BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2003 Q4 法說會逐字稿

Please be advised that this conference is being recorded. Good afternoon, everyone. Welcome to the Brascan Corporation 2003 Q4 conference call for February 12, 2004. Your host for today's call is Robert Harding, Chairman of Brascan Corporation. Mr. Harding, please go ahead, sir.

Thank you, operator. Good afternoon and welcome, everyone. Thank you for joining us for our conference call this afternoon. Joining me for today's call are Katherine Vyse, our Senior Vice President, Investor Relations and communications; Bruce Flatt, our Chief Executive Officer and Bruce is going to talk about some specific initiatives currently underway at Brascan; George Myhal, our Chief Operating Officer who will address some operational items; And Brian Lawson, our CFO who, of course, will review the financial results for the fourth quarter and for the year ended December 31, 2003. Following these presentations, we look forward to responding to any questions you may have.

I'd like to remind participants that our 2003 press release, as well as our letter to shareholders and a supplementary information package and corporate profile, which are the basis of today's presentations are available on our website under investor center, financial reports and investor presentations. I'd now like to turn the call over to Brian Lawson to begin today's presentation.

Thank you, Bob. We released our financial results this morning for the fourth quarter of 2003. Operating cash flow was a record $624 million, $3.21 per share for the year. And that represents an increase of 35% over last year's results. Net income was $408 million or $1.98 per share, also up significantly from last year. For the quarter, cash flow and net income totaled $224 million and $189 million respectively, which, again, are both significantly higher than the results for the comparable quarter in 2002.

The strong growth was due to several factors, increased contribution across almost all areas of our operations, particularly residential homebuilding. The sale of a partial interest in our 245 Park Avenue property and the successful conclusion of a major restructuring initiative which resulted in the sale of our interest in Northgate Exploration.

The quarterly results by segment are as follows: Real estate operations generated $235 million of net operating income for the quarter compared with $191 million for that period last year. This includes our commercial property operations and homebuilding operations, as well as contributions from income-producing lands, development properties and real estate services.

Commercial property net operating income from current properties was $150 million, compared with $145 million last year, reflecting a 4% increase. Last year also included an additional $9 million from properties sold since that time. We continued to benefit from the high quality of our portfolio, which enables us to maintain 94% occupancy levels on leases with an average life of 10 years. This has enabled to us post strong and stable results. Furthermore, the addition of 300 Madison Avenue in Manhattan and our new property in Washington, D.C. will add to net operating income in 2004.

Residential property operations performed extremely well during the quarter, contributing $49 million of operating cash flow compared to $32 million for the same quarter last year. We also recorded a further $24 million during the quarter from lot sales taking advantage of strong markets to sell surplus lots that are not needed in our current operations. Our backlog at year-end was 37% of projected 2004 closings so we are well positioned for further strong growth in the coming year.

Performance is strong in each of our core areas, California, Virginia, Alberta and Brazil. And in addition to the regular ongoing sales, we will also pursue further lot sales to reduce inventories. Real estate services contributed $18 million for the year compared with $14 million last year. These services include facilities management, property brokerage and investment banking services and are an important part of our overall real estate activities.

We recorded a $100 million gain on the sale of a partial interest in our 245 Park Avenue property of which $50 million is attributable to minority interests. We will continue to pursue opportunities to sell partial interests in mature properties when valuations are compelling, although these are difficult to predict. However, generating operations improved significantly during the quarter, generation exceeded launch from averages after a period of poor water conditions. As a result, net operating income for the quarter was $57 million, compared with $38 million in the comparable period last year.

Total generation in the quarter was 1800 gigawatt hours, that compares very favorably will the long-term average of approximately 1600 gigawatt hours. And importantly, reservoirs and water conditions continued to be strong. This should produce excellent results for the third quarter. Our funds management business contributed $34 million during the quarter, relatively unchanged from that last -- in the same period last year. These operations include our brick lending, real estate finance and restructuring activities, which are now being conducted through funds that we have established with institutional investment partners. Securities investments in other capital markets activities also contributed favorably to the results.

We have established the strong platform with our new funds and anticipate excellent growth from these operations during the coming years. Investment in other income includes income from our financial assets as well as from our portfolio of investments in which we include assets that do not currently form part of our core operations. These include investments such as Noranda, Nexfor and a number of smaller investments.

One such investment, Northgate Exploration, as I mentioned, was sold during the quarter. We recognized an approximate $60 million gain. Northgate owned the Camess mine which we successfully refinanced and restructured. Once the restructuring was complete, our role was finished and so we sold our interest in Northgate by way of a public distribution, thereby returning ownership to the public capital markets.

Our expenses increased somewhat during the quarter, offering costs and taxes did increase primarily due to cash taxes paid by our homebuilding operations, due in large measure to the substantial increase in the income earned during the quarter. Minority share and noncash taxes also increased due principally to the property gain on 245 Park Avenue.

Finally, our resource investments contributed $60 million of equity accounted earnings during the quarter. Evidence of the strengthened operating profiles of these companies and the improving price environment, prices continue to strengthen during the first quarter of this year and so we are looking for continued improvement in the results from these investments.

Our balance sheet was relatively unchanged during the quarter. We redeemed $200 million of term debt that matured and we issued nearly $300 million of preferred shares through our commercial property operations. As a result, we continue to be in a very strong financial position with approximately $2 billion of short-term liquidity consisting of undrawn bank facilities and liquid assets.

Our underlying value per share increased to $41.45 per share, a substantial increase over the value at the beginning of last year. This growth reflects the operating cash flow generated during the year, the increased value of our operating businesses due to cash flow growth, acquisitions and improvements, as well as a significant increase in the market value of our resource investments. So, in summary, we had a strong quarter and we are well-positioned for the balance of 2004.

I will now hand over to George Myhal, who will provide us an update of our activities during the quarter and a review of our operations.

Thank you, Brian. First, I will address some of our operational items and then turn it over to Bruce to talk about some of the major initiatives that we're working on. In our office property operations, we produced very strong financial results in an environment of less than optimal leasing and economic conditions. We leased over 3 million square feet of office space this year, which is three times what was contractually expiring. And we kept our occupancies in our four core markets and 96%, well above the market average. Those markets are New York, Boston, Toronto and Calgary.

We brought on-line our 1.2 million square foot, 300 Madison Avenue property in Midtown, New York, on budget, on time and fully leased. The IBC world markets will now occupy 400,000 square feet for their U.S. headquarters. And we just signed Pricewaterhouse Coopers to an 800 square foot lease. They will consolidate their operations and headquarters in New York in this property.

We also acquired a newly-constructed 400,000-square foot property in Washington, D.C., which is over 50% leased to high-quality tenants. We are working to lease the balance of the property to achieve our return objectives. In addition, we are looking at another property in this new market for us.

The ROE on our commercial office property operations is 20% and we expect bottom line cash flows from these operations to grow by 10%-plus this year. As we look ahead, we believe 2004 will be a turning point for commercial real estate across the United States and Canada with positive signs of absorption of subleased space emerging and modestly declining vacancies.

With respect to our residential real estate business, we had an outstanding year in both our core housing operations. Markets continue to be extremely strong across Canada and the United States. Our forward lot sales assure us that absent any major market disruption, we will have a fifth straight year of double-digit growth in our core operations.

Our U.S. homebuilding group, Brookfield Homes, was spun off from our commercial property operations a year ago and is now owned directly by us. As an indication of the strength of these operations, the share price of Brookfield Homes has tripled since that time. Notwithstanding this strength, we remain focused on reducing risk in our portfolio. We are taking advantage of current market conditions and selling excess lots to reduce our overall exposure.

In our power generating operations, water levels were well below historical averages for the first three quarters of 2003 as Brian mentioned. By the fourth quarter, and especially in the last six weeks, with all the snow and rain in the Northeast, many of which I'm sure you're all complaining about, our power generation from reservoirs is now above average, with the result at the first quarter of 2004 should be very strong, particularly in comparison to 2003.

Pricing of electricity has continued to trend higher as increases in demand significantly reduce excess capacity. As a result, plants with higher operating costs, principally those burning oil and gas, are now meeting marginal demand in regions such as Ontario. This continues to push electricity prices to much higher levels.

As the low cost producer of electricity, we are seeing the benefits of the increased pricing in our uncommitted capacity. Let me give you an example. The average spot price in Ontario in December last year was $44 per megawatt hour. In January, the average spot price was $66 per megawatt hour with the cold winter snap. Some prices in January exceeded $90 per megawatt hour with peaks of 400 to $500. As a result, we have been able to improve our returns by utilizing our flexible capacity generating electricity during these peak hours.

The Ontario government announced in November the removal of the retail price cap and their intention to work toward a plan to attract new electricity supply to Ontario. This is a very positive signal which removes market uncertainty in this part of our operations.

We continue to pursue new acquisition opportunities in the power business across North America, but with the recovery in the debt capital markets, which was far quicker and far more dramatic than we had expected, this has enabled a number of companies to postpone dealing with their issues. Recently, though, we have begun to see a number of assets for sale return to the market and we expect that this trend will continue.

Finally, we are continuing to build our alternative fund management operations. Two years into our plan we are making strong progress but we believe the positive results from these operations are just starting to be seen in our results. In our mezzanine real estate finance fund, we have invested $200 million in mezzanine loans, secured mostly by office and retail properties at floating rates equal to 500 to 900 over LIBOR, which are then leveraged by the fund to earn 16 to 18% returns. Currently the capital invested is 100% our capital, but we expect to raise money from external institutional investors in the next month. The fund will likely total $600 million with approximately 40 to 50% of the capital dedicated from our own resources.

Last year we also launched our real estate opportunity fund. We have completed one transaction and we are working on two others. We expect that by mid to end of this year we will be in a position to introduce this fund to institutional investors. Until then 100% of the capital deployed will be our own capital.

We also closed on a Canadian $500 million bridge fund, which, again, was comprised 40% with our capital, with the balance from institutional investors. To date we have underwritten $150 million of deals and have a strong pipeline of new opportunities. Lastly, in our $300 million restructuring fund, which is 50% capitalized by Brascan, we advanced the restructuring of Doman Industries, purchased a small subsidiary of Slater Steel and are looking at a number of other promising restructuring opportunities.

With that, I'll now turn it over to Bruce.

Thanks, George. I'll deal with four items this afternoon. And I'll just take them in order. The first is Noranda. And I guess I have a couple of things to say. The first is that the Noranda has clearly started to benefit from really three things that have happened over the past 24 months. The first one and more recent is the increase in metal prices. The second is the completion of their operational restructuring. And third is a financial restructuring which was put behind them six months ago.

In the fourth quarter of 2003, Noranda earned profits and with metal prices increasing dramatically higher in the first quarter of this year and in addition in the fourth quarter of last year, we expect much more positive returns to come about in the first quarter, prices being where they are today. In fact, to give you an example of the strengths of metal prices, the realized copper price in the fourth quarter was 93 cents, currently and it changes, obviously, daily, the price is around $1.16. Zinc was 47 cents and in the fourth quarter and today it's 51. Nickel was $5.51 and today it's $6.90. Aluminum was at 68 and today it's at 77 cents so, these are significantly up from three months ago on a realized basis and dramatically up from a year ago.

In addition, Noranda is clearly one of the most leveraged base metal companies publicly traded today so the benefit is much enhanced to the bottom line of that company with increased pricing. And should prices stay at these levels, net income, but in particular cash flows, will be substantially higher in 2004. Specifically, with respect to our investment, we continue to review options with respect to our share holdings but we continue to believe we're in the forefront of a very bullish metals period. Having said that, we do understand that as we move through this cycle, we will be looking very closely at our options for this investment.

Our investment in market value today is close to $2 billion U.S. The increase in returns on a current basis, should that capital be reinvested into core operations or be used to repurchase shares, could be significant on the increment in cash on cash returns to the Company.

Second, just on Nexfor, like metal prices, that company's results have benefited dramatically from higher OSB pricing, which has largely been fueled by the residential strengths across North America. Prices hit 450 last year in November, dipped down into December and, in fact, are back near the mid-400s at this point in time. The extra cash flows generated by Nexfor have been substantial.

They took their debt to capitalization at mid year last year from around just under 50% to 30% at year-end and with the cash flows being generated should be significantly lower than that, later this year. The paper business in Nexfor continues to be a tough market segment and Nexfor's Board and the management team continued to look at alternatives to maximize value from these operations.

Thirdly, and with respect to Canary Wharf, for those of you who have not paid attention to the process, and I certainly wouldn't blame you as it's gone on for a long time and we certainly acknowledge that, we today revised our tender offer with our three institutional partners for Canary Wharf. It is a fully funded offer and it is a 275 pents, which is approximately $1.6 billion for the equity of the company or U.S. $2.8 billion converted back in today's numbers. Our offer has a 50% acceptance condition.

More importantly announced today, we announced today that we've signed an irrevocable agreement with Franklin Mutual Series who incidentally is the fourth largest shareholder of Canary Wharf, to tender to this offer of ours. There have been small changes to our offer since we announced this before, which we made based on feedback from Franklin Mutual and other shareholders. As a result, the scheme of arrangement as proposed by the Company on behalf of Morgan Stanley will certainly be voted down or the meeting canceled. And as we have over 25% of the required amount of shares, it's closer to 28% of the disinterested votes being our 9%, Paul Reichman's 8% and Franklin Mutual 7% in favor of our transaction and able to vote down the transaction which was proposed.

Our tender offer circular will be mailed shortly and now with three of the four largest shareholders supporting our offer, we are well on our way to acquiring Canary Wharf group. A significant reason for shareholders supporting our offer has been the positive response we've had to the equality of share structure, which we have created and offered within the tender offer for future equity ownership in the Company. We designed a share which shareholders will be able to participate in the future common equity of the company that we end up with, which has really five features in it.

The first one is that there's [inaudible] participation on an equal footing with our investment and with our other investors. And that's in comparison to the Msref offer, which had Glick receiving senior shares, and one specific shareholder receiving senior shares, with respect to both liquidation rights and dividends, and hence we're ahead of preference. A second, our structure enables each shareholder to get one vote for one share and the Msref offer has eight votes for every one share that's outstanding.

We've put an equal price for every shareholder in that the shareholders who buy back securities in the offer will be buying them at the same price that we'll be buying them in the market. And under the Msref transaction, they were requiring people to buy them back at a 6% premium. In addition, there's no underrated writing fees in our deal and Msref was charging a 7% fee to accomplish this and there's no special arrangements with any bidders and under the Msref transactions there was a number, including unquantified indemnities to certain shareholders.

As a result of all of this, we believe we have a compelling offer. In fact, it's the only one that can be completed that's on the table. And we hope that the balance of the shareholders will see fit to tender to the offer and be part of the future of Canary Wharf in an entity sponsored by us. We encourage those shareholders that we've not spoken directly to to call our financial advisors if they have any queries.

Fourthly and lastly, before turning it over to questions, dealing specifically with Brascan shares, the Board of Brascan today approved two items to ensure that you continue to have full access to liquidity in the market for your shares and also receive further cash flow and enhanced dividends over time. The first is three-for-two stock split of the company's common shares and it will be implemented by a dividend, whereby shareholders will receive one half of a Brascan common share for each common share held. And the dividend will be payable on May 31, 2004 to shareholders of record on May 1.

The second is an increased dividend and in addition to the 4% increase which we implemented last year, the Board saw fit to implement a further 4% increase this quarter to 27 cents Canadian or the equivalent in U.S. dollars for U.S. shareholders which will be paid on May 1, 2004. And that dividend will be paid on the shares outstanding prior to the stock dividend.

So, with those comments, I'll turn it back to Bob Harding, who will make just a couple of comments and then turn it back to the operator for questions.

Thanks, Bruce. Well, I hope you can see, investors, that we've had a very strong year last year and we're looking forward to very positive results this year, also. On the call with us also is Jeff Blidner, Jeff is the managing partner in our financial services division and is here to also help address some questions you may have regarding Canary Wharf.

I would say just at the outset, though, given the nature of this transaction, that beyond the comments that Bruce made, we'll be fairly careful in answering questions, and if you are asking questions regarding Canary Wharf, I would ask that you identify yourself as to whether or not you are a shareholder, if you are a shareholder of Canary Wharf we are precluded from having this discussion with you at this time.

With that, operator, I would like to open the call to questions.

Thank you. We will now begin the question-and-answer session. To place yourself into the question queue, please press star 1. If you are using a speaker phone, please pick up your handset and then press star 1. If your question has been answered and you would like to withdraw your request, you may do so by pressing star 2. Please go ahead if you have any questions. Your first question comes from Rossa O'Reilly. Please go ahead.

Thank you very much. The Northgate Exploration gain you mentioned was about $60 million and, of course, that would be in the fourth quarter, in the line investment income and other, which was $65 million. Implying that there was only $5 million in income on that line from other sources, which would seem to be very low in relation to historical experience. I wondered were there any other provisions or charges in there? Or what would be an appropriate run rate for that line, excluding that one-time gain?

There wasn't anything in particular there, Rossa. I think the specific gain on Northgate was more around $57 million, something like that. The number is definitely a little bit lower than we've trended in some of the previous quarters. You'll note that we had $29 million in the last quarter of 2002 in that category, having said that, we did have some pickups and some gains related to some of our investments in that quarter.

Is there any visibility on what that line would look like going forward?

I think if you look at the assets, what we have provided you with is a fair degree of detail of the assets that are contained in that category and I think you can apply a reasonable rate of return to those and get a pretty good idea of that. So, it will be pretty much a market rate of return, based on our financial assets, for one thing.

So, what financial asset base should we use to do that computation?

I believe it's around $700 million of financial assets that would generate income.

So, if we assume 10% on that, would that be a reasonable proxy?

I think that's a little bit on the high side, Rossa. A lot of those are preferred shares and government bonds.

Oh, yes, but I sort of meant, including some transaction Lincoln --

Rossa, this is Bruce. Probably the baseline return on that capital -- this is financial capital waiting to be deployed within the operations and really just liquidity because we have no -- we paid down all of our bank lines saying we're actually sitting with excess cash in a number of places. So, in some of the places that cash is earning 2%. And others is 3 or 4%. But some of that capital we're sitting on, it's obviously negative to sit on cash, but we think, given there's a number of transactions we're working on, we will put the cash to good use in the future.

So, I guess those monies might be part of the financing for Canary Wharf should that work out?

That could well be, Rossa.

Thank you.

You're welcome.

Thank you.

Thank you. Your next question comes from Shant Poladian. Please go ahead.

Thanks, good afternoon, guys. Just a few questions. First one is, what's your target debt to total capitalization on a longer term basis?

The measures that we put out are on a deconsolidated basis is in and around the 25% level. On a consolidated basis, excluding property debt, that number is probably a bit more along the lines of 30 to 35%.

Okay. Does that include preferred shares or excluding?

That would exclude.

Okay. In terms of the operating costs, I guess they were a little bit higher this quarter. Is sort of around $50 million a quarter a more reasonable run rate going forward?

A principal reason for the pickup is that we did record some cash taxes in one of the homebuilding entities and as we reported, they had very strong results. We would hope that we can arrange those affairs to lessen the taxload there. But I think it's fair to say that our operating costs, given the increased scale of activities within the firm, are going to pick up, has picked up somewhat in the back half of the year and will continue on at a slightly higher clip going forward.

Okay. And just in your January 2004 supplemental, I think we've seen a point there about, 12 to 15% cash flow growth guidance for '04. Is that based on the reported numbers? Or was it based sort of on your 287 that you have projected for '03?

No, what that is, Shant, that is what we are putting forward as our objective in terms of long-term cash flow growth. And we're not providing any detailed guidance for the current year. We decided that it is appropriate to follow the lead of a number of major companies and discontinue that practice of providing particularly detailed guidance. And so what our policy there is we've set out clearly what our long-term performance objectives are and we will measure ourselves in that regard and obviously we are setting out objectives that we feel we can achieve.

Okay, and just lastly, on the power generation side, should we be assuming that you will be generating at or above the long-term average level in 2004?

Well, it's a little early to predict of the last quarter of the year, I think what the folks would tell you is that generally if you get one good quarter it tends to carry on for a while so we're hopeful that the strong results we saw in November and December and as Bruce and George have mentioned, carried on well into the first part of this year, will continue for some time. And one would presume that we've had a period where we've been below long-term average and that should apply that we should be above long-term average for periods, as well. So, we're certainly hopeful.

It looks like we're off to a very strong start for the year and should have a record quarter in that sector, in the first quarter. And so we would certainly be hopeful that it would continue on throughout the year.

Okay, great. Thank you very much.

Thank you. Your next question comes from Daniel Bruno, please go ahead.

Good afternoon. First of all, congratulations and I certainly want to thank you all for the wonderful job you've done for your shareholders and the Company and the employees. My question deals with Noranda. In your improved earnings and the large depreciation cash flow, has any consideration been given to a simplification of the joint ownership of some of the mining properties? Either they buy our share or we buy their share, in order to simplify the situation?

Mr. Bruno, maybe I will try to answer that and I guess firstly, thank you for the kind comments, we appreciate that. Secondly, as you know, we think and maybe just to be clear, we own 41% approximately of Noranda, which is approximately 121 million common shares and obviously anything that the Company does has to affect all shareholders. So, really our investment is only in the common shares in Noranda and we've not had any thoughts about --

Hello? Hello?

Yes, Mr. Bruno? I think we've lost him. Operator?

Yes, sir, his line is still connected.

I'll just finish that. We've had no thoughts of swapping properties. Maybe we could take another question.

Thank you. Your next question comes from James Walker. Please go ahead.

Yes, James Walker from All State Investments. Congratulations on another solid year. I did have a question regarding the Canary Wharf acquisition and as it relates to Moody's placing your corporate ratings on review for possible downgrade. $he press release said Moody's had spoken about -- had listed a very wide range of approximate financial commitment that would come from Brascan, anywhere from $320 million to as high as $1 billion. And I was just wondering if you could sort of get some clarity on that, just as far as the ownership structure of CWG acquisition group and how it would ultimately lead to, sort of a range on what the debt burden for Brascan would be?

Sure, I'll try and deal with part of that and Jeff may be able to help me out on some other aspects of that. And first of all, I just have to -- some of the questions that you've asked would require us to give some anticipation of how things might turn out.

Right, I know that.

I'm not at full liberty to go through all of that with you. And what I can tell you is Bruce mentioned the overall dynamics of the bid, which would result in a 1.6 billion pound offering. It's fully funded. It is a bid that's being launched with ourselves and three partners and the equity commitments that they have put forward, are disclosed in the document, as well. And aggregate 370 million pounds. There is also 800 million pounds of acquisition debt financing that would be provided on a nonrecourse basis to Brascan.

So, if you take the aggregate bid price of 1.6 billion pounds and you deduct the 800 million pounds of acquisition debt, the equity being provided by our partners, as well as the IPC subscription for a further 50 million pounds, you can see that our requirement to fund is excluding our existing position, only around 170 million pounds, and is around $300 million U.S. And that's clearly something that in the context of our existing liquidity, extremely manageable.

Now, Moody's did mention that there is a range of alternatives and what I can tell you is that there are certain circumstances where, for example, the senior debt would not be fully available to us. We've stated that our intention would be to syndicate further our position in those circumstances and we have our views as to how that would roll out and I think what I can tell you is that our expectation is that we would not be putting any significant financial strain on the Company going forward.

We've obviously had a very fullsome exchange of information with the various agencies over the months leading up to the announcement to ensure that they're all very well informed. And the agencies all put out comments on the announcement of our offer, stating that they would review the transaction if events unfolded to see what the ultimate impact, but that there wouldn't be any immediate ratings actions. And I think our interpretation of what they're saying is that if the transaction was concluded on a successful basis that there would be no adverse impact on our ratings.

Moody's, unfortunately, chose to include a headline that stated our ratings were under review and intimated a possible downgrade. But our understanding of that is that that is based on the fact that there is a possibility, and those are the circumstances I described to you, although we feel very strongly that that would not arise, where the financial commitment could increase above what I set out for you.

And I guess just in the conclusion of my comments, what I will say and reiterate is that we have no intention taking any actions that would result in a potential deterioration of our credit ratings and we do not believe that our involvement in Canary would have this effect. Our intention, as always is to continue to improve the ratings profile of the company.

Okay, thank you.

Thank you. Your next question comes from Michael Lewis, please go ahead. Please go ahead, sir, you're on the line. Michael Lewis, please go ahead, you're on the line. Once again, if there are any questions on the phone lines, please press star 1 on your touch-tone phone at this time. Your next question comes from Terrence Ortzland, please go ahead.

Thank you. Bruce, if I may approach the topic from another angle, I think you highlighted those three features quite elegantly. What am I missing in the conclusion that the capital tied up in Noranda, take the simple way out of this and offer it to the public? Is it that most advisors that you have are [inaudible] against that if the market cannot take it? Or just wait for a premium to be absorbed by another taker of Noranda? I think in the past Brascan waited too long for Noranda and missed opportunities [inaudible] in the past, but now, the management is fully intact, and the asset base [inaudible] why not offer to the public?

Terry, I appreciate those comments and I guess our Board and management, we've been, firstly working with the management at Noranda and think they've done a great job over the past 24 months in getting the Company into shape to be able to deal with the future of a very exciting metals business. And I guess we continue to look at our options, all of the things that you said are possible in the future and, without really stating anything we're going to do, I guess we continue to look at all of those things, but we appreciate views you just expressed and certainly understand all of them.

The only concern I have is that it would be too queued in timing of this, because metal prices have a tendency of having a lot of surprises for people. So, if it's a timing question, then obviously it will be of some issues, otherwise I wouldn't be discussing here?

Yeah, I guess our view to a large extent is we're in the early stage of metal cycle and so we continue to address this at our Board all the time and think about our options.

Sort of a question on that. How would you deploy the proceeds from Noranda in terms of -- apart from what we are discussing on the table today, are there other opportunities you may discuss to pursue?

I guess we've really been broadening out the areas that we've operated in but narrowed the number of businesses we've been in and certainly there are opportunities to put money to work in the real estate business and 12 months ago I don't think we would have told you that we could find an acquisition like Canary Wharf. There are a number of power opportunities and I'd say we were less than happy last year that we could not shake any power opportunities loose on a significant basis, but we believe that there are a number of opportunities that are coming to market in the next short while that we may be able to participate in and put significant amounts of money to work.

In addition to that, just the organic growth we have in our funds management business is utilizing capital LARs and I guess as George said earlier, we spent 2 1/2 years building the business and building the people and getting the infrastructure in place and only now are we starting to -- start to reap the rewards by putting very positive returns in the books. And as a result of that, we can put capital in there.

Having said that, we do generate a lot of cash in the Company. On an operating basis. And should we receive a significant amount of cash out of a sale of a major investment, it's possible we can't deploy that amount of capital and what it will be up to management and the Board to decide is at that point in time, should we repurchase more securities than we are today in a substantial way of the company? Or should we be giving that back to shareholders in the form of greater dividends or a special dividend. I guess all of those things are the ways that you can deploy capital. And our only real objective is to ensure that we enhance the underlying value and the cash flow per share on a net basis and we will have to look at all of those things.

And finally, the power operations is in North America, right, you're looking at?

That's correct.

Okay. Great year, guys, thanks a lot.

Thank you.

Thank you. Your next question comes from Frank Mayor. Please go ahead.

Good afternoon, gentlemen. The other day Brookfield mentioned that it had a substantial tax loss available to it. My question is what is Brascan's tax position and how many years before you anticipate paying current tax?

Thanks, Frank, it's Brian Lawson. You'd be able to see from our annual statements when we published them and you would have noticed last year that we do have substantial tax losses within the Company. It's difficult to project out how long we can continue to benefit from those losses. However, we feel comfortable that we still have a fair way to go with them in terms of several years. So that's really what we could say at this stage of the game.

Second question would be, in your supplementary, the information, it's indicated that the property values are derived using a 7.4% capitalization rate. I'm wondering if you could comment as to the context within which you chose the 7.4%. What do you see happening to the value of properties such as yours and the major cities where you're located? And whether 7.4% is what you feel is representative at this juncture or conservative or what kind of color could you give us on that?

Frank, you probably know more about the property values than we do, but I will make a comment. And I guess I will say in our underlying values, what we attempt to do is take estimates of what we see in the marketplace, provide those to shareholders and give them the other information that they can make their own assessments. So, if people want to make a different assessment, they can do their own calculations on the underlying values and we're not trying to make a number up for anyone. We're just trying to give you what we look at.

What we believe is that we should provide a reasonable and hopefully a relatively conservative number when we do that. The 740, two years ago we used a 775 cap rate on the whole portfolio and in September of last year we changed it to 740 based on the fact that clearly capitalization rates had decreased enhanced values and increased across North America. I would say that we believe that 740 in this portfolio is easily achievable and, in fact, probably the stock prices of most companies, if you looked at them in the commercial real estate business, would be trading at less than that if you used them and most of them had far less quality properties than we own. Many of the properties we sold have been under that on a going in capitalization rate. So, that's basically how we came up with it.

The second question is what do we think about fundamentals of the business? And I guess I'd say we think, and George made some of the comments in his remarks, is we think the markets have generally bought them, people are starting to make decisions again. I don't think they're going to head up quickly, but vacancies are dramatically lower than they were the last time we came out of a quasi recession, or in fact, I'd call this one a small recession and the last one a large one in real estate, but we were at 20% vacancies in most downtown markets and today in the markets we're in we're at 10 to 12.

Therefore, people are starting to do that and it's very likely that what you will see over the next number of years, and we won't predict timing, is that rental rates, in fact vacancies will start to come down and as that happens, rental rates will go up, even if interest rates go up, your capitalization rates go up a little bit. You probably generate, probably as much value out of increased revenues as a capitalization rate changing. So, we think it's a pretty good period of time to continue to own commercial real estate.

Thank you.

You're welcome.

Thank you. Your next question is a follow-up from Rossa O'Reilly. Please go ahead.

Thank you. Yes, the acquisition loan to buy the equity of Canary Wharf, what are the terms of that loan in regard to collateral and recourse and interest rate and so on?

There been no public disclosure made of that and we're not at liberty to provide you any further information on that.

Presumably it's a very short-term, though?

Can't answer that.

Okay. Well, thank you.

Thank you. If there are any final questions on the phone lines, please press star 1 on your touch-tone phone at this time. Your next question comes from Daniel Bruno. Please go ahead.

I would like to make one observation. The fact that Brascan is so heavily involved in Great Lakes power and anxious to expand its interests there is really a God send because Great Lakes has a renewable power source and is certainly cleaner than the oil or gas. The second question -- that's an observation, the second question has to do with Noranda funding and that is the strategic options, I would presume includes the sale of Brascan's 40% stock interest and the other presumption is that Noranda would sell off the piece of this operations, add to the joint operations or to the general public. In that latter case, would you agree that the proceeds of the investments would be greater?

Mr. Bruno, I guess the first -- just on your comment, I guess we agree that hydro assets there, one of the great renewable resources that produce cash and appreciate in value over time, so, we thank you for your comments. The second one is we own shares in Noranda and they are deploying a plan in the Company and the Board of Directors, that's that plan, business plan each year. And obviously we sit on the Board and have input into that plan but in essence it's not our decision as to whether they're selling assets within the Company or selling off things.

Thank you.

You're very welcome. Operator?

Thank you, sir. Your next question comes from Michael Lovitz, please go ahead.

Hi, just for clarification, the decision on what to do with Noranda is totally independent from any financing needs you might require for Canary Wharf, they are two separate decisions or are they somehow linked?

Yes, they're totally separate decisions.

Okay, thank you.

Thank you. There are no further questions at this time.

Thanks very much, operator. Thank you, everyone, for joining us this afternoon. And for your interest in Brascan and we appreciate your participation. Thank you. Bye for now.

This concludes today's conference call, please disconnect your lines and have a great day.