BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2010 Q1 法說會逐字稿

Hello, this is the conference operator. Welcome to the Brookfield Asset Management 2010 First Quarter results conference call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After there will be an opportunity to ask questions. (Operator Instructions).

At this time I would like to turn the call over to Katherine Vyse, Senior Vice President.

Thank you, operator, and good afternoon, ladies and gentlemen. Thank you for joining us for our First Quarter conference call. On the call with me today are Bruce Flatt, our Chief Executive Officer, and Brian Lawson, our Chief Financial Officer. Bruce will provide some comments on views of the market, growth opportunities and an update on General Growth. Brian will discuss the highlights of our operations and financial results, including comments on our first period reporting under IFRS.

I would also like to remind you that in responding to questions and in 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 for investors, I would encourage you to review our annual information form or our annual report, both of which are available on our website.

With that done, I would like to turn the call over to Bruce.

Thank you, Katherine, and good afternoon, everyone. I guess I thought we would start off with just our view on some of the underlying fundamentals that we're seeing in our businesses, which we thought might be useful for you to understand the context of what we're doing in our business but also maybe just interesting for you on other things you're involved in. I guess bottom line, we continue to see improved fundamentals in virtually all of our businesses, which essentially, I guess our view is it confirms to us that the recovery has begun to take hold.

Brian will report specifically on our operations in a moment. But this has translated into better results in the First Quarter and should continue to do so for the balance of the year. And while, I guess I would say that we're cognizant of the broad set of challenges the world has in front of it, Europe being one of them right now, we believe that this continues to be an excellent period to be acquiring assets because virtually everything we've been buying has been at meaningful discounts to replacement costs. This enables us, I guess the environment we truly enjoy because it enables us to have a margin of safety on the acquisitions and should accord to good returns over the longer term.

In mid 2007, there were a number of events just looking back that occurred that I guess moved us towards reducing risk within the business. It was probably 18 months prior to the crisis fully taking hold. And while no one was quite prepared for what occurred, we were much better off because of the grass roots information we see in many of our businesses.

In early 2009, we started reinvesting on the belief that the world had turned, and the comment that we try to make clear today is we believe in hindsight that that has occurred and the recovery is taking hold. And while there still will be excesses to be unwound in a number of places, and to be sorted through, we're of the view that recovery should continue. It will be as choppy as usual in these types of situations, but the recovery is becoming clearer.

As an indication of this, I thought I would offer just a few comments on the underlying businesses. In commercial real estate, lease rental rates are in our view bottomed probably nine months ago in London and New York, and rates are higher today than then. More importantly than that, in fact, space is being leased by many corporations who, in fact, were giving up space 18 months ago or a year ago and now are taking space.

Many decisions were postponed by corporations, and either now just have to be made because they're being forced to make them or they're being made on a constructive -- in a constructive fashion on a forward-looking basis. As an indication of this, we leased as much space in the first three months of the year as we did in 50% of the year in 2009 and leasing stats look very good forward-looking.

On financing spreads, they're back to what I would say are normal levels, not extreme lows of end of 2006, 2007 but at very decent levels, and with the treasury still low and, in fact, all in coupons are excellent to do the business that we do.

In our timber operations, and just to remind everyone, what we do is cut trees and sell logs to buyers. We had the first good month in over two years in April and reported reasonable cash flows. Orders have been begun to increase across North America, and for the first time Asia and in particular Chinese demand was meaningful to the business. It is expected that the timber operations will continue to report good results in 2010.

In our shipping port operations, volumes were up 15% year-over-year as inventory restocking pushed goods globally, good shipments higher globally. And in OSB or oriented strand board, that we produce in specifically in the two investments we have being Norbord and Ainsworth, the price of OSB started the year at $150 and I think printed close to $400 in the past week. As a further indication of something, our people are having trouble finding trucking capacity to get products to market in that business, and that's a small indication to us that unemployment in the US has bottomed as the economy starts back up in our view.

Residential finish lots in California have increased in a few cases 50% since the bottom of the market, if you look on a lot -- comparable lot basis. And I'd indicate that that's still substantially below replacement cost of the land and infrastructure, but it's a long way from where the market was 12 months ago.

Furthermore, US home builders are very short lots as they spent the last three years liquidating inventory. And while the housing starts are not robust yet, there's a sign that there's a turn in the market. But specific to housing, the home builders don't have a lot of residential lots to build on.

So putting this all in context, for the balance of the year, we expect to continue to focus on putting capital to work. It has been difficult for us to keep up with the number of attractive things that have found their way to us. I guess our number one focus today is to maintain our financial flexibility. Don't stretch our human resources too much. And try to always be in a position to respond quickly when exceptional opportunities arise.

On the other hand, we're always harvesting some capital within the business to fund new growth. And we'll continue to do that. But on balance, we believe that many of the assets that we owned years ago and that we purchased in the last 24 months as the full recovery takes hold, significant value will accrue to these assets, both because the multiples or the capitalization rates will continue to accord higher pricing and because the cash flows will grow larger, and the view of the future cash flows will become much more positive. And as a result of that, there should be a significant change in the values of these assets over the next three to five years.

So it will take time for all of that to occur, but we think that there is a lot of value to be surfaced out of the assets. So we're not in the mode of selling a lot of things in the short-term.

Before Brian makes comments on the overall operating financial results, I just wanted to cover one item which we thought was worthwhile to make some comments just given all of the publicity on it, and we have written relatively significantly on it in our shareholder letter. And that is General Growth Properties. Forgetting about all of the past and skipping forward to today, our view on General Growth is pretty simple. We believe it's a very good company with excellent assets, and a company who has scale quality and a platform that is very difficult to replicate. And as we're in the business of building businesses, we know that it takes a long, long time to put a portfolio like this together.

And normally what it does, other than in periods of time where there's distress, is it takes a lot of acquisitions at usually much higher prices than tangible value to do it. And other than a few events happening, this company probably wouldn't have been available in the market, and I don't need to go through what those events are.

The Company actually has in our view outstanding assets, great people and a business which will continue to grow in the future. Seldom have shopping mall companies sold at capitalization rates above 6.5%. And we believe that this portfolio has the potential or should trade at lower than that cap rate because the going in cash flows, which are really just an emanate out of the fact of a discount rate and a terminal cap rate, that the going in cash flows are much suppressed because of what has gone on in this company and environment, and as a result the growth rates in the future should be higher which means that you should pay more in a going in cap rate than any other portfolio that's out there.

As a result of this, our plan, we think, is the right plan for general growth, from emerging from bankruptcy on a stand alone basis. We think the Company will emerge with strong cash flows, a good balance sheet, and the shareholders will be able to participate with us as all of these things accrue to everyone in the Company.

We believe our plan as a stand alone plan agreed to with General Growth is an exceptional opportunity for shareholders to participate in this. And we plan on fully supporting General Growth to reestablish itself in the Capital Markets, lower the Company's cash cost of capital, continue to help them redevelop existing properties and to expand internationally.

On alternative plans, just a couple of comments. And I probably won't make too many in the questions if there are any, but I would say that the largest competitor has made proposals -- two proposals, I guess. One to buy the Company and the other alternative proposal, which was similar to ours for the Company. We're pleased with the support of our vision for the Company and the franchise of General Growth with the recapitalization plan.

And in our view, this would be the wrong time to sell this Company to someone. A General Growth shareholder, and many of them have expressed their view to us. But a small shareholder or any even medium to large shareholder who wants to sell their shares has a readily available market to sell their shares for cash today, and in fact, if they wanted shares of a competitor's stock, they could take them in the market or buy them in the market.

In regards to the alternative plan, in very simple terms which was competing with our plan as a very similar idea, we think that that idea is frankly, in one word, kind of absurd. They suggested that our plan should be rejected because we're receiving warrants as consideration for our commitment in sponsorship. In fact, we're making a very long-term commitment to allow this Company to come out of bankruptcy over the next six months, and our warrants compensate us for both a really for a commitment fee over the period.

There is no doubt should a competitor want to buy the Company in the future, there will be a small amount paid for the warrants that we get issued in the plan. However, the amount is irrelevant to the long-term returns for shareholders when you run the numbers. And compared to the opportunity presented by our plan, which allows all of the shareholders to participate with us going forward.

To put that value into perspective, it's probably a 2% cost to enterprise value. And, therefore, almost meaningless to the long-term value of a $30 billion Company.

Bottom line, and I'll turn it over to Brian in one second, is that we have many reasons to support General Growth and to help them over the next number of years. We have no conflicts. And we believe that there is a lot of value to accrue to all of the shareholders of General Growth. And we think that the alternative plans just don't make sense for the Company. And we will see as we go forward and report to you on any matters with respect to that looking forward.

So with that, I will turn it over to Brian Lawson, who will cover our financial and operating results for you.

Great. Thank you, Bruce. Good afternoon. So our operating cash flow for the First Quarter of 2010 was $366 million, $0.60 per share. And that compares to $248 million in the same quarter last year on the same IFRS basis. The results reflected continued stable performance of our renewable power and commercial property operations, an increased contribution from our infrastructure businesses, and a higher level of disposition gains within our special situations operations.

Our more economically sensitive assets such as timberlands and residential development in America did not contribute meaningfully to results during the quarter. However, as Bruce noted, we are seeing meaningful improvement in these businesses.

Our underlying value of the shares attributable to common shareholders increased from year end to $29.09 per share from $28.53 at year end. That's up 10% on an annualized basis including dividends. The change in value is primarily due to the cash flow retained in the business as well as an increase in the value of our commercial property portfolio with new leases being written at higher rents relative to the expiring leases.

We've raised over $2.5 billion of capital since year end from financings, preferred share issuances, and asset monetizations, and we ended the quarter with overall liquidity in excess of $4 billion. We're continuing to actively pursue a number of value enhancing opportunities with the objective of increasing returns to shareholders over the long-term and have continued to reinvest capital into our operating platforms.

This is our first report to you under International Financial Reporting Standards, IFRS, so the numbers are on that basis that I will be speaking to you unless otherwise noted. And I will make a few comments on that later on in my remarks.

Our renewable power operations contributed net operating cash flow of $113 million in the First Quarter of 2010 compared to $117 million last year. Generation was up 5% over last year, and 5% over long-term averages, with new facilities providing some of the increase. We added 80 megawatts of capacity by acquiring one facility in North America, and completing the development of two facilities in Brazil.

Now, realized prices were also higher as the portfolio benefited, in particular from currency appreciation, and also from long-term contracts, secured since the prior quarter at prices higher than the spot market. We achieved a net realized price of $81 per megawatt hour during the quarter compared to $73 in the First Quarter of 2009. Our proportionate interest on a net basis in the cash flows was lower because we share more of the cash flow with others following the sale of some of our Canadian facilities to our 50% owned Canadian renewable power fund last year.

On the development front, we secured attractive long-term power purchase agreements for a 45 megawatt hydro facility in America, and a 165 megawatt wind development project in Canada, which should enable us to proceed on both of these developments, and we're pursuing a number of other ones as well.

Storage levels were 3% above average at the end of the quarter. We are 87% hedged for the next three quarters of 2010, and 78% for 2011. So that sets us up nicely for the balance of the year.

Turning to commercial property, results during the quarter were pretty stable. Increased nicely, reflecting the contractual nature of the underlying leases and the high level of global occupancy. On a local currency and same property basis, rents grew by 5% over last year. That reflects the new leases signed at higher rents, as well as a reduction in operating expenses, and we continued to benefit from lower interest rates on floating rate debt.

Overall operating cash flow increased to $70 million in the First Quarter from $56 million last year. That's in part due to the increase I mentioned before, but also the completion of a number of office properties both in Canada, America and Australia.

The overall occupancy level of the properties of the portfolio is 95% at quarter end, average lease term of seven years with high quality tenants and average in place rents that are approximately 7% below comparable average market rents, giving us future uplift potential as well.

We did lease roughly three million square feet across portfolio in North America. The average net rents on the new leases were around 25% higher than those expiring, and we reduced 2010 vacancies by about 70 basis points.

In infrastructure, the operations contributed $30 million in the First Quarter compared to $19 million last year, and this reflects largely the contribution from a global portfolio utility and fee for service businesses acquired in the Fourth Quarter of 2009. These assets are predominately rate regulated or contractual in nature. This obviously increases the stability of the cash flows in the business, and gives us a very high level of visibility in respect to future earnings.

Our timber operations did contribute pretty minimally to the operating results in the quarter, but are very well positioned to provide cash flow growth as the economy recovers and margins improve. As the log prices increase, we will also have the opportunity to significantly increase our harvest levels that we had intentionally curtailed over the past period of time in respect to the lower prices to protect the value and preserve it for the future.

On our development activities, largely on the residential side, contributed $8 million in cash flow in the First Quarter compared to a net flow of $12 million in 2009. That's a positive swing of $20 million. The increase reflects improved results in the US residential business and strong contributions from both Canadian and Brazilian businesses. I would note the First Quarter typically provides lower cash flows from activity in this sector due to the seasonal nature of homes and lot sales in our principal markets.

We generated two meaningful gains within our restructuring and investment groups. First of all, we sold nine million shares of Norbord for proceeds of $150 million, and a gain of $84 million. We continue to own 63% of the Company, market value of approximately $560 million representing a substantial unrealized gain, and as Bruce mentioned the fundamentals in this business are getting much, much stronger.

We also sold Concert Industries. This was an investment in one of our restructuring funds, realizing proceeds in aggregate of CAD250 million. That represents an annualized return of more than 20% over a five and a half year period, and resulted for us our share of the gain was $36 million.

Cash flow from asset management and other activities, services, increased by $19 million to $71 million. In particular, higher level of asset management fees and a larger contribution from our construction businesses. And, finally, contribution from cash and financial assets was $86 million in the quarter, $108 million in the First Quarter of 2009. So we are still continuing to generate attractive returns on the capital we have been investing in various securities. And that includes some of our distressed debt investments.

So as I mentioned, this is our first report to you under IFRS. So I will make a couple comments on the impact. Our cash flows under IFRS, and I think we made this comment in the past, tend to be very similar to what we would report under Canadian GAAP. So, for example, cash flow in 2009 was $273 million under Canadian GAAP and $248 million under IFRS.

The big difference in our view between IFRS and Canadian GAAP reporting is the application of fair values to our physical assets, in particular our renewable power facilities and our office properties. This enables us to present our balance sheet to you on a basis that is much more representative of the underlying value of our net assets, as well as changes in the value over time. In other words, we can give you total return reporting.

The change in value we would note in office properties is recorded through net income each quarter, and also gets reflected in our underlying values. So in our disclosures to you, we will continue to focus on operating cash flow. For us that continues to be the best metric for assessing the periodic performance of the business. But we'll also provide more commentary on underlying values and our total return over time.

So on that note, the underlying values did increase by $450 million. $0.69 per share during the First Quarter of 2010. That's prior to common shares distributions of $75 million or $0.13 per share. So that's where that takes us to that $29.09 level and the annualized total return of 10%.

We would note that the power and utility operations are revalued annually. And so any quarterly valuation changes related to those assets typically limited to accounting depreciation and currency movements. So this really does reflect only a partial update of our underlying values. And furthermore, the calculation does not attribute any value to our asset management activities or our business franchise.

With the underlying values in place, our consolidated equity capitalization at the end of the quarter totaled $33 billion, of which $19 billion is represented by our own capitalization and $14 billion represents equity invested by our partners in the private funds and listed entities that we own and manage on their behalf. Core liquidity I mentioned continues to exceed $4 billion, including the cash and financial assets and undrawn credit facilities at the corporation as well as our principal operating subsidiaries. So we are very well positioned to pursue the many exciting opportunities that are available to us.

Lastly, before handing the call back to the operator for questions, I am pleased to say that the Directors have approved the regular quarterly dividend of $0.13 per share, payable at the end of August to the share holders of record at the beginning of that month.

And Bruce and I do have one request. This is not just on our behalf but the feedback from some of our frequent listeners to our calls, we do publish a lot of financial information the morning before each one of these calls. And we fully understand it takes some time to go through that and that it is tempting to ask clarification questions on this call. But we do ask in the interest of everyone else on the phone that you keep your questions to the strategic direction and business development of the firm. That's really what we hope to focus the call on, as opposed to the mechanics of our disclosures.

So please, we will defer any questions of that nature, and we are fully committed to following up with you on a one-on-one basis after the call. We just think that will make things go a lot more smoothly.

So thank you very much. And I will now turn the call back to the operator, and we would be delighted to take any of your questions or comments.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). First question from Linda Ezergailis of TD Newcrest. Please go ahead.

Thank you, I continue to be impressed by your discipline in the shedding of less core assets, which not all management teams have, but I don't always have an appreciation for why and how. Now, the media is reporting that you've retained advisors to IPO your multiplex business, so I'm just wondering if you can comment a little bit on timing and what percent you might choose to retain in that business, and help us understand kind of the thinking behind, for this particular business, an IPO versus involving a private equity type consortium?

That's a very good question. And I guess on the first score, we've not made any public announcements about doing anything in Australia with respect to our assets there. Having said that, I'll make a couple of comments or try to make a couple of comments for you. The first one is, is that I guess we're -- Australia as a country, we're very pleased at being in the country. The country is doing extremely well, and we have a great portfolio of assets.

We've spent the last three years reorganizing the business into units. And the one unit is almost an identical portfolio as to the entity in Canada, which you probably know we just reorganized into a real estate investment trust in Canada. And it's possible at some time in the future that having that unit in the public market in Australia with a currency and with -- as an income vehicle like the entity in Canada, could be an attractive entity for us to have for both growth and for other reasons. And I guess we're thinking about all of those things, but we haven't made any final decisions on anything.

So would it be fair to say that as a general rule of thumb, the assets that you can kind of see and kick the tires and are tangible might be --and I guess have more of an income bent would tend to go to more of a public vehicle versus more opportunistic complex maybe longer term return assets might be more inclined to be partnered with in your private funds?

Yes. As a general rule, I guess entities in the public markets as you know, especially in a low interest rate world that we're in, the retail public is looking for a low risk vehicle with a good payout on income. And we believe if we can create those type of entities on a pure play basis that they're attractive to retail and other institutional investors. And, therefore, that would bode for putting them into the capital market as separate entities. Sometimes that's also institutional investors view. But generally institutional investors, it's easier to explain a long-term IRR and how you're investing for the longer terms, what private institution when you sit down with them versus thousands of retail investors. It's a different type of investment that people are interested in.

Okay. And I just wanted to follow-up with a comment you made about, you're very pleased with Australia. Your co-colleague at BHP would think much differently at this point given the recent bombshell that the Government has proposed in terms of a resource super profit tax. Now, I know that BHP is a large tenant of yours in Australia, but more broadly I'm just wondering what the implications might be for your existing operations if the Government, which I understand, lacks a majority in the Senate is successful in passing a super profit tax in some form through. And then I guess the next question would be, what your commitments to the region would be given what we're seeing as some sovereign risk and uncertainty with respect to economic growth given this Government pronouncement?

Well, I don't have any great knowledge of the super tax and what everything that's going on. Our general view is that -- and why we went to Australia, is that it's next to Asia. It operates with the same principles as we do. And we can benefit a lot of things, from a lot of the things that are going on in Asia. But being a country that we feel very comfortable in. So that was our general thesis.

As an overall comment, the country is doing extremely well. And there is an enormous backlog of investments going to the resource sector. This tax obviously upsets some of the resource companies. It won't directly effect anything we're doing but indirectly if it allocates profits from one place to the other and it hurts the mining companies, obviously that's not good for the country.

Despite that, this is one of the places in the world where there are enormous resources of natural gas, IRR and coal. And I think the mining companies will have to put up with that, whatever the regime is because they -- the resources are there. We generally, our view of the world is that taxes will be taxes. Countries -- politics will be country's politics and we don't try to get involved with them. We just try to work with them.

So whatever the regime is in the future, we think that there is good rule of law in Australia, and if they think that taxes should be on resource companies and not on corporations, and they want to skew the taxes that way, that's their prerogative and we'll work within those tax rules.

I guess one of the benefits of global diversification would also be not being exposed to just one country with changes. But thank you for your comments.

You're welcome.

Next question is from Mark Rothschild of Genuity. Please go ahead.

Good afternoon. Bruce, you made a point of commenting in your letter and you mentioned this as well in the call that you're seeing quite a few deals and that there is more than enough to look at. Without going into specific details, can you expand a little bit on where you're seeing the deals geographically and what type of asset classes?

We don't generally like to talk about anything specific, so I'll just make a very general comment. I'd say in all of the businesses that we're in, we're seeing both add on investments related to the businesses that we have. We're seeing development opportunities because there's less people around to participate in those type of developments. We bid on many wind developments before and we couldn't get involved in them. We've been able to get a number in the last little while at very attractive returns.

And, lastly, I would say that on the acquisition front there are many people -- and I possibly put -- I'll put it this way. During the up cycle, everyone wants to be in everything they have. And then at the bottom of the market and through the upturn, they always think that they should shed non-core assets and get back to their main business.

And there's a lot of people that got into the asset classes that we were in, that I think today are deciding either they should be out or they don't want to be in it anymore, which means that there is less competition from others in the things that we do. And many other larger organizations just don't want to be in the business, and therefore, they're looking to sell whole businesses or they're looking to sell assets to others to slim down. So we're seeing a lot of opportunities in that regard, and I think we'll continue to see them.

Can you talk at all about the types of returns that you expect to get going in on acquisitions?

Going in returns are something we really don't look at. A going in return for us is just a derivative of a discount rate and a terminal cap rate on an asset. So on a development asset, as you know, you get 0, 0, 0, negative, negative, negative and then you get a lot in the future. And something, if you have an asset and it's only 60% leased, you get a very low return on the belief that you're going to lease it up and get a high return.

So the going in returns are not that relevant. I think we can put money to work and earn on a leverage basis for the common shareholder 12% to 15% on investments. And I think that during this period of time, the last 12 to 18 months and the next 12 to 18 months, you should be able to do far greater than that because we're buying at a good period of time in the market. Whether that's true or not, we'll see in the future.

Okay. Great. Thank you.

Next question is from Brendan Maiorana of Wells Fargo Securities. Please go ahead.

Thanks. Good afternoon. Bruce, just maybe a point of clarification. You mentioned in your prepared remarks that you're not really thinking about monetizing at least a higher level of investments or assets over the next couple of years because you think the returns will be pretty strong from those investments. If I think about that in the context of limited amounts of capital and the opportunities that, which sounds like it's pretty significant for you, is that to suggest that your internal assets, you think, have more return potential than the external opportunities that you're looking at, at least on a risk adjusted basis?

Well, I guess I would, in response to that, I would say that -- we have -- and the good thing about when you have limited amounts of capital is you have to make decisions. And our decisions are investing the money that we have on our balance sheets and the credit availability that we have, investing the capital we have from clients, and then we have to make choices as to do we pull cash out of assets we have and utilize that to buy something else. And given the risk reward of buying something new and what you have, the returns better be better for something else because you're just trading dollars if they're not, and probably taking more risk in going outside. So the only time that we will monetize assets, which obviously we can on a number of things, is that if we need capital to do something that we think has exceptional returns compared to what we have today.

Okay. So with the balance sheet capacity that you have for your own investments and maybe this is for Brian, your liquidity at least at the corporate level, the $3 billion, I think maybe a year or so ago you said you'd kind of be comfortable taking about half of that liquidity at any one given point in time. Is that still a fair number or given that you don't have a lot of near-term uses, would you be comfortable taking down a bit more of that?

You know, Brendan, that would be a very dynamic -- that decision will be made at the point in time. Generally or directionally what you laid out still makes sense to us. We do always want to be running the business with a good amount of liquidity at our disposal at any point in time. So I think what you laid out there still holds.

Okay. And then just last, I guess an infrastructure partnership of yours bought an hydroelectric asset in the quarter, is that, as an outsider should we view that as sort of setting the stage that you may be looking to do something with your US portfolio of hydroelectric assets?

No. I think that is something that will evolve in terms of how we deal with that. Brendan, as you know, in Canada, we purchase -- we own our assets through our 50% owned listed renewable power fund. In America, we do have some institutional interests in some of the -- in our activities there. In this case we did acquire an asset and we did that in partnership with institutional investors through one of our infrastructure funds.

So we'll see how that all unfolds over time. But I would say I would look at it more as, that was in response to some specific interests from institutions combined with an available acquisition opportunity, and so we felt it just made sense to proceed on that basis.

Okay. Fair enough. Thank you.

The next question is from Alex Avery of CIBC World Markets.

Thank you. Bruce, you earlier covered some of the different asset classes and geographies that you find attractive. I was just wondering if you could comment specifically on Europe and perhaps some of the more recent developments, and then how that might affect your, I guess, perspective on what investment opportunities might arise there.

I will make a comment for you, although I wouldn't call myself an economist nor an expert on Europe. So you can take them for what they're worth. Our view generally has been that there was a lot of capital in Europe over the last number of years. And the Euro and Pound were high. And, therefore, it wasn't as exciting a place to invest as some of the other spots of the world.

If you look at our overall portfolio, we have big investments in South America, Australia and in North America, and less -- we have some but less in Europe. So it's never been a great focus of ours.

I think the environment that has transpired over the last 12 months in that the currencies have been coming down in Europe and therefore, the investment risk is less using a US Dollar base. And, second, that the governments and the corporations are in more, I'll call it distress. It should amount to a greater number of opportunities for people like ourselves.

And on the infrastructure side, it just means the governments are going to have to liquidate more State assets into the market place to private buyers, and corporations are going to have more distress than they had before. So I think the next five years may be an opportunity for us to expand our business there just because the environment favors our type of investment. Whether that results or not, we'll have to see.

But you're not currently seeing any, I guess, unusual opportunities at this point?

We -- I guess in response to that, I would say we're seeing a number of opportunities in virtually all of the markets in the world that we operate. And our issue is not the number of transactions that are in front of us. It's sorting through the great ones from the really great ones. And we're spending a lot of time doing that.

Okay. And then just on the power side of the business, you realized $81 a megawatt, which is pretty consistent with what you've been guiding for. I just wanted to get a sense of what kind of sensitivity after you put in place the Ontario power contracts and other contracts throughout your portfolio, and then I guess the impact of ancillary fees, how sensitive is that price per megawatt or what should we expect over the next couple of years?

Well, we've got 87% we're locked up for the balance of the year. So that takes the sensitivity down to a pretty small number in that regard. And then we're down to about 78%, I guess, for 2011, and 70% over the longer term. So arguably that sets us up for 30% of the generation being open, and therefore, if you had a 20% move, I think that would suggest you could have a 6% change in your overall pricing.

And then, of course, there is currency to be brought to bear as well. You know, we will continue to try and increase the contracted profile of the business. That's been a long standing objective and we made good progress on that not just with the Ontario contract but with a couple contracts we signed up in the US northeast, and really that is taking advantage of, I'll say, Government policy towards securing renewable, sources of renewable energy that are definitely in favor for a number of reasons, and we'll continue to work away at that.

Can you just give us an idea of what the magnitude of the ancillary or the volatility of the ancillary revenue might be.

Well, I guess in the past we've talked about a figure of around $14 per megawatt hour in respect of not just ancillary but also peeking. And that can be 40 to 60, 60/40 depending on what market you're in. So there is really $6 or $7 I suppose of ancillaries in there in any given quarter. It will fluctuate obviously, but that should give you some idea of the magnitude.

Okay. That's great. Thanks a lot.

(Operator Instructions). Next question is from Andrew Kuske of Credit Suisse. Please go ahead.

Thank you, good afternoon. Bruce, you made the comment that the recovery is taking hold, you're seeing some fundamental strength in a lot of your lines of business but the recovery will be somewhat choppy. So I guess if you just look back over the last 12 to 18 months, and you look at yourselves really critically, should you have been more aggressive in taking advantage of some of the opportunities and some of the real severe distress that we saw, in particular Q1 of 2009?

We're critical of ourselves in every six-month period. And I'd say we could have always looked back and done things better and different. The only thing I would say is that looking back I think we did put a lot of money to work and we captured some exceptional opportunities. And I'm not sure we could have done much more without taking undue risk to the Company should the environment not turned out the way it did.

So I don't look back as t that we should have done more, I think you can always want to have done more. But given the risk profiles that we want to take with the Company, it probably would have accorded to more risk or did accord to more risk than we wanted to take.

So if we look ahead, do you feel you need to have a lot more committed funds in place to take advantage of such distressed opportunities in the future should they arise again, which inevitably they will across the cycle.

Firstly I would say that I think there's still an enormous opportunity in the next 24 months, and that when people say there aren't any opportunities out there, we're confused as to what they talk about because there are still an enormous amount of opportunities that are around. And I think maybe it's just that we travel in a different size of transaction than a lot of people do. And that the Capital Markets or the public stock markets have recovered far greater than what the underlying private market has recovered, so there is a lot of opportunities out there.

As just the committed amounts of money, as you know, we spent the last seven or eight years building our asset management business. We've made good progress so far but we want to make much more. And every year we continue to scale up the size of our funds, and I think we should be able to continue to do that over the next five to 10 years.

And then just on that final point of scaling up that business, as that business increases in size and the number of committed funds that you've got, will that change a little bit of the strategy from investing in certain assets. And the examples I would give would be, one, the proposal for GGP right now where it's essentially partial interest in the Company or the recapitalization of Prime where you don't have a controlling interest in that company? And that's fundamentally different than what you've done in the past?

I wouldn't call it fundamentally different. Many of the things that we get into originally, they're partial interest in a company, but none of them are passive interests. The Prime infrastructure business we're very involved in. They brought us in to make sure that we disciplined the capital allocation and help them run the business.

And I think with respect to General Growth, the Board and the management team think that we can be very helpful to them in reestablishing the business. And therefore, there isn't anything that we do that we're a passive investor, and many of the investments that we have today started out are similar to these investments.

That's very helpful. Thank you.

You're welcome.

The next question is from Ari Black of Thomas Weisel Partners.

Hi, guys. Good afternoon. I just wanted to touch base on the opportunities that you have been speaking about a lot this call. Are you still seeing a lot of distressed opportunities or is it more of Brookfield expecting a recovery in the market so you have higher longer term assumptions?

I would say the easy, easy pickings in hindsight aren't there anymore. But there's still a substantial amount of restructurings to come over the next 24 to 36 months in real estate and infrastructure because while we believe the issues that will come out of commercial real estate and infrastructure are less than what most people predict. There still are a number of situations or many, many situations where term financing was put in place but there wasn't enough equity in the transaction or the debt was too high. And those have to get sorted out and a number of those could offer opportunities for us. So I would say they're still in the distress quote unquote, area, but obviously not as distressed as things were a year ago.

And then just digging into the mindset of the seller, volatility is still high with the market down 5% right now, do you see that improving and that's what is driving some more deals maybe into the second half of the year?

You know, I think everyone is driven by something different. And I believe that a lot of -- opportunities for us are being driven on the other side from either people desiring that they want to be out of the business or people being forced to deal with situations that they have been stringing along and now have to deal with. And that's really the two reasons people come to selling assets or are forced to sell assets.

And then I was hoping that I could take advantage somewhat of the new openness for General Growth. Have you disclosed what portion of your investment will be in General Growth versus the real estate earned fund?

No, we haven't.

Any general ballpark or is that something you want to just not -- .

No.

And what's the -- is there any structural reasons why the investment is limited at around 28% ownership with rational not increasing it more than that.

There are no structural reasons other than the fact that we intend this to be a widely held company, and we'll be a 28% shareholder in it and that will offer liquidity to the market for the shareholders that are there, and that's one of the great opportunities we offer with this investment to be able to enter into it. So if we were too much -- if we're too much, then obviously that squashes down the liquidity for others. If we're too little, it gives us no seat at the table or sizeable investment into the business. So that was the number we had settled on with the Board.

Okay. Thanks. I appreciate your answers.

You're welcome.

This concludes the time allotted for questions.

Thank you, operator. And thank you to everyone for joining us today. We look forward to next quarter. And if there is anything of follow-up on numbers or otherwise, please call Brian Lawson or [Setchen Chaw], and we would be, or I, we'd be pleased to deal with it. Thank you very much.

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