BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2008 Q3 法說會逐字稿

Welcome to the Brookfield Asset Management conference call and web cast to present the third quarter 2008 earnings. At this time all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. (OPERATOR INSTRUCTIONS)

At this time I'd like to turn the conference over to Robert Harding, Chairman of Brookfield. Please go ahead.

Thank you operator and good morning ladies and gentlemen. Thank you for joining us for our third quarter 2008 earnings announcement. Joining me today on this call is Bruce Flatt our Chief Executive Officer who will review major initiatives underway and provide an update on our business strategy. Bruce will be followed by Brian Lawson our Chief Financial Officer ,who will discuss our financial results and provide an operating overview.

At this time I would like to remind you that in responding to questions and in talking about new initiatives and 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 risk factors I would encourage you to review our annual information form or annual report both of which are available on our Web site.

With that done I will turn the call over to Bruce Flatt.

Thanks Bob. And good morning to everyone. During the last three months, we have continued to execute our business plans, resulting in third quarter results of $355 million of cash flow. Which brings our numbers for the year to date, to about $1.2 billion. And Brian will deal with those results in full in a few minutes.

As important in this volatile and uncertain environment we're in today we have increased our liquidity on the quarter or since -- and since the quarter and to approximately $3.7 billion. Which consists of cash, financial equivalents, and undrawn term credit facilities. This is one of the highest levels of liquidity we have ever had as a result of substantial in flows in the past month. We have spent the last 18 months dealing with as many of the items which could have required cash pay downs and while in this environment one cannot be positive about almost anything, we're feel that we have the capital to be able to deal comfortably with virtually all market conditions that can present themselves.

It should be noted that during October, our cash position increased by nearly $750 million in what has been reported as one of the worst financial periods in history. This statement says a lot for our franchise and our relationships and we are grateful for these. It also shows the type of assets that we own and the ability of them to hold their value and be financed, and even sold in tough markets. In our view, this validates our strategy of owning high quality assets and conservatively financing them on a long term basis.. I will next make a few points on why we believe we can thrive in this environment.

We believe there are six main items which give us strategic advantage. Some incidentally were weaknesses during the days that as EZ money but we believe this environment today tilts the pendulum in our favor. First and foremost we have almost $20 billion of permanent capital. In today's environment, where many companies are without access to financing, this is a tremendous advantage. This capital does not come due. It has no margin calls. Whether it trades for less in the market due to external factors this has very little effect on the capital.

Second, and as noted earlier and without counting commitments from clients, we currently have over $3.5 billion of cash and undrawn lines of credit to help insure we're able to expand extreme events should something occur and if not, hopefully use this capital to pursue some great opportunities. Over the past 18 months, we have been able to generate more cash than we have invested or utilized within our operations, pay down, liabilities that came due, or have been prefinanced. As a result, our capital availability today is greater than it was two years ago when the credit turbulence started to unfold.

Third, we generate approximately $1.5 billion of free cash flow annually, and largely this can be used in whatever fashion we choose. In addition, we often turnover about 10% or most of the time turnover about 10% of our assets each year leading to a further approximately $2 billion to deploy. As an indication of this in the last four months we generated close to $1.5 billion of net cash in addition to the regular cash flows. And while this was an exceptional period on the positive side for us, it shows a flexibility within the operations to generate cash should we require it, or desire it.

Fourth, we only have $2.3 billion of debt as a parent company and with very few exceptions we don't guarantee our subsidiaries debts. Our parent company debt to market capitalization is therefore approximately 14%. As you know most of the dent within our businesses is recourse only to properties, to specific properties. And if you proportionately consolidate all of our interest in assets the debt to capitalization is around 43%. Well within investment grade. I would point out that sometimes, facts -- these facts are not easily visible in our financial statements because of the requirements to consolidate debt within partially owned funds that is in reality attributable to institutional partners.

So, we provided some information on that to people in our -- in our supplementary schedules. Fifth, with respect to opportunities for the future, we think there will be a lot. And we think there are some great transactions that are starting to surface in sectors where we have expertise. To date we have chosen to be patient and selective on the belief that better situations are still coming. In this regard, we believe we have a number of advantages to allow us to be in a position to pursue some of these. The advantages are six as we see it.

First our balance sheet. We have a large balance sheet and investment grade ratings. This is a unique attribute today which many do not share. Second, our asset quality. We have high quality assets and a business model which is built for difficult environments. This has become increasingly evident in the environment we're in today and enables us to focus on opportunities for the future instead of dealing with a lot of past issues that many are.

Third, our operating platform. We have operating teams managing each of the asset classes that we own, the strategy allows us and gives us added benefit of being able to drive operating efficiencies from assets and build long term intrinsic value for ourselves and our partners in all market environments that we're in. Fourth is cash, and as one of the few with readily deployable liquidity, we are ideally positioned to be a serious participant in any transaction. Obviously there is still others like us, but we believe that most transactions will require less cash and include more assumption of existing financing. The key to all of this and I guess the important thing is that a solid sponsor will be required for a recapitalization plan and we think we're well positioned to take advantage of this new environment as we strengthen it.

And lastly, reputation. I guess we -- we like to think and try to be fair and deal with institutions and counter parties in a very straightforward manner. Institutions we believe will continue to need partners to assist them with some of their issues, and we think we are ideally positioned to be able to help out people in this environment.

Specifically in the quarter, with respect to opportunities and investment of capital, we focused our capital largely internally investing in what we know best. This included repurchasing close to -- or approximately 7.5 million shares of Brookfield Asset Management at prices from between $16 and $22 with an average price of around $20. We believe this to be a substantial discount for the long term intrinsic value and it is clear that we know value of this security probably better than anything else we could purchase in the market place.

Our North American office company Brookfield Properties al repurchased a million-and-a-half shares back to the treasury and furthermore we have been buying shares in and pieces of our other assets and investments and selectively providing capital to our subsidiaries to repay debt to insure that we can be in a position to withstand any of the extreme events that could occur, and capitalize on opportunities.

Looking to the future, we will continue to balance this deployment of capital between keeping it available for potential external opportunities, and buying back our own assets in the Stock Market, through share repurchases, for what we see as an immediate low risk creation of value to the company. In this regard, external opportunities because of the perceived risks increase will today need to substantially exceed the returns on repurchasing our own security to meet our investment requirements as the inherent risk is higher. Inevitably like all things with us we will probably end up doing some of both.

Lastly with respect to strategic advantages, we have access to substantial resources through our institutional relationships both in the form of commitments to current funds, and in their ongoing interests in funds we're raising as well as co-investment opportunities. Relatively few people have this access on a global basis, and as we continue to build these relationships and demonstrate how our approach to investments, operations and financing, has weathered the recent turmoil, we think these relationships should get better. In the current year to date, we have closed approximately $2.1 billion of capital commitments to our core value and opportunity funds. A large number of that was in the last quarter.

I will now turn it over to Brian Lawson who will deal with our financial affairs for the quarter. And our operations and then we will take some questions.

Thank you, Bruce. And good morning.

Our third quarter cash flows as Bruce mentioned were $355 million. Or $0.58 per share. And that's -- almost $1.2 billion, so far this year. We generated cash flow of $255 million in the third quarter of 2007, on a comparable basis. Which included a security disposition gain of $66 million. Or $321 million in aggregate. Our net income also increased to $171 million in 2008. From $93 million in 2007. We achieved meaningful growth under any of these measures.

These results reflect good performance from almost all of our -- I'm sorry from all of our major operating platforms and from almost all of the business units throughout the group. Our power operations were particularly strong in the quarter, producing cash flows of $213 million, and that's more than double the results of last year. Realized prices were 14% higher and water levels were 15% above long-term averages. You may recall that water levels were particularly low last year which has amplified the increase. We continue to lock in pricing for 80% of our forward production, which mitigates the impact of short term fluctuations and energy prices.

Commercial property results benefited from the realization of a disposition gain on the sale of our 50% interest in the Canada trust tower, which also generated net cash proceeds of approximately $200 million. The contribution from our existing properties was stable. In North America, our average net in place rents remained at $23 per square foot across portfolio and occupancy levels within our managed portfolio were unchanged at 96%. Market rents continued to exceed our in place rents by a substantial amount.

We have observed a modest reduction in rents in some of our markets, however the level of in place rents, the duration of our lease portfolio and the quality of our tenent base lead us to believe we have considerable protection on the downside and potential for growth as we renew leases over the longer term. Our portfolios remain extremely well leased in Australia and the United Kingdom with occupancy rates of 99% in each market. And lease durations of seven years in Australia and 18 years in the United Kingdom. Our infrastructure operations consist of private timberland and electrical transmission operations.

The operating margins in our timber business declined somewhat during the period reflecting economic weakness and lower US home building activity but the value for timber lands in the secondary markets remain high reflecting the favorable long term outlook for this business and that long term nature of the assets. Transmission results were stable from an operating perspective, as one would expect. And we recorded valuation gains on the sale of our interest and a group of Brazilian timber transmission lines, which is to close in January 2009 and will generate $275 million of cash proceeds. Within our development operations, residential cash flows were unchanged quarter over quarter.

The Brazil operations continue to perform well and completed two major transactions to expand their operating platform in the range of product that they can deliver. Margins and returns in the Canadian business continue to be favorable, although lower than the exceptional returns in 2007. Our US operations broke even on an operating basis, although we did record a valuation provision on development assets which was a net charge to us of $13 million. The construction business contributed $15 million of cash flow during the quarter and the work book he remains good at $5.1 billion.

We moved several commercial properties through the development process during the year and into our commercial portfolios. Including Four Allen Center and two major properties in the United Kingdom and they are now contributing to our cash flows. Specialty funds, produced good results during the quarter although this was somewhat overshadowed on a mark to market on one of our investment positions. We did record a strong level of investment income from our financial assets in part because we have a higher level of invested liquidity. This included a contribution of approximately $100 million from our various fixed income positions, compared to $50 million from similar positions in 2007. The 2007 quarter also contained a $66 million gain on an exchangeable debenture position that was monetized in that period.

As many you have know we carry a portfolio of credit insurance that protects us -- that provides us with protection in deteriorating credit conditions. And this has benefited us in times such as these. On the asset management front we continue to execute on our strategy of owning assets and partnerships with co-investors and earning asset management income. We have raised $2.1 billion in capital commitments since the beginning of the year and continue to make progress in further this strategy.

Now, I would like to expand on some of the remarks Bruce made regarding our liquidity and capitalization. The first point is that our current liquidity position at $3.7 billion, remains very strong and is at one of the highest levels that we have carried. Much this liquidity has been generated within the normal course of our business strategy. And reflects the substantial free cash within our operations, our continued ability to access the capital markets and our ability to manage -- to monetize assets for value. We also have more than $2 billion of undrawn capital commitments from co-investors. This high level of liquidity gives us additional flexibility in pursuing opportunities.

Including a repurchase of shares as Bruce mentioned, knowing that we can also readily manage our own capitalization and maturity profile. The $3.7 billion of liquidity, consists of nearly $1 billion of undrawn credit lines at the corporate level and a similar amount within our core operating units. At the corporate level we maintain $1.4 billion of high quality credit lines with a diversified group of well capitalized financial institutions. We also hold $1.8 billion of cash and financial assets, which includes $740 million of cash received since September 30..

Our maturity profile continues to be very manageable. At the corporate level, we have a $300 million maturity in December. Which has been prefinanced with a $150 million 0.5% perpetual preferred share issue that was completed in the spring. And a private placement of 6.4%, 4.5 year term debt that was completed in October. We do not have another maturity until 2010. When a $200 million bond matures and almost all of our credit lines extend into 2012.

As the subsidiary level we're in the process of finalizing an agreement to extend the maturity of the Australian bank financing. We will pay down $335 million of the debt in November. Which will then enable us to merge the European operations into our other European operations, and then refinance a combined operations on a longer term basis in the European markets. Maturity dates for the remaining $800 million will extend through into 2010 and our strategy there is to permanently finance the business with assets specific mortgages on the properties prior to the maturities.

The remaining maturities at the subsidiary level are well distributed and we expect to renew the financings in the normal course. And even in the worst case scenario, where we cannot, or choose not to, renew any of the financings we had sufficient liquidities to retire all of the balances coming due prior to 2011 because of our strong liquidity profile. Maturity profile of our property specific financings is longer term with few maturities in the next 18 months. We continue to have success in renewing these financings, and -- and extending them out. And we continue to generate additional liquidity within our operations through cash flow and asset monetizations.

As I mentioned we generated nearly $750 million of cash at the end September 30. This includes $600 million generated from the sale of the interest in our timber operations. And we also have $275 million coming to us from the sale of the Brazilian transmission lines that I mentioned earlier and $150 million from the sale of two of our insurance businesses which will also ultimately free up $400 million of liquidity in the business. A high level of our current liquidity, the additional cash coming into the business through operations and monetizations and the long term nature of our capitalizations gives us a high level of comfort in our ability to continue to execute our business strategies.

So just before closing, the Board of Directors have declared the regular quarterly dividend of $0.13 per share payable at the end of February 2009 to share holders of record at the beginning of that month. So, thank you and I will now turn the call back to Bruce.

Operator, if -- if there are questions, we would be pleased to take questions at this time.

Thank you. (OPERATOR INSTRUCTIONS) Our first question today comes from Neil Downey of RBC.

Good morning everyone. Bruce, could you perhaps talk about the -- whether the firm has thought about a perhaps more aggressive share repurchase program, perhaps via a substantial issuer bid mechanism?

Thanks Neil. I -- I guess our views so far is that any share that you wanted in the market you probably could -- you could get over the last month. So, we were -- I guess buying in the market over the past month and we bought $7.5 million shares -- 7.5 million shares shares.

I guess it is always in our ability to do that and offer a substantial issuer bid. Right now I guess we're being relatively conservative in our view of the market place and putting our cash into many different things. So we have no intention of that right now, but it is always I guess a possibility like we have done in the past.

Okay. And could you give us a little bit better indication as to -- I guess the status of the term financing market in -- in Australia? What sort of loan to value ratios are available there? And what the -- I guess nominal cost of debt would be for a 5-plus year fixed rate investment grade financing?

Sure, I will start off on that one Neil and Bruce may chip in on this as well. Yes, I think the -- the Australian market would be characterized by having quite strong fundamentals on the leasing side. If we're just talking about commercial properties which is the most relevant portion for us. As I mentioned our portfolio in particular is very well leased and there has generally been pretty good fundamentals for a lot of building owners there.

The challenge has been more on the -- I would say, capacity of the capital markets to provide financing in totality. And that market tends to be dominated more by the commercial banks and the CNBS market than we would observe in North America or in Europe. And you -- there has been some publicity of late around the fact that some of the Australian banks are -- you're just having a bit of a tougher go of it with what is happening globally. Having said that, they are absolutely in business. And financings are being completed.

We have completed financings in that market this year. At what I would characterize as pretty decent terms. Not as good as we would have received a couple years ago obviously. Spreads have definitely widened out to -- probably not dissimilar to what you would observe in North America.

So they're definitely through 200 basis points and in some cases around 300 basis points. And in the interest rates, the underlying interest rate which was a lot higher, a lot of the financing there was done on a floating rate basis, one of the trends that has occurred of late is the -- the underlying base rate has come down substantially in recent months. Which has made financing and funding the cash flows much more achievable for many people.

Okay. One last question, as it pertains to your fundraising initiatives. You have obviously had some great success this year. As I understand it you're still quite active in this regard. But one of the things that is being talked about quite a bit, is I guess the denominator effect that many pension funds are facing with respect to the substantial downward marking in their public equity portfolios and what that means for their asset allocations, et cetera,, et cetera. I guess can you talk a bit about that potential issue and how you look at that from your perspective and your ability to perhaps continue to raise funds over the next 12, 24, even 36 months?

Neil, maybe I can try to answer that in a couple of ways. Firstly that -- there are many different types of institutions, just like many types of individual investors and corporations. And today they probably group in three categories. Ones that didn't have a lot of private equity investments or a lot of private investments being real estate, infrastructure, hedge funds or other things. Ones that were early in their investing strategies and therefore hadn't put a lot of money into it and there are a lot of those. Two, ones that are were quite advanced, and have been successful in what they have done, and three, the ones that have got themselves caught where the denominator effect is hitting them.

And, I would say there is very -- I guess our -- in our discussions with institutions there are many different types of them out there and they all are a little different but some are in very healthy shape and doing a lot of things and looking at this as an opportunity and some are pulling back, because of what you said.

I guess our general view is that -- the last -- little -- the next little while people will be a little apprehensive to commit to a number of things just like they are everywhere in the world at large. But after they have reassembled themselves the most important thing here is that they need to match their liabilities on long duration basis with more than a 3% ,4% long term yield out of a treasury.

And we think that the products that we offer to these institutions, being relatively low risk, moderate return, being 12, 15, 16, 18% returns, compared to what they always thought about, hedge funds that were going do earn them 30%, we think those type of products will be highly attractive to the institutions on a risk weighted basis. And so, we think these products will be very attractive to them going forward. And -- and they will fit into the -- into the scenario of investing. But there is no doubt what you said is occurring in some of these institutions today.

Okay. Thanks for your comments.

You're welcome.

Our next question comes from Michael Goldberg of Desjardins Securities.

Thanks, good morning. There are a number of high profile core office situations that have been becoming distressed due to over leveraging. Do you see this as a particularly likely destination for capital to be deployed given your experience? In particular, does European core office interest you? Where else do you see opportunities emerging and are lenders to the stressed situations coming to you?

I think I have the three questions, Michael, but if I don't you can ask me again. On opportunities, I guess in times of duress, generally what you go to is things you know best. And real estate clearly is something tha we have a big platform in. We have a lot of people -- a lot of operating expertise. And therefore, -- and secondly, there are some over leveraged situations that are developing.

And as a result of that, we have been and are looking at a number of situations and I think over the next two years, odds would favor us getting involved in some of them. We think that there will be some great opportunities and what we're really looking for is what we focused on in these type of periods. In past, whether it be us buying power plants or office buildings or other things, is great, great assets that just unfortunately got into a situation where they became misfinanced because of timing or just sheer unluckiness. And -- I think that will be a great opportunity for us. And that's where our best focus will be towards.

And to Europe we clearly have a bigger platform in other places. We would like to have a bigger presence there but it all will come down to, A, the type of opportunities that are in front of us, and our comfortability with underwriting the numbers. And we will have to see. But there are certainly some situations there that look like they may become interesting. And lastly on the -- on the opportunity side, we have -- clearly been approached by lots of people to do things over the last year. We're being patient on a number of those, choosing just to A, get our house in order firstly, and second, invest capital in the things that we have. That -- that are almost easier for us to do.

But selectively we have been responding to opportunities and -- for example, in one case we're working with an institution who was financing a development, had to take it back and we're working to take over the development for them. They will put most -- if not all of the equity up and funding up for it and we will build it out and share the upside on it. We think those type of opportunities to good sponsors will continue to come. And obviously they won't all come to us but we are one of the players that institutions can come to and deal with.

Thanks. I would also like to follow-up on the question about what is happening to -- to pension plans that are feeling the squeeze of underfunding. How do your type of assets behave in an environment like we're going through, in terms of the impact as they are trying to determine the level of deficiencies that they might have?

Yes, I -- the -- I guess I would make a couple of comments. The pension funds when they look at their -- the type of assets we invest into, for example, transmission lines. These are very long duration assets which produce cash. And -- and on a valuation basis, of once a year that they mark them to market, the valuations change. Very small.

On property assets, people always talk about do the cap rates change. What they are really referring to are the cash flows or the rates that would be put on next year's cash flow. And in our view long term property values haven't really changed at all. Over the last 12 months. And they won't be changing over the next 12 months. That sounds very different than what most people would say. But when we value properties, just like we value them for our institutional clients, we value them using 10-20 year discounted cash flow models with future rental rates in them.

And during the up markets we tend to value them lower than we would otherwise -- they would otherwise be valued in the current cash market. And in the down market, our view on a discounted basis is -- is different than what other people may perceive. And -- but the intrinsic valve of it hasn't changed very much. And that essentially comes through in valuations on a term basis. And so I'd say, these type of assets, should and have held their value, dramatically compared to what they have in equity portfolios or private equity or other things.

So, just to I guess rephrase what you're saying, there is a lot less volatility in the value of -- of your type of assets. On the one hand, but on the other hand, the -- there also isn't a easy price discovery, so using the vernacular of level one, tow and three would your type of assets typically be characterized as level Three? And therefore be treated differently in terms of determination of deficiencies or surpluses, by pension funds?

Well, I am going to let Brian answer the technical details of what you just asked, but I would make the point that price discovery is very easy. We know what these assets are worth. We have a long term value for item them. We never thought -- we never valued office properties in midtown Manhattan at $1500 per square foot that people were buying them with -- at before. We had a value at before for the properties based on cash flows and replacement cost and we have the same value today as we did 12 months ago or 18 months ago or three years ago.

So, I guess my point specifically is that these type of assets are very long duration. And we don't get distracted by short term changes in the values of those assets. And that is generally how they are valued. In portfolios.

So just follow me up on your level three analogy, Michael I think that is probably an apt comparison in that what we're saying is that the value is driven -- how we value the assets is driven off of the long-term cash flows. As opposed to you've got like a Stock Market portfolio where you have a quoted price, that pops up on the screen every minute.

And a -- while I couldn't speak to how any particular institution comes up with their valuations, I believe there is a tendency for them to value them on a longer term basis and hence they are less volatile and more desirable to them they don't get caught up with some of those valuation traps that you might otherwise get.

Okay so there is no penalty for the fact that you can't just get a price off a screen?

I don't know that you describe it as a "penalty" or a -- or an advantage. It is just different. And so it sits in the what we refer to as the unlisted side of the pension institution. So I am not sure how you would characterize it. It is different.

Okay. Does your view of opportunities extend to investing affiliates? In particular, I am thinking of [Norborg] Would you support an initiative for industry consolidation in its current depressed environment?

It is a public company. Michael. I am not sure we can make any specific comments about it. But we have been very supportive of our different affiliates, providing them loans or other things this to help them through difficult periods of time. I guess that has been our history. We will continue to be that way. And I am not sure I can specifically talk about one company or not, because they are actually a separate public company.

Thanks very much.

Our next question comes from Brendan Maiorana of Wachovia.

Good morning. Thank you for the additional disclosure in terms of liquidity and capitalization and the supplemental. I am looking at $7 billion of debt maturities, pro rata through 2010. I am wondering in addition to that what is the level of unfunded development commitments that you have got, to fund through 2010?

I don't exactly know what that is. I will let Brian think about it but very -- any development that we have on going today we largely have construction financing in place and therefore, I would say they are -- they are largely fully funded. With respect to the loan portion. And there may be some small projects that we have where there is the equity component to go in but anything of substantial nature like [Bay Adalade] or Bankers Court in Calgary or some of our projects in Australia are all fully funded.

So I don't really think that is a material number. And --these -- the maturities we have on the assets are -- we have been rolling them over, even in the last quarter. So, we don't really view that as any issues.

Okay. I mean, I'm not sure.

Maybe Brian doesn't have the number. The main reason I am asking on the development commitment stuff is there would be the presumption that those construction loans would mature, upon completion. Which would have to then be rolled into some more permanent source of financing. And just sort of wondering about the exposure there but maybe we can follow-up off line on that.

In terms of, Bruce your earlier comments about the asset valuations, the $23 billion of roughly fair value equity that you guys provided in your September investor day. It sounds like you don't think that that number has adjusted materially since then, is that fair?

You're referring to the balance sheet we put in for on a deconsolidated basis for the [IR4S]?

Correct.

Yes, again I think we would come back to the -- the comments that we made in -- in answering one of the previous questions. The valuations there would be based on more of a -- long-term assessment of values. Discounts of future cash flow rates. And so while there would be presumably some fluctuation with respect to cap rates, if that was appropriate, we think that that is relatively muted given the long duration of the assets.

Okay. So if I take -- let's $23 billion of equity value, and then roughly $19 billion of pro rata debt that you got that is roughly a leverage ratio of call it 45%. How does that compare to your long term target leverage ratio for your assets?

Well, I think another way of looking at it, because you're really getting at to a certain agree the proportional side of the debt which as we mentioned on a book value basis is around 40 some-odd percent. That, if you think about how we finance most of the properties, which is typically, you might be doing it at 60%, going in, 70%, sometimes it amortizes down the property values typically appreciate over time.

You really do end up at -- at around that 50%, or less level, on a property, over a portfolio over the longer term. And so -- I think that is absolutely a -- a solid sustainable level. That provides the right risk profile while at the same time providing good leverage for the common shareholders.

Okay. Thank you. Just lastly, Bruce, you talked about all the capital that you guys have which is higher now than it historically been. You also talked about potential acquisition opportunities that may arise. It would strike me that when capital is most precious, that may also be when the external acquisition opportunities provide the best return potential. So I am just wondering, how do you weigh the option of holding that capital, versus placing it?

Well, that's a very important question, of investing. I guess it -- it applies to everyone today in the market place. As to when you put cash to work. I guess in our view, first order of the day is to make sure that we bullet proof the company on its own as opposed to putting money into things outside.

Second, is to take the most lowest risk opportunities which are things internally that you can do. And third, is to wait for the opportunities and that -- the bottom line we're not sure when that is. We -- so far we decided it hasn't been to date. But we will have to see when that is.

Are there any benchmarks that you look to or that you can provide us with that we could view as outsiders that would give you an indication of when you would be looking to place that capital?

I don't think we have any rule of thumbs for you to give out.

Okay. Thank you.

Unfortunately, sorry.

All right. Thanks.

Our next question comes from Andrew Kuske of Credit Suisse.

Thank you, good morning. You spent a lot of time talking about your liquidity position at this point in time but I am just curious, on your risk management activities internally on how those have changed and how they have also held up in the last couple of months of pretty extreme volatility?

Yes I -- first of all, I don't think that the risk management policies or practices have really changed much. Over the past period of time. We're really following the approach that we followed for many, many years. And Andrew, a lot of it is based on -- is -- having very solid long term assets and financing them on a pretty conservative basis for a very long period of time. Trying to maximize the amount of free cash flow and liquidity in the system and be very mindful of what cash commitments you have on -- on the horizon.

So in terms of what -- what I will describe as the liquidity side of the -- of the business, that is unchanged. We have always had a -- a strong predisposition towards, having everything dealt with on a long-term basis. It -- and then, in terms of what I will call more -- let's call it current market risk. We tend not to carry big market risk exposure. They're really quite small in the context of our overall portfolio.

And if anything, where things would have changed somewhat over the past year or so is our bias would have gone from a long-market risk perspective to a short-market risk perspective. As would be tippified by or exemplified by the credit default protection that we put in place. Really almost 24 months ago but certainly 18 months ago.

So when you look at things like your CDS exposure right now your CDS book and then just look across the capital structure within the market place what part of the capital structure are you finding most attractive at this point in time?

You mean on an investing perspective.

On an investing perspective.

Yes, there are -- I guess we make -- I would make the comment that there are unprecedented -- if you look historically over the last little while and even in a long period of time, there are unprecedented opportunities in -- in many, many things. And, we just have to be careful to wait for the ones that are A, strategic to us; and B, are the best value to the organization. Because as to everyone there are limited resources to go around both human capital, and -- and financial capital. And I guess we're going to focus on those.

Then if may just one final question on the disposition of the insurance business. Do you see any positive benefits down the road whether it is from credit rating agencies or -- or really just freeing up any balance sheet, to do other things when that business is completely gone?

Well, it will certainly -- I don't think it will be -- it is never really been a big part of our -- of our -- of our business, Andrew, the in terms of the amount of capital that was committed -- or the -- the earnings contribution. It -- so I don't think it will have much in the way of an impact from a ratings perspective, on our business.

Obviously what it does do is it is going to bring in $150 million of cash, and free up a considerable amount of liquidity that was -- was in there to support the business. And so that will definitely enable us to increase the liquidity position for ourselves at the corporate level.

Great, thank you.

Our next question comes from Rossa O'Riley CIBC World Markets.

Thanks very much. Just wondered on the $800 million of the multiplex loan that will be extended into 2010 what will be the interest rate on that?

It will -- that's not a -- an amount that we have disclosed. As I mentioned we're just finalizing the agreement. But -- it will be a like it will be at a premium to a floating base rate. And -- I think that's about all I can really comment on at this stage.

And so then the -- the -- it will not take effect in March when the bridge loan expires or would you expect that with happen earlier?

I would say if you look at the effective interest rate, again, I am just going to defer that question until we have things finalized and announced.

And the -- the gains that you sight on page three of the press release, the count of the trust tower gain is already in the income statement, the sale of the timber will be in the fourth quarter and what would say a modest gain do you mean by that sort of tens of millions or?

That's probably fair. We're just in the process of -- of finalizing that. That number but -- it -- I think you're correct.

And the other two gains which will happen I guess, several months later, the -- the gain on the transmissions lines in Brazil. You noted that that would be a 30% return on invested capital. What would that represent as a gain over cost?

I think as our book value was around $160 million initially, but then we have -- we have recorded some other revaluation gains, since that time. The amount with -- by the time that we actually sell it, it will be -- relatively modest. Our book value today is around $215 million.

Are there a lot of currency issues, that can change, that could affect the economics of that deal or not?

No, it is fully hedged out.

And the insurance transactions will generate a lot of liquidity, but what will their affect be in terms of the book costs? Will that be a gain as well?

It will be a gain as well but it will be probably more in line with what you're suggesting around the timber transaction.

Any the tax implications that we should be aware of resulting from the insurance operations and the other operations being sold for the consolidated in the group?

No, on the insurance side of it, there will probably be a pretty modest gain that will be absorbed by tax pools. And then again, likewise, there will be like a modest amount of cash taxes paid on the transmissions.

Well, thanks very much.

Okay.

Our next question comes from Michael Smith of National Bank Financial.

Thank you, and good morning. I am wondering if you could give us an update on your Brazilian platform. How is the current credit turmoil affecting that platform?

I will try to give you a few comments. It is Bruce. The Brazilian markets actually had been tremendously resilient to everything going on in the world. Up until the last month.

The banking system in Brazil is -- very healthy compared to the rest of the world. They -- our local banks are basically retail corporate banks, they didn't have a lot of exposure anywhere else in the world. And these are $40, $50, $60 billion equity banks. The largest ones in Brazil so they are very successful banks. So the financial system has been good. They are running surpluses in the country. And -- commodities have been very strong for them. So the actual environment has been good.

And the last month, the markets obviously have hit almost -- well, they hit everyone. And, Brazil is no exception to that. The currency is backed up. I am -- it is a lot on a relative basis but in our view it is a small amount in the -- if you look at it in the fullness of time. And the currency used to be 3.6-to-1 and we own a lot of assets when it was 3.6-to-1. It went all the way to 1.6 and it is hovering around 2.10 or 2.15 today. So the currency has changed a bit. Obviously if you look at that that has changed the values of some of our assets down there. But we think there is tremendous opportunity still to keep putting money to work in Brazil.

Retail sales in the first nine months I think were up by 12%, within our shopping malls. So the -- the retail market is extremely positive. That is compared to a negative growth in most developed markets. And the economies are in pretty good shape. So, you can never be sure of yourself but the -- but the economy and the things that we're doing now down there seem to be pretty positive.

And the housing business?

The housing business, a lot of the housing stocks have been changed -- have been hit in the capital markets. Having said that, they -- the housing businesses are doing -- are doing extremely well. There is still a lack of housing for the markets. The government has put some programs in place to put extra financing in place for people to buy, and in the past there really has been no financing. Housing markets radio are doing well. We have done -- done a couple of mergers to be one of the consolidators through this trough in the market. And we have had cash on the balance sheet because we put it into the company in an IPO. So in fact we're quite positive about the housing markets, in the country.

Okay. And just finally, just you had mentioned that, you're starting to see some acquisitions that -- that are starting to look good and than you may execute over the next two years. Are any of them down in Brazil or is that still too early for that market to see the opportunities?

Sorry, what was the question?

Just --

Are there any acquisitions down in Brazil that we would comment on?

Yes, nothing specifically. But just like everywhere else in the world, capital -- we had seen -- we used to be the only foreign investor in the country. Or one of the only foreign investors. In the last two years lots of others showed up. And the capital market showed up to be able to finance some of the local companies. Both of those have scaled back dramatically, and therefore I think that our capital availability will assist us in our opportunities going forward.

Thank you.

You're welcome.

Our next question comes from Horst Hueniken of Thomas Weisel Partners. Please go ahead.

Good morning. Bruce, perhaps the first question for you. You had talked about the fact that you are not in a position identify when you might put some of that capital to work in great opportunities. . But can you perhaps give us some-- an idea of how many people are actually busy, looking at acquisition opportunities, presently?

Well, we have 10,000 employees. And we like to think of everyone of them is on the look for good things to be able to build value in the business. But specifically, we have 300 investment professionals in various locations around the world. And each of those is working on something today. I guess, sitting here we hope very productively bringing in great opportunities. So, that's basically the number of people that we have within the organization. And they are dedicated to that type of activity.

Fair enough. In light of the Stock Market turmoil we have seen over the past two months, have you changed your tactics or strategy at all with regards to your effort of raising capital, from third party investors? I would imagine that capital raising has become a little more challenging as certainly has been the case for other institutions?

I -- we have been lucky that we have been able to close -- do things with the pension funds over the last while. We think we will be able to going forward. Clearly everyone's capital raising in every capacity is more difficult than it was before. And I guess I -- the last comment I make is our beliefs like I said earlier is that institutions will continue to come to the products that we have because they are low volatility moderate risk products and that is what we think their trustees are going to be looking for going forward.

Well, I would certainly agree that is low-risk would ring better in front of trustees.

The other thing I maybe comment on Horst is that our view has always been in our financial relationships and our institutional relationships is that we're not interested in one transaction, or one amount of money for them. What we're doing is building long term relationships with these institutions, so, we can build value for them over time. And in accordance with that, something for us. And, I guess we continue to work at that. And our relationships we believe are getting better every month, quarter, and year. And looking out, that will even be more positive for -- if we keep at it.

Good. That's helpful perspective. Perhaps for Brian, just a clarification. You had talked about in the commercial real estate market, that your in place rents are providing you down side protection. By that, I believe you mean that your in place rents are below market.

That certainly is something that you have talked about in the past. But in the past, the in place -- the gap between in place rents and market rents was quite wide. We're now reading that market rates are coming down and I am wondering whether there is much of a gap left between market and in place rents.

Yes, in -- with respect to our profile, Horst there is still quite a substantial gap. It may not be the 50% premium that we had before. But North America are in place as I mentioned was around $23 and I suspect the market represents are still $30, maybe a little bit higher than that. They would have been $32 across the board. They softened a bit in a couple of the markets.

But so -- yes, it is still -- when we talk about that, it is really -- if you think about our business the cash flows in the business are not going to change by much. They're leased very long term. We only had 4% rollover. And so to the extent that we can release the properties, we found that we typically manage to -- to lease them at higher levels. I any one statistic North America, we released it around $28.42 a square foot across the portfolio in the third quarter. So we're able to step the -- continue to step the rental rates up and at a minimum, we have a strong cushion against any deterioration in market rents.

The point I would add to that is that if you are running a very long-term lease portfolio like we always have, unfortunately, at the top of the market, you miss remarking your old portfolio to market. But at the bottom of the market you don't have to remarket all to market either. So, rents -- when people refer to rents going down, rents just to take midtown Manhattan as an extreme example they went to $140 to $150 a foot solid. Rental rates.

And we might have leased, 3% of our midtown space, at $150 a foot. Or 5% of it. At $150 a foot. And today, they have gone down to maybe they are $100 a foot. And it is possible they will go somewhat lower. But our average rents in midtown I think -- don't -- don't pick the exact number but in the $65 to $70 range. Somewhere in there. And therefore, you never -- never guess that peak of the rents but you have much more downside protection.

That's great. Thanks both of you.

You're welcome.

Our next question comes from Cherilyn Radbourne of Scotia Capital.

Thanks very much and good morning. I think most of the logical questions have been asked. Maybe I will just stick to one. And I was just wondering if you could make some high-level comments about where you think your all in cost of debt and foreign exchange rate particularly the US dollar, may be headed over the next number of years, and how broadly that influences your thinking about capital allocation by geography, your hedging policies and so on?

Sure. I will take a shot at that. Initially, Cherilyn. First of all, with respect to the cost of capital. There is no doubt that as we are meeting financings in the current environment our spread has obviously widened. Off of what we would have been doing stuff out a couple years ago. And it is probably a little wider than what we would have done over the fullness of time.

Having said that we're benefiting certainly today from very low base rates whether it is in the form of the US Treasury or otherwise. And so we're able to complete financings with a -- all-in cost of capital. The private placement we just did at 6.4%, which is, in the fullness of time a pretty darn good rate. And the same would apply for financings at the subsidiary level and off the property level. So on a spread basis it is wider but the other observation I would make is because of the nature of our capitalization this really goes back to the comment on the -- on the leasing. Is it rolls over at a pretty slow pace. And -- so it -- our costs of capital doesn't typically move a lot in terms of the overall cost of capital of the organization.

Now, if you're talking specifically about acquisition, opportunities, often, the cost of capital, will tend to -- go in a similar -- or I guess it would be an opposite direction in terms of the pricing of the opportunity -- the cost capital might be a little more expensive. But you can -- you can typically get much better value, for what you are acquiring particularly if it is in part due to the increase in the cost of capital. It's triggering that opportunity. And -- that is a -- we have seen situations like that, in -- in all of the -- all of the markets. I'll just make a comment on the currencies and then Bruce may want to add to the comments.

We do conduct business in a number of different -- different geographies. We principally focus on how things translate back to the US dollar. But we would certainly take into consideration, how we would see a currency from a value perspective, recognizing that the capital that is already within that sector, can -- is rolled over in that currency. And we tend to take a pretty long term view with respect to how the currency values apply to those long term physical assets. Particularly with regard to what the cost of any hedging might be.

And Cherilyn maybe I just add to that is that we -- our investment strategies aren't based off of currency. In fact I guess I would say it in the inverse. Our currency strategies are based off of where we invest. We look for great places to invest where we have a platform and we think we can add value.

Generally we would rather invest in places that have strong currency, because if they -- if they become stronger, the gains that we have that we haven't hedged are actually positive to us. But in general, we hedge the assets that we buy in a country if we can on an economic basis. And therefore, we're not exposed to it. Sometimes we take positions on that, based on our view of something but our general policy is basically to hedge the investments in a country. So we're sort of agnostic to the currency.

Okay, thanks very much. Great answer. That's all for me.

Our next question comes from Peter Sklar of BMO Capital Markets.

I know you have addressed this with a couple of the previous questions but I was just wondering if you could provide further commentary on the asset management business and your efforts to raise third party capital? And specifically if you could address the following issues.

One, I believe during the investor day you mentioned that your target was to raise $10 billion of capital. Can you update us on whether that is still a reasonable target and over what timeframe? Secondly, you have mentioned that you have raised $2.1 billion of third party capital to date. But when I look at some of the measurables, I -- I don't see that in your numbers. So, for example, your base management fee has not grown. The annualized base -- space management fee has not grown from the $130 million of the previous quarter.

And also on the back page of your supplemental information package, where you disclose all of the co-investors interests in terms of their committed capital. That is not -- that has actually declined since the last quarter so maybe you monetized some assets and repatriated some capital I'm not too sure?

And thirdly there have been reports that some limited partners, although they have provided capital commitments have asked private equity funds to ease the request for capital because of their own credit situation. Specifically [Calpers] has reportedly asked private equity funds to slow down the draw on their capital commitment. So I am just wondering if you have had any experience with that from your limited partners?

I will answer the last one Peter and then maybe Brian can try the first three and the answer is we have not had any issues with commitments we have from partners nor have we had anyone talk to us about slowing down on doing anything. And we have had many conversations with our different partners. So I don't -- I guess I would say the answer to that is that we really haven't seen it within our operations.

Okay.

And -- so Peter, I will just pick up on the other questions, this is Brian. So I think the $10 billion you reference there was, a statement that we have made in the past which is working on $9 billion of capital commitments for six various funds in aggregate. And we certainly have been making progress towards our ongoing goals in that regard.

I think it is fair to say that it has been slower than we would have liked to have achieved. I think everything -- in that world is just a little bit slower these days. Having said that we still continue to make progress. And we have raised the $2.1 billion to date in -- of capital commitments and so we're very pleased with that. The -- I think what you're referring to in terms of a decline in our overall assets under management the $2.1 billion I am referencing relates to our core value ad private equity opportunity funds. What -- and we are up in that regard.

With respect to our public securities advisory business, which is the fixed income and equity portfolios that we manage on behalf of other institutional investors, the market value, of those portfolios has declined as one would expect in the current market place. And so be a level of asset management of that business has declined on a -- on a current market value basis.

Okay. And -- just one other -- one last question. Based on your commentary in terms of the refinancing of multiplex, I believe what you're indicating is that Brookfield Asset Management is going to put up a further $350 million of equity into the deal. And I am just wondering if there is anywhere else as you look out over the next two years, at your refinancing calendar, is there anywhere else that you anticipate, that the top company level would have to provide further support or equity or whatever?

There is nothing that -- we would be concerned about in that regard at this stage. The -- the multiplex would really be the only -- only other one I think as we mentioned. We would expect to be rolling over the financings in the normal course and -- so I don't that see that requiring any additional equity from the Brookfield Asset Management level.

Okay, thank you.

This ends the time set aside for questions. I will now turn the call over to Mr. Harding for any closing comments.

Thank you, operator. And thank you everyone for joining us this morning and for your interest. We look forward to speaking to you again in February when we release our quarter four and year end results. Good afternoon.

Ladies and gentlemen, this concludes today's conference call, thank you for participating. And have a pleasant day.