BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2009 Q2 法說會逐字稿

Hello, this is the conference operator. Welcome to the Brookfield Asset Management 2009 second quarter results conference call and web cast. (Operator Instructions) I would like to turn the call over to Mr. Robert Harding, Chairman of Brookfield. Please go ahead.

Thank you operator and good morning ladies and gentlemen. Thank you all for joining us for the 2009 second quarter earnings announcement and conference call web cast. Joining me today on the call are Bruce Flatt, our Chief Executive Officer. Bruce will provide a brief market comment and some updates on our business strategy and Brian Lawson our Chief Financial Officer. who will discuss our second quarter results.

I would also like to remind you at this time that in responding to questions and talking about our 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 which are available on our web site. In addition, our second quarter news release, supplemental information and letter to shareholders are also available on our web site. With that done I will now turn the call over to Brian Lawson.

Thank you, Bob. For those of you who haven't had a chance to read our results which we put out this morning, I will provide some of the highlights in that regard. Most of our operations met their expectations during the second quarter 2009 despite the somewhat difficult economic environment. We also completed a number of initiatives to protect and enhance long-term value of existing businesses and to better position the Company to capitalize on opportunities that we expect will arise in the coming years. Our financial results reflect the stability and continued strong performance of our two largest business units those being renewable power generation and commercial office properties. Operating cash flow totalled $276 million for the second quarter. Compared with $378 million in the second quarter of last year. Net income was $147 million versus $110 million in the comparable period.

Our strategy of locking in future revenue streams in the majority of our operations helped to protect our cash flows against the current economic downturn as we had planned. Our commercial office business experienced an increase in cash flows on a same store basis due to high quality of our building leases and tenants. For example, our rents in Australia generally escalate by 4% a year on a contractual basis. As a result our cash flow from these properties continues to increase. Nevertheless, lower electricity prices did impact a portion of the hydroelectric generation. We experienced reduced volume and margins in our timber and North America residential businesses and we realized lower level of investment gains than we did in 2008.

On a liquidity side, we increased our liquidity profile by approximately $300 million since the end of the first quarter to more than $3 billion. We completed approximately $2.3 billion of financing and asset monetizations. These include $520 million of liquidity we expect to receive in the third quarter through the issuance of equity in our Canadian renewable power business as part of a broader reorganization of that business. We also issued $725 million of corporate preferred shares and debentures completed $600 million of property specific subsidiary level financings. Proceeds reused to reinvest in our business what we believe to be very attractive prices to refinance near term maturities on a long-term basis and to supplement our group liquidity. The offering results from our two largest platforms, commercial properties and renewable power generation were largely as expected given the contractual nature of the revenue streams and the competitive position of the assets.

Together these two operations contributed $312 million of net operating cash flow compared to $299 million in the same quarter last year. Commercial properties generated net operating cash flow of $221 million in the quarter that's a 40% increase over the comparable 2008 results. The increase of $65 million includes $24 million in same store rents, as well as contribution from recently completed properties and we recorded $39 million gain on a changing ownership of one of our US property portfolios. Within the North America we leased 2.5 million square feet in the first six months at an average rate of $17.33 per square foot. That replaces expiring leases that averaged $15.30 per square foot resulting increase in net rental income.

The Global portfolio remains well leased, the average-- the overall occupancy level is 95%, we have average lease term of 7.5 years, and averaging in place rents that are by our estimation 12 to 15% below the comparable average market rents. In addition we experienced virtually no tenant issues in the portfolio since our last report to you. Expirees are limited to 2%, and 4% of space over 2009 and 2010 respectively. In our renewable power generating operations we produced $91 million of net operating cash flow during the quarter compared with $143 million in the same quarter last year, The 2008 quarter was exceptional one for us in terms of both generation and realized prices. Generation was slightly above long-term average in the current quarter but well in excess of averages in the 2008 quarter. The equivalent average weather and economic slow down has resulted in lower than expected spot prices during the quarter which impacted the percentage of generation that we do not sell forward. The prices are locked in; however, for 80% of power we expect to generate over 2009 and 2010.based on long-term averages. This should largely mitigate the impact of lower energy prices.

In addition, our reservoir levels are estimated to be 6% above average for this time of year, which should enable us to exceed generating targets if water flows are consistent with averages for the balance of the year. We did record lower contribution from several business units that have been more directly impacted by the slow down if the US economy and home building sector in particular Timberland Residential Operations. In Timberland we elected to reduce the harvest levels in order to preserve long-term value by allowing trees to continue to grow until prices and margins improve. In the transmission operations results were quite stable from the ongoing operations as expected. Our residential operations were positively impacted by continued growth in activity in our Brazilian operations which more than offset a slow down in Canadian operations. Sales results from our Brazilian operations for the first half of the year were more than double those of 2008.

Looking forward, the fact that we locked in such a high percentage of our revenue streams in our two largest businesses (inaudible) significant stability to our results during the current economic environment a high level of visibility for the remainder of the year and 2010 and confidence in our ability to achieve our long-term objectives in future years as well. It is worth noting that the results from a number of our shorter duration businesses, such as residential operations, appear to have bottomed out, albeit at pretty low levels. The point being that while the declining results from these businesses have had a negative impact on our comparative cash flows over the past two years we believe the declines largely stopped and we should begin to see growth from businesses through 2010 and 2011.

We continue to maintain a strong financial profile and to demonstrate a continued access to the capital markets during the second quarter. We successfully refinanced a number of shotter dated maturities throughout the organization and in particular our debt maturity as at the corporate level prior to 2012 are now limited to a single $200 million maturity in 2010. Lastly the Board of Directors has declared regular quarterly dividend of $0.13 per share payable at the end of November 2009. With that I will hand the call over to Bruce.

Thank you, Brian, good morning everyone. As mentioned in the shareholder letter the second quarter of 2009 brought what we referred to as the beginnings of the thaw in the financial markets And, while in our opinion the capital markets are not back to normal, they have rapidly returned to a semblance of order. Investment grade corporate spreads are still wide on an historical risk adjusted basis but have narrowed substantially and more importantly quality borrowers such as ourselves have access to the markets. Specifically to us I guess these markets we think are somewhat ideal because we have access to capital but the market are not freely allowing everyone access to capital that for people who would otherwise compete with us. Although we have seen improvement in these capital markets, we do believe that it is premature to assume that the financial system is fixed, the stimulus programs injected in to the global markets clearly appear to be working but the end results are unknown.

As a result, in our organization I guess broadly we continue to act cautiously and not conduct our affairs as though the world has suddenly recovered and returned to normal. Our attitude is similar to what it was last fall in that it's more level in that we are not that negative then in the face of persistent weakening in the economy and obviously we are not that positive today. Having spent a good part of our time with funding items over the past two years as Brian mentioned, and with our liquidity now at a very strong level we turned our greater portion of our focus to opportunities.

From a deployment of capital perspective over the next 24 months we expect to dedicate resources to three major things on top of just the regular every day business organically that we build our business in each of the operations. The first is that we intend to deploy capital in global real estate turn around or, I guess I would call it distress. We believe this is one of the great-- still believe this is one of the great investment periods for these type of assets we seen in a long time. We have been assembling further capital over and above our capital and our balance sheet from some of the investors across the world. And this will be the deployed in distress opportunities as we find them and where we have an operating base.

Second we invested in select infrastructure situations with high quality assets that have been encumbered with accessive debt levels and where we think there is an opportunity to build those businesses over time. And third, we have been assembling capital to acquire loans on US commercial real estate, possibly with utilizing some of the funding programs that the US government has or is establishing. Often people question or ask us why we invest in distressed situations when it looks-- the returns look so bleak, often for years and some times you can't even see the end. The simple answer is that in past we found that it's the lowest risk way to buy great assets inevitably they turn. In this regard it's often worthwhile I guess in our view to reflect on many of the investments we've made in past to give you perspective and in the future we intend to try to shed light on some of these for you so we can show you the past business cases.. We found the returns from these periods of time of distress can make a significant difference in future value (inaudible) as the dollars are invested at far less in replacement costs and in a good market often assets trade at premiums to replacement costs.

One area where we have been investing capital which is clearly in distress, over the past six months, is the US residential business. Looking back today it's clear that housing peaked in the fall of 2005. The good news today is that we believe we are past the worst of the down cycle in housing. Furthermore, while we don't expect a robust turn we believe we have or will soon see a bottom in many of the key US housing markets. As a result of this in the last six months we've started to acquire residential land where we have market knowledge people and operations to ultimately build out the lot. First we invested $250 million in April this year to increase interest in the US business through a rights offering. Second, and also during this quarter, we purchased approximately 3200 residential lots small amount but for about $30 million in Riverside County California, through two bankruptcy court proceedings.

We do know this is currently one of the worst residential markets in the US; however, just to put it into perspective the lots are within an hour of Los Angeles or the city of Los Angeles, were purchased for less than 10% of the value attributed to lands and infrastructure at the peak and the purchase price represents only about 20% of the cash already invested in roads sewers grading and infrastructure over the past three years. So these are at pretty low values. The last but maybe the most important place where we have been making investments is in our people during the last few years we have been able to achieve our relative success because of, I'd say, the expertise and dedication of the operating teams we have in the Company.

This differentiates us substantially from many of the the financial players and we believe in times like the past two years and next two years this will enable us to work through many situations where others don't have the capacity to pursue similar situations. It also contributed to our advancing our standing we think with institutional and financial counter parties in the market. This should enhance our brand over time with those entities. During the period over the last year we continued to add people to our team we believe that like investment opportunities this period of time is one of those special opportunities offered to those who have the resources.

We have recently been able to track a number of highly skilled individuals to the organization who I guess we thought for various reasons would not otherwise be available, largely because they were happy employed and just don't move, or it would have been too costly to dislodge them. In this regard, we have strengthened our teams and our (inaudible) institutional marketing and fund rising group and our advisor groups where we have lacked scale in the past and we continue to grow these operations and intend to do over the next year. These operations should continue to add global scale and execution capabilities to the organization and we believe will be profitable in their own right within a short period of time.

In summary we have been fortunate over the past two years to have navigated through the difficult period with modest financial and business set backs. Most of the difficult issues we had to deal with have been put behind us or should be easily handled within the normal course on our own in the context of our operations over the next couple of years. We worked to buildup substantial liquidity over the last period of time and I guess while we have been doing that for two years, we had been continuing to invest in support operations over that period. The outflows have largely stopped over the last six moths therefore that built up significant liquidity across operations. And as a result we are now looking outward to find opportunities to invest this capital which we have been building up where we have a chance or we hope to have a chance to build meaningful value over time to add to the organization. With those comments operator I will turn the call over to you to ask if there are any questions on the line.

Thank you, sir. (Operator Instructions) First question today comes from Linda Ezergailis of TD Newcrest

Thank you. I have a question with respect to BPO in and your decisions around deploying capital. What was the rationale for choosing not to participate in the BPO drip.

Linda it's Brian. We get a fair bit of consideration to that. Frankly at the end of the day we just felt that the most appropriate thing for us to do was to maintain the status quo. It was really as simple as that.

Just maybe moving on just from a bigger picture questions I appreciate the update on the IFRS underlying value calculations wondering if I could drill down a bit to get a better understanding of where the numbers are coming from on the real estate underlying value it was helpful to get kind of a going in Cap rate, but I'm wondering if you could provide kind of a weighted average terminal Cap rate that we could compare the 7.2% to.

We gave-- we did give some idea of that a little bit later on in the tables. We broke it out by North America versus Australia and the UK. So we had a -- it's on page 11 of the supplemental. So what we gave was an average terminal Cap North America of 6.9%, Australia 8.95 and UK 6.2.%

What would be the weighted average of that or -- or conversely what would be the regional going in Cap rates.

Oh gosh, I couldn't give that to you off hand although I suspect we could sort that out by just looking at the net invested capital. That's a bit of a tough one. I would say given that the largest area of our operations is in North America, second largest would be Australia, third would be the UK, it would be let's say 7.4%, something like that.

7.4%. Maybe I could follow up offline just to check my estimates around that. Drilling down to the renewable power, can you give us your assumptions around a discount rate and realized power prices, I didn't see them on page 13 or anywhere else.

Just trying to reflect back. I think we put that out in our year end numbers. And I believe it was in the range of 8.5 to 9%. We would have given you some ideas of the range there as well as some of the sensitivities towards changes in it.

I don't recall seeing at year end a power price rate. So I'm looking now it's on page 14 of the Q4. You're right. I apologize, there were discount rates there which I guess haven't changed but no power price assumptions in there.

No, although we would have given the forward pricing for contracted generation that we have and then working off price (inaudible) -- I can't really -- I don't think I can pull that together for you on the call but we can follow up with you.

Okay, that would be helpful. And just another question. So are you with respect to foreign exchange, given that half of your assets are outside the US are you assuming no change to current FX levels or is there some other assumption behind your underlying values.

We would have used some FX assumptions at the time we pulled those valuations together which would have been a combination of largely driven by what we seen in the forward curves at that time.

Forward curves and trending out long-term. Okay. That's very helpful. I will just jump back in the queue.

Thanks.

Next question comes from Mark Rothschild of Genuity Capital Markets --

Hi, good morning. The financial market and credit market seems to be showing improvement. You (inaudible) for awhile about taking advantage of distress and doing some deals. Is it possible that you've missed the chance to find some of the large distressed deals or do you still remain optimistic in getting something done?

Mark it's Bruce. I would say two things, one we put a lot of money to work over the past 18 months within different buying out partners and rights offerings and buying some select things. We don't feel like we missed a lot of things over the past 12 or 18 months everyone was a little more conservative during that period.

In addition, I would say, that while the capital markets are more positive than they have been for a long period of time that does not mean that people who over finance their properties or who are in extreme distress are fixed. Some select ones can get refinanced in the capital markets but there is still a lot of opportunities that are out there and we think there will be for 24 months, minimum. So I don't think we feel any rush to be doing anything nor do we think we missed anything. Obviously there may have been specific opportunities that we could have taken advantage of that we didn't, but there are many things around the world for us to do.

Okay. Moving on to the power business, maybe you could explain what led to the decision to sell some of the assets and in the Great Lakes and this is the best way to realize value from pair of businesses opposed to putting to a fund where you may have more of a typical promote structure or some other opportunities that you may have had with those assets.

I maybe start off by saying our business is about buying assets and some times managing them for others and sometimes owning them on our own. And recirculating capital from I would call it higher return assets in to more stabilized assets and sometimes keeping them and sometimes keeping a smaller interest in them.

A lot of the assets we put in to the income fund are much more stabilized today than they were when we bought them and they were an appropriate asset for that and, in fact, the second point would be is two years ago we might have been able to do the same thing, but we had no use for the capital productively within the business. Today we can use the capital more productively in higher return investments and therefore we should be able to earn a greater return, that's not to say that it isn't -- they're fantastic assets going into the income fund. But it's just they're a different income profile and risk profile than what will put the money to work in. That's just how we view our business.

Okay. And, lastly is it possible to quantify what the gain expected from that transaction in Q3?

We haven't finished all of the work there. So no. I guess is the short answer.

Thank you very much.

Next question comes from Neil Downey of RBC Capital Markets.

Good morning all. During the last I guess really six months or so, the Company as was eluded to, did deploy some call tap to support cyclical businesses. Can you comment on what you see perhaps over the next six to 12 months are there other subsidiaries or funds that you can identify that may require some additional capital support and therefore use up some of the corporate liquidity?

Hi Neil it's Brian. We wouldn't see a whole heck of a lot in that regard. Maybe a few instances here and there, but I would say relative to what we did and achieved in the fist half of the year would be much smaller.

Okay. Perhaps what about the Australian property operations, there is I recall there is still a bridge loan there that has some term but might that be a use of funds?

I suppose that's possible our objective is as it has been to refinance that loan by putting in place more permanent financing. At the end of the day as always we will wave that against cost of capital and flexibility and we might choose to do that but too early to tell yet.

Okay. As I understand the real estate opportunity fund by its nature is probably a higher leveraged strategy. Any comment on that fund? Could it require equity at all?

Doesn't seem to be at this stage of the game. Most of their loan facilities have extension features and so we wouldn't expect that.

And then just to finish up, the Company has raised (inaudible) again, a lot of capital really just in the last three months even specifically. How much should we expect that to impact shorter term results whether it be-- can you quantify that in terms of cash flow per share on an annualized basis or quarterly basis?

I suppose one way you could look at it would be the difference between the rate we paid on some of the financing let's take for example at the corporate level relative which would be more fixed term, fixed rate longer term, compared to floating rate interest that we would have paid on short-term borrowings and commercial paper with the steepness of the yield curve there is obviously a negative spread there in the short-term, although as you know it's always been our objective to term out that financing and frankly pay that price of the steeper yield curve and spreads to do that. If you accepted that perhaps there is a 5% spread on it, that -- on $500 million, then that's $25 million.

Okay.

Neil, I maybe just add to that is that the Company in our company we do many things across all of our businesses that if you're just looking at cash flow in the short-term destroy value for the business. Going in Cap rates or that kind of thing and multiples on cash obviously they are relevant and everyone should look at them. But what our business is is often we are buying things with zero cash flow with a lot of multiple at the end. Raising cash today in the marketplace is clearly sitting around doing nothing is a negative thing but it positions us to be able to take on opportunities on short notice that other people may not be able to do. I guess we always found that was the best thing do in the longer term.

Thank you.

Next question comes from Brendan Maiorana of Wells Fargo.

Thanks, good morning. Bruce you mentioned in your letter that some of the things that you guys have learned over the past couple of years you are going to use and adapt your financing strategy going forward, strikes me that your existing financing strategy are what I would have thought are made for difficult times like this, what specifically are you looking to alter as you move forward?

I will let Brian talk about it maybe in more detail. But, I would say, generally I think that the strategy we have in place for the Company which is asset level financings on a term basis matched finance to the asset side of the balance sheet is the right strategy and it will continue. By in large I think we learned 15 or 20 years ago how we should run these type of assets in the Company.

The good news is we didn't forget too much over the last period of time and therefore we came through the last couple of years in good shape. That comment was really meant to say that you should continuously learn and this cycle we all learned a lot and we will try to put some of those things to work to make sure that we-- the small aggravations we had on a relative basis over the past 24 months won't be repeated. And it didn't mean anything specifically but we did learn a lot about different things, nothing of a major significance I guess I would point out here.

Okay. Thanks. You also mentioned that you are adding people on the fundraising side. Do you still feel like -- I hate to hold you to the targets or lack of targets that you set out a few years ago but do you feel like the strategy of the Company is to be owned less on the balance sheet managed more over the long-term is that still a viable long-term objective?

Firstly I think I guess I would say we don't think the asset management business is going away. It will be different in the future maybe than it was in past for some areas. Second I think there is a lot of players that won't be in the marketplace in the future. Therefore, for the ones that have a reputation, have a track record and the ability to raise capital and deal with institutional investors, it will get easier. I think maybe in the short-term some of our targets that we had from before will be-- won't be achieved but in the longer term I think this period of time probably sets us up to be more successful than we ever thought before.

So where we head to and how much capital we have invested will all be dependent upon just asset allocation and how much frankly we think we can earn for the investors in the Company. Our view still is that the asset management industry for assets is not going away and it will continue, this is a blip in the road to where the world is heading with institutional capital.

Do you feel like your sponsorship of some of these transactions and some of the capital that you've needed to-- that you've put back in has been different in any way than what you may have done on your own if you were not a sponsor of some of these transactions. That you got your reputational capital on the line that may cause you to act differently than if you owned all the assets outright.

No, we-- I guess I would say, whether they are public or private and with institutional investors and with banks and financial institutions, we take our sponsorship very, very seriously. And our reputation is worth a lot to us in that regard. Therefore, some times we do small things within Brookfield shareholder capital that may not produce the biggest IRR return. But what they do is enhance our reputation with other parties we do that solely because we think that will be the best thing to do for the organization longer term. I can't point to anything that we did over the past 24 months that we did for sponsorship reasons that we don't think will earn a high or good return on longer term given the risks we are taking. But certainly , there may have been things we did that we might not have otherwise done if we weren't a financial sponsor. And if we didn't think that way.

Fair enough. Lastly for Brian. It sounds like you -- sounds like you closed out a lot of the CBS positions that you had, is now the time when the flip side of that hedge transaction plays out via higher rates, should we expect that your rate profile will move up over time as some of the refinancings work their way through.

That might happen to a certain degree Brendan, we have obvious received some pretty significant benefits from those positions over the past number of years. Having said that one of the benefits of the long duration of our capitalization is that changes in rates generally work their way into the overall cost of capital on a pretty slow basis whether they are getting better or whether they happen to be getting a little bit more expensive.

Okay, thank you.

Next question comes from [Dan Orlo of Seringetti]

Thanks for taking the call. I joined the call late, so perhaps this is covered, but I was wondering if you could give a brief overview from a cash liquidity and debt capacity where the holdco is. Not in terms of 15% capital background but profile but in terms of what the real capital capacity is. If we could marry that to what you going forward think of as the right metric for returns from a project perspective as balanced against options like share repurchase or other uses of capital. Thanks for your time.

Okay. It's Brian I will start with a bit of that and Bruce may come back on the project returns. Just we did make a couple of comments on liquidity. We are at around the 3.2-- , 3.1, $3.2 billion level that is up few hundred million dollars over the end of the last quarter. That would be about two-thirds at the most of that two-thirds at the holdco level for lack of a better word and then the balance in our operating units. You mentioned the 15% debt to Cap corporate level would be around 44-- , 44, 45% on a proportionate basis so if you pick up the debt the capital throughout the organization, pro rata share of which would be the other relevant statistic to look at. Then in terms of the maturity profile at the corporate level, we have actually down to one maturity over the next three years, prior to 2012, which is $200 million maturity next year

In terms of warehouse and drawing commitments does that included in the 3.2.?

Sorry?

In terms of additional liquidity facilities

We would include our undrawn credit facilities in that 3.2, that's what we were called with our core liquidity.

So-- but In theory of holdco you could go as high as 25 or 30% and not affect any of your debt concerns?

I think that's fair enough.

So it's -- significant excess capital available even at this point given how much money put back in to the business.

We believe we are quite liquid in that regard, yes.

You could marry that up in terms of sources and uses of capital, and capital allocation. To some extent seems like my recollection is the 15% IRR seems given the fact you are buying stuff basically well below replacement cost is probably not really the right way to think about what your return profiles are going forward. If I'm trying to marry that up against versus I'm not saying you should be repurchasing shares, that's not my point, I'm trying to understand how you are thinking about the uses of capital on that basis give the fact you have been so diligent in the application of your capital allocation process.

I would suggest two things, first one is that on the investment side our target always was 12 to 15%, levered internal rate of return. That's because through a cycle sometimes you are investing capital where you are not earning high returns or not as high returns. I guess our view is that capital put to work in the last year and a half and probably in the next year and a half will earn excess returns over that. And therefore, we are trying to free up and we will continue to try to free up from I will call it income producing assets where they earn decent returns for an income type investor.

To put money to work in assets which we think on a relatively low risk basis because you are buying below replacement costs,we think we will be able to earn probably on IRR basis north of 20 and many many multiples of capital over time. So I'd say these periods will -- if you do your job right money put to work will earn excess returns on what you would earn over a normal cycle. Clearly our buying stock back is one of those things that's quite easy for us because we know it the best. We need to balance that off against the other opportunities that are out there and be judicious about it. We always in the past done some or all of those things.

Is there -- I mean I guess and what's the balancing internal dialogue around that, is it that you are seeing so many great opportunities that from the long-term perspective you want to participate or reevaluate those capital decisions after you feel the markets are really much more fully normalized?

I guess we just continuously look at all of the opportunities including building up each of the businesses we have adding to the operations in the places we are in, getting in new operations, the returns that will be produced out of those and weigh them against buying our own stock back, which is essentially buying some of the assets back at a discount. We continuously look at those with the board and senior management guys.

Thanks for taking the question.

You're welcome.

Next question comes from Cherilyn Radbourne of Scotia Capital.

Thanks very much, good morning. I was wondering of the three major initiatives that you identify in the letter to shareholder if you could give us an idea of how you view the relative size of each opportunity set and I guess the extent to which you would expect to pursue each of those opportunities with your own capital or with third party capital. What I'm driving at is the third bucket might seem like one to me where it would be biased more in favor of managing capital on behalf of third parties and other two buckets might be buckets where more of your own capital would go in.

I would say everything we do today Cherilyn we are working towards bringing institutional investors in alongside us. Whether we can achieve it on everything depends on the opportunity set and the risk reward that other people perceive. All three of them will involve institutional partners. The amount of capital that we put in to them will be dependant on the opportunity and how many others want to participate with us, essentially . Often we fill the spot GAAP in that we take X but end up taking Y when others don't. We have many opportunities to go around so we are pleased to have all the institutional investors that want to invest with us, on the third opportunity I think that's a fair comment because a lot of lending in the lending market is lower return, cash flowing type assets and that's perfect match for institutional investors.

Okay. With respect to the distressed real estate acquisition you do in our commentary elude to assembling capital from third parties I just wonder if there is any other detail you can provide.

Not at current times but when we can we will.

Okay. Just lastly you did an interesting financing in Australia in the retail bond market clearly you've been trying to term out the financing associated with the multiplex portfolio, can you just kind of give us some background on that financing and sort of your initiatives in that market?

Sure Cherilyn it's Brian. I think one of the things -- well two financings we highlighted in the letter, and that was-- that part was really just casting around for expanding the sources of capital trying to find the most attractive cost of capital and the background to that really was taking a very high quality building with an obviously a very strong credit tenant being the government, and securitizing it in to a bond offering that would then in turn distributed in to the retail markets and that was the first one done there for quite sometime. We felt looking at the return opportunity in terms of the yield for an asset of that quality that it should be something that would be extremely attractive to retail holders and that we would hope would really be the precursor to a number of follow on offerings and providing was a good source of capital.

Would you be prepared to tell us what the interest rate including the spread was associated with that?

I think that was around 7 --

Short rates in the Australia are higher -- it was around 7% coupon.

Thanks very much, that's all my questions.

Thanks. Next question comes from Andrew Kuske of Credit Suisse.

Thank you, good morning. Bruce you made the comment you've been busy assembling capital to potentially take advantage of distress in the real estate markets. That's been clear from your own balance sheet perspective, but If you could give us more commentary from a third party basis.

As you know we can't talk too much about things we are doing in the fundraising market until they are done. I'd say in general as a comment on the institutional fund raising market like all individuals all corporations institutions were no exception for the period October until March. Didn't do very much and all reassessing where they go with their capital needs. We've seen a significant increase in interest from funds to investing over the past three months. A lot of that is non US base, one because we have a strong I guess strong relationships in Asia, some in Europe and obviously in Canada.

Secondly there's not been as much quote unquote turmoil as some of the domestic funds were. There is substantial interest out there to put money to work and people are getting back too figuring out where they move going forward. A lot of people went to cash in many different places and now seeing that the markets, the risk they were there is fear in greed and they were in fear category before, people are starting to head back to greed. I guess that's a positive in discussions when you are talking to people.

And then just with the third party fundraising should we expect to see a third party fundraising really ahead of a capital redeployment initiative or really coincident with a deal being announced.

They happen when they happen. Obviously you have to be careful on deployments on our own balance sheet we can only take on so much relative to capitalization but we do have a significant amount of cash around on our own. So it will be dependant on the situation.

Probably more of a question for Brian, could you give us any color around conversations you had with the credit rating agencies around any changes in metrics FFO expectations, really just how do you look at your balance sheet today and balance sheet of a lot of the underlying entities and are the metrics starting to shift and become a little bit more challenging? From a rating standpoint?

Okay. I don't think that there has really been any shift fundamentally in how the agencies have viewed us at this stage of the game. And I'm not sure I could comment too specifically on the various affiliates. Obviously a couple of the agencies have put some of our operations the outlook for them shifted from positive to negative I think with respect to -- one of the agencies did that with ourselves. Predicated to the fact that there there have been some head winds in the markets for some of our larger businesses. But there really hasn't been any overall dramatic shift with respect to the agencies or with respect to what we think we can achieve with our capitalization and resources.

Okay. Thank you.

Next question comes from Ari Black of Thomas Weisel.

I just wanted to touch on the ability to obtain bank financing and it's obviously a good sign that you were able to finance the Sun Course Center. What's your thoughts on when we'll see financing between $500 million to the $1 billion range.

Are you referring to you are not referring to bank financing there, are you?

Talking about property specific, large loan property specific financing?

Yes

I maybe make one comment and Brian can think about a better answer. I would say the one market that probably is not there today, we are seeing financings at the asset level on smaller deals. We did that bond financing on [Petra Candace Center] which was $370 million, I think. And I would say that's one of the larger financings done in North America, Bank of America, Merrill financed their tower in midtown Manhattan at 42nd Street for north of a billion dollars recently. It has a Bank of America lease on a good portion of the building. I wouldn't say your seeing some of that come back into the market but it's slow.

I do believe that once the market gets its mind around financing things again that properties like Petra Candace Center and many of the other properties we have that are single asset financings with pass through cash flows of very high quality credits, will be an extremely attractive fixed income investment for both institutional and retail investors. What is complicating that is everyone thinks of that as CMBS quote unquote.

CMBS is this whole raft of things that were done before with hotel loans mixed in retail mixed in with office and other things. I think that will have a hard time coming back in the short-term. But very I guess our belief is that the large loan business will come back because you will be able to sell assets specific financings on single asset properties and people will know exactly what they are getting. And I think that favors that market coming back.

Have you seen any improvements in the Cap rates that lenders are assuming where the loan to values over the last few months.

I think it's been I would say probably been a little bit of improvement, not a whole heck of a lot as yet.

Okay. And then just a housekeeping question, with the operating cash flow, where there any other one time gains other than the US fund restructuring?

There were couple of other things that we would have highlighted in the report. We realized a cash gain on hashing out our debentures that we presold a portion of Norboard investment that was around $60 million.

Okay. Great, thanks.

Next question comes from Rossa O'Reilly of CIBC World Markets.

Thank you. I wondered if you could let us know what were the assets that you valued as a supplement to the IFRS valuations, did they include the asset management businesses?

There are really two things we highlighted as I will call it reconciling items between -- intrinsic valuation and the IFRS, which is--- one of them is what you mentioned which would be the asset management business and the other areas that under IFRS you cup to Kayry inventories at lower of cost than market and that would include the residential business which would include very old land holdings for example in Alberta.

How much would have been the asset management business.

We haven't provided a break out of that. Rossa.

Looking at the areas that you have targeted for investment, and I guess great values in a number of fields land area which you've already capitalized on in a very interesting way, and then also distressed debt and are the trophy property assets and they all come with very different risks reward parameters I'm wondering how you when you look at what is available out there you make capital allocation decision between say buying a trophy property at a discount but not as great discount use the most extreme depressed situations in land and housing. And then how you trade off perhaps the prospect of making quick return by buying distressed securities or loans against the long-term benefits of putting high quality property on your balance sheet permanently.

Ross, I maybe make two comments. Generally we are not in the business of buying discount paper and flipping it. Once in a while we do it or once in a while we attend to own something and we get paid off. But by and large our business for ourselves and for our institutions is a multiple of capital business. Meaning we are not looking for a six month 30 year 50% IRR, we are looking for a 10 year six times return or four times return, whatever that is. So generally we are looking to buy great assets and own them for the longer term.

As to the first question, so that would be answer to the second part as to the first question which sort of ties in as to risk and reward and how do we allocate capital -- it's probably the most difficult things we do every day. We have so many things that come across into our operations we have five hundred people looking at corporate development opportunities and doing things within the business and so you see many, many things, for us it's all risk and reward. I guess we try to ensure that we take on not too much of one thing or too much of one area or too much of one specific item of risk at any one point in time so we have some diversification but it's all about risk and reward.

If we think that we can buy land at $0.05 on the dollar versus office buildings at $0.95 on the dollar we would probably buy the land. There is break point where you will rather buy the office buildings at $0.75. But that's probably the most complicated we do in the business.

Do you think there will be opportunities on all fronts before the end of the year that will materialize or might it take a bit longer.

I never like to give timing because you are always wrong. There are opportunities today that we are looking at that we didn't know two weeks ago. And there are opportunities that have been around for two years that we haven't been able to achieve.

And there will be ones that come next month and I guess we have no great -- I have no great timing for you. We will put capital to work if we can find opportunities to meet our risk reward scenario if not we will buy back stock or may sit on the money waiting for other ones which may or may not come. But I can't really-- We try not to have targets as to when we will invest money, we find that will generally get you in trouble.

Finally if I may in regard to the deferred tax credit in the second quarter what specifically did that arise from.

That arose from increase in our tax pools specifically tax yields over the quarter.

Is there a way of sort of identifying how it came to pass or what sore of assets did it relate to.

Basically related to cost base that we were able to -- confirm that we were able to-- that would provide us benefit in terms of reducing future taxable income. It was more in the power side, Rossa.

Okay. Thanks very much.

Next question comes from Michael Goldberg of Desjardins Securities. Three quick questions, when you talked about liquidity, now, now above $3 billion, you also mentioned an additional amount to be received in the third quarter from renewable -- restructuring of the renewable power business but I missed the amount.

It was around $500 million, Michael, that would be included in the 3.2.

Okay so that's included in the 3.2?

Yes.

Okay. Second, in addition to opportunities to buy, are they still legacy assets where you see meaningful opportunities to sell to free up even more liquidity that could be redeployed?

I would put it this way, Michael, many of our assets are liquid and many of our assets not as liquid as they might have been two years ago but many assets we can take capital out of in different ways depending on the investment alternatives in front of us it's a risk reward thing. We don't want to have too much cash it ising around because it's obviously negative to the business that has to be tempered against having enough around to make sure we can capitalize on opportunities as presented to us. In direct answer to your question, yes there are many assets within the business that could be monetized should we want extra capital. Having said that, that's a negative to us in the short-term if we do it. Especially if we don't put the money to work at proper return

What I'm getting at is I guess you can't comment on any specific names particularly if they're public companies but could there be further pull back in terms of situations where you've allowed your participation to decline recently?

I'm not sure I understand what you're asking, Michael.

Like a Norboard for example, right?

Our level participation in nor board actually went up. Are you suggesting we increase and therefore we might look to monetize some of that in the future.

Right.

It goes back to the response Bruce had. (inaudible) its about asset allocation, There are a number of things we could monetize and would we be-- do we think we can redeploy that capital to achieve higher returns in which case we should probably do something.

And finally in the Q1 you benefited from FX and CDS positions, what was the impact of those positions in the second quarter?

I think one of the ways to think about it -- disclosed anything with respect to specific gains or loss although the average -- I think you would have heard from results the average interest rates over the period were lower for some of our non US operations. This quarter versus 2008. It was probably around $30 million over the on a comparable basis that we were lower this quarter.

And Michael FX doesn't go through the income statement other than the income amount. The big amount go in to the equity base.

Yes

I understand that. But there have been periods that positions itself have -- have resulted in income.

There wasn't much in the way this quarter of what we will call FX gains more manifested itself in a lower translation of some of our non US casual streams, meaning if we-- if the same average currency rates were in place this quarter as they were in the comparable quarter 2008 our results would have been about $30 million higher.

Okay. Thank you.

Next question comes from [Frank Mayer of Vision Capital].

Good afternoon. Just following up on Rossa O'Reilly's question earlier. You disclosed in your letter Bruce that the value of assets over book value not included in the IFRS calculation is $1.5 billion. How much of that would be attributable approximately to Brookfield properties your 50% owned affiliate.

That's not disclosed Frank so we can't give that information out.

Okay. Thank you.

Thank you.

That's all the time we have allotted for questions today I will now turn the conference back to Mr. Harding for closing question.

Thank you operator, and thank you all for joining us we appreciate your comments and questions and look forwarded to speaking with you when we announce our third quarter results. Have a great weekend.

Ladies and gentlemen, this concludes today's conference call, you may now disconnect your lines. Thank you for participating and have a pleasant day