BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2010 Q4 法說會逐字稿

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  • Operator

  • Welcome to the Brookfield Asset Management 2010 Year-End Results Conference Call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

  • (Operator Instructions)

  • At this time, I'd like to turn the conference over to Katherine Vyse, Senior Vice President, Investor Relations and Communications of Brookfield. Please go ahead, Ms. Vyse.

  • Katherine Vyse - SVP - IR & Communications

  • Thank you, Operator, and good morning, ladies and gentlemen. Thank you for joining us for our Fourth Quarter Year-End Conference Call. On the call with me today are Bruce Flatt, our Chief Executive Officer; Brian Lawson, our Chief Financial Officer; and Sachin Shah, Managing Partner.

  • Brian will first discuss the highlights of our operations and our financial results. Bruce will then provide some comments on the current investment environment and our investment gains and opportunities.

  • I would like, at this time, 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. 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'd like to turn the call over to Brian.

  • Brian Lawson - CFO

  • Thank you, Katherine, and good morning.

  • I'll first start off with some of the highlights. Our operating cash flow for the year was $1.5 billion; that's up a little bit over 2009 and similar to 2008. We believe this illustrates the resilience of our operations. The results reflect substantial growth in our commercial property, infrastructure and residential development cash flows and this more than offset the impact of unusually low water levels on our renewable power business and a somewhat lower level of investment gains. We also recorded a substantially higher contribution from our asset management activities.

  • We achieved total return of $3.77 per share or 12%. This is consistent with our objective. The increase reflects the cash flow generated within the business, increases in the net tangible value of our assets and appreciation in the value of our asset management business. I'll make a few comments on that later on in my remarks. The value of the asset management franchise as measured by capital under management, base management fees, and performance-based returns, which leads into that increase in value, all improved during the year.

  • We invested nearly $6 billion of our own capital alongside our clients into new opportunities during 2010. This includes nearly $2 billion in the first six weeks of 2011. Of note, this included $1 billion, approximately $1 billion of our capital as part of a $2.6 billion cornerstone investment by us and our clients into the restructuring of General Growth Properties. We also invested an additional $1.7 billion into General Growth common shares during early 2011. This increases the combined interest in GGP for our consortium to nearly 40% and our direct interest to approximately 20%.

  • We also acquired the remaining 60% of a global infrastructure portfolio for approximately $1.1 billion. This is in addition to $2.5 billion invested in a variety of other activities during the year.

  • We completed $18 billion of capital raising initiatives including $2 billion in the six weeks of 2011. These activities enhanced our liquidity, funded investment initiatives, and enabled us to extend our debt maturity profile at low cost of capital. One result of this is the extension of our corporate maturity profile at Brookfield and the power business to 8 years and 10 years, respectively, at an average rate on new debt issues of 5.2%. And we also advanced several transactions to simplify our structure and better position key operating company to create enhanced value for shareholders.

  • We established our flagship commercial office company, Brookfield Office Properties, as a global pure-play office company by merging in our interest in our Australian office portfolio. We are also in the process of merging our US residential operations with those of Brookfield Office, the Canadian business, to create a unique North American residential company. And in addition, the merger of Brookfield Infrastructure and its partially-owned Australian infrastructure subsidiary, simplify the ownership structure and also establish Brookfield Infrastructure as a global leader in that business with a $3.5 billion market capitalization.

  • In addition to these, our operating teams completed a number of important initiatives to increase values and cash flows, and we're working on a number of attractive growth opportunities including expansion of our existing operations and potential acquisitions.

  • Turning to each of the major areas of our business, on the asset management side, contribution there increased to $350 million. This excludes $224 million of performance-based income that accumulated during the year but which is deferred for accounting purposes. Base management fees were higher; this is due to the new funds and increased capital under management. To that end, we added more than $4 billion of new commitments to our real asset fund including the launch of a $2.6 billion infrastructure fund and $1 billion of additional equity capital from our listed infrastructure company. The base management fees are now tracking at $190 million on an annualized basis, that's a sevenfold increase over the past five years.

  • On the power operations, they contributed net cash flow and realization gains of nearly $550 million. The realization gains stemmed from the sale of interest in our Canadian renewable energy business, totaled approximately $290 million. We did experience low hydrology levels as I mentioned in Ontario, Quebec, and New York. This together with our reduced interest in the Canadian operations did result in lower cash flows; generation was 10% below long-term average and 9% below last year. This was partially offset by higher price contracts. Realized prices were up 11% over last year to $81 per megawatt hour. And we also recorded an increase in cash flow from the new wind facilities and other generating facilities we brought online during the year.

  • Reservoirs were 6% above average levels at year end. This reflects strong water flows at the end of the fourth quarter and positions us well coming into 2011, and we've also recently benefited from higher electricity prices due to colder winter weather.

  • We advanced the development of 8 hydro and wind facilities. These should in aggregate add 1500 gigawatt hours of annual generation at mid-teens levered returns at a total project cost of roughly $1.5 billion. We also concluded a number of short- and long-term power sales agreements to stabilize revenues and support development initiatives.

  • The Commercial Office side, we've had a contribution of $364 million; this reflects 4% increase in rents on a same property basis. We leased 7.2 million square feet. Maintained our lease profile at 95% occupancy, and a 7.2-year average term. The average rent in the portfolio increased to $28 per share -- sorry, per square foot. That continues to be roughly 10% below market rents and we advanced a number of development activities including our premier City Square Office development in Perth and a prime office site in the City of London. And we also acquired undervalued properties in Washington, DC and Houston that encompass 2.1 million square feet. The cost there was approximately $435 million.

  • On the Infrastructure side, cash flows there more than doubled to $130 million; a lot of this came from the global portfolio that we acquired in the fourth quarter of 2009, and therefore, had a full year contribution in the current year that contributed $74 million. These businesses are largely regulated or contractual in nature; this provides for stable operating results that will increase with inflation and the investment of additional capital.

  • Our Timber business, which is more correlated with the economic cycle contributed $23 million, compared to $10 million last year. This business is well positioned to benefit from increased demand from Asia and has the ability to substantially increase harvest levels that are currently well below sustainable levels. And we've developed a substantial pipeline of expansion projects within our various infrastructure businesses that will enable us to put capital to work in this business in addition to a broad range of attractive acquisition opportunities.

  • On the Residential Development side of the business, the contribution there increased by $120 million to nearly $200 million this year. This includes our opportunity investment activities as well.

  • On the Residential side, IA contributed nearly $80 million of the increase; that benefits from an increased number of project completions in Brazil and better margins in North America. Of note, contracted sales in Brazil were up more than 50% over the prior year. The remaining $46 million of the increase related to disposition gains within our opportunity property funds.

  • Finally, our private equity and finance results benefited from improved operating results at a number of the companies held within our distressed investment and private equity portfolios. This reflects a better operating environment but also the restructuring initiatives carried out over the past several years.

  • Turning to total return and our measurements there, as I mentioned, we increased our intrinsic value of our common shares by $2.4 billion during the year. This is $3.77 per share during the year. The components of the increase include operating cash flow, increases in the values of our net tangible assets and appreciation in the value of our asset management franchise based on continued growth in capital under management and the associated fees. The largest contributor to our total return during the year was our cash flow of $1.5 billion, most of which was retained in the business.

  • Valuation and appraisal gains related to our net tangible assets totaled roughly $1 billion during the year, of which $400 million of that was included as gains in our cash flow. As a reminder, the valuation and appraisal gains are based on year-end appraisals and valuations and include the gains recorded in our IFRS financial statements. Certain assets that are not reflected at fair value under IFRS, so we have provided management estimates for those differences to arrive at a more complete and consistent determination of net asset value.

  • The increase in values reflect lower discount rates and the impact of higher exchange rates on assets in Australia, Brazil, and Canada. This is partially offset by a reduction in the energy prices that we expect to realize within our renewable power operation over the next few years.

  • This year in response to many inquiries, we have provided an assessment of the value of our asset management franchise, which we determined to be $4 billion at year end and increased by $500 million during the year. This value, which is an important component of the intrinsic value of our company and which we intend to continue to increase, reflects the current capital under management for our clients and the associated fees as well as the potential growth in capital and fees. Taken together, our intrinsic value was $37.45 per share at year end and that's up from $34.20 per share on a comparable basis at the end of 2009. And so with that, I will hand the call over to Bruce.

  • Bruce Flatt - CEO

  • Thank you, Brian, and thank you, everyone for joining the call today. I will deal with a couple of items today, dealing first with market conditions. And Brian said a few of these things but we continue to see very positive sequential and year-over-year growth in virtually all of our businesses and we believe that this will continue to be the case through 2011. Obviously, as everyone knows, job creation remains slow but the ultimate recovery in employment levels bodes well for our shorter-cycle businesses, which would be the residential development and our timber businesses which are obviously dependent on consumer confidence and the employment outlook.

  • To make the point about recovery, I will make just a few specific comments. For example, office leasing is currently very robust with the pipeline in most of our major markets exceeding that of the past three years.

  • Sequential retail sales were up -- have been up 14 straight months to year end in our retail malls. Our construction contract book is up almost 50% from 12 months ago. Sales in our Brazilian home building business are up 60% from last year and virtually every one of our businesses, which were affected by economic declines have and are seeing recovery.

  • In the context of all of this, the stock market, I guess, usually looks at that forward looking and our share price did increase 53% in 2010, that's on top of 51% in 2009 as many of you know. Although despite these gains, I don't need to tell any of you how many increases it takes to recover from a year like 2008. But after taking into account these numbers, the 10-year compound return as stated in our information is 26% on a share plus dividend basis and 18% over 20 years. But I would warn people that we try to compound at 12% to 15% and if we are lucky we might do a little better than that, but that's our goal with the business over the longer term.

  • Turning to investment themes, and what we are thinking today, I'll reflect just on a couple of items and while continuing to run our businesses, we generally put our excess resources to more macro themes to operate our business. In the past five years, as you've seen us, we've dedicated a lot of our extra resources to Australia, Brazil, and Canada. And this strategy has seen us put significant amounts of capital into these three countries. And we benefited substantially as these economies have outpaced most others in the world and in fact, their currencies have also outperformed. Therefore, we have had a double win, I guess.

  • We now have exceptional businesses in these countries, which should allow us to capitalize on the organic growth opportunities over the next decade as the dynamics of the emerging middle class in these countries play out. We decided to pursue the strategy of participating in growth of economies such as China and India instead of participating directly in them through countries such as Australia, which stood to gain from selling products to Asia. But where we were more comfortable in owning and operating long life assets. As a result of that and consistent with our investment philosophy, we have accepted gains at a more measured pace like usual than if we had invested into the Asian countries but without the issues that sometimes come along with those countries.

  • As a result of these initiatives, approximately 50% of our capital is now deployed in Australia, Brazil, and Canada and we are therefore benefiting from the positive conditions of these export oriented economies in particular when compared to the US. This does though also mean, and I would make sure that people -- we should want to make sure people understood this, so we are more directly exposed to the economies of the Asian countries than we have been in the past both through the businesses we own and through the revenues we own and currencies of countries which rely in part on China for their growth. And while acknowledging these short-term fluctuations which may occur in these markets, we believe this exposure has been and still is a prudent diversification for Brookfield and over the longer term, will continue to be an excellent place for the capital we have.

  • More recently in the past couple of years, we focused our efforts on restructurings primarily in the US. We have done this at a time when there has been significant distress in the United States and that reduced valuations of even some of the highest quality assets and this was a truly special period and while there are an enormous number of opportunities today for us to capitalize on still, there will not be a period or we certainly hope there won't be a period like that for a long time.

  • But during that period, we invested substantial amounts of capital at distressed prices to acquire a variety of US assets from shopping malls to multifamily apartments, office properties, and wind projects. Our thesis was and continues to be that we are buying assets at large discounts to replacement cost, and we believe that the US, large US economy will recover over the medium to longer term, and that the US will continue to be one of the drivers of the global economy for a long period of time.

  • Furthermore, in addition to these acquisition-based strategies, underlying our broad themes, each of our businesses has opportunities for us to organically grow our operations and achieve our goals for return on capital. Our access to funds on a global scale allow us to put substantial amounts of capital work in these businesses at highly attractive returns.

  • And just to give you a few examples, recent initiatives include, as Brian mentioned, a large office building we built -- are building in Perth for BHP Billiton. We're undertaking extensive expansion of our rail lines to accommodate iron and ore clients in Western Australia on our rail network. We are building substantial residential and office condominiums in Brazil. We are expanding our power business with new build developments on hydro in Brazil and wind projects in the US and Canada.

  • Probably even more exciting, we continue to see a broad array of additional opportunities which often don't meet the headlines because they are smaller in nature, but they are highly attractive to the base organic growth of the business. More recently our focus has turned to Europe, in the last year as corporations and governments who have lots of assets but need to reduce liabilities and require creative solutions for capital needs come about. We believe the European companies with both local and international portfolios of assets may benefit from some of our restructuring assistance and capital. And we intend to focus a greater percentage of our extra time in this region over the next while.

  • With that, Operator, I'll turn it back to you for any questions that are on the line.

  • Operator

  • Thank you. We will now begin the question-and-answer session.(Operator Instructions).

  • The first question comes from Brendan Maiorana, of Wells Fargo.

  • Brendan Maiorana - Analyst

  • Bruce, I just wanted to ask a little bit about the recent common share sale and then the vision to increase the investment in GGP. In reading your shareholder letter, it sounded like that was more of a strategic decision than financial; is that a fair characterization?

  • Bruce Flatt - CEO

  • I would say, there was an opportunity for us to increase our position in this company that came along. Obviously, it was a short time after we initially closed on the transaction, although we've been involved in the company for two years. Those opportunities don't come along very often and Fairholme wanted to take stock back and to get the deal done that's what we had to do. Therefore, we chose to do the transaction.

  • I think that we probably, if you look at our numbers, we issued shares at less than their true value. Having said that, I think we bought equivalent value on the other side or close to it but more importantly, I think it gave us a very significant position in what we think is an important business longer term. And we're going to be able to do a lot with that over the time. It won't be something that we do very often but we felt it was the appropriate thing to do this time.

  • Brendan Maiorana - Analyst

  • Does moving from, call it, a little less than 30% between BAM and its partners up to around 40%, does that give BAM increased influence or increased optionality with GGP or is there -- I guess this is sort of the first step in maybe what could be an increasing investment in the company.

  • Bruce Flatt - CEO

  • We've always had, if you look at our positions in different companies, they are generally in the range of 30% to 50% and we just felt it was a great time. We think this company is going to be worth a lot more ten years from now so we would rather -- we don't plan on selling it for a long period of time, if ever. Therefore, we thought it was the right thing to do was to increase our position today. We couldn't afford to do it three years ago when we entered into this -- just given the capital markets and the big size that we had committed to on this transaction. And we could at this point in time get something done and therefore we decided to do it.

  • Brendan Maiorana - Analyst

  • And I guess the decision to or not to use the existing liquidity at the BAM level. Is that driven by some of your comments about good opportunities in Europe and just other opportunities that you are seeing out there and keeping a fair bit of dry powder for things that may come along.

  • Bruce Flatt - CEO

  • Yes. I would say the only decision was the second component of the transaction which was the public equity issue we did. The first part was part of the transaction; we had to issue shares to take back shares, so there was no real decision on that. The second component was just the $500 million, and we decided if there are enormous number of opportunities that we see, we want to keep our liquidity high. And very seldom do you get your -- when we were doing it, we figured we may as well replenish the liquidity and fund it all and that's what we decided to do. We don't have a habit of doing this too often so we figured we may as well do it once.

  • Brendan Maiorana - Analyst

  • Yes, it was usual, that's why it piqued my interest. Okay. Thanks. And just for Brian, a little bit about the asset management business. First, you have $8 billion of undeployed capital, I think there's about $3 billion of that that's with the real estate turnaround consortium. If you deploy the additional $5 billion, how much would the base management fees which are $190 million today, go up?

  • Brian Lawson - CFO

  • They go up by some, Brendan, a lot of the funds-- we earn fees during the investment period and in some cases, those will go up a little bit once it's committed and sometimes they will go down a bit. There are a couple of situations where fees are -- I'll describe them as rolled up until the investments are actually made. That's been a bit more of a recent trend in some fund arrangements. So, it would have a -- I'm going to say a modest increase in it as it gets invested. But a reasonable amount of it is already reflected.

  • Brendan Maiorana - Analyst

  • Sure. Okay. So the growth (Multiple speakers).

  • Brian Lawson - CFO

  • What we would be really looking for in investing it is, again, I guess, earning the full fees, but also, more importantly, kicking in our entitlement to earning the performance-based income such as the carried interests.

  • Brendan Maiorana - Analyst

  • Sure and the 250 or so of performance fees, between the recognized and the accrued, for 2010, was there anything unusual in there? Or is that a fairly reasonable run rate?

  • Brian Lawson - CFO

  • Well, I think you could look to the amount of value we've already created in General Growth as being a good component of that.

  • Brendan Maiorana - Analyst

  • Okay. Fair enough. Thank you.

  • Operator

  • Mark Rothschild, of Canaccord Genuity.

  • Mark Rothschild - Analyst

  • Bruce, you guys were extremely active this year with buying quite a few assets and a lot of it was moving around pieces from one bucket to another and particularly related to the property transaction. Do you look at this as something more unique, what happened this past year, or is this something that you think will continue to occur as your business evolves?

  • Bruce Flatt - CEO

  • You know, Mark, I would say that we don't like to do it too often because it is not a productive exercise sometimes. Because you can never satisfy everyone in accomplishing it. But from time to time, assets are in the wrong place and while it takes effort to get it done, we think, for example, having all of our home building activities in North America in one entity would be a smart thing to do. Therefore, sometimes you just have to get it done.

  • So, I would say it is an exception to the rule. And it won't happen too often, because there aren't too many things, if you look across the organization, that are untidy like that. So it's not -- it won't happen that often, although it's not to say that it won't happen in the future because we often will buy something and it's not appropriate to be in one of the public companies and then eventually it could find its way in there. It may or may not occur in the future, but it's probably by exception than the rule.

  • Mark Rothschild - Analyst

  • For example, residential in Brazil, mixed in with North America?

  • Bruce Flatt - CEO

  • It is a separate public company, so firstly, I don't think it would. The multiples in Brazil are higher than in North America, so I don't think it would be the opposite way if you're ever going to do it. But second, it's a separate public company already and I think it would make no sense to do that.

  • Mark Rothschild - Analyst

  • Okay. About a year ago, you were asked about going into the retail business and obviously there was a specific transaction you were going after. There have been reports or maybe rumors that Brookfield is looking at getting into the industrial business. Can you comment on that?

  • Bruce Flatt - CEO

  • Not really, Mark. I guess, I would say the bottom line, we look at many, many different investment alternatives, industrial real estate, we've owned some of it in the past, and it's something I guess we might look at in the future or that we do look at. But there is nothing specific that we are going to close on shortly.

  • Mark Rothschild - Analyst

  • Okay. Lastly, you don't have -- a lot of your assets are hydroelectric power but you do have some wind assets, that type of asset has definitely been in the news lately in Canada. Maybe just let us know if your views have changed towards the wind power assets?

  • Brian Lawson - CFO

  • I will take that one, Mark. We did note with interest, the reality is is that the regulatory environment, the ability to procure contracts is going to ebb and flow in different markets. I guess what I would say on that, is that our efforts to develop new wind facilities are going to be still the same, driven very much by having a long-term contract in place to get us comfortable that we can achieve those types of returns in a very stable and low risk basis. And we've continued to be able to do that and we have done it in a few markets outside of Ontario as well. So, I would say, the basic philosophy is unchanged and we will still drive forward on that basis, though.

  • Bruce Flatt - CEO

  • Mark, you may be referring to Ontario when you're asking that question?

  • Mark Rothschild - Analyst

  • Yes.

  • Bruce Flatt - CEO

  • I guess my only comment would be is that our -- we're obviously a big producer of energy in the province; we have a great relationship with the Ontario government, with the Ontario Power Authority, and we've done extremely well with building plants with contracts on them with them. So, I think we are very pleased with the market and with everything they have done for us.

  • Mark Rothschild - Analyst

  • Great. Thanks a lot.

  • Operator

  • Mario Saric, Scotia Capital.

  • Mario Saric - Analyst

  • Just with respect to the estimated value on the asset management franchise, is there any intention, going forward I guess with respect to providing any incremental disclosure on potential net management margins? And how -- perhaps maybe take us through some of the valuation parameters included in the $4 billion?

  • Bruce Flatt - CEO

  • Sure. Yes, Mario, we will continue to try and provide more information on that. As you know, it's a little bit challenging when it comes down to allocation of expenses, because at one level everything we do is asset management. It's just a question of whether it is -- those efforts are allocated toward a specific fund and to our capital in the fund or to a co-investor.

  • The basic inputs -- if you wanted to really have a simple view of how to come at that $4 billion, if you took us growing our existing some odd $20 billion of capital commitments at let's say a 10% rate over the next number of years, you end up at around a $50 billion number. That is something that we think makes sense as an interim step in our business. If you applied a 150 basis point gross margin to that, which we believe is an appropriate margin for that kind of business, and you put a 15 times multiple on it and PV'd it back, you'd come up at around $4 billion.

  • So that -- we obviously have more detailed and sophisticated plans with everything we are doing on the asset management side, but if you really wanted to put it down to a couple of simple metrics, those would be the metrics.

  • Mario Saric - Analyst

  • Okay. That's great. Bruce, just on the asset management side CalPERS came out earlier this week suggesting it is looking to reduce its exposure to publicly traded real estate and instead focus on more fund level type investment. I guess in general, based on discussions you've had with any pension funds recently, can you provide any color as to whether this represents a trend in your view as far as changing pension fund allocations are concerned and what kind of opportunity that may present for BAM going forward?

  • Bruce Flatt - CEO

  • Thanks and I will try to answer the question. First, I won't make any specific comments about CalPERS because I don't know specifically or I shouldn't make any comments on their specific portfolio.

  • Just in general, though, I would say, our experience has been that institutions around the world continue to allocate more capital to both listed and unlisted real assets and when I say real assets, that's both real estate infrastructure and other real asset categories. I think our general belief is that will continue to be the case and it will continue to ramp up. What people are observing is that they need to earn a decent return and can't take the risk that they may get zero or they may get 20. So they are cutting back other areas and they are pushing it into real assets.

  • I don't -- we haven't seen too many people cutting back from liquid assets into private, which I think you referred to, but I am sure some do and some may have been overweighted to one or the other. But in general, I'd say we are seeing an across the board, increase in allocations to that, to those categories.

  • Mario Saric - Analyst

  • Okay. One last question, there was also, I guess, a transaction this week between CBRE and ING with respect to its real estate management operations in Europe as well as Asia as well as its public securities advisory business. Is this something that BAM would have taken a look at? And just maybe some thoughts on how your potential expansion going forward into Asia, given your commentary that you have done it indirectly thus far?

  • Bruce Flatt - CEO

  • Two things. On ING, I won't make any specific comments on it, but we do look at virtually everything like that, that comes along. And I guess, by and large, we don't -- we have a very large asset management business and many people around the world. And often integrating another one into it is just confusion as to the amount of funds you have and the people that you have in an organization. Sometimes it is additive; sometimes it is not. And this is a large one that costs a lot of money and we're not usually -- we don't usually pay for those type of goodwill type businesses. So, and that is not to say that someone else can't make a lot of money off of it; I suspect they may, but it is just not for us.

  • On Asia, our view so far has been to do it directly. We now have small offices in both India and in Hong Kong and in China. And we're starting slowly like we always do and we'll figure it out eventually. There's no -- we don't see any great rush to do anything. We have lots of places to put capital and we'll do it slowly and prudently.

  • Mario Saric - Analyst

  • Okay. That's great. Thank you.

  • Operator

  • Alex Avery, of CIBC.

  • Alex Avery - Analyst

  • I just wanted to focus a little bit on the renewable power. If you look at your invested capital exposure, that's your highest area of invested capital and a moment ago, you talked about the opportunities that you see, to invest more capital in property and infrastructure. Can you give us a little bit of color about what you think the market is like for hydroelectric assets maybe in the US and Brazil and how you might somehow restructure or liberate some capital from those areas?

  • Bruce Flatt - CEO

  • Sorry, when you say the market for them, meaning that someone might want to buy them from us or we want to buy things from other people? Sorry.

  • Alex Avery - Analyst

  • More likely, who might be interested in buying interests in some of those assets or co-investing or if it is a market that's liquid relative to the Canadian or I guess US market for hydroelectric assets.

  • Bruce Flatt - CEO

  • Well, I guess I would say, our assets aren't for sale, firstly and we don't plan on selling them so we don't really test the market with our assets when they're not for sale. I think though, having said that, if we chose to offer them to someone, I think they would be worth a lot of money. They would trade at very high premiums just given what they are and given their significant presence in the markets they are, that they're carbon neutral, and that they are the lowest cost in the market. So, they don't trade very often because they're so unique, but we don't plan on putting them for sale at the current time.

  • Alex Avery - Analyst

  • You are comfortable with having your largest exposure being to renewable power, I guess, for the time being?

  • Bruce Flatt - CEO

  • Yes.

  • Alex Avery - Analyst

  • And then just turning to the General Growth discussion. In your letter to shareholders, Bruce, you mentioned a $13 billion portion of their debt that is up for renegotiation or refinancing. Can you just, more generally, talk about whether that is something that can be done in six months? How active is that market and what do you think the opportunity might be there?

  • Bruce Flatt - CEO

  • I think their target is $5 billion in 2011 to get redone. There is a very substantial market for mortgages today in the United States that is redeveloping both on the CMBS side, which everyone had called dead a year ago, and in the institutional market to either insurance companies or other places. So, I don't -- any mortgage that we need to get done I think can get done. It is really just the capacity to work through the mortgages that we have. You just can't do them all at once and you don't want them all with the same maturity schedule. So, you need to spread them out. But the mortgage market tier, I think which is your question is, the mortgage market in the United States has recovered dramatically over the past while. Spreads are still a little high, but all in coupons are pretty good just because treasuries are still low.

  • Alex Avery - Analyst

  • Okay, that's great. Thank you.

  • Bruce Flatt - CEO

  • You're welcome.

  • Operator

  • Michael Goldberg, of Desjardins Securities.

  • Michael Goldberg - Analyst

  • I have a few questions. First of all, notwithstanding the progress on many fronts that you've made over time, one item that hasn't increased now in about three years is your common share dividend. What would it take for you to increase the $0.13 dividend, and what can we watch as an indicator of the potential to increase the dividend?

  • Bruce Flatt - CEO

  • Michael, it's Bruce, the only thing I would say is we actually -- we view that the cash flow that we generate in the Corporation is the shareholders' and if the shareholders want it back, we should give it to them. But often our shareholders tell us they don't want increased dividends and therefore, we haven't increased it for a little while. Obviously, as you can see the health of the Company, we could easily afford to increase the dividend but when we talk to most shareholders, they would rather have us just reinvest it back into the business. I think if you have other observations for us, please pass them on. And we would love to hear them because we truly view this as just a shareholder decision.

  • Michael Goldberg - Analyst

  • Okay, and I will speak to you about it. Second, where you feel the best opportunities remain for expansion of your platforms? Is it organic or is it new platforms? And if it is new platforms, in what sectors, are there still potential distress opportunities, for example in commercial real estate?

  • Bruce Flatt - CEO

  • As usual, Michael, you have six questions in one, but I'll try to answer them. Firstly, I would say, there still are distress opportunities out there. They are not like they were 2008, but capital is more available and for those who know how to deal with distress, the opportunities are still there. It's probably -- it was no easier in 2008 even though the opportunities were more plentiful, because everyone was scared. Therefore, I'd say there still are distress opportunities out there.

  • I think for us, we have a view of growing the business in that we love to organically grow the business and put money to work within our businesses. And that is always easy money and it's much more -- it's highly positive to the results, because usually the returns are higher for the risk you take when you organically expand your business. That is just building an additional wing on an office building or expanding something you have today or whatever that is within the business. And there are very substantial amounts of capital to deploy within the operations.

  • But those alone, won't feed the institutional client money that we have and therefore, there will be -- we need to find opportunities to grow the business elsewhere and I think that will come both through real estate and infrastructure. Less in renewable power, because the business is just smaller. It will mostly be organic growth. I think there are opportunities in many different places. Although, we tend not to try to focus on any one spot, because often it's not that spot that produces the great opportunity.

  • Michael Goldberg - Analyst

  • Okay and my last question, how should we think about the possibility, after you've bought Fairholme's interest in GGP, that Pershing Square might also sell its stake and either the consortium or BAM would buy.

  • Bruce Flatt - CEO

  • A couple of things, Michael. Firstly, we, for the time being, can only increase our interest to 45% of the Company, so we can go another 6% or 6.5% or something like that up. So, I guess it's possible that we could buy another 6.5% of the Company. It's not to say that we will or won't do it, but that's a factual statement. I think Pershing has been a very -- he's been very positive on the Company, even invested for a while, and I think he intends to keep his shares. But, I don't have any view on whether they will or won't sell their shares.

  • Michael Goldberg - Analyst

  • Okay. Thanks a lot.

  • Operator

  • Andrew Kuske, of Credit Suisse.

  • Andrew Kuske - Analyst

  • My first question is for Brian. If you can give us a breakdown of your core liquidity from a third-party capital standpoint, which I think you are pretty clear in the release, saying it's $8.2 billion of uninvested capital at this stage and how you think about that. Then also the BAM core liquidity itself for investment.

  • Brian Lawson - CFO

  • Sure. Okay. First of all, just starting off with the BAM core liquidity. We reported about $4.3 billion at year end, about $2.6 billion of that is at the corporate level and that will be split, let's say, 50/50 roughly between undrawn contractual credit facilities and financial assets and cash. And then the other $1.7 billion would be within the principal operating units.

  • In terms of the 8.2, the bulk of that resides within our new infrastructure funds which are pretty recent vintage and they would be, let's say 10% or 15% invested at this stage. Then, on the real estate side, we still have a couple of billion dollars or more potentially with our global turnaround fund. Those would be the major components of it. Andrew, we have some capital still within the special situations group as well, but that would be where the bulk of it lies.

  • Andrew Kuske - Analyst

  • That's very helpful and then a bit broader question probably for Bruce. You stated in the supplemental information that you've got $4 billion of raisings going on at this point in time across multiple strategies, which you expect to close over the next 18 months, I think that was roughly the language. Do you see an increasing bias towards infrastructure as an asset class? If I looked at your invested capital, of the overall business today, it's skewed to renewal power, it's skewed to commercial property, and that infrastructure asset class is still pretty light from a percentage of your overall invested capital. Will that be growing over a period of time?

  • Bruce Flatt - CEO

  • Yes, I guess. We've been in the real estate business for 20 years and in the power business for 30 years or more. I would say those businesses, the capital we have in our balance sheet has built up over a long period of time. Infrastructure is -- if you separate renewable power from infrastructure, we have been in the business for five years in the state we are in today. And therefore, I'd say, it has grown rapidly and I think the growth will be very strongly going forward, and that's really for two reasons.

  • One, governments and corporations continue to take things off their balance sheets to get their debt levels down. Two, the pension funds and institutional clients want to invest in real assets and these are perfect assets for them to have on their books. And three, there are not that many people, and we happen to be one of them, that can invest in infrastructure and operate them on a global basis to the standards that institutional clients want to own and that governments and other owners want to have as they're owning the asset that they are going to be the counter-party to. So, I think they're -- our view is that there is very significant upside over the next 10 years to grow in the infrastructure space in the businesses that we are in and maybe a few others.

  • Andrew Kuske - Analyst

  • And just as an extension on that, of the funds you're currently marketing are any of them infrastructure related or can you or can you not say at this stage?

  • Bruce Flatt - CEO

  • We just closed our Global Infrastructure Fund so that was the biggest effort we had to get that closed. Our big push is to get that invested and then we will probably market one after that. So the answer is nothing of large scale that is infrastructure related.

  • Andrew Kuske - Analyst

  • That's very helpful, thank you.

  • Operator

  • Linda Ezergailis, of TD Securities.

  • Linda Ezergailis - Analyst

  • I have just a follow-up question with respect to your asset management valuation. The 150 basis point gross margin, to be clear, does that explicitly incorporate expectations of carried interest or performance fees or is that some sort of conservative estimate of that or does it fully incorporate that? And what has been the experience so far in terms of gross margin ranges for you as well as your competitors?

  • Brian Lawson - CFO

  • Okay, that would include performance-based income, carried interest and the like. In terms of our own experience, if you looked at it in the context of this year, we have done quite well on that front. But I think it's important to keep in mind that many of our funds are pretty recent vintage and the carried interest tends to build up in the later life of the funds which is again one of the challenges for us in currently explaining what our current margins are. In terms of our peers, we think the 150 basis points make sense based on what we have observed with a number of our peers and so we have done a fair bit of diligence on this in coming up with our business plans.

  • Linda Ezergailis - Analyst

  • Okay. Now for a different part of the equation, your $20 billion capital commitment is growing at 10%. Would it be fair to assume that the expected duration of your closed funds or fully committed funds, would be about 10 years? And would you expect there to be some rollover in evergreen continued investment? Or to your point about, I think it was Bruce's point earlier that sometimes asset management businesses, when you buy them, have a lot of goodwill related to them. How hard will you have to be working to not just replenish but grow from the baseline.

  • Brian Lawson - CFO

  • We think we have a very good platform and base to be building from for a number of reasons we have chatted about on this call and investor days and prior calls. I think a lot of your observations there are quite accurate. Typically, a fund is going to have, it will be a ten-year fund plus three one-year extensions, let's say, but if you go through the normal lifecycle, you're going to start returning some of that capital before then as investments are monetized. So, in some cases, it will be shorter than that term.

  • Having said that, your other comment about evergreen, especially on the listed entities side, those are true perpetual evergreen funds, Brookfield Infrastructure Partners for example. And we do have some perpetual unlisted funds as well. I'd say there will be a natural lifecycle for some of our asset classes where they will move from a fund of one nature into a fund with a different risk return profile in a different investor group that will keep the capital within our platforms for a very long period of time.

  • Linda Ezergailis - Analyst

  • So then would it be fair to say that you would expect the duration of those capital commitments to extend over time, but today what would be the weighted average duration? Would it be 10 years if you incorporate some of the Evergreen stuff or longer?

  • Brian Lawson - CFO

  • I think you could easily say it was 10 years plus, because of the existence of the evergreen. Some of this, Linda, is going to evolve over time. Certainly our restructuring funds, our special situations funds, those are going to have a lower average lifecycle. But a number of our other funds in the listed entities are going to have a very long lifecycle. But I would say, in terms of -- if I think what you're getting at is what is the replenishment rate required to grow at a 10% level? It's pretty manageable just because of the duration of a number of our funds.

  • Linda Ezergailis - Analyst

  • Thank you.

  • Operator

  • This concludes the time allotted for questions so I'll turn the conference over to Mr. Bruce Flatt.

  • Bruce Flatt - CEO

  • Thank you, Operator, and thank you to everyone for joining us today. We appreciate your participation and we look forward to talking to you next quarter.

  • Operator

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