BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2003 Q3 法說會逐字稿

Please be advised that this conference call is being recorded. Good afternoon, and welcome to the Brascan third-quarter results conference call for November 6, 2003. Your first host for today's call is Mr. Robert Harding. Mr. Harding, please go ahead.

Thank you very much, operator. Good afternoon, ladies and gentlemen, and thank you for joining us this afternoon. With me today to present our third quarter results are Bruce Flatt, our President and Chief Executive Officer; George Myhal, our Chief Operating Officer; Brian Lawson, our Chief Financial Officer; and Katherine Vyse, our Senior Vice President of Investor Relations. Brian Lawson will begin today's presentation and will discuss our financial and operating results for the quarter, following which Bruce and George will bring you up to date on our current activities and initiatives. And of course, following the presentations, we look forward to your questions and comments.

I'd like to turn the call over to Brian Lawson, please.

Thank you, Bob. As you're probably aware, we released our financial results this morning together with our letter to shareholders and updated financial information. And just before we begin, I would be remiss without making the usual legal disclaimer that we will likely be making some forward-looking statements during the call, which, as you know, are subject to change.

So turning to the results, Brascan had a very good quarter. We reported record operating (ph) cash flow for the first nine months of the year -- $400 million, or $2.01 per share. Excluding property gains, cash flow per share increased by 23 percent. For the quarter, cash flow totaled $138 million, 69 cents per share, up 19 percent over the comparable results for the previous quarter.

And net income for the quarter was double that recorded last year, driven not only by continue strength in our core operations, but also by productivity and price improvements achieved by our resource (ph) investments.

And we also expect the fourth quarter to be our best on record, with our expected strong results being supplemented by gains on the disposition of a partial interest in our 245 Park Avenue property in New York and the sale of our interest in Northgate Exploration.

We experienced growth in the quarter in each of our areas of operations. Real estate operations, which include our commercial and residential property operations, generated $215 million of net operating income, compared with $180 million last year. Commercial property net operating income from current properties was $157 million, up 5 percent from the $150 million recorded from the same properties last year. This stability and growth is a direct outcome of the high quality of our portfolio, which enables us to maintain 95 percent occupancy lease levels on leases with an average life of ten years.

We have seen clear signs of renewed leasing activity as tenants are once again making long-term decisions about their space requirements. This is due in large part, to a stabilization in market rest. We leased 2.7 million square feet so far this year, representing more than four times the amount that was contractually expiring this year. And this is consistent with our strategy of dealing with future lease renewals well before they occur.

Leasing activity included 800,000 square feet in Toronto, and approximately 40,000 square feet in each of Boston, Minneapolis, and Denver. Legal and accounting firms are leading this increase, and our high-quality properties represent attractive destinations. As a result, we expect to be involved in further (ph) subleasing estates within portfolio of more than 1 million square feet prior to year end.

Residential property operations achieved very strong results during the quarter, and they contributed $58 million of operating (ph) cash flow compared to $27 million last year. As you know, most of our income is recorded in the third and fourth quarters in this business, and this year is no exception. The results continue to be driven by the unprecedented strength of North American housing markets. We have now over 100 percent of our forecasted 2003 lot sales in hand, and have pre-sold more than 20 percent of our planned 2004 home closings.

These results include $18 million (ph) in gains from lot sales, which we'd planned to continue in the fourth quarter to capitalize on the current demand and further reduced inventories. Year-to-date, we have realized net proceeds of $120 million from sales of these excess entitled lots (ph). The sales enable us to reduce risk in our operation, and we maintain future flexibility by acquiring options on developments in our markets.

In terms of power generation, we have significantly expanded these operations through the acquisition and development of 21 power generating facilities over the past two years. This expansion has provided us with important watershed diversity, which was important for us this year as we were faced with low precipitation levels in Québec and Maine.

Net operating income for the nine months was $150 (ph) million, the same as 2002, as the increased operating base offset weak hydrology. And third quarter results were $35 million compared with $41 million last year.

We have now returned to more normal precipitation levels, and reservoirs are all at normal levels. In fact, October would appear to be a very strong month. As a result, we expect to meet our targets for the remainder of the year. We continue to look for opportunities to further expand our operating base -- and George will speak to this further in his remarks.

Asset management operations contributed $53 million during the quarter, up from $48 million last year. We continued to increase the level of assets managed through our funds and to attract new investors. We also experienced excellent returns from our capital markets activities benefiting from the strong markets. Our real estate Mesmivre (ph) group has been particularly successful this year in generating excellent deal flow and has invested nearly $150 million thus far.

We also continue to provide many clients with business services that are complementary to our areas of expertise. In the real estate sector, in particular, we continue to expand our corporate advisory, investment banking, property services, and facilities management services. Revenues earned from these services have increase significantly in recent years, and we look to continued growth in this area.

And we have a number of other new initiatives underway in the asset management area, which George will describe in a few minutes. We anticipate that all of these will lead to increased contributions from this sector.

And turning briefly to our investments in Noranda and Nexfor, you will note that our share of the earnings of these two companies increased significantly quarter over quarter. Noranda's operating results exceeded those of the comparable period last year, floated (ph) by a rebounded metal prices that was only somewhat offset by the impact of the exchange rates. We received a portion of this increase in the third quarter, and are looking to continued improvement in the fourth quarter. And Nexfor, as well, has benefited from the significant increase in prices for OSB.

We continued to strengthen the capitalization of the company through a number of initiatives in the quarter. These included $175 million 5.75 percent preferred share issued by Brookfield Properties, and $100 million 20-year subordinated financing secured by certain of our non-urban (ph) Ontario generation transmission facilities.

In addition, Noranda successfully raised $430 million of common equity, including $175 million purchased by us, and completed a $350 million debt financing as part of a recapitalization that Bruce will describe in more detail later on. As a result, we continue to be a very strong financial position with approximately $2 billion of short-term liquidity, consisting of undrawn bank facilities and liquid assets.

We have published a revised underlying value for the company, $36.50 U.S. per share. This estimate incorporates our recent estimates of the cash flow supporting the values of each of the businesses, and is available on our web site. So in summary -- a very strong quarter.

The fourth quarter is also shaping up well. As I mentioned, in addition to our regular results, we will report an approximate $100 million gain on the sale of the partial interest in 245 Park. This will contribute $50 million after minority interests, prior to taxes, higher than the amount we had previously projected for the year. This, together with the anticipation of a substantial gain on the sale of our investment in Northgate will position us to exceed our previously stated guidance for the year.

I will now hand over to George Myhal, who will discuss some of the highlights of our activities during the quarter.

Thanks, very much, Brian. I thought this afternoon I would just highlight some of the value and growth initiatives that we have undertaken this year before I hand it back to Bruce to talk about Canary Wharf and a number of other strategic initiatives.

On the real estate side, this year, we entered the Washington market with the acquisition of a 383,000 square foot newly constructed office property in Washington, D.C., which we acquired for $157 million. This 12-story office tower includes a five-level underground parking garage, and is located two blocks from the White House. The property is currently 50 percent leased, and we expect our proactive approach to leasing will ensure that the building will be fully occupied, hopefully, within a year.

We also, as Brian mentioned, generated approximately 200 million of cash proceeds through the sale of a 49 percent interest in 245 Park Avenue in New York to the New York State Teachers' Pension Fund. The property was sold on a property valuation basis of approximately $900 million.

And also, we substantially completed 300 Madison development at 42nd Street in Midtown Manhattan. This 1.1 million square foot building received its temporary certificate of occupancy in September this year.

Turning to our power business, as Brian mentioned, we acquired three hydroelectric facilities in the quarter in New Hampshire and Maine, totaling 16 megawatts for approximately $30 million. These facilities are very close to our existing hydroelectric facilities in New Hampshire and Maine and are interconnected to the New England power grid. The transaction, which we hope will close before the end of the year, brings to 42 the total number of power generating facilities that we own across North America, and increases our total generating capacity to over 1700 megawatts.

We also completed construction of two power generating facilities, one in Ontario, and one in D.C., and a 25 million -- 25 mile, rather, transmission line in Maine. The completion of these projects expands our presence and capacity in those markets.

Turning now to asset management -- as you know, we continue to expand our asset management activities. We are also continuing to add investors to our alternative investment funds with a focus on our areas of expertise, namely real estate, energy, and resources. Institutional and other investors have shown strong interest in the funds that we are currently marketing as they seek to identify investments that generate consistent and sustainable returns.

The Tricap Restructuring Fund continues to have a large investment in Doman Industries, a Western Canadian lumber producer. Tricap has put forward a restructuring plan, and is working with other stakeholders to effect a timely restructuring of the company. The fund has also recorded attractive returns on its realized investments, and is currently pursuing a number of new investment initiatives, principally in the resource and steel industries.

Brian talked about our real estate finance fund, which continues to do well in New York and is seeing a lot of strong deal flow. And during the quarter, we also launched our real estate opportunity fund, which continues to originate good investment opportunities and solicit investor interest. We have committed about 100 million Canadian to the fund, and we are currently evaluating a number of opportunities to acquire underperforming commercial real estate in North America.

In addition, we have also negotiated a partnership with TriContinental, an investment company with a well-established track record in managing residential equity lending investments.

And finally, we, during the quarter, also launched the Royal LePage franchise services fund. We completed an initial public offering of units (ph), which generated $100 million in gross proceeds. And this fund didn't waste any time in looking for growth initiatives. They recently announced that they were looking to acquire a leading Québec real estate franchisor called Le Group Transaction (ph), increasing our franchise services network to over 9,000 professionals in over 500 offices across Canada.

And the only other highlight I will just quickly mention before I turn it over to back to Bruce, is that we issued approximately 1.5 billion in long-term fixed-rate securities this year, taking advantage of a low interest rate environment to further strengthen our balance sheet and reduce our cost of capital. And we also repurchased 4.2 million common shares of the company at an average price of $21.29. And we are committed to investing in the repurchase of our shares when they can be acquired at value below our estimate of NAV, net asset value.

So, with that, I'd like to now turn it back to Bruce. Bruce?

There's really just three items which I'll deal with today, and I'll deal with each of the three of them. The first is Canary Wharf. And then I'll talk about our two investments, Noranda and Nexfor.

With respect to Canary Wharf, we spent considerable time over the last four months on this investment. And while our inclination is to go through in detail what has been going on, unfortunately, we don't believe that it's in the best interest in this competitive environment to do that. And as soon as we can, we will update you in full on what has been going on.

As a result of that, I will make a few comments -- as much as I can. We continue to consider options. And the options are essentially two today. First, we (ph) making a proposal to acquire the company with partners. Or secondly, letting the auction fail because no one can agree on anything in the transaction.

Today, I really won't make any additional comments on the above with respect the transaction, although I will say, as always, that we will not invest your shareholder capital into an investment which will not produce the appropriate risk-adjusted returns for our shareholders.

And so comment on Morgan Stanley's bid. They have made -- and just for people's reference -- an offer, tentatively today -- not actually sent out to the public, of 220 cash, about 35 pence (ph) of equity paper in a proposed, highly-levered, risky bidding vehicle for investors. And the 35 pence is instead of cash.

We will vote our shares against their offer if it does come out -- outright. The offering of the stub (ph) equity in an illiquid vehicle which probably has no possibility of proper trading potential, and no potential of ever trading anywhere near reported intrinsic value, we think is wrong for Canary Wharf shareholders as a 9 percent shareholder, in our opinion. As a result, and as a shareholder of Canary Wharf, we have expressed our views to the company, and will not submit our shares to a tender offer by Morgan Stanley, nor will we vote our shares in a scheme of (ph) arrangement, if that is proposed by Morgan Stanley. In fact, the market probably has spoken about that piece of paper, and values it at much less than what the face value of that piece of paper is today.

Turning to Noranda, I guess I'd say a couple of things. Firstly, we've had four things we have been trying to do in the company with a management team, and its system, doing it as much as began. First was restructuring the company and getting it really reorganized -- and largely that is behind the company. And we reported that last quarter. And I'd say we believe that today.

Second was to bring capacity online, and we have continued to do that. And essentially, they've brought most of the capacity which they've spent capital on over the last number of years online.

Third was to complete a financial recapitalization, which Brian mentioned earlier, which included an equity issue, a debt issue, and a number of other things -- sales and other things in the company. And today, the company sits with $700 million of cash and a billion dollars of bank lines, and their debt-to-capitalization around 44 percent, which is 10 percent less than what they were at the end of 2002. So it was very successful.

And the fourth thing is metal prices. And while we have no control over those, we are very heartened to see that nickel is at highs over -- for a long period of time. Copper has increased dramatically over the past three months, and Zinc prices are starting to move upward. And as a result of that, their results were positive of the third quarter, but they didn't get the full effect of these increases. So as a result of that, the fourth quarter, offset by slight weakness from a Canadian dollar cost base on some of their assets, will be much more positive. All of these things should enable us to fully consider our options, as that takes hold in the future with respect to our investment in Noranda.

Lastly, in Nexfor, which as most of you know, we own 42 percent of -- there is no doubt that the OSB prices have exceeded our expectations for the business. And their prices are extremely high. Due to order lags, they didn't get full recognition of that third quarter, but will have very high pricing in the fourth quarter through their results. And as a result of that, I know their third quarter was I think the highest in their history. And I'm sure, as a result of that, the fourth quarter will be even higher.

So the company is doing extremely well, which has been able -- they've been able to use the excess cash flow to take their debt-to-capitalization from where it was 50 percent after an acquisition they made of 3 OSB mills last year, to where it was 40 percent at the end of the quarter, and it will probably be increase -- decrease significantly by the end of the year, given the levels of OSB pricing.

So that is the three comments I had to make. And I will turn it back to the operator. And any of us would be happy to take questions from people, if they have them.

(OPERATOR INSTRUCTIONS) Neil Downy (ph).

Brian or Bruce or George, could you maybe comment a bit on the timing of the Northgate sale? It seems like gold prices are going higher, gold shares are going higher. Any particular reason why Brascan decided to axe it now?

This is Bruce. And I'll make a couple of comments, and then maybe George, because he was really a big part of the reorganization of it, would make a couple of comments.

And I'd say our viewpoint is that we buy things at the bottom of the market in our restructuring business. We recapitalize them. We operationally put them back in shape. And at the end of it, what we're trying to earn is a half-decent -- a very good return for our shareholders, but not take risks on commodity pricing or things like that. And essentially we have seen a great operational improvement. And with the increase in gold and, recently, copper prices, we saw it as an opportunity to get out, earn a significant return over the period on our investment, and move onto something else. And, you know, our businesses isn't to speculate on commodity prices -- with our restructuring business, it's to enable ourselves to earn a high, risk-adjusted return on capital and get out of the opportunity and move onto something else. And I guess we view ourselves as value investors as opposed to momentum investors. And gold may go higher, but we don't really have a viewpoint on that.

Okay. How lengthy was the decision process here? I guess what I find interesting was, I believe you were, in fact, a controlling shareholder of that company. Was there any attempt to find a strategic buyer, as opposed to simply sell it into the market for small discount to the quote?

This is Brian. We would have obviously considered a number of options as we continued on with our ownership of Northgate. I think it was around a 42 percent interest, which would have presented us with a number of different alternatives.

But really, I think I'd simply echo Bruce's comments. This was as much the conclusion of a restructuring assignment, and time to move onto something else.

Okay, and I guess, in looking to the fourth quarter with respect to the profit or the gain that you'll recognize on this transaction, were there any gold hedges or anything in place that, in fact, would reduce the actual profit on the share sale as it gets recognized through the P&L?

There would have been some items of that nature, Neil.

Okay. And lastly, if I may, just with respect to the power generating business, our nine-month NOI is 115 million. We've got a number -- you've got a number in your tables here that suggests the contribution will be 177 million for the year, which implies a pretty substantial improvement in the fourth quarter. I mean, is that a valid improvement? And is that going to be driven purely by hydrology, and therefore more representative of the normal profit capacity from this business? Or how should I look at that --?

I guess I'd make to comments on that. The guidance for 2003 -- those numbers are the same numbers that we published in February of 2003. And our practice is not to update each and every number as we go through the balance of the year.

We updated that table for two specific events -- one being the sale of 245 Park Avenue, and the other being the adjustment in the Noranda dividend rate. But we had not adjusted any of the other numbers up or down for performance during the course of the year. I'd say we are expecting to have a good fourth quarter. But obviously, what we've indicated to date is that we've been behind plan certainly for the first nine months or year due to the hydrology.

And Neil, maybe just one further comment, is -- we don't adjust that, although we have basically said that we'll be on-target for our overall results, which means that if we're down on that we'll be slightly higher on something else.

Great. That clarifies. Thank you.

Brasa O'Reilly (ph).

What is the cash flow per share forecast for 2003?

What we have said is that -- we had shown you a figure of $2.87 in our updated table on page 12. What we've said is that we will be exceeding that number. You know, a lot of that is going to come down to what the determination is of the gain on Northgate and other items. I think what we are prepared to say is that we feel comfortable we are going to be exceeding that number. But we are not in a position to really confirm any specific number in that regard.

But isn't it determinable to a reasonable -- within a reasonable range what the gains will be on the 245 Park Avenue and Northgate at this stage?

Well, we've given you some indication of that. With respect to 245 Park, I think it's been announced that the -- by Brookfield (technical difficulty) -- that the gross amount of the gain would be in the area of $100 million. And our share, obviously, of that -- if you back out minority interest at 50 percent -- would be around $50 million.

There are other items that always come into play there with respect your taxes and others. And that may -- will not form part of our capital per share. Same thing with Northgate -- there are a number of items that we would be taking into consideration and we simply just did the transaction yesterday.

But we know the amount of the Northgate sale, but what it would be a ballpark estimate of the gain in relation to the 50 million on the 245 Park?

Sorry, maybe I didn't quite understand your question to how it tied into 245 Park. I think if you look at Northgate, we would be looking at an aggregate gain of anywhere from around, say, 75 million U.S. And there is a lot (technical difficulty) consideration. But maybe half of the falls to the bottom line.

And when you say the bottom line, you mean after taxes as well?

Yes, that is correct.

And then the 50 million -- that's a pretax number?

That is correct.

How much of that would be -- after -- would go on (ph) taxes --?

I don't know the answer to that Brasa.

And then -- if we are to look at the power generation operations, I guess, clearly the low hydrology levels were a factor in driving the third quarter number down quite significantly from last year. But will those factors be completely removed in the fourth quarter? Or will we see some -- still some drag relating to that?

Well, certainly what we have seen to date, in terms of October, has been a very good month, both from a hydrology perspective as well as from a pricing perspective. Bruce maybe will be able to add to this, but I think what you have seen is a number of suppliers have taken outages on their facilities that they had deferred from earlier on in the year. And as a result, there's a pretty good market dynamic. And we are benefiting from that.

Maybe the only comment I'd make, Brasa, just for your benefit is that we'd probably end up with -- we are back to average hydrology -- in some places, a little bit higher. And so therefore our fourth quarter should be regular, although our -- and on top of that, our pricing has been better than we would have normally have expected. So October has been a very good month.

And then finally, if I may -- at the parent company level and in wholly-owned subsidiaries, what would be the total amount of cash and unused credit lines at the moment?

It's around -- similar numbers as last quarter -- around $1 billion in terms of the bank line. And from a cash perspective, the September 30 numbers show around $300 million of cash, of which half to the two-thirds is at -- would have been Brascan and the wholly-owned senior companies.

It would be 1.2 billion in cash or unused credit lines at the parent company and wholly-owned subs?

Yes, and then another 700 million of liquid securities. So we're still around the $2 billion figure in terms of our liquidity.

And the liquid securities would be fixed-income liquid securities?

Fixed income, some common equities. But a lot of fixed income securities. High -- ranging from highly liquid to very liquid.

Michael Goldberg (ph).

Couple of questions. First of all, on the Northgate -- congratulations. That has certainly been a very good initiative. Can you give us some idea -- over the time that you have been involved in this transaction, what would you figure is the sort of an annualized return that you have earned on this initiative? And is it consistent with the returns that you see in the Tricap Restructuring Fund? And I have another question, also.

Well, Michael, thanks for your compliments. The one thing I can tell you is there were a number of components to this restructuring. And in our Tricap Restructuring Fund, we are generally targeting returns in excess of 20 percent. And I am pretty comfortable that our investment in Northgate would have realized returns of that order over the time of our involvement. But we do haven't actually sat down and quantified what the IRR on our investment was.

And as I said, that would be an exercise, because of the -- you know, this has been restructuring that has -- we have conducted for quite some period of time; I think our first involvement with the Comess mining (ph) goes back to 1998. But I think it is also a good example of our activities in the restructuring area. We provide patient capital to companies that are in financial difficulty. And unlike a number of other investors, we work with management to get the company back on its feet and to help the company grow post its restructuring.

And I think Northgate is a very good example of that. You know, our involvement there has been very intensive over a long period of time. And we're extremely pleased at the outcome. And obviously, cooperation in the gold (ph) price helped tremendously with that.

But it's -- there was a lot of hard work done. I think it is to the credit of a number of individuals in our group who did a very good job. And you know, we are very comfortable that it's a very solid company with a great asset and a great future. And, as Bruce mentioned at the outset, our decision to sell it is in no way a prediction on how this company will do going forward. We hope it does -- continues to do extremely well.

Okay. Now, my other question -- you know, as you have mentioned, you have a lot of liquidity. You are generating a significant amount of cash flow. On top of that, you know, with the rising commodity prices, and the rise in the prices of Noranda and Nexfor, perhaps you are getting closer to the time when you can somehow surface value, or harvest those investments. Maybe or maybe -- you know, maybe you won't be able to go ahead with the Canary Wharf.

The question is -- what do you do with all of that financial strength and liquidity? You know, if you can't go ahead with the Canary Wharf -- is it inconceivable that, at some point in the future, you could consider an even larger share buyback or special dividend or something else along these lines? In other words, do you feel that all of this liquidity may ultimately be a challenge to the type of return that you would like to see Brascan earning?

Michael, is Bruce. I will maybe try to answer that. And I guess I'd say the good news for shareholders is that we are in an extremely liquid financial position, and in addition to that, have pretty good operating businesses today to be able to deploy that capital within.

I'd say that I don't believe that we won't be able to find opportunities to prudently put that capital to work and earn the returns we've said we are trying to earn for shareholders within the businesses. And I think -- given that we have been able to try to establish our presence within certain areas, I would say we've only started to build some of those opportunities. And we can put a lot of capital to work in opportunities. And, whether Canary Wharf comes along or doesn't come along is sort of irrelevant to that plan. The fact is, we believe there are other opportunities out there to put capital to work. And therefore, we won't challenge -- you know, there isn't a challenge to put it to work.

Having said that, we can -- look at share repurchases all the time, considering it against further dividends to shareholders and considering it against investment opportunities. And all of those things are potential that we talked with the board -- we talk to the board about quarterly. And we're open to all suggestions with only one goal, and that is how do we build shareholder value -- period. And I would say all those are open things for us to consider.

Horace Honkin (ph).

I only have one question. It relates to foreign exchange. You disclose your sensitivity in your supplemental package. But I'm just trying to assess what sort of impact foreign exchange had on the results just released. A lot of companies right now are seeing pretty significant distortions in their results. And I'm wondering how you shaped up on the sort of revenue and cost lines?

Well, I think one of the things for us, Horace, is a lot of our revenues and expenses are denominated in U.S. dollars just because of the nature of our operations. And given that we report in U.S. dollars, that reduces the amount of distortion. And frankly, that is one of the reasons why we converted over to U.S. reporting this year.

The -- we do provide an estimate of the impact of the U.S. dollar on our operating results, which is around $10 million or a 10 cent change in the Canadian/U.S. exchange rate. So that would give you some sense of what the impact might have been during the course of the year.

But we also do -- I think a pretty good job of keeping ourselves hedged to mitigate those sorts of impacts.

And Horace, maybe -- it's Bruce. The only comment I'd add to that is we really -- there's only -- our two investments, which are Noranda and Nexfor, are really the only two places where they generate revenues in U.S. dollars but have a cost base in Canada. So, as the Canadian dollar goes up, it hurts them.

Nexfor over the past five to seven years has essentially taken a lot of the risk out of the company by building and buying OSB assets in the United States. So, their results have not been affected by a big expense, because most of their assets -- same as our operating assets -- are held in the U.S.

Noranda, on the other hand, has between 40 and 50 percent of its assets within Canada. And those -- as a result, when the Canadian dollar goes up, it does hurt their results a little bit. So that has been affecting their results, despite -- and partially offset by higher metal prices in the last six months.

Great. That is helpful. Thank you.

Brian Berge (ph).

Hi, it's Brian Berge from Bank One. I just had a quick question. As far as your share purchase activity, what is your philosophy, regarding share purchases going forward? I see you have done a decent amount this year. I don't know -- I was just curious to see if -- it -- to offset option exercise?

And kind of a related question associated with that is -- as far as the rating agencies are concerned, have they expressed any concern or any sort of parameters as far as what you would do in order to keep your rating, as far as your share purchases are concerned?

I think there's three questions, Brian, which I will try to answer. It's Bruce. And firstly, I'd say that we -- our philosophy is essentially that within levels to enable us to have capital -- or cash and capital in the company to take opportunities as we find them, ensure that we keep our ratings the way they are and, over time, continue to improve them -- and three, just being a, you know, liquid financial position, we will repurchase shares.

Today, we have an ace core (ph) bid outstanding which then (ph) is authorized to buy 14 million shares a year of the company. And, I guess we've -- over time, we've just continued to buy back shares, not to offset option exercises -- in fact, we have very little option exercises within the company. We've bought back far in excess of that.

Partly, when we've had to issue shares in a transaction to ensure that we could get a transaction complete in a couple of privatization of subsidiaries, we were more aggressive in buying back shares thereafter. But it's really not meant to do that. It's really for us in an investment opportunity. And we gauge it against where we can put capital into other places as an investment.

With respect to the rating agencies -- you know, they know that we are doing this. We are using it really -- we are dedicating just a portion of the cash flow that we generate in the company each year to buy back shares at a pretty prudent level. And I'd say, I think the rating agencies are quite comfortable with our recurring program of doing this.

In the grand scheme of things, if they look at your cash flow relative to how much you've actually purchased, it seems nice and moderate, so --

Yes, it's not -- you know, the bottom line is, we are not doing anything in significant ways. It's all in -- you know, we try to do a combination of increasing dividend, buying back shares, and using capital in future-looking opportunistic investments.

Arthur Winston (ph).

Thank you guys for good results. Bruce, from the way you talked about Canary Wharf -- are there certain developments happening that possibly -- and I haven't followed that closely -- could be adverse to Brascan and our investments in Canary Wharf? I wasn't sure what you are driving at.

The only thing I'd say is we -- Morgan Stanley made a bid, which I did refer to in my comments. And 35 pence (ph) of the bid is paper, which as we see it -- and they haven't released their full plans -- as we see it, we would not be prepared to take that 35 pence of paper for our shares. And hence, we'd vote that transaction -- we'd vote against that transaction in the scheme of arrangement and/or if they made a bid for the company.

So I think there's lots of things to play out. But it's just not something that we would do with respect to the investment. And there is still time to play out here, Art.

And does that suggest that there's a greater probability than before they made this bid that Brascan would be increasing its -- buying Canary Wharf -- the rest of it?

Say that again, Art?

Is there a big change in probability of us buying the Canary Wharf --?

You know, I'd say it's -- I probably shouldn't be talking that through that, even though I'd like to be able to give you an answer. You know, we are still assessing our options. And hopefully we will be able to report more fully back to you shortly.

Thanks for the good results, Bruce.

Jeremy Coleman (ph).

Congratulations on unearthing the value out at Northgate. Could you comment upon any other little gems you've got laying around or you're in the process of -- or just about to harvest any real decent value in either your merchant banking or in your restructuring areas?

Jeremy, that's probably the biggest one that we had that's sort of publicly noted. I think at year-end, we'll try to in our annual report give a more fulsome (ph) report of some of the things that we have within our -- I'll call it other assets, such that people have a greater understanding for some of those things within the portfolio.

Shant Holiban (ph).

I just have a couple of questions. The first one is on the Northgate. Rather than sort of focusing on the P&L impact, from an NAV perspective, is it fair to say that there's going to be about an $88 million increase in the assets -- so another 50 cents to NAV?

Frankly, I have not really thought through it in exactly that context. It certainly -- we had -- we do carry the investment in our NAV at a book value. Having said that, there are a few things that were referred to elsewhere in the call, such as hedging costs and taxes and things like that, that could have an impact there. No doubt, it will have a positive impact on our NAV, though.

Okay. And when you talk about taxes, are these sort of accounting taxes or cash taxes?

We suspect we'd be able to did a pretty good job of sheltering with some available losses. But we haven't finished that work, yet.

Okay. That's good to hear. The second question, just on the -- you've got $100 million worth the property gains there for your '03. Am I correct in saying that's the 100 percent amount of the 245 Park, and then there's a part in the minority interest to account for that?

That is correct.

Okay, so then any gain that shows up for Northgate will result in, I guess, your cash flow per share going up in Q4 above what your guidance is now?

That is correct.

Sorry. One final question. Is there any particular reason why slide 10 (ph) showed up there with -- looks like some transactional type valuation approaches for the natural resource investments?

Shan, the only reason it's in there is we get a lot of questions. And we've changed our slides to sort of respond to questions from people so that we provide information to all shareholders.

And from time to time, we get a number of questions from people of --you include it at market value; what are the numbers if you used different variations of value? And we just picked a couple and said -- if you took our NAV and just worked through the arithmetical exercise for people and said those are the numbers, that it could be. And that is really the only reason why.

Okay. Would you guys have a preference if you did do something with Noranda and Nexfor to dividend it out directly to shareholders, or rather vend the shares?

I would say the only decision you'd have to look at, if you wanted to do that -- and I guess we're open to look at all things considering -- but with respect to Noranda, it is a significant investment. And to reduce our equity base -- especially on a book value basis by that amount by divending (ph) it out, if we chose to do that -- would be probably difficult to do in the context of our ratings today and where we are. So, that is probably not something that can happen at the current time.

Okay. Thanks, and good quarter.

(OPERATOR INSTRUCTIONS) Michael Goldberg.

Another new chart, I think, that is in there is number 17 showing remitted versus total cash flows. And I am wondering if you think that your remitted cash flows might be a good indicator of the amount that you actually have available for dividend and share repurchases -- better, perhaps, than the total cash flow that you're showing?

Maybe I'll take a shot at that, and then Brian can add if he wants, Michael. I'd say that I think it's irrelevant. The 355 for the nine months, I would say -- the total number of cash flow is the relevant number to look at, because we can -- essentially, because we have control with the consent of the boards of those companies, we could have 100 percent payout if we wanted. And in fact, because they're both real estate entities -- which all the other shareholders, in fact, probably want 100 percent or 90 percent payout within those structures.

So it would be very easy to do. We are just utilizing tax losses and other things down there by retaining the cash. So I don't think it's -- that's a relevant point. It's the total cash flow because we have access to all of the cash flow if we chose to.

There are no further questions in the queue.

Thank you very much. We'll -- If there's anything -- any questions investors have, please feel free to call Brian or Katherine or myself. And if not, we'd be happy to talk to you next quarter. Thank you.

This concludes today's conference call. Please disconnect your lines, and thank you all for your participation.