BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Brookfield Asset Management year-end 2006 results conference call and webcast. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Friday, February 9, 2007.

Your speakers for today are Bruce Flatt, Managing Partner of Brookfield Asset Management; Brian Lawson of Brookfield -- Managing Partner and Chief Financial Officer of Brookfield Asset Management; and Ms. Katherine Vyse, Senior Vice President of Investor Relations.

I would now like to turn the call over to Ms. Katherine Vyse. Please go ahead, ma'am.

Good afternoon, and thank you for joining us. On the call with me today are Bruce Flatt, Managing Partner; Brian Lawson, our Chief Financial Officer; and Brian Davis, our Managing Partner of Finance. Brian will provide us with an overview of our financial results and the highlights of our operations. Bruce will talk about some of our recent initiatives.

Before handing the call over to Brian, I should just note that in responding to questions and talking about our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risks, I would encourage you to review our annual information form or our annual report, both of which are available on our website. Thank you. Brian?

Thanks, Katherine, and good afternoon. I will cover, as Katherine said, our year-end results, which we did release this morning, and then, of course, Bruce will follow on with some additional comments.

Our operating cash flow for the year was $1.8 billion, $4.43 per share and that's roughly double the $908 million that we reported for 2005. Net income was $1.2 billion or $2.85 per share. The increase is due to improved results in almost all areas of our operations as well as a number of realization gains.

In our press release, we highlighted six items that, in aggregate, contributed $670 million to our cash flows. Excluding these items, our cash flow was still up substantially on a comparable basis. I will cover the results in more detail in the balance of my remarks, but I would like to first make two observations.

First, the realization gains represent the culmination of a number of important initiatives and represent a small portion of the appreciation and value of our underlying assets. These items do occur at irregular intervals and are therefore difficult to predict. Nevertheless, they do represent an important element of our investment returns and, given the diverse and dynamic nature of our operating base, we do expect gains of this nature to arise with relative frequency.

Second, we did report a large number of gains in this period which, combined with the strong results from the balance of our operations led to results that exceeded our expectations. And as much as we would like to, it would be unrealistic to expect us to generate similar results in 2007.

We have provided a detailed analysis of our activities during the year in our supplemental financial information, which is posted on our website; so I will limit my comments to some of the highlights of the fourth quarter.

Asset management revenue was $79 million for the quarter and $257 million for the year. The amount earned from our managed funds increased 34% to $84 million from $63 million. We added new funds with more than $10 billion of assets during the year and our base management fees are now approximately $75 million on an annualized basis; that's up from $55 million at the beginning of the year. This bodes well for continued growth in 2007 and we continue to look for opportunities to increase these cash flows.

In terms of our core office portfolios, cash flows increased quarter over quarter due to improved leasing conditions and the continued expansion of our portfolio. We also benefited from an $87 million dividend from our investment in Canary Wharf, and a $110 million gain arising from the sale of Brookfield property shares by that company during the quarter.

We believe we are well positioned to benefit from the continued strengthening and leasing markets, which have increased dramatically over the past six to 12 months. Operating results in our residential business were somewhat mixed. We experienced a decline in the results from our U.S. operations, although they were still quite respectable, after many years of growth.

Our Canadian operations, on the other hand, demonstrated substantial growth year-over-year and we also generated a gain of $270 million on taking our Brazilian business public in the fourth quarter, creating in the process a company with a market capitalization of roughly $1.5 billion. We expect continued softness in the U.S. markets until the current supply demand imbalances work through, but the outlook for our Canadian and Brazilian operations remains very favorable.

We completed the fund-raising for our real estate opportunity fund during the quarter and increased the invested assets to more than $1 billion. The capital is now fully deployed and our focus is on working the properties to maximize their value. Within our Brazilian retail fund, which was established in the third quarter, we are continuing to pursue a number of promising acquisitions in order to deploy the $800 million of capital raised for this fund.

On the development front, we continue to advance the Bay-Adelaide Centre project in Toronto, Bankers Court in Calgary, and the buildout of Four Allen Center in Houston for Chevron, who will occupy 100% of the property. We are also making progress on other projects in New York City and Washington, D.C.

Power generating operations contributed $142 million of cash flow in the quarter, bringing cash flow for the year to $620 million, and this is our highest level yet. The results were stronger than last year due to improved water conditions, which were roughly 5% over long-term averages; the impact of facilities acquired over the past two years; and realized prices that despite softening and spot prices, were higher than 2005. This latter point illustrates the benefits of our policy of protecting much of our generation with long life contracts as well as the flexibility of hydroelectric generation, which enables us to capture enhanced pricing during peak periods.

We're well positioned to achieve our hydrology targets in 2007 based on current storage levels and our contract profile should provide us a solid revenue base, which leads us to expect continued growth in operating cash flows during 2007.

Timber operations contributed $21 million in the quarter, $107 million for the year. This is up from $40 million last year for the full year.

Operating results were on track and the increase is due largely to our owning the West Coast timberlands for a full year as opposed to seven months following their acquisition partway through 2005. Our transmission operations generated $49 million of cash flow during the quarter, up substantially from the fourth quarter of 2005. The increase, of course, represent the cash flow from the major transmission facilities that we acquired in Chile in June of this year. These operations provide stable regulated rate-based returns that should enable us to generate attractive inflation-adjusted returns over the coming years.

We achieved strong growth within our specialty funds groups. These comprised bridge lending, restructuring, real estate finance, and fixed income and equity securities management. Cash flows in the quarter were $131 million, although note that that includes receipt by Western Forest Products of proceeds in respect of the softwood lumber dispute settlement of $109 million. Our share of this payment once the minority interest -- minority shareholders are deducted is $59 million contribution to the bottom line.

The balance of the cash flows from this sector totaled $22 million compared with $11 million in the last quarter of 2005. The increase arises from a higher level of invested capital within these funds. We generated $227 million of investment and other income during the quarter. This includes a $149 million gain on the sale of our investments in the Accor joint venture in Brazil, which we announced during the fourth quarter.

The remaining $78 million still represents strong performance relative to the amount of capital deployed as we continue to benefit from gains on equity positions established in prior quarters. As we have mentioned before, we take positions in companies that we feel are undervalued and where we might benefit from a future restructuring or sale, particularly where we might participate in that process. These have worked out well for us in most periods, resulting in meaningful gains, but there's no assurance that this will always be the case.

We often get asked about the positions we hold, and while we don't generally disclose the specifics for competitive reasons, you may have noticed our recent disclosure that we held just under 5% of Longview Fibre, a company that we recently agreed to acquire. This is a good example of the kind of investment that we are referring to.

One soft area for us during the year was our interest in the forest products sector. Fraser Papers and Norbord both faced a combination of lower prices and higher costs that reduced their earnings. This impacted us on a proportionate basis through our equity accounting earnings from those two companies. Katahdin Paper also faced a challenging environment, resulting in operating losses and impairment charges. We've announced the proposed sale of this investment to Fraser Paper, which we believe will benefit both of us and look forward to participating in the turnaround of their operations.

So in summary, we are pleased with the results this quarter; in particular, the growth in the timber, transmission and specialty funds operations highlights the continued expansion of our asset management capabilities. We completed a number of important initiatives in the property sector that led to the establishment of new funds and further growth in our operating results, and our power operations continue to benefit from the expansion and capacity over the past five years. With all of that, we believe we are well positioned to achieve solid performance during 2007 and look forward to reporting back to you as the year unfolds.

Just before I hand things over to Bruce, I would like to report that the Board of Directors has approved a dividend of $0.18 per share, payable on May 31 to shareholders of record at the beginning of that month. This represents a 12.5% increase over the current dividend, which you may recall was increased by approximately 50% earlier in 2006. Bruce?

Thank you, Brian, and thank you to everyone for joining the call today. After I make a few comments, we will take questions, although, as you might imagine, questions related to acquisition transactions we may not be able to answer. These clearly are sensitive situations with public securities trading in the marketplace. As a result, we have to be careful with what we say. If we cannot answer your question, please understand that this is the reason.

My comments today will focus on four items. The first is office properties in general. The second is Mills. The third is multiplex group and the fourth, I may give just a couple of comments on Longview Fibre.

Brookfield Properties, firstly, had their call today and if people are interested in specifics on our office property business, we direct you to listen to their call. In general, though, with respect to office properties, which is our largest business, office rents and values of office properties continue to increase. This has been happening over the past while and it appears that we are in ideal conditions for office owners right now.

Interest rates are low. Capitalization rates came down to historical lows 18 months ago because of this, and in fact, stayed low during this period. Furthermore, rental rates over the past six months, six to nine months, have begun to increase significantly, and given that buyers are now predicting a positive marked-to-market on rents going forward, capitalization rates are once again coming down, and have over the last six months, probably by 100 basis points.

Rental rates across the board in virtually every market across the world are increasing, some very rapidly. New York, Calgary, and London are examples where we're in the market. We've seen a doubling -- almost doubling of net effect of rents over the past 12 months in those markets. In many other markets, some where we participate and some where we don't, rents are also increasing. In fact, markets where we don't participate, like Hong Kong or other Asian markets, rental rates have even increased more rapidly.

This is driven by the fact that vacancy rates are, in most markets, coming down to single digits and supply is well in check. And on the last point, many investors often ask us about supply and why the supply has not expanded. I guess firstly, very rapidly have rental rates come back, and in supply constrained markets, which we have always tried to own assets in, but it's tough to build in a short period of time.

In addition, probably different than other periods of time, is the fact that despite the increase in office rents, if a site, a development site in the city can alternatively be converted to either residential or office space, today residential prices still produce far greater conversion value than converting it to office space. Therefore, many sites, which would have over the last number of years or could be in the future converted to office in central city locations, have been or are going to be converted to residential usage and not office.

The increase in rental rates is the main driver behind the latest round of M&A -- I guess that differentiate that from M&A that was going on 12 months ago -- in the office building business, and this is largely the decision that through Brookfield properties, we retain 62% of the Trizec acquisition as opposed to syndicating it late last year. I guess we're quite pleased with that. Furthermore, in assuming stable conditions, we expect to enjoy continued marked-to-market of rents over the next years ahead.

Turning to the second point I was going to talk about, which is Mills Corporation, we spent significant time in the latter half of '06 to understand this company. We got to know most of the management team and underwrote the company mall by mall. We concluded that the company had some superior assets and many excellent people.

As we worked through our due diligence, it became clear to us that no other party was willing to commence the bidding process and that in the meantime, the delay and uncertainty were causing a substantial loss in value in the company. Given our extensive work, we decided we could bid and our commitment to acquire this company spawned, or has spawned another bid, and while this is unfortunate for us, if Mills does deem that bid to be superior, we will consider our options. We entered into this because we plan to transform this company into our North American platform for a retail business, hopefully building it over time into an equivalent size and scope operation to our office business.

Thirdly, on Multiplex Group, we identified this as a highly attractive company two years ago. Multiplex had a few business issues, but consistent with the type of entities which we like to get involved in. Fundamentally they have some great operations. At the time, we purchased just under 5% of the company and we set out to learn more about the business. We recently approached the Board of Multiplex to consent to us negotiating a deal with the Roberts family to complete a transaction.

The Roberts family -- just so everyone knows, currently owns 26% of the shares of the Company. We are in the process of negotiating a deal with the Roberts family and we hope to be able to conduct due diligence in the short-term. Our proposed transaction will involve BAM and Roberts privatizing three businesses.

Firstly, the Asset Management operations, which is very similar to our fund operations; second, their development businesses, which is really twofold. One business similar to our commercial development business and the second very similar to our North American and South American residential operations, and third, a construction business, which is the only operation in the company which we don't directly participate in today but we have in prior periods of time.

We intend to pay shareholders of Multiplex cash for these three parts of the business which we privatize and also leave the shareholders holding a recapitalized trust. This trust will be one of the largest office trusts in the Australian marketplace and we, together with the Roberts family, would own approximately 30% of this trust and manage it. We intend to grow this trust and utilize it as an acquisition vehicle in the Australian and possibly other markets.

Lastly, it should be noted, given the Roberts family owns more than 25% of the shares of the company, that they are very integral to anyone taking over this company.

Lastly, we also announced the $2.1 billion acquisition of Longview Fibre. We have owned, as Brian say, just under 5% of this company for awhile and we think it has very high quality operations. Longview owns approximately 600,000 acres of high quality freehold timber in Washington state in Oregon. We have the approval of the Longview Board and a definitive agreement, which has been negotiated with Longview.

We hope to close by the end of the first quarter and, in addition to the timber operations, we purchased -- we will purchase a corrugated box business and a pulp mill. While this is only represents a small portion of the enterprise value, we believe there are good opportunities to create value in these operations as well.

Overall, we have bid on a lot of assets in the last while. I'd make the comment that sometimes it feels like nothing works out, and then there are days like last Monday when we're involved in three deals on the same day. I can tell you that we are always focused on ensuring we earn proper returns for our clients and our shareholders with the capital that we invest into it, and we will only complete deals which fit with, I guess, twofold -- one, within our strategic plan and secondly, that meet our return thresholds.

We also understand that some of these bid put uncertainty into the Company and we appreciate your patience and support when we take these opportunities on. With those brief comments, operator, I will turn the call back to you and we would be pleased to take any questions.

(OPERATOR INSTRUCTIONS). Andrew Kuske, UBS.

Bruce, back at the Investor Day in the fall, you set forth a target of $100 billion of assets under management. At the end of 2006, you're reporting a number of $71 billion of assets under management. Really, how do you see your growth rate on a go forward basis and when do you expect to hit that $100 billion target?

I think actually the $100 billion we put out -- we did two years ago or two investor days ago. And I guess we put that target out there just to encourage people to think about the Company a little differently. We generally look at assets under management as a means of profitability for the Organization and don't really strive to have any specific number outstanding. Although we said at the time that we thought we could get to $100 billion in five years and that we've added, I guess, $20 billion in that two-year period, we're on track. And I would say that as you continue building your business, it should get easier to [be able to] build your assets under management. Whether that is achievable or not, we'll have to see in the future, but I think -- I would say we're on track for what we're doing and we're pleased with how the business is developing.

Just on that point about it getting easier, with some of the recent announcements, as it relates to Mills and Multiplex and so on, how do you see Brookfield's really product mix from an offerings standpoint for funds and then also geographic scope. How do you see that developing and where do you see that several years from now?

Maybe I can clarify my statement. I said easier. I guess I'd say the environment for purchasing assets probably isn't easier than it was two years ago. So I'll make that clarification. What I was referring to is we used to be an investment company that invested all of our own capital and we spent the last five years raising institutional money beside us. And as you get into your second fund and all those kind of things, the getting easier is -- it should be much easier for us and it is much easier for us and we're noticing it, to bring institutional partners alongside us because we have now not only a track record of investing in the assets ourselves, but doing it with institutional investors.

To specifically answer your question, on products, I'd say we have a much easier time investing in assets and we have a full-scale platform and that we've been in before. And we, so, for example, in the real estate business, we've invested in every asset class and owned every asset class that's out there. So we really don't have any reason not to invest in those. We pick our spots and we can only do so much at once.

When we look at other types of infrastructure, moving into ports or other types of infrastructure where we don't have a platform today, what you are doing is going into it as a new business proposition, and even though you have the knowledge of it, possibly, you don't have any synergies in those types of things, so it is much harder for us to justify transactions. It's just easier if you have the platform. So that's what I'd say on sort of product areas.

On geographies, I guess what we've tried to do is continue to expand the business out where we feel comfortable doing business, and the recent transaction in Australia we feel very comfortable with. And we continue to put people on the ground in different parts of the world to expand the global platform that we have, and as we get comfortable with rule of law in different countries and our operating capabilities there and build up our people, we will continue to expand the business.

Louis Sapir, Oppenheimer & Co.

My question is (technical difficulty) can you divide your assets into real estate and the results, as far as net income is concerned, management and net result and miscellaneous net result?

Maybe you could just repeat what the question was and we'll try to answer for you.

Operator, maybe we could cue him -- take another question and maybe you could cue that individual up. We couldn't hear what he said on the line and we'll try to answer his --

May I start now?

Oh, yes you can.

Divide your business into real estate, hydraulics, and management. How much -- what is your net return on each segment of your business?

Oh, gosh. You mentioned earlier on a net income basis or on a cash-flow basis?

Net income basis.

Okay. We could do it more easily on a cash flow basis. We'd be providing a bit more information from a net income perspective when we publish our full financial statements, but we don't have that available at this time.

I'd say in general, if you look at our supplemental financial information where we do break it out on a net operating cash flow, for this particular year, we were roughly about 50% in the property sector. That's about $1.3 billion of net operating cash flow out of a total of about $2.7 billion. And then, power would have been roughly about 15% to 20% of that, and then the same for other investment earnings, and then asset management revenues in and of themselves would have been about 10% of that.

Charles Kantor, Neuberger Berman.

I guess I was asking a more longer-term question -- with the IPO today of Fortress, I was wondering, Bruce, if you could give us some perspective of how do you think investors may come to think of your Company in a world where there are, say, a number of meaningful, direct competitors within a world where [endless] specifically and think of the asset management business and the (indiscernible) separate to just the way they're traditionally thought about.

I'll try to make a couple of comments, although we generally don't like talking about other people's businesses too much, but I'd say Fortress is an excellent alternative asset manager. In fact, they're similar to us in many ways. Probably have less scope of operations, but have had institutional funds for a longer period of time. They have a great -- an excellent reputation, have a good investment record. We know them well and respect their abilities, so I would say that upfront about them.

Clearly, going public will provide Fortress with the flexibility to invest more [capital end] deals, like we do, aligning their interests with their clients, and we found that that's probably one of the most important competitive advantages that we have in growing the asset management business, and probably one of the single most important things to the ability of us to grow the business as we have.

Today, we have more capital at our disposal than Fortress, and probably more capital at our disposal than almost any other alternative asset manager. Maybe specifically to your question, on one hand, while we don't like others being able to replicate some of our strategic competitive advantages, so I'd say that's a negative. On the other hand, we're very pleased to see investors in North America, and there's a number of these type of entities that are public outside of North America, but in North America, begin to understand and recognize what the inherent value of our asset management franchise is.

As can be seen by the trading of the Fortress IBO, which was very well-received today, and I guess it's stated in our shareholder letter, we think that this is the -- maybe I guess I'd say the start of the industry consolidating over time, and that scale players are clearly going to need capital for various reasons. This probably means that other similar type of companies will ultimately go public.

To answer your question about longer-term, I think that -- I guess we think that like traditional asset managers, ultimately, there's going to be a handful of very large entities that will be public that probably will have $20 to $100 billion market caps and be the dominant players in the industry. And so in general, I think there's some bad things about it, but a lot of good that will put a spotlight on some of the things that are going on in the industry.

Michael Goldberg, Desjardins Securities.

My question really is about Page 11 in your sub-pack and what I wondering is if we could get some numbers that would be comparable to the assets the way you've got them split out in the table in the middle of this page, maybe for years 2005 and 2004 also, so that we could better see actually the growth that's taken place in some of the higher margin asset categories.

Sure, Michael. We don't have that information available right now. We can take that under consideration and see what we can do. Although I would note that one of the things we did put in the second column there was the year of formation of the fund, the idea being to give you at least some sense of how that side of the business has been developing over the past few years. So I hope that in of itself helps, but we'll see if we can help you out further.

Rossa O'Reilly, CIBC World Markets.

I just wondered if strategically in the way that you outlined for the Multiplex transaction what your strategy was with respect to Longview Fibre?

I guess our view is -- or in getting into it, there was three components to the business -- the timber business, which is a very large component of it; the corrugated box business and a pulp mill, which are really two businesses together, and on closing, what we will do is separate the two and we will look to seed into some asset management structures. I'm not sure -- we haven't identified for a number of reasons what structures those are and where the assets will go, but it may be a couple of different ones. But ultimately, we will probably hold an interest in 25% or thereabouts of the actual timber and other investors will own the balance. On the corrugated business and the pulp business, I guess we view it as a restructuring play, and we'll look to seek alternatives for the business over the next number of years.

And then returning to the Multiplex transaction, the construction on operations there, how big are they and how do you view that business not having been involved in it before?

Just scale of operations, as you probably know, most construction businesses don't have a lot of capital involved in them. Sometimes you need bonding lines to be able to guarantee contracts and things, but they more or less offset payables with receivables. There's some capital invested. So by and large, the business isn't a significant net asset value business or there isn't a significant amount of value invested -- tangible assets invested in the business.

The scale of it is that they are -- for 50 years they have operated in Australia. They're one of the leading construction businesses across Australia, and they've operated there for many years and very successful. They have a small operation in the UK, which did get into some difficulties with the one contract that they took on with Wembley Stadium, but they've rectified that. And then they have a construction, they do a construction or they're one of the major construction companies in Dubai.

So those are the three areas of operations. I think those are the three things that you asked. And I guess we're -- we've been dealing -- we do a lot on the development side of the business in North America, both residential infrastructure and commercial. We deal with all of the construction companies; we've chosen not to be in it here, but we think that it's possibly a good addition to our business there and I guess we could expand in other places.

And looking at Australia, I see a domicile of Multiplex. Would you [see] that as being a platform for growth into a lot of overseas markets?

Well, if we're successful with the transaction, what we're planning on doing is spinning off an office trust, an LPT, as they're called in Australia, which we would hope to be able to have currency to use to raise capital and to purchase assets in Australia. There's actually -- we're purchasing as part of the package, an interest in a New Zealand office company and it would be -- we would use that to grow, and it could be in other markets and it would just be another source or access to capital for us.

Peter Sklar, Bank of Montreal.

Back on the question about the asset management business and I don't know if you've expressed this in the supplemental package or if you know the answer, but I wanted to know in all of these structures you have where you're managing third party capital, do you know in aggregate how much third party capital you have under management at this point?

Sure, Peter. And that is, in fact, we've got a series of tables within the supplemental to give you that information where we break out total assets [and then] our share of the assets. And so I guess in a nutshell, if you took the -- the figure that we mentioned earlier, the $70 billion, there's $40 billion of assets on our balance sheet which would suggest that there's $30 billion of assets that are held -- managed for others.

The part I always have difficulty with is how do you reconcile the current annualized management fee of $60 million to $30 billion? I mean it seems so small relative to --

I think what you need to look at -- and we do focus on the assets because what we do try and do is drive it off of our consolidated financial reporting so that we've got a consistent set of numbers that we can present to people. A lot to the fees are driven off of the capital that's invested in our fund, which may not necessarily be the total assets, and particularly, in a fund that can be leveraged fairly significantly, that can be a -- obviously a fair gap between the two numbers. So again, what we've provided in the supplemental is the total capital, both on a committed and an invested basis within our funds, and giving you the management fees so you can determine it off of that.

And if you think about our business, there's really three elements to it. One is what I would call -- what we call the fixed income in equity securities side of the business, and those, as you might imagine, particularly given a lot of it as fixed income, tend to have lower base fees but on a very large number of assets. And I think you know the metrics that are in that business.

And then we have what we would describe as being opportunity and restructuring funds, and those are ones that are seeking higher returns; that would be our restructuring fund, our real estate opportunity fund, and those seek higher returns and are paid -- the fees there are more along the lines of private equity, and they're more of the 2 and 20 type return.

And then our core and what we call core and core plus, more the infrastructure type property funds, which you would typically see as being more of a 1 and 10 type of fee arrangement, is the other component of it. And so if you work all the numbers through, you would see that in terms of base management fees, we would be running at about 1 and a bit percent on the two former funds. And then less than that on the public securities side.

I may just add a couple of comments to that. Firstly, Brian -- and it's new disclosure this year, so we'd encourage everyone to look at it, and if you have any comments, we'd love to take them. So we've tried to expand the disclosures so that we give greater information on that.

The second thing is, and you should remember, as we put assets on the books, the day an asset goes on the books, that's actually probably negative to us because that means that we've hired a team of people and we're paying for all their costs and often we're not generating any income or any cash flows out of that operation, and therefore, a lot of these funds take time to A, generate fees, but in particular, generate any performance fees. And so a lot of this business is building for the future. So even though you may see assets go on the books, it may not necessarily contribute the next quarter or even the next year for that matter in a significant way.

Why do you say that? Because they're not part of a fund structure as initially wholly-owned by Brookfield Asset Management?

Possibly, on the upfront, but even once you create a fund, if you get the best terms, you get paid on committed capital; if you don't get the best terms, then you won't get paid on committed capital, so, unless you have the amounts invested, you're not really earning anything, and in addition, even if you are getting paid, it's just the asset management fee, it's not any incentive fees. Until you have invested that capital and until you turn assets, the performance fees don't come to your bottom-line. And therefore it just takes time.

Sorry, just going back to the basic arithmetic, I think you're saying that you have $70 billion of assets under management. Taking into your -- I mean there's obviously a lot of leverage involved in that, so doesn't that mean that the amount of equity capital that's committed to this, both your capital and third party capital is just a -- is considerably less than $70 billion?

I'll just walk you through the tables here, Peter, but again, I would encourage you to take a look at them. If what we break out is the net investment capital in those funds, so it's a total of around $39 million?

$39 billion.

$39 billion. Thank you. Major difference there. Of which $11 billion of that are assets that we owned or net invested capital we own that's not in a fund format today. There's about $28 billion of it that are in fund format; about $20 billion of that are the listed securities and fixed income and about $8 billion of that -- $9 billion of that are in the core and core plus and the opportunity and restructuring funds. So that should give you some sense of the, what we would call the capital in those businesses.

Right. That makes more sense. And the other thing, Bruce, just following up on your remarks, about the carrier, the participation fees, could you explain -- you may have touched on this once before, but could do explain how does Brookfield Asset Management realize on participation fees, giving the type of assets that you like to become involved with are very long duration, I don't anticipate that you're going to sell them over a five to 10 year period, I would think your hold periods are more 15, 20 years. So how do you realize on your carry?

Sure, Peter. There's a couple of ways that we get at that. First of all, some of the funds do have a seven, 10 year life in terms of realization, and the thing that drives the actual -- each fund has a different agreement that governs how it operates. But a couple of the fundamental principles are is that there's a measurement period within each of the funds and that's the period over which the performance gets measured and the returns get determined, i.e. how much gets paid based on what the performance is relative to the benchmark.

So, that period may be the life of the fund. It may be one year -- it may be on a year by year basis or it may be, for example, a five year period. So if it's a five year period, then we would value the assets at the end of that five year period and we would receive a fee and we would report the income at that time. So it does tend to be a little bit back-end loaded.

Dominique Barker, Credit Suisse.

I have a question with respect to the power segment. The power price that's implied for Q4 is $39 per megawatt hour. I'm just wondering why it's so low.

I guess there's a couple of things factoring that. The actual realized price would be higher than that. Now, having said that, there were definitely some spot price realizations that were lower than that during the -- or were at a lower rate during that quarter, which would have adversely impacted that.

In general, the prices in the latter half of last year given gas prices and given the very warm period of times that the Northeast in general and other places in North America saw -- as you know, everyone was walking around in their T-shirts -- it pushed prices down. And the good news is that it's very cold right now, so that's good for the power pricing.

I guess if approximately 80% of your power is contracted in the $70 range, it would imply you actually lost money on the 20% that's uncontracted. Do you take speculative positions that would perhaps result in that?

No, that would not be the case. I'm candidly a bit surprised at that $39 figure, so maybe we should walk through that with you? I suspect it's probably a result -- I think you're backing into that number based on our Q3 versus our Q4, so there may be just some ways that the waiting of that works out.

Now actually thinking about your number.

You're operating costs were extremely low as well, which is another question, which is why your actual net operating income was reasonable. So that was my other question, and if you want to follow it up, but I've done the math a couple of different ways, and there's something going on there that I don't know.

Okay, well, we'll follow-up with you because that doesn't seem -- anyway, you've done the numbers and we'll follow-up with you on that.

I have another specific question as well, maybe it's Brian Davis. The property gains on the commercial side were $154 million, but in your reconciliation between the cash flow net income, you have $110 million, which is related to Brookfield Properties that you adjust for. I'm just wondering where the other $44 million --

Sure. Brookfield Properties did report a couple of property gains during the year as well. $30 million off the sale of their Denver properties and $14 million off of the sales from Calgary Properties.

Yes. So where is that gain in the adjustment, the reconciliation?

We didn't back that one out. We were really just focusing on the large realization type gains of note during the year.

So if one was to do a pure cash flow number you might adjust by another $44 million?

Sure.

(OPERATOR INSTRUCTIONS). Chris Haley, Wachovia Securities.

You guys don't make it any easier for us, you know. Understanding the amount of activity that you've recorded in the last month, one of the core principles of your Company is investing with a competitive advantage. I would like to get a prospective on what is the competitive advantage when you're looking at Mills in the short run and the long run?

I'd say the first thing was, and as I made reference in the notes that I said up front is that we did brick by brick or mall by mall due diligence on this company. And we don't believe there was any other party that was there to buy the company at that time. The delay and uncertainties was creating significant loss of value in the business, and the Board of the company decided to sell the company. And therefore I would say our ability to commit capital on a short period of time and the knowledge that we had of the real estate industry enabled us to get in the position we're in today. Whether that at the end of it all will give us a superior transaction, we will have to see, but it did get us into the position we are which I guess produced a very good bridge loan for us into the company. Secondly, produced us a break fee and third, put us in a position to match any other offers that are out there.

Bruce, this $1 billion to the $1.6 billion, has that already been funded?

Sorry? The billion -- this is on the loan?

Yes.

Yes, we funded it I think a week after we announced it or thereabouts.

The $1.1 billion portion of it. The other 500 is a revolver.

If you are unsuccessful in this, the debt portion will be -- do you intend on maintaining that as a corporate position or a corporate investment on the part of BAM or will that piece be syndicated?

We'll have to decide at that time what we do with it.

Regarding your comments in your letter as well, regarding potentially providing a lookthrough, a la Berkshire Hathaway, in certain respects you're already providing a lookthrough from your investments in BHS and BPO. I'm wondering why you would consider doing that for some 50% on positions.

I guess it -- we try to ensure that we have appropriate disclosure to the shareholders and give them the most meaningful information to assess the Company. With as broad and diverse a company as you started off with your comments, sometimes -- and look, we empathize with that and we try to adjust our information as we go along to respond to that. Often, and I'll Canary Wharf as an example.

When we invested into that entity, it was and it is a cost accounted position, so all we do is include in our cash flows the dividends. They're irregular and they come every once awhile and we don't control when they come, and therefore it makes our cash flow from operations -- I'll use this word -- lumpy, and in fact, what would be easier is to look at the business and say, look, really 15% of the cash flows are ours and in fact, if we did that calculation, in the business, we would have received about over the period that we held it, we calculate today we would have received about the same amount of cash flows as we have received in dividends. But if we did that calculation on a piece of paper for you and said this is what our cash flows were, it would be much more regular than irregular.

If we have more investments in the future like that, and if we continue to own 5% positions in a number of these companies like we announced this quarter that we did, clearly our short-term or current cash flows or the way that accounting reports them are far depressed compared to what they really should be if you just chose to put the money in something else. And we can either just choose to have lower current cash flows and let everyone understand that and what we're doing with it, or we can try to provide that information so people can use that if it's useful to them. I guess we continue to try to -- I guess we'd take your advice or anyone else's advice as to how we should do that.

Well, Bruce and Brian, including the disclosure you've added to this quarter is excellent, so we have absolutely no complaints on disclosure. I guess the term of lumpiness at Canary Wharf, which is a cash distribution rather than a monetization of a position, so arguably, at least our experience over the last couple of years has been that the lumpiness has more come from monetization of positions as you have transformed the Company into a quote unquote cleaner company, then it has been from an accounting for cost versus cash. So I think the lumpiness, at least, has occurred through sales of say, for example, Accor, et cetera.

You're probably right by and large, although those transactions of quote monetization are a very integral part to our business. Because, as you know, a lot of the things we buy we reposition, we put them into funds; as opposed to a lot of similar asset managements who would just buy into a fund. That gives us the ability because of our balance sheet we can [buy] very scaled things and then put them into the appropriate fund as opposed to one, we can split up the pieces and therefore, we are obviously taking risk upfront, but what comes along with that is that there will be asset realization gains when we are creating those funds. And that should, in fact, there should be more in the future than there have been in the past just because of the scale of the business.

Right. The mark-up. The last question, Brian, could you help me better understand why you would include $110 million gain on the equity position shift or adjustment with BPO?

Sure. I guess in accounting parlance, that's what's known as a dilution gain and what it really represents is what is our share of the cash proceeds received indirectly by us from the equity offering? And then the cost to us is, because our interest went from 52% to 50%, was we actually, in effect, disposed of some of the underlying net assets, and so if you take our share of the cash proceeds that come into the Company, which is really an indirect sale by us, and you deduct the decrease in our share of the underlying net assets, that's how you come up with $110 million. Because it's really the same impact as if we sold those shares directly.

So it's the net of -- it's your share of the gross proceeds adjusted for market cost?

In effect, yes. I would be happy to walk you through it if you wanted.

And Chris, the way -- and maybe just for everyone on the phone, the way to think of it is -- and in hindsight this was probably a given, that the stock of Brookfield Properties has gone up $10 since then, it was a bad thing, but we essentially sold for cash, we sold 2% of our investment in BAM and we booked a gain on that. Cutting through all the accounting, that's essentially what we did, and we, at the time, we probably should have put up $600 million instead of $520 million, and we wouldn't have booked the gain, but we also wouldn't have dropped $10 a share when you think about it.

Michael Goldberg, Desjardins Securities.

Thanks. Actually I had a few. First, as you consider expanding geographically and by platform, what are you doing to ensure that you don't spread yourself too thin?

Did you want to ask all of your questions or just one by one, Michael?

Okay, I'll ask the other two.

And then why don't I write them down and we'll go through them?

Sure. Of the three types of funds, do your expected IRAs differ by the type of fund? And are there any unusual terms in the Mills Bridge that give you additional fees if somebody else ends up acquiring the company?

Why don't I take the first one on geography? Brian will answer the one on funds and the third one I think we'll decline on answering just because it's probably not public information, we shouldn't talk about it, unfortunately. So I don't think we can answer that one, Michael.

But on geography, I guess I'd say in product areas, we're very cognizant of the fact that we shouldn't take on too much. We've been judiciously expanding the business over the last five years and we will continue to do it. In fact, sometimes, a lot of people wonder why we don't do it quicker and that's probably because we want to make sure we do it prudently and the business will stand the test of time. So, I'd say we're, in effect, we're doing it at the pace that we feel comfortable with, and obviously, we will do it as we go along, but I can't -- there's not really much more I can add to that.

And then Michael, just on the returns on the different funds, the core and core plus, those are the infrastructure type returns, property, a little bit of added value there, so you're really talking about 10% up to low double-digits, maybe 15% and then, you move into the opportunity in restructuring ones, there you're looking at more private equity type returns, so high teens and through into the low 20s realistically for us, and maybe a little bit more in some situations. So those are really the two key ones.

Peter Sklar, Bank of Montreal.

I'm just wondering if you could give us an update to the best of your knowledge on the UK situation with respect to Canary Wharf and the REIT environment and what's happened with the change in legislation.

I wouldn't say I'm an expert on this, but I will make a couple of comments -- or I'm not an expert on the REIT business in the UK. But firstly, just on the markets, similar to I guess as in my comments up front, similar to New York and other major markets around the world, London is dramatically different than it was four to five years ago.

In fact, you could make the argument that it has become one of the great centers of IPO and flight and capital markets, distribution and attractiveness for people to run their businesses from. That, there's a lot of entities from around the world relocating or locating their head offices there and taking their companies public on the London stock exchange.

That has resulted in significant legal, accounting, financial service, being dealers, banks, and others, entities taking space in the city. Hedge funds are pushing into the west end in significant numbers. Rates are probably increased as much as what they have over the past 12 months in midtown in the west end. The city has been pushed up and Canary Wharf has followed that. So, the markets are extremely positive; even though interest rates are higher than they were a number of years ago, cap rates are still low and the property business is very healthy. So I'd say that's just on the underlying fundamentals.

With respect to REIT legislation, there's been a number of the companies that have actually converted to REIT legislation and their stocks have not gone up substantially since January 1, which is when the REITs came in, but they did significantly last year with the run-up to the REIT legislation coming in. And we think that a number of companies will still continue to transform themselves as they go along, specifically the Canary Wharf. We don't control the company and it's one of the alternatives, obviously, that the Company ultimately could look at to monetize its assets if it felt that was the right thing to do.

Ms. Vyse, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you, operator, and thank you all for joining us on the call today. Bye-bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.