Earnings Call: Q2 2012

Aug 10, 2012

Hello. This is the Chorus Call conference operator. Welcome to the Brookfield Asset Management 2012 Second Quarter 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. At this time, I would like to turn the conference over to Ms. Catherine Vyse, Senior Vice President, Investor Relations for Brookfield Asset Management. Please go ahead, Ms. Fides. Thank you, Sachi, and good morning, ladies and gentlemen. Thank you for joining us for our Q2 webcast and conference call. On the call with me today are Bruce Flat, 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 discuss our major growth initiatives during the quarter. At the end of our formal comments, we will turn the call over to the operator to open the call up 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'll be happy to respond to additional questions later in the call, if time permits, at the end of the session or afterwards, if you prefer. I would like at this time to also 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. Thank you. And now I'd like to turn the call over to Brian. Thanks, Catherine, and good morning. Total return for the quarter was $272,000,000 or $0.43 per share and that brings our total return for the first half of the year to nearly $1,000,000,000 or $1.56 per share. The quarterly result includes funds from operations or FFO of $244,000,000 $61,000,000 of valuation gains. The comparable amounts for the 2011 quarter were $309,000,000 of FFO $557,000,000 of gains. The FFO reflects improved performance and economic conditions in most of our operations. However, these were partially offset by below average generation in our renewable power operations and the unfavorable impact of market volatility on some of our investment securities. I would note that these two items are cyclical and not indicative of future performance. We've certainly experienced quarters with above average hydrology in the past as well as positive market volatility and we would expect to do so in the future. Our property operations increased their contribution by $53,000,000 That's due to improved leasing and the contribution from newly acquired and developed properties and lower financing costs. The contribution from our renewable power operations declined by $44,000,000 The shortfall is due to the hydroelectric generation that was 21% below long term averages as a result of abnormally dry conditions in several of our North American regions. Infrastructure FFO was relatively flat as the positive impact of operating gains, acquisitions and capital expansions on our utility, transport and energy businesses were offset by lower timber sales. And in private equity investment and other income operations, these tend to be more variable in nature. As I mentioned, it was 60 $7,000,000 lower than 20 11 that quarter, although the variance is almost entirely due to the inclusion of a 61 20 11 results. We did not have as large a gain in the current results. The valuation gains reflect continued increases in commercial property valuations. These were largely offset by the impact of declining interest rates on some forward rate lock contracts that we have in place. The 2011 results reflect a period during which the values of U. S. Retail and office properties increased substantially, which gave rise to substantial gains last year. Some items of note in the valuation gains during the quarter. We experienced $245,000,000 of property valuation gains approximately $225,000,000 related to our commercial office and retail properties. And as a reminder, the majority of our renewable power and infrastructure assets are revalued only at year end. I did mention the interest rate locks. We've put a number of contracts in place to lock in these very attractive rates that we've been experiencing over the past while. I would note that the contracts are mark to market in net income until a debt is issued and the decline in interest rates to levels below our hedge rate, which we would still consider to be very attractive in the longer term, did result in the negative marks. Obviously, if rates continue to increase as they've done just recently, these marks will reverse themselves. Net income which includes FFO as well as non cash revaluation items such as accounting depreciation and changes in the appraised values of commercial properties was $138,000,000 This compares to $838,000,000 in the Q2 of 2011, which as I previously mentioned included substantial property valuation gains. The intrinsic value of our common equity was $41.81 at the end of the quarter. That compares to $40.99 at the beginning of the year and $42.35 at the end of March. The decline in the second quarter is due largely to the impact of lower foreign currency rates on our non U. S. Operations. I will now mention a few of the operating and financial highlights within our businesses. Asset Management Activities and Other Services contributed $108,000,000 of FFO in the 2nd quarter. That's up 9% over the comparable quarter in 2011. The increase related primarily to higher base management fees, which in turn reflect continued expansion of the amount of third party capital under management and the percentage fee that we earn on that capital. We are now tracking at roughly $225,000,000 a year in base fees after taking into account recent capital raising activities. We also accumulated a further $71,000,000 of performance income from our private funds. Although as is the case in prior quarters, this is almost entirely deferred for financial statement purposes. We are up at a level of roughly $500,000,000 of accumulated performance income after taking into account direct costs. On the fundraising side, we closed on over $3,000,000,000 of capital across our private funds during the quarter, which $2,000,000,000 came from third party investors. Are moving forward with capital campaigns on 9 private funds seeking a further $4,000,000,000 of third party capital. Our flagship 2.6 $1,000,000,000 infrastructure fund is almost fully committed and we have a robust pipeline of deals. We continue to work with regulators to finalize the launch of Brookfield Property Partners and expect to be in a position to distribute a special dividend. It's expected to represent approximately 10% of the new entity in the Q4 of this year. Within our office property business, we have leased nearly 4,000,000 square feet of office space so far this year at improved rents, reducing our rollover exposure over the next 5 years by 100 basis points and increased occupancy to 93.5%. In our U. S. Retail portfolio, tenant sales increased by 9% to $5.33 per square foot. Initial rents for occupancy increased by 9.6% on a comparable basis and core FFO under U. S. GAAP increased by 24%. In our renewable power operations, new facilities contributed over 400 gigawatt hours of generation in the current quarter and will lead to higher generations in future periods when generation levels return to average levels. 87% of our expected generation is under contract for the balance of the year, 72% of that of the total is under long term contracts with an average term of nearly 15 years. Infrastructure FFO from our utilities, transport and energy operations increased by 12.5% quarter over quarter, due primarily to the contribution from acquisitions and the ongoing expansion of our Australian rail operations. Our capital expansion pipeline remains strong with projects totaling more than $2,000,000,000 in this area of our business. Finally, the Board of Directors declared a quarterly dividend of $0.14 per share that represents $0.56 per annum per share and that's payable at the end of November of this year to shareholders of record at the close of the business at the beginning of that month. And with that, I will hand the call over to Bruce. Thank you. Thank you, Brian, and to everyone for joining the call. I guess I'd start off by saying that similar to other periods with significant market volatility, we've been very active since our last call. And we generally believe that we are setting the base for some exceptional long term net asset value growth with many of the opportunistic additions to the businesses we have this quarter. And probably we've added more acquisitions than in almost in any other quarter in many years. On the investment, this is made possible essentially by the fact that clients continue to allocate capital as Brian mentioned to real assets and across the world and this allows us to continue the investing pace in these volatile times. On the investment front, we've used the unsettled environment to close a number of transactions. And I guess I'd just say that generally we find that volatility always assists in bringing finality to transactions. And we feel fortunate to have a strong capital position, which allows us to act on opportunities, which inevitably come our way in times like we have been in. The economic problems specifically in Europe have been deteriorating for more than 3 years. And as a result of that, we are increasingly optimistic that we will continue to be able to partner with companies in Europe seeking cash to replenish their balance sheets and recapitalize their fares to ride out the current environment. In fact, most of the opportunities which we closed on in the last 4 months all emanated out of Europe. Our focus to date has been on using our cash to acquire assets from some of these European companies with great assets in other parts of the world. We hope to be able to continue to do this. Although the next phase, we hope to be working on with some of these companies to find ways to provide our capital to assist them to recapitalize balance sheets. We believe valuations in Europe will soon reach a point where a margin of safety on new money going in is large enough to more than offset the risks that one may take. Specifically in property, we committed to acquire a £500,000,000 portfolio of office projects in London from a U. K. Property company. We acquired office properties in each of Seattle and Washington D. C. And the other half of 2 retail malls in the U. S, which were previously owned by a partner. We also launched a takeover bid for an Australian commercial property company and agreed to acquire 100% of an 18,000,000 square foot industrial REIT in the United States in one of our opportunity funds. In addition, we launched construction of Bay Adelaide Tower 2 in Toronto and delivered a new tower in Perth and started expansion on a number of our high end malls in the United States. In Renewable Power, we have started construction on a new 45 Megawatt $200,000,000 hydro project in BC, which is fully contracted and we're on schedule and budget with 2 projects in Brazil, just shy of 50 megawatts. We agreed also to acquire a portfolio of 4 hydroelectric facilities from a major industrial user in the U. S. Southeast for approximately $600,000,000 These plants are currently being upgraded and with the expansions will generate just under 400 megawatts of electricity. The plants are very well positioned to serve regional utilities, which will likely be retiring coal plants in the future. In infrastructure, we committed to 3 very sizable and exciting transactions in addition to some small tuck ins. On that front, we bought a natural gas storage asset in Alberta. On the larger side, we committed to acquire €230,000,000 for €230,000,000 the other 45% of the equity of the tolled Ring Road in Santiago, which we did not acquire last year. We agreed to acquire with OHL Brazil in conjunction with Abertis, one of the world's largest toll road operators in Spain. OHL Brazil owns approximately 3,200 kilometers of highways in Brazil and is the largest portfolio of toll roads in South America and we believe has an excellent franchise. In the U. K, we purchased an option to acquire 85% of the shares of a gas utility company called Inexus and we're currently applying for competition approvals to merge the company with our existing utility business in the U. K. And once that is done, we plan to recapitalize the company with approximately £300,000,000 of capital prior to merging it with our business. And with the vast array of transactions in our pipeline in addition to the private fundraising we are continue to always do, recently issued $500,000,000 of capital from Brookfield Infrastructure Partners and we purchased our pro rata interest. All in all, I guess I'd conclude by saying that fundraising markets are good for us. Our capital and our capital position because of this provides us with great benefits in this environment to be able to close on transactions when they come our way. And with that operator, we'll turn the call back to you for questions from anyone on the line if there are any. Thank you. We will now begin the question and answer session. The first question is from Cherilyn Radbourne of TD Securities. Please go ahead. Thanks very much and good morning. You made some fairly specific comments about Europe in your letter to shareholders. And I'd just be curious without asking you to be specific, whether things you've looked at and passed on have subsequently transacted or whether there may be opportunities to revisit certain situations at lower valuations? Maybe I'd answer that question and I'll try not to get into any specific transactions. But I'd just say that our business is really about in the areas where we focus which are our 3 main areas of business, what we try to do is have an ongoing dialogue with major companies in the world with great assets and also have a reputation for fair dealing when they need capital to be able to come to us and to work together. So we've spent in that regard, we've spent the last 3 years with increasingly more people in Europe working with companies there to provide them with information about us and how we could be helpful to them if they ever needed our assistance. And as the markets have progressed over the past 3 years inevitably more companies come back to us and talk to us about different transactions. And some of the things that we did in the recent quarter were transactions that or parts of transactions that we had looked at years ago and for various reasons they didn't turn out. So we always have very significant number of things we're looking at and inevitably some work and some don't, but some come back often in the future. Okay. That's interesting and helpful. Wanted to also ask about the unallocated corporate operating costs, because my sense is that that's the part of the business where there should be some good leverage as you increase the amount of third party capital under management. And yet in the 1st 6 months of the year, those were up quite substantially. So I'm just curious to what extent that reflects continued build out of the platform versus just an unusual level of transaction activity, which brings legal fees and other fees with it? This is Brian, Cherilyn. Thanks. There's definitely some of that latter point in the 1st 6 months of the year and there has been a bit of build out. We did continue to expand geographically in a couple of areas of the asset management on the advisory side of the business, which added some more costs in, but we also expect to be getting more revenues in that regard down the road as well. So it's but I would agree with you absolutely. There will be a lot of leverage to future revenue increases because we do expect to be able to grow those that have clipped much faster than operating costs. Okay. That's 2. So I'll pass it off to somebody else. Thank you for that. The next question is from Mark Rothschild of Canaccord. Please go ahead. Hi, good morning. Thanks. One area you talked about in the letter and you spoke on in the past is the U. S. Housing market. Has got a lot of press from different investors actually buying homes looking to get into that in a rental business. Is that something you've looked at to expand into besides for just buying rental apartments? So we thanks for the question. And it's Bruce. And I guess I'd say 2 things. The first one is that we've been buying rental apartments in our opportunity funds for the last 3 or 4 years and returns have been exceptional on virtually everything we bought just because of what's happened in rental markets in the U. S. The next phase of that is people have concluded that they should go and buy single family homes. And I think it's possible that certainly on the small side of investors, I think it's possible people could make a lot of money doing it. On the larger side, it's possible that someone can roll up scale, but I don't think too many can, just because it's a very complicated business to operate. And for ourselves, we're generally in the business of putting very large amounts of capital into big platforms. And that business is I think just too small for us. So I'm not sure that we ever will be involved in it, but I think others there will be others probably will make good money doing it. Okay. Thanks a lot. Next question is from Brendan Mayeron of Wells Fargo. Please go ahead. Thanks. Good morning. Bruce, I was kind of intrigued by the commentary in the letter that you thought institutions would increase their allocations to real assets by 25% to 40% over the next 10 years up from kind of 5% to 10%. How much of that is sort of just your expectation or your reading of the tea leaves of where the market is going versus conversations that you've actually had with existing investors and what their allocation plans are over the next few years? Yes. So just to make sure everyone because they may not have seen it. What we said in the letter is that on average institutional investors have between 5% to 10% of their funds dedicated to real assets call it 0% to 10%. And that we think over the next 10 years that that allocation could go to 25% to 40% and that that's a huge amount of money to go into the real asset space. And I would say increasingly as we talk to investors over the past 10 years, they are more interested in increased allocations to real assets. And that comes from 2 things. 1, the development of the area and funds to be able to accommodate it because there were no funds 10 years ago and today there are funds. So it's actually a real asset class in pension funds. And secondly, the fact that interest rates are now as low as they are and equities have been as volatile as they are. And therefore, the returns if they go in those product categories are not enough to meet their thresholds in the funds. And therefore, they're looking for other things to do. And as a result of that, I guess, we believe and we continue to see based on evidence of people giving us money and their conduct and their interest in our products that allocations continue to increase. And I guess bottom line, we think it will be maybe as dramatic a shift as when bonds switch when funds switch from bonds to equities. And it's a very significant movement over the next 5 to 10 years. That's helpful. If we're in a low return world, if interest rates are low, presumably returns on real assets are likely to move down a little bit as well. If that happens, does that put pressure on fees, which if we were to look at fees on a higher return level would be a the same level of fees would be a higher proportion of a low return asset versus a higher return asset. Is that impacting any of your fees? And are you guys seeing any pressure on fees? I think there's 2 questions in there. The first one is about fees. And I would say generally that for good asset managers who provide services and deliver returns, there's absolutely no pressure on fees for those funds. And I would include us in that category as opposed to the alternative. With respect to returns, I think there's no doubt if we're in a low interest rate environment that returns get pushed down to some degree. Although for assets which are more complicated to run and they're real businesses and they take real expertise to operate, the returns are very high still and will stay high relative to the risk free rate of bonds and other things. And that's really the reason why there is going to be a very substantial shift in our view to real assets in pension fund allocations. Okay. That's great. Thank you. Next question is from Mario Saric of Scotiabank. Please go ahead. Hello and good morning. Just sticking to this real asset allocation theme, Bruce, do you believe that these potentially higher allocations are contingent upon bond yields staying low for a very long period of time? Or do you think that there's enough if expected pent up demand within the institutional base to withstand potentially higher upon yields going forward? I guess I would say if long term interest rates go from today they're in the will not be as dramatic. I think there's a lot of other will not be as dramatic. I think there's a lot of other changes that will happen in the world as well. But I think that shift so I just use that as a reference point to say, if interest rents if interest rates went up dramatically, I think that shift will not occur as much. But I do believe that people want to continue to diversify their allocations and what they own. And infrastructure and real assets are the perfect asset class for institutional clients to own. And therefore and if you look some of the major global institutional clients in the world, some of them are at 30% to 50%. There's not that many, but some of them are at 30% to 50% today. And that's where the global shift is happening. So we do believe in that very significantly. And I think it will still continue to occur as rates inevitably go up. But as and as long as they don't go up dramatically in a very short period of time then I think it will continue. Okay. So presumably you don't need U. S. 10 year treasury for example to be sub-two or sub-three for an extended period of time to see that shift? Our view is that sometime the 10 year and 30 year treasury are going to be in their normal range of rates, which is 5%, 4% 5%, 6%. And that's why we fix our interest rates and that's why we continue to use every opportunity to fix interest rates. And therefore all those all of these comments are predicated on the fact that we're in an unduly low interest rate period and rates will inevitably go back up. Up. Okay. And just an associated question with respect to the valuation attributable to your asset management franchise valuable at $6.50 per share. You've highlighted the assumptions in the past. Wondering, given this expected significant increase in the allocation, does that $6.50 per share predominantly reflect increased market share given as your funds kind of establish a track record? Or are you also factoring in a substantial increase by investors in their allocations to the asset class? Hi, Meyer. It's Brian. No, we haven't really I guess what we've always said about that number is it's mechanical calculation that we put in place. And there's some degree of science behind it. A large part of it is to get people to focus on it and we've always maintained that. In fact, we think the potential value of this business is far in excess of the $4,000,000,000 And a big part of that is that we do believe that as Bruce said the institutions will continue to deploy more assets more of their capital into real assets and that we have an outstanding franchise to assist them in that regard. Okay, great. Thank you. Next question is from Michael Goldberg of Desjardins Securities. Please go ahead. Thank you. First of all, thanks again, Bruce, for a great informative letter. I wish other companies could be as informative in their disclosure. As far as you can tell, given all the potential investment opportunities that you see in front of you, do you foresee that any of these investment opportunities that you discussed in the letter would require equity financing at the BAM level similar to when you increased your investment in GGP last year? Michael, hi, it's Brian. Now look we and I think you'll have noticed from the ongoing development of our funds and in particular the listed entities that what we are continuing to do is position the company so that we have multiple access to capital and equity capital through those entities. And as a result, we do not believe that we would be needing to issue equity out of BAMDA to fund this ongoing growth. But conceivably there could be more equity out of the listed entities? Absolutely. Thank you. Have a great day. Thanks, Michael. The next question is from Alex Avery of CIBC. Please go ahead. Thank you. Brian, you've got more than $150,000,000,000 of assets I think it's under management. And one of the key metrics that you disclosed is the net asset value. Can you give us a little bit more color on, I guess, how the approach to that net asset value calculation is, I guess, brought together and I guess the temptation to use some of the more recent precedent and more aggressive pricing of some of those assets might factor into that consideration? Sure, Alex. And I'll perhaps provide a bit of context for others on the call as well. Our financial statements which form the base support for our net tangible asset value and our intrinsic value that we publish regularly are based on international financial reporting standards. And those as part of preparing those statements, a number of the assets, not all of them, but a number of the assets are carried at fair value or an appraised value. And you can really break it into 2 camps. And without going into a whole lot of detail, you could really split it into on the one hand, you've got commercial properties, office and retail properties. And then and those are revalued on a quarterly basis. And then you also have property plant equipment that would be used in our infrastructure and our renewable power businesses. And those tend to get those are revalued only on an annual basis. So each quarter, we do go through and look at the various values of the assets that need to get revalued. And we prepare appraisals and update appraisals for the various assets. And given the fact that while it sounds like a big number, there aren't that many individual assets. And certainly, you can it's the old eightytwenty rule. You can probably there's probably an even smaller subset of that that have more of an impact on the values. And so it makes it a fairly manageable process to go through and reconsider the appraisals. Now you absolutely do look at benchmark transactions. When you reassess your appraisals, you look at what the discount rates and the cap rates are and you also revisit your cash flows. But at the end of the day, these are also all reviewed by the auditors. They are all done in reference to external appraisals as well. But the idea is that they are supposed to follow trends in the market. And so if you are observing transaction values in general increase then you should expect to see our own valuations increase as well for like assets. So I hope that may have been a little long winded, but I hope it addresses your comment. No, no. That's quite helpful. I guess what might be a little bit more helpful would be in that process how much gravity is given to transactions done in the last 60 or 90 days versus the last 180 days? That's a judgment call. I'd say if it's just a point in time transaction, you need to be careful about outliers. And so we definitely look at through both the short term and the medium term lens. Yes. The only other comment I'd add to it is that you're doing these are appraisals with audits being done. And therefore, generally, what that means is things are conservatively looked at. And I think you could probably take most of the assets that we have at this point in time. If you sold them 1 by 1, you'd sell them at far greater prices than what those appraisals would come up with. And that's just based on when you do a financing or you do a type of appraisal that's what happens, because people are conservative in nature. And those prices that we put on our assets for IFRS purposes that isn't to say that we would ever sell any of the assets at those prices. They just happen to be arithmetic that comes out of an IFRS exercise. Okay. That's quite helpful. Your earlier comments Bruce about Europe, I guess what might be helpful is if you could give us a rough guide as far as the aggregate assets that might be in your pipeline including both acquisitions or transactions that you think might be close as well as ones that might be a little bit further out or uncertain? Yes. I guess I'd say during the last quarter, we probably I'm not sure what the total is, but it's probably $5,000,000,000 of assets that were added. Almost every one of those emanated from an opportunity in Europe. That's an exceptionally large number in any one quarter even for us. And so there's lots of things always in the pipeline and I guess we hope to capitalize on a number of things like that. But I don't have any specific number for you that I think is going to transact in the future. Okay. And then just lastly, I guess you had made some comments about the U. S. Housing market. Just wondering what your thoughts are on your BRP business and I guess what the potential is there? So just for everyone else, the BRP is our Brookfield Residential Properties business, which is a publicly traded real estate affiliate of ours, which I believe we currently own 74% of or in that range. And it owns today because we did a combination of 2 businesses. It owns our Canadian and our United States businesses. And the Canadian business within that company has been doing exceptionally well and continues to. The U. S. Business, like most residential businesses had a tough 5 years, but like all of our U. S. Businesses that are affected by U. S. Housing has certainly turned and numbers are getting better. And you would have seen that in their results that were just released for the Q1 or for the Q2. And I guess we're quite positive on the fact that U. S. Housing is going to come back over the next 5 years. I wouldn't tell you exactly when. But there's no doubt that the base is being set for increased levels of residential sales over the next 5 to 7 years as we build back to the actual number of homes that needs to get built to take care of in migration and replacement. So we're pretty positive about the market after a tough 5 years. So I guess it's fair to say that you're not contemplating a reduction of your equity ownership of that business? No. We are not. Okay. That's great. Thank you. The next question is from Bert Powell of BMO Capital Markets. Please go ahead. Thanks. So in your letter Bruce you indicated that the infrastructure fund would probably be ready to go on a successor fund for next year. And just triangulating against Brian's comments and I guess highlighting the robust pipeline deals in the infrastructure side of the business. I would be curious as to what your preliminary thoughts would be around the size of the successor fund? Hi, Bert. It's Brian. And seeing it, I guess, it might have been my comment on the call that triggered that. There are pretty strict rules under the U. S. Private placement that prohibit us from answering that question specifically. Okay. Then just going back to comments earlier Bruce around fees on funds and this might be misreported or not, but my understanding is on the strategic real estate fund that there was some discounts and sweeteners offered. And I was just wondering to what extent that was accurately reported? And if so, what were the dynamics given your comments that that's generally not what you're seeing? Yes. Again Bert, it's Brian. So look we got we're very pleased with the with how that has sorted out in terms of what's happened to date. Again, we have to be very jarded with our comments. So I think the way I would answer that is that it's entirely consistent with how we would view the appropriate market and with our expectations for that for a fund of that type. Okay. And just lastly, you talk about establishing some offices in Canada and India for your construction business. Is that can you just give us a sense of what you're thinking about there? Are you thinking about establishing businesses that would then start to build backlogs like you have in other geographies? Or are these is there something else you're that these would represent? No. That basically is it. Our construction business is pretty global and they had never been in Canada. So we're assisting them start up in Canada. They've now been now building 3 projects in Toronto and they're going to keep growing the business here and they've just started up in India. So it's really just the expansion of their global construction business, which today has about 3,000 employees and it will continue to grow. And this is just an additional business, which it's just very easy for us to help them start up in new markets where we have a very significant presence as you could imagine. Will they Bruce will they be doing the Bay Adelaide? They haven't awarded the construction contract on Bay Adelaide yet BPO. So they are they actually are building right across the street. They completed the tower across the street from Bay Adelaide just out of interest. Okay. Thank you. Next question is from Andrew Kuske of Credit Suisse. Please go ahead. Thank you. Good morning. My first question just relates to your financial assets position and there's a pretty meaningful shift away from bonds both government and corporates and into common shares and really loans receivable. Is this really just an opportunistic type view on the market right now from a valuation perspective? Or is it something more specific on a situation that you're working on that maybe has broader ramifications? Hi, Andrew. Thanks. It's Brian. I would say it's more opportunistic. I wouldn't say there's whole lot of I wouldn't read a whole lot into that from a strategic perspective necessarily. We've been monetizing some of our bonds and running off some insurance related liabilities, which gave rise to the decrease there. And we've just seen some good opportunities on the equity side. Okay. That's helpful. And then I guess just a bigger broader question to circle back to something that was in the latter. On the expectation that you see a greater allocation of total assets going into real assets from some of your client base and then those levels are moving up pretty meaningfully. What do you think that is the offset on that? Is it really at the expense of bonds or equities? And then really what's the offset if real asset classes go up to 25% to 40% total exposure in total investments? What loses? We're a service provider to institutional clients. So I don't pretend to know exactly how they make their allocations. But in general, I would observe that I think it's from all of the above. I think it depends on the type of institutions and where they source their capital from whether it's a pension fund, sovereign fund or other institutional type client like an endowment or something. So I think it all depends on the source of money. But in general, I'd say it's from all of the above. But the most specific one in my personal view would be that bonds today at the rates that they are at are an easy one to take and allocate to something that's going to earn you a relatively conservative 8% to 10%. And so I think that's with the way a lot of people think about it, but I think it's all of the above. So just somewhat related to that, do you see your strategy on your fundraising, your 3rd party capital fundraising really changing and your fund sizes essentially become bigger in that kind of market environment? Or the other way would be just have a multitude of more funds in the marketplace? Our strategy has been to focus on a large global fund both listed and private for each of the businesses that we're in. So our big focus has been to drive towards a large global fund privately and a listed fund for each business. And we're heading towards that in all the businesses we're in. Okay. That's helpful. Thank you. Next question is from Michael Smith of Macquarie. Please go ahead. Thank you and good morning. I just wanted to talk about Brookfield Infrastructure Partners. You raised approximately $500,000,000 of equity and BAM took its proportionate interest, which is about 30% roughly 30%. Can I read from that that that 30% is a similar target or a level you'd like to get into eventually for Brett and for BPY when that eventually gets done? I guess, I'd first say that our thesis of our organization and what we the investors we have both in the public markets and in private are one of our major strategies that we align our investment alongside our client. And that's a big thesis of ours within the organization. At some point in time, the numbers get so large that the percentage isn't as important as the absolute number. So as we get bigger and bigger, I think we just have to think about absolute numbers as well as percentages. And part of it also comes back to capital allocation. We consider every day if we need money for X we need to do Y just like every prudent organization that's out there thinking about how they allocate their capital. So some of it really just comes back we will own a very large percentage of the property business. And if it's we don't need the money, it's a great investment for us. So therefore, we're going to keep it. If we need the money for something else, I guess we might sell some units over time or be diluted down. So we don't have any absolute number. I guess we just feel at this time that Brookfield Infrastructure Partners is an excellent investment and therefore we wanted to keep our pro rata interest the way it was. Okay. And second question, can you talk about the timber like I think you suggested that you may look to sell some of the timber assets to fund some of the other growth opportunities within Infrastructure Partners. What is it about timber that's different? Because most long life assets are trading at low initial yields, I guess. So what's the rationale for say lowering your timber exposure or thinking about it anyway? Yes. In fact that was a comment I think made by Sam Paul The timber business is a great business. It produces excellent returns, but they're generally core to core plus returns. They're not core plus to opportunistic returns. And most of our money is invested in or is working towards earning higher returns in any of the businesses that we're in. And therefore, we just while Timber is an excellent business, it doesn't earn as high returns. It's low risk, but it doesn't earn as high returns as some of our other businesses. So when you're down to capital allocation, sometimes you think or you do think we think about those things. And that's really the reason for those comments. The only other thing I would add is that, the real estate business and the infrastructure business broadly defined as we invest are very, very large. And when we do what we do on a global basis, there are endless amounts of opportunities to invest our capital. The timber business is a niche product, which will never be very, very large. It's good, but it can't grow the same scale as the other businesses. So if you're going to dedicate resources to something, we'd rather have it to be very scalable to be able to provide to our institutional clients. Okay, great. That's helpful. Thank you. You're welcome. This concludes the time allocated for questions on today's call. I will now turn the call back over to Mr. Flatt. Thank you to everyone for joining the conference call today. We look forward to speaking to you next quarter. And in the interim, if there are any questions, please call any of us to clarify them. Thank you very much. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.