block.

Analysts said Bramalea must sell at least $525 million this year to keep up with its debt.

Bramalea is controlled by Trizec Corp. of Calgary, Alberta, which in turn is controlled by Edper, whose holdings include Canada's three largest publicly traded real estate companies; the country's second-largest trust company, Royal Trustco Ltd.; the second-largest food and beverage company, John Labatt Ltd.; and the giant resource conglomerate, Noranda Inc.

While the recession has cut severely into Edper's resource-based and real estate holdings, loan losses in Royal Trustco's California savings and loan subsidiary and in Britain also are reported to have weakened the group's financial services holding company, Trilon Financial Corp.

Financial analysts said the severe debt problems that have put the Reichmann brothers' Olympia & York Developments Ltd. into the equivalent of bankruptcy protection in Canada and Britain also have undermined confidence in Bramalea.

The company's stock, which a year ago traded at $8 a share, has dropped to $1.90, and the Canadian Bond Rating Service recently downgraded the credit rating of most of Bramalea's debt.

"Bramalea's a problem. Everybody's talking about Bramalea, and they may have to sell off some more properties," said Thomas Hutchinson, chief Canadian economist for MMS International, a Toronto financial information service.

But, Hutchinson added, because Bramalea has a more mature property portfolio than Olympia & York and has less vacant commercial real estate space to fill than the Reichmann firm, it may stand a better chance of weathering its cash flow problems.

He said Edper repeatedly has demonstrated an ability to shuttle money between its interlocking companies and is "probably less likely to go under than Olympia & York."

Robert Blohm, a U.S. investment banker operating in Toronto and Montreal, said that while "nobody's happy and everybody wants to know what their cash flow is . . . it's not as leveraged a situation as the Reichmanns'. It's not a situation that's likely to come to a head like Olympia & York."