BROOKFIELD ASSET MANAGEMENT LTD (BAM) 2011 Q4 法說會逐字稿

Welcome to the Brookfield Asset Management 2011 year-end results conference call and webcast. As a reminder all participants are in 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 would like to turn the conference over to Katherine Vyse, Senior Vice President, Investor Relations for Brookfield Asset Management. Please go ahead Ms Vyse.

Thank you Lori. Good morning ladies and gentlemen. Thank you for joining us today for our fourth quarter year-end webcast and conference call. On the call with me today are Bruce Flatt, our Chief Executive Officer and Brian Lawson, our Chief Financial Officer. Brian will start this morning discussing the highlights of our operations and financial results. Bruce will then provide some comments on the current investment environment and new initiatives and opportunities. At the end of our formal comments, we will turn the call over to Lori to open up the call for questions.

In order to accommodate all who want to ask questions, can we please ask that you refrain from asking multiple questions at one time to provide an opportunity for others in the queue. We will be very happy to respond to additional questions later in the conference call as time permits at the end of the session, or afterwards, if you prefer.

I would like at this time to remind you that in responding to questions and in talking about our new initiatives and 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. Thanks and I'd like to turn the call over to you Brian.

Great, thank you Katherine. Good morning to all of you on the line, thanks for joining us. We achieved total return of $3.3 billion for shareholders in 2011, $5.33 per share. And that represents a 14% return on common equity. This return consists of $1.1 billion in funds from operations and $2.3 billion of valuation gains and compares favorably to the total return of $2.2 billion that we recorded in 2010.

Consolidated net income was $3.7 billion, $2 billion of that accrues to Brookfield shareholders and that compares to $1.5 billion for Brookfield shareholders in 2010. Funds from operations at $1.1 billion was relatively unchanged from 2010. I should point out that this metric differs from the operating cash flow number that we reported in the past, in that this FFO metric does not include the major realization gains that we included in the cash flow result.

We achieved good performance, pretty much across the board; although solid improvements in a number of our operations were offset by lower investment income from our financial assets. The valuation gains that I referred to of $2.3 billion include the following. $900 million from our office property, mostly those in the US due to primarily to improved leasing. $800 million from our regional operations, again, mostly those in the US due to improved fundamentals and partial recognition of the attractive value that we acquire these operations at to begin with. $500 million of gains in our power operations, and that relates mostly to an improved long-term outlook for pricing of renewable energy. And $400 million of gains in our infrastructure operations relating to the transport, transmission, as well as our timber operations.

So returning to the funds from operations. Our asset management and other services contributed $402 million, that's up from $348 million in 2010. Base management fees, an important metric for us, increased by 14% to $190 million and are tracking at $200 million annually. Accumulated performance income increased by $119 million, and although we do not record these in our financial statements until all the clawback periods expire, it is indicative of continued good performance in the period.

Construction and Property Services increased their contribution to $150 million from $120 million. We had $50.4 billion of client capital under management at year-end of which all but $7.5 billion is fee- bearing. Private fund and listed entity capital increased by $800 million, as new fund capital and the issuance of equity from our listed infrastructure entity offset capital distributions. Public securities declined by $1.2 billion as we continue to exit certain lower margin products.

We now have $7.4 billion of permanent equity in our listed entities, such as Brookfield Infrastructure and Brookfield Renewable, and $15.7 billion in our private funds which includes $5.4 billion of uninvested commitments or dry powder. Investment performance for our private funds continues to be very favorable overall, and the market value of client capital in our three listed entities increased by nearly $2 billion.

75% of that through value appreciation and each of these entities increased their distributions during the year. We are continuing to seek an additional $5 billion in new commitments in eight funds and have a very active pipeline at this time. In fact, four of the eight funds have had first and second closes through the year. These include funds in existing corollaries as well as three International ventures, two in India and one in Dubai.

Each of our various operating groups made substantial progress during the year. So, our Property business first, contributed $558 million of net FFO compared to $421 million last year. The big contributor to growth in that area was our Retail business, which I will come back to in a moment. The Office business contributed $255 million compared to $311 million in 2010. We received a positive contribution from acquisitions and leasing during the year, but this was offset in part by the reduced interest in our Australian operations that we merged in the 50% owned Brookfield office properties in 2010.

We completed a record year of leasing with over 11 million square feet leased at rents that were on average 10% higher than the expiring rents, and we reduced our lease rollover exposure during the next five years by 550 basis points. Overall occupancy at year-end was 93.3%. Our goal is to get back to the 95% level by the end of the year and we have an active pipeline of 5 million square feet in leasing discussions to get us to that goal.

Valuations for high-quality office properties continue to improve, and led to $800 million of valuation gains during the year.

Roughly two-thirds of the gains arose from improved cash flow and a third from lower discount rates, and, as I mentioned before, most related to the US properties. By way of reference, that would translate into a 5.8% going-in cap rate for the portfolio. We monetized the number of well-leased stabilized buildings for proceeds of nearly $2 billion, recycled the capital into new higher return acquisitions, including a 2 million square foot property in Manhattan, two office properties in Australia, and an office property in each of Denver and Washington.

Returning to our Retail business. Now that reflects the very successful emergence of general growth from the restructuring, contributed in aggregate $239 million of funds from operations. Tenet sales in the US were $505 per square foot on a trailing 12-month basis. This represents a 7.9% increase over the comparable 2010 results and eight quarters of consecutive increases.

The mall portfolio is nearly 95% leased, an increase of over 110 basis points from the prior year, and initial rents executed during 2011 were up over 8% over the comparable expiring leases. The core FFO for general growth was up 7% in the fourth quarter demonstrating the strong momentum within the business. With our assistance GGP refocused its shopping mall portfolio by separating its large regional malls from a portfolio of smaller neighborhood malls.

This will facilitate continued value enhancement by allowing the respective management teams to concentrate on the strategies best suited for each portfolio. Same store tenant sales in Brazil increased 8% to nearly $830 per square foot and occupancy increased by 40 basis points to nearly 95%. In the US we opened 28 new anchor big-box stores totaling nearly 1 million square feet, and three department stores, and four more scheduled to open over the next couple of years.

Opportunity in development and finance activities. The segment includes our Real Estate Opportunity funds, our Core Office Development activities and our Real Estate Finance businesses, and contributed $64 million in 2011 compared to $111 million last year. The prior-year results did include a larger number of large gains. These activities by their nature tend to be more variable in terms of their FFO contribution and development, of course is typically not a current cash flow activity.

We did complete a number of very attractive investments during the year in the form of both direct property acquisitions and purchase of distressed loan portfolios. And on the Core Office Development side, we are nearing completion of the flagship property in Perth and pursuing a number of major developments.

The Renewable Power Business recorded $213 million of FFO. That compares to $257 million in 2010. The decline could be attributed principally to our lower ownership interest in our Canadian operations for much of the year, as well as lower prices on the short-term power sales. Generation was up 10% year-over-year but still below 3% below our long-term average.

Our reservoir levels are currently above LTA, which sets us up well to achieve increased generation levels in 2012, should normal hydrology prevail for the balance of the year. We completed construction on four power facilities for close to $1 billion during the year, added 280 megawatts of installed capacity, and we have a further $500 million of projects expected to come online in the first quarter of this year.

Think of it as an attractive pipeline of 2,000 megawatts of projects that we continue to pursue. And while short-term prices remain weak, our outlook for long-term renewable prices has improved. We base our views on the continued increase in demand for renewable power sources, which is manifesting itself in public policy and utility demand for increased sources of renewable power, and enables us to secure long-term contracts for our electricity at premium prices.

In our infrastructure operations, we are very active on a number of fronts. We achieved strong operational growth driven by expansion projects, favorable rate reviews and strong demand for our timber operation -- product sales, originating mostly out of Asia. FFO increased from $130 million to $194 million. That reflects the operational gains, as well as our increase in ownership of many of these operations that took place in late 2010.

The market capitalization of our Listed Infrastructure business increased by 50% to more than $5 billion at year-end, due to increased values and a $700 million equity raise. And our $3 billion institutional fund is now 50% committed to new investments. We completed the acquisition of a toll road in Chile in late 2011, an electrical distribution in Colombia in early 2012 and are pursuing a number of additional compelling acquisition opportunities. In our private equity operations, this includes our special situations activities, as well as our residential and agricultural development businesses. FFO from this group was relatively unchanged year-over-year. The residential results were mixed.

Our US business contributed virtually nil but at least we are at the bottom of and believe we are poised for, well-positioned for the eventual recovery. Our Canadian business continues to perform very well, although we did have some slippage of closings into 2012. And the Brazilian business continues to experience very strong growth and record sales.

Backlogs in terms of undelivered homes in North America and contracted sales for projects underway in Brazil both increased over the comparable results at the end of 2010, which bodes well for 2012. We continue to make operational improvements in our special situations portfolios and put more capital to work at attractive valuations through a combination of follow-on investments and new acquisitions. Our three institutional funds have total invested capital of $1.1 billion and dry powder from clients of a further $1.7 billion.

On the funding side for the Business overall, we continue to have very strong access to the capital markets, and are continuing to take advantage of the low financing rates to replace existing financings with longer-term and lower rate, fixed rate financing to lengthen our maturity profile and lower our cost of capital. This included the arrangement of $8 billion of loans across our office portfolio, $5 billion within our retail operations, $3 billion within our infrastructure operations and $1 billion within our renewable power operations.

That largely concludes my remarks, but before handing the call over to Bruce, I would like to add that the Board of Directors has approved an 8% increase to our common share dividend to $0.14 per share for the quarter or $0.56 on an annualized basis, which will take effect with the next dividend payment scheduled for the end of May. So, thank you, and I will now past the call over to Bruce.

Good morning. 2011 was, I guess we would characterize it as an active year, as you've all seen from the materials and from Brian's comments. Our main focus over the year was integrating many of the operations that we purchased over the past few years and deploying new capital for our clients. We also continue to put substantial resources towards raising new private funds. And lastly, I guess we're in the final stages of implementing our listed issuer strategy, and in this regard we achieved the launch of Brookfield Renewable Energy Partners in 2011.

Looking forward, I guess I would characterize it by saying that we think 2012 will be an excellent year to continue to invest capital and that looking back it will be a very strong year for investments. Therefore, we are focused on putting capital to work in all of our mandates that we have across our Businesses. Turning to the market environment, which sort of sets the backdrop for that, I guess I would say the 2011 we would characterize as a year where North American markets were flat.

Europe was down and the emerging markets, despite good fundamentals got caught up in all of the issues that went on in the world. This is largely due to the sovereign debt issues, a perceived sluggish economic growth, a potential crisis in Europe, and fears about renewed inflation in the developing economies. That made -- debt markets performed very well during the year and was really benefiting from investor anxiety that was out there. But I guess our view is that good companies with good assets continue to have access to capital at exceptionally low yields, as Brian just mentioned, and that continues. And we are working on taking -- capitalizing on that as much as possible.

As we head into 2012, our view is that many of these concerns that were prevalent last year appear to have abated. The US economy continues to grow. As we see that in most of our businesses and fears about Europe and inflation appear to have been overstated. Nevertheless, in the developed economies there is no doubt there are issues that there is too much of sovereign debt and that has to be worked through.

And I guess our view is that this bodes extremely well for the real asset investment strategies that we focus on in the types of investments that we manage, because of the returns that they can produce. With real interest rates remaining extremely low, our real assets, such as property, power and infrastructure offer extremely strong risk-adjusted returns for investors. These investments produce cash returns far in excess of prevailing bond yields today. And provide investors with in addition to that, a valuable hedge against inflation in the future should it come about.

Moreover, unlike bonds they also offer the potential for further capital appreciation and therefore we think that is an extremely positive thing. Our performance over the last number of years can partially also be attributed to the dramatic rise in contribution of the emerging markets in the world. We have a significant portion, as you know, of our capital invested in Australia, Brazil and Canada. These three countries have benefited enormously from the commodity markets, and what has gone on in the world and Brazil in particular has seen tremendous growth in the past decade as a result of that.

Specifically, we manage over $50 billion of investments in these countries. Over $15 billion in Brazil, and these countries offer -- for us, they offer higher investment returns. Largely because, in our view, that there are many global investors that just don't have the operations to be able to deploy capital in these markets. And our view today is that many of these countries are -- have fully arrived and in fact in many cases are lower risk than some of their developed country counterparts.

Turning to interest rates, which we often get asked about, we have been living through the lowest interest rate period experienced in living memory. On the positive side, this has allowed governments, corporations and individuals to work through debt issues which clearly could have had more broader and extensive issues and financial ramifications. The result of this low interest rates should continue for a number of years, as indicated by many governments across the world.

But in our view, this situation presents one of the greatest investment risks for global investors as we look out past two to four years from now. In short, the risk reflects the fact that when interest rates increase in the future, all assets which are long-tailed in nature will have their perceived values adjusted downward. However, different than many of the assets, and because of the real return nature of what we invest in, within a relatively short period of time, our portfolio will earn back the adjustments as the rate of growth of the underlying cash flows increases, due to economic expansion and the underlying inflationary pressures that come about with increases in interest rates.

As a result we believe that real assets are an ideal thing to invest in today for constituents. They will protect against long-term interest rate increases. Currently, they are earning far greater cash-on-cash returns than alternatives. And real assets would generate cash on an annual basis, and the cash flow from these quality assets that increases over time generally has a capitalized value that's higher in the future. The real return protection is particularly valuable in periods which could result -- could happen in the future.

Furthermore, we believe that the capitalized value of real assets today are not reflective of the exceptionally low interest rate period, largely because of the expanded risk premium which currently exists out there among some other factors. Therefore, in our view the first -- whether it's 1%, 2%, 3% of increases in long-term interest rates, when it happens will have virtually no effect on values for real assets.

Nevertheless, I guess we are very focused on this and as Brian mentioned we continue to utilize this environment to fix as much of our financing on a long-term basis as we can at these historically low rates. To use an example, just to make the point, if someone pays a 5% going-in yield today for an office building or a shopping mall, many people think this is a high price. And on historical terms compared to 10-year -- on historical terms it has been. But when you compare that return to a 10-year Treasury today it's 300 basis points higher than what a Treasury yields.

To make the point very specifically, seldom have quality assets ever traded at 300 basis points above Treasuries and we believe that this is due to the risk premium that exists today. So, the future holds one of two events. The first is higher prices for these type of assets as yields adjust lower with this environment and when people realize that rates aren't going up, or believe that that's the case. The second is that the Treasury will increase in the future and that will -- the risk of premium is a justifiable amounts.

Determining what happened is, obviously, what makes a market. And if we had to make a prediction you will probably see values going higher, and therefore yields coming down in the short-run. And in the longer run you will see interest rates on the long end go up. Lastly, we felt it just worthwhile to make a few comments on our overall structure of the organization as it's been very consistent for up to a decade or for many years but it continues to evolve.

And as we build our business, we continue to do that to position ourselves to take advantage of our competitive strength. And a significant step in maximizing what we think of as our Business flexibility has been the launch of our publicly traded flagship infrastructure and renewable power companies over the last five years.

Specifically, the first step in this was the listing of our infrastructure entity in 2008. The second step was Renewable Partners in 2011, and the last step as noted in our shareholder letter, if we can achieve it, is the launch of a similar flagship entity for our property group, which as most of you know is a private company today, and owns one of the largest diversified real estate businesses in the world. If launched, this entity would likely be created through the partial spinoff of shares, which would be identical to what we did with Brookfield Infrastructure in 2008.

And like our other two flagship entities this Company would have a global mandate to grow in the commercial property business. It would be managed by us and have a strong dividend policy, as we have done with the other entities. And we of course will keep a very meaningful interest in this Business from the start.

Once our full realignment is completed with our Company and our flagship private funds are working in conjunction with these entities, we believe that we will have created a global asset manager with access to long-term permanent capital that very few will rival. Our competitive advantages will then really be threefold. The first is the structure of our organization and the scale of capital we can access, enabling us to do transactions that not too many others can do.

The second is our operating knowledge that we have from our Businesses and we stay very focused in our specific Businesses we're in. And the third is the mindset that we have of longer-term capital returns, as compared to IRR focused, and this gives us a special advantage when we look at transactions, we believe. And I guess we spend a lot of time on focusing on these competitive advantages, and protecting them dearly and working to enhance them as we try to form the organization as we go in the future, really with a full goal of ensuring that we deliver best in class returns for our clients and for shareholders.

So those were the comments, I thought I would make after Brian's. Operator, I would now just turn this back to you and Brian and I would be pleased to take any questions from you if there are any.

(Operator Instructions) Cherilyn Radbourne, TD Securities.

I guess the obvious question is to ask you if you can give any further detail in terms of your thinking about the spinoff of a global property entity and whether that would include all of the businesses that you're now disclosing in the property segment, in other words the office retail plus the real estate opportunity and finance funds?

So, thanks for the question. I guess I would just say we are still in the midst of this. Our inclination or what we're working on is that it would not include any of our residential businesses. This would be our income producing businesses that are income producing or have the capability in the relatively short-term to turn assets into things that produce income.

So, it would include all of our multifamily businesses that we've been buying in the US. It would include our privately owned office buildings that we still own, our investments in all the entities that we own, office buildings and retail malls group, plus all our directly owned assets and our opportunity fund commitments in the area towards -- anything related to commercial properties. So, it would basically be the business that we disclose as our commercial or income producing business.

Okay. As a follow-up would it be your intention to establish a payout ratio similar to that of [dip and breadth]. If so, how would that be accomplished just given that some of those holdings don't generate distributable cash flow. Like for instance, Canary Wharf which pays dividends at irregular intervals.

I guess, I would say our view in the future is that these -- or we found that these companies as total return vehicles -- but paying out 60% to 70% of their cash flows is a good payout ratio to have in them. Some of the assets held within will not have full payouts of their dividends up to the parent entity. Having said that there, probably will be very little debt in the parent Company and a lot of assets. So, it should be able to have a full payout of that cash flow, just based off of the levels that are up top and the assets are up top and it has lots of flexibility to generate cash. So, we'll have to figure that out over time but that would be our intention.

Brendan Mariana, Wells Fargo.

So I guess, I just wanted to follow-up on the property -- potential property spin out as well. Bruce, just reading through the letter, it sounded like maybe you were, I don't know if frustrated is the right word, but you were a little bit surprised at maybe the level of where the shares are trading relative to the intrinsic value. So, intrinsic value at around $41 and the shares in the low $30s. How do you guys think about the risk of spinning out this business where a lot of the assets are already going to be in publicly traded vehicles and I presume that this vehicle would be externally managed similar to dip and breadth.

In that you could have the value of the property vehicle trade below where you guys view the intrinsic value because if it is an external managed vehicle in assets that are already publicly traded in other vehicles, how you sort of think about the risks associated with it offset by the benefits that you laid out in your prepared remarks.

So, I would say the following. In 2008, we spun out Brookfield Infrastructure and we didn't know whether it would be an entity that would be taken properly in the capital market. What I said to an answer of a question similar to what you just said was, we're spinning a very small portion of this Company into the capital market. We believe it's the right thing longer-term and we think we can do a lot with the Company in the future.

For two years the Company was flat and then it's done extremely well since then, I think it's one of the great assets we have in the organization today. It's again, allowed us to do things that very few others can do. So, I would say the first thing is if we do this, we are going to spin a very small portion of the Company out into the market. We're going to hope to find investors that like the entity.

What we are doing with it and that over time the future of that Company and our business is not about the trading value day one, or even in two years afterwards, but 5 to 10 years from now. We think this will give us an entity that will allow us to do things that very few others can. So, I guess we are not that focused on short-term things as you know. But we think creating this could be quite valuable for us 5 to 10 years from now.

Do you guys think that the new investments that get done within property a lot of the new investments that get done would be more wholly-owned for this spinout as opposed to within some of the publicly traded vehicles that are already part of your property portfolio?

No, I think it could be a mix --or it will be a mix. Obviously if there is retail malls being purchased in the United States, they will be bought by our retail mall Company or office buildings by the office Company. But there is a lot of things that close -- what we found is that -- we do a lot of things in Brookfield Asset Management today in real estate because they're just not appropriate for the entities that we have in the market.

This will be -- have a global mandate like BAM does today to do restructuring and enter into opportunistic real estate investments in core assets on a global basis in all the places where we want to invest. There are an enormous number of things we see everyday but many of them are just not appropriate for the pure-play companies that we have that are publicly traded. So, this will be a different entity and all of our opportunistic income producing commercial activities will be conducted through it.

Michael Goldberg, Desjardins Securities.

I'd also like to follow-up on this question, also. Maybe one way that I would put it is, could you give us some idea of what you think the [fee tail] from this property LP initiative could add to your intrinsic value, looking out over the long-term. Taking the present value of the future fees associated with the property LP.

I guess I -- maybe Brian has more specifics but I would just say that this entity will have a market capital rival most in the world. It should allow us to do transactions, some of largest ones in the world. It should allow us to do transactions which are very large.

If we can grow this entity on a positive basis for all the shareholders of this entity just like renewable power and infrastructure. It could be very valuable to Brookfield Asset Management, both its interest in the Company but also it's the fees that come out of it. So, I don't think we have any -- or I don't have any specifics as to what it could be worth but you can do the calculations. If you grow this entity. It could be worth a lot of money to us.

Okay. Separate question entirely, do you see any evidence of longer term debt markets developing in Australia or Brazil? Given your optimism can you discuss Brazil residential as an opportunity? Do you see Brazil residential finances an opportunity over time also? Do you plan to invest more in Brazil?

Let me just start off on the financing side, Michael. Bruce can come back to our Brazil Company although they haven't reported their results yet. So, we may be a little bit limited in what we can say on that front -- on the Brazil residential side. In Australia as you know, we have, I'll say struggled a bit because particularly the property market there is largely funded on a pretty short-term basis. As is just what you are alluding to.

We have been working on a number of fronts to try and broadening the access to longer-term capital, to fund our Australian properties and some of that has involved cross-border issuance into the United States on a the private placement basis. We are certainly involved on an advocacy basis, within the country and with the number of major institutions there. We're confident that over time a solid institutional mortgage market will develop in the country. It does take time. So, we don't expect to see it overnight but we will be able to -- I'm confident we will be able to do several things in some scale involving either cross-border issuance to remedy some of that challenge and lengthen the term there. But it will be gradual.

Brazil is another area and I would say that it's probably a bit different in that the opportunity there is for longer-term, lower term interest rates and you do have some very, very large and sophisticated financial institutions, principally the banks in Brazil. But again, we do see that being a significant area of interest within the Company. There's a tremendous amount of term financing getting done out of Brazilian companies into the global markets on the US basis. But we see that morphing into a very solid, local currency based term funding money market as well, over time once you give a little bit more stability and breadth into the capital markets. That will obviously, create a tremendous uplift in the value of term funded assets like ours.

So, I would just add on maybe on the financing front in Brazil is that the market there -- or we finance with -- we have far, far less financing on any asset that we have in anywhere else in the world just because interest rates are so high. We just think on a cost to capital basis, we would rather put more equity in. So, we don't have a lot of financing in the country.

One of the great boosts of the country even further from where it is, is that as real interest rates in the country come down -- they're the highest in the world -- there will be a tremendous, as Brian said there will be a tremendous increase in values as you put lower-cost financing on assets. That is one of the reasons we still believe there is great investment opportunities in the country. I guess, well there is many people can go to a country like Brazil and start making investments, we have just a particular advantage because we've been there a long time. Given our presence there, we're building out all of our businesses -- and all on very lucrative returns for our clients and for ourselves.

Specifically to the residential business, we continue to see very, very positive yearly growth -- or quarterly and yearly growth in the business. I think we will build out 20,000 condominium units or something like that this year. Numbers are -- continue to be very robust in all of the markets. So, it's just capitalizing on the middle class, earning more income and wanting more housing units. That continues to be a very positive underlying fundamentals, that look like it will last for quite a while.

Neil Downey, RBC Capital Markets.

Bruce, just to clarify a point on the idea of a potential spin co of your global property business. To be clear, would that entity hold the shares that Brookfield Asset Management currently owns in Brookfield Properties -- those are 250 million-odd shares of BPO as well as the shares that you and your partners own in general growth?

Yes.

Just a point of clarification --

In addition, to all of the other private assets that we have.

Okay. One clarifying point on your new disclosures. As you outlined an FFO or Funds From Operations number. Should I simplistically think of this number as being a recurring cash flow number plus gains on opportunistic investments, but effectively excluding dilution gains that are realize from time to time when you sale down pieces of core businesses?

Yes, Neil, it's Brian. I would say it's similar to the cash flow from operations number that we historically reported, excluding what we often refer to as major disposition gains or major realization gains. We really view the business as -- I would say two components to it from that perspective. Within the more opportunistic private equity, residential development type businesses, those by their nature -- the results on an ongoing basis our composition of -- I will say cash flow or pure FFO and disposition gains. That is just what they do.

In some of the more -- the business is like our core office and the retail and the infrastructure, that is more of an FFO business. So, when you see us either monetizing a group of large assets of that nature or are interested in one of the entities that owns those assets. So for example, the sale of a monetization of portion of our holdings in Brookfield Renewable, things like that and those would be those major realization gains. We've segregated them in the past. As opposed -- just in an effort to try and simplify the disclosure going forward, we felt we would just stick with I'll call it more of a clean FFO number. Give you the valuation gains and then you may have noticed, we also provided those realization gains just to provide some context about our ongoing crystallization of the valuation gains that we built up over time in relation to those assets.

Mario Saric, Scotia Capital.

Just coming back to the potential listed property fund. We may be getting a little bit ahead of ourselves here, but just with respect to future growth within the fund,. Thinking about what the potential implications are for some of the listed entities today like a BPO for example, with respect to expanding into new geographies. So, if we do have, let's say a core CBD office fund in continental Europe is this something that generally would be included in the fund, as opposed to BPO going forward? So, just some thoughts on implications for growth.

Yes, I'd say the following, we have had a rule that we have always operated with our public companies. Where we owned a major interest in and that is that if the Board of that downstream company wanted to make an investment, we were always happy through the Company to take our proportionate share. Hence, if Brookfield Properties is an office Company and they want to buy an office portfolio in Europe, we're ecstatic about that. If we like the investment, along with the Board, and we would be happy to own half of it through the Company.

Having said that, we have a much broader mandate. Obviously which is global and we've been doing a lot of things out there and we need a balance sheet to finance that off of. Those companies, the investors in them are very focused as to what they want to do and they don't do all of the different investments that we make. They're much more opportunistic in nature. So, that is really the difference between the two.

Okay. I guess, longer-term, is there any concern internally -- you are mixing commercial property, but you are including office retail and multifamily. Is there any longer-term concern as far as -- by impact on pricing from lower specialization by asset class within the fund?

I guess it you can -- we will have to see five years from now. Whether we are right or we are wrong, but we believe that we can create a global entity that has diversity, both in geography and product type. We have all of the capabilities to do that with the people we have in house. And we are doing it today. Remember this is all -- the most specific point of this is, all of this is run by Brookfield today and it's a 100% owned entity. What this is, is a split off of that, just like we did with infrastructure and renewable power. I guess, what we believe is that this entity will find a place in the capital market and investors that want to invest with it, but five years from now we will have to see.

Okay great. I appreciate that. Maybe one last question for Brian just on more recent revised outlook from S&P. Maybe, share some of your observations on the announcement, and perhaps how important that A minus rating is to BAM and how comfortable you are in meeting some of the federal thresholds by S&P in 2012.

Sure. Just for edification of others on the call, S&P put us on negative outlook for our A low rating. We actually had been on negative, 12 months or 18 months ago. At the end of the day, that doesn't impact how we run the business. We don't think it will affect our financing costs much at all. I would say what their rating reflected is they have a -- and I shouldn't -- I need to be careful about putting words in their mouths but I think they're probably public on this in terms of their view with respect to certain aspects of the US economy and its slower growth environment.

I think they were reacting to frankly, something we've been pretty clear on which is we are not getting the type of contribution out of our US home building business and certain other of our businesses that are more directly influenced by the US economy. We do see very encouraging signs there. But this year, we didn't really get much of a contribution out of that. I think frankly, they were reacting in part to that in their assessment of it. So, we been there before. We have a great relationship with S&P. We value their views, but we think the progress we see on the horizon in terms of growing the cash flow and the performance of the business, we don't see any issues longer-term in taking that outlook off and getting back to the usual rating.

Andrew Kuske, Credit Suisse.

I think this question is probably for Brian to start off with. It's just on the dry powder of committed but not deployed capital. I think you said the number was $5.4 billion. If memory serves me correctly, that is down from what you had in the previous quarter, if you could just give us some color around the decline in the number.

Sure. So, somewhere there is an element of returning capital to investors, in terms of the overall amount of fund capital in our private funds. I would say one of the things that we pride ourselves on, is we are not going to put the capital to work unless we see attractive opportunities both in the eyes of our stakeholders but in our own, given that we invest a lot alongside in these funds. We obviously, think that alignment of interest is incredibly important.

So, we did have a couple of situations where we came to the end of the investment period, we hadn't put all of the capital to work. In those situations, I think it's also worthwhile to point out that we are actively raising a number of funds that will, in effect replace that capital. That's part of the normal lifecycle of the fund of management side of things. You come to your end of your investment period and you then -- ideally you have invested as much or all of the capital. You always hold some back.

But then you're onto the next fund which the objective there is, obviously, to have the closings follow close on top of the expiry of the investment periods. So, that's what that's about. Obviously with the $5 billion in the pipeline, we look to have that number get back up higher than the $8 billion that it was.

Okay. That's helpful. Then a somewhat related question. How big do you believe your asset management business can become, in terms of AUM relative to your existing cost structure that you have in place? Your cost of this business, you've been building this over quite a few years now. You've got a pretty large structure in place across asset classes. So, how big could the business be relative to the cost structure you have in place and when will the costs actually flat line from here?

I think we've put a lot of effort and money -- costs into building out the structure to get where we are now. I think all the heavy lifting has been done. It's hard to project that out with any great degree of precision, but I think we can at least double the business without having anywhere near the commensurate increase in the operating costs. We would expect to see the margins expand significantly.

Mike Mitchell, Locust Wood.

This is actually Steve Errico for Mike. We are excited about the potential spinoff of your property business and would applaud it. Because I think what will be left is people will then start to focus on the value of your asset management business. I noticed in your press release you guys value it currently at about $4.2 billion. I was just curious as to how you look at it and how you guys come up with that number. Thank you.

You're welcome. Thanks for the question. We have a methodology for coming up with that number. In essence what it assumes is that we grow the existing AUM at about a 10% clip. We actually have this laid out in our materials but it takes a little time to get through to that. We grow it at 10%, we achieve 150 basis point margin. We put a 15 times multiple on it, like you would see a number of asset managers valued. Then we put a 15% discount rate on that. That is a mathematical calculation that comes up at around the $4.25 billion. I think really the point of us having that number in there is to focus people's attention on the fact that there is a franchise value there, and our objective over time is to continue to increase the AUM and the associated fee margins and fee revenues to crystallize that value and a lot more.

Bert Powell, BMO Capital Markets.

Bruce, in your letter you talked about significant resources for raising new funds and at the same time it seems that there is some of the dry powders falling away for perhaps opportunities that aren't meeting acceptable returns. I'm wondering if you could share with us your thoughts just in terms of where is the biggest challenge here? Is it raising the money or is it finding investments to earn a reasonable return?

So firstly, I would say the difference in when you calculate and you look on a quarterly basis of funds that we have to deploy, is often dependent -- and maybe to be very specific about it, is dependent upon timing of when a fund expires and when another one gets raised. So, I wouldn't too much focus on the fact that it's one number, one quarter, and one the next. It is over a longer period of time you need to look at it, I think. That is the first comment.

To answer your second part of the question which is, is it harder for us to find money or is it harder for us to invest? I would say that maybe specifically they are all hard, every day. We don't make light of any of those challenges that are in front of us. I guess, I would say that on both of them we -- firstly, on fund raising, we enjoy an extremely fortunate situation where we have access to most global financial institutions that fund us around the world. Given the scale of operations that we run that is extremely important. We also have built enviable relationships with a number of institutional clients. Therefore, we have great access to money from many of them. Despite that, we can always do better, and in fact there are others that do it better than us and we would like to excel to where they are. So on that side, I think we do okay but we can always do better.

On the investment front, I would say we have done well putting a lot of money to work in the last three years. We think that has been an excellent period to put money to work. We think the capital we put to work will do extremely well. On top of the record that we came through the downturn with, from the previous five years will show us in excellent stead when we look at historical returns and that should help fundraising. As to investments today, there is no doubt they are maybe tougher to make because there is more people looking for investments today than there were two years ago. But we have a global sourcing platform that find lots of opportunities for us and we have to sort through the ones that we like. So, there is not -- I would say again, it is tough and business is always tough, but we don't have a lack of things to put into our platforms.

Okay. Also in your letter you talked about the prospects at some point down the road, if the value is not reflected in the share price for the asset management business that you would look to separate that out. I'm assuming you are alluding to creating a separate public vehicle that would just be a dedicated -- the sole source of income would be from managing the assets related to the Brookfield ecosystem.

I would say the following, what that comment was meant to indicate is we are in the business of creating value for our shareholders. We think about it over the longer term. Many people -- some companies think about things in the short-term, where their stock price is tomorrow morning. But we're in the business of solely generating wealth for our common shareholders. There are -- because of the type of business we run, there are many different separations you can make in the business -- if that's what's best for the business and creation of value for the common shareholder. We're not set on any one way.

Therefore, if -- we think that this large entity that has global access to capital with these entities for specific products in areas where we have expertise is the right strategy, but if that -- and us having a big interest in them. But someday, 5 or 10 years from now when the machine is fully built out if that isn't properly valued in the market we can always look at alternatives. We are open to those, and we are always open to those, and we continue to think about them ourselves, and in fact listen to investors and analysts, and talk to them about it. We're always open to suggestions.

Jeffrey Olin, Vision Capital Corp.

Congratulations on great results. Just a quick question. It would be appropriate to assume that going forward, once the spinoff entity is created, that the parent Company, other than participating in transactions at the underlying entity does, would no longer be directly involved in the property business -- commercial property business?

Yes. Our intention with Brookfield Renewable Energy and with Brookfield Infrastructure is that all of our activities in those areas are conducted through that entity. So, the same thing would go for our property Company. That is to say there are sometimes we -- those entities need support from us, and we sometimes assist them, and that does result in us sometimes participating. But it would be the exception, and it would only be to assist the downstream company.

Thank you. My second question is, what are you seeing in terms of fees, pressures, or opportunities in your asset management business?

I don't -- we are not seeing any real change in fees at the current time. I think the difference is, there are people out there that can't raise money and there are ones that can. We fortunately fit into the category of can and it's not really about fees. It's about whether you have the relationships and your performance has been good. So I don't -- we are not really seeing any change in fees in the marketplace.

Michael Goldberg, Desjardins Securities.

I would just like to clarify one point. In order to maximize access to cash for distribution to this property LP unit holders, would you contemplate BPO and GDP converting into REITS. I have another question after that.

It doesn't -- firstly, GDP is a REIT. Brookfield Properties is not a REIT, it's a corporation. But they have their dividend policies. They already pay a significant portion of their cash flows out. Really this has no effect on what we do up top. We own those entities and they will do what they do, based on what the Boards decide of those companies. Obviously, we have our participation in that but there is no reason for us to do anything different, I don't think. And we won't have to.

Okay. The second question entirely, along the theme of value creation, one thing that has often puzzled me is, you get included in the real estate index. Clearly you are less and less over time a real estate Company. You're an asset management Company. Is there anything that you can do to influence which index your stock gets included in?

I think all of our investors should phone the index people and tell them to put us in a different index maybe, Michael.

Yes, we've had conversations on that front. I think we've actually made some progress in a couple areas there. It will evolve more over time. No, we're active on that front.

Are you saying there is a change that may be pending?

Possibly.

Brendan Maiorana, Wells Fargo.

So Brian, I had a two-parter for you on power. First, I was trying to reconcile between BREPs disclosure and their pro forma FFO that they provided, I guess was it last week. The numbers that you provided this morning for 2011. Can you give us a sense of how much cash flow was generated by the platform outside of BAM's interest in BREP and if we look at that on a full year 2011, pro forma basis -- assuming BREP was in place for all of 2011. Then maybe, translate that into what the expectations are for growth in power rates over time and how that applies to the difference between the BAM power valuation overall of around $8 billion and the BAM's interest in BREP, which I think at 12-31 was around in the low $6 billion -- maybe $6.2 billion or something like that. The difference between those two?

Sure. Okay on your first question, I can't give you a number for that, off the cuff here, on the call. But in terms of your question on the valuation side of it, what that difference that you're referring to effectively translates into, is the difference between if you took power prices and grew them at 40% of CPI or if you grew them on a profile that we think is more likely to occur, particularly for renewable pricing. That is the big difference is the price premium that we see there. So, if you go out -- in terms of how we look at prices over the next few years, we just take them off the curves. They pick up a bit from now, but it's not a tremendous amount.

What you really see occurring is that sustained premium for renewable pricing manifesting itself more broadly across the market, and a couple of points I've made, and you can see what's happening -- public policy. You also can see it in how utilities and purchasing entities are behaving and our ability to sign up long-term contracts whether it's for wind assets, for new hydros or for our existing hydros. It does give us a lot of conviction that we will be able to move our overall pricing up substantially over time.

Just a point of clarification. The 40% because I think there is the 40% of CPI numbers that BREP gets in their contracts but then the BAM platform gets, generally, for a lot of those contracts that are under the long-term contracts, gets the full CPI escalator. So, can you give us maybe a sense of how much of the differential is attributed to locked in cash flows that the BAM platform will get versus, how much is based on an improvement -- a longer-term improvement in power prices.

It's probably about one-third to a half in terms of what is locked in, and the other half is based on a growth.

Mario Saric, Scotia Capital.

Bruce, just perhaps looking at the acquisition environment today. Can you give us some color as to where you see bid-ask prices today, and what potentially may be the catalyst for that to narrow going forward?

I would say -- I would differentiate it. On assets which can be purchased from corporations or sellers that have streams of cash flows that are relatively locked in and secure. There are many, many bidders and yields are compressing every day and they have been for a while. We believe they will continue to compress downward, meaning values are going up.

On the distress side where there are no cash flows, or they are less transparent as where the cash flows are, because they're mixed up in a reorganization or a European situation or all of the -- many of those things that come along with a reorganization. There are not too many people that are there and therefore, there is a big gulf and those are the opportunities I guess that we focus on. So, I would say there is -- it is a tale of two cities with respect to acquisitions. Not a lot of capital for the second type and lots of capital for the first. Most of our money is focused on the second category, being reorganizing assets at in the businesses that we are in.

Great. Just on those assets, the bid-ask spread, is it still wider than what you would have anticipated it to be at this time? Or are valuations attractive at this stage?

I would say North America people are being realistic and people are clearing assets, and they have been for 18 months. Europe they are just starting into it. We think the next two years will be -- there will be many assets cleared out of the banks and corporations, as they start to get a grip on their financial situation. So, I would say it's different in the two major markets.

This concludes the time allocated for questions on today's call. I will now turn the call back over to Mr. Flatt for concluding comments.

Thank you all for joining today's -- of course, should you have any questions on the materials or anything please call any of us at Brookfield and we would be pleased to speak to you. If nothing else, we will talk to you next quarter. Thank you very much.