ASM 2013

May 9, 2013

Slides

Good morning, ladies and gentlemen. It's now 10 am and time to begin the Annual Meeting of Shareholders of Brookfield Asset Management, Inc. My name is Frank McKenna and as Chair of the Corporation, it's my pleasure to chair today's meeting. On behalf of the Board and my colleagues, I would like to extend a warm welcome to everyone here today, including those joining us through webcast. We know your time is precious. We know the day is inclement and we particularly appreciate people making the effort to come here and join us today in person. I will now call the meeting to order and would ask Canadian Stock Transfer Company Inc. By its representatives Tony Tacania and Kay Harrison to act as scrutineers. I will also ask A. J. Silver to act as Director and Secretary of today's meeting. It's now my pleasure to introduce Bruce Flatt, our President and Chief Executive Officer, who will be participating in today's meeting. As outlined in our management information circular, there are 4 items of business to be considered today. Firstly, to receive the consolidated financial statements of the corporation for the fiscal year ended December 31, 2012 second, to elect directors who will serve until the end of our next Annual Meeting of Shareholders third, to appoint the external auditor and authorize the directors to set their remuneration and 4th, to consider an advisory resolution on the corporation's approach to executive compensation. In connection with the business to be dealt with today, unless a shareholder or proxy holder demands a ballot, all voting will be conducted by a show of hands. In order to expedite the formal part of today's meetings, I have asked certain shareholders to move and second various resolutions. And though this although this procedure will assist in the handling of the formal matters, it's not intended to discourage anyone from speaking in reference to any resolution after it's been proposed and seconded. I'm advised that the notice calling this meeting and the management information circular were disseminated to voting shareholders in accordance with all applicable legal requirements. I've asked the secretary to keep a copy of the motion and proof of mailing with the minutes of the meeting. The minutes of last year's meeting of shareholders held on May 10, 2012 are also available should any shareholder wish to review them. Based upon the scrutineers preliminary report on attendance, the Secretary has confirmed that there is a quorum present. I therefore declare the meeting is properly constituted for the transaction of the business for which it has been called. Turning to the first item of business, I will now table the corporation's 2012 annual report to shareholders, which includes the corporation's consolidated financial statements for the fiscal year ended December 31, 2012, together with the external auditors report. Copies of our annual report have been mailed to our shareholders who so requested and are also available here today. The second item of business at our meeting today is to elect directors who will serve until the end of our next Annual Meeting of Shareholders. Before I introduce the nominees, I'd like to take first the opportunity to thank those directors who have retired from your Board in the last year for their service on behalf of shareholders. They are Jim Gray, Jack Mintz and Trevor Eaton. It's now my pleasure to introduce the 16 director nominees standing for election this year to assist you in identifying your directors. Their pictures will be shown on the screen as I read their names. The 8 proposed nominees for election by holders of the corporation's Class A Limited Voting shares are Marcel Coutu, Maureen Kempsterdarks, Lance Liebman, Youssef Nasser, Jim Pattison, Doctor. Seik, Diana Taylor, myself Frank McKenna, The 8 nominees for election by the holders of the corporation's Class B Limited Voting Shares are Jeff Lidner, Jack Cockwell, Bruce Flatt, Robert Harding, David Carr, Phil Linde, Lord Gus O'Donnell and George Taylor. 13 of the 16 proposed nominees were elected at our last annual meeting in May 2012 and are standing for reelection today. We're also delighted to have Doctor. Seke, Lord O'Donnell and Jeff Blittner standing for election for the first time. Additional information on all 16 Director nominees is set out in our management information circular, which has been posted on our website for shareholder review this year as part of Brookfield's adoption of notice and access. The meeting is now open to receive nominations for the election of the proposed directors. Mr. Scherer, I nominate for election as directors the 8 nominees for the Class A limited voting shareholders and the 8 nominees for the Class B limited shareholders named in the management information circular dated March 20, 2013. Thank you, Melissa. Mr. Chair, I second the motion. Thank you, Catherine. Are there any further nominations? If not, I declare the nominations closed. As there are 16 directors to be elected and the same number of nominees, I now declare that those nominated have been duly elected as directors of the corporation. Now many of our directors are with us today and they can be identified by their name tags and I hope that you'll have an opportunity to meet and talk with them when the meeting is over over some light refreshments. The 3rd item of formal business today is the appointment of the corporation's external auditor and authorizing the directors to set their remuneration. As stated in the management information circular, the audit committee of your board has recommended to the shareholders that Deloitte LLP be reappointed as the corporation's external auditors. So now in order for someone to move this resolution. Auditor of the corporation until the next annual meeting and that the directors be authorized to set their remuneration. Thank you, Catherine. Mr. Chair, I second the motion. Thank you, Melissa. The resolution has been moved and seconded and the motion is now before the meeting for discussion. Adoption of this motion requires the favorable vote of a majority of the votes cast at the meeting by the holders of each of the Class A limited voting shares and the Class B Limited Voting Shares voting as separate classes. Management has received proxies representing approximately 60% of the corporation's Class A limited voting shares and 100% of the Class B limited voting shares. These proxies direct me to vote over 97 of the Class A Limited Voting shares and all of the Class B Limited Voting shares in favor of the resolution. I will now call for the vote on the motion by a show of hands. All those in favor? Thank you. Against? I declare the motion carried. The next item of business is the approval of the advisory resolution on the corporation's approach to executive compensation described in the management information circular. Corporation has put forth an advisory resolution at this meeting as part of its ongoing efforts to both meet its corporate governance objectives and ensure a high level of shareholder engagement. Because this is an advisory vote only, the results will not be binding upon the Board. However, the Board and Management Resources and Compensation Committee will most assuredly take into account the results of the vote as appropriate when considering future compensation policies, procedures and decisions. The Board welcomes comments and questions on the corporation's executive compensation practices. It's now in order for someone to move this resolution. Mr. Chair, I move that the advisory resolution accepting the approach to executive compensation described in the management information circular dated March 20, 2013 be approved. Thank you, Catherine. Mr. Chair, I second the motion. And thank you, Melissa. Adoption of the motion requires a favorable vote of a majority of the votes cast at the meeting by the holders of each of the Class A limited voting shares and the Class B limited voting shares voting as separate classes. Management has received proxies, representing approximately 58% of the corporation's Class A limited voting shares and 100% of the Class B limited voting shares. These proxies direct me to vote over 95% of the Class A limited voting shares and all of the Class B limited voting shares in favor of the resolution. I will now call for the vote on the motion by a show of hands. All those in favor? Thank you. Against? Thank you. I declare the motion carried. Ladies and gentlemen, that completes the formal part of today's meeting. We'll now move to our management presentation. Bruce Flatt, your CEO will be presenting on behalf of management. At the end of the presentation, we will welcome any questions or comments you may have. Please note that in responding to questions and in talking about our new initiatives and our financial and operating performance, we may have forward looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I would encourage you to review our management's discussion and analysis in our annual report, which is available today at the registration desk or on our website. And now we'll turn it over to Bruce Slatt. Thank you, Frank, and good morning, everyone, here and on the Internet. I guess there's 3 things that we're planned on doing today. 1 is just to give you a brief update on the business 2, to describe a little bit about the world today and how that affects us and 3, to explain our views on the global economy and the investment opportunities that are out there. Firstly, just focusing on the business today. We describe our business as a global manager of real assets. We have 4 businesses property, renewable power, infrastructure and private equity. And that business today includes about 100 offices across the world, about 600 investment people and just under 25,000 operating employees. And where that has situated today is that we manage about $180,000,000,000 of assets. That's through 29 private funds that we've created over the years and are still in existence. 3 flagship listed funds that trade in on the stock exchanges and then our property and infrastructure public securities funds. And the business is very global in nature, but very focused in specific areas. But as most of you know, it's in Canada, U. S, South America, Australia, small amounts in Asia and a little bit in Europe, which I'll talk about when we go through here. The business model is pretty simple and it really comes down to 4 points of what we do in the business. 1, we find capital from clients and investors, your money as well in the public corporation. 2, we utilize all the people we have in the organization to identify great real assets, which will sustain value over a long period of time. 3, we finance them conservatively and usually on a long term low risk basis. And lastly, we use all of the people we have within the organization to drive extra value out of those assets. Probably the most significant thing that we did in the last 12 months was to complete the realignment of organization and to launch Brookfield Property Partners. And what that provides us today with is, the 3rd large capitalization entity, that are in the public markets to assist us in our investment strategies. Those are obviously supplemented by our private funds, which work together with them. And that gives us very significant capital to compete in the markets in a very significant way. And simply stated, this slide just shows the 4 groups that we have today within the business and everything's been streamlined down to this. But essentially we have our property business within Brookfield Property Partners, our renewable energy business, our infrastructure business and then privately we have our private equity business. And alongside each of those public funds, which many of you are investors in as well, I'm sure, our private institutional clients work along with those. And the 2 of them together provide us a pretty substantial competitive advantage with access to capital. But in all of those and I guess the thread between all of these entities is that each of these entities are own very similar type of assets, which are real return assets that produce cash on an annual basis and also appreciate in value. And we try to differentiate ourselves by being owner operators as opposed to just financial buyers. And in its entirety across the business, if you cut through all of those funds, you end up with ownership of approximately 100,000,000 square feet of office properties, which we run within the business, 160,000,000 square feet of very high quality retail malls, 200 renewable power facilities, 30 ports including what's in this picture, the largest metallurgical coal shipping facility in the world in Northeast Australia. And all of those things, when you cut through it, are what we see in real demand by investors. And because they have a couple of attributes to them and essentially they offer long term risk adjusted quality returns. They generate cash and capital upside. They have relatively low volatility. And in the scenario where inflation does result from the quantitative easing that's going on, many of them have inflation attributes, which will continue to enhance the cash flows over time. And those features are highly attractive today. And I guess because of that, we see that capital flows are changing in the world and there's a global transformation again of what's happening in capital flows. If you look just at today and this has changed over the last 30 years from largely fixed income allocations in pension funds. But if you look at today, about 10% are alternatives and 10% is real estate and five percent is infrastructure on average if you take pension plans. Some are much higher today. And we believe that transformation will continue to evolve and that over time, given similar interest rate environment that we're in or in the this range, you're going to we're going to see a very significant allocation continuing to real estate and continuing even more to infrastructure and other types of real return assets. So we think there's a tremendous number and big allocation from institutional clients and we see it every day in the accounts that we deal with. I guess the second thing that's occurring is there is a massive amount of capital building in the pools of resources in these institutional funds. Some of these institutional client funds are heading towards $1,000,000,000,000 But in general in the 70s, it was $5,000,000,000,000 pool of capital to invest for people in the world. And by the 2020s, that figure will be almost $70,000,000,000,000 and it exponentially, as you know, increases if returns are good. So there's a lot of capital that should focus into these assets. And if you just do the quick math on our average amount of allocations to real assets times the allocation or the size of these funds in 2020. It's $15,000,000,000,000 that has to get invested into real assets, which is virtually impossible. But somewhere between what they are today to these numbers will probably occur. And there's really one reason why that's occurring and that's that interest rates are 0 with quantitative easing today and that the expectation if you buy a bond or a long bond today is you're going to earn a 2% return. The belief is that you'll earn 8% in equities and that in a quite in a way that we can talk to institutional clients and we can convince them that we should be able to on a relatively risk averse way deliver them 7% to 15% yields in our real asset funds. And that's the singular reason why people are putting money into real assets. And so this environment is tremendous for them. And I guess a lot of that is dependent on the view. If you thought that the world is going to come to an end and the environment is very difficult over the next while, you should be worried about investing in anything. And I guess our view since 2009 has been that the U. S. Recovery in the global economy is far better than what is reported in the macroeconomic news. Some of you have heard me and us say this before, but in the United States specifically, housing continues to get better every single day. And that affects a lot of businesses and a lot of jobs in America. Retail sales are good to strong in the middle to upper end. Manufacturing is coming back and the shale gas situation and the energy situation in the U. S. Is a very positive event for the United States. And what that means in the U. S. Is that there's a huge number of jobs bubbling up in the economy and you don't see it in the numbers until the lag effect comes in. But I guess on a very the economy backing down from its forward movement. And globally, I guess, with the exception of Europe, things are generally good. And there's a story about each economy in the world where you can paint the negative story. But our view is that the recovery is pretty strong in the States. In South America, the economies were very strong. Today, they're good, but they're reengaging back with positive growth. Australia, where we have a very large presence is affected by Asia. And our long term view is that that economy may have its ups and downs, but it's going to be a major player in the world in the next 25 years. And the only one that I'd say we view as going negative to flat for the next 5 to 7 years is Europe. And with that, there's just a tremendous number of opportunities that you can find because capital is just unavailable to many corporations in the economy there. And all of this, I think, I'd say, we believe plays to our competitive advantages, because they are really threefold. 1, we have scale of capital given the capital structure that we've created to have available for investments. 2, our generally we're value investors and our restructuring expertise and the ability to take multifaceted transactions on and deliver not just buying at the an asset at the market, gives us an advantage. And a lot of that comes from the operating people we have in the business, because they allow us to make decisions quicker and we believe better than we can otherwise make when we're making investments. And the 2 names on this slide GGP and Prime Infrastructure are two examples of transactions we did in 2,009. I'm quite confident looking in hindsight will be 2 of the great transactions we've ever done in Brookfield. And I put them down to these 3 competitive advantages. We had money when most others didn't. 2, we were able to work through the complications of the transactions and deliver them for you. And 3, we had the confidence to do them because the operating teams, we had more information than others about those decisions. So we think that is a tremendous advantage. And if you just look over the last 12 months, we've done a number of other things adding to our businesses and I'll speak about a couple of those in a minute. But I guess our focus today and we've put a lot of people on this in the last for the last 18 months has been Europe. And a number of the things so far that we've done have emanated out of Europe, but they've been buying things elsewhere in the world. Over the next 12 to 18 months, we think there will be opportunities in Europe. But we did buy in the last while, 3,000 kilometers of toll roads in Brazil, again from a European company. We bought a we restructured a large gas utility in the U. K. We bought a further $1,000,000,000 of properties in Australia, including a site like the one we're in. We built this building 10 years ago and there's a site at the equivalent location in downtown Sydney that we got with this acquisition. We just did a number of hydro acquisitions in the United States, including 20 facilities we bought in the North East U. S. From Alcoa and some in Maine. And I guess I'd say, in conclusion, our view is that the spreads on these type of assets relative to the long bond yields and relative to equities in the capital market have almost never been better. And that's largely caused by macroeconomic events and the fact that it's more difficult to do what we do than it is to just buy a stock in the market. And therefore, we can in the private markets, we can deliver much better returns for our investors than you can in those other products. And so we think that, A, there's a buying opportunity for us to be able to continue doing things for our clients. And secondly, there's a lot of money coming into the space and that assists us in driving the business. So before I take questions from anyone, if there are any, I'd just say one thing. Catherine Vyse is standing over in that corner. She has been the face of Brookfield for many, many years in dealing with our investors. She's retiring this year in the next while. And I just wanted on behalf of all the shareholders at the Annual General Meeting, thank you, Catherine, for all the work over the years. Were any questions I'd take them. And if not, we'd be management or any of the directors would be happy to talk to you afterwards. In your slides you mentioned the shale gas revolution. And I just heard about a nuclear power plant So just for people if on the they're telling this by webcast. The question is essentially on shale gas and whether that affects our power plants. And bottom line, I don't think anyone including us 10 years ago would have predicted what happened with shale gas. It's an incredible technological revolution that's occurred largely because of U. S. Innovation. And they went into old they've now gone and found gas that was there before, but no one could ever get it out. That's taken gas from probably what we believe was a long term price of $6 to $8 which was trading at $14 and then it went to 2. At $2 and if that is the price longer term, it definitely will affect our power plants longer term. More importantly, we believe that the long term price of natural gas is not in the $2 range or now $4 it will be $5 to $7 And our prices of our plants that we have will do very well because it's green energy at that pricing. So we think we're fine. And in fact, the assets that we're buying today, we think there's significant upside on those assets in the Renewable Power business. But I would note, if you have a belief that the shale gas situation will continue with $2 pricing or go back to $2 in the longer term, then there's no doubt that will affect the cash flow streams, not in the short term because a lot of our power is contracted. But over a 20 to 30 year period, it will affect the cash flow streams and we just don't believe that. Two other questions. The first one was, I had read that Brookfield was allying with tenants with regard to Stuyvesant Town in New York. I wondered what's going on with that. And I also wondered with the Texas transmission project with Brookfield Infrastructure, what are the financials that are associated with that in terms of Brookfield's investment and possible return? So, Stuyvesantown, people may know it was it's 11,000 units of multifamily rental in New York on the Lower East Side. It was built after the war and it has a great group of middle income families in these apartments. A lot of them are rent controlled. And it was purchased by a private equity group and it went bankrupt and it's in receivership today. And we have been working with a tenant group who would which would allow them to either do one of 2 things, buy their apartment at a price which would be inexpensive relative to market or secondly, they would continue to rent and we would own the rentals and afterwards and that's where we come in. We would own the rentals and ultimately those apartments would get turned over to us someday. So, we've been working with them whether the transaction can complete. There's a lot of complicated pieces. But our private equity opportunity fund in real estate has been working with the Tennant Group and we'll have to see whether an opportunity will come out of it. But it's a great piece of real estate in the middle of Manhattan at the right price. In Texas, just for everyone's benefit, we're building, I think it's 700 miles, someone will correct me if I'm wrong, of transmission lines, which are connecting wind facilities that are being built in Texas to the load centers of Dallas and Houston, essentially the power flowing down. And we're virtually I think we'll be done by the end of this year. We're through a big part of the construction and the numbers are that we own half of that those wind facilities. It's in Brookfield Infrastructure Partners or those transmission lines And it's in Brookfield Infrastructure Partners and the returns are regulated rate based return, but they should be pretty good given the risk that we're taking. Thank you. Seeing no other questions, I thank everyone for coming and appreciate it. And we will we'd be happy to answer your questions after the meeting or any other time, of course. Thank you very much. So thank you for your participation and contribution, ladies and gentlemen. If there are no further questions or comments, I want to thank you once again for being here and demonstrating your commitment to this organization with your presence. We do appreciate your comments and hope that you found the meeting to be informative. That brings us to the end of today's meeting unless there is any other business. And there being no other business, I declare the meeting terminated. Thank you.