BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2009 Q3 法說會逐字稿

Hello, this is the Brookfield operator. Welcome to the the Brookfield Asset Management 2009 third quarter results conference call and webcast. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

I would like to turn the conference over to Mr Robert Harding, Chairman of Brookfield. Please go ahead.

Thank you, operator. Good morning, ladies and gentlemen. Thank you for joining us for our 2009 third quarter earnings announcement conference call and webcast. Joining me today on the call are Bruce Flatt, Senior Managing Partner and Chief Executive Officer. Bruce will provide brief market comments and updates on our initiatives and business strategies and Brian Lawson, our Chief Financial Officer, who will discuss our financial and operating results.

At this time, I would like to remind you in responding to questions and in talking about our new initiatives and our financial and operating performance, we may make forward-looking statements. The statements jar 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 our annual report which are available on our website. In addition, our Q3 news release supplemental information and letter to shareholders are available on our website. With that done, I will turn the call to Brian Lawson.

Thank you, Bob. We reported CAD520 million of cash flow for the quarter, compared to CAD355 million during the same period last year, an increase of CAD165 million. There were four major variances in the results. Cash flow from commercial properties increased by CAD68 million due to a modest increase in net rent and lower carrying charges. On the other hand, the renewable power operations experienced lower spot pricing contributing to a decrease of CAD65 million. These two items largely offset each other. The two other two variances related to disposition and realization gain. We recorded a particularly high level of disposition gains in 2008 due in large part to credit default swaps. The results that investment income from our financial assets was CAD100 million higher in that period. And during the current quarter, we recorded a CAD346 million realization gain on the partial monetization of hydroelectric facilities and that compares to an CAD80 million gain on the sale of a commercial office property interest in 2008. There were a number of other smaller variances, positive and negative that largely balanced out.

Our net income was CAD112 million in the current quarter, compares to CAD171 million in 2008, we did experience a higher level of non-cash charges, that included a higher non-cash tax provision that related to the higher level of realization gains. We increased our core liquidity by approximately CAD700 million since the end of the second quarter to approximately CAD3.8 billion. That was through debt and equity financings and asset monetizations. We also added nearly CAD10 billion of capital allocations from asset management clients and Bruce will comment further the activities in his remarks.

Once again, the operating 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. The one exception would be lower electricity prices, as I mentioned, owing to the economic slowdown and cooler weather in the summer months. Excluding realization gains, these two operations combine to produce a total of CAD217 million of net operating cash flow, a slight increase from the contribution in the third quarter 2008. Commercial properties generated net offer and cash flow of CAD176 million for the third quarter of 2009, as I mentioned, that represents a CAD68 million increase. This represented a 2% increase in same-store rents and as well as the contribution from recently-completed properties as well as the impact of lower interest rates and floating rate debt. We leased 3.2 million square feet within the North American portfolio during the first 9 months of 2009, 700,000 square feet of this space was leased in the third quarter at an average rate of CAD25 per square foot, 25% higher than the leases being replaced. I would note the following in respect to the operations. The global portfolio remains well-leased, averaged overall occupancy level of 95.5%, slightly higher than the level at the end of June. Expirees are limited to 1% over the balance of 2009 and 4% next year. Average lease term across the portfolio of 7.4 years, average in-place rents are by our estimation 12% to 15% below the comparable average rents and we experienced virtually no tenant issues in the portfolio since our last report.

Our renewable power generating operations contributed CAD387 million of net operating cash flow and realization gains in the quarter, compares with CAD106 million in the same quarter last year. The realization gain rose on the Monetization of 50% of our directly held Canadian hydrofacilities which we completed over the course of the summer. We achieved above-average generation in both 2009 and 2008, was about 16% of above average in the current quarter. That is 7% above average year-to-date. Pricing, however, as I mentioned, was lowered. The economic slowdown and cooler weather resulted in lower-than-expected spot prices during the quarter and average realized prices were 14% -- CAD14 per megawatt hour lower. This impacted the generation that we did not sell forward because of potential water fluctuations and that resulted in the CAD49 million decrease. The prices, however, are locked in for 80% of the power that we expect to generate over 2009 and 2010, based on our long-term averages and this continues to largely mitigate the impact of lower energy prices.

In addition, even with the strong generation levels produced during the quarter, we were able to hold back water with the result that our reservoir levels estimated to be 13% above long-term averages for this time of the year. This should enable us to exceed generation targets if water flows are consistent with average for balance of the year and benefit from prices we expect to be higher in the coming months.

In addition, we are working on a long-term contract for our generation in the Province of Ontario, which averages 2300 gigawatts hours per annum. The contract would provide for a fixed base price and fixed payments in respect of some of the peaking and ancillary revenues. This payments will escalate annually by a fixed percentage. If successfully is concluded, this will increase the percentage of our generation that is contracted on a long-term basis from 50% to nearly 70% consistent with one of our major objectives in this business.

We did record lower contributions from several of our business units that were more directly impacted by the slowdown in the US economy and the home building sector, this is notably our in our Timberland and Residential operations. Contribution from infrastructure operations declined quarter-over-quarter in part due to the fact that our timber operations we continue to operate at reduced harvest levels in order to preserve long-term value to allow the treats to continue to grow until prices and margins improve. The transmission operations, the contribution there was very stable as expected, although the aggregate cash flow was lower somewhat because we no longer receive cash flow from the Brazilian transmission interests that were sold earlier in the year for substantial amount of proceeds. Our Brazilian residential operations are continuing to benefit from the expansion of the business over the past 12 months and the favorable operating environment and this is offset lower volumes in our Canadian operations.

Looking forward, the fact that we have locked in such a high percentage of our revenue streams in our two largest businesses, commercial office and renewable power, provides 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. As I mentioned, we did receive lower contributions from some of the shorter duration businesses during the quarter but they do appear to have bottomed out and we do believe that we will begin to see growth from the businesses through 2010 and 2011. We continue to maintain a strong financial profile, good access to the capital markets and good access to the capital markets during the third quarter. This is reflected in our high-level of core liquidity and the fact that our debt maturities at the corporate level prior to 2012 are limited to a single CAD200 million maturity in 2010.

Furthermore, at quarter end, we held CAD3.8 billion of core liquidity and CAD6.7 billion of uninvested capital that has been allocated by investors to our various mandates, for a total capital of CAD10.5 million that could potentially be deployed into new investment opportunities. Lastly, I would like to report that the board of directors declared our regular quarterly dividend of CAD0.13 per share payable at the end of February 2010, and with, that I will hand the call over to Bruce.

Thanks, Brian. The -- and welcome, everyone, on the call. The past 12 months in the capital markets have been an interesting period for investors and as Brian noted, leaving aside the extreme market distress that was out there exacerbated by liquidity issues, the fundamentals of our business in most geographic markets and most of the businesses invested in have been playing out essentially as one would have expected in this type of economic cycle. Thankfully it appears we're in the bottom portion of the recovery phase of this market cycle and that bodes well for everyone, including us.

We have completed a number of fundraisings to date in 2009, as Brian mentioned, and we're particularly active during the third quarter. In total this year, on external amounts of capital that we raised, it's almost CAD12 billion, which should enable us to continue to acquire assets in the bottom portion of this market cycle. I guess access to this significant amount of capital places us in a select group of large investors who have both, in our view, both the capital and the human resources to pursue recapitalization transactions on a global basis where it makes sense for us. Specifically, this included external capital raisings of CAD600 million approximately of external capital and the issuance of Brookfield properties taking out the amount we subscribed for, CAD300 million in our Brazilian property company which is listed on the Bovespa, CAD800 million for the newly named Prime infrastructure in Australia, which is in escrow today, pending closing of that transaction. And that company will continue to be listed on the ASX in Australia. CAD600 for external capital for Brookfield infrastructure to fund that part of the transaction and CAD500 million for our Brookfield renewable power transaction and almost CAD5 billion of commitments and pledges from -- for private strategies. That is a lot of capital and we feel fortunate to have this access to this amount of capital and diversity of capital at this point in the markets. And thank all of those that participated with us.

There are several further initiatives we're working on to raise capital both privately and publicly and as is our policy, we'll comment on those when they're complete. This should enable us to invest confidently through the recovery phase of the cycle which we believe should generate exceptional long-term returns for those that can invest. We continue to focus on six priorities, basically the same over the last few years. These as usual, are listed in detail in our shareholder letter but now that the capital markets are back to some semblance of normalcy, we have been focused on new asset acquisitions as one of the priorities that will take the line share of our attention over the next 12 to 18 months. In this regard, we did commit to acquire a substantial portfolio of infrastructure assets in the last month which I will speak about briefly in a minute.

Stepping back prior to that, maybe to talk about infrastructure, we set out a number of years ago to expand our infrastructure presence from one largely invested in hydrogeneration to more broadly based. We were successful in acquiring a number of electricity transmission systems and high-quality private timberlands, however, about four years ago the space became extremely over capitalize and much more difficult to find transactions that we were comfortable with. I guess everyone knows the story after that. And what happened, fast forward to today. We believe that people with capital to invest, that there were numerous opportunities to assist institutions recapitalize high quality portfolios which essentially have a number of characteristics and that are all similar. We think we have three advantages to participate in a number of these. The first one is that we have very significant operating expertise within the Company, to be able to work out the issues which are in a number of the portfolios and two, going into them, most people, their boards, their managements and their shareholders are worried about being able to get caught in a restructuring and get compromised by one of the pieces of paper and get in the wrong place. Over the years, we have developed a very significant expertise and number of people that work on restructurings and of these type of complicated situations and we think we can therefore, participate in a number of these with confidence and, three, some people have those, too, but they don't have the capital to invest into these situations and we're fortunate with the third one as well.

I guess I focused just for a second on the Babcock and Brown transaction, includes almost CAD8 million of assets and assuming the transaction is approved, we'll end up owning the following assets. We'll own 100% of the third largest by tonnage free hold ports in the United Kingdom, 50% within Brookfield infrastructure of the world's largest coal to export terminal in Northeast Australia and we'll also own 40% of the newly-named entity called Prime infrastructure. Prime will trade on the Australian, continue to trade on the Australian stock exchange and it will have approximately CAD5 billion of assets, which includes, as would have been noted in our releases before, about 5,000 kilometers of rail lines. The other 50% of coal the coal terminal I just mentioned, a 26% interest in the 15,000 kilometer NGPL pipeline in the United States. A number of ports across Europe and various gas and electricity systems in New Zealand and Australia and UK. More importantly, the recapitalized assets will have a long-term debt profile, one that is appropriate for the business. It's loan-to-value ratios will be less than 70%, it's cashhold coverages will be strong and we think there are a number of growth prospects going forward. After the transaction is closed, we would be pleased to talk more fully about all of those assets in the future.

I'll turn for a second to infrastructure as an asset class because we think it will take significant amount of our efforts over the next few years. There are two reasons for that. The first one is that there is a number of complicated situations that need recapitalization and the second is that there is substantial growth we believe in the business because governments are going to have to raise capital on the privatization side to pay down debt. Looking specifically at infrastructure as an asset class and contrary, I would say, to many people's views, the asset class generally performed as one would have expected in this cycle. There are a few exceptions. But generally, the assets have been very resilient and continued to generate cash flows as expected. Unfortunately, many new investors entered the market over the last few four years and there were three mistakes made. One, obviously some people paid too much. Two, growth assumptions were too high for the predictions of cash flows going forward or, three, and probably the most fatal one as usual, is the excessive leverage was employed within strategies. As a result of this, many owners of infrastructure assets have gotten in trouble and this, I saw in our view, has bruised, quote unquote, the asset class in the eyes of some investors, but we believe this is unwarranted for the asset class and think that with proper capital allocation and underwriting assumptions, these assets are one of the most compelling real return assets for institutional investors and you have seen a number of institutions start to launch a number of transactions to get into the area or continue to build their presence in the area.

Our focus today is, therefore, on sourcing a number of these assets which, are owned by others, but which are overleveraged and we think there are a number of them out there and we have a lot of work to do with the Prime infrastructure and Babcock assets and need to get that taken care of first. Our goal is to assist financial institutions and owners of assets by providing solutions for unraveling some of the situations. We believe that higher-than-normal returns can be earned in this stage of the cycle. By doing this, because it's just difficult, as I said earlier, for people to navigate a restructuring or few players have the capital to participate. We think this environment probably, this environment probably exists for 18 to 24 months, similar to what we believe for real estate, which I didn't specifically propose on dealing with today. The second phase of this and after that 24 months, we believe the private infrastructure funding is set to grow significantly in the next 10 years and that will be both on now build assets, similar to a number of hospitals we're building in Australia and UK today and on the sale of in-place assets that governments own and essentially it's based on the premise that governments across the world have overspent in relation to the budgets. They need to right size their debt positions as a result, just like any good company, they need to sell assets to get their liabilities down. The easiest way to do this is to raise taxes, that is tough and not that it's easy to sell infrastructure assets, but we think the impetus is now, therefore, a number of governments that had the choice before and didn't want to do this. They will make the decision to liquidate capital assets to pay down their liabilities.

There is more on this in our shareholder letter and in our recent perspectives for Brookfield infrastructure and I didn't intend to go through all of it today, but we encourage you to read either of the documents to get more detail in this regard. Finally, and to state the obvious before I turn it over to the operator, we remain committed to invest your capitol and our investment partners capitol in what we term as high-quality, simple to understand assets which generate solid cash-on-cash returns while always emphasizing downsize protection. We think the capital invested over the last 12 to 18 months and the next 12 to 18 months will earn outsize returns from what you would generally expect on these types of assets and therefore we're putting as much mean as we can afford to put to work in this period. We do believe we are in the next phase of the current downturn and therefore the assets we buy should pay off for us over the years ahead. With that, thank you for being on the call today and I turn it over to the operator for any questions if people are on the line.

Thank you, sir. We will now begin the question and answer session. (Operator Instructions) The first question comes from Linda Ezergailis of TD Newcrest.

Thank you. I have a few questions about your renewable power business. Specifically, I'm interested to get a better understanding of what sort of contract you're looking to negotiate in Ontario and who your counter party is? Is it with the government and what sort of duration are you look at when you say long-terms?

Linda, it's Bruce. We put that in there because we're always trying to be fully transparent with our information. There is nothing else that we can say with respect to the contract today. We expect that if we can get a contract signed, it will be the next short while and we'll be able to fully describe it to you. The only thing I would say is long-term is not five years for us. It's longer than that and we look to these kinds of contracts for these assets if we think that the values approximate what we think we can do in the marketplace for a long-term asset and that is all I can really expand on. Other than what is in the material that we have.

And can you say whether it's the government or some sort of government body or not?

If you look at the market in Ontario, you can probably surmise that that is a good comment, but I can't specifically say that.

Okay . And I'm trying to get a better understanding of your calculations for your intrinsic value. I wonder how you treat corporate overhead in your underlying values. Is it imbedded in the CAD2.50 a share of the additional value and if so, what sort of discount rate are you applying to those expenses?

Linda, it's Brian. It's imbedded in the billion five year reference. Together with some of the asset management fees we're currently average, so we would look at it on a multiple basis of 15 times, 10 to 15 times, depending on what it is.

10 to 15 times cash flow?

Yes.

Okay, thank you.

Our next question comes from Mark Rothschild of Genuity Capital Markets.

Hi, good morning. I understand you don't want to give a lot of detail on the signing of a power contract. Is it possible to give a range for long-term contracts, what type of pricing would be reasonable to expect now?

Mark, it's Brian. That is really not an area we can go right now. We're in the midst of negotiations on it. That would not be appropriate. I would echo Bruce's comments, which we've made in the past, is our objective in entering into these sorts of contracts is when we can achieve pricing that is consistent with our own views as depricing over the longer-term.

Okay. Moving on. Bruce, you noted in the -- the letter and the call you that pushed your top priority, external acquisitions and you put down at the bottom, number six, we purchase interest help by others and the assets at discount to values, which is something you have done a fair amount over the past year. Is that reflective on where you think the values are now? In your assets as far as where they're trading or is there something you that you see less opportunity in?

Yes, we -- sort of have those fixed priorities and we reordered them in there to sort of give people the, I guess a view on the emphasis we have on the Company and I guess I would almost take it the reverse. Last year there were, in 2008, we were -- given the markets were in extreme distress, we were not that comfortable going out and making acquisitions, and you couldn't do things in the capital market, but there were a number of opportunities presented by partners of ours, whether it was in the public or private, that just had a different view of value, and therefore, we supported our companies or bought out partners or when people wanted to sell assets to us, we bought them from them and those came to us. Those are less, I would say, available today and also, it's just there isn't a distress out there for people doing that. And in addition, the external side of acquisitions is now possible where it really wasn't possible 12 months ago. I would say that it's really the main reason for it.

Okay. And lastly, you put something into show the letter about currency so that you're considering hedging some of your investments back into US dollars. Is this something you are doing in a material way in the near-term?

Mark, we -- and just to back up for, to make sure everyone's clear, we have our equity base or our intrinsic value of the Company we generally, it's approximately 50% in US dollars and 50% in foreign currency to the US dollar. So, over the last while, we benefited substantially as all the foreign investments have gone up in value, vis-a-vis, the US dollar. Our view generally, is that we should match currencies and match interest rates and match different things in the Company and we're unhedged to the point of 50% of our assets. Sometimes you have to that naturally in your business and we will probably always will be and given the strong increase in the US dollar, we view that at some point in time, it might be worth hedging some of that out and, I guess, I would call it locking in some of our gains we have made the past 12 months on those foreign investments. We have probably would never go to 100% hedged, but it could be half of that value at some point in time. I think if I made a guess as to how much we might hedge.

So, is it something you're working on or is it thoughts and discussions that you have had?

The bottom line, we have an active program of hedging our investments all the time and it changes from month-to-month and, we are still, along most of our current foreign investments and we actively monitor them and from time to time change those positions. And report on them, obviously, as we come to a quarter end.

Okay, great. Thanks.

Your next question comes from Brendan Maiorana of Wells Fargo.

Thanks, good morning. Bruce, with respect to your comments on the infrastructure asset class, I certainly understand the attractive returns that you're expecting over the next 18 to 24 months on investment and longer-term, do you think that the return potential, when governments begin monetizing assets and don't do so probably in a distressed way, that the returns can meet or exceed your cost-to-capital requirements?

Brendan, I have no great insight into how this will all turn out. The only thing I say we believe there are a lot of governments around the world, state, provencial and federal governments that need to get their deficits down. They own a lot of assets and those assets likely, a lot of them, will be transferred to private hands and the owners will own those assets. I think in the early stages of that, probably a lot of people will make good money. At some point in time, there will be as always, too much money will be attracted to an asset class if the returns are too high, and therefore, you will compress the returns. So, as with all good things, too much capital flows to them. At some point in time, what you described may happen, which hopefully we'll be smart enough to quit buying them at that point in time and we'll have to see what happens. The good news, I would say, there are not that many large-scale operating companies that can manage and run these assets. Financial buyers are one thing. Operating buyers are a different. As a result I think the capital that -- and there is not that much capital that has flowed to the industry today and the few mistakes that have been made over the last years have started to -- they stop some people from investing in the industry so I think for a while, there will be opportunities. Whether that changes in the future, we'll see.

That is helpful and have your investment partners changed their thoughts on timing of when capital ought to be put out, given the public markets have improved fairly significantly over the past six months and the debt capital markets have shown improvement as well?

I would make the comment on our sovereign funds and institutional partners in general. I would make the comment that they, just like everyone 12 months ago, were nervous about putting money out today and I think I said this on the last call, they generally break into different groups, some still trying to sort out their situation. Many that are now putting capital out significantly and I think they break into different camps. There is no doubt all of them are more comfortable with putting money out today than 12 months ago and that gets better month-by-month and in particular, most of the institutions constrained were constrained because their equity portfolios went down and their alternative allocations, therefore, became a greater percentage of the whole and therefore, the quote, unquote, the liquid portion was a greater portion of the whole now that equities uncovered, that is a positive thing to investing into the liquid asset classes like infrastructure or real estate. That allowed them to start investing again.

And you were, you raised a fair amount of capital or got a fair amount of commitments during the quarter but your base management fees remained constant at the CAD165 million annual number. Is that suggesting you're not getting commitment fees on the capital raised?

We will be getting commitment fees on them, Brendan, but in some cases and this has been a bit of a trend in the industry. In some cases, the commitment fees get collected on a back-end basis once an investment is made. You may notice in our retail fund, we had a catchup fee there as we call the balance of the capital in that fund. We earned the commitment fee that accrued to us the past few years and you have a similar paradigm with the other funds as well. I guess the most direct answer to your question is that a fair chunk of the new capital we're not getting paid a quarterly commitment fee on a cash basis. Having said that, as we invest the funds, fees will approve to us.

Okay, great and lastly, in your cash and financial assets, you said you purchased a lot of high-yield bonds and other distressed debt. Are those investments just for returns on those securities or are you taking those investments to try to get a tow hold position in the underlining assets?

I would say it's a bit of both, Brendan, as you would recall from over the years. We often will have a position in our financial assets that could have some strategic relevance to it down the road and sometimes it's simply us deploying our capital as effectively as we can. We obviously, can't comment on any specific initiatives in that regard. Having said that, we see opportunities with some of the securities where they reflect an extremely attractive valuation relevant to the underlying assets and were generally fundamental value investors and those are the type of options we're looking for.

Sure, okay. Thank you.

Your next question comes from Andrew Kuske of Credit Suisse.

Good morning. The question is for Bruce. How do you think about the market as it stands now in relation to your investment strategies because we have seen a substantial rally in the equity markets over the last six, seven months, credit spreads have compressed dramatically, but when we really look ahead there is a lot of deleveraging going on to in part because banks have increase their tier 1 ratios and that translates through a lot of corporates. How do you think about the markets overall and your timing on actually putting capital to work and given the fact that you have a lot of liquidity.

Andrew, I think you almost said all the things in that question that are important to the decision. I guess our general view is that the capital markets have recovered to a point and whether they keep going up or flatline for awhile, actually we would be happier to say flat lined. Even despite that, there are many private organizations, private companies, financial institutions and portfolios of assets owned by people that need deleveraging and they have no way out. Some people have a way out because they can float a public company if they have proper sponsorship, but there are a lot of these portfolios that can't do that. We don't believe there is going to be a lack of opportunities. As with all periods of time, it's only which ones you pick and how well do you pick them. I think we believe that the next 24 months in property infrastructure will allow us to find many opportunities to sort through and we just don't have the amount of capital to quarter to worry about too few opportunities. There are just many, many opportunities out there. That we can look at and we don't have the people and the time to look at them all. We're not at all worried the opportunities are going away because the capital markets have gone up. If that is the direct question you were asking.

When you think about the opportunities and just the capital limitations that that you have and realistically what anyone would have on trying to seize those opportunities, how do you think about BAM's model on a go forward basis of the balance of the listed and unlisted funds with third party capital?

I would say the following. We're in the business of making a lot of money for whoever we invest for and that includes the shareholders of the Company, the minority investors in public entities that we invest for and the private institution of accounts that we invest for and I guess wherever we can secure that capital for, I guess maybe I would step back and say that we can benefit from the fact we can access all of the markets and very few people have access to all of those markets and having access to all of those markets gives us the ability to, when one market is more open than another, we can access that one. I think partly it will depend on capital market availability as to where we raise money from. Secondly, it will be where we can get properly paid for what we offer. I think it will change over time. It will differ from strategy to strategy but I don't have a specific place where we're going. Two years ago, when we spun out Brookfield infrastructure, I would have said we went for a period of time where it sat there and did nothing and I think we said that on a number of occasions to investors on these calls or our investor meetings, we didn't know what we would end up and believed it was the right strategy and we would be able to utilize it at some point in time and that opportunity just presented itself. I think it will depend over time.

That is helpful. Thank you.

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

Thank you very much, good morning. The reference to the call, the liquidity on September 30 of CAD3.8 billion with CAD2.8 billion at the parent company and CAD1 billion in the operating platforms, I wondered how the CAD625 million deposit alone from Brookfield Properties to Brookfield Asset Management was treated in the breakdown?

Rossa, it's in there but it's basically net -- shows up as corporate but it basically nets out.

It does but when you talk about the operating platforms of CAD1 billion.

I see.

Would you include it in that CAD1 billion?

Yes, it would be.

Okay because it's a demand alone from perspective so that means excluding that as a parent company level, the CAD2.8 billion in the liquidity.

That's correct.

Which I guess CAD435 million has been used to invest in infrastructure.

That is correct.

Of the CAD2.4 billion that's left, what would be a breakdown by type of liquidity, cash, securities, unused lines of credit?

About 50/50.

50% would be cash and securities?

Yes.

And lines of credit.

Right.

Of the cash and securities, what kinds of securities would be the bulk of that?

It would be very similar to what we have on, in the supplemental. It's a mix of corporate bonds, government bonds, some of the high-yield and distress investments would be in there and then there is cash as well.

But I guess because you call it liquidity, it's truly highly liquid.

They're all securities we can monetize and in very quick order. Yes. Obviously, we're not going to sit around for a billion of cash and not try to invest it as effectively as you can in terms of generating in returns.

Yes, and is there a component of that should that should be viewed as kind of a reserve against the unexpected?

Well, I think I do that more in context of our overall liquidity and I would say yes and there is a certain level that we will take our liquidity down to in the interest of pursuing opportunities and if you look at our liquidity over the years, today it obviously sits at a very high level. In the past, it's been down around a billion, billion and a half level. I suppose you could take some guidance for lack of a better word from that. We run our business in a way to deal with the unexpected so you can expect us to always be mindful of that.

Thank you very much.

Thank you.

Your next question comes from Ari Black of Thomas Weisel Partners.

Hi. I wanted to touch on the third party management fees of CAD125 million and just get a sense of how much of the third party commitments, the CAD37 billion is actually invested earning the CAD125 million. Trying to get a sense of if you invest the rest of the commitments what the scalability could be like for those third party management fees?

There are a couple of pieces of information we can give you in that regard. First of all, you have to break it into the various types of assets we have under management. One, a good chunk of the CAD37 billion of capital commitments from third parties, there is around CAD23 billion of that is from public securities fixed income, equity securities under management. That is all fully invested and that tends to be a somewhat lower margin in terms of the lower [cuponalsades, lower fee] is particularly the fixed income side compared to the more management intensive strategies such as our opportunistic and private equity type investments. If you then turn and look at those, what you would see is of the CAD14 billion of committed capital that and allocations we showed on the books at the end of the quarter, roughly half of that was invested.

Is it fair to assume that basically the management fees on that could double if it's invested into the same fee structure?

That would be a reasonable expectation.

That is helpful. And based on your comments, the opening comments that it will take time to restructure the Prime infrastructure trust, how involved is management's time in that and if you see another acquisition come knocking on your door, will management have the ability to pursue an acquisition?

I would make the comment that we have a large organization with a lot of people and, therefore, we can mobilize resources to do a lot of different things. Having said that, there are limits to how much we should take on prudently both financially and operationally. That is only to say -- not to say we're not looking at other things and won't do other things is just that we have to be prudent with the resources on all of those things. I think if you told our infrastructure group they had to do another acquisition tomorrow morning, they wouldn't be too happy, but I am sure in a short period of time, we should be able to be involved in some other things. The bottom line, we have to be prudent with our resources and I think we will be able to do a number and there are a number of things we're looking at.

Is there a ballpark figure you can give? Just on preliminary estimates here, talking about six months from now or less?

It could be six weeks or six months. Who knows. It depends on how well things go and what we buy, how much capital resources we generate from other places and I would say there are a lot of factors. I generally wouldn't say we're resource constrained. Therefore, I think anything that is really great we will be able to take advantage of it but I just give those [cabiates] to doing too many things all at once.

Great. Turning to the Timberland side, do you have an expectation on when you expect lumber prices could turn and when you would harvest the trees more aggressively?

I think it's highly dependent upon housing. A lot of this goes into high end housing uses, at 400,000 homes being built in the United States, that doesn't accord to high prices with an average of 1.6 million new home sales on average. So I would say the prediction of your view of when housing starts to come back, and remember, it doesn't have to get to 1.6 for prices to go up. It has to keep getting better from 400, which, inevitably, it's starting to do. But I think it's dependent upon that, and that is where you will see higher pricing. Best guesses, I think you will see housing starting to come back over the next 18 to 24 months. And I think you'll see timber and that industry starting to reprice upwards over that period.

Great, thank you.

Next question comes from Cherilyn Radbourne of Scotia Capital.

Thank you very much and good morning. I wondered if you could just comment geographically as it relates to opportunities, sort of across the US, the UK and Australia and the extent to which you expect opportunities to arise in each of the geographies broadly, property or infrastructure and the extent to which you think you face competition from other pools of capital. In other words, is there a market where you think your competitive position is particularly advantaged?

I would say the following. There always seems to be a lot of competition in the United States, there is a lot of capital groups. We always face the most competition in the United States, as a general comment. There also is a second general comment, I would note or I would say that we find that there were a lot of property and infrastructures entities floated and put together in the Australian markets. Therefore, there are a number of opportunities, a, we're involved in and, b, there were a number of others that were out there that that is where the industry started and, therefore, there is a lot of opportunities there in the capital markets. The assets are not necessarily all in Australia, but that is where they're listed. There are a lot more opportunities there. All three of the markets you mentioned, we have significant operating platforms and people, and therefore, look at many transactions and the US and the UK, I would say, favor opportunities because the distress is more than others. I would say it comes to financial distress and operational distress. There is more operational distress in the UK and the United States. There is financial distress in all three and I can't really state -- we try not to state where we will invest or what we will invest in because we like to choose the best opportunities and allocate our capital there. I'm not sure if that quite answers your question, but it's an attempt.

That is useful color. Just thinking beyond the CAD3.8 billion of liquidity across the group, you did monetize some power assets across the quarter. Are there other pools of mature assets left in the portfolio that can be monetized as another source of capital for opportunities?

I make two comments, Brian will make the comment. CAD3.8 billion our balance sheet liquidity, compared with -- there is a much higher number, much more significant number which would be the capital that we have to invest ourselves and our partners. It's more than double that amount. And I would say to your comment of, or to your question about more mature assets, there is clearly other groups of assets within the Company that we could monetize, should we want to reallocate capital other places. A number of those assets are more mature and have kept their value in this environment and I think they would be great assets for institutions or others to own. In a 50 basis point of a 1% interest rate environment, some of the assets we own are very attractive to resail and institutional investors. It's all about capital allocation but I guess we believe that there is no reason to put too much cash on the balance sheet, we actually have excess amounts today, but as we find other opportunities or in the process of doing that, putting we think there are a lot of other pools of assets we could monetize in and I guess arbortrized, taking more risks but earning higher returns and going forward if we can do that.

Okay, thank you. That is all my questions.

The next comes from Michael Goldberg from Desjardins Securities.

Thank you, I have a couple of questions. First of all, on page 29 of your supplementary, I see that you have included the commercial property consortium in the opportunity and private equity component of your assets under management under third party commitments. Is there anything we can infer from where you put this about the fees you can foresee potentially earning on this commitment?

Michael, it's Brian. It's there for two reasons. First and foremost is, as you know, it's a turnaround opportunity fund and, therefore, that capital is going to be targeted more towards the kinds of opportunities which lend themselves to more to opportunistic and private equity type returns. As to the actual fee composition, we're not trying to give you or aren't in a position to provide publicly much color around the actual quantum of the fees there. They are private arrangements between ourselves and our counter parties.

But they would be more comparable to the other opportunity and private equity-type funds than lets say your core and value-added funds. Is that fair to say?

We think the economics would trend more to that. Yes.

My other question is in a different direction. You potentially have growing exposure to long-term assets in Australia and we've talked in the past about development of a long-term financing market in Australia recently. Can you update whether there has been any progress in developing this financing market and what do you think has to happen for this market to develop and how long do you think that might take.

There have been a number of important initiatives that have been achieved by us and by others recently. One of note, we did do a small bond after offering, a first mortgage on a high-quality property and that was well-received and we'll be doing others like that. At the end of the day, what we'll need to tee see more of is institutional participation in a traditional long term financing and mortgage market and while that will take time, we expect it to develop as we have seen it develop in other markets. I would say, the shorter answer, we have made progress. The retail offerings in that regard are an important step but we will need to be spending more time developing that more broader market.

Do you think this is a medium-term development for that market to develop or is it a long-term goal?

Michael, it's Bruce and I would say it's just stepping back. The good news, the capital markets in Australia like everywhere, have recovered significantly and have loosened up a lot. So, the good news is there is a lot going on and things are getting done again in the country which, is very positive for what we have. Part of that is driven off the fact that Australia's doing extremely well today. And we have given its resource base, we think investing there is one of the best places to invest, given all the factors. So, if you take all of that in the economy and one of the places in the world that are pushing rates up a little bit because it's doing extremely well, I guess that bodes for the capital markets coming back quicker than others or the credit markets. That credit market that is coming back is just a banking market. What we're trying to work, I would say to answer your specific question, it's a medium-term solution, it's not a one-month or six-month solution to try to change the capital markets funding for real estate or infrastructure assets. We think it will happen and we have to work with some of the institutions there and bring some of the ideas that we have some other places.

Thanks, Bruce.

Next question comes from Neil Downey of RBC Capital Markets.

Hi, good morning. I will be brief. Brian, can you comment on the accounting convention for your 40% investment ultimately in Prime infrastructure from both a balance sheet and cash flow perspective.

Sure, Neil. I think our expectation, and frankly, we're still working through some of the things based on what the final structures is going to look like. We expect it will be equity counted, so if we own a 40% interest in it and it's in Brookfield infrastructure partners, as you think you're aware, we consolidate with our Brookfield infrastructure partners with our operations and so you would see that 40% interest in our MD&A and as it flows through to us, we would treat it as an equity account investment, as you know, what we tried to achieve with our MD&A is to give investors the ability to understand not just how much cash we have, technically delivered to us in any particular quarter but how much cash accrues to us based on our underlying interest in the business. That is what you would expect to see in that regard.

Okay, and those statements effectively hold equally true under Canadian GAAP as reported today, as hypothetically reported today because the deal is obviously not closed.

Correct .

Versus in 2010? As you reported under IFRS?

That is correct.

Okay, thank you.

This concludes the time allocated for questions. I will turn the call back over to Mr Harding.

Thank you very much, thank you, everyone, for joining us today. We look forward to hearing from you again and appreciate your comments and questions. Have a great weekend.

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