Earnings Call: Q1 2012

May 10, 2012

Hello. This is the Chorus Call conference operator. Welcome to the Brookfield Asset Management 2012 First 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 Weisz, Senior Vice President, Investor Relations for Brookfield Asset Management. Please go ahead, Ms. Fies. Thank you, Sachi, and good afternoon, ladies and gentlemen. Thank you for joining us for our Q1 webcast and conference call. On the call with me today are Bruce Flatt, our Chief Executive Officer and Brian Lawson, our Chief Financial Officer. Brian will start this afternoon discussing the highlights of our operations and financial results. At the end of our formal comments, we will turn the call over to Sachi to open up the call for questions. In order to accommodate all who want to ask questions, can we please ask that you refrain from asking multiple questions at one time to provide an opportunity for others in the queue. We'll be very happy to respond to additional questions later in the conference call as time permits at the end of the session or afterwards if you prefer. I would at this time 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 from 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 I'd like to turn the call over now to Brian. Great. Thanks, Catherine, and good afternoon to all of you on the call. Thanks for joining us. We did hold our AGM this morning, which was webcast and also released our first quarter results in the Shareholders' Letter. So with that in mind, we'll keep our comments somewhat briefer than usual. I will review some of the highlights of the quarter and then Bruce and I will respond to any questions or comments. In summary, we had a very productive start to the year, recorded strong financial and operating results. These included the positive impact of a number of capital expansions and operating enhancements as well as recent acquisitions. Our total return was $711,000,000 or $1.13 per share. This consists of $283,000,000 of funds from operation and $457,000,000 in valuation gains. As a result, our net intrinsic value per share increased to 42 $0.35 per share. FFO funds from operations was up by $52,000,000 or 23% over the Q1 of 2011. The increase was driven largely by higher net operating income and disposition gains within our property operations. I'll come back with more color on the operating results. The valuation gains also arose primarily in our property business. We saw continued cap rate compression in our U. S. Retail portfolio and North American office portfolio as well as continued improvement in leasing conditions. We continue to expand our capital under management and added nearly $2,000,000,000 of private fund listed issuer capital during the quarter. Our listed renewable energy unit ranks among the world's largest public renewable power companies and our listed infrastructure business is well positioned as a global leader with a number of growth opportunities for each business. We also filed a registration statement for our proposed listed property business and that will rank as one of the largest and most diversified public property businesses in the globe and are advancing capital campaigns for 8 private funds with a goal of obtaining further third party commitments of approximately $5,000,000,000 Turning to our property business. FFO from this business increased by $36,000,000 Increased rents from existing properties, same store rents in Australia and Canada were up by around 2%. We received a $9,000,000 dividend from Canary Wharf. We experienced a reduction in our funding costs and we also had a good contribution from new properties. We signed up $2,300,000 in square feet in new leases at rates substantially higher than the expiring rents, continuing the momentum from last year's record performance. This includes a 1,300,000 square foot lease in Lower Manhattan that represents the largest single asset office lease in Lower Manhattan since 2,008. Retail sales in our U. S. Mall portfolio increased by nearly 10% to $5.25 per square foot on a trailing 12 month basis. Initial rents for new leases increased by 7.4% on a comparable basis. We continue to reposition the business by spinning out 30 malls into a new entity focused on these specific assets. We continue to be very active within our opportunity investing group activities. This includes acquiring properties and associated debt at favorable values, making excellent progress in working through the New Zealand loan portfolio we acquired late last year and monetizing assets for meaningful disposition gains. We also formed a $400,000,000 joint venture to acquire industrial properties and continue to build out our multi residential operations. In our renewable power operations, generation levels increased over last year and were 5% above long term averages. We also benefited from new wind and hydro facilities. These factors were however largely offset by a 5% decline in realized prices due to short to lower short term prices and also we held a reduced interest in the overall business. We continue to expand our portfolio through acquisitions and developments adding 3 22 megawatts of capacity and continue to advance construction on 4 projects with a further 99 megawatts of installed capacity. We also continue to expand our infrastructure operations. We acquired an electrical distribution business in Colombia and are integrating our recent acquisition of Toll Roads in Chile. In Australia, we've now completed over 60% of our $600,000,000 Australian rail expansion. This is now contributing to FFO and we advanced planning for an expansion of our metallurgical coal terminal. The contribution from our infrastructure operations was unchanged for the quarter as the improved results from new projects and acquisitions was offset by lower pricing and volumes in our timber business and this was due to a decrease in demand from Asia. In our private equity operations, special situations FFO was relatively unchanged overall. We didn't see a substantial increase in our share of operating FFO from our portfolio investments. And this made up for the fact that we had a larger number of disposition gains in 2011. Residential activities were somewhat lower as a result of the lower level activity, but we consider this to be primarily a timing difference and expect results for the balance of the year to substantially better. Investment income increased due to favorable capital markets performance relative to the 2011 quarter. Valuation gains overall totaled $457,000,000 as I mentioned before and that's a substantial increase over the $220,000,000 recorded in the same period in 2011. Commercial property operations contributed the largest amount of the gains. Our U. S. Retail portfolios benefited from increased demand for high quality properties. This gave rise to improved valuation metrics based on comparable transactions. The U. S. Office properties saw improved continued improvement in leasing activity. This has driven higher anticipated future cash flows and the terminal cap rates for Canadian properties declined in response to recent market transactions. We raised $6,200,000,000 of capital during the 1st 4 months of 2012 through asset sales, equity issuance, fund formation and debt financings. Low interest rates, receptive credit markets and strong investor interest in our income generating high quality assets continue to support our capital raising and refinancing initiatives. These activities enhanced our liquidity, refinanced near term maturities, lowered our cost of capital and extended term and funded new investment initiatives. With that, our core liquidity was $4,200,000,000 at the end of March. And lastly, before opening the call for questions, our Board did declare the regular quarterly dividend of $0.14 per share payable at the end of August. Thanks. Those are our formal comments. Operator? We will now begin the question and answer session. The first question comes from Bert Powell of BMO Capital Markets. Please go ahead. Thanks. Bruce, today you said 5 years from now BPO I'm sorry BPY would be a premier vehicle for real estate assets. Hypothetically, what does BPY look like 5 years from now? Maybe could you contrast where and what assets would be held directly by BPY? Thanks for the question. And just for everyone's benefit, BPY is Brookfield Property Partners and that's the symbol we expect it to have or it will have when it's spun off. And I guess I'd maybe make my comments a little more broad than that and because we've had a number of questions as to what this means for BPO. And I'll try to answer both those questions and what it means. And I guess I'd say that just to start off, Brookfield Properties or Brookfield Office Properties is a pure play office entity and it will continue to be and we will continue to support it as we have for 15 years, to be one of the best office companies in the world and we intend to keep doing that. Our business in contrast to that at Brookfield Asset Management has always been quite different than Brookfield office. It's been to acquire, I guess what I'd say is great portfolios of real estate on a value basis, usually through corporate acquisitions and to dispose of non core assets and to continue to hold great assets, which we acquired through those portfolios. And over the years, that's how Brookfield office was built, but also how we got into GGP and many of the other real estate portfolios that we own. So that's sort of been there's been 2 different businesses. All of those investments that we have in Brookfield Property Partners, which today is 100% owned, are generally significant influence investments. So we have very large stakes in them and we have a say as to what we what the direction of the companies are in them. So they're not portfolio investments. And but the way we view them is that we own a part of the assets along with the other shareholders. And we don't necessarily while we care a lot about what goes on in the companies, we don't necessarily care whether we own 30%, 50% or 80%. We just look at us owning our piece of it. So that I guess leads me back to the answer to your question, which is where we go with these entities. And I guess BPO and GGP or any other public company that we invest and have a significant influence in, they are pure play entities, which will access the markets for those businesses and will help build them into the best in the world. BPY will do something very differently, which is if we have always had a mandate or for the last 10 or 15 years, we've always had a mandate to look around the world in the real estate business to the places where we could find value acquisitions. And today I'd say that's Europe, Asia, South America. And that we just to give an example in Brookfield Property Partners, we invest today in 25 different countries or in Brookfield. We invest in 25 different countries. Brookfield office is invested in 3 and GDP is invested in 2. So to specifically answer the question, we intend to use this entity to continue to grow the business and it should give us greater access to capital to broadly invest in value portfolios around the world. And Brian mentioned on the in his notes that we purchased a portfolio of defaulted real estate loans in New Zealand last year at the end of the year. And I'm quite positive that neither BPO or GGP, which are 2 big investments we have, which are pure plays, would ever have wanted to invest in those assets. But they've been a fantastic investment for us. They were backed by retail office, land, hotels and development properties. And all of that just gives us it's a different business. We essentially run an opportunistic fund, which is now going to partly be in a public format. In addition to that, we own some of these major investments. And so the bottom line, I guess, I'd say we intend to turn BPY and to continue to have BPY as a diversified value investor in real estate. And BPO will be a pure play office company and it will be it is that today and it will continue to be that going forward. Thanks, Bruce. That helps a lot. You're welcome. The next question comes from Alex Avery of CIBC. Please go ahead. Thanks. Bruce, at the AGM this morning, you made some remarks suggesting Brookfield might be getting more comfortable with and perhaps closer to making some pretty substantial direct investments in Europe. You noted that there are I guess it's a sweet spot for Brookfield to I guess wade into troubled areas and that a lot of investors may be concerned about things like that and elevated risks. Can you talk about some of the changes that you're seeing that are making you more comfortable? Is it just pricing? Or are there other developments that are getting you more comfortable? Yes. I would generally say that we spent a lot of time over the last couple of years building up resources and understanding the markets and looking at things in Europe. And we haven't done anything of any significant size related specifically to Europe. We've bought a number of things from European companies as they've recapitalized themselves, which has been a great opportunity for us. I'd say that as you as in every, I'll call it, recapitalization situation that's out there, There are phases of the recapitalization and initially people don't want to do anything. They think it will get better. Then the banks don't do anything because they want to recapitalize themselves and then they move through different phases. And I think we're now at the phase in Europe where banks and corporations are needing to do things or wanting to do things as they move forward. And therefore, there's a lot of counterparties that might not have wanted to deal with us 2 years ago, but they're now realistic as to what they should do and they're looking for partners like ourselves who can assist them re capitalize their balance sheets and do things. So I'd say it's not towards anything that's happened out there. It's just the natural evolution of a recapitalization of a country or a business or anything like that. Okay. And I guess just there are a lot of different types of risk. You've got currency or economic risk, sovereign risk, things like that. When you look at Europe, is there, I guess, a profile of asset that might be more attractive? I would assume that property, power and infrastructure would be high on the list. But would you be favoring regulated utilities or avoiding those, looking for market assets? What kind of profile should we be expecting if something does transpire? We're I guess I'd just say we're looking in all of our core businesses. When you're in, I'll call it a value market, it's easier to do things that you know very well. So it largely will be things that we are already in now. You don't want to take a new business risk along with all the risks that come inherently within buying in a value distressed market. So it will be focused on property, power, infrastructure. And I guess we're talking to a number of companies or looking at a number of assets in all of the above. And so it could be in any one of them. But similar to what we did in 2,009 in the United States, we our goal was to do a few small things around edges in all of our businesses and get involved in 1 or 2 things in a significant way that would add meaningfully to the business. And in looking back, the infrastructure acquisition we made with Babcock and Brown and the GGP acquisition were 2 great things. And if we could do a couple in Europe that would be fantastic for our business. Okay. That's great. Thank you. The next question comes from Mark Rothschild of Canaccord Genuity. Please go ahead. Thanks. Bruce, could you please comment on your view of valuations in the low interest rate, low cap environment? And in particular, in regards to core property values, whether you view them as attractive for acquisitions? And maybe also on the power side, pricing has been rather weak. Have you seen any drops in values there? So I think I remember the three questions. Just on valuations of real estate visavisinterest rates, I guess I'd say that and I think I've said part of this before, but I'll try to be clear with what our views are, but they're relatively consistent. We believe that interest rates are in a low we're in a low period of time for interest rates. And therefore, while rates may go up in the short term or they will go up in the short term, We don't see that in a reasonable period of looking out that they're going to go up dramatically. And that means that instead of having a 2% 10 year bond, you may have 4% to 5% 10 year bond. I guess I make that comment to contrast that to capitalization rates. Capitalization rates when used to be 7% for a great property and then they were 6% for a great property. And today they're 5% for a great property and they're heading to 4% for a great property. And those numbers are probably fine because the cash flows in most of those properties are rapidly going up as we come out of the economic situation we've been in. And when you compare that to even the rates of return on a treasury bond 3 years out, they're pretty good. So I'd say today we're fine. If cap rates if we stay in a continued low interest rate environment and if cap rates go down to 2.5% for a great property, then I do think you take the risk or we all take the risk that valuations will get very high if compared to what interest rates could be. And that's when I think it becomes more dangerous. But you haven't seen that drop. And I guess 2 years from now, if we're still in an environment that's very, very low interest rates, you could get into that situation. So I guess I'd make the last comment on that saying that we believe what we've seen is that cap rates for high quality properties, in particular your second question on core real estate, continue to come down and will continue to come down, because institutional clients around the world are looking for alternatives for 2% bonds. And these are outstanding assets to have in a portfolio as opposed to a 2% bond. And because they will continue to grow over time and you're not going to take the tail risk you would in a long bond. And so I'd say there is a robust pipeline of investors to buy core properties and that means that cap rates are probably coming down more. The last question was on power prices. And the bottom line natural gas in America is very low today. We think unnaturally low based on long term pricing and that has compressed merchant prices in Power. The good news is a lot of our Power is contracted. But I would say anything on a merchant anything on a contracted basis is similar to real estate in that it is very it would be very well bid if it was sold. If it's on the merchant basis, it's kind of like anything else. It's less robust bids and people are more scared of merchant power today than they would be other things. Okay. Thanks a lot. You're welcome. Next question is from Mario Saric of Scotia Capital. Please go ahead. Hi, good afternoon. Maybe just coming back to Europe really quickly. Europe, at least some parts of it have clearly edged kind of a bit left of the political spectrum in the last couple of weeks. What impact, if any, does that have on the risk adjusted returns that you're looking for in the region, given perhaps the rule of law is an important factor for Brickfield historically? So have those risk adjusted return requirements changed? And can you get those returns at the valuation that you're seeing today? So I guess I'd answer that question by saying when you make acquisitions especially when things are in turmoil, you never know where you're going to end up. And so we often invest believing that our returns will be higher than one might think you'd get out of an asset. But what comes along with that is a risk as you mentioned. We don't buy too many things. We don't invest in too many things that aren't that really demand dealing with governments or other types of institutions. Some of our infrastructure does, but a lot of it for example on real estate we're sort of under the radar screen and we just price things on an opportunistic basis. And it's not that relevant as to whether the government is this one or another. But there's no doubt we look at rule of law in country and make sure that we invest into the ones which we believe will accord that to us over the longer term. So we pay attention to them, but we and I guess the only thing I'd say on rates is that we generally we're investing in distress to leave a big margin of safety to be able to make it out the other side, because inevitably you will make a few mistakes. Okay. Thank you. Next question is from Michael Goldberg of Desjardins Securities. Please go ahead. Thanks. Couple of questions. Historically, your NAV excluding the value of your asset management franchise has grown by say 12% annually plus or minus. With the spin off of managed partnerships, is it reasonable for me to think that you would target a similar double digit growth rate over time? Or does the historic growth rate have to go down offset by growth in the asset management franchise value? So Michael, it's Brian. Picking up on Bruce's comments earlier, whether we own we're quite indifferent as to whether we own 20% of something or 50% of something or 80% of something. So unless there's a shift in the proportion of what we're investing in various risk return type profiles, which we're not suggesting there would be, then we should be expecting to get the similar type of return off of the capital that we are putting to work alongside our clients in our various funds and listed entities. Okay. And my other question is, you aim to pay out 80% of BPY's FFO. How should I think about the impact of unremitted cash flow in determining how much of that cash flow is actually distributable? Let's see if I can work it's Brian again. I'll take a shot at working through that one and Bruce will clean up if I've missed something on it. Essentially, all of the listed entities that we have, whether it's Brookfield Infrastructure Partners or Brookfield Renewable Energy or the new Brookfield Property Partners, one of the investment features and we think a very favorable characteristic of them is that they are going to be they're all strong dividend yield entities and they all have very healthy payout ratios driven and supported by the nature of the business. So from our perspective, it really doesn't influence our thinking a whole lot. Yes, there will be some of our cash flowing assets that will be now within Brookfield Property Partners and therefore we will receive the distributable amount of that cash flow and some of it will be retained in Brookfield Partners Property Partners for reinvestment. But given that these are all fairly high payout NTDs and given the amount of cash flow that we generate elsewhere in the business, it really doesn't influence our thinking a whole lot. And Michael, I think you're referring to actual Brookfield Property Partners, right? That's right. Yes. Okay. So let me Yes. So I mean, I'm thinking like BPO and GGP both have payouts on their own in the neighborhood of about 50%. And so BPY, I guess, will get the cash that it will have available to it just as remitted cash would be the dividends from those entities. So how do you pay out 80% of something where you're only getting 50%? Yes. And I guess the way I would think of it is that these are significant influence investments that we have. If we wanted to, we could change the dividend policy for those companies tomorrow morning to the benefit of all shareholders, I might add. And therefore, the way you we don't really look at it that way. We look at it on an equity account or a consolidated basis. That's our portion of the cash flow. Whether we leave it in the companies or we distribute it back to ourselves, we manage the affairs of the parent assuming that we can do that. So BPY, Michael, just to finish, will have very little financing upfront in it. It will be all equity virtually and therefore it will have lots of assets and its own cash flow to be able to pay that 80% out should it want, even leaving the dividend policies the way they are. Thank you. The next question is from Brendan Mayerana of Wells Fargo. Please go ahead. Thanks. I had a question about valuation and growth and maybe piggybacking a little bit off of Michael's first question. This could either be for Brian or Bruce I suppose. But if I look at your the FFO run rate that you guys have been generating over the past couple of years and then this quarter as well, it's sort of in that $1.50 to call it $1.70 kind of range when you strip out the gains. The inverse of that compared to the IFRS value is probably call it give or take about a 4% yield. Can you kind of frame up how you think the growth of the non cash flow assets is likely to get you to a 12% targeted annual return, which I think is what you guys target for BAM equity on a per year basis? Sure, Brendan. It's Brian. And without getting overly granular on the numbers, I would point to a few different things. First of all, you did mention development assets and there is a reasonable amount of capital that we have in development activities. And by that I mean commercial office developments and things like that whereby we're not getting a current cash yield. And as these assets come on stream, the cash flows accelerate substantially. And so that's definitely one area of it that will kick in. We've identified a few areas where we are I'd say clearly looking for more meaningful growth in cash flow compared to where we sit today. 1 obviously is the various parts of our business that are more closely linked with the U. S. Homebuilding cycle. So take our U. S. Homebuilding operations specifically, but also our timber operations. And we don't know exactly when it's going to happen, but we have a very high degree of conviction as I think most people do that there is going to be a meaningful uptick in the number of homes being built in America. Just demographics and everything else just requires that to happen. So there's going to be a meaningful step up in cash flows there. And you may recall several years ago that was a there's a big chunk of cash flow that we got out of those various parts of the business. The other one is the power side is definitely in terms of the short term. The part of the portfolio that we get short term pricing from is punching below where it should be in our view based on the long term trends in power pricing. And again, if you look at the NYMEX screens, that's not going to suggest there's going to be immediate turnaround in that. Having said that, we continue to make progress in signing up long term contracts and we have a high degree of conviction that even before we see a return in let's say a gas driven price, we will continue to be able to put in place more higher priced contracts based on that renewable power premium. So there's a number of different areas where we see that there's been I'll say headwinds with respect to our cash flow growth over the past couple of years. And I might add to that a sequential down tick in our occupancy in our U. S. Housing sorry in our U. S. Office portfolio. But we're continuing to make great leasing progress there. And so as all of these things revert more towards I'll call it mean or normalized performance, we should see strong sequential growth in cash flows. And I'm not even talking about growth in the asset management side of the business and the fees that we're generating there and having the performance income come in. Sure. No, that's helpful. So is it for a long term sort of sustainable growth level that we would expect out of the business, is it fair to think that it's at the asset level call it inflation which is maybe 2% and then leverage is 1 to 1? So your long term growth out of your existing assets is probably 4% on an equity basis. And so if I'm thinking about a 12% return on a $42 number today and I'm getting 4% current cash flow, you've got a your existing assets are probably under earning by roughly a large portion and then you've got sort of 4% core growth after that? So I think I would add a couple of things to that. You spoke about just pure inflation. So we also benefit from these are real return assets. So we will just at a minimum should be benefiting from, I'll call it, more nominal GDP growth. So traditional real GDP growth plus CPI, plus we've got everything that we do constantly with through the operating platforms to put premium growth on cash flow. And I think we've demonstrated our ability because of the nature of the assets that we have to capture better than average cash flow growth in the assets. And I think all of that goes into. And then when you factor in a prudent amount of leverage on it, then you do get a much more much higher growth rate on the cash. Okay. That's helpful. And then just had a quick related to that. The gains that you guys the realization gains that you guys are reporting, is it are those based on the traditional more GAAP book values relative to the realization prices? Or is that an inflated IFRS more fair value when you're recording the sale price versus the book value? So the ones that we would have reported in the Q1, we reported a few property gains and those would have been based off of the acquisition cost of those specific properties plus any capital that we put into it. So I'll call it the true economic gain on them. And then we also recorded the gain in respect of the monetization of a portion of the Power business. And that would have been based more on a historical GAAP type number just because it's over a pool of assets that we've owned for a long period of time. Okay, great. Thank you. You're welcome. Next question is from Cherilyn Radbourne of TD Securities. Please go ahead. Thanks very much. Good afternoon. I wondered if you could give us a bit more color on the industrial property joint venture, the magnitude of the opportunity as you see it and whether that's a buy and hold mandate or a buy and sell? Yes. So just for everyone's benefit, we created a partnership with a U. S. Group who specializes in industrial properties. And we created a $400,000,000 fund with some of their money, some of our money and some of our clients' money. And we've made a couple of acquisitions and we intend to buy this is a core plus industrial portfolio, but in addition to that what we have is a relationship with a very good industrial owner operator and we intend to work with them to find other opportunities more broadly for our opportunistic funds. So and I would answer your specific question on are they buy and hold or sell? I think they will be all of the above similar to our other businesses. There'll be some great portfolios I think we'll buy and we'll probably keep longer term. And there will be others which are more opportunistic in nature that we'll sell over time. So I'd say it'd probably be across of both over time. And can you give us a sense as to how the fees are shared between yourself and your partner? I don't think that's publicly disclosed, so I don't think I can. Okay. That's fine. Second one for me is you do make an interesting comment in the supplemental that you're pursuing several monetization strategies in the private equity business. Is that something you can elaborate on a little bit in terms of magnitude and or timing? Hi, Cherilyn. It's Brian. Can't elaborate a whole heck of a lot on it. Really picking up on Bruce's theme. In the Private Equity business, these are for the most part situations where we will acquire an interest in something, work it really hard, address the capitalization and then either merge it out or put it back in the capital markets or something like that. And so it's by definition it will be one of the few of those investments which tend to be a bit on the smaller side relative to our overall business, but they'll still be very good initiatives in and of themselves. So I can't really telegraph much more than that on that front. Okay. And last one for me is just you guys don't normally target your investing in terms of asset classes, geographies or what have you, you go where the best returns are. But in terms of BPY and having that be a very high payout vehicle, do you have to have some thinking in terms of how large the opportunistic piece can be as a percentage of the whole? It's a good point, Charlin. I'd say the answer is yes over time. In the short term, we have very significant latitude on resources to be able to make payouts. So it won't be an issue. But 5 years from now, if we don't have that same latitude, because we bought a bunch of things and we put debt into the parent company or something like that, then we'll have to be cognizant of how much is in opportunistic investing and how much is in core assets producing current cash. And I'd say generally we think that way anyway, which is just a risk reward on how much money you should have in more opportunistic things. So I'd say we generally have always been that way, but we may have to be a little more attuned to it over the longer term with that company. Okay. Thank you. That's all for me. Thank you. The next question is from Andrew Kuske of Credit Suisse. Please go ahead. Thank you. Good afternoon. I think this question is for Bruce. And it's just along the lines of how do you see your competitive positioning versus some of the other alternative asset managers in the marketplace? And I ask the question in part because you've got a somewhat unique model of really public and private sources of capital for any kind of redeployment activity? And then so just how do you see your relative positioning? I think it's tough to compare yourself to others. Maybe it's easier for you to do that or others to do that than us. The only thing I'd say is, I believe that a number of the people one should never think that you're that there aren't very capable competitors out there in each of the businesses that we're in and there are and there's always an enormous amount of competition. Despite that, I'd say that the only comment I'd make from a positive perspective is compared to 5 years ago when there was lots of money available in the capital markets, we had found it, as you know, very tough to do things because everyone seemed to have money. If you fast forward to today, there are a number of global asset managers who have I'll call it not unrestricted, but very good access to capital and we thankfully fit into that group. And there are others that don't. And that gives us a competitive advantage in the businesses that we're in and our operating people and strategy gives us we think an operating edge and we try to sell our clients on the fact that we have those advantages. And they don't work with every client, but more and more I'd say we use those different characteristics we have to our advantage to both get better returns, have less risk in getting the same returns or improve the numbers that we have in the portfolios. And just as a follow-up to that, what has been the evolution of your fundraising strategy over the last few years? And say in particular with a view that if rates are going to be low relatively low in historic terms for the foreseeable future, what's the evolution of your fundraising strategy in that kind of environment? I think I know what you're asking, but if I don't answer correctly, maybe you can ask me again. But I'd say that we continue to just raise capital towards the strategies that we like to invest in. We're never one to put a fund in place just because money goes to that area. And so all the funds that we have are directly related to our business. More and more institutional clients we see are putting money to property, power and infrastructure. And I'd say that's a it's a both a evolution of the business of them putting money into alternatives and the fact that interest rates continue to be very low. And this asset class, we believe, will continue to grow for the next 5 or 10 years, just because of the characteristics of the market. And so I think we think we're in the right spot feeding or supplying these type of products to our clients. And I'd say if anything, people used to want very high returns and today they're much more realistic The next question is from George Smith of Davenport Asset Management. Please go ahead. Hi. In your letter, you talk about investing in distressed situations including natural gas. And I'm wondering if there are natural gas assets other than the type that you already own that you could be interested in? Yes. So thanks for that question. And what we said in the letter just for everyone's benefit is that we intend to try to capitalize on $2 gas both private equity operations. And I guess fundamentally, we believe as an organization that $2 gas makes no sense over the longer term. That's not to say that we believe that gas will be back at $14 anytime soon if ever. But we do believe that $2 isn't a price that makes sense largely because of the oil conversion factor and LNG prices or gas prices around the world. And so we're in our infrastructure business, we bought a gas storage facility from a natural gas company who needed to recapitalize themselves. We continue to look at things in the power business. And I think there may be private equity investments that we can add to our portfolio just because of the duress that some companies are undergoing because they're specifically only invested in natural gas. I mean could this encompass upstream assets at some point? Or should we be thinking primarily about midstream assets? I would say in the power business, it really is hydro or wind opportunities because of the pricing that's in the market for power created by gas. So it's not buying gas plants per se. So it's the opportunity around pricing of power and our belief of long term pricing of power and how it affects the business and with our convictions we're buying more power plants. In infrastructure, it could mean midstream assets. It probably doesn't and certainly in our infrastructure business, it would be midstream, it would be pipeline assets, it would be things related to that like the gas storage facility. In our private equity business, it's possible that we could do other things. And there's nothing that I have to tell anyone about, but it's possible we could do other things, but it's not likely. Okay. You also talk about housing being sort of another stressed area and a lot of the marginal investment dollars going that direction. But I think if I look at timber and then your ownership of the actual homebuilder, that's a fairly small percent of the portfolio. Can you maybe just talk about Brookfield's leverage to a housing and domestic or excuse me U. S. Recovery? Yes. Brian should give you some specifics. I'll maybe just make a couple of comments upfront. And the first thing is we own a much larger percentage of our residential U. S. Builder now than we did 5 years ago. And the reason for that is because we had to put capital into E to reenergize the machine. So the numbers are larger just because we own bigger percentages and we have we don't have very many clients in that business. So it's more your the equity of a Brookfield asset management shareholder is tilted towards that versus some of the other AUM we have in the portfolio. On the timber side, again, we have still significant amounts of capital both through Brookfield Infrastructure Partners and directly in the timber business. And both of those businesses are highly leveraged to a U. S. Housing recovery. So the cash flows out of these the 2 businesses can be could be very significantly impacted over the next 3 to 5 years, if you believe the U. S. Housing will recover, which incidentally we do. And I'd say our view is that it's not going to happen overnight. It's just going to be a slow march upward for the next 5 or 7 years. And we're clearly going from 600,000 starts or whatever we're at today to 1,250,000 starts someday. And we just have to eat through a lot of the inventory that's out there. But all of that will be quite positive to us because part answer to one of the questions earlier, which is why which Brian articulated, which is that why are your results low? Well, we're earning nothing out of a lot of these assets. And that will over time contribute. Last thing and I appreciate the time. Can you just talk about the opportunity you see in the Atlantis because I think it's a different type of asset than that which you've emphasized in the past? Thank you very much. Yes. So the Atlantis Hotel for everyone's benefit, we own a junior piece of financing on the Atlantis in one of our debt funds. And we recapitalized the structure where we're now in the fund 100 percent owner of the Atlantis Resort. We're generally not in the hotel business, but from time to time at the bottom of the market, we believe that the best thing to do is to take assets, work with the management teams and the people and build the business. And we intend to do that over the next number of years. And we think that we can turn around the business and it has a fantastic reputation. So I would encourage everyone to vacation there. And I guess over time we'll figure out where we go with it. But we're quite excited about it today. Thank you. The next question is from Michael Smith of Macquarie. Please go ahead. Thank you. Are you in reasonably advanced negotiations for a GGP sized acquisition in Europe? And if so, would it be would we expect a complex transaction? And secondly, would it be European assets or possibly a European vendor with assets outside of Europe? So I think the answer I will give you, which I'm always try to be careful with respect to prospective acquisitions, we're in discussions with and have been for years with many significant entities in Europe about portfolios about assisting them recapitalize their affairs or to acquire assets from them so that they can recapitalize their affairs. And there's many companies in Europe in all of the sectors that we're in. And whether any of those turn into anything is all about the final details and we're not there yet. So it's possible all of the above happened that you mentioned And it's also possible that we get nowhere. And I guess we've always believed that you should make acquisitions when they make sense and financial sense for the organization. And if you don't find them that's okay too. So would that be any different than let's say 3, 4 months ago? I'd say the only comment I'd make is that the environment today is much more conducive to being able to complete transactions than it was 6 months ago. Okay. Thank you. The next question is a follow-up question from Michael Goldberg of Desjardins Securities. Please go ahead. Thanks. A couple of follow ups actually. As I'm told there are 10 analysts that cover Brookfield all with buy ratings on your stock and yet it still sells at a 10% discount to NAV let alone putting a value on the asset management franchise. What are we doing wrong? Or what do you think the obstacles are to getting better recognition of the value in the market? I think I'm definitely going to let Brian Lawson answer. Gosh, Michael, that's a really hard one for us to answer. We build we try and build the value in the business, grow the cash flows. We try and put the information out about what we're up to in the most meaningful way. If I could point to anything, I'd say a couple of things that we've talked about on the call today. You've got some parts of our business that really aren't generating cash flow at the levels that they ought to. So it would perhaps make it look as though the cash flow yield on our intrinsic value looks a little bit on the skinny side. And you've got to be able to think through that and look forward into where those cash flows are going to be. We've got a number of things that we've been building in the business, whether it's the rail lines or some of the acquisitions we put in place that are starting to kick in, but they're not there. And we've got a lot of stuff. We've got 8 funds in the works on the asset management side, on the private fund side and we're bringing up Brookfield Property Partners all of which sets the stage for tremendous growth from that perspective. But if people are taking a bit of a show me attitude and I don't know suggesting anybody is, but there's a lot of great things that aren't really showing up black and white in the numbers. We're very confident that they will. And if I was going to put one thing and perhaps some bias from coming out from the financial reporting side, but that would be one thing I could point to. Okay. And my other question is for Bruce. Why did you devote a big part of your letter to agriculture and timberlands? Is this a precursor to any initiatives that are being planned? I think it's firstly, we have to write something to our shareholders every quarter. And it's a very I'd say 2 things are happening in that sector, which we felt and more people have been asking about it recently because on the timber side, it's clear that the U. S. Housing market is turning and therefore timberlands are going to be more valuable in the next while. So people are trying to understand what that means. Secondly, the agricultural business we have is one of the most unique businesses in the world and it's truly a remarkable group of assets and the business that we're involved in Brazil. And therefore from time to time we like to shed light on different businesses that we have and that was all it was intended to do. Okay. Thanks. The next question is a follow-up question from Brendan Maiorana of Wells Fargo. Please go ahead. Thanks. I just have one follow-up for Bruce. I was wondering if I could get your perspective on the how you kind of view the publicly listed funds that you manage versus the privately listed funds that you manage? And thinking back a couple of years ago, I think you guys had mentioned even back then that you look to have a flagship vehicle in each of the major disciplines of property, power and infrastructure, which you're just about there with BPY getting listed. But do you think that the publicly listed funds given that they're infinite light vehicles you probably have a little bit better control over the incentive distribution fees compared to the promotes in a private fund. And the way that managers of publicly listed funds seem to get valued versus privately listed alternative asset managers, does that bias you to think maybe it's better to raise more capital in some of these publicly listed funds? And might we see more from BAM over time? I think all of this is we're learning as we go along. And the bottom line there was no alternative investment manager when we started that was public 10 years ago. Now there are a number that have private funds. Kinder Morgan has was one we emulated some of the things we did and we learn as we go along. And I guess I would say we believe that there that building what we have, which is global access to institutional client money to do some investment strategies and public market access to capital gives us the option to have the lowest cost of capital for different opportunities. So we think both of them are important. And so we're building full access to both markets in all the businesses that we want to be in. And we think that will give us and tough So I guess that's I think that would be the answer. Okay. No, that's helpful. And then just are your returns roughly comparable at the BAM level net of fees and costs for managing public and privately listed funds? They're pretty comparable, Brandon. It's Brian. For example, with on the infrastructure side, our private funds a point in a quarter base fee or our public funds public entities a point in a quarter Base fee, obviously, a carried interest versus incentive distribution. They materialize and manifest themselves in different ways. But at the end of the day, we're pretty in terms of what we stand in terms of our margins, we would view them as being relatively similar. Okay, great. Thank you. This concludes the time allocated for questions on today's call. I will now turn the call back over to Mr. Flatt for closing remarks. Thank you all for joining today. The annual meeting is online if anyone wants to listen to it or didn't before and we look forward to talking to you next quarter if not between then and now. Thank you very much for joining. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.