Earnings Call: Q3 2010

Nov 5, 2010

Hello. This is the Chorus Call conference operator. Welcome to the Brookfield Asset Management 20 10 Third Quarter 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. If you're listening via the live webcast and wish to ask a question, please click on the telephone icon and provide your contact information to be joined to the call. At this time, I'd like to turn the conference over to Catherine Vyse, Senior Vice President, Investor Relations and Communications of Brookfield. Please go ahead, Ms. Vyse. Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining us for our Q3 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 financial results. Bruce will then provide some comments on opportunities within the current investment environment and updates on several of our strategic initiatives. I would like at this time to remind you that in responding to questions and in talking about our new initiatives and our financial and operating performance, we may make forward looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information for investors, I would encourage you to review our annual information form or our annual report, both of which are available on our website. With that done, I would like to turn the call over to Brian. Thank you, Catherine and good morning. We had a very solid Q3 in terms of our financial results, operating highlights and strategic initiatives. I will cover the first two in my remarks and Bruce will go over the strategic initiatives in his. Turning to our operating cash flow, that was $354,000,000 during the quarter that compares with $149,000,000 in 2,009, the 2,009 figure excluding realization gains. We achieved increased earnings in virtually all of our operating segments during the quarter. The one notable exception was our power generating operations, which suffered from below average water flows. I will discuss that segment first. The contribution there was $46,000,000 it was down $10,000,000 from the $56,000,000 that we recorded last year. As I mentioned, generation was below long term averages roughly 20% and was 25% lower than the Q3 of 2,009. The hydrology levels were particularly low in Ontario, Quebec and New York. Fortunately, water levels in these key markets and always have normalized during October and that should result in generation that is closer to long term averages for the Q4. The other piece of good news in that regard is that the shortfall was also largely offset by higher prices that we realized from a more favorable generation mix within the portfolio and the benefit of long term contracts arranged over the past 2 years. More recently, we extended the term of our shorter term contracts into 2012 and so we have now contracted 83% of expected generation until the beginning of 2013 at attractive prices. The majority of our power remains under long term contracts with an average term of 13 years. We completed our 50 Megawatt Gosfield wind farm in Southwestern Ontario and that contributed to cash flow in the quarter and we are continuing to work on several other development projects that are from the attractiveness of renewable energy. On commercial office, the contribution there reflects a 2% increase in rents on a same property basis and a $26,000,000 dividend from our investment in Canary Wharf Group. We leased 1,100,000 square feet across the global portfolio at rents that were 9% higher than the expiring leases. We've observed market stabilizing in almost all of our major centers and are improving noticeably in several cities. Our portfolio remains 95% leased, average lease term is 7 years and rents that are 9% less than the comparable market rents and that of course provides for potential further growth. On the infrastructure side, results there include $20,000,000 from the global portfolio that we acquired in the Q4 of 2,009 and the existing operations also contributed a higher level cash flow. Approximately 85 percent of the expected annualized operating cash flows in these operations are governed by regulatory frameworks or contracts with an average term of 6 years. We completed the renewal of several regulatory frameworks and contract negotiations on favorable terms during the quarter with one exception and that added cash flow both in the quarter and should also lead to increased cash flows in the future from these businesses. In addition, we are pursuing a number of capital expansion projects with favorable potential returns. We're continuing to see cyclically low prices in our timberlands business and that is a business that's more correlated with the economic cycle in North America. And so as a result, we are maintaining our harvest levels that reduce prices, but that enables us to increase our standing timber inventories in the expectation of improving lumber prices and therefore significantly higher cash flows down the road. On the development side, this includes our residential development and our opportunistic property investments. We recorded a significantly increased contribution there of nearly $80,000,000 Our residential results benefited from an increased number of project completions in Brazil, improved margins in North America, increased activity in Australia and in particular the UK. On the opportunistic property side, we recorded $34,000,000 of gains on the sale of 3 properties during the quarter. Private Equity and Finance, this includes our restructuring and lending businesses benefited from improved operating results at a number of the portfolios held within our distressed investment and portfolio and private equity portfolios. And that represents a reflects a better operating environment for those businesses as well as some of the restructuring initiatives carried out over the past couple of years. On the investment and other income, dollars 126,000,000 in the quarter compared to $84,000,000 in the Q3 of 2,009, higher level of investment gains in the quarter. And then on the asset management fees and the contribution from other services, this is of course an important metric for us. Those totaled $90,000,000 in the quarter, an increase of $25,000,000 from the 2,009 results. Our base management fees are now are higher as a result of some of the new funds that we have recently launched and the corresponding increase in 3rd party capital commitments and are now tracking at an annualized rate of $190,000,000 and that's up roughly sevenfold from five years ago. In other areas, we completed $6,500,000,000 of capital raising initiatives since the end of June, benefiting from favorable debt and equity capital markets. These activities enhance our liquidity, give us proceeds to fund investment initiatives and also enabled us importantly to extend our debt maturity profile at a low cost of capital. One result of this is the extension of the corporate maturity profile at each of Brookfield Asset Management and our power business to 9 years 8 years respectively with an average rate on the new debt issues of 5.2%. The net asset value of our common shares increased by nearly $900,000,000 since the end of June. We estimate that to be $30.99 at quarter end, up about 4% from the end of June. This reflects the value of our tangible assets, but does not include a number of franchise or intangible values that we believe contributes to the overall intrinsic underlying value of our business. One thing of note is that we have observed a meaningful decline in long term interest rates, which is beginning to manifest itself in the form of lower discount and capitalization rates. And this has been evidenced in recent in the increased valuations for some recent market transactions. Now these have yet to be reflected fully in our net asset values in part because some of our assets are revalued only on an annual basis and in part because they have not crept fully into appraisals. But we do expect our year end valuations will reflect the will better reflect the lower interest rate and inflation environment and we believe overall that will result in a higher appraised value for our equity. And then finally, the Board of Directors declared the normal quarterly common share dividend of $0.13 per share payable at the end of February of 2011. And so with that, I will turn the call over to Bruce. Thank you, Brian, and good morning, everyone. Since our last call, we held our Investor Day in New York, which I'm sure a number of you attended. The materials are in our website and we encourage people to review those if they're interested. And in addition to that, we concluded 5 strategic initiatives, each one which is actually very exciting for the company. Just to note the 5, the first was the approval of our 27% cornerstone investment in general growth properties by the bankruptcy court in the U. S. GGP is expected to emerge from bankruptcy protection on Monday or Tuesday next week. The second was the approval by shareholders of the prime infrastructure company with Brookfield Infrastructure, which we believe creates one of the global leaders in infrastructure. 3rd, we achieved the final close of a private $2,700,000,000 fund dedicated to infrastructure investing, which gives us significant capital to grow this area of our operations. The 4th was the merger of the balance of our office properties into Brookfield office properties and the rest of our North American Residential businesses into Brookfield Residential or what was is currently called Brookfield Homes and will be called Brookfield Residential in early 2011. And we think this sets up 2 pure play entities, which will be very attractive over the longer term. Lastly, we succeeded in raising over $6,500,000,000 of capital from clients and on our balance sheet during the quarter that included just under $1,500,000,000 of corporate debt and perpetual preferreds, which have a coupon of around 5%. And this furthers our goal of which we have articulated to you before of locking in as much capital as we can for as long as possible at these low interest rates that we're currently experiencing. Each of these initiatives better positions the company over the longer term and we're I guess we're pleased that during the uncertain economic times that we were able to achieve all of these. First, I'll just make some comments on the environment and our investment strategy. Just in general, there's a strong belief that we are in a deflationary environment and obviously we're seeing that with a lot of the activities being undertaken by the government institutions. Interest rates have therefore decreased to historic lows and it's created an unusually favorable environment for entities like ourselves who own the type of assets that we own. And we plan on continuing to capitalize on this. And I'll make a couple of comments on this, although there are more in the shareholder letter if you're interested. Firstly, our assets that we own are have dependable cash flows in them. A lot of them are long tailed and have long streams of cash in them and they continue to generate contractual cash flows at very good returns assets produce plusminus10 percent yields on the total asset value and that looks pretty good compared to what interest rates are today in the general market. Secondly, most of the assets we have are financed at 40% to 60% loan to values at higher coupons than you would otherwise pay today. For example, our office buildings in the U. S. Are financed around 7% and today we would finance in the 4% to 4.5% range. In fact, we are financing in the 4% to 4.5% range. And as we refinance assets, these benefits will accrue to the common shareholders and clients of ours that we have as partners and assets. The environment which we think is ideal for us over the next 5 to 7 years is firstly a slow recovery on a global basis with interest rates staying low and a limited supply of new assets being added to the productive capacity. Following this period, in the next, say, 3 or 4 years from now, if inflation normalizes and real growth is achieved, cash flows in our assets would then begin to increase. And this environment, firstly, would enable us to refinance substantial amounts of debt at lower interest rates and lock in more of the historically low interest rates for a long period of time. We just don't have strategy succeed, we'll have locked in those strategy succeed, we'll have locked in those financings through the next economic upcycle, which we would hope would come 3 to 7 years from now. And this should ultimately lead to higher equity values on the assets that we own in the company. So we think that would be the ideal environment for our company. Switching to infrastructure, during the quarter we announced the merger of Prime Infrastructure, as I mentioned, with Brookfield Infrastructure. Yesterday, the shareholders of Prime voted almost unanimously on the merger proposal and overwhelmingly, the votes were in favor of it. As a result, the merger will be completed in early December and it will increase the capitalization of Brookfield Infrastructure to over $3,000,000,000 and take and we will take or Brookfield Infrastructure will take direct ownership of truly a world class group of assets that will be in the company. And the combined entity will own approximately 30% of and it will also free up the ability of us in Brookfield Infrastructure to continue to increase distributions over time, even though on this merger, we expect to increase the distributions by around 13%. But afterwards, we'll only be distributing about 60% of the distributable cash flow and therefore it will enable us to revisit distributions once operations are fully integrated. In infrastructure, we also successfully achieved the final close of our private infrastructure fund at $2,700,000,000 This fund is about 10% invested today and we plan on investing the balance over the next couple of years, primarily in North and South America. We have a number of great partners in the fund with us and with the private fund and our infrastructure Brookfield infrastructure publicly traded entity, we have very substantial amounts of capital to continue to grow this business. Turning next to general growth, as many of you will know, GDP is in a quiet period as it is doing a share offering And as I am the Chairman of that company, my remarks will be brief here, but I'll make a few comments. Next week, GGP will emerge from bankruptcy and be split into 2 companies. For interest for your interest this morning, they're actually now trading on a when issued basis separately in the markets. And upon actual separation, we'll own approximately 27% of general growth and approximately 14% of Howard Hughes Corporation on a fully diluted basis. Our overall investment is approximately $2,500,000,000 which about $1,000,000,000 is from our self and the remainder is from our valued clients. GDP, for those who don't know, is the 2nd largest U. S. Mall owner. It's going to complete this equity offering prior to year end and it will use the proceeds to redeem some of the capital committed by other shareholders in the recapitalization. At that time, our 3 year involvement will with GGP will result in the company being fully relaunched into the capital market with a strong balance sheet and us having a major investment. From an economic standpoint, like most of our businesses, we're seeing retail sales slowly recovering with this recovering in front of us and some targeted strategic initiatives as well as capital investment within the business. We believe GGP can remake itself into the best retail shopping mall company in the United States. Recently, 3 of our people were elected or will be elected to the Board as we come out of bankruptcy. I actually will be the Chairman, as I mentioned. And we provided a CFO to the company to help implement their plans. We also with the new Board were involved in hiring a new CEO for the company. He has extensive retail property experience. We're very excited about having him there. And with these management additions and in conjunction with the balance sheet coming out of the recapitalization, we think GGP has substantial room to grow the business and be very successful over the next 5 years. In addition and maybe lastly, I just mentioned that as a part of the court reorganization, there is a unique feature in the debt structure that allows the company to redeem the majority of its mortgages without make whole payments. And given current interest levels, the opportunity to refinance these mortgages, as Brian mentioned upfront that we're working on across our whole organization, is something that we did not envisage a couple of years ago. As a result, I guess, GGP is going to also move rapidly to attempt to lengthen the overall terms of financing, reduce interest costs and eliminate significant amortizations, which were embedded into the mortgages negotiated during the bankruptcy. Lastly, we believe with the concerted amount of effort, GGP can be a very successful investment for us and in the fullness of time, we think this will be one great, great company once again. Lastly, and before I turn it over to the operator for questions, I'd just say that we added significant assets during the quarter to both our direct and our listed businesses. We continue to establish ourselves as one of the global asset managers for property, power and infrastructure assets and this should lead to further growth in AUM in the years ahead. We closed approximately $3,300,000,000 of private capital into various strategies during the quarter. This was included the partial close on our or the final close on our infrastructure fund, which ended up as I said at $2,700,000,000 Again, the participants are from across the world in various different types of institutional investors and we're very excited about having all of them on board. We continue to see positive results in raising of private capital and we think that going forward as the broader equity private equity fundraising market improves, that that will only get better for the large scale players. So with that, operator, I'll turn it back to you for any questions from the line. Thank you, sir. We will now begin the question and answer Your first question is from Linda Ezergailis of TD Newcrest. Please go ahead. Just a housekeeping question before we move on to the real questions. Your CAD1 1,000,000,000 investment of BAM Capital for GGP, can you confirm that that's all common equity and not some combination of debt and equity? That would be common equity. Okay. Thank you. And great quarter. Could you give us some more color on or elaborate on the gains both on the investment and currency side and your investment and other income segment? Sure. It's Brian. And what that really relates to, it's a common issue of things. We have obviously a reasonable amount of capital securities. The markets have been pretty good there. We also recorded some currency securities. The markets have been pretty good there. We also recorded some currency gains. As you know, we've had some pretty favorable currency swings. And so it really boils down to those reforms of the bulk of it. So that's mark to market, but not necessarily realized? No, a lot of that would be realized, but it would be a mix. Although frankly when you're dealing with more liquid securities, it's we view them pretty similar. Okay. And in terms of your foreign exchange strategy, would it be your view to perhaps kind of lock in the current foreign exchange differentials now kind of like you're locking in long term interest rates or what's your thoughts on that? Yes, we have and I think we made the comment at the last call that we were pretty un hedged at that point in time. And as currencies in some of our key areas have appreciated, we have been moving to increase the level of hedging in that regard and we'll continue to do so. Okay. Can you give us any other color as to the outlook for that business and your strategies over the next year or so beyond just FX? On the just the general investing side? Yeah. I think it will be pretty much the same as it has been in the past. We do maintain excess liquidity. And during that period of time, we will look for opportunities in the capital markets to put that capital to work while maintaining the liquidity, but identifying undervalued situations. And as you've seen, the portfolio has ranged over the time depending on our views, common equities, distressed debt, high yield. Occasionally that will contain toehold provisions or toehold positions in investments. So it will run out pretty much the same as what you've seen in the past. Okay. Thank you. Now moving on to your annual update on your IFRS value. Can you remind me what sort of power prices you're using in your long term DCF? Is it market pricing? Is it replacement cost pricing? Is it some sort of assumption about contract renewal pricing? Mix? Sure. Okay. So in the there's really 3 components there. One is obviously you have what we have what is currently contracted. And so that's defined and we give some guidance for lack of a better word insight on what those levels are in the table where we set out our contracted generation over the next 5 years. When it comes to uncontracted generation in the short years namely the couple of years going out, we would look at prices that are visible in the market namely through forward curves and forward pricing in the spot markets and in the futures market. And then once you get out past a few years those markets become pretty illiquid. And so we tend to move more towards the combination of industry forecast and also we look a lot as we get further out at our view on replacement cost and what we call the new entrant cost of power in our relevant markets. Okay. And that would be gas on the margin or? In most of our markets it's driven by gas. So it would be a new CCGT facility coming on the line. Okay. And what sort of implicit gas price outlook would be embedded in that replacement cost? Oh, gosh, it's I'm not going to give you specifically what we're using right now, but it's generally ranged in around the $8 to $9 as you get further out. Okay. And then for your contracts as they roll off, are you assuming replacement costs or the re contracting at the same levels or? We would assume that they get re contracted based on our view of the replacement cost, namely that new entering cost of power as we go forward. Okay. And then just another question about your DCF. Your terminal cap rates, how can you remind us how they compare to your going in or current cap rates? Okay. We've got that set out one of the tables that I'll take you to and then I think we'll have to move on to the next. Sorry, yes. But I didn't see going in, I just saw terminal. That's right. Well, okay. So, but there really isn't in our view there really isn't the same the concept of it. We don't really use it going in cap rate from a valuation perspective. That's more of an outcome as opposed to an input. So that's why we don't publish it. You could drive that by just taking the current period NOI. All right. Thank you. Your next question is from Mark Rothschild of Canaccord Genuity. Please go ahead. Okay, thanks. Just following up on the IFRS and this question might be difficult to answer, but a number of your assets are only marked at year end, which is some of the power and infrastructure assets. Is there any way to estimate or have you done any work on what the potential increase could be now because there's been some significant increase in value throughout the year? We'll be spending a lot of time on that Mark over the next quarter and I don't think it would be appropriate for us to get too specific on guidance there. Obviously, the decrease in discount rates is going to be helpful. We also need to be mindful of where current price curves and rents are as well. Okay. That's fair enough. You've been investing quite a bit of capital, but in one area you've been selling down with Brookfield De Noble Power, you've sold quite a bit this year. And I realize you have capital to commit, but you do have significant liquidity. So maybe you could explain the strategy there and also how it relates to the U. S. Where you really haven't brought in partners in those assets? On the Brookfield Renewable Power, I guess I would just say that our business is about allocation of capital and we always like to carry substantial amounts of free liquidity to take advantage or capitalize on opportunities as they come along. And one of the companies that we have that's performed has performed extremely well over the last 5 years is the Brookfield Renewable Power. But it's a very attractive company for people who want a stable consistent return. And therefore for us, we still like the company. It's just we think we can put our money obviously take more risk but also put it to work and possibly earn higher returns in other places. And that's the only that really states exactly why we've been selling down some of it. But it's very attractive to others who want to earn a good return on capital and take a small amount of risk. So that basically is why we've been doing that. With respect to our U. S. Assets for the benefit of everyone, most of the U. S. Assets are owned privately within Brookfield Asset Management in the Power business. And we again just getting back to capital allocation, we've never had the need to generate extra cash out of those assets. Should we ever be in a position where we need significant amounts of capital, we could always do something with those assets. But up till now, we haven't done anything and we'll over time, we'll look at that based on whether we have an alternative use for the cash essentially. Okay. Thanks. And my only other question is regarding your retail investments in Brazil. You have you bought a couple of $1,000,000,000 of assets there a couple of years ago with partners. It doesn't seem to be reducing any net cash flow. I realize there's some redevelopment going on, but maybe you can give us a little bit of an update on those assets. And is there a point where they will turn cash flow positive? So just for everyone's benefit, we own about 14 shopping malls in Brazil. We bought we own 25% of the fund. The balance are owned by institutional clients. We have some of the best retail shopping malls in Brazil. It's a great business. And 2 things related to it. 1, we bought a number of assets who have very significant redevelopments going on. So there is very there is cash flow coming out of it, but related to the investments we're putting in most of the assets are still in the development stage and aren't fully producing cash. So that's the first point. The second is, we have financing in place in the portfolio and the interest costs related to a group of assets that are only producing 50% or 60% of the amount of cash flow that they will in the future, it means that they actually don't produce any current income. That's not to say that we don't think these are extremely valuable assets. They just don't produce current income in the portfolio. So that's what you see. And that's why Brian's point earlier on going in cap rates are not really relevant because you could assume that the value of these assets are negative. They're not, but the long term values are we think extremely valuable. So that's basically the snapshot of that group of assets. And how long should it take till the redevelopment projects are finished? Most of a couple of them are just in the stage of finishing now. But just to I'll make a comment too. There's very little redevelopment and expansion going on in retail malls in America, North America because of its retail. In Brazil, the great thing that we have is that these can continuously be expanded because of just the enormous growth going on in the retail business in Brazil. So the direct answer is the current expansions that are on right now and that we envisage when we bought into these assets are done into by the end of 'eleven into 2012, early 2012. But some of these are phenomenal assets, which if we can continue to re expand them, we will. And there may be new programs in place to continually to continue to grow these assets. But the current ones is the end of 2011 early 12. Okay. Thanks a lot. The next question is from Mario Saric of Scotia Capital. Please go ahead. Hi, good morning. Just with respect to the IFRS NAV, obviously the selected discount rates have a dramatic impact on the disclosed NAV and it sounds like you're expecting a downward adjustment on those discount rates at least on the property and power side going forward. This may have been discussed in the past, but can you maybe just provide some color on kind of the magnitude of changes in your discount rates versus changes in actual treasury yields? Sure, Mario. How do you influence each other? We do provide some guidance on that through the throughout the MD and A. But for example, on the 2 largest asset classes office and renewable power, what we say is that 100 basis point increase or decrease in cap rates that would aggregate about $3,750,000,000 in total about $6 a share. Right. Is your question more towards the linking of if interest rates go down, do cap rates go down? Exactly. Like what the really given QE2 and I guess arguably historically low bond rates, how do you link shifts in bond rates to the discount rates that you used? So I'll take a shot at that and I don't think we have any great answer for you because it's all just in the it's an art, not a science, but I would say the following. There is always a tremendous lag of interest rates going down. And the reason for that is people unless they believe interest rates are going to be permanently changed, they don't usually buy things on a long term basis based on a higher on a lower cap rate. Over the last so it's a they're lagging the cap rates lag interest rate changes. But once people decide that interest rates are going to be down for a period of time, usually cap rates start to come down. And I'd say for up until 6 months ago, you had not really seen any changes. In fact, the opposite was occurring. People were saying they're worried about the markets and worried about cash flows and worried about the environment. Therefore, cash flows in the future are going to deteriorate and therefore they wanted higher cap rates. What's actually occurred in the last 6 months is any type of asset that has a term cash flow stream on it that someone can see tangible cash flows 5 years out or more, the cap rates have been dramatically coming down. And I said this at our Investor Day and I would repeat it here. I guess our general view is and we are seeing assets trade in the market, which are low quality or tertiary assets in the 6% to 7% going in cap rate yield with very little increase in the future. And I think that there will be you're seeing good quality assets trade in the 5% range. I think they're heading south of that. Whether that's permanent or not, is all dependent upon your view of interest rates. But if you believe that we're in a long term low interest rate environment, then cash flow streams are worth a lot more money than they're trading at today. And so they don't there is no perfect correlation, but there is certainly a lot of money in the world looking to get out of 1% treasury bills and into something that earns them 4% or 5%. Okay. And then maybe just in relation to all that money looking for a home, I guess from your corporate profile in the past, you disclosed that about half of your third party capital is originated from Canada, about 30% Australia, Asia and then maybe 10% from the U. S. Looking for maybe a bit of color on your thoughts on that allocation or distribution going forward, what your potential long term target would be and how long it would take to get to that point? Every fund we have is different, but and because and based on investments in different countries often it tends towards that country because people have local money for local investments. But I can tell you the last couple of funds we've done, the lion share of the money came from Asia and the Middle East. And so there's a very significant amount of money coming to us recently from Australia Asia, Australia and the Middle East. And I think that will continue as we look forward just because of the size of dollars that are in a lot of the sovereign institutional funds that are there. Okay. And what are your thoughts on the U. S. And kind of U. S. Capital today? The U. S. Is recovering, but a lot of these a lot of the pension funds in the U. S. Are rebalancing and still working out some of the issues they had. But it's clearly getting better for them as their equity portfolios reflate and their bond portfolios has done well for them. So I think they're starting to look again at investing in alternatives. Great. Thank you. You're welcome. The next question is from Alex Avery of CIBC World Markets. Please go ahead, sir. Mr. Avery, please go ahead. Sorry, I was on mute. I was just wondering if you could provide a little bit of guidance about how we should expect the transactions with General Growth and Prime Infrastructure in Q4, how those are going to impact the IFRS statements? So, let's see. Turning to GGP first, I guess that's in some ways the easiest. We will be investing in the order of $1,000,000,000 into that entity. And so we would be expecting our current thought on is we'll probably end up equity accounting it. And so that will kick in the Q4 of this year. So that's on that. On the prime side of things that will enable us to consolidate a few more of the operations there. So you should see our balance sheet in terms of total assets getting grossed up a bit for that. Having said that, on we provide most of our information on a segmented basis. And so what you would see is that our the amount of capital we have deployed in each of the operations within prime will increase commensurate with our increase in the interest of prime from 40% to 100%. And I presume there wouldn't be any realization gains there or? We're working through that again. You do under an IFRS have the concept where you will take a you'll step up to the transaction values which can result in an income event. But we're still drilling through that. You really need to have the final transaction prices come in. For that. Okay. And then just touching on your Brazilian retail assets. Through general growth, you now have an equity or I guess indirect equity interest in Alliance. And just wondering if you'd explored any discussions or potential opportunities to merge some of your assets with that company and maybe take a direct stake in that company? I have to be careful just because we are in an offering period for GGP. But what I would say just for everyone's benefit is that GGP owns 35% of Allianz, which is spelled with an S and a C if anyone's looking for it as opposed to a Z or Z. And it's a great retail company, it's publicly traded. There's a founder who owns a significant interest in the company. GGP became their partner and they took it public a year and a half ago or so. The stock is up significantly in the last 6 months and we are tremendous supporters as you know of Brazil. So we're very supportive of GGP continuing with that investment. We hope to be able to assist them in their efforts of building their business. And we've had we have different partners in obviously our fund and this is a public company. So we've had we have no intentions of doing anything today. But obviously we can we'll try to help them as much as we can going forward. The next question is from Brendan Majorana of Wells Fargo Securities. Please go ahead. Thanks. Good morning. I just wanted to ask a little bit about the asset management side of the business. There's obviously been a lot of good capital raising that you've done over the past several months quarters. And it seems that your strategies are now more in favor with a lot of your investment partners and the investment partners or investors that you'd like to start relationships with. But if I look at kind of the major strategies that you've got, you have flagship funds in the infrastructure side of the business, both on the private and public side now, and same thing with commercial property. Are there enough either new strategies or new geographies for new funds that you can look to raise additional capital that may be in line with some of the capital raising that you've done over the past few months quarters? As you know, we have to be careful talking about new funds that we are raising. But in general, I would say that there is a significant number of things that we could use capital for and that we're targeting to raise capital for. And we intend to continue to capitalize on the environment where really it's a sort of a tale of 2 cities in fundraising. It's kind of like investments. If you have a track record and if you have good sponsorship and if you know institutional investors, they have money for you. And if you don't have a good track record and you don't have good sponsorship, and if you don't know the investors, then it's very difficult to find money today. So it's really sort of a tale of 2 cities. Sorry, if I look ahead a little bit after general growth, there's about I think $7,000,000,000 of committed capital that's not yet invested. And then you've got additional funds I think that are in market and it sounds like you have a good view of success of the fundraising that you're likely to do. Putting that amount of capital to work, is that something that you think there's enough opportunities out there to be able to put that amount of capital to work over the next or over the timeframe that your investors expect you to invest the money? I would say the following. I don't believe we'll have any problem putting the money to work that we have. Having said that, if we do, we will give it back to our clients. And we are in the business of making good investments and earning excellent returns for everyone that we invest for, not just investing money for the sake of fees. And so I guess I'm while we're confident that we can put the money to work that we have taken from people, If we can't, then we will turn it back to them. And I guess we're that's the way we've always run the business and we'll continue to run it that way. Okay, sure. And then I guess for Brian, in terms of trying to capture low rates, you've got about $3,000,000,000 of debt that rolls over in both 2011 2012. Most of that is mortgage financing or property specific debt. How should we think about the opportunity to either early refinance some of that? Or is that mostly just going to happen as those debts mature and then you're and then if rates stay low you're able to lock rates in at that point? Yes, Brendan it's a very much of a case by case playbook. A lot of it depends on the terms of that specific financing. Some of them will actually have lockouts. Some of them may have very punitive make holes. Some of them actually can be pretty forgiving to do that. And obviously what we're doing is targeting the ones that are more favorable to pre finance. And I would say a good chunk of those maturities we have either already pre financed, for example, we already sunk the power bond maturity at the corporate level. And we've lined up the capital to deal with a couple of the corporate financings at the Brookfield level. And then also on the property specific side, there are a number of the situations where we are in a position to refinance One of the major buildings in Manhattan, we're just in the process of closing that one out and the financing in the U. S. Office fund. There's a lot of that that will get dealt with over the next few months. So there's a lot of it that you can deal with proactively and we're moving very hard to do that. And there are some that are going to take a little bit longer to deal with just because of either contractual terms within the debt facilities. And just lastly, do you have a reasonable amount of assets that are not mortgage today that you may be able to put debt on just to kind of lock in those low rates and maybe carry a little extra debt before some debt matures? You mean in terms of just managing the overall debt profile of the firm. We usually try and keep everything efficiently financed throughout the piece. But absolutely if there are opportunities to prudently add debt to a specific asset right now. It's an opportune time to do that. Okay. Thank you. The next question is from Andrew Kuske of Credit Suisse. Please go ahead. Thank you. Good morning. I'm not sure if this question is for Bruce or for Brian, but what's your view of normalized interest rates? I mean, obviously, we're in a period of exceptionally low rates. But how do you think about normalized interest rates? And how does that color your thoughts on potential acquisition activities and refinancings? I'll maybe just give you a comment and we're not macroeconomic experts. So I don't think it's too relevant to that many people. But we think that interest rates today are low based on everything that's going on and therefore it's a great environment to lock things in. What we don't believe though is that 5 years from now you're going to see extra high interest rates that you saw before. So we think the curve has shifted down, but there's no doubt they're extraordinarily low today. And therefore, we think it's an opportunity. But if you see a 10 year at 2.5%, I think a 10 year at 5% is a normal interest rate in our view. And historically, we've always been able to make a lot of money with 5% long treasuries. And so that's I'd say what we think is a normal environment. And just in relation to that, do you find equity valuations are extremely compelling at these levels given the financeability of assets in the low rate environment? So as you know, we don't ever or very seldom do we float liabilities and take advantage of really short rates being at almost 0 because it's a high risk to be able to do that if you see a snapback in things. So we don't buy based off of that. I'd say again, just like the fundraising market, the investment environment is a tale of 2 cities. For any asset now and this wasn't 9 months ago because the world just got better in the last 9 months. But today, any asset that has term cash flows on it will sell and will increasingly sell at much lower capitalization rates or higher prices. But there's a big difference between those kind of assets and assets which don't have any cash flow on them. So assets which are in restructurings are complicated, have no current income, take a lot of risk to get there, comment are not there are not that many bids and not too many people are interested in them because generally the people with money today are institutional investors who want income and don't want to take a lot of risk to get there. And so I'd say there's a difference between the two types of assets that one would buy. And then just finally one specific question as it relates to the Brookfield Americas infrastructure fund. Would the Brazilian hydro assets be a good candidate for that fund and that would further enhance your capital efficiency at a BAM level? We just for everyone's benefit, we own a significant hydro business in Brazil. It's entirely owned by ourselves at Brookfield Asset Management. The business continues to grow and it's a phenomenal business. So we have not because we owned it originally ourselves, we're not bringing brought in any other clients into it. We generally have a policy of not taking major assets and selling them into funds. Generally, we use funds are blend when they're blind pool and we go out and buy new assets with them. So there's no intention to put those assets into a fund like that. Having said that, if we chose to do something in the future, some of the clients who are in that fund might want to participate with us in some of those assets, but it probably would be outside of the actual fund that we have, which is a blind pool investment fund. That's very helpful. Thank you. The next question is from Michael Goldberg of Desjardins Securities. Please go ahead. Thank you. Bruce, you've given us some good color on your the opportunity with GGP. Could you give us similar color and your intentions with respect to SpinCo, the company that now has been renamed Howard Hughes Corporation. Is this an opportunistic investment or should we view it as a keeper that can somehow be integrated or just held as a different type of investment? Thanks, Michael. And I'll say the following. So we're going to own 7% or 8% on a basic basis and 14% on a fully diluted basis of what's called the Howard Hughes Company. It's a very diverse group of assets. It was largely the assets that had no income on them within general growth. We have a smaller interest in that company because it was given to or it's been given to the old shareholders of general growth or spun off to the old shareholders general growth in a significant way. So our interest Michael is much, much smaller and much less strategic because it's just a bunch of assets. We have one Director on the Board, which is David Arthur, one of our real estate executives And Bill Ackman, who will have a significant interest in it, he's going to be the Chairman of the company. He was a big shareholder of General or is a big shareholder of General Growth the current time and we'll have a smaller piece of the mall company, but will be a significant shareholder of this company. We intend to hold our shares. We think there's a lot of value over the longer term that can be generated out of these assets. But it's a different equation. It's a land play on a number of things across America. It doesn't have any current income and it probably never will. So it's I'd say it's an opportunistic investment which over time we'll have to see what where we go with it. Okay. And separately, you talked in your letter about having $12,000,000,000 of investable capital now and having acquired 6 major distressed entities over the past couple of years. Given the current environment, what do you see as the likelihood that you'll be able to actually connect on additional distressed opportunities over the next 1 to 2 years. Has it been getting better or given the way prices are going and other developments, is it becoming less visible? Michael, I make two comments on that. I'd say if anything that you could have you had position on and you could try to execute on between September of 'eight May of 'nine was the easiest environment to try to take possession of something than has ever been in existence. So it would if you had the money during that period of time and you could get into position, you essentially were able to own it because there was just no money out there. So there's no doubt it's harder today than it was then although I think everyone was in a situation where they weren't sure of the future and that was it was difficult at that point in time to do things. But anything you could, it's not going to be as easy as that if you had position on something. Despite that comment, I would say that we continue to see a very substantial amount of opportunities around the globe on distress type situations that still need sorting out. Most of these won't be bankruptcies, but they're deleveraging situations where people with expertise of substantial amounts of capital can assist either debt owners or equity owners recapitalize their company. And we think there will be a number of those opportunities still in the next 18 to 24 months. Thank you. The next question is from Michael Smith of Macquarie Securities. Please go ahead. Thank you. My question is related to the net asset value. In your press release, you say that you give us an update and you say it's a partial update because the renewable power and utility assets are valued on an annual basis. And so can I 1st off, can I assume that the commercial property has been updated? That's correct. Okay. And then so your sensitivity on Page 34 of your MD and A is very useful. I think you say it's 100 basis points decrease in the discount rate to commercial property and renewable power increases your NAV by $609 per share. So obviously the commercial property has been updated, the power has not. What would 100 basis point change do for just your power assets? Okay. So let's see. I'm just trying to remember that offhand. I'm going to ask Sachin to Maybe while Sachin is looking for that, Michael, I'd just make a comment. I even though you we do update them, I would say most valuations are done on a backward looking valuation. And if you look at what's been updated in real estate, and I'm not suggesting it's not correct, but the market certainly thinks that the changes are far more dramatic than what was put through in the balance sheets of our real estate companies. And the other comment I would make to that Michael is it does tend to be I'll call it a more all encompassing approach to the valuation when you get towards year end because then everybody across the board is starting to look forward to what future rent rolls look like. And so I'd say I'd say more comprehensive revaluation on an annual basis. And then of course the power assets are only done one time a year. And then I'm just going to hand over to Sachin. Sure, Michael. In terms of just specifically on the power business, if you had 100 basis point change in the discount rates, and I think you have to look at it in conjunction with changes in power prices. So the way we've disclosed it is a $10 change in power prices and a 100 basis point change in discount rates would impact the portfolio by $2,000,000,000 $700,000,000 respectively. You can find that on page 14, but hopefully that helps you do a little bit of sensitivity when you're thinking about value. Okay. Thank you. You're welcome. Your next question is from Neil Downey of RBC Capital Markets. Please go ahead. Hi, guys. Actually, after having gone through the supplemental package, I found there's a lot of great information in here and my two questions were answered. So thank you. Thanks, Neil. Thanks, Neil. The next question is from Jack Woodson of Fortune Capital Management. Please go ahead. Yes, and good morning. Most of my questions have been answered also, but I'd like to ask you specifically with regard to some rumors I'm hearing with some institutional investors about a Birch Mountain shareholders have launched a class action, a $2,000,000,000 class action suit. Can you provide some color about that, if you would, please? We if there I don't know of that, but if there is something, it's obviously not appropriate to talk about on a phone call like this, but I appreciate your question. Thank you. And in addition to that, with regard to your distressed entities, you recently purchased the Hammerstone Quarry in the oil sands. And could you provide some insight on how the revenue and margins are doing up there? Just for everyone's benefit that we do have an investment in as described through our special situations fund and whatever I don't think it's appropriate to talk specifically about it, But whatever is described in our supplementary disclosures is publicly available. Thank you very much. Thank you. Operator? This concludes the time we have allotted for questions. I'll turn the conference back for closing comments. Thank you very much to everyone for joining us this quarter. Obviously, if there are follow-up questions, all of us are available to speak to you. If not, we will speak to you next quarter at this time after the conference after our results are out. Thank you very much.