Good morning, everyone. Welcome to Brookfield's 2019 Investor Day. My name is Suzanne Fleming, and I head up Communications and Branding for Brookfield. I want to thank you for joining us, and I know we have some people online who are watching as well. So thank you, everyone.
Just a couple of housekeeping notes before we get started. As with previous years, you should all have an iPad everyone in the room and we'll be using these for both our presentation and the interactive portion. And also with previous years, if you can just leave it, there's a table outside, you can just leave it on your way out. We'd like also to remind you that in responding to questions and in talking about new initiatives in our financial and operating performance for the Brookfield Companies, presenting today we may make forward looking statements, including forward looking statements within the meaning of applicable Canadian and U. S.
Law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks and future events may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in Canada and the U. S.
And the information available on our website. One final point for everyone in the room, at the end of session, we're going to have a Q and A and you can either ask questions by putting your hand up, we have some mic runners, or you can click on the Q and A button on your iPad. And finally, at the end of the day, we will have a cocktail reception. It's down on the 4th floor in this building. So we welcome you to join us.
And with that, I'll hand it over to Bruce.
Good morning. Thank you everyone for attending this morning here or online. We're webcasting this today, so we appreciate everyone that's participating in any way. It's a great pleasure. Now the first thing we're going to do is have a discussion with Howard Marks.
Before I introduce Howard and Eric Schatzker, I'd like to introduce 2 other people as opposed to true Brookfielders, which there are many here today, which I won't introduce. There's 2 individuals here with Howard that I just wanted to introduce, who are Bruce Karsh and Jay Weintraub. And Bruce has been Howard's long, long time partner in building Oaktree. And Jay is the CEO of Oaktree. So we're thrilled to have you both here.
Maybe just stand up, so they can put a name to a face. With us for the next half hour is Eric Schatzker. Eric is the editor at large. What he really is, is Bloomberg's face on TV. He does an incredible number of interviews with global leaders and business CEOs and we're lucky to have him here this morning.
And he's going to interview Howard Marks, which Howard needs no introduction. I'm merely going to say that we're thrilled to have Howard as our new partner, to have his wisdom assisting overall Brookfield and to have one of the great distressed investors in the world at this point in the cycle of where we're going. So we're really thrilled to have Howard, a, being a partner with us in Brookfield, but more importantly for the next half hour to give you some information of where he sees the world. So with no further ado, Eric and Howard.
Good morning, everyone. Bruce didn't mention it, but there's obviously a reason why Howard's here for the first presentation of the day and that is quite simply that Brookfield is about to complete its acquisition of 62% of Oaktree Capital. And I think they thought this might be a good opportunity for you to get to know one of the architects of Oaktree, Howard. You heard Bruce talking about Jay and talking about Bruce Karsh obviously. And to get to know Oaktree a little bit better, we're assuming that you know at least a little bit about Brookfield, otherwise you wouldn't be here.
So Howard, why don't we begin with that? And the way I want to frame it for people here is, what is it about Oaktree in your mind that is different or makes it different, let's say, from other credit investors? Sure.
Well, Oaktree is a global alternative investment manager, emphasizing credit, as you say. And we will be 25 years old soon, a couple of months. And that puts us kind of in the older cohort of companies like us. We started up in April of 1995. There were 5 of us who came together to start Oaktree.
And we had been working together before that at a place called Trust Company in the West for on average 9 years. So Bruce and Sheldon Stone and I, for example, have been together an average of 34 years. When we started, we didn't have to say, well, what are we going to do? Because we had been doing it already for 9 years. All we had to do was write down what we were going to do.
And my tendency is to write things down, so we wrote it down. And we are a culture driven organization and we have a very explicit investment philosophy and a very explicit set of business principles. They're all on the Oaktree Capital website. And as I say, totally explicit. And what that means, I think we're culture driven.
And everybody who works at Oaktree knows what we stand for, what we think the formula for success is, what we think the right way is to invest for us, not for everybody. There are lots of ways to skin the cat in our business, but for us. And as a consequence, we don't have differences of opinion. We don't have the cowboys and the chickens fighting against each other. And our investment philosophy stress has 6 tenets, but the 2 most important are risk control and consistency.
And everybody who works at Oaktree knows that the way to, the route to success is through risk control and consistency. We invest in risk asset classes, no treasuries, no GILTIVE securities. And we have always felt since the very beginning, which is my founding of the first institutional high yield bond fund at Citibank in 1978, we've always felt that the way to prosper in risk asset classes is by putting an emphasis on risk control. So I think that's what distinguishes us.
Risk control and consistency, I wouldn't so much say easy to say, but in these kinds of times, ever more difficult to do. Howard, I know a little bit about the origins of the Brookfield Oaktree transaction. I remember vividly, it was almost 2 years ago talking to Bruce Flatt and I asked him as I'm inclined to do what's next. And Bruce said, oh, I've been thinking about building a credit investing operation and I want to be ready for the next downturn. And I thought, wow, that's
and I tried to draw a little bit out
of him about how big this might be and where it would rank among Brookfield's different businesses. And it was fairly clear that Bruce had some ambitions for that business. And I was left thinking, boy, that's not an easy thing to do if the next downturn is a couple of years away. You got a lot of people to hire. Well, he clearly gave us some thought and decided maybe too many people to hire, it would
be a little bit easier to
go out and find an experienced group of credit investors like Oaktree. But I want you to share with me your story and Bruce Karsh's story of how this transaction came to be and why you and your partners ultimately decided it was a good fit?
Sure. Well, our transaction, Brookfield's purchase of 62% is scheduled to close on Monday. Monday, September 30th will be just exactly two weeks short of a year since Bruce Platt came to see Bruce Karsh in Los Angeles and proposed a transaction. And Bruce, it's nice to know that stories are consistent because Bruce Platt said to Bruce Karsh, we could build it, but we'd be more confident buying into Oaktree. And said some nice things about Oaktree and not sure that you can't be sure that they could achieve that level of excellence in a short period of time.
So the essence of the transaction is the transaction that's being done, which is that Brookfield is taking out the public and the clients who together own 51%, and then 20% of the 49% owned by the employees, ex employees and founders. And so Brookfield will own 61%, 62% as of Monday. And Bruce Flatt said, number 1, we want to add credit to our offerings and we think that having credit in the mix will permit us to offer more solutions and combinations to clients. And number 2, Oaktree is in many ways countercyclical. And we're not that great in taking advantage of prosperity, but we are have historically have been, Suzanne, I don't want to make forward looking statements.
But historically, we have been very good in resting profits from bad times. And I think that that's what Brookfield that's one of the important things that Brookfield wants us to do.
This combination is arguably the biggest shakeup to the established order of the alternative asset management world, if not ever, in a long time. Why do you think that's important in the competitive context, Howard?
I think well, you're right. I mean, it's the first combination of this scale. And it's the first combination that accomplishes this rounding out of capabilities. Brookfield with real estate and private equity, infrastructure and renewable energy, with the complement of our credit activities, we'll have one of, if not the most diverse offerings of alternative investments in a period when people who run institutional portfolios and I imagine some are represented here today, basically have concluded that they can't get the returns they need from stocks and bonds and that they need alternatives and money is going to flow to alternatives and having a broad coordinated suite of offerings, I think is going to be very powerful.
Someone who's here today who shall remain nameless told me, Howard, that you were very involved in the negotiations going so far as to edit documents down to the comma. Is that true?
Well, I might not volunteer that, but that kind of is what I do. And why not get it right?
It's a fair way
to think about things. I neglected to mention earlier that I'm going to carve out a few minutes at the conclusion of our conversation to open it up to you, the audience, for some questions and answers. But I, as you might imagine, have a few questions left for Howard. It's a complicated world we live in Howard. You mentioned that Oaktree historically hasn't thrived as much in times of prosperity as it has in times of stress and distress.
I'm going to quote to you from a colleague of mine. His name is Cameron Krees. He writes Bloomberg's Macroman column, which I recommend to you almost as heartily as I recommend Howard's memos. And Cameron wrote, when the history of our times gets written, the pages are going to drip with irony. Future historians are going to wonder how it was decided that the correct policy response to a debt crisis was to make debt so expensive that borrowers can literally get paid to increase their liabilities and creditors pay them for the privilege of lending.
Howard, how on earth do you make sense of a world in which assets have become liabilities and liabilities have become assets?
Investing consists of positioning capital for the future. When you have conditions that have never been seen before, number 1, you can't claim to know how it's going to end up and number 2, you can't claim to know what the future holds, which makes our job uniquely difficult. Now the past has always is always obvious in retrospect. And you would say, well, of course, subprime mortgages were going to fail. And of course, e commerce stocks 20 years ago at an infinite multiple of sales were going to fail.
But I think that we're in a unique times today because 20 years ago, it felt like, well, we understood the world that we were in a normal economic and investment environment, just there was some crazy stuff going on with tech stocks. In 'seven, we had a normal economic and investment environment, but some crazy things going on with mortgages. And now we're certainly not in a normal environment. In terms of negative interest rates, geopolitical risks of things like a trade war, globalization questions, populism, I don't want to say wealth taxes, technological disruption. Nothing is as it was and the future certainly cannot confident we be predicted to be a continuation.
So the question is, what do you do about it as an investor? I think that every investor every day faces 2 main risks. The obvious one is the risk of losing money. The less obvious one is the risk of missing opportunity. You can eliminate one risk by increasing your exposure to the other risk, which today in the world that I described, should you put more of your emphasis on avoiding the loss of money and less on missing opportunity?
Or should you put more on avoiding missing opportunity and worry less about losing money? And I think it's a time to be careful not to pull back. We're investing every day. We're essentially fully invested other than in our funds, which are explicitly reserve funds. We're trying to get fully invested in the others, but with caution.
And as I described earlier, we take a risk controlled approach to our risk asset classes. When I say with caution, I mean even more cautious than usual. And given the uncertainties, I think that's appropriate today.
I'm going to quote another passage for you, Howard. Today's financial market conditions are easily summed up. There's a global glut of liquidity, minimal interest in traditional investments, little apparent concern about risk and skimpy perspective returns everywhere. Thus, as the price for accessing returns that are potentially adequate but lower than those promised in the past, Investors are readily accepting significant risk in the form of heightened leverage, untested derivatives and weak deal structures. You recognize that?
I do. Is that race to the bottom?
That's race to the bottom. That's Howard Marks in February of 2007. But that kind of accurately sums up the conditions of today's market, doesn't it?
It does, except that today the emphasis is not on derivatives like it was. The emphasis is more on private investment, private equity, private debt. But yes, I mean, low prospective returns, great uncertainties, I believe it's fair to say that many people are engaging in what I call pro risk behavior in order to get good returns in a low return world. So I think the combination is back. When people always say to me, well, which cycle of the past, which environment of the past is today most like?
And of course, there are similarities and differences, but I think that the conditions described in my memo Race to the Bottom of 'seven, is very similar to today. And basically what Race to the Bottom said was that the market for securities, the market for providing capital is an auction house. The deal goes to the person who's willing to pay the most, which is to say, except the least for his money. And when too many people have too much money and they're too eager to put it to work, bad things happen to prospective returns, to risk and to structure. And thus, it's important to be careful.
And I believe that's as true well, not quite as true, but I think it's true today and very similar.
So if, as you say, we can substitute private assets for derivatives, should investors be as careful today as they should have been, which is to say, should they be careful about seeing private assets and private markets as the solution for their thirst for yield as they were with derivatives back in 'six and 'seven?
Well, the world gets into trouble every 10 years or so when it concludes that X or Y or Z is a sure thing, what I call a silver bullet, a route to easy profit without risk. And that's something to watch out for and to act cautiously in response. I happen not to think that we're in as precarious a situation as we were in 'seven. I don't think that anything that's going on today is as bubble like and thus as systemically dangerous as the subprime mortgages and mortgage backed securities of 12 years ago. So I think you want to be careful kind of at the micro level, you want to be careful in your choice of strategies and managers and approaches.
And I think you want to favor people who practice wise investing over maximization of returns.
Even if it costs your returns in the short run? Yes.
Well, you have it both ways. There's no strategy, there's no well, very few managers are except for the in theoretic case, it could be somebody talented enough to maximize returns if the next 3 years turn out to be good ones and at the same time not suffer grave losses if returns if the next 3 years turn out to be bad ones. The question is which to favor now, maximization or protection. And by the way, let me make one thing clear. I said that I don't think we're in a bubble.
And whereas I'm a little worried about being invested, I'm also a little worried about being not invested. So it's It's a hard place to be. Well, it's not supposed to be easy. Charlie Munger once said to me and I included this quote in my first book, which I thought was great. We had lunch together and we're talking things over and I got up to go and he says to me, now remember, none of this is meant to be easy, anybody who thinks it's easy is stupid.
And that's Charlie. But the point is, when you think that being invested in aggressive securities is a sure thing, it's easy, you're probably missing something. And when you think that being out of the market and in cash is a sure thing, you're probably missing something.
You've wondered aloud in your memos why Jay Powell and his colleagues at the Federal Reserve are so intent on sustaining the economic expansion. And as you'll recall in a conversation we had in August, Howard, you went so far as to, I would say, criticize them for cutting rates and they've gone and cut rates again. People will ask, including the President of the United States, what's wrong with low rates?
Well, there's lots of things wrong with low rates, one of which is that it's stimulative action should be taken, in my opinion, by the Fed when the economy is failing to grow and thus produce jobs. I think that should be the formula. And right now, it's growing and producing jobs. So Lord Keynes said we should run deficits during slow periods in order to stimulate the economy and then surpluses when the economy is doing well and repay the deficits and everybody's forgotten the latter. The economy is doing pretty well.
Is this a time to run a deficit? And is producing deficits and lowering rates the right thing to do when we're in record territory for an economic expansion? I don't think so. If you read about the Fed's mission, it is number 1, to keep inflation under control and number 2, to encourage economic growth and thus job creation. It doesn't say any place that its job is to prevent recessions.
And I was very fortunate that memo, on the other hand, came out on a Friday and by happenstance on the Sunday, I happened to meet with run into socially a Fed President. And he had read the memo and he said that there's a job of the Fed to produce growth over time. And I mean, it was revelatory to me to hear him say over time. He didn't say every year. He didn't say forever.
Do you think a recession would be healthy right now?
I think recessions are normal. And they if we don't have an occasional recession, it's kind of like with a forest fire. If we don't have an occasional forest fire, then the fuel builds up and when we do have 1, it's massive. If we don't have an occasional recession, then economies and markets go to excesses and when we have a correction, it could be a big one. So I like I concluded that memo by saying, should we permit cyclicality to take place naturally or should we prevent it unnaturally?
And I favor the former. A year ago, Howard,
you could get financing it seemed for just about anything on the most favorable terms. Buyout firms were getting extraordinarily easy money for deals like Refinitiv, Envision Healthcare, AkzoNobel. More recently, it seems like investors have been putting up their hand and saying stop and pushing back. Do you denote that and would you call it discipline or something else?
Well, what I would say is that there have been isolated instances of discipline and that that's encouraging and that's healthy. And everybody's been saying, well, the public markets are without standards, but the private managers exercise discipline. It's interesting to see that when, for example, WeWork wanted to go from private to public that the public markets exercise good discipline. And whereas people had been talking about a $47,000,000,000 valuation, in the end they didn't do it at 15. And there were as a consequence, there were changes in governance and changes in the executive suite.
So that's encouraging. I wouldn't say it's a groundswell yet.
What lessons, valuable lessons do you think we should draw from the WeWork IPO debacle?
How long do you have? I think that one of the great things you have to keep in mind in the investment business is that if it seems too good to be true, it is. And you can't make such easy money. How can it be easy, a sure thing to rent large quantities of space for long periods of time and sublet it for short periods of time and just do that and make a fortune and sell at an astronomical valuation. And then of course, when that company, which is labeled as a technological miracle, sells at a vastly higher price than other people who are in the same business, but not so considered, you have to take cognizant.
And this is just like this was just like 'ninety nine with the crazy valuations on the TMT. And all you needed was for Hans Christian Andersen's little kid to step out of the crowd and say, the emperor has no clothes. And then it falls apart. And you know Do you
see more of these private market valuations falling apart, more of these more dead unicorns, so to speak?
Well, I don't spend that much time on the private tech market. As to know, this was the most notorious and attracted my attention. But my guess is it's not the only one. And I think that it's a healthy thing to see that happen.
There have been a few signs of stress, I'm not sure I'd go so far as to call it stress in the loan market. Clover, these are small deals, Deluxe Entertainment, Team Health, they're really low grade credits. But they've been behaving in a manner that suggests there's something going on there. What do you see?
Well, I mean, the good news about this market is that unlike the 99 market, this is not a crazy euphoric risk oblivious market. I think this market for the last 10 years has been described as an old fashioned term from my youth, climbing a wall of worry. Most people understand that there are limits on the growth that's possible. There are limits on the valuations that should be assigned. There are limits on the leverage that should be assumed.
And that's a healthy thing about this market. By the way, you're not used to not having a stage manager tell you, but you're over time.
We're not quite over time. But we've reached that moment where it's time to open up questions to the floor. Is there somebody or more than one people I hope who'd like to ask a question to Howard Marks? We have some mic runners, so just put up your hands. Here we go.
Hello there. You've been very outspoken against oil taxes and I understand that. I'd love to get your thoughts on how you would go about reducing the deficit. You mentioned a concern about the deficit. So I'd love to hear what you'd have to say about that.
Well, I think reducing deficits. The main thing I think is that the last tax bill was excessive. And much of the deficit increase occurred because of the reduction of corporate tax rate. And most people thought our corporate tax rate was too high and should go down to certain amounts and for some reason it was reduced much more. And everybody got something in that tax bill.
The corporations got the most and arguably more than they needed. And so I think that taxes are going to go up in this country unless we like running $1,000,000,000,000 annual deficits. And I think that it was not appropriate to give everybody a Christmas present back at the end of 'seventeen.
I know there's another question over here.
Hi, Howard.
So you talked about how risk control was one of the better offs at Oaktree. Can you talk a bit about how you define risk, the processes at Oaktree and then coming to Brookfield, which is more of an equity focused investor, how does the mindset and the philosophy kind of align or differ? Sure.
Oaktree defines risk as permanent loss of capital, not volatility, not markdowns. And we do it differently in each of our strategies. Bruce Flatt mentioned that Bruce Karsh manages our distressed debt funds and has done for 31 years with great results. And we limit our loss potential in those funds by among other things, emphasizing senior and secured, emphasizing tangible industries over intangibles like IP and fashion and style, and we don't do much in tech. Tech has a lot of potential on the upside, but if you invest in the wrong tech company and it fails, there's nothing left for the debt investors.
So these are just a few examples of the way you can bolster your risk control. Now as I said before, if you don't do the risky things, you don't necessarily have top performance in boom times, but you avoid losses in bad times. That's a conscious choice. For us, it's worked out extremely well over the years. Now Brookfield, the mere fact that they operate mostly in equity doesn't mean that they are embracers of risk.
And we've been getting to know each other and their approach is to find opportunistic transactions in which they again through some special aspect of the deal provides good upside with a limit on the downside. So one of the reasons that I think we're going to fit together extremely well is because our approaches to life are very synthetical.
Howard, I'm going to conclude our conversation with this question to you briefly. One of the nice things about credit markets is that they're still mostly populated by humans. They've been able to risk the automation and to a large degree the spread compression that we've seen in equities. But the quants as many of you know are undeterred and their algorithms are getting better. Are you worried Howard that the machines and factory trading are coming for credit the way they did for equities?
Machines, what can they do? They can process a lot of data, they can do it fast, they can do it without arithmetic error, they can do it without emotional error. So in other words, they can do a lot of what a lot of people can do. I don't believe they can do what the best of people can do. The example I use is that can a computer sit down with somebody and figure out if he's Steve Jobs.
I don't think so. In other words, that's my way of saying that I don't think that computers can make excellent subjective judgments about the future. They can assess and extrapolate past trends. But I don't think, I think that the few exceptional people in the world and of course we and Brookfield hope to be among them can make better decisions about the non quantitative future.
The computer can't figure out who Steve Jobs would have been, probably couldn't have figured out who Howard Marks has become. Thank you.
Great job, my darling. Thank you, Eric.
Okay. Good morning again. There are if anybody up top wants seats, there are a few seats down here. I won't mind if you walk down the aisles while I start. I'm going to start off by saying that last year, we said to you at this point in time that we felt that our business would work in an environment where rates were going to be 3.5% to 4%.
Our business in that environment works really well. The world today is actually very different than that and it's actually an environment where rates are very different. Like last year though, we are being to Howard's point, we're being very cautious about the environment. So I think we're we, I guess I would say we're still cautiously optimistic about the investing environment, but we're still being cautious. And with that, I leave you upfront with 4 general takeaways from today's presentation and they are as follows.
The first one is that contrasting from last year, we seem to have changed into an environment where interest rates are in a new phase of global markets. And I think we're going to be and what as we can see it, we're going to be in from minus 2% to 2%. And you can go from Japan to Europe to the United States, but we seem to be in that range of slightly negative to slightly positive. And that's an environment that is going to affect very significantly our business. If that's true, what that means for us is and many of you looked at our numbers years ago as we showed you what we thought alternatives going to do.
But what that probably means if we're in that environment is that alternatives aren't going are not going to be 40% of institutional funds, they probably are going to 60% because alternatives can no longer be alternative for institutional clients. 3rd, what that means for our flagships, including credit, is that probably the next series of funds will be upwards of $100,000,000,000 and that has significant ramifications on the organization. And last and going back to Howard's points, we purchased Oaktree for a number of reasons. The first one was to ensure that we could provide scale credit to our institutional clients. But maybe more strategic to overall Brookfield is that it prepares us for the time which Howard described.
And we didn't have the scale to be able to come out of the bottom of the market with that franchise and now we do. So we think this gives Brookfield an enormous strategic advantage, not for the next year, not for the next 2 years, but for years 3 to 5. Over the last year, just reflecting back, we raised $50,000,000,000 of capital. We deployed $33,000,000,000 We realized $19,000,000,000 in sales and we added the Oaktree Credit franchise. So it was a pretty active year.
Total assets now are approximately $500,000,000,000 over 100,000 operating people, just under 2,000 institutional clients. We're still in about 30 countries and that probably won't change going forward. And we're about $227,000,000,000 of fee bearing capital. But the point I'd like to leave you with is that there are risks building in the global economy, and we need to all be cautious of those as we're investing. Just to make 4 simple points, European rates are upside down and I'll talk about why that's good for us, but it's also risky.
The technology nifty 50 or actually it's 5 are a large proportion of the markets. I don't suggest they're overvalued or undervalued, they're just a large proportion of the markets. Currency wars could clearly be disruptive to global capital flows. Again, I don't know how they work necessarily, but as we look at the risks that are out there, it's 1. And lastly, political extremes are everywhere across the world.
Our strategy getting back to planet Earth is really simple. We're increasing there are increasing alternative allocations, back to what I said upfront. We're growing our product offerings, both in size of what we have and also alternative products. But most importantly, what we have to do is invest for you and for all our clients wisely, and we're making sure that we are cautious about that. Across all global markets, interest rates are low or negative.
Most of you think of and where most of the capital in the world is, is in the United States, Europe and Japan. 2 of 3, 50% of the global markets are now negative. In addition to that, even places like Brazil from 4 years ago had rates of 14.5%, by the end of this year they should be 4.5%. So there's enormous change going on in the world. There are 2 consequences of that.
The first of this rate environment. The first is that it's very possible that as this sinks into people's minds and if this if people are convinced this will persist is that asset values will go up. And just as a reference, just the values that we own on our balance sheet, 100 basis points is $20 of Brookfield share. More importantly, allocations to alternatives, as I said earlier, are increasing. Just reflecting on the period from 2,009, dollars 6,000,000,000,000 of assets were allocated to private.
And targets are actually increasing and growing at an accelerating rate. They're going they were 15% just in 2016 and today they're 25%. More importantly, what we think is that if you reflect back they were 5%, they're 25% today. It's highly possible if we're in that environment that they're going to 60%. And there's really just one simplistic reason why.
There isn't any other alternative in the world to earn a reasonable return with modest risk. What that means is that there is $25,000,000,000,000 of capital that is going to rotate from other areas of sovereign and institutional funds and insurance companies into alternatives and that's continuing to go on every day and we see it with many and or most of our clients. To sum up the opportunity, alternatives are virtually the only place to earn a reasonable return for large allocators of capital. Those institutions are therefore allocating significantly. And therefore, the capital coming to managers of alternatives is increasing exponentially.
On top of that, what's happening and we've talked about this before, but the managers are actually consolidating into fewer places. Of the capital that was allocated to managers, 25% of it went to the 10 largest asset managers in the last period of time. That's a very significant amount with 10 groups. Our private fund strategy is therefore evolving significantly to deal with that situation. We're adding growing our flagship funds, we're adding perpetual core strategies and we're creating bespoke private opportunities for those clients.
As you know, our flagship funds have been growing significantly and we think they'll continue to grow as we scale up the franchise. Last year, we also highlighted that we're continuing to grow our perpetual products for institutional private clients. And that includes both core plus strategies for them, which are perpetual in nature and we own the assets longer term and credit. And just on an organic basis within the business since last year, we went from our funds which has started out very small at $2,000,000,000 we've grown them to $6,000,000,000 today and we think within a reasonable period of time they'll grow to $60,000,000,000 and possibly higher than that. On top of that, adding the Oaktree franchise will allow us to have that other segment of capital to be able to offer to them for what formerly was a fixed income allocation invested in Sovereign credit, which cannot be invested in those products anymore.
And what we've added is a world class management team, a scale credit expertise, a countercyclical fundraising strategy and frankly the reputation to put money to work at those times and the ability to scale those products. Today, the number of ways that we deal with these investors and our institutional clients is increasing through separate accounts, special opportunity programs and through co investments, which are very attractive to our clients. That's led us to have an increasing number of institutional clients within the franchise, which has grown to with the Oaktree addition, 1800 or 700 with Brookfield itself. But the point I will end on before I sum up is that investing in this environment and in fact in all environments is always hard. It's competitive and we always try to use the competitive advantages we have, which are really just 3.
We have more size of capital than most have. We have a global platform to allocate capital, not to the United States where valuations might be high, but to other places where they're not. And we have operating expertise to do things that others may not have the capabilities to do. In the last 12 months, as I said, we invested $33,000,000,000 into opportunities. New investments are being driven by really, I'd say, 4 themes and they always change and they're always a little bit different.
But currently, there's more or less 4 themes driving our overall business. The first one is in North America valuations are high. But there are many special situations going back to the competitive advantages we have that allow us to continue to invest even in that environment. And I'll just mention 2. We bought Forest City.
It's a large scale business. It's $12,000,000,000 of assets. We put $3,500,000,000 or $4,000,000,000 of equity up for it. It was in the open market publicly traded, but very few people had $4,000,000,000 could execute on a plan of redeveloping and developing all of the assets they had and had the ability to deal with the public market situation that went on for years with the shareholders and a number of constituents. So it came to us and we were able to execute on it in an environment which is very difficult to find those type of opportunities in the United States.
We bought Westinghouse Electric out of a bankruptcy in the best capital markets in the United States maybe ever. And we bought this company out of a bankruptcy situation because the former owner had done something to the assets around it, which just didn't make sense. The second theme in Europe is that interest rates are negative. And you can focus on what does that mean globally and what does it mean to interest rates. But on the ground, we're able to finance assets at unbelievable rates.
So we bought into a German large group of assets, 26, 7 assets, I believe. And in that situation, we've now grown the business, grown the cash flows and we put a mortgage, so the asset is worth a lot more money than we paid for it. And we've now put a mortgage on the business for close to what we paid for it because the values are much higher. And I think the mortgage rate for 7 years is 72 basis points. And what that means is that you can even though there's, yes, you can talk about all the extremes, but the value that's created out of that is enormous.
But we were the only ones who could access it because you had to do the work to get there. 3rd, in India, and I don't have time to explain it all, but I encourage you to read the information, there is a financial stress going on not seen in many countries at this point in time. It's very troublesome with the banks. The non bank financials are having difficulties, which means that entrepreneurs don't have access to capital and that's creating opportunities for us and others to put money to work. And as many of you know, we've done a number of things in India.
And lastly, in China, there is a reorganization of balance sheets funded by the large banks in China. They're telling the SOEs and the entrepreneurs to get their act to get their balance sheets in order. And as a result of that, there are opportunities not seen before. And we just bought a large office complex in Shanghai for $1,560,000,000 and it was a significant opportunity for us. Irrespective of markets and politics, what I'd like to leave you with is 4 points.
We will continue to discipline be disciplined with our investments. We will deploy capital for value in the places or sectors which make sense for us in the longer term. We will be patient for market breaks and I think we're better prepared now in particular with the franchise we just added to be able to do that. And we'll continue to recycle assets, which have values have gone up into to be able to take the capital and put it into other opportunities on our permanent capital balance sheets. So before getting into the numbers and letting Brian take you through that, I'd leave you with just three things.
The first one is our franchise today is broader and deeper than it's ever been. The backdrop for client capital is strong, but it's actually increasing. And 3rd, despite the world we're in and significant capital, the most important point for you to take away is that few people have the amount of people and the franchise to be able to put the money to work in the sectors and areas that we do. As a result of that, I tend to think that we are better prepared for the next 10 years as we have been for the last 10. And therefore, we should have a good environment going forward for the business.
So with that, I'm going to turn it over to Brian and he'll try to crystallize that into some of the numbers.
Thanks, Bruce, and good morning. So I'm going to focus my comments in 3 areas. I'm going to give you a performance update on how we did since this time we all sat here together last year, talk a bit about the resiliency of the business and then give you a look at our growth profile going forward. And I hope through my remarks you'll see 4 themes. 1st, that the business is straightforward, particularly when it comes to what drives value creation.
The second is that it's transparent, it's resilient and it's growing at a very rapid pace. And I hope you'll see these themes as well throughout the balance of the presentations today. So first of all, just in terms of the scorecard. Well, not surprisingly given the amount of capital that we raised last year, we've had a strong uptick both in terms of the fee bearing capital that's at work in the business and the associated fee revenues that that drives and as well has generated a much higher potential for us to earn carried interest. That puts us roughly a year to 1.5 years ahead of the plan that we set out last year.
And again, that makes sense if you think about the cadence of raising private funds. Our funds are all performing ahead or on track with the target returns, which puts us in a very nice position to continue to generate that carried interest, which is a valuable contributor to the business and the cash flows. And in fact, with the fundraising and the strong performance, that's now increased the amount of carry that we would expect to generate over the next 10 years based on target returns from about $10,000,000,000 last year to about $16,000,000,000 where we sit today. So using the same framework, this has added $10,000,000,000 to the franchise value to the business plan values. And again, just as a reminder, it's 20 times fee related earnings, 10 times what we view as being the target carry potential.
And then adding to that is the value of our invested capital, much of which is valued based on the stock market prices. So it's a fairly straightforward framework we work with. That means roughly a 20% return over the past year. And now the stock price still does trade at a discount to that. But what that means is 2 things.
First, you get a nice 22% margin of safety. And second, the potential to benefit as we work to shrink that discount, which is our intention to do over time. So now I'd like to talk move over to talk about resiliency. And I think we have given the comments from Bruce and Howard that you heard earlier today. This is a very important theme in terms of how we protect capital, but also how we position the business for growth.
And there's really 6 things, 6 attributes that we have in mind when we think about resiliency. And I'm going to focus on 3 of them in my comments here today. So first of all, just the sustainability of the business. Now in our minds that comes from the fact that first of all, we're in a very high growth business, but also that what we do is extremely relevant. It's in demand and it's growing rapidly and we expect that to be the case for a number of years to come.
And there's 3 ways that really add to that or three things that add to that. First is that our assets, what we do, the businesses that we own, the assets that we operate are of high quality and they're essential. The second point is that the investment strategies that we offer to our clients are a critical component and an increasingly critical component of what they do to deliver on their promise to their stakeholders in terms of the enhanced returns, risk protected returns and those in turn provide a number of important benefits. And then lastly, that focus on sustainability extends into what we our ESG principles, which comes down to how we operate the business, how we invest, the types of assets that we own and focus on and then also the work environment that we foster. Again, we're a culture driven organization we think as well.
It's another similarity and beauty of the alignment with Oaktree. So obviously, the stability of your capital structure is a really very stable, it's very solid. There's about $7,000,000,000 of term debt, has an average term of 10 years and we have a lot of liquidity in the business. As we noted, we're growing the cash flows at a strong rate and what that means is that the coverage ratios on the existing debt continue to improve, but also we're in the enviable position of being able to repay any maturity in any given year simply out of the cash flow. So we're very well positioned.
Our listed issuers are all structured to be self sufficient with their own strong access hear more about that over the balance of the day. And then we use the same discipline when it comes to financing all of the assets and businesses that exist within the portfolios and that's at $500,000,000,000 of assets. So I did want to focus a little bit on this point because through a quirk in the accounting rules, a lot of that debt actually ends up on our consolidated balance sheets, notwithstanding the fact we may own a less than 10% economic interest in the asset. And it's more of an outcome of the fact that we manage the assets, not that we're owners and certainly not that we are certainly not that it's a contractual obligation of Brookfield. So you'll see the tip the things that we would talk about in terms of how we structure that debt.
It's appropriately sized, the project financing, the mortgage on a building like this or the business term finance within with 1 of the operating portfolio companies. But there's no cross guarantees, no cross collateralization and most importantly there's no recourse to the listed issuers or to Brookfield itself. And then the third point of the resiliency is the strength and reliability of the cash flows. We generated over $2,000,000,000 or our current run rate is over $2,000,000,000 of cash flow recurring before carry and we pay out about 30% of that in the form of dividends. So that leaves us $1,500,000,000 of cash that we can use to redeploy into the business or we can use it to repurchase stock or otherwise return to shareholders.
Now before I come to the fee side of it, a big component of those cash flows are the regular quarterly dividends that come in from the listed issuers and the capital we have invested in the listed issuers. That was about $1,700,000,000 if you went back to the two slides ago. The fee related earnings are also a very reliable source of capital. In revenues relate to long term capital and contractual arrangements. What we've seen over time is the fee rates and the margins are very sustainable and improving slightly as we grow.
And that is all pre carry. And again going back there's a carry that we generate but there's also the carry that actually comes in to the business in the form of cash and we would see that as being around $15,000,000,000 over the next 10 years. So this is a very highly cash generative business and these cash flows are very reliable. So now I'd like to talk about the growth profile. And so what we've so $1,000 invested in Brookfield 20 years ago would have a value of roughly $27,000 today.
So that's the past. And of course, everyone here is saying, fine, let's talk about the future.
So we'll do that.
And I want to pick up
on what Bruce said, which is we are positioned such that we actually think that the next 10 years will
be better than the next
than the last 10 years and the returns can actually be higher if we execute. What I'm going to do is just walk you through the necessary building blocks for us to execute on that should result in an increase in the business plan values that will deliver that. So first of all, a big chunk of this comes down to fundraising. And as you can imagine, the business is pretty straightforward in that sense and what drives it. So what we've done here is, first of all, we've adjusted the starting point to reflect our 62% interest in Oaktree's fee bearing capital.
And then we've worked Oaktree into the fundraising going forward. This reflects the $100,000,000,000 of flagship funds and credit strategies that Bruce talked about and it shows up in the form of the fee bearing capital associated with that $100,000,000,000 So you'll see most notably the flagship series as we move to the next set of flagship funds, which we would expect to be doing in 2021 through 'twenty three and then moving into the vintage beyond that. Still continuing to grow the core and other strategies, but then here's where part of the magic of the Oaktree transaction and that affiliation comes in as it greatly enhances our capacity to expand our credit operations collectively for the 2 organizations. The listed issuers is really the same as
what we
would have talked about last year. It's based on us achieving the midpoint of the target distribution growth and at the discount rates that compounds up the value of the 4 higher payout companies. And then that's a market value growth with respect to BBU and also with BPY. So you pull that together, that would see us standing at around $400,000,000,000 of fee bearing capital in 5 years' time. And what that translates into as one would expect, if you're roughly doubling the fee bearing capital, your revenues are going to roughly double.
And given the stability of the margins, your fee related earnings should double as well. And that's what you're seeing going on here. Now just as a point of clarification, the first six rows there are Brookfield in the same way that you would have seen it over the past number of years. And for simplicity, we brought in Oaktree on the one line in the basis, but you see that's growing extremely nicely as well. The other part of value creation, so there's the fee related earnings side of the value creation is the carry.
And so you can see with
the increase in the amount of private fund capital that we have working for us now that's gone up substantially as well. And then the third part is what happens with the capital on our balance sheet. And similar as last year, the most meaningful contributor to increasing that capital is actually the cash that we retain from these very highly cash generative business. So it really just compounds up on our balance sheet and leads us some pretty substantial growth in the value of our invested capital as well. So pulling it all together and I guess this is one of the punch lines is that sees us coming to around $141 per share.
That's really how the simple math works out of those different building blocks and how it translates into the business plan values. And that's about a 22% total return, which to Bruce's point is higher than the 18% we had over the last 20 years. So that's why we feel very good about the profile of the business moving forward. That's the value side of it. What's also become increasingly important in the business is what's going on in the cash flow.
So I'll just touch quickly on this slide, which shows you the different components of it. You'll see some of it does relate to cash flow in terms of the cash being retained, but the value creation is spread across fee related earnings, the carry and the invested capital. So and sorry, I did want to actually bring one other thing in here, which was Bruce mentioned the impact of the 100 basis points. We did not have that in the planned values. But if that does play out then that $20,000,000,000 will add to that total return.
And then there's an ancillary benefit of that because the value of the capital that we manage has gone up and that drives a further $6,000,000,000 of value creation from the associated fee related earnings. So coming back to the cash flow, that $2,100,000,000 that we're currently generating based on executing on that fundraising and those activities will drive that annual cash flow up to in excess of $5,000,000,000 pre carry. So very reliable, very consistent cash flow. With carry, the number is actually greater than $6,000,000,000 around $6,300,000,000 And what that means is over that 5 year period of time we will compound $20,000,000,000 of cash on the balance sheet that we can allocate to either growing the business either by participating in the growth of listed partnerships, seeding new investment strategies. It also allows us to repurchase shares for value, particularly if we see discounts persisting.
And then also going back to some of the comments you heard from Bruce and Howard at the outset, serves as very important liquidity at different stages of the market cycle. So it gives us that strength to protect the capital in the event of the downturn, a downturn, but also to redeploy it for extreme value creation in those circumstances. And then of course that number if you play it out over 10 years even larger at $45,000,000,000 So we do have the ability and what we do see ourselves having the opportunity to do looking forward is if we are not able to find good opportunities to redeploy that within the existing business, it does give us the opportunity to do other things to create value, for example, by repurchasing stock or other activities.
So with that, I wanted to leave you
with 4 important points. First, the business is resilient and is growing rapidly. 2nd is that our cash flows are running at an excess of $2,500,000,000 when you factor in carry and growing to more than $6,000,000,000 over the next 5 years. That carried interest is growing significantly and it's very meaningful to the value of the business, particularly as it gets better reflected in valuations. And then finally, that excess cash flow will be used to create value.
And one of the best ways to do that could be returning it to owners through stock buybacks. So with that, I'm going to hand it back to Bruce to take any Q and A. So thank you.
So we have 10 minutes, if anybody has any questions, which I will take and then we're going to hand it over to Cyrus and team on BBU. So are there any questions maybe from the room first?
How about right here in the front row?
Since you sat in the front row, thank you. Do we have a microphone?
Good morning. Thank you. Thank you for breakfast.
Somebody told me that if we cut the breakfast we could add a $0.25 to the dividend. So I'm going to consider we're going to consider that this year. I'm going to talk to Mr. Lawson.
Yes.
It looks great, sounds great, I've been invested for many years. I'm a happy shareholder, unitholder. Google can't do it for free. That's great. And basically my question is, you have the 5 year plan, the 10 year plan.
What keeps you up at night? What could go wrong? Where are the blind spot, the weak points? Where do you think where's your blind spot in all of this?
So I can try to answer it in a couple of ways. Firstly, Brian puts these presentations together for us. These are our internal presentations, you get the same ones. He's done it for 30 years and it's amazing how relatively accurate they are. The only thing I'd say is they're never the same, meaning that it never turns out exactly the way we thought it was.
But directionally, as long as we're in the right trend and we're in the reputationally we keep doing things well, I think we have an excellent way for us. So I'd say just in relation to the numbers to your point to your first couple of points. I guess on the worry side, there are a lot of worries in the world and we stay up at night to use your to quote you, we stay up at night about many things, although all we can do is to continue running our business for our clients and try to make sure that we're prepared for the environment when it does turn and it will turn. It's not possible never to have a recession. Therefore, we will have a recession and every day that goes by that we keep stacking cash up on the balance sheet, don't use it to do something with and continue to do that.
It's lower returns for our all of you in the short term. We could get back to you, we could buy back stock, but we're preparing for that worst case scenario. So I would say we're by that's the thing we're worried about. It will come. Hopefully, this time it will be less bothersome than it was 12 years ago in the financial crisis and that was really because it was a financial markets crisis, not a recession of business.
And I think that's the important thing. And so we're worried about all those things. We try to keep liquid. Buying Oaktree was really the only other way that we thought we could prepare ourselves for coming out of the bottom of the market when that occurs. And when where great companies excel is during tough times.
So all the things we're doing now are preparing ourselves for that tough time. It may not come for 5 years, but we're preparing for that time and we're not going to relent. That's all I can tell you.
So just a quick follow-up. These projections that Brian put together and his team, it includes a potential financial train wreck?
Train wreck in the financial markets or train wreck with us? We're not planning for a train wreck ourselves. I would say we look, at some point in these metrics, if a huge financial crisis comes about, it's very possible that we'll be off 1 or 2 years in the middle of that 5 years. I suspect if we're preparing right, what it means is year 6 and 7 will be far better. And all it does is if you're prepared right, it delays your numbers and pushes them out a little bit, but if you're prepared it possibly makes them better.
And when I reflect back to 2,007, if you go back to our books, I think they're online probably. From 2,007, we probably showed you metrics. Here's where we thought the business was going to be 5 years from now. What happened was 2 years or 3 years didn't occur quite the way it was supposed to happen. But year 5, 6, 7, 8 were far better because we prepared ourselves and many of our competitors didn't and at that time.
So I think that that's generally what occurs in that environment.
Thank you.
Thank you. Question over here just to your right.
Andrew Kuske, Credit Suisse. Two part question. So with the self financing of the underlying LPs and the growing cash flow at BAM, how do you think about the deployment balance between buying back your own stock at the top of the house and then investing in the underlying?
So I think the question really raises allocation of capital and should we do we use our buybacks or putting it into the business. And what I would say is, if we can invest a dollar of capital within the business and find a great opportunity, As long as properly invested and wisely put to work, it will be far greater far more meaningful to the overall business in the longer term by putting to work within the business. It's highly possible though and why we've started to identify the sums of capital that build up and the likelihood that at the appropriate time that will be used to buy back shares in the company is because the sums of money are increasing to the scale where it's highly likely that that money can't be used within the great business that we have. It's possible, it's possible. I'm not sure that we ever dreamed of being able to have Oaktree as part of our franchise and therefore we use cash and some shares to do it.
So it's possible that we can, but it's highly probable we can't. Therefore, the best use of that capital is to go back to owners. The only thing we struggle with when giving it back to owners, when do you buy it? We're like all of you, when do I buy another share of Brookfield or sell one? That's why you're here today to try to figure that out.
And it's we're the same as every other person in the company out there that looks at Brookfield. So I would just say there is a big amount of buildup. We'll support all of our businesses. If we can put it prudently to work, it will go there. If not, it will be returned to owners.
That will be either dividends increasing to some extent, we always do that a little bit. But more importantly, if you can make your purchases timed correctly with capital, it is far, far meaningful more meaningful to the owners left over. So we'll pick the points in time to do that in large scale.
Maybe just as a follow-up, what's the appropriate level of ownership in the underlying? There's a bit of variance with BIP being the least, things like BPY being the greatest.
Look, I we should own to align ourselves with all our owner our other owners in the partnerships, we should own 30% of those companies. Anything in excess of 30% is storage of capital for us earning a decent return and we have nothing better to do with it or it would be disruptive for us to put those shares into the market. Therefore, we're still holding them to enhance the franchise of the overall company. And but I would say our baseline is 30%, but if we don't have a better use for capital, they're great places to put our money and we're earning excellent return out of them. There's one up in that corner over there.
But I have before I take the one in the corner, if you're sending a mic up there. The question on my iPad is, have we been receiving inbound interest from long only investors after the KKR, Blackstone, Apollo conversions to publicly traded C Corps, meaning more people are interested in this space. Look, I think it's highly positive for us to have peers out there that people can look at and not only can they listen to our story, but they can listen to the peers. And that's additive to us. So I think the closer that all of us get to looking similar or being similar, the better it is for us because over the years we've always been a little different in the capital markets and we're going to be much more similar to a number of those entities in the future and that's I think good because people then spend the time and think about how all of those entities are valued.
Good morning. Mike Cyprys from Morgan Stanley. Thanks for all the information today. It was great to hear about what you're seeing on the private side with allocations rising, lot of capital going into the private markets. But I was hoping you could talk a little bit about how you see the opportunity set of available investment opportunities changing?
To what extent and how is that keeping pace with capital coming into the private market? How much has that opportunity set grown? Do you think about the addressable market size? And if you could break it up between real assets on the infrastructure and real estate side versus private credit and private equity? Thank you.
So I'll try to answer that. Here's what I'd say. Most it's not it doesn't make sense that there's an enormous amount of capital pouring into the sector and that opportunities don't get overbid and too much capital. And I think and I get this question often and I've tried to simplify the answer and try to give an answer, which is articulate and simplifies the point. And I think that the simplest way I can answer your question is, we've spent 35 or 40 years building the infrastructure to first collect money, but more importantly to take that money, find opportunities that are unique, that benefit from scale, operating platform and are global.
And take the money and put it to work in opportunities that can earn reasonable return. Very, very few others have the people, the skills and the platform to be able to do that. And frankly, we often make mistakes along the way and we have to dig ourselves out. If we had time, I'd give you 5 of them, but the last 5 of those, we have to dig ourselves out and we do with our operating people and very few people have that. And so I just say despite all the money in the world coming into privates, I think the opportunities are significant and I don't it doesn't really affect us.
In fact, where many of our exits go because we are fine tuning businesses and assets to a point where there are less risk, there's less work, there's less time, therefore they can be owned by owners privately who have a perfect company to operate or a perfect business or a perfect asset or whatever it is. And they're actually the buyers. So often people say to us, how can you be the large how can large be important to you and who are you going to sell to? Well, what we're actually doing on the selling is dividing the assets and selling them to our some of those clients who are very large because they're they don't have maybe the capabilities that we have on a large scale. But What they can do is they can own assets for a long period of time and they only need to earn 5% or 6% or 7% or 8% in their asset portfolios because all they're looking for is that type of return, but they don't have the capabilities that take the operating risk that we do.
And maybe just a quick follow-up on earlier question, you were mentioning that 30% you think is the right number in terms of ownership of the public entities. I guess why 30%? Why do you feel that's the appropriate level? Why not something like 3% or 5% which is what we often see on the LP fund side of the equation?
Look, 30 is no there is no right answer. There is a few told me, if everyone in the room voted for 3, if you vote for 3, put up all put up your hand and if you vote for 3, we could be 3. And we could turn return all the capital to shareholders and that would be the best thing. Here's what I'd say. We believe we're all large owners in
the company. I think you feel comfortable that we're large
owners in the company. We eat our own cooking. We feel the same about our partnerships. We wouldn't feel right having 4 partnerships trade in the market with enormous sums of capital with no financial interest but fees that come out of it. Like our other all of our clients, we eat our cooking beside them just like we do with the company and that I think makes an alignment and it ends up with less questions about what our real purpose in life is.
Our real purpose in life is to invest money, earn a good return with moderate risk and return the capital to people at the end or invest into something else if it's a perpetual entity. And I think that is a big benefit. So 30, it's not magic, it's just a number we picked that was that we felt that was the right number to feel that we're aligned with everybody.
Great.
Thank
you. I'll take one more question, I think, maybe right there in the
middle. Thank you. Saurabh Movahedi BMO. Since you said one question, I'll ask 2 questions here actually. One is managing talent.
So you've got 5, 10 year financials out there. I'm just curious as to how do you ensure the risk culture stays in place? You undoubtedly will have to add professionals to the team. And then secondarily, given the world of minus 2 to maybe plus 2 interest rates, how do you see the dynamics for IRRs you promised to your private funds, for example? Will hurdles have to go down?
Will targets have to go down? And what sort of assumptions, I guess, would be behind the carried interest type yardsticks that Brian shared with us?
So I'm going to try the I'll try them in order. On a risk culture and scale, look, the great thing about, in particular, real estate and infrastructure, these are highly, highly scalable. The size of assets are very, very large. And we put a lot of money to work with the same amount of people. So the good news is, we have highly scalable businesses, you don't have to add that many people.
You do add some and it's more complicated every time we do. And the culture is diluted a little bit. But the advantages we get with size, we found are tremendously beneficial to us. The second one is on minus 2 to 2, does that affect our returns? On margins, yes.
But back to the question earlier, I just there are so many things that we can do that are off the grid that are just different than what other people can do. Yes, what it means is that there are some people like us and sometimes it's competitive and therefore possibly the returns are a little lower. But I don't think it's that much. And therefore, I don't think it's truly whatever will be offset, we're going to benefit so much more from the low interest rate environment because we're instead of financing an asset of 5%, we're financing it 2.5%. When you have 65% leverage on an asset, that's an enormous benefit to the bottom line.
So it's far the low interest rate environment is far more beneficial than what you'll lose from that competitive capital. So with that, sorry, we will take some questions I think later to summary, but I'm going to turn it over to the BBU team to talk about Brookfield Business Partners.
So welcome to our Investor Day for Brookfield Business Partners. Presenting with me today are Dennis Turcotte, our Chief Operating Officer Jaspreet Dale, our Chief Financial Officer. And our objective today is really to give you just going to take a 10 second break here. Our objective today is to give you an update on our activity over the last year, tell you how we've created value and then talk about how we're positioned right now, A, to withstand the little bit of market volatility or a lot of market volatility, economic volatility that we might come into and also how we're positioned to keep growing. And then Dennis is going to talk to you about a couple of our larger investments, how we're doing on them, moving them along.
And finally, Jaspreet is going to give you an overall financial update. So as most of you know, we are a business services and industrials company. Our primary focus is to create long term value per unit, primarily through capital appreciation. We have a market cap today of just about $6,000,000,000 in consolidated assets of almost $50,000,000,000 Our strategy is the same as what it was when we launched BBU a few years ago now, which is to buy high quality businesses, enhance the cash flows of those businesses, and in most cases, to ultimately monetize these companies, recycle that capital into new opportunities. We target an overall return of 15% to 20% on the investments we make and we have a long track record of generating strong returns relative to the risk that we take.
This slide you see it outlines our business segments today, which are Business Services, Infrastructure Services and Industrials. And as you can see, each of them are beginning to be quite substantial in size in their own right. On an overall basis, BBU's proportionate share of EBITDA generated from all our businesses to the end of June for a year was just about $1,000,000,000 And we have a couple of, well, polling questions you can answer on your iPads here that are here. What do you think is most underappreciated about BBU? A, resiliency of our businesses B, ability to find value opportunities in a frothy market C, appropriate use of leverage or something else?
D. So if you could answer them, I'm curious to see what your answer is. Okay. Well, it seems to be overwhelmingly ability to find value opportunities in a frothy market. And we put these questions down because these are 3 of the ones that our investors ask us constantly.
And we're going to touch on each of these during this presentation. So if you just bear with me, we'll get to an answer for you. So we have had a very active 12 months since we last updated you. In total, we've invested $6,000,000,000 into the equity of new businesses and BBU's share of that is about $1,800,000,000 spread across Industrials and Business Services. At the same time, we sold 3 of our companies.
We realized strong returns, generated lots of proceeds to which finance our acquisition activity. And compared to a year ago and especially 2 years ago, I think today we own a much larger and higher quality businesses than we did in the past on an overall basis and that is a trend that we expect to continue. And I want to touch on 3 of these in particular. The first being Clarios Power Solutions. This was a carve out from Johnson Controls.
We acquired it for $13,000,000,000 BBU share of the equity to finance this was about $750,000,000 Now Clarios is the leading global manufacturer of automotive batteries. It's a super high quality business. It has recurring revenue and we've identified pretty meaningful margin improvement opportunity, which Dennis is going to walk you through. Clarios makes 1 in 3 automotive batteries globally. It has a research team with 300 engineers.
And what that means is every year its product gets better and better. And it has super deep relationships with every major automotive company. And that's important because what it means for Clarios, they know exactly what they're going to be selling 5 years down the road, 7 years down the road. And by the way, every electric car and hybrid car has a Clarios battery in them to run all the systems apart from the drivetrain. We also recently closed the acquisition of Healthscope.
Healthscope is the 2nd largest private hospital operator in Australia. BBU bought 25% of this business for about $250,000,000 Last year, we spoke to you about expanding our capability into healthcare and we thought this is an ideal first step for us because we already have facilities management expertise in hospitals and we also have construction expertise in hospitals and in particular strong expertise in Australia. We like this business because it has very strong demographic tailwinds. And we were able to buy it opportunistically after the company underperformed on an $800,000,000 expansion program. Here too, we think we can increase profits through a combination of improved capacity utilization and better procurement.
What's somewhat unique about Healthscope is we don't actually manage the medicine at Healthscope. We provide operating theaters, back office support, nursing staff, consumables, other things that medical practitioners need. So we really consider this to be a service hospital business for doctors. And in July, we closed our acquisition of Ouroverge. Ouroverge is a leading heavy equipment leasing company and fleet management company in Brazil.
This business had a financially stretched owner and needed a balance sheet recapitalization. We like the business' multiyear contracts, diversified client base and very strong returns on capital. Brazil is underserved in this industry compared to many other regions and we see pretty significant consolidation opportunity for this company. In fact, we're looking at several bolt on opportunities today. So these are 3 of our recent acquisitions.
They expand our global footprint and they should drive cash flow and earnings growth for BBU. We feel pretty good about the growth that we've achieved. If you look at the 12 months ending June of last year, we generated $570,000,000 in our proportionate share of EBITDA, which we call company EBITDA. To June of this year, it was $975,000,000 And we think based on all the activity that I've just spoken to, we're at a run rate now of about $1,400,000,000 so pretty meaningful growth. Now growing for the sake of growing is not really what we're here for.
As I said at the outset, our objective is to generate intrinsic value per unit. And while our growth has been funded in part from debt at the portfolio company level and equity issued by BBU, the value creation comes from enhancing the underlying cash flows in our businesses, recycling the cash flows from mature businesses into new opportunities, which offer a better risk reward profile for us. And in part, the increase in intrinsic value can be seen in our cash flow per unit. And what you see here is that our company FFO per unit has more than tripled over the last couple of years, both excluding gains on sales and including gains on sales. Now we would encourage you to look at our business including gains on sales.
And the reason is we are continually recycling our capital. We're selling mature business interests and we're buying new companies. So when we sell a business or we do a secondary offering of shares in a portfolio company, it isn't because we don't believe in that company anymore. It's because we've done our job, we can move on and find better risk adjusted returns for us elsewhere. And I'd like to remind you that there will be periods of time where our earnings and cash flow per share don't go up, Particularly if we buy a company that's losing money, we may have some volatility in our results.
But over time, we should be able to demonstrate to you that we're creating intrinsic value per unit. So that is a bit of a summary of the last year and let's talk about the future and more specifically how we're positioned today. So as I said to you, we get a few common questions and one of them is you're really long in an economic cycle. How are you going to do during a positive economic cycle? How are you going to do during a downturn?
So I wanted to touch on some aspects of some of our larger investments. At Westinghouse, we are the market leader in nuclear technology and we have a long term recurring revenue base and cash flows from global client base. It's very hard to replace us as a service provider here. At Healthscope, we're providing critical services in a growing market, which is not sensitive to an economic downturn. At BRK Ambiental, our water treatment business in Brazil, we operate under multi year inflation linked contracts and the cash flow from this business continues to grow from year to year.
At GrafTech, our global manufacturer in the steel supply chain, we've cushioned this business from extreme cyclicality by putting in place multi year take or pay contracts on the majority of its output. And at Clarios, we manufacture a battery product that is required in all types of vehicles. And as I said, that includes electric vehicles and hybrids. So while we are certainly not immune to an economic slowdown, we are going to be impacted just like everybody else. The impact of a slowdown should be muted across our business.
And I want to put this in perspective, if you'll allow me to, maybe just by show of hands, if you could tell me how many of you in this room own a car? Now how many of you that own a car would replace the battery in that car if it failed or died? So everybody. And how many of you would replace the battery in that car if it failed and died and we're in the middle of a recession? Sane answer.
Okay. So that's what we refer to as an essential product and service. Demand remains strong across economic cycles and that's the portfolio we have today at BDU. And you can see the resilience of Clarios' business over many years, consistent growth in the sale of its product. Even during the Great Recession, this company's volume dropped only 9% when new auto sales dropped by 45%.
And that's because 75% of its sales come from the aftermarket. All of you in this room that put your hand up and not from new auto sales. Another question we get and the one you all wanted to hear the answer to is, how do we find opportunities in a competitive and frothy environment? Well, just to start with and Bruce talked about this, we have very large scale operations globally and we have investment teams in the key regions where we operate. So quite simply, the scale of our business drives strong deal generation.
More specifically,
I thought it
might be helpful to give you an overview of our current opportunity set and what we're seeing today. Today, our global team is looking at about 20 different deals around the world. Roughly half of these are in North America, 20% in Europe and 20% in Asia Pacific and the balance in South America. But the reasons these opportunities exist and why we feel we'll be able to buy 1 or 2 or maybe 3 of them for value are all different. The largest driver of our current opportunities arise from what we refer to as market mispricing.
There are many public companies today that don't fit some perfectly defined criteria and become orphaned in the capital market for one reason or another. And that causes them to trade below their ultimate intrinsic value like Healthscope did. And Bruce spoke about this as well. The next opportunity set comes from management teams and owners looking for partners that can help them improve the businesses they have with operations expertise, a partner that can help them grow globally and a partner with transactional experience. And in these situations, we are often a partner of choice.
We often get inbound calls asking us to help somebody, some institution that has an investment and may be struggling. In addition, increasingly, we're looking for corporate carve outs like Clarios, where large organizations are refocusing their strategy and often the divisions they're selling did not get the attention they deserved, which creates a value creation opportunity for us. Finally, we're finding opportunities where a stressed seller simply needs to sell, they need liquidity. So they either sell their business outright or they sell a very valuable subsidiary. And usually this happens on a highly expedited basis.
And Westinghouse became available for this reason. By the way, in a distressed environment, we'd expect to see most of our activity come from stressed sellers. So we feel pretty confident about our ability to keep finding value opportunities even in this environment.
Ultimately,
we may only execute on 1 or 2 of the 20 deals we're looking at, those that we can buy for value, and ideally those that have high quality business characteristics. We define those as high barriers to entry so that margins can be maintained. Resilient risk profile, so even during a downturn, the companies remain cash flow positive. And we like large scale operating leverage so that the improvements we make to the business have very meaningful impacts on cash flows and ultimately the value we can realize. Now sometimes we buy companies that don't have these qualities.
They're typically more cyclical. They may even be losing money when we buy them. And these situations need a lot more effort from us. And we're okay with that as long as we can earn a super outsized return in those situations. And those would be companies like GrafTech, like Longview Packaging and like Stelco in our history.
These businesses need to be really, really cheap though, because we are taking on some more risk. With that context, we most recently announced an agreement to buy a controlling interest in Genworth Canada. Genworth Canada is a great high quality business and we were able to buy it through tangible book value. This business had the situational dynamics I described, meaning a seller that needed to sell very quickly. It has the business characteristics, which we like.
It operates in a highly regulated industry, which means there are very strong barriers to entry. It only has 2 competitors in the country. It's a large scale business with opportunities to grow. It generates consistent earnings and cash flow through business cycles, through housing cycles with high returns on capital. And our expertise should help increase these returns.
So what does it do? It provides insurance to bank and other mortgage lenders against the risk of mortgage default. In Canada, mortgage insurance is mandatory for any home purchase where you have less than 20% down payment. The business backs a highly diversified mortgage book across the country where the average home price being purchased and insured is $350,000 It caters to first time buyers. The buyers are typically 25 to 45 years old.
They're employed. They have growing incomes. And the structure of mortgages in Canada is very favorable to the lender. For every insured mortgage, Genworth gets all the insurance premium upfront. It takes that premium, it invests it in securities and then ultimately it pays out the bank's insurance companies if they have a loss.
It's a highly profitable business both from the mortgage underwriting part of the business and also from the income it earns on its $7,000,000,000 investment portfolio. And we think we can enhance the returns of this business, which has typically generated about a 13% return on equity for many years. And that's quite remarkable when you think about a business that has 10% debt relative to its entire capital structure. But what we think we can help them with is A, grow their market share B, enhance the returns they can earn on their investment portfolio. Hopefully Howard can help us out with that.
And we think we can help optimize their capital structure, which we may be able to do given our financial strength. And with those changes, we should be able to get this business into our targeted return range. Genworth has generated positive earnings and cash flow every year, including through the financial crisis. And had you invested in its IPO in 2,009, you would have tripled your money by reinvesting your dividends back into Genworth Canada stock. Now given our ability to reinvest those dividends at higher returns, Genworth Canada should be a great long term compounder for BBU and source of capital to fund our future opportunities.
So that concludes my remarks. I am now going to hand it over to Dennis.
Thanks, Cyrus. I think, do you have the remote there?
Thank you. Good morning.
Before we got started today, Bruce mentioned to me that somebody had asked him over breakfast how we go about increasing value in the businesses we buy. And that was a great segue into my comments. The only thing I didn't appreciate was at the end of that, he said, so don't screw it up. And I appreciate you removing any of the anxiety I might have had presenting to 200 people, which is not my favorite activity. Anyway, but it is a common question.
And when we go out talking to potential investors, we usually get or I get when we get around to the operating piece, one of 3 questions. And the first one is usually, how do you spot opportunities in the businesses you look at to increase value? Second question is, how do you gain confidence?
How do you get to
the point where you're actually starting to believe you can affect change and achieve what you underwrite against? And then the third one, of course, is post closing, how do you actually make it happen? And I'll say to everybody here who's a potential investor, not an investor, the same thing I say to all of those folks, which is invest with us and we'll be happy to explain it all to you. So this slide gives you kind of a high level schematic, as I would call it, on the core process steps that we work through from the moment of origination through acquisition, interacting with the operation and then monetizing, and a sense of how the investment professionals and the business operations team interact. And we really are, although we indicated here as 2 groups, we're one team.
And I think that's part of our success. Brookfield has always tried to differentiate itself by the approach we take. We have been building this capability to affect change in businesses to drive improvements. And this capability is not something new, something that started, I think, years ago as the business is really founded on the basis of being very comfortable owning and operating heavy asset businesses, hard asset businesses. This group, which we're now starting to structure a bit and formalize as a business operations group is made up of cross functional, multi disciplined people with a range of experience across many sectors, many geographies and many types of situations.
We now have individuals situated in all the major markets we operate out of, so that they can interact with the investment teams. And we have people that we continue to move around, of course, because the workload, if you will, or the needs change as deal flow changes region by region. So given our rapid growth and I think the theme that we're starting to hear and as part of Cyrus' remarks is around, so as you're growing the business, as you're growing investments, how do you maintain this advantage? And how do you make sure that from a, I'll call it a quality assurance point of view, everything you do is being done in the best way possible to the highest standard. So given this rapid growth and this importance of this capability, we've been progressively over the last couple of years, in particular, more proactively managing how we go about that.
By identifying best practices and where it makes sense, how do we fold those into standard operating procedures that we deploy everywhere we operate. Recruiting and developing the talent pool and Brookfield has a predisposition to promote from within and move people around. And it's part of what builds such a robust franchise. But as we grow and as by working with people we know, who know the kind of people we need, we're reducing the risk because we're getting people 1st and foremost that are aligned with our culture, our values, beliefs, our work ethic and how we think about affecting change in businesses. We're building frameworks and models to ensure that we have a comprehensive approach and that we have this consistency, this robust, consistent, hands on approach we've been successful with.
We're now starting to introduce advanced analytical techniques as they're moving out of the realm of theoretical to being more deployable to provide us with better insights even faster. And more importantly, and probably most importantly, being careful to bring in some management method in a way that's consistent with our culture. The eighty-twenty approach, as I call it, bringing in 20% of method to ensure we achieve what I've outlined above, but without bureaucratizing how we do things, maintaining that agility, speed and team play that is really characteristic of everything I've seen across the entire Brookfield ecosystem, and frankly, I think, foundational to the excess we've achieved. So again, looking at this framework, as far as how we interact with portfolio companies post closing, we adjust to each situation, of course, because no situation is identical. But in general, we follow the framework as outlined here.
The key activities in these work streams that I want to point out and talk a bit about are around the structured business planning process, a process that we've developed, where we introduce from onboarding on through to getting involved in the business and run on an ongoing and annual basis to make sure that we're interacting with the Board, the executive team, management teams, down to including the shop floor in situations where, for example, a plant operation is something that happens to be important either to achieve value or as Cyrus mentioned, if we happen to be losing cash flow in a particular situation. And the point of doing this is we introduce our opening hypothesis, I. E, our value creation plan developed through the due diligence process, lay out our views, solicit their input, genuinely solicit it. And this helps to answer the question, a 4th question, I guess, we get asked from time to time, which is, you buy so many different kind of businesses, how can you hope to affect change in all of them? And I think the reality is one of the founding principles of this company Brookfield is to always maintain that humility, so that when you're interacting with people, who should by definition have the advantage of proximity on you, they know their businesses better than we would coming from the outside, they know their industries.
So it's that, I think, perfect balance of us bringing perspective that gives us more objectivity, but working with these management teams so that we share their views, we incorporate their views, we make more robust value creation plans as a result. And while doing that, you're building trust and confidence with these people so that they understand you're really there to work with them. You're not there to be prescriptive. You're not there to tell them how to do their jobs. But there's no question, we bring often what I describe as constructive tension to a situation, where we demand more out of the assets and out of the people.
And it's not about working things harder, it's about figuring out how to get the best out of the situation you have. In addition, a second core work process to us is the installation of what we call a management operating system. And it's as straightforward as making sure we have a monthly meeting with a standing agenda that's designed to focus on, obviously, the table states of any business, the financial results, and then we adjust those agendas over time so that we're also focused on those things that we think are the highest priority to deal with in that situation. Again, whether it be around value creation, risk reduction, or in some cases, trying to deal with negative cash flow. This ensures focus, follow-up and keeps everybody honest on the same page and on the same page.
So how
do we do this in practice? Last year at this time, I put up this slide because we had just closed on Westinghouse. And we thought it would be interesting to have a case study or 2 every year, so that we can demonstrate in more realistic terms how we go about this. Last year, I told you what we liked about Westinghouse. It was a mission critical service provider, had high barriers to entry, clearly a global technology leader and significant portion of its earnings linked to critical work, customers needed and long term contracts to support that.
Last year, I also talked to you about 5 core work streams we had developed in this particular situation, and I won't go through each, and I've got a few points to highlight around some of the things we've done over the last 12 months. But I did want to drill into maybe a couple of these, again, to try to answer that question. So how do we actually go in and affect change? So on this slide, I want to talk about what we mean by the operating model and the process we used in this particular situation with Westinghouse. It started literally after signing the deal and before closing, where myself and a few of my colleagues started to meet with the CEO of the company, the VP of HR, to try to understand how they thought about their operating model, why they had organized, how they did.
And in particular, I was a little bit bothered by their battle cry in this regard, which they use the expression, center led in everything we do, which to me seemed a little bit counterintuitive given although this company isn't that large, it's kind of complicated because it happens to have 6 lines of business. And I think as is often the case, the intent was good. They assumed that would be the way to minimize the amount of G and A, but unfortunately, induce this confused matrix like system, which is never an optimum construct. So as I started to get to know the CEO, the VP of HR, it became clear I should talk to other executives, and I spent a lot of time in small groups, 1 on 1 meetings, really listening, trying to understand how did they think about organizing to achieve their goals. And it became very clear that before we could even roll up our sleeves and get in to reorganizing this company, we needed to get everybody on the same page as far as how to think about organization for purpose and even to bring a language so we could all be on the same page.
So I brought in an individual I've been working with for over 28 years now. And we ran a series of 3 day training and development sessions with the top 75 leaders in the company. And it was all around how to think about accountability and how to think about what I call engineering like principles that should be incorporated in designing any organization, frankly, whether it be industrial services, blue collar, white collar environment, there's a body of knowledge available that can help you get tremendous insights. So we, in effect, had to lay the foundation for the next step. And that next step was simply requesting each leader in the company down 3 levels to take this new knowledge they had, go away and prepare for a series of workshops, each of which lasted 2 to 4 hours, where they would come back to us, explain to us how they're organized today using a particular construct that we've imposed, so that we structured their thinking in a certain way.
So they then could tell us where did they think they could get to within 3 months, I. E, immediate changes focused on not just driving out cost and removing waste, but more importantly, how to take the confusion and the matrix like structures that had implicitly kind of settled into the business. And we also said, and give us a view of where you think you can get to 12, 24 months from today. And we do that because often there's an anxiety that comes with this exercise. People are worried about what downsizing the people they need to deal with change in particular.
And that tends to alleviate a bit of the pressure because people sense there's time to get to where we're ultimately trying to go. But we do want to induce a new culture where we're going to take short term immediate action where we can. And frankly, if we make some mistakes along the way, we're going to adjust. So giving them homework, so to speak, we then started a series of meetings, we had over almost 60 of them over the subsequent 4 month period, 2 to 4 hours each, almost 200 hours rolling up our sleeves, challenging managers that were coming in, telling us why, in some cases, status quo was the only way to operate. In other cases, people started to be a little more forthcoming with things they thought they could do.
And in some cases, and it's wonderful to see, in particular, with people that start to get trust that you're there to help them, to help them get to where they're trying to go, where they would come up with bold and ambitious plans of getting to where we kind of all knew we needed to get to. The net effect of this was, of course, we made small changes in real time as we went to not save everything up for a big bang, which always has high risk with it. But by the end of the year, we did launch some significant changes. We restructured to drive P and L accountability down into the regions to clear up, to eliminate this notion of matrix management. We created a global operating services group and had that focused on understanding that they were a cost center, not some kind of quasi profit center.
And their mission in life was to run the supply chain in a way that increased velocity to market, removed inefficiencies and drove costs down, but how to then interact and support those P and L focus regions. Through this kind of process, as always is the case, change occurs in roles, not just the accountabilities of roles. And in this case, it went as far as us replacing the CEO, the President of the EMEA region and bringing in a new EVP of Global Services. This has had a significant positive effect in quite a short period of time, which I'll touch on in a few slides. But just wanted to give you a sense that this is a hands on approach we take.
Again, we adjust to the situations at hand, but we're not scared to get as involved as we need to, to drive change. Taking a second example off this slide, I'll focus a bit on this key work stream of Transformation Office. One thing, when you're trying to move a lot of work streams in parallel, you need to have the stewarding capability. You want to maintain accountability in the lines, you want to maintain accountability with all the functional area leaders, but you also, as a bit of a belt and suspenders approach, you want to provide support to the CEO and the executive team by having this transformation office, very small group of people, mainly people from the inside. Again, we periodically will bring people from the outside that we've worked with for years that we trust to bring in that objectivity and to set a particular pace that the company may not be used to.
In this case, we launched what we refer to as a scratch margin improvement plan. And Jaspreet always cringes a bit when I say this, but we had titled this plan, the 800 by 'twenty two plan, a simple singular vision. How do we achieve an $800,000,000 a year EBITDA run rate by the end of 2022. It's not a commitment, it's not a forecast. It was just a bold objective, in particular when, and I'll remind you with the next slide, this is a company that had established $440,000,000 a year run rate after going through Chapter 11 with all the kind of natural cost reductions that occur through that process.
And I think there was a bit of anxiety, much more than Bruce instilled on me this morning, because you had a lot of people that said, well, wait a minute, we thought the pain was over. And look at, we used to run at $350,000,000 $360,000,000 a year run rate, we're at $440,000,000 Some people made it quite clear, which is a good sign, you've got a trusting relationship when they would say, are you out of your mind, dollars 800,000,000 a year just doesn't seem doable, it's impossible. But I can tell you, it started to change the more and more we continue to keep that conversation on the table. And people started to understand this wasn't about a plan that put us in a position of trying to catch people failing. It's the opposite.
It's about trying to build this trusting relationship, recognizing that the way to pull the best out of human beings that are committed to the work they do and enjoy the work they do is to build that trusting environment and challenge us to do things that might not seem possible. Well, as you can see in this slide, we now expect to achieve a 600,000,000 dollars a year EBITDA run rate by the end of this year, which in itself was frankly consistent with where we thought we might be at kind of the high end of the range. But I think the uniqueness here is this was achieved within about 15 months, about 2 years ahead of plan, truly step change response. And I got to take the time to say, and again, it illustrates how we go about this. We've had 8 Brookfield people scattered throughout this company, different amounts of time, but in particular, in that 1st 6 months, very actively involved with the company, working side by side with the management team.
And as I like to say to all of our people, we're there to act as catalysts. Cyrus always said says to us, we don't want you running these companies, we need your capacity in the other across the entire business. And we agree, but we need to make sure these companies are well run. So we're not shy about inserting ourselves. And I think the fact that we take this approach of humility, where we're interacting with these managers, they quickly start to respect the fact that we really are there to help them.
And even when we have young 28 year old, bright, hardworking, young financial people who may not know a lot about the particular business, but they're in there day and night. They're living in Cranberry, PA, interacting. And normally, the more senior you are, you tend to think, well, yes, they're young and they're bright, but what do they know? And it's amazing to just watch in meetings as people with sometimes twice the age of some of these bright young people we have, but they're genuinely listening and reflecting on what these folks are seeing and their insights. It's just wonderful to see and a lot of fun.
The other thing that I got to say is, in spite of our early concerns, because Westinghouse had a reputation of being quite bureaucratic and of course, in this highly regulated environment, I mean, it's just a natural outcome, I think. And we are a little bit concerned we get a lot more pushback than normal. And I have to say, I think it's one of the best group of leaders I've ever worked with in a portfolio company, whether it be with Brookfield or doing what I used to do before joining the company. These folks have been very open to engage and they've been open to try. They've recognized we mean it when we say we're going to adjust if we make mistakes, but we'll expect nothing different than we would expect of ourselves.
And these people stepped up to demonstrate the kind of character that they have. That margin improvement plan now is the conversation. 800 by 22 is the conversation. So quickly, our second polling question, what is the right multiple to value Westinghouse? 11 times, up to 12, 14 or greater than 15 times EBITDA?
Great, great.
I'll tell you, a lot of us are seeing the characteristics of this company as being more infrastructure like than it is industrial services. So our guess is higher is a better bet than lower. So I'll try to move along a little more quickly here. The case study for this year is Clarios. And Cyrus gave you an overview of this business we bought from Johnson Controls.
It's a large global business, many employees operating across a large number of facilities, having produced over 150,000,000 batteries last year. We see a lot of opportunity in this business. It's the number one supplier, clear technology leader, high barriers to entry with a global integrated manufacturing footprint and has stable cash flows with approximately 75% of its revenue linked to replacements. Given the essential nature of the product, 1 in 3 cars having a Clarios battery, the aftermarket positioning and the growing vehicle count globally, the fact that every vehicle is going to replace the battery in it, or it's going to have its battery replaced 2 to 4 times in its life, we see a lot of value to be created. Consistent with how we approach Westinghouse, we try to just break this into blocks of work stream, following the similar playbook, focusing on manufacturing and recycling system, the supply chain broken up into strategic sourcing and transportation and logistics, and we're conducting a similar global organizational structure review.
We see opportunities to increase productivity, quality, reduce cost and increase speed to market in all aspects of the business. To get a little more specific in the manufacturing and recycling area, it's about focusing management on traditional asset and human productivity improvement initiatives, debottlenecking, eliminating waste across the system. In the supply chain area, it's about increasing the use of lower cost intermodal carriers, which will improve on time delivery and lower cost. And a little example here, typically what we found at Clarios, in a vehicle, transportation vehicle, they would load about 850 batteries per vehicle. And just making small changes very quickly, they were able to get that loading density up to 9 50 batteries per vehicle.
Now that may not seem like much of a magical event, but that's a 12% increase in productivity, not just of asset utilization, but of all the people involved in making that happen. So just a small example of the kind of things that can be achieved. So finishing with this slide, as we did with Westinghouse last year, we wanted to give you an indication of the potential we see. We're focused similarly in the midterm over the 1st 2 to 3 years of driving about $300,000,000 of incremental EBITDA. And as we're introducing their version of a margin improvement plan, which they call jump start, we're starting to see new ideas percolate and think we can get significantly beyond the target of $300,000,000 over the mid to longer term.
So on that note, I'll wrap up and turn it over to my colleagues.
Thank you, Dennis, and good afternoon, everyone. Last year, I had the dubious pleasure of standing between you and a glass of wine. Today, I'm standing between you and lunch. I'm going to try and keep my comments succinct and really focused on 3 areas. The first is our performance at BBU over the last year.
The second is around our balance sheet and our liquidity profile. And finally, our net asset value or the NAV our view on NAV for Brookfield Business Partners. We continue to deliver very strong financial performance at Brookfield Business Partners. As you can see on the slide, company EBITDA for the last 12 months, so that's for the 12 months period ended June 30th, was $975,000,000 compared to $570,000,000 last year. Company FFO today is over $1,000,000,000 This is supported by the strong company EBITDA and strong performance improvement in performance of our businesses, acquisitions that we've done, but also gains that we've realized on the sale of mature businesses.
In particular, over the 12 month period, we sold 3 of our mature businesses and realized a gain of $380,000,000 on sales and that's included in company FFO. And both of these are driving strong results in our per unit company FFO. So per unit contribution went from $5.70 last year to $8.20 in 2019. We look at our business in segments and it's focused on 3 segments, business services, infrastructure services and industrials. And we've been evolving our disclosures since our spin off about 3 years ago in 2016.
And what we did last quarter is really focused our financial disclosure around the larger businesses in each of our segments. And the goal there was really to provide you all with additional information on the operating performance for these large businesses that move the needle for BBU. Today, we're in a very strong financial position. We have $2,400,000,000 of corporate liquidity. So this is liquidity available to us at the corporate level to execute on our operational and growth plans.
We have 0 corporate debt. So BBU at the corporate level has no debt. We finance all of our operations with debt within the operating companies and that debt has no recourse up to BBU or across our operations. Our goal is always to ensure that the debt within our operating businesses is on favorable terms at favorable rates and has longer dated maturities. As you can see, the weighted average maturity on the debt within the operating business is about 6 years today.
You would have seen the slide last year and I think you could expect to continue to see it because our key financial objectives remain unchanged. 1st and foremost, we're focused on maximizing unitholder value. We want to improve the operating performance at all of our businesses and we want to ensure that we're efficiently allocating our capital. And finally, we want to make sure we're maintaining a strong balance sheet and have ample liquidity to execute on our growth plans. In particular, we were always focused on ensuring that the business is well protected in challenging times and that we're putting prudent levels of leverage within our operating businesses.
So I thought I'd focus on leverage over the next couple of slides and just talk to you about how we think about leverage at the corporate level and then within our operations. So at the end of June, we had $5,400,000,000 of leverage, which is really BBU's proportionate share of debt within our operating businesses. So you'll recall, we have no corporate debt. This shows the proportionate share of the debt within our businesses, net of about $2,000,000,000 of cash, which is our corporate cash as well as our share of cash within the business. On a run rate basis, we're generating $1,400,000,000 of EBITDA today.
And this is really taking our June 30 EBITDA numbers, annualizing it for acquisitions and adjusting for dispositions of the businesses, which gives us about 4 times leverage for our business. So that's our overall leverage profile, but not all businesses are created equal when we think about leverage. So we have some businesses within our portfolio that are more that have more volatility in earnings. And for these businesses, we try to keep our leverage levels low or in some cases, we may have no leverage. And a good example of that is North American Palladium.
And then there's other businesses which have stable long term cash flows. They're providers of essential services and products and Cyrus talked about these. For those businesses, we can have higher level of leverage and we want to make sure that it's still at a level where the business can support that leverage through economic cycles. So I guess the question is really how do we assess what's an appropriate level of leverage when we look at each of our businesses. And we really think about it in 2 ways.
The first is around servicing the debt that we have in place within a business. And what that means is, is the business able to generate sufficient cash flow to comfortably pay its interest payments that are due on the debt that we have in place. And it should be able to do that across any economic cycle. And the second piece is, is it a sustainable level of debt for that particular business? So I thought I'd walk you through an example.
We've been focused on Westinghouse, so we picked on Westinghouse. But we thought we'd walk you through an example of how we think about leverage within the operating company in that context. We acquired Westinghouse in August last year for $4,000,000,000 We funded it with about $1,000,000,000 of equity, dollars 3,000,000,000 of debt. And at the time of acquisition, the business was generating $440,000,000 of EBITDA. So $3,000,000,000 of debt versus $440,000,000 of EBITDA, that gives you about 6.8 times leverage.
Fast forward to today, the business is on track to generate run rate EBITDA of 600,000,000 dollars So if you take the same $3,000,000,000 of debt relative to $600,000,000 of EBITDA, your leverage levels have come down to 5 times. And as we execute on our operational plans and are at the point where we've achieved the $800,000,000 upside EBITDA, that will bring the leverage level down to 3.8 times. And this is without paying down any of the debt. The other piece is around servicing the debt. So Dennis talked about this, but Westinghouse is a stable cash flow generating business with a sticky customer base and generates significant free cash flow.
So it's readily able to service the debt that we have in place. And in addition to that, we're also constantly looking at the cost of the debt that's within all of our businesses. So given the strong operational performance at Westinghouse, what we were able to do is refinance the debt that we have in place and reduce the rate by about 50 basis points. And at today's rates that translates to about $15,000,000 of annual savings for the the 2 and I mentioned the $2,400,000,000 that we have available today to execute on that. And this has been top of mind for us and will continue to be since our spin out in 2016 and we've always ensured that we had sufficient liquidity at the corporate level.
And our plan is as we move forward that we continue to have that. But in addition to this 2,400,000,000 there's other levers that we can pull to generate additional liquidity. The first is distributions from our operating businesses. The second is through sale of our more mature businesses where we've already executed on our investment thesis. And then the 3rd, where appropriate, is access to the capital markets.
So I wanted to spend a few minutes on the first and second distributions and asset sales. Our run rate company FFO today is about $850,000,000 so that's the $1,400,000,000 that I touched on earlier, less cash interest and taxes and we generate we should generate about $850,000,000 on an annualized basis. We estimate that the maintenance CapEx requirements within the operating businesses today and all of these numbers are at BBU's proportionate share is $300,000,000 which leaves about $550,000,000 of excess cash within the business. And not all of this cash is available for distribution up to us and for growth opportunities, because all of the operating businesses have their own business plans where they have growth opportunities, whether they're organic or M and A, they may be paying down debt or have other corporate requirements within the business. But we estimate of the 550, we should easily be able to pull $200,000,000 to $300,000,000 of cash up to the corporate level, which will support our activities.
The second thing I wanted to touch on was the monetization potential within our portfolio today. So we estimate that about 40% of our portfolio is at the more mature stage where we've executed on our investment thesis and where we could monetize those assets. And our view is that we can readily generate over $1,000,000,000 in the near term through these monetization activities. And if you look back into history, we spun out in June 2016, so a little over 3 years ago, but over that period, we've generated $2,200,000,000 of proceeds. This is at BBU share through asset monetization.
And we feel very confident that as we look forward, we'll continue to be able to execute on that strong track record. So I had a quick polling question. How do you measure our financial performance? Is it A, EBITDA B, FFO C, available corporate liquidity or D, net asset value growth? Okay.
So more FFO. I think last year we heard that people wanted to see more information on EBITDA, but that's interesting. From our view, EBITDA, FFO, corporate liquidity are all great measures of our business performance. And ultimately, our goal is to generate net asset value growth. So with that, I thought I'd touch on our view of value for BBU today.
So just before we get into the numbers, I just wanted to make the point that the NAV or our view of value is really based on kind of more of a liquidation current value. It doesn't take into account the embedded growth in the portfolio or any of our recycling activities. So our view today is that the total valued BBU is $6,500,000,000 to $7,100,000,000 which translates to about $43 to $47 per unit. And this is broken down by the segments that I touched on before. So business services contributes about $11 to $12 per unit.
And this is really our construction and some of our other business services as well as Healthscope, which is an acquisition we completed in June. And we've included Healthscope at cost just given the short time frame since we closed that acquisition. Infrastructure services contributes about $8 to $10 per unit and what's different about how we're valuing infrastructure services this year relative to last year was that last year we had Westinghouse in our NAV at cost. And given the time period since the acquisition and the enhancements that we made in the business, we're now valuing infrastructure services at a multiple of EBITDA and definitely at a lower multiple than all of you think we should be valuing it. And then finally, our Industrial segment contributes about $16 to $17 of per unit of value to BBU.
And the 2 largest businesses within industrial are Graphtec, which we value at the market price and Clarios, which just given the short timeframe since the acquisition is at cost. And the last line there is corporate and other and this is really our cash and liquid securities at the corporate level, which we've adjusted from June for inflows and outflows. So that overall provides our view of value of $43 to $47 per unit. And again, this is current value without embedded growth in the portfolio. We thought it might be worth kind of comparing now that we have a few years under our belt comparing our view on NAV over the last few years.
So we spun out in 2016 and at that point our view on NAV was $24 to $28 And since then coming up to 2019 our view now is $43 to $47 So we've delivered substantial growth in net asset value. The growth between last year and this year is muted compared to what you see in the prior years. And this is really because the value of GrafTech in our NAV range last year was higher than it is this year. But despite that decline, we've been able to more than offset that by growth in NAV through our other operations. And then we thought we'd give a little bit of our view around how we can create value within our embedded portfolio and what that means for our unit value at BBU.
And this is based again solely on the operations and the businesses that are in our portfolio today and within Brookfield Business Partners. It doesn't assume any multiple expansion. It doesn't assume any new acquisitions or recycling activities. So it's just all of the businesses that we have today. And all of those things are pretty fundamental to our business.
So we do think that has additional upside opportunities. So our view is that if we are able to execute on our operational improvement initiatives, we should be able to generate go from $43 to $47 to over $60 So how do we get there? Again, it's really through the execution of our operational initiatives that we have in all of our businesses. Dennis touched on everything that we're doing at Westinghouse, our plan for Clarios. If we're able to execute on those two initiatives and grow the EBITDA from the current run rate at Westinghouse of 600 up to 800 and at Clarios from approximately $1,600,000,000 to $1,900,000,000 that will add significant incremental value to BBU.
But in addition to those two businesses, we have about 20 other businesses within our portfolio and we use the same hands on operational approach in enhancing the value of those businesses as we do with our larger ones. And if you took those approximately 20 businesses and believe that we could add 15% to 20% growth to those to the EBITDA of those businesses and we think we can very easily do that. That will translate into a unit value of over $60 So that really sums up my comments. And with that, I was going to hand it back to Suzanne to wrap up.
So we're running just a few minutes behind
and we want to make sure that everybody has time to eat. So we're going to hold off on questions for BBU. But if you have any questions for Cyrus or his team, you can just find them a lunch and we will meet back here at 115 Sharp for Brookfield Infrastructure Partners.
Thanks. Okay. Well, good afternoon, everyone, and thank you for joining us for fruitful infrastructure's portion of today's Investor Day. Appreciate you all sticking around and we're very thankful for your support for Brookfield Infrastructure. My name is Sam Pollock, and I'm the Chief Executive Officer of Brookfield Infrastructure.
And presenting with me today is Hadley Peer Marshall, who's one of our Managing Directors in our credit platform as well as Bahir Manos, who many of you know is our Chief Financial Officer. And for our presentation, there's really 4 parts to the agenda. The first part will be myself going through a recap of the last 12 months. And then Hallie is going to come up and she's going to talk about the current state of the debt capital markets from an infrastructure perspective and really how that plays into our approach and strategy of financing our recent transactions. Then Bahir is going to come up And while we've probably done similar type discussions in the past, it's going to reiterate why we think Brookfield Infrastructure is a high quality utility type investment.
And then I'm going to come back up and conclude with remarks by taking through yesterday's announcement of our unit split and creation of Brookville Infrastructure Corporation and also give you a brief outlook for the business for 2020. So let me begin with the year in review. And I'd say by all measures, the last 12 months have been extremely successful. Our financial performance has been extremely good with really propelled by solid same store growth across all of our businesses, as well as the added contributions from a number of new investments that we've made over the last 12 months. We've also financed these businesses from both asset sales as well as from the recent equity issue and that has allowed us to maintain a very strong balance sheet.
And then on the back of these strong results, execution of a number of key priorities that we've laid out for you over the past year, as well as would have to say is very positive market sentiment, our unit price has achieved all time highs. So I'm going to start with talking a bit more about our performance. And we are on track for the remainder of this year to deliver solid FFO growth. And you might recall that at last year's Investor Day, Bahir would have laid out a plan where we expected to increase our run rate FFO per unit by approximately 20% in the Q4 of 2019 from at that time 2018. And I'd say we're very pleased with the fact that we are well on our way to achieving that goal.
And our expectation is that our exit run rate will be approximately $3.50 in the Q4 on an annualized basis. And while this might be slightly lower than what we thought last year, that's really only because of 2 factors. One is we recently raised some equity and we haven't fully deployed that capital, but we do have the dilution from the higher share counts. And we also have a little FX wind in Brazil. But if you look out 1 quarter with the capital that we have been deploying as a result of that equity issue, we're expecting to be higher than that 20% run rate.
And so looking to 2020, we're well on our way to achieving our goals. From a balance sheet perspective, we remain well capitalized. We have over $3,000,000,000 liquidity and our credit ratings remain strong at BBB plus We have no significant near term maturities. And in fact, we have less than 5% of our debt that's maturing in the next 2 years. And while we're expecting the credit markets and the financial markets to remain pretty resilient and strong over the next while.
Even if things do turn and things become a little bit more difficult, we have the balance sheet liquidity to definitely withstand anything that might come our way. Now looking at some of the important initiatives I spoke about, probably one of the biggest things that we have been trying to do over the last number of years is execute our capital recycling program as this is a big part of our overall funding strategy. And this past year, we've had a lot of success. So far in 2019, in the latter half of twenty nineteen, which will take our total proceeds from asset sales in 2019 to just over $1,000,000,000 Now the sales that comprise those proceeds are coming from 4 businesses that we've sold. The first one is our Colombian electric utility.
We sold 2 thirds of our Chilean total business. We're selling and in process of selling our Australian District Air Energy business and we sold one portion of our European Ports business. Just to tell you how we've done on those sales, the sale of our South American assets have generated IRRs of approximately 17% in U. S. Dollar terms.
And in local terms, in fact, if not for FX headwinds, we achieved over 25% IRRs. The multiple of capital in those is in U. S. Dollars around 3 times and well over 4 times in foreign currencies. And the Europoison Australian District Energy Business, those were all part of the Babcock and Brown transaction that we did in 2,009, 2010.
And that transaction as a whole has generated returns over 25%. So all in all, we're pleased with the success of a number of these investments. Now the proceeds of these asset sales are being put to work in good use. We've identified 4 exciting new investments in the data, transportation and energy sectors where we're looking to make investments that hopefully will close the end of this year or early next year. We expect to invest approximately $1,300,000,000 in these businesses, and we expect them to be immediately accretive to our business from a FFO perspective.
And we also believe that taken as a whole that they will have higher longer term growth potential than the assets that we just recently sold. So I'm going to tell you about those 4 businesses. The first one I want to talk about is an acquisition of a $2,300,000,000 fully integrated data distribution company in New Zealand. Alongside a local investor, we bought a 50% co controlling interest in this business and it's a nationwide provider of essential broadband and wireless services to about 2,500,000 customers in New Zealand. Our share of the transaction is about $200,000,000 and we believe we bought it on a value basis as we bought it around 7 times EBITDA.
Now what's interesting about this business is that it's one of 2 main local operators that own their networks. And with a significant incumbent advantages, it has very resilient cash flows. But what really made us attracted to the opportunity was the fact that not only do we have an attractive going in yield, but we recognize that this business compared to the other main competitor, its margins were 10% lower. So its margins were around 20%. The other business was operating at about 30% margin.
And so ourselves and our partners have very strong conviction that we can improve those margins and grow our cash flow significantly and hopefully generate a return well in excess of 15%. The second business, and this is one that people in the U. S. May be more familiar with, is in July we announced the $8,400,000,000 acquisition of a North American rail company called Janisteen Wyoming. This transaction, I should say, is still subject to shareholder and regulatory approvals, which we hope to have in hand in the next 2 or 3 months.
Now, G and W, I'll call Janssen Wong with G and W for short. For those of you who don't know this business, it's for the most part a North American business, does have some operations in Europe, but it's the largest short line rail operator in North America and it has over 120 lines and over 26,000 kilometers of track. So it's a business with substantial scale. And what's interesting about it is it serves 3,000 customers across a whole vast array of commodity groups. And what that does, it provides great diversification.
So as you've So as I was saying, this business is highly diversified. And as we talk about with all our businesses, we think diversification is a great way to achieve risk reduction. And then the other part of the business that makes it a very sticky solid business is the fact that it is an essential part of the transportation logistics network of North America. As when you think about the various customers who use it, these lines are basically the last mile connections that they have to their clients and suppliers. And so they have to operate on these.
This is generally an operator that services bulk loads. And as a result, there really isn't other alternatives to move those that cargo. We're planning to invest approximately $500,000,000 into this business alongside our partners. And we think with our expertise and experience in operating rail businesses and logistics businesses around the world that we can create a lot of additional value in this company. The most recent transaction that we just signed up was the acquisition of 2 co controlling operational natural gas pipelines that will take natural gas from the Texas border, which is basically fed mostly from the Permian Basin.
And that gas goes down into the industrial heartland of Mexico. And these pipelines are around 7 40 kilometers in length. They are fully contracted and regulated and they have long term take or pay arrangements with creditworthy counterparties. So in fact investment grade counterparties. And so what that means to us as owners is, first of all, we're taking no volume exposure.
We have no commodity price exposure. And these assets generate U. S. Dollar revenues and they're also indexed to inflation. So we believe because of the turmoil that's been going on in Mexico that we bought these assets that effectively are very bond like at very good value.
Our investment in these assets will be about $150,000,000 And then lastly, the next transaction I want to talk about is one that we haven't secured yet, but we do have an exclusive arrangement to acquire these assets from Reliance Industries. And it's an exciting business because these are newly constructed 130,000 tower portfolio in India. And this transaction came about as a result of our working with Reliance Industries. Last year, we bought an oil and gas pipeline from them, gas pipeline from them. And we've established great credibility with them as a party that can affect carve out transactions.
And what's interesting about this deal is the fact that it's being structured so that we earn effectively a minimum return on investment from a 30 year MSA contract with Reliance Jio, which is the our anchor tenant and the largest operator in India in telecom. And our returns will be further enhanced by commercializing the portfolio. Today, it only services that one customer, but there are 2 other large operators in the market and we will take the additional capacity we have on those towers and hang the equipment from those other 2 operators. And that will obviously increase our return substantially. The towers are extremely valuable and why we're confident that the other customers will want to put equipment on our towers is because these unlike most other Indian towers, these towers are fiberized and therefore can take 5 gs equipment.
Now we're in the final stage of due diligence and we hope to conclude a transaction shortly. It's expected that we'll probably invest around $400,000,000 into this transaction. So we probably don't do this every year, but we thought this is a good year maybe to put up the stock chart. It's been a pretty good year. And some of that is a recovery from last year's weakness in the general market.
But I think the main takeaway is our goal is to deliver value on a long term basis for unitholders. We're pleased that we continue to outperform our peers and we're just happy that the market will recognize that the value has been created. So with that, I'm going to ask Hadley to come up and talk about our strategy in these current debt markets.
Thank you.
So thank you for having me. I'll give a quick introduction to myself and then I'll dive into our debt strategy. I lead our infrastructure credit platform for the Americas, but I also work closely with our Capital Markets team in terms of advising on how to efficiently and prudently finance our assets. Before joining Brookfield, I worked at Goldman Sachs as the Co Head of the Project Finance Group. And there I spent a lot of time advising different infrastructure funds, including Brookfield on how to finance their assets.
I serve as a good example of the type of in house expertise that we use in order to execute our financing approach. You've heard us discuss this approach in the past, but today we want to give you more context given the importance and the fact that the markets have definitely been favorable to us, but we want to remain conservative and disciplined. So I want to outline how that how we play that forward in this presentation. So right now, we're seeing an abundant amount of capital being attracted to infrastructure debt, which has pushed down the cost of that debt. And really it's provided for more markets to be open and available to infrastructure financing.
However, we remain resolved in making sure that we've appropriately financed our assets in order to protect the balance sheet, while also taking advantage of the current market state, the cost of debt in particular. Now first, I'd like to give a little bit of background in terms of the different financing sources that are available to infrastructure. So as you can see, the very first line project finance bank market, this is the dominant source of financing for infrastructure. In fact, about 90% of deals flow through this market. It provides committed financing and an attractive cost of debt.
The second option is the investment grade bond market. It's a smaller segment of the overall volume, but it does have the benefit of providing long term debt at fixed rate, actually up to about 30 years, just to give you an idea for tenure. The next three options weren't really financing sources a while back, but given the current conditions and market and regulations that have curtailed banks appetite for levered infrastructure debt, plus investors seeking yield, it's opened up these markets to infrastructure financing. Now when you look at the term loan B in the high yield bond market, that's the that's what we consider the leveraged finance market. And when you add in private debt capital, they're primarily focused on non investment grade credits.
Now we do use this market, these markets occasionally from time to time, but about only 10% of our deals have actually been financed in this market. And the reason why is we really like to focus on the investment grade bond market as a permanent source of capital. It provides that long term debt, so we minimize refinancing risk and fixed rate debt so that we minimize interest rate risk. In fact, we think that all of these markets are actually a benefit to our business because we have multiple sources of available capital to us, especially in times of volatility. Now earlier, I said that we think these favorable market conditions lead to a good time to be a bar, especially in infrastructure.
And here's a good example of that. As you can see, the cost of debt has come down significantly. It's been over 9 years since we've seen a credit downturn and that longevity has created these favorable market conditions, including the cost of debt. Interest rates have dropped to about 1.7% for the U. S.
Treasury, which is pretty close to an all time high compared to back in the 80s where we saw 15% at an all time high. The other interesting part is that credit spreads have also come down. So if you think about that, they've come down in line with interest rates, which means that you're getting compensated the same for taking more risks compared to 10 years ago. Now, overall, we benefit from this cost of debt. And as an example, we are recently in the market with our last mile utility network business in the UK, which issued a US investment grade bond with a weighted average life of 15 years at 2.36%.
So that means for 15 years, we've locked in 2.36 percent. So we're not exposed to rising interest rates. In fact, the overall portfolio is well protected because we have about an 8 year duration. The other aspect to the favorable market conditions is the abundant amount of capital. As an example, you can see in the purple, that's the investment grade bond market and it is issued $1,000,000,000,000 per year over the past 5 years.
And then the lighter two gray bars, they represent the term loan B market and the project finance bank market. And even in those markets, we're seeing record issuance levels. The reason why we're seeing this is because new entrants are coming into the market, looking for yield and coming down the credit curve to find that yield. And some would even say we're back. We're back to 2,006, 2,007 pre credit prices levels where you can get leverage and financial and covenant light transactions in the market.
So I'll explain this graph for a second. If you look at the blue line, you'll see that the turns of leverage available in the market is about a half a turn higher compared to 2,007. The gray line represents the percentage of deals that are considered covenant light and we're at about 80%. Now regardless of these bull market conditions, we remain conservative and disciplined. We aren't enticed by offers of excess leverage and we prudently finance our investments.
We make sure that we have strong balance sheets and that we have access to multiple sources of capital. There are 5 core objectives that I want to walk you through because they really answer the question that may be in your minds of why are we conservative and what does it actually mean to be disciplined. These objectives really are the foundation to our financing approach. The first one is liquidity. We make sure that we have ample amount of liquidity at the asset level as well as at the BIP level in order to make sure that we're not in the market at inopportune times raising capital.
The second is we ensure that our debt financings are resilient through the various cycles of the market and limit financial covenants and other structural features so that we are not impacted by liquidity events. The third one is flexibility. We appropriately size our debt in order to make sure that we can run our business with the flexibility that we need in order to generate those operating efficiencies and grow the top line. 4 is unrestricted cash flows. We want to make sure that we've issued debt that allows for cash flow to go up to the BIP level unrestricted.
And 5, finally, we want to make sure that we have access to multiple sources of capital in order to limit any market volatility that could impact that liquidity. The other benefit to Brookfield is that we have very strong relationships with the debt investors. So that's the bank market and the institutional bond market investors. And we actually received strong reception in the market, which is a competitive advantage for Brookfield. Now earlier I mentioned about 10% of our deals are financed in the term loan B market.
And we have two examples that we wanted to walk you through today in order to express how we are conservative and disciplined in our approach even in that market. The first one is a North American rail business. Now Sam discussed this business a few minutes ago and as he mentioned, we haven't closed this deal, but we do have committed financing in place. Now before going through the numbers, I want to express that we did not use leverage to drive our returns. We use our underwriting case in terms of operating efficiencies and top line growth to really generate these attractive returns for the marquee asset.
What we do is we use leverage for optimization only. And as you can see, we put in place about 4.25 turns of leverage, which translates to about a 35% loan to capitalization. That's a very low leverage, especially given the fact that banks were offering us 6.5 turns of leverage. The lower leverage allowed us to accomplish 2 things. 1, the cost of debt came down and 2, we had less financial covenants put upon us.
In addition, the lower leverage will help us position this credit when it comes to the term loan B market appropriately and to generate a strong investor base because this investment has not been in the market before for the term loan B market. Our next example is the Western Canadian Midstream Business and you're going to hear the same themes that I discussed for the previous case study. We did not use leverage to drive our returns. We are underwriting this business in order to generate operating efficiencies and grow that top line and have the flexibility to execute on our business plan. So we put in place 4 turns of leverage, even though the market was offering 6 and a quarter turns of leverage.
In fact, the lower leverage represents for this deal, the fact that it is one of the highest rated credits and the leverage finance space for midstream. Now I'd like to just kind of leave you with a few lasting thoughts in terms of how we think about our financing. The first one is there is a lot of capital that is looking to invest in infrastructure debt that finds the asset class attractive for the same reasons that we all do, the characteristics of infrastructure. Plus in this market, it has already been determined through historical data that it has low default rates and high recovery rates. And that capital coming in is bringing down the cost of debt, which Brookfield benefits from.
But we remain conservative and disciplined to our approach. We are laser focused on our liquidity and making sure we minimize any impact to that and have access to multiple markets. That approach supports our BBB plus rating and the ample amount of liquidity available to us. So with that, I will turn it over to Bahir.
Great. Well, thanks, Hadley, and good afternoon, everyone. So as Sam noted, I'm here this year to take you through the characteristics of BIP that make it a great utility investment. And we just thought this was quite topical, just given everything that's happening in the market these days and all the volatility we're seeing. To set the stage, we believe there's 3 key attributes that make BIP a must own utility.
The first being the strength and stability of our cash flow streams. The second attribute being that our ability to generate outsized growth compared to many peers of ours in the space. And finally, when it comes down to valuations, we believe BIP stacks up very well on a relative basis. So starting off, I wanted to speak about the high quality of cash flows that we have in the business today. To depict this in more detail, I'll break this down into 4 specific areas.
The first being the strength and resilience or stability of our cash flows. The second, I'll discuss the attractive margin profile and strong cash conversion ratios that we have in the business today. 3rd, being the diversification that we have, which is something that's extremely hard to duplicate. And finally, our recession resistant attributes, a topic that's top of mind for obvious reasons to many investors these days. Let's first look at the stability and resiliency of our cash flows.
The low volatility in our underlying results stem from the fact that 95% of our cash flows are either contracted or regulated. We operate regulated businesses in 5 different continents, invest in businesses with very attractive regulatory frameworks and all of that with very well established regulators. And so these are in great countries like the U. K, the U. S, Australia and Brazil.
We also have long term contracts in place. It's important to note that we're generally operating here very critical infrastructure that our customers need to get their goods to the end user. Our customers are looking to reduce volatility in their cost structures. They're looking to manage their supply of their goods to the best of their abilities. And most importantly, they want to contract capacity that they need for their business to use it when they need it.
As such, we have long term duration contracts in place with these customers and our average duration today is about 9 years across the business. And these contracts are with very solid counterparties. 85% of our contracts or contracted volumes today are with investment grade entities. And then as far as our margins and cash conversion ratios go, both of these metrics have been pretty strong over the years. Our margins today across the business is about are about 55%, and that's trending higher into 2020.
This profile is attractive across the 4 sectors that we invest in for 2 key reasons. The first being the fact that our costs are predominantly fixed in nature. So most of the top line growth that we see in the business flows right to the bottom line. And the second being the fact that we're generally operating here capital intensive businesses that require significant upfront capital to either build or replace. And as such, these businesses typically demand higher margins.
Touching also on a topic that we introduced at this event a few years ago, our unlevered cash conversion ratios in the business are very strong. Cash conversion ratio measures the amount of EBITDA that is available for debt servicing and for distributions to our equity holders after we funded our maintenance CapEx obligations. Today, our cash conversion ratio is strong as I noted, it's at 87%. And just like our margins, that's trending higher going into 2020. Next up, one of the hallmarks of Brookfield infrastructure stability is the diversification that we have of our cash flows.
1st, we're diversified by sector. Pro form a the new transactions that Sam alluded to earlier, our growing presence in the data infrastructure segment and the increased weighting we have towards our energy business has meant that we're more diversified today than we've ever been before. It's also important to note that within these 4 core infrastructure segments that we invest in, we're operating 10 very large operating groups. These are all operating groups that have grown materially over the years and in their own right have become very large businesses over the years. We're also diversified by region.
In the past 2 years, a disproportionate amount of our investments has been made in North America, which has grown our cash flows materially in that region. That has rounded out our business quite nicely from a geographic perspective. Today, this is the highest allocation we've ever had to North America since 2,009 when we completed the Babcock and Brown privatization. And then we also have great balance as you can see from the slide in the other continents that we invest in. And then finally, I wanted to touch on our recession resistant characteristics.
As I noted before, for obvious reasons, this has become a topic that's one of the most frequent questions that we're getting from investors these days to address. We think for the most part, our business is pretty recession proof. This slide provides a breakdown of our cash flows to illustrate how much of our cash flows are subject to volume risk. As you can see from the slide, our exposure is largely limited to our transport segment as highlighted by the gray portion of that bar. That's because it's mostly due to the fact that we have regulated and contracted or the regulated and contracted nature of our business that I touched on earlier.
Specifically in our utilities segment, our cash flows are almost fully insulated from changes in utilization rates as we earn a regulated return on our rate base rather than getting paid on actual usage. In our energy and data segments, over 90% of our cash flows or volumes are contracted either through take or pay or capacity based arrangements. So then let's look at the transport segment in a bit more detail, just because I realized in the previous slide, it sort of overstates the potential impact to our results should there be a recession on the horizon. Using annualized results for the 1st 6 months of the year, this segment accounts for about 30% of our FFO or roughly $500,000,000 There are 2 components though of that FFO that I wanted to focus on in order to explain our exposure to a possible recession. First, 40% of our transport cash flows are what we would refer to as volume or rate agnostic, meaning these are cash flows that are underpinned by take or pay contracts, minimum volume guarantees or based on availability based regulatory frameworks.
As such, we don't believe that a material amount of that FFO is at risk. The second component relates to the fact that 40% of our transport FFO is generated in Brazil. As many of you know, that's a country that's slowly recovering out of one of the worst recessions it's faced in a few decades. And we strongly believe that the worst is behind us in that country. So just when you go through the math, and as you can see from the slide, roughly 5% of our total FFO is perhaps recession sensitive.
So even if you were to haircut that by 50%, let's say, which would be a very, very extreme thing to do, but just while we're having fun with numbers here and to give you a sense of magnitude, you're talking about less than 3% of our total FFO that could be at risk if a recession was to happen. So with that, I'll move on to the second reason why we think BIP is a great utility investment. And it focuses on the higher amount of growth that we have that's embedded in our existing businesses, which is much higher than a traditional utility company. Many investors are familiar with this slide. It encapsulates or tries to project the long term trajectory that we have for our organic FFO per unit growth that we can generate in the business year in, year out.
We continue to believe that over the long term, our business should generate annual growth of 6% to 9% without the need to inject further capital into these businesses. The most material component comes from inflation indexation, where approximately 75% of our EBITDA is inflation linked. Based on the geographical split that we have in the business today, we can achieve average inflation of around 3% a year and that should drive about 3% to 4% growth in our FFO per unit each year. The second box relates to the surplus capacity that we have across our various networks, where we can push out additional volumes through these networks without having to spend the capital to expand these networks. And lastly, we typically retain about 15% to 20% of our FFO each year, which we reinvest back into the businesses at attractive going in FFO yields, and that can typically grow our results by 2% to 3% per year.
In a few slides, I'll come back and demonstrate how we actually expect to exceed these long term targets in the near future. So how have we done on our organic growth over the years? As you can see from the slide, we've grown our cash flows by about 6% on average just from the first two buckets that I alluded to on the previous slide. As a reminder, this growth was generated from 1st, having inflation linked cash flows, which contributed about 4% of that 6% growth that we generated. And second, the fact that we had more volumes that have gone through our systems and that's contributed about 2% to our overall growth rate.
In addition to inflation and volume upside, we also have that unique ability to reinvest a meaningful amount of capital into our existing businesses at very attractive risk adjusted returns. Each year, we make a capital allocation decision to allocate above, again, as I mentioned before, 15% to 20% of our FFO, which we retain in the business and we use that to fund 100 of smaller, very low risk recurring projects that our businesses are able to predictably source year in, year out. These investments have become, as you can see from the slide, larger over the years as our business has grown. And on average, we're typically now investing about $400,000,000 into our businesses each year. These projects are typically financed with 50 percent project level debt, and that leaves us with about $200,000,000 a year of equity that we need to fund, which we do so from cash flows that we generate and retain in the business.
On top of these recurring projects, we also execute larger scale expansions from time to time. These projects are a bit lumpier in nature, but are very logical extensions of our existing networks. Returns for these kind of projects are at the high end typically of our targeted range, and we have a great track record of completing them on scope, time and budget. Here on this slide, I've highlighted 4 expansions that are currently underway, which I won't go through in much detail. I'll note though that these expansions are expected to be fully commissioned in the next 12 to 36 months and should help drive further growth in our cash flows over and beyond the long term target range that I alluded to a few slides ago.
So we're definitely very excited about the outlook for our existing business over the next few years. So that leads me to the 3rd and final component of our utilities investment highlight story. On top of the various attributes I just walked through, we believe BIP is a compelling investment also from a valuation perspective as we're trading at an attractive level relative to how we've traded historically and also if you compare this to many of our peers in the market. Firstly, I wanted to compare the entry point today on our stock compared to how we've traded in recent years. A common metric that investors are focused on is our price to AFFO, which today sits at about 16 times.
And that's a couple of turns lower than what it was even just a couple of years ago. We think this is quite compelling because we're operating in a pretty attractive backdrop of lower for longer interest rates, in addition to the fact that our business has gotten better over the years. We think we're better because we have a much more robust organic growth engine compared to even 2 years ago. And we're also much more mature today than we were a couple of years ago. If you then compare us to our peers and using again AFFO here as a proxy to earnings for many reasons that I've touched on at this event a few years ago that I won't repeat again.
We trade almost 4 turns lower than a traditional utility North American utility company. And we're also trading 5 turns lower if you looked at us on an EV to EBITDA basis. Look, while we acknowledge that not all aspects of our business are as comparable to a fully regulated North American utility, We feel that our diversification and inflation linked in the cash flows alone more than offsets these differences. Fundamentally, we believe that these factors alone should lead to a closing of this valuation gap in the future. On top of that, we believe that we should even be trading at a premium to these utility valuations as our growth profile truly sets us apart.
Our growth, as I noted earlier, is unique because we have a number of businesses with surplus capacity, and we have the opportunity to grow our cash flows without being capped by regulated returns. So pulling all of this together, if you bought BIP today at its current levels, it provides investors with a solid yield, which is around 4.2% based on our current dividend. This yield is even higher if you were to forecast for a dividend, which we typically announce in February of each year. And that compares quite nicely to the average 3.2% that you would get by investing in an average North American utility. And it's not just this attractive yield that you're going to get by buying the stock today, you're also buying into a proven growth engine that's consistently delivered strong and highly visible cash flow growth.
Over the past 5 years, we've increased increased our distribution in the range of 7% to 9%, which is much higher than the average of 4% that was delivered on by the comparable group. And finally, in addition to the cheaper multiples, higher yield and above average growth, You also get best in class diversification, both by sector and by geography. We believe diversification is the best protection an investor can get when making an investment decision because you could never fully predict regulatory, political or economic risks around the world. And so just before I wrap up my comments today, we thought we'd leave you with one word as a takeaway that we think most adequately reflects the security and growth characteristics of BIP. We thought long and hard about this word and it was a challenge to come up with a word one word that describes a business like this.
Unfortunately, we couldn't find the word in the dictionary, so we had to come up with 1 on our own. Growthility. Hope you like it. Thanks for your attention this afternoon. I'll pass it on to Sam.
Well, clearly, you like that word. We got an ovation over it. All right. Okay. So we're coming to the end.
But before we finish off, we wanted to take a few moments and talk about our plans to make Brookville Infrastructure available to more investors. And the reason this was an issue that we felt we should address because we had outperformed our peers over many years. We've been recognized as a leading infrastructure business and we've always been frustrated when we've come across many investors who are prohibited from owning our units because it's a partnership. So with that, I would like to announce and pleased to announce that we intend to launch Brookfield Infrastructure Corporation. It's our plan to effectively split our units so that investors will have the option of owning either a partnership unit like they do now or a common stock.
But from a value perspective, the 2 securities will be economically equivalent
to one
another. So let me get into a few details here. And I'll have to start with an apology because I'm going to abuse you with acronyms. And I know when it comes to Brookfield, we already inundate you with acronyms, but I'm going to use BIPC for the corporation and obviously BIP units for the partnership. So my I'm just going to apologize right now.
So it's our current expectation that for each that for every holder of a BIP unit that you will receive one share of BIP C for every 9 units that you hold of BIP. And our the reason we're targeting approximately $2,000,000,000 we're going to target about $2,000,000,000 of market cap for BIPC is that our goal is to provide this split to you on a tax free basis. And as a result, the ultimate number of shares you get may change depending on the trading price of BIP units at the time we do the spin out. So the number of shares might slightly change over time. But as I said, the most important takeaway from that is the fact that this will be a tax free split for both Canadian and U.
S. Unitholders. The other thing you should know is that BIPC will be listed and trade on the New York and Toronto Stock Exchanges. And for people who hold these BIPC shares, you will not have to file K-1s and you will receive dividends like other corporations. For people who hold the BIP units, you'll continue to get your K-1s.
And if all goes according to plan, we should hopefully have this transaction done by March of 2020. So as I mentioned a few seconds ago, BIPC and BIP units will have the exact same economics. The 2 entities will have identical distributions and holders of BIPC will have the ability to exchange their shares at any time into BIP units. The way to think of this is the structure of the relationship between the two entities will be very much like the BPY REITs and BPY units that many of you may hold today or for some who are familiar with some exchangeables, these are often issued as part of cross border merger transactions when they relate to a Canadian company, it will be very similar to how those operate as well. So let me start by talking about some of the highlights over the next few slides.
First, we think this initiative should expand our investor base, broaden the index inclusion that will be eligible for. And for some unitholders, it will provide tax advantages and in particular simplify tax reporting. So I can go in detail on those. The first one is on our investor base. So we appreciate that this is not an exact science.
But based on our research, we believe that there are significant pools of capital today cannot invest in Berkeley Infrastructure Partners. And that amount of capital is actually quite a bit larger than amount of people who can invest in BIP. And it's probably runs into the 1,000,000,000,000 of dollars. So we think this will open up a very big universe of investors for the company. And the main reason you might ask why is it that they can't invest, it's really simple.
There's some just have a prohibition of investing in partnerships and some people just have a stronger version to K-1s. And so those two factors alone are why we thought this made sense. From an index perspective, and I think as everyone can appreciate, as passive funds grow in importance, this is something that we are obviously trying to accommodate as much as possible. Today, we are fortunate to be eligible for 2 indices. 1 is the S and PTSX Composite Index and the other one because of our scale, the S and PTSX 60 Index.
As a result of this transaction, BPSI should be eligible for the Russell indices as well as the MSCI indices. So that's all positive and moving us forward as far as our eligibility for those pools of capital. And then the last thing is just coming back to the taxes. And I know there's a lot of U. S.
Investors in the room here. For U. S. Investors, the tax rate on distributions, if you hold a BIPC share versus a BIP unit is pretty meaningful. The tax rate drops from about 24% from 41%.
And so we think that will be very attractive for all of you. And obviously, you'll have the benefit of that simpler tax reporting that I mentioned earlier. So this next slide just depicts on a holistic basis what Brookfield Infrastructure will look like. And the main takeaway here is that the aggregate market capitalization of the company is really unaffected by the introduction of BIPC. So the scale and the size of business really isn't changing at all.
And what we thought we'd do is we figured there's going to be lots of questions about this and a lot of them will be the same. So we anticipated what some of your questions might be and we'll answer them right now. So the first one is why didn't you implement a full conversion of the partnership into a C Corp? And that's a great question because the reality is we thought long and hard about whether or not we should do that and it was the first thing that we did. But we decided that there was many advantages with our current structure and that we did not want to give those up.
And some of those advantages include the fact that we issue a number of preferred shares and we can issue preferred shares on a much lower cost basis being a Bermuda partnership than we can as a Canadian corporation. And the cost differential is around 200 basis points annually. So that was just a cost perspective. 2nd, for Canadians and there's a lot of Canadians in the room, the current after tax distribution yield because there's a return of capital in the distributions, The after tax yield for Canadians in fact is lower or owning a corporate share than it is owning a BIP unit share. So Canadians might in fact prefer to hold the units instead.
And then lastly, just from a corporate perspective, the partnership structure does allow us to own investments in certain parts of the world on a more cost effective basis. Then the next question is, is the BIPC float large enough? And obviously, we'd love it to be larger, but our goal here was to make sure that we gave it to you on a tax free basis. The market float initially though, you should know, is much larger, multiple larger than what BIP was in fact when we spun it out to you. And so we think it is a good size.
In addition to that, we think a lot of investors will look at the aggregate size of the corporation when making decision about suitability of it. And in addition to that, it is our intention to grow the scale of BPSI over time through equity issues as well as other unit splits. And for people who hold BIPC shares, I would remind you of what I mentioned earlier, you can exchange your BIPC shares into BIP units at any time and those are obviously very, very liquid. Then last question is what is the impact on BIP financial statements and metrics? And then I'd say here first, other than the obvious impact on the per unit numbers from the unit split by having more aggregate units and shares outstanding.
On a combined basis, there's no impact on FFO, no impact on NAV, market cap, dividends or fees to ban. So nothing really changes. In addition to that, after the introduction of BIPSC, there will be no incremental tax consequences for the company, no changes in how we run or the oversight of the company and no impact on our credit ratings. And there will just be a very modest admin cost to running the 2 entities as well as some modest changes to financial reporting. So that's it on BIPC.
So with that, I'm going to now change gears and just conclude with a brief outlook on the business. And what I'd say is, and I think just taking all the things you heard from Bahir and Hadley, the outlook for our company going forward is very strong. And so despite concerns that you read about in relation to trade wars, possible recession, as we look at our business, we expect same store growth on a constant currency basis in our existing businesses to be at or near the top end of our long term target range of about 6% to 9%. So business is the same as it has been for the last couple of years, in fact, maybe even better. In addition to that, we have 4 new investments that I talked about earlier that will be fully contributing to our results in 2020.
And the average FFO going in FFO yield on those investments is around 12%. So those are highly accretive to our business. Now on top of that, we also have significant liquidity. So the engine is not stopping. We're going to continue to look for new opportunities and we are seeing a lot of interesting opportunities in both the data and energy sectors and we think we can buy them for good value.
One of the things that gives us confidence with that and I know Cyrus talked a bit about this, so I'll try to be brief about our franchise and that you'll probably hear it again. We have an amazing global investment franchise that has never been stronger. And we have many different tools in our toolkit for how we source great opportunities. So we look for contrarian opportunities. We are fortunate to be able to execute one of those this summer with our acquisition of Los Remos in Mexico within the pipelines.
We've done that a couple of years ago when we bought the pipelines in Brazil. We can do carve out transactions, which are more complex. And so you have to have the skills and operations to be able to affect those type of transactions. And we were able to do that last year with the AT and T carve out transaction on data centers and we're doing it this year with the carve out of the towers in India from Reliance Industries. And then as Cyrus also pointed out, there are mispriced opportunities in the market.
We see them occasionally. These are businesses that while they may trade fairly for the way they're being run, we typically have business plans where we can drive greater value. And so two good examples of that would be Enercare, which we privatized last year and G and W, which we hope to privatize in the next couple of months. So all in all, many things that we can do to continue to invest for value for our unitholders. So our priorities ahead, we're focused on closing the transactions that we secured and working with our management teams that we have in place for each of those businesses to implement the business plans and integrate these businesses into our asset management platform.
Our next priority relates to capital recycling. We do have a goal of sourcing around $1,000,000,000 of capital from sales next year. We've been very successful this year. We see no changes in the market investment pipeline. And so in summary, I just have a couple of takeaways for you.
First, we are going to take advantage of the unprecedented low interest rates that we currency in the market. But as Hadley, I hope got the point across, we are not going to change our philosophy or strategy towards how we finance our businesses and we are going to remain disciplined going forward. 2nd, despite the fact that our units have performed well and we recognize that they have done well this year, We do remain a great investment for investors looking for security and growth in these uncertain times. We are the best growthility stock out there. And then last, if you know any investors and this is a plea request from me, if you know any investors who haven't bought BIP because it was a partnership, please tell them that BIPC is on its way.
So with that, thank you. And do I have time for questions? Okay. So I'd be happy to take any questions. And the only thing I would ask is when you ask questions, if you can give us your name and organization.
So I see one over there.
I presume when you do the new issue, are you going to face the same problem you faced in terms of limited partnership and it will be part of a limited partnership? Is that a correct assumption?
It will be a so I think the question, just to make sure I got it right, you're asking if From a tax perspective?
Is that going to be a limited partnership?
It will effectively and this may be too complicated to get into right now, but we can take it through later. But just briefly, in effect, we'll be spinning out what is in essence a subsidiary that will have various cross agreements in place with BIP, but it will be a separate entity that will have separate financial statements. The 2 will deliver identical distributions except one will be coming from a corporation. As a result, the income you will get from BIPC will be dividends. And if you still hold the BIP units, that is a partnership and that will give you income based on the K-one.
Where you're not forced to create a risk, a REIT when you close the large shopping center transaction last year because the investor didn't want to be part of a limited partnership?
Sorry, I didn't quite understand that.
When you closed the large shopping
center last year,
did you were you not required by the sellers to maintain their position for you to create a REIT for their benefit as they didn't want to partake in a limited partnership Bermuda based.
Okay. So the background on the GGP transaction was, I think BPY when it took it up and I might get some of this wrong, but Bruce correct me if I'm wrong, we recognize that a number of shareholders at GGP would prefer to have a REIT versus BPY units for some of the reasons we talked about here. We obviously weren't in that position ourselves because we weren't buying anything. But what we took from that example was that BPY REIT was able to access a whole new source of investors and the 2 units, the unit and the REIT trade in parallel. So in fact, it has worked really well and that's what gave us the confidence to go ahead with this initiative.
So we are in fact borrowing the experience from that transaction to come up with the transaction I just mentioned. Hopefully, I answered your question. But you can talk to us afterwards if I didn't quite answer it. There's one here and there's one there.
My name is Robert A. Zakhazir, Robert A. Zakhazir Investments. I have a couple of questions related to BIP and BIPC. The first is, would this be analogous to owning a mutual fund with individual versus institutional investors, where basically the only difference is the rates that they pay for management and the size of the initial investment, but basically they own everything that's the same.
Is that a good analogy?
I'm not sure I would describe as a mutual fund.
Well, it's not a mutual fund.
But I think the analogy is the ones I mentioned. The exchangeables that have been around for a long time, where effectively you just have a mirror security and you can switch to the other security at any point in time. So in effect, even though it's a different security has all the same attributes.
Right. The other question is, the BIPC will be roughly 1 11th of the number of units BIP. What was the particular determination to make it that size as opposed to larger or smaller?
Yes. So we felt that we could issue approximately $2,000,000,000 of securities on a tax free basis. So our goal here was to ensure that this was not a taxable transaction for unitholders and so we sized it at that amount.
So in other words, if you had issued more, let's say $3,000,000,000 some of that would have been taxable, is that your opinion?
We do have more capacity, but we also want to maintain some ability to provide a return of capital in the the BIP unitholders as well. So there was a balancing act in here. There's one there. There's one back there.
Hi, Rob Catellier from CIBC Capital Markets. Two quick questions. 1 on the BIPC shares, once that transaction is affected, you'll have publicly listed corporations, those shares as a potential currency. How are you looking at that in terms of using it as a currency in future acquisitions?
So I'd say today we haven't because it's early days, we haven't contemplated anything different than what we would have done in the past where we have in fact used BIP units as a currency. You might recall that when we made our initial bid for Asciano, there was a unit component in that transaction. I think this does give us more flexibility. There's no doubt, I think your question is right. There's a whole host of investors who would be more willing to take units or sorry, common shares than units.
And so I think this just makes that much easier.
Okay. My second question has to do with the utilities. Throughout the presentations today, it's been a lot of commentary about the low interest rate environment. And what I think I heard was preparing for an eventual downturn. So I'm wondering how the utilities business fits into that.
In other words, what's your appetite for making new investments in the utilities business under those circumstances, particularly since recently the proportion of utilities in the portfolio has actually gone down through a couple of sales, but also through investment in other areas?
Look, we think utilities are fabulous investments, but you need to buy them for value. We typically try to usually invest in utilities by, in fact, building them. So today, you may know that we're building out a transmission system in Brazil and this will be a fully contracted regulated business, But we're doing it at cost and we're not paying a big premium. Where we find you get in trouble with utility acquisitions is paying a big multiple over or big premium over rate base and then having a regulator come along after the fact and changing your allowed return. So we typically try to make sure we don't do that.
We try to buy them at very sensible multiples and look for good entry points, which we've been able to do over the years.
Thank you.
So I have time for one more question. I saw one back there, there's one back there, there's one here. So there's okay. So Andrew, you win.
Thank you. Andrew Gusty, Credit Suisse. Just on some quick math, it looks like before the current flagship fund is about 50% allocated once you close off some of the transactions, give or take a little bit. So based on Bruce's comments earlier today, the fundraising cycle looks like it's accelerating. All these things are positive from a broader Brookfield standpoint.
And from your own deployments have been very good in the last, say, 12 months or so. The capital recycling number that you just gave, the $1,000,000,000 for next year, is that number a little bit too light? And should we what should we expect to see further acceleration on just capital recycling?
Well, look, I think the acceleration will naturally take place as more businesses mature from the later funds that we've raised. So I'd say part of what we're selling off today are primarily those first investments we made back in 2009, 'ten, 'eleven and 'twelve with Fund 1. And so the scale of what we invested back then is reflected in the proceeds that we're generating right now. As I look at the requirements, so if we have a goal to invest roughly $3,000,000,000 to $4,000,000,000 over a 3 year period in our various funds, That's just over $1,000,000,000 a year. Selling roughly $1,000,000,000 a year is not far off what we need to do.
So maybe we need to do a little bit more, but it isn't materially different.
And then just one brief follow-up. Is there any change to the hold period you'll have for certain assets? Does it start to truncate a little bit?
No, it's just it's all dependent on each individual situation. So just as a reminder, we tend to sell assets once we've achieved our business plan and de risk it. But there are situations where we might sell it a bit earlier if someone's prepared to pay us a price assuming that everything is done. So if someone's happy to take on all that risk and pay us as if it's a fully de risked asset, then obviously we'll sell it earlier. Okay.
Well, thank you very much again. And I think it's time for Brookfield Renewable.
Good afternoon, everyone. Thank you for joining us today and thank you for taking interest in Brookfield Renewable. I'm Sachin Shah, the CEO of Brookfield Renewable. I'm here to talk about the business that we have today, our outlook on the future. Many of you may not know, but it's 20 years as a public company for Brookfield Renewable this year.
And I think it was fall of 1999 when the original company was listed. So we're happy to talk about our track record over the last 20 years. We're certainly unique in that regard. I don't think there's another renewable company in existence that has a 20 year public track record. And we'd love to share with you the business we've built and the returns we've generated and what we think we can do in the future.
Conor Teske will then follow-up with our investment capabilities and what we've been building in the last 5 years. As we've globalized the business. Connor is our Chief Investment Officer and will also walk you through a few deals to really synthesize exactly the capabilities we have and what we do on a transaction. Wyatt Hartley, our CFO will follow-up and talk about balance sheet strength, liquidity and really the bedrock of our business and how we create the ability to be patient and look for the right transactions because we have a sound financial structure. And then I'll end it off with a summary and Q and A.
So as I said earlier, it's 20 years this quarter as a public company for Brookfield Renewable. We've built a business with $50,000,000,000 of renewable assets around the world, almost 19,000 megawatts of installed capacity. We are truly a diversified global renewable company. We own, we operate, we acquire, we do development work. And we do it across multiple technologies and really have large scale across all of the major bulk technologies that are renewable today.
To put our size and scale in perspective, we could power all of Mexico City with 24 hours, 7 day a week renewable power based on the portfolio we have. We could power and all of Denmark with renewable power 24 hours a day, 7 days a week. So we would be one of the largest portfolios of renewable around the world and we have significant scale. As I said, it's been 20 years and we've had a very consistent and proven and repeatable strategy that we've employed over that period of time. It has not veered away from our roots, which is really being value investors or contrarian investors as you've heard the term described today.
We look for pockets of either operational scarcity or operational distress. We look for pockets of capital scarcity around the world. And we try to use our operational capabilities to extract value in those situations to create asymmetric outcomes for ourselves. And we do all of that with a continued focus on capital discipline, maintaining high levels of liquidity, having an investment grade balance sheet, having long duration asset only financing structures in place and pushing debt out as far as possible. Just going to spend a little bit of time on what we've achieved over the last 5 years because you've seen us up here really going through our key priorities as renewables, wind and solar in particular took over the landscape of power generation.
We started to set out specific priorities recognizing that global electricity grids were going through significant change around the world. So what do we want to do? 1st and foremost, we wanted to put money to work accretively and build out the scale of the business. We put $3,500,000,000 which was at the high end of our targets over the last 5 years and that's equity dollars out of that at returns that meet or exceed our 12% to 15% total return target for shareholders. Secondly, we wanted to build a scaled wind and solar business.
We were dabbling in wind years ago. We really had a non existent solar business. We were a bulk hydro investor. But we recognized that as climate change is occurring, as global warming was becoming a big theme around the world, and as costs of wind and solar were coming down that we needed to build that scale so that we could find unique opportunities to continue invest in a more broader spectrum of assets. Today, we would have amongst the largest wind and solar businesses on the planet and all of our respective technologies could stand alone on their own 2 feet as businesses of scale and substance in their own right.
We started to build a distributed generation business a couple of years ago with the acquisition of TerraForm. Distributed generation for those of you don't know is really rooftop solar, community solar, community wind and aggregated wind and solar that sits behind the fence or effectively isn't connected to the main utility network. It serves a small local industrial complex, a commercial complex, an office campus, but it serves it effectively off the grade. When we started out, we thought this could be a business that with our scale and our contacts and our relationships in the power sector that we could really build. Today, we would be the 2nd largest DG business in the United States.
We have almost 800 megawatts of DG throughout the United States and Canada. And we think this could be a really unique growth area for us in the next 5 years. We wanted to globalize our operations. I'd say 10 years ago, we were ostensibly a North American and Brazil business. And we had 2 objectives.
1 was we typically allocated about a quarter of our capital into Brazil and 75% of our capital into North America. And we felt that was the right metric from a risk paradigm perspective. But what we knew is that we wanted to move more into Europe and over time broaden out Latin America and to build out businesses in Asia as the world globalized and as energy needs continued to evolve. And so although we've kept that same rough metric 25% to 30% of our capital in emerging markets, we now have 5 or 6 different countries that we can allocate that to. And for the 70% to 75% of our capital going into developed countries, we have North America and we have Europe.
And again, that gives us added diversity. So we haven't changed the risk profile of the business. In fact, I would say we've changed the we've increased the diversity within those pools. And therefore we have far less risk today than we would have had 10 years ago. And then lastly, as I said, really the bedrock of the business, strong balance sheet, investment grade rating, lots of liquidity, we have $2,500,000,000 of liquidity today and asset recycling, being able to monetize assets and use that capital to continue to invest accretively for our shareholders.
And the last thing I'd just point out is our payout ratio, which had elevated for a period of time for the last 4 years as we were making acquisitions into investments whose cash flows were going to ramp up over 3 to 5 years. Today is in much better footing. We have a mid-80s payout ratio as those businesses have started to deliver the cash flow that we underwrote and our business plans are coming through. All of that has meant that we've been able to since 1999 generate a total return for shareholders of 16%. So if you owned a share back in 'ninety nine on the IPO, you would have generated double digit compounding returns assuming dividend reinvestment.
And the breakout of that has been about an annualized average 6% dividend growth rate and about 10% capital appreciation, which is pretty consistent with what we see into the future. But that was yesterday's news. And so looking forward, what we wanted to spend a little bit of time or what I want to spend a little bit of time with you is to talk about this sector, the size of the sector, the scale of the sector and why we're excited today, maybe more excited today than we were 10 years ago, 5 years ago. And I would say 10 years ago when wind and solar came into the market, many of us would have thought it was a bit of a science project. These were uneconomic, they needed government support.
And we weren't exactly sure what the opportunity set was, but we knew that we should stay in and around the area to make sure we are building the right expertise. We think today though that the world is poised for significant disruption, significant change in global electricity grids and electricity markets. And therefore, we think that the opportunity set will be larger than anyone would have expected even just 5 years ago. To recap what's happened in the last 5 years, $1,500,000,000,000 has been spent on largely wind and solar and hydro, few other on the margin technologies, but really wind, solar and hydro have driven $1,500,000,000,000 of investment to provide carbon free electricity and almost 1,000,000 megawatts of new renewable generation has penetrated grids. And for those of you who don't know what a 1000000 megawatts represents, it would be the equivalent of repowering the entire electrical grid in the United States with simply wind, solar and hydro.
So that's happened around the world. It's a very, very meaningful level of investment. But we think it's just the beginning. And we think that the next 5 years, the next 10 years and really the next 25 years will bring significant more investment into this space. What is driving all of this?
It's 2 big reasons. 1 and 1st and foremost for investors like us, it's economics. Today, wind and solar are competitive without subsidies and can stand on their own feet and compete based on their cost structure. And that wasn't the case even I'd say 3 or 4 years ago. So what we've seen is the scaled manufacturing that sits behind wind turbines and solar panels, the improvements in building materials, the improvements in build costs and that R and D and the technology advancements with bigger rotor heads, bigger turbines, better glass that can absorb the sunlight, all of that has meant that wind and solar today on a pound for pound basis are simply just cheaper than a gas plant to build.
And therefore, without a subsidy, you can make an investment case to invest into the asset class. And most importantly, if you're a long term investor like we are, you could take great comfort that the back end of your investment is protected. You can look out 25 years and you can look asset in the future or could impact the return on the back end which could impact your ability to sell the asset in the future or could impact the returns you can generate for investors is highly protected. And I'd say that's very different than fossil fuel based generation, whether that's coal and even gas in some circumstances. The second thing has been continued government support.
We're here this week. It was Climate Week here this week in New York. And so climate change and global warming, these are themes that are now pervasive through everyday dialogue around the world. And countries, states, cities, municipalities are all adopting carbon reduction targets. They're adopting it in their electricity sector.
They're adopting it in their transportation sector. The European Union has a total carbon reduction target they put out there where they combine electricity, transportation and industrial carbon and are now aggregating all of that to reduce carbon around the world. And so we're seeing this very significant macro global and geopolitical push
to
reduce carbon, really change the narrative on global warming and all of that is leading to that push from governments and society to invest in this technology. And so we think that that bodes really well for the outlook of our business. It bodes really well for our ability to find new and unique investment opportunities. And what we're most pleased about is that these investments can stand on their own 2 feet and don't need government support or subsidies to be economic. Just to provide a bit of a picture of that.
As I said, it was just a few years ago that solar and onshore wind would still need a subsidy. You can look back at 2016 and both technologies would have been above the levelized cost of a gas plant. Today, onshore wind is clearly the leader. It is meaningfully cheaper to build a wind farm onshore and sign a PPA with utility than building a combined cycle gas plant even at a 5,500 heat rate, which would be the most efficient gas plant that you could buy from, for example, from General Electric. And solar is basically sitting right on top of a gas plant.
So it's coming really quickly and solar and wind are really changing the landscape from a supply perspective. The second thing as I said, carbon reduction targets. It was only 5 years ago that in California they wanted they had a target of 20% by 2020. That was their goal for carbon reduction. And if you look at today, they've blown through 20%, they're now at 60%.
New York is at 70%. Countries around the world are adopting increasingly aggressive targets around carbon reduction. And what does that mean? It means it changes behavior. Utilities are now procuring more and more renewable electric PPAs are being issued.
Corporates, governments, industrial companies are all signing up to PPAs to help meet these targets, which are quite aggressive and where we still have a significant way to go. But maybe the most interesting thing that's happening in the world today is if you look at coal, it really hasn't been a debate in the last 5 years of where is coal going. Most people in the industry and if you read any of the major news journals, you'd see that coal plants were really not being built. It's very difficult if you run a coal company to convince your shareholders it's a good idea to put capital into coal. And therefore, coal plants were coming down.
And if you look at, for example, United States, coal represented 45% of total generation just 5 years ago. Today, it represents 30%. If you take North America and Europe, total coal was 30%, it's 18% now. So that's happened in 5 to 7 years. But more interesting than not, if I was standing here 5 years ago with you, what I would have said and what we all believed was that gas would have been the bridge fuel.
It was called the bridge fuel because it was going to take up the slack that was going to be created by coal. And for the first time what we're seeing, if you look at this, is that no longer is the growth rate of gas, which is the lighter shaded region increasing. It's actually flat to modestly declining. And what we're seeing with gas power generation is that there is an acknowledgment that maybe we don't need a bridge fuel. And maybe because of the economics of wind and solar and because of the fact that they produce 0 carbon and because of the fact that they don't produce methane, which is another toxic gas that gets emitted from gas plant, maybe we're better off just going straight to wind and solar.
And we're starting to see this dialogue occur at a political level. We're starting to see the NGOs pick it up. And most importantly, driving all of it, again, it always comes back to the economics, is all of the investment that went into gas in the last 5 years, nobody's made any money. Everyone who's invested in a highly efficient gas plant in the last 5 years has had to use excessive levels of leverage in the hopes that they could create a bit of a free option if power prices spiked and that was going to be their form of compensation. Why?
Because power prices collapsed, capacity prices collapsed, all of that because wind and solar came on and effectively provided a much cheaper alternative and needed a
lower overall compensation level
to generate their returns. And therefore, everything that was money. And therefore, we might see a world where we just skip gas altogether. That's interesting not just because it creates a large investable universe for us, but we think it's more interesting because it could create significant disruption on the equity side, on the debt side of institutions or capital that are invested in gas fired generation. And therefore, that could create significantly more opportunities for us as you've seen by the types of transactions that we've been working on over the last 5 years.
And Connor will talk about deals specifically. So just to put that gas disruption, this is just GEWIZ. But today coal and gas is an aggregate 45% across Europe. So this is coal and gas. When I was quoting the numbers earlier, it was just coal.
But if you combine coal and gas, it's almost half of total power across North America and Europe. If that number goes down by half over 10 years, which is not unrealistic because both are uneconomic, there will be $500,000,000,000 of capital that's in the ground today whose useful life will have terminated by potentially 20 years. Meaning if you built a coal plant or a gas plant in the last 5 years and you had a 40 year underwriting because that's the life cycle of an efficient gas plant, and in 10 years you're now looking at that plant being uneconomic and not being dispatched, half of your investment was just wiped away because it's no longer economic to run the facility. And so that can create significant headaches for the debt markets, for any capital that's behind those types of assets. And we think that that will create significant options for companies like ourselves where we interact with utilities, we interact with IPPs, we interact with private investment, all in the electricity sector.
And so what all of that leads us to believe is that most estimates today that are credible would say over the next decade there's going to be somewhere between $5,000,000,000,000 $10,000,000,000,000 of investment that needs to go into the electricity grids to meet those targets that we laid out earlier, but also because electricity is going to be what drives transportation in the future, the electrification of cars and transportation. And also because if you push out to the far end, you might have to replace uneconomic gas and coal plants simply because they're not running anymore. So there is a wall of capital that needs to go into this or a flood of capital that needs to go into this sector. And we think that we are one of the most uniquely positioned to capture the opportunity and to capture asymmetric returns over this period. And that is going to be the central point of our presentation today.
So as we said, we think that renewable disruption, disruption has been a term that's been thrown around in our sector for 5 years now. We think it's actually going to increase, not decrease or flatten out. Number 2 is as costs have come down, margins have been compressed. And that favors owners and operators like ourselves. People who operate facilities know how to manage their margins, know how to cut costs, know how to manage capital expenditure profiles.
And so all of that internal capability we have to run our facilities in the most efficient manner will actually be one of our key strengths over the next decade. Because if you're simply a financial investor and you effectively hedge away all the risk by hiring outsourced third parties to do all your work, you have no ability to offset margin compression or price compression. And therefore, again, it favors investors like us who have to fight and scrap and claw for every 100 basis points of return. And again, we believe this because targets are global that this level of disruption will be all around the world. And we've been slowly and methodically setting up the business to be global and multi technology to ensure that we can effectively create value over a long period of time across the entire electrical grid around the world.
I'm going to just pause on this slide for a second because there's been a lot of this type of talk today about just asymmetric returns. We look for unique opportunities to create value. And what we thought we would do is just put a really simple graph up and a graph that everyone understands. You go up the risk return spectrum and you get both sides of the coin. You should if you want to generate more returns, you should take on more risk.
And you heard various forms of that discussion today. And what we have prided ourselves in doing, and this is not just a workflow renewal, I'd say this is a general comment for all of the businesses we run. But what really has been our key differentiator as an organization over the years is that we're not going to play down here. That's not our business. Our business isn't to invest at 6%, take no risk, but get no return and buy assets that are priced to perfection.
If we did that, the problem with doing that, 1, is we'll never make the returns that we promised to our investors. But 2, it's really only downside from there. If you're wrong, you earn 4, you're never there's no more you can earn than 6. So life's not that interesting and there's nothing to write home about. But once you go up the risk reward spectrum, it starts to get very interesting because when you're up there, you're finding situations where there's either capital scarcity, there's operational complexity or turnaround situations, there's disruption technologically, all the themes we talked about just now.
And what's interesting about that is if you have an organization that can manage that around the world, that has the operating capability to dial that risk down and has the technological understanding to operate and develop and acquire and continue to grow the business improve margins, then you can effectively capture most of that margin or most of that return while bringing the risk profile down of the investment. And that has been our playbook for really 20 years. It's how do we capture situations and transactions that appear riskier from the outside looking in have significant risk, but why do we build conviction as an organization that we can manage that risk, mitigate that risk and therefore keep the return, but drive the risk profile down. If we can do that for a very, very long period of time, even in a zero rate environment, we will compound your capital at double digit returns for many years to come. The other thing it does is it gives us a great margin of safety.
Sometimes you make mistakes in life. And if you make mistakes in life when you're earning 15% plus, maybe the mistake makes you 8% or 9% or 10%. You can afford 1 or 2 of those. You can't afford many. But if you make a mistake at earning 5%, you get a 0 and that's terrible.
When you're trying to compound capital, the worst thing you can ever have is a wipeout. So our mistakes, we can manage them and they don't appear as things that will ultimately compromise our ability to generate the long term returns because they really take us from mid teens down to maybe 10% or 9%. And again, as long as 8 out of 10 of our deals are up in that range, we're going to do pretty well. So again, maybe just to reiterate, we've really focused in the last 5 years on building global scale. We have a formidable business in North America.
In the U. S. Alone, we would be the 2nd or third largest renewable investor in the country, which most people would not appreciate. We have a large business in South America. We have a meaningful business in Europe and we're building out in India and China and Asia more broadly.
As I said earlier, each of our businesses from a technology perspective today are substantial in their own right. They would be leaders in their own right if they were standalone wind or solar businesses. And that's something that really we've been able to do in the last 5 to 7 years in terms of building that scale and scale is necessary in this business because it drives significant value. And then lastly, we have 3,000 people around the world every day who look after our facilities, deal with stakeholders, deal with regulators, manage our health and safety programs. And this stuff often gets overlooked, but it's so critical to generating those returns and so critical to dialing that risk down that we talked about.
It's easy to say that you're going to buy something that's risky and manage the risk, but how you actually do it is important. And the fact that we can explain it, show you examples, demonstrate the value of it year over year over year is really the key differentiator in our organization. And so if you look at the last 5 years of deals and our analysts who follow us would have seen the transactions that we put out there and you can see them, they all were evolved around these major themes, capital scarcity, operational complexity, technological disruption and financial discipline or lack thereof in some cases. And once we find those pockets and most interestingly if we find intersections of those pockets, then we know there's a transaction for us that's unique, that's hard to do for others, you can't replicate it. And this is where we're going to create meaningful value for our shareholders.
So before I hand it over to Conor and Wyatt, I would just say, look, global warming is a major, major theme around the world. We're not professing to know the science better than anybody else. But what we are saying is the whole entire electrical grid of the planet is changing and we have one of the foremost businesses that can invest into this sector and that can do it for multiple decades. 2, as a result of that, because of policy support, because of economics of wind and solar today and the cost efficiencies that they're driving, the opportunity set is enormous. And we have one of the longest standing 20 year track records of investing in this space for value generating long term returns that are in line with our targets.
And we think that the outlook for the business is really strong and that we can do this for multiple decades to come. So with that, I'm going to hand it over to Conor.
Good afternoon. My name is Conor Teske, and we would like to take the next few minutes to walk through Brookfield Renewables' approach to growth. And in particular, the repeatable nature of the consistent growth strategy we've been using for the last 20 years. Our growth strategy hasn't changed. We are today and always have been value investors that look to differentiate ourselves using something other than cost of capital.
Further, we are unapologetic that we prioritize returns over nominal measures of growth such as capacity or production. We do this by focusing on 3 competitive advantages of size, global reach and operational capabilities and using this to ensure that we can consistently deploy capital in line with our return targets across an economic cycle. Size allows us to do large transactions where there's less competition. Our global reach allows us to rely on local investment teams that are constantly identifying and positioning ourselves for the best investment opportunities. And the scale and reach of our business gives us tremendous investment capacity to dedicate significant time and resources to understanding complex situations or building relationships with key counterparties that may not lead to transactions today or tomorrow, but will provide investment opportunities in the future.
And from there, we always use our operational capabilities to help in due diligence and to build and execute a business plan to extract as much value as possible out of any assets we acquire. By leaning on these key competitive advantages, we can be uncompromising in targeting our 12% to 15% returns even in an increasingly competitive renewables market. So even as our business grows and we do more and more transactions every year, we want to reiterate our strategy is not changing. But what is changing is the breadth of the spectrum of opportunities and the different ways we can execute in order to deploy capital at our target returns. As our business has grown, we continually positioned ourselves to be able to execute on a widening spectrum of renewables opportunities all over the world.
First, we increased our capabilities geographically, putting local investment teams in each of our target markets such that we could see all the investment opportunities from around the world and allocate capital to the most attractive ones. Then we built out our capabilities by technology, expanding beyond our historic hydro and wind expertise into solar, distributed generation and storage. And lastly, we've also increased the different types of transactions that we can all with all with the view of broadening, sorry, the potential opportunity set for our company. And while this all sounds really good in theory, it's shown up in our results as well. As you can see from the slide here, in the last 5 years, we've deployed more than 3 times as much capital than the previous period.
Moving to the pie charts, you can see that in the last 5 years, more than half of our capital deployment has come in the sectors of wind, solar and storage versus approximately a third in the previous period. And now that we have expertise and capabilities in these segments, we would expect that diversification and growth to continue going forward. Moving to geographies, you can see the increased capabilities even more dramatically. Today, the majority of our business and our growth continues to be in OECD countries in North America and Western Europe. But as you can see from the charts, we've grown beyond U.
S, Canada and Brazil. And over the last 5 years, we've expanded into new markets, including the U. K, Spain, Portugal, India, China and Colombia among others. And now that we have boots on the ground, local investment teams in each of those markets, we do expect that growth and diversification to continue. Now geographic and technology type are really easy to track, But there's a new there's another capability that we've been improving that is driving deal flow for Brookfield Renewable.
And that's the different types of transactions that we can do to allow us to position ourselves as either the preferred buyer or the preferred partner for an investment opportunity. Increasingly, we are doing transactions that it is very difficult for others to replicate And that allows us to move off that traditional risk reward curve that Sachin mentioned to that enviable position of targeting high returns with strong downside protection. More so now, we're doing platform transactions that are attractive based on the initial assets we acquire, but also come with inherent growth prospects and the abilities to do bolt on transactions that come with synergies. More and more, we're the preferred counterparty or partner when a business is looking to increase its growth markets, we're constantly engaging with key counterparties and looking to build tailor made investment solutions that achieve our counterparties goals, but also meeting our risk return targets. And with this enhanced capability set, we think our business is well positioned for future growth.
And as a result of these improved capabilities, we also have the strongest growth prospects and pipeline that we've ever had. To demonstrate these capabilities in action, we thought it would be helpful to walk through 3 case studies from transactions we've done over the last 15 months. Each of these transactions are different. They're all of significant scale. They take place in different geographies.
They're different transaction types and they all use a different competitive advantage to secure high quality assets using something other than cost of capital to differentiate ourselves as a buyer. The first opportunity we'd like to take you through is a European Yield Co. In June 2018, Brookfield Renewable through our TerraForm Power platform acquired Saeta Yield, a publicly listed Spanish yield co with approximately 1,000 megawatts of contracted wind and solar assets, primarily in Spain and Portugal. Despite having very strong underlying assets, Saeta had struggled as a public company, never once trading above its 2015 IPO price. When we began to look at this opportunity, there was uncertainty in the Spanish Renewables market.
Due to a regulatory reset that will come at the end of 2019, there were concerns that this reset would significantly reduce the go forward revenues for Spanish Renewables assets. This downside scenario was being priced into assets across the entire sector. We, however, took a different view. When analyzing the Spanish market, we realized that the renewable system was in surplus, which was different than 5 years previous at the time of the last reset when the system was in running a significant deficit. Further, given the government's strong ambitions to incentivize renewable investment in Spain, we did not think the government or the regulator would be incentivized to reduce revenues dramatically on a go forward basis.
But to ensure our downside protection, when we looked at this opportunity, we measured ourselves against what would happen if that downside scenario played out, even though we did not think it was likely. And what we realized is using our operational expertise, even in that downside scenario, we thought we could hit our target returns. With that backdrop, we went looking for opportunities. And the first thing we leveraged was our scale and our global reach. Despite not previously owning assets in Spain, we already had an office in Madrid and we've already dedicated significant time and resources to understanding the market and the regulatory regime.
When that uncertainty began to push prices down, we've done our work and we're already ready to act. From there, we found an opportunity in Syeda Yield. And we look to leverage Brookfield core competencies to secure the assets. This transaction was essentially a bilateral negotiation with Syeda's 2 anchor shareholders, one of which is an institution that Brookfield had a long standing relationship with. Through that engagement, we learned that both Anchor shareholders would be willing to support our transaction if we could provide certainty of execution and speed.
With that, and recognizing the value of the underlying assets, we mobilized a team of over 100 people to execute due diligence in 3 countries around the world and were able to put a binding offer forward in under a month. When we look back at this transaction 15 months later, we're both proud and excited. First, we look at the operational improvements we've been able to drive on the O and M, tax and finance side. And those improvements ensure that even in a downside regulatory reset outcome, we will hit our target returns. However, using our educated view that the market was in better shape than people necessarily understood, the market we left ourselves significant upside to a more reasonable or positive regulatory return outcome.
And that is exactly where the market is trending today. Lastly, perhaps the best thing about this transaction is something we didn't pay for. By acquiring such a leading platform of wind and solar assets in Continental Europe, we now have a growth platform that we can continue to expand providing an additional lever growth lever for Brookfield Renewable going forward. The next opportunity we'd like to take you through is an Alberta hydro opportunity. In March of this year, Brookfield announced an investment in TransAlta, a leading Canadian power producer.
This investment was the result of close to 5 years of conversations between TransAlta and Brookfield on a number of different ways to try and work together. Largely, TransAlta was looking to source capital to fund a coal to gas conversion to improve the cleanliness of the power generation in its thermal fleet. Brookfield felt the market did not appreciate the value of TransAlta's high quality Alberta hydro portfolio. Today, TransAlta owns an 800 Megawatt portfolio that represents 90% of the installed hydro in the Canadian province of Alberta. These assets have been contracted for a long period of time, but starting in 2020, those long term PPAs will roll off and an increasing portion of the go forward revenues will come from providing grid stabilizing services to the local power grid.
Due to the embedded storage capabilities of these large hydro facilities, they represent the only dispatchable renewable power source in the province and will look to be a leading provider of these services going forward as they come into increasing demand. Earlier this year, TransAlta came under some shareholder pressure and was looking for a unique transaction that would achieve 3 objectives. One, they needed capital to fund that coal to gas conversion that had been publicly announced. 2, they wanted a credible investor to remove uncertainty about the transitioning Alberta energy market. And 3, they wanted the market to appreciate the value of their hydros.
Given our long standing relationship with the company, the work we had done previously and the numerous discussions we had had, we felt we were able to come up with a solution that achieved all of TransAlta's objectives. What we did is we made a $750,000,000 investment in TransAlta under a unique convertible security structure, whereby our investment, our convertible security can be repaid either with cash or it can be converted into an ownership stake in TransAlta's hydro portfolio. Through this unique structure, we will we were able to focus our investment on those specific renewable assets where we saw the greatest opportunity. Secondly, we provided the company money to both fund its coal to gas conversion, but also do a share buyback. The conversion mechanism in our investment, which is essentially based on an EBITDA multiple less certain adjustments, publicly stamp the value of TransAlta's hydro's at significantly greater than the market was giving them credit for.
And lastly, given our hydro portfolio globally, we are increasingly seeing the value of the embedded storage capabilities in large hydros. We think these capabilities are actually underappreciated as markets move off significant baseload thermal generation to increasingly intermittent renewable power. Therefore, we are not only comfortable with the transition of the revenue profile as it becomes more based on these grid stabilizing services, we're excited about the potential opportunities for these hydros to be a leading provider of these services as they become more in demand in the future. As always, our operational capabilities come to bear. And as part of this transaction, an operating group of half TransAlta employees, half Brookfield employees has been set up to drive value in the assets.
When we look back at this transaction now, we're excited about the prospects and proud of the unique way we were able to structure a transaction that met our counterparty's goals, but also was interesting to us. First, it gave us exposure to a new market and allowed us to support a long term partner. Secondly, it allowed us to bring our operational capabilities and experience in large hydros to bear. And lastly, given the unique convertible security structure, we get strong downside protection, but the ability to participate in the future upside as the assets and the services they can provide become increasingly important in that power market. The last opportunity we'd like to take you through is a global solar developer.
And in July of this year, Brookfield Renewable announced the 50% acquisition of Exelio, a global operator and developer of solar power. And in this transaction, we really think we are buying 2 separate things. 1, we're buying an existing 1.7 gigawatt portfolio of operating or under construction PV solar plants around the world. The second thing we are acquiring is a fully integrated development platform with a leading management team and best in class energy contracting capabilities. Now up until this point, Brookfield Renewable has had significant development capabilities on both the hydro and wind side, but we've been a little slower to pursue scale investments in solar development.
And that's driven by a simple fact. For the last several years, outperformance in solar development has been simply a bet on declining solar PV CapEx prices. And while that bet has played off and made a lot of developers a lot of money, we do not like to make investments where success is predicated on something outside of our control. However, we now see that changing. Solar CapEx costs are beginning to plateau.
And going forward, outperformance in development is going to be driven by capital discipline, having global scale to ensure that you can be building the best development sites around the world and lastly, having best in class energy marketing capabilities to ensure you can contract the assets as markets around the world move away from feed in tariffs. We feel Exelio is a leader in all three of these areas. The way this transaction was completed was the existing owner KKR, looked to sell 100% of the business. But after running a sales process, we wanted to remain invested and as such pursued a fifty-fifty partnership with Brookfield Renewable. We're excited about this partnership as there is total alignment on business plan, which is Exelio is expected to develop under a primarily self funding model of selling operating assets and using the proceeds to reinvest into accretive development.
Under this business plan, given the significant growth prospects through development and optionality in the development pipeline, we're targeting the high end of our target returns. However, we still feel like we're getting that strong downside protection from the in place 1.7 gigawatt solar portfolio that provides strong cash yields. And most importantly, we've now added Global Solar Development as a future growth lever for Brookfield Renewable. Maybe to wrap up, to come back to this, given the examples we've provided, it should be indicative that every deal is different, different competitive advantages, different transaction types, different structures. However, they are all backed by that same strategy of looking to be value investors that differentiate ourselves using something other than cost of capital.
And by using that approach, we move ourselves off the traditional risk reward spectrum to that enviable position, high returns, high downside protection. In conclusion, we actually thought we'd steal a comment that Howard made earlier today. Investing is positioning capital for the future. And given that our increased capabilities are now as strong as they've ever been, we're excited about our growth prospects. As a result, we're increasing our expected growth for the next 5 years, now targeting $4,000,000,000 of investment across M and A and Development.
To do this, we intend to grow all of our regional and technological platforms. But in certain areas, for example, Asia, where our platform is smaller, our goal is to make it of the same scale as our existing regional platforms in North America, South America and Europe. Same thing with distributed generation, as Sachin spoke about, this is a great business for us and one that we're looking to build a leading platform for over the next 5 years. And lastly, development is an increasingly strong source of growth for Brookfield Renewable and we now have enhanced capabilities to drive expansion through development in every region and every technology class that we operate in today. And all of this is against the backdrop of that consistent growth strategy, being value oriented investors that look to find transactions that hit our target returns, but provide a strong source of downside protection.
With that, I'll hand it over to Wyatt.
Good afternoon. Continuing on from what Sachin and Conor shared, I will be speaking about why we are one of the few companies in the sector with the strategy and the financial flexibility to have delivered strong results through economic cycles And how this has come from executing on our proven and repeatable strategy of having the strongest balance sheet in the sector with significant access to liquidity, maintaining high quality cash flows with a focus of diversifying on our diversifying our business across geographies and technologies and accessing multiple sources of capital. Next, I will discuss how this strategy provides us with the financial strength to capitalize on the increasing number of growth opportunities we are seeing in the market as Sachin would have discussed. And finally, I'll bring it all together by going through our total return proposition, which we think is the most attractive in the sector. So looking first at our balance sheet, which simply put is in great shape.
Most importantly, we have a strong investment grade rating or BBB positive with S and P, which is the strongest rating in the sector. And for us what that means is through our capital structure, our debt is investment grade or has investment grade characteristics, which is essential because one, it adequately safeguards the business by providing access to cash flow through all cycles and avoiding undue cash traps. And secondly, it provides a good base upon which we can fund our growth. Furthermore, 80% of our borrowings are at the project level, they're non recourse, the long duration, which translates well on a maturity perspective with our average debt duration of 10 years and no material maturities over the next 5 years, meaning we are very well insulated from liquidity risks. And from a liquidity perspective, we're also in a very good position with $2,500,000,000 available at the end of June of this year, providing significant financial flexibility to take advantage of periods of capital scarcity.
Moving on to our cash flow quality, I think what is well accepted in the market is that with our largely perpetual and dispatchable asset base, as well as our highly contracted profile that we generate the highest quality cash flows in the sector. However, what I think is underappreciated is how much we have de risked our cash flows over the last 10 years by de risking our business. So as you can see here, since 2012, we've grown our FFO per unit at 10%. While we've done this, we've also significantly de risked our cash flows by increasing the diversity of our portfolio and enhancing the stability of our earnings. As you can see, our current business is now well diversified across a number of markets and generation types with no single market representing more than 12% of our business.
So what this means is that if we were to have a 20% below LTA performance in our single largest market, it would only impact our FFO by 2%. Furthermore, we have also significantly reduced our offtake risk with our largest non government 3rd party customer representing only 3% of our generation, meaning our business is well insulated from disruptions like the PG and E bankruptcy that we saw earlier this year. We've also benefited from diversifying our exposure to foreign currencies. We've always taken a view from hedging of actively hedging our developed market currencies and being a bit more opportunistic when it comes to hedging our emerging market currencies and only doing so when opportunistically when the cost makes sense. As a result of our diversification and hedging strategy, our exposure to any single currency has decreased significantly, meaning a 10% strengthening in the U.
S. Dollar against our largest single currency exposure, the Brazilian real would only have a 1% impact on FFO. We also have access to flexible and diverse sources of funding. Over the last 5 years, we have deployed almost $3,500,000,000 of BEP equity capital into growth on an accretive basis. When funding our business, our focus is to prudently access the lowest source of capital.
This means we maximize corporate debt, preferred equity and asset level up financings while maintaining our strong investment grade rating. Over the last 5 years, we have raised more than $1,500,000,000 of proceeds from these type of offerings, all while maintaining a credit rating of triply positive from S and P. In the last year alone, we've raised 1,600,000 across multiple across diverse pools of capital. Starting with capital recycling, which has become a more meaningful part of our funding strategy. Over the last 12 months, we've raised almost $800,000,000 from these initiatives.
From our perspective, selling mature de risk assets at single digit buyer returns and redeploying that capital at 12% to 15% is a very accretive way for us to fund our business. We are focused on identifying those mature de risked assets that are not really generating cash flow growth and don't fit well into our business, but should attract a low cost of capital buyer. While the majority of our business still hasn't has operating levers upon which we're focusing on, We do have some mature de risk assets and so we think capital recycling will continue to be an important part of our funding strategy going forward. We also raised over $300,000,000 of corporate liquidity, including our recently completed corporate green bond, where we raised CAD600 1,000,000 of 10 30 year bonds at very attractive rates. This was the largest ever corporate green bond offering completed in Canada.
And at the start of the year, we also opportunistically accessed the preferred equity market by issuing perpetual preferred equity at very attractive rates. And finally, we raised almost $350,000,000 from asset up financings as we continue to access additional debt capacity across our business on an investment grade basis, particularly at our hydro portfolio where we have excess debt capacity at a number of the projects where we have not financed the post PPA cash flows. And it is this financial strength that allows us to be patient and target value enhancing growth opportunities as Sachin mentioned. Our mentality is that we don't look to extract returns using excess leverage or other financing structures. We earn our returns by using our operating and investing capabilities and overlay that with a disciplined financing principles focused on investment grade ratings that are sustainable over the long term.
This means that our risk reward proposition is appropriately aligned with investors, meaning we target the highest returns in the sector while using the lowest risk financing strategy. We value long duration investment grade debt, meaning our average corporate maturity profile of 10 years is double our peer set. We use non amortizing debt both at the corporate or the project level only to the extent it is backed by a perpetual asset. And we don't use deferral structures like converts or tax equity where we would benefit on a cash flow basis in the near term, but these structures generally carried significant deferred financing costs that we don't think are beneficial over the long term. And looking forward, we expect to maintain this proven strategy.
Over the next 5 years, we are targeting, as Conor mentioned to deploy $4,000,000,000 of equity capital into growth. To fund this, we will continue to prudently source the lowest cost of capital while maintaining a strong investment grade balance sheet. This includes up to $1,000,000,000 in further asset up financings, which we believe we can do at an investment grade basis across our business, again, particularly at our hydro business where we continue to have post PBA cash flows that are unfinanced. So while we are not relying on accessing the equity markets to fund our growth over the next 5 years, we are progressing a number of initiatives to broaden our investor base and enhance the demand and liquidity for our equity. So this includes and for those of you who would have been here for the infrastructure section, I'm going to go over this more quickly than Sam, but I would encourage you to reference his materials.
We are preparing a similar structure for BEP to the newly announced BIPC. We are preparing to follow BIP with an offering of BIPC, a publicly listed Canadian Corporation created by an effective stock split. The security will be considered economically equivalent to the existing LP units as it will pay identical dividends and distributions and it will be fully exchangeable into the LP unit at any time. And it will have the purpose of providing shareholders optionality to invest in either the LP or the corporate security depending on their specific preference. Similar to what you would have heard from Sam, we believe the creation of Betsy could lead to increased demand and enhanced liquidity for Brookfield Renewable by expanding our investor base, by attracting new investors that are currently unable to invest in our LP structure due to tax reporting or other attributes, allowing us to be eligible for certain indices or ETFs that we're currently not and providing tax advantages to certain investors.
So bringing it all together, as I mentioned at the outset, we believe we offer the most attractive total return proposition in the sector. As Sachin highlighted, the investable universe of renewables is growing and the number of value enhancing growth opportunities within that universe are increasing. We believe we are uniquely positioned to take advantage given 1, our proven and repeatable investing and operating toolkit that we believe is unmatched in the sector and secondly, our financial strength, which allows us to fund growth through all economic cycles. This means we're well positioned to continue our track record of double digit FFO per unit growth and achieve FFO per unit growth of 10% per unit over the next 5 years, both from our organic levers, which include the inflation indexation in our contracts, margin enhancements coming from cost saving initiatives across our business, as well as contracting recontracting tailwinds in Brazil and Colombia and our growing development pipeline as well as a strong outlook for M and A opportunities. So when combining this visibility on our cash flow growth with a strong going in yield, it translates into a very attractive total return outlook of 15% plus.
With significant upside from potential yield compression on the back of further acceptance of decarbonization, that decarbonization is a growing trend that is taking over the world, a continued historically low interest rate environment, growing demand for our units or securities on the back of initiatives like Pepsi or full recognition of our prudent and sustainable payout ratio. So with that, I'll hand it back to Sachin for a summary and Q and A.
Thanks Conor. As we try to lay out, we think the outlook for renewables is better today than it's ever been. We think the next 25 years in this sector will be very exciting and will present many, many unique opportunities for our business to grow. We think more importantly, we've built the business up and set it up to be highly successful in that environment. And what we think we offer to investors who are looking for a future proof stock, one that meets their ESG requirements, one that where you know the back end value is protected based on the assets that we have invested in, we think we have the most unique capability in the space to drive higher risk adjusted returns than our peer set.
And lastly, our strategy throughout our history is one of very sound stable profile really pinned down by that balance sheet and liquidity that we prioritize. And therefore, we think we're really well set up for the future. So with that, I'll open it up for questions. Nelson? Also if you ask a question, I would ask that you just identify yourself and the organization that
with. It's Nelson Ng from RBC Capital Markets. So you talked about broadening technology and geography and diversifying. Currently, you're still mostly hydro. You've been investing in a lot of hydro, but can you talk about moving forward, is hydro going to be the main focus or do you see hydro or essentially the hydro weighting gradually declining?
And yes, could you just talk about that?
Sure. So the question is where do we see our growth opportunities coming from a technological perspective? And do we prioritize one over another? I'd say setting aside all the discussion we've had about our wind and solar growth, the reality is our in the last 5 years we've had we've actually added more hydro than those other technologies. We've just happened to be fortunate enough to find great hydro opportunities like the Alberta transaction, like Colombia, like our transactions that we did in the U.
S. Northeast with Exelon and Holtwood and Safe Harbor. So we've been very, very successful hydro investors. I'd say we don't look at it the way maybe the question is being framed. We're opportunistic.
We think hydro is unique in its own right, has significant scarcity value. It provides products and services that wind and solar today just can't provide even if they had a battery you couldn't provide those skills and services to the grid that are needed. So hydro stands out as truly a unique asset class one who that merits a very high valuation and we think that our hydro portfolio is both irreplaceable and truly unique. There isn't a portfolio like this that you could acquire in a public company on the planet. And if we were to sell hydro and we did sell a little bit of hydro this year, you can see the type of multiples it commands.
It's a very, very premium asset. It's an asset that commands high valuations because of its perpetual nature and the attributes it provides to the grid. So we love hydro, we're going to keep investing in it. But it was really important to us in the last 5 to 7 years that we brought it out because to be opportunistic in one technology is a tough way to live. It means that you are really relegated to just focusing on one thing.
And we don't think it has any implications to the value of our business because as investors what we think you should be doing is taking each technology applying the valuation multiple to each technology discretely and then summing all of that up. And therefore, if you believe hydro should command a higher valuation, our growing pool of hydro will always command that higher multiple. And then wind and solar, which typically trades at a couple of turns of EBITDA lower, you can then value those on a standalone basis. And as long as all of those technologies are growing and we're acquiring all of those assets for value, we should create a lot of shareholder value over time. There's a question in the back right there.
Hi, thanks, Sachin for your stewardship in building this business. When you look at climate change and changing weather patterns, can you describe how you think about resource availability in the resources that power these assets and whether you think about hedging today of the resource?
Sure. It's a good question because one thing that is clear in this sector is you are going to have resource variability. You're going to have wind speeds that vary from time to time. You're going to have hydrology that varies from
to time. I would say,
what we've learned about in this business over the last decade, I'll start with wind and solar is what we've learned is that estimates in particular on the wind side that were made maybe a decade ago were likely overzealous in terms of the amount production and we've seen across the board every company in the United States has really seen underperformance from their wind fleet, not by a lot, but enough that you can start to see the trend. On the other hand, solar has been remarkably reliable and outperformed over many years relative to the solar irrigation studies that are occurring there. Again, this highlights the need to diversify a business and to have a diversified portfolio. If we were up here and all we did was wind, we pounded the pavement saying wind is the best, well then you can have a structural risk in the business that you can't mitigate. So diversity is really, really important.
And secondly, I'd say the other thing we've noticed is these patterns that have emerged are localized. So it's not like wind around the world has under performed. It's really been a U. S. Centric issue.
Our wind fleet in Europe has actually over performed our underwriting for 5 years in a row now. And again, that's a nice feature. The fact that that global diversity is helping offset and mitigate some of that risk, we think is unique in our business and we think that investors should like that diversity. And then lastly going to hydro, you know hydro we've been invested in this for 35 years and what I can tell you and my old boss always used to tell me this Richard Leggot, is that the hydrological cycles are much longer than 1 or 2 years. You see 5, 10, 15 year cycles.
And we're going through a good time right now in hydro. Hydrology is up. It's been up for 3 years in a row. We went through a few tough years a few years ago and investors were constantly worrying about hydrology levels and global warming. What I can tell you is our long term averages in our hydro business are built off of 50 to 70 years of data.
It captures all those long term trends. And what I can assure you is when times are good, we're not going to pay out more cash flow. We're just going to keep that cash in the business and keep investing. And when times are bad, we're going to have the balance sheet liquidity and financial strength to manage it. And we would never put our dividend at risk just for a few bad years of hydrology.
So we've learned over many, many decades how to manage that long cycle hydrology risk. And we try to encourage our investors to take a long view on that. And like I said, if you read our reports even in the last 2 years, we don't make a big issue of higher hydrology levels. We don't promote it or say it's great. And no different you won't see us make a big issue of lower hydrology levels.
We can run the business through all cycles. There's a question right there. Hi, Rob Hope, Scotiabank. Just wanted some additional clarity on your comments on building a business of scale in Asia. Just given where you are right now, that could imply quite a lot of that 4 $1,000,000,000 of capital over the next couple of years could be devoted there and what opportunities you are seeing there?
Sure. So the question is how do we get from where we are today in India and China effectively to building out a broader scale business. I do think over time we want to be in Japan, but with low rates valuations are high. The market that's probably the most ripe for us to build scale early is India. Simply put the last 5 years in India, maybe the last 7 years, they've opened up the market to foreign direct investment.
There's been a lot of capital available for investors to come in and you've seen every major private equity firm, large IPPs, large pension plans really go into the country with meaningful direct investment. So large privately held portfolios of renewables in India now exist in the hands of largely financial investors and all of that's been supported by government policies, feed in tariffs. The reason we didn't join the party is that basically the trade in the last 5 years in India was simple, buy assets and I'm going to simplify here, buy assets at 9 to 10 times EBITDA multiples, prioritize scale, in our view overpay, but use mezzanine and subordinated leveraged financing structures to effectively fund it. So your equity commitments little And then take the company's public in the IPO market. And we just didn't want to make that bet.
We didn't want to make the bet that the IPO was how we were going to skate on-site for a business because we felt that you should really be buying assets in that market more at that 6 to 7, maybe 7.5 times EBITDA multiples. What's happened is Bruce alluded to in his remarks, India is going through a financial crisis of its own. The shadow banking system has been disrupted. There's a lot of non performing loans on their books. And all of that, those maturities are coming up in the next 3 to 5 years.
Combined with the fact that in the power sector, the largest power privately held power company in India tried to do an IPO last year and failed miserably. Investors didn't allow it to happen. So now what you have is you've got all these portfolios in India that are privately held where the owners overpaid hoping that an IPO and an excess valuation would escape in one side and they're facing a wall of maturity in fryland. We think the next 5 years for us will be really, really critical because we think we can invest on a deep value basis in India by acquiring a more distressed type situation, which would give us some scale, give us assets across multiple technologies. And then with our development and operating capabilities, we will take it from there and grow.
So India is probably the most right for that. China is a slow and steady approach. And then Japan is just on the list of it would be nice to be there, but it's very expensive. That's it. I got the hook.
Thank you everybody for your interest today and obviously we'll be around afterwards to answer questions. I am now handing it off to Brian Kingston.
Okay. Good afternoon, everyone, and welcome to the final presentation of the day. I'm Brian Kingston. I'm the CEO of Brookfield Property Partners. I'm going to start out today with a bit of an overview of our business, talk a little bit about the last 12 months just to sort of set the stage, and then I'm going to be joined by a couple of my colleagues.
First, Natalie Adome, who going to come up and talk about how Brookfield's operations oriented approach gets applied within our real estate business. Following that, Bishu is going to come up and talk about our mixed use development capabilities, which is a lot of the things that we're doing within our retail malls, but also across our office portfolio and a number of other exciting projects around the world. And then finally, Brian Davis, the CFO is going to come up and try and tie all this together, how it really relates back to our earnings growth over the next 5 years, the NAV growth in the business and then talk a little bit about ESG as well. And then following that as we have with the other presentations, all of us or there's a number of other people from the management team here would be happy to take any of your questions and then we'll get you to the cocktail reception afterwards. So maybe just starting out, as everyone would be aware, Brookfield Property Partners is Brookfield's flagship real estate vehicle.
Everything that we do in real estate is done through BPY. We own one of the world's largest highest quality portfolios, our buildings dominate city skylines around the world. And today about 85% of the balance sheet is invested in core office and core retail assets that generate long term stable predictable cash flows, create a large number of opportunities for us to put organic capital to work in repositioning or reinvesting in these assets at very high rates of return and generally provide the underpinning for our growth activities. The other 15% of the balance sheet that was invested in is really our investments in Brookfield sponsored real estate private equity funds. And these investments give us a broad exposure to a number of asset classes and geographies around the world and provide a higher level of return than typical long term buy and hold.
It's a very unique investment because most of the other investors who are participating in these funds are institutional investors who lock their capital up with us for 10 years or more. And for BPY investors, you get an exposure to this proprietary investment strategy with daily liquidity. The business is global. We have offices in 30 cities around the world, over 19,000 operating employees in our business. Over the last 12 months, those 19,000 people have been busy.
We've completed over 19,000,000 square feet of leasing in our core office and our core retail business. We delivered more than 5,000,000 square feet of new developments. We surfaced $2,000,000,000 equity at our share through asset sales, through various dispositions of our assets. And we've reinvested about $1,300,000,000 of that back into new developments as well as acquisitions. A couple of highlights in those acquisitions and dispositions over the last year.
Just last month, we signed a contract to sell a portfolio of 5 Class B residential apartment complexes here in New York City. We'd acquired them about 5 years ago, invested over $80,000,000 and renovated more than half of these apartments, bringing them up to a new modern standard. And so that investment combined with some energy saving initiatives drove pretty strong NOI growth within the portfolio, allowed us to earn a 17% compound annual return on this investment and doubled our money in just 5 years. For those of you from New York, you'll be aware of the transformation that's happened on the West side of Manhattan over the last decade. The most recent addition to that is 1 Manhattan West, which we completed earlier this month.
This is a 2,100,000 square foot state of the art building that we'll begin handing over to tenants over the balance of this year. The total cost of $1,900,000,000 it will have a 6% yield on that cost and about a 10% cash on cash yield on our equity invested in it. And the building will be worth about $3,000,000,000 when it's fully stabilized. Similarly in London, at the end of this year, we'll complete 100 Bishops Gate, which is really the last of our major development projects in the City of London. It's a 1,000,000 square foot building, cost about £800,000,000 to build this building.
We're in the process right now of putting permanent financing in place that will return 100% of our cost basis. So with 0 equity invested in this building, it will produce about $50,000,000 of FFO for us going forward. And should we ever decide to sell this building, we think there's about $1,000,000,000 of embedded gain in that. This is why we do development, if that will be one of the questions later on. This time last year when we all got together, we had just closed on the GGP transaction.
Over the past 12 months, we've been very focused on integrating that business into the broader business. We've realized about $25,000,000 in cost savings just through integrating into the broader platform. We pushed out the maturity on about $1,000,000,000 of our acquisition facility giving us 7 years of term on that. And most importantly and the thing we get the most questions about really is we've made significant progress on our redevelopment and densification strategy within the portfolio. And so to be more specific, there are we've identified 9 projects that are either underway currently or will be in the very near term of these redevelopment projects that range from building residential apartments at Ala Moana and Hawaii to extending the retail and expanding our retail presence at Stone Town Galleria in San Francisco to building office at perimeter or hotels in Merck Park and Coral Gables.
In total, these short term projects are about $2,500,000,000 of organic capital that will be invested in these malls that generate about $150,000,000 of incremental net operating income when it's done and should add about $775,000,000 of value to these 9 malls. In addition to that, there's 6 longer term projects and we sort of define this as like 2 to 5 years into the future that will require another $2,500,000,000 of investment, but will add a further $1,000,000,000 of value to these assets. Interestingly, as you go through that list of projects in the malls that we're on, what we're finding is the best opportunities and the highest returning opportunities for these densification opportunities are within our best malls. And perhaps not surprisingly, but Ala Moana, for example, is the world's largest outdoor shopping center, it welcomes 52,000,000 shoppers each year and generates over $1,500,000,000 of sales. We're currently in the process of getting the zoning amended at Ala Moana, which will allow us at some point to build up to 10 residential towers.
The first phase of that will be a 550 unit rental unit rental building, about 20% of that will be affordable apartments and a 3 40 unit luxury condo development. The $1,200,000,000 that we'll invest in those two towers will generate about $350,000,000 of development profit for us. Longer term and even more exciting and you can see in the rendering at the bottom of the screen, we do think as I said there is the opportunity here to put up to 10 towers on the site and fundamentally transform this into a small city. Stone Sound Galleria is located in San Francisco immediately adjacent to San Francisco University and the 30,000 students that attend there each day. It offers a high quality mix of both retail offerings and food and beverage.
We're currently in the process of redeveloping an empty Macy's box, it's about 270,000 square feet. We're cutting it into Whole Foods, a sports basement, as well as a 14 theater Regal Cinema. Later on this year Nordstrom will be vacating their site and that will give us an opportunity to allow the Target store to expand further into their space. But the really exciting thing with Stone's Town is we think there is a longer term potential here to reclaim some of the excess land on the site and densify it with up to 2,400 residential apartments. Located just 2 blocks from the Atlanta Braves Baseball Stadium SunTrust Park in Atlanta, the Cumberland Mall draws foot traffic from Atlanta's largest office submarket as well as the performing arts center and the Cobb Galleria, which is a convention center that draws 1,500,000 unique visitors every year.
Currently, the 180,000 square foot vacant Sears box is under construction. It will deliver next year with a combination of big box retail, entertainment, as well as some fitness tenants. In addition to that though, we're in process of rezoning the entire site, which will allow us to add residential hotel and office unit usage to the excess parking lots that which are underutilized here. So looking forward really over the last 5 years, we have built the premier office platform in the world. The platform allows us to build, to buy and to operate assets that generate these long term stable cash flows.
And in a low interest rate, low growth environment, we think these assets will only get more valuable in the future, which brings us to our first polling question of this section, which is are we in a low interest rate environment or more specifically for how long. So I think everybody by now knows how to use the iPads for these polling questions. But the question really is where do you see the U. S. 10 year treasury, which for those of you who didn't check, is it about 167.5 today, The 10 year U.
S. Treasury going over the next 12 months up significantly, so greater than 50 basis points, up a little bit, maybe 25 basis points, basically flat from where we are today, down a little or significantly lower. I see a lot of you read the world as well, which is growth is starting to slow in a number of places. There is a tremendous weight of capital out there and it should continue to keep interest rates very low. Turning back to the presentation, what we've actually seen within real estate markets over the last 12 months as interest rates have made a dramatic drop and the lower line up here on both of these graphs is the U.
S. 10 year treasury. We've seen a significant drop over the last 12 months. It has not been accompanied by a similar drop in cap rates as we would have expected. For those of you who believe that we are in a new normal and that rates are going to stay at or about around these levels in the near future, we think there's a lot of upside in cap rates.
Brian is going to talk a little bit more about how that translates into our NAV and the outlook, but not to spoil the ending, 100 basis points on the cap rate in our valuation adds almost $20 a share to the NAV. So this is meaningful. And in case you can't read the graph, the tenure has dropped about 125 basis points in the last 12 months. So with that as a bit of an introduction, I'm going to turn it over to Natalie, who's going to talk about our operations oriented approach. Thank you.
Great. Well, thanks, Brian, and good afternoon, everyone. My name is Natalie Adamy, and I'm a Senior Vice President and Head of our Portfolio Management team in Europe. I've been with Brookfield for just over eight years and together with my colleagues in London, we oversee our European real estate portfolio. I wanted to start a slide today that for those of you who have been investors in Brookfield and in particular Brookfield's opportunistic funds for a while have probably seen a number of times before.
These are the four characteristics of our opportunistic investments. So every one of our investments will typically be described by 1 or more of these characteristics. Firstly, they might be multifaceted. They may be operationally intense. They might have a contrarian angle to them, or finally they may require us to build a business.
And it's the final point there that I'm going to spend my time on today. I want to talk to you about what we actually mean when we say we're building businesses, why we take this private equity approach to our real estate, and finally, how and why we believe Brookfield is uniquely placed to do this. Before we get into that though, it's worth putting into context the amount of real estate businesses we own within Brookfield. Ignoring our Brookfield properties portfolio, the real estate businesses that we own and control make up approximately $70,000,000,000 or roughly 1 third of Brookfield's real estate AUM. And that's why it's so important for us to that's why it's so important to make sure that we have the capability and teams internally for us to be able to manage and drive value creation through those management teams and through those businesses.
Thankfully, we believe Brookfield is actually uniquely placed in the asset management space to do just that. We're successful specifically because we're able to combine our access to capital with our 120 year history of being an owner and operator of real businesses. As Brian mentioned earlier, we've got over 19,000 real estate operating employees, which we draw from to bring a wealth of experience and deep operational expertise into each one of our businesses. In addition to making us successful in building and operating our businesses, it's our DNA as an owner and operator that also helps us in sourcing transactions. We're able to very quickly set ourselves apart from other private equity owners as being more than just a capital partner.
And in particular, we found this successful when speaking with smaller entrepreneurial organizations who are looking to transform themselves into a market leader in the space. Admittedly though, building a successful business can take a lot of work. So why do we do it? For these three reasons. Firstly, it allows us to quickly build scale in nascent sectors or regions.
Ideally, it will be alongside an existing management team that would know the local market and can quickly reach into their networks to find a pipeline of opportunities. Combining their access with Brookfield's transaction capabilities allows us to very quickly identify and execute on new deals and build a portfolio of scale in a new sector. Secondly, by building and owning the business, we can secure full control over the operational strategy and align ourselves directly with our people on-site who are operating those properties for us. At the right scale, having those teams internally also allows us to maximize value by reducing fees that would otherwise have to be paid to 3rd parties. Finally, by owning the business in addition to owning the assets, we believe we're able to generate higher value and better returns when we come to exit those businesses.
We found time and time again that when we exit investments, investors are looking for not are asking questions not just about the asset performance themselves, but they're looking to make sure that that business can continue to generate growth into the future. A great example of this was our European logistics portfolio, which we sold in 2017. When we had our management presentations, bidders were asking questions about the people, the processes and the management team's expertise and track record and being able to deliver upon the growth that they said they would. At the end of the day, we don't know how bidders in that process allocated value between the business and the asset portfolio, but we do believe we were able to generate significant value above the underlying property portfolio. What I'd like to do now is actually walk you through a live example to demonstrate what we mean and how we build those businesses.
And the company I'd like to do that to use to do that is StudentRoots. StudentRoots today is owned by Brookfield and is one of the largest owners and operators of direct let student housing in the U. K. It has 55 assets and over 20,000 beds. But we didn't just go out and buy student roofs, we built it.
About 5 years ago, we identified there was a sector there was an opportunity in the U. K. Student housing sector. And in 2016, we made our first acquisition through the acquisition of the portfolio of 13 assets. But it was really just that, it was a portfolio of assets.
There was no people, no systems, no proper reporting and furthermore all of the property management, sales and marketing and accounting functions were outsourced to 3rd parties who are charging us high fees. That being said, the assets themselves were high quality and well located and we knew they were in a sector that was right for consolidation. So our strategy was simple. Firstly, we were going to pursue follow on investments. We believed there was an opportunity to build a portfolio of scale.
So we set ourselves a target of doubling the initial portfolio of 5,000 beds. Once we had doubled that portfolio, we believed we would have the scale to justify hiring teams and internalizing all of those outsource functions. The reason we're doing that of course is to achieve the final part of the strategy. It allows us to improve the operations and ultimately drive higher NOI margins and of course, better value for Brookfield. So how did we do?
Well, in just 12 months, we achieved our target to double the portfolio and where we stand today, we've exceeded that target by 2 times over. We would have never achieved this though if we hadn't built a dedicated investment function within that business. So as I mentioned, our growth strategy was primarily focused on consolidation. So simultaneously with acquiring the initial portfolio, we hired on a CEO who had over 20 years of experience in the student housing sector. He brought with him a deep knowledge of the existing assets and the best located and highest quality assets that were out there.
And furthermore, he had strong relationships with both universities and existing asset owners. These are relationships that otherwise would have taken us as Brookfield years to develop for ourselves. With him on board, we were able to spend time adding additional investment resources and training them on Brookfield's approach to investing. To get to our portfolio today, took 13 individual transactions and in a number of instances, we were only successful because we could leverage the information our teams had on the local markets. For example, on one transaction, we knew a university was planning on relocating part of its campus to another area of the city and we were looking at a potential opportunity to acquire a site that would be directly adjacent to where that new campus would be.
Because we had this information, we were able to underwrite rental growth on that basis and ultimately won the deal. We wouldn't have necessarily known about that though without the local knowledge of our teams. And it's that reason why it makes it so hard for a new entrant coming to the sector for the first time that doesn't have the business and doesn't have a platform to invest through, it makes it hard for them to compete with us. Building the investment function was just one part of the business though. And in order for Student Roofs to be successful as it would be with any of our other businesses, having the infrastructure in place is critical as well.
I mentioned at the offset that when we acquired Student Roost, everything was outsourced. This meant there was limited ability for us to direct the sales strategies and improve the customer experience. As a result, cash flow conversion in the initial portfolio was poor and the NOI margins they were achieving were well below the market average. So we leveraged our private equity capabilities and started to build the business. We hired a management team.
We invested heavily into new IT systems and a new website. We trademarked the name Student Russe and launched it into the market. We introduced risk management policies, proper governance structures, a new procurement strategy and critical reporting tools, which allowed us to enable more efficient decision making. Of course, we also hired on operations, sales and management and finance teams directly into the business, which allowed us to full
operational
full operational control of our assets and now generate higher levels of customer satisfaction than when we operated under 3rd party management firms. This of course also has a strong financial impact. For the upcoming financial year, we're forecasting to achieve NOI margins in the high 70s, which is a 600 basis point improvement from where we were on our initial portfolio. This has been achieved because we've been able to lower our operating cost per bed due to our scale and also at the same time driving higher revenue growth due to the fact that we're offering an improved customer experience. Again, these are financial results that are directly attributable to the fact that we built a business around our asset portfolio.
So in just three and a half years, we have taken student roost from what was a portfolio of 13 assets to a market to a leader in the sector and in fact today is the 3rd largest in the U. K. Now we still own student roost today, so it's really hard for me to talk about how we've generated all of this premium value on exit when we haven't exited the business yet. But we do know that we've been able to significantly improve our NOI. We also know from conversations from investors in both the public and private markets that there is significant interest in the student housing sector, which will allow us to generate significant competitive tension when we come back to exit the business.
Finally, we know from businesses that we've exited in the past, such as Gaisley, which I mentioned earlier, that buyers are willing to pay for more than just the asset value if they can get access to a management team and a business that will continue to deliver future growth, which is exactly what we believe student roost will be able to do. It's those reasons it's those three reasons that make us confident that for Student Roost like it has been or will be for a number of our other businesses such as IDI, Simply Storage or even Aveo in Australia, that building and investing in businesses is the right investment strategy. I'll conclude my presentation there today, but I hope I've left you with a better understanding of what we mean when we say build businesses, why we do this, and of course, how it generates better returns for you, our investors. Thank you.
Good afternoon. I'm Bi Hsu. I'm part of our Mixed Use Development Group. That's the operating arm of Brookfield whenever the strategy is to develop the property from the ground up. And I'm going to spend this segment talking to you about what we do in this part of the organization and how we do it.
I thought I would start with an overview of our platform and operations, touch on our existing pipeline and then also touch on 2 topics that are central to our process and that's innovation and placemaking. So starting with the platform, this is fundamentally what we are about. We differentiate Brookfield by having operational capacity to both develop and to operate the full range of asset classes under the same roof. And that plays again to our core investment strategy of enhancing asset value through our operations. The group we have is full service.
We have team members that are specialized in every discipline for the full life cycle of development, starting with early conception and planning, all the way through construction, delivery and stabilized operations. And this makes for what I like to think of as a virtuous cycle of intelligence. As an example, we have construction professionals that sit with us that are most heavily engaged in those projects that are actively mobilized in construction. However, having them in house with us gives us resources in the earlier stages of planning and feasibility with good intelligence on things like cost estimation, constructability, logistics, schedule. And what that really means is that our processes in underwriting, planning, design get to be constantly informed by real time operational knowledge, letting us be smarter earlier in the process and enabling us to make good decisions every step of the way.
Likewise, the scale and the breadth of our operating portfolio and the people who run it are also a key advantage to our development activities. Our portfolio is large. It spans the full spectrum from office, retail, multifamily, residential and for sale residential. And this means that we have the flexibility and agility to look at each site through multiple lenses at the same time as opposed to say a multifamily REIT, an office REIT or a for sale homebuilder who would be constrained to a more singular lens. We evaluate every site for the highest and best use or in many cases with the properties that we're working with these days, a highest and best mix of uses and we execute on all of them.
This has been especially relevant and valuable to us recently in approaching some of the mall opportunities that Brian mentioned earlier. We have been growing our development platform over the last couple of years through a combination of organic growth and acquisitions. We have combined the long heritage, which already existed within Brookfield between our office and multifamily and land development and homebuilding businesses, and we've added to that with the acquisition last January of Oliver McMillan and then again last December with the acquisition of Forest City. This group now has a collective track record of over $50,000,000,000 of development delivered. Today, we are 1400 employees across 18 offices in key markets.
The local presence being particularly important for development, which tends to be a very local business, especially when it comes to planning and entitlements. Our local teams service a development pipeline that puts us in all of the highest barrier to entry markets in North America. Our current construction pipeline is concentrated heavily in California and the Northeast as you can see here. We currently have 20,000,000 square feet in active construction, another 36,000,000 square feet under development, 11 of which is our first tranche of mall densification opportunities. The geography of our people and our existing pipeline have slotted in really nicely with the best and most immediate opportunities in the malls.
You can see those here in orange. And that's important since unlocking those opportunities are really planning and entitlements heavy and require local expertise and engagement, especially in difficult to develop markets like San Francisco and Honolulu. We also continue to study the balance of the mall portfolio to tee up the next batch of redevelopment projects to follow this one. Brian touched on a few of our development projects that we're currently completing. So I'll share a few examples of our current works in progress.
One of the common themes you'll notice in our pipeline is that we tend to be focused on projects where there are synergies between multiple phases of development or synergies between our operating assets and the development opportunities that sit with them. We look for and we deploy our resources towards those opportunities where the value add can compound across multiple assets. 755 Figueroa is a perfect example of that. It's a 56 storey residential tower that we have currently under construction in Downtown Los Angeles. And the site sits in the middle of an entire city block that Brookfield already owns and operates with 21,000,000 square foot office towers and a retail center you may know as Figgot 7th.
The site has sat vacant since the '80s when the original developer had planned an office tower, and that tower was stalled by the '90s downturn. So now by reimagining and re entitling the site for a residential tower, we now not only have the opportunity to participate in the current residential boom going on in Downtown L. A, but we're going to fill in the hole, complete the missing piece of the block and create a holistic fully mixed use live, work, play environment with the new residential tower and the new residents that come with it are going to be a to the existing retail and office and the same thing vice versa. And so more to the point about compounding value across assets, in this case, we project profits for the new residential tower on a standalone basis to be $210,000,000 which would be compelling as a standalone development or investment. But we also see that there's significant value in the halo effect that it's going to create.
For every addition that's on the block, realize and rent, there's an additional $40,000,000 in value to be realized. This is another example at 5th admission in San Francisco, where we're currently under construction on a 640,000 square foot office tower and we'll be mobilizing on construction next month on a sister residential tower and building all of the new connecting public space improvements. San Francisco, I think most people know is an extremely high barrier to entry market for land use entitlements. So having a local team there has been really key. And we'll be delivering this into a very tight office and residential market with virtually no large chunks of available office space between now and our delivery date.
With the malls, we've turned a good amount of our attention now to applying some of these concepts from the higher density high rise context into more suburban horizontal mall contexts. Newpark Mall is an example of that. It sits on 74 acres of land in a suburb called Newark in the Bay Area of California. And though it's a lesser known suburb by name, its geography is really interesting. It sits directly across the Dumbarton Bridge from Menlo Park and Facebook headquarters and the rest of Silicon Valley where both employment growth and housing supply and demand imbalance have continued to grow values pretty dramatically.
The regional shopping mall in this location has started to become obsolete with 2 boxes already closed. And through our work with the city, last year we had a specific plan adopted, which is now entitling sorry, I've got the wrong slide up, 1500 Residential Units and Office and Retail. So one thing that we keep constant focus on as we manage our pipeline is that we always have to be looking to the future and thinking about what people are going to want and what's going to keep us on the leading edge, especially in development when some of the decisions that we're making on program and design are for assets that are still a few years away from coming to market. We're highly conscious that the pace of change driven by technology is faster now than it has ever been before and that multiple industries, including transportation, finance, retail and media have all in recent years experienced dramatic disruptions as a result. It makes for a really fascinating time to live in and also a really exciting time to do the work that we do in development.
So we have the benefit more than other operators of real time market and tenant feedback about from our operating portfolio and we are able to reach into that and interrogate it every day when we're making decisions about our pipeline. But we also realize that we have to look further than that too. If 15 years ago you had asked customers what they would want to do to make their cell phones better, they most likely would have said things like they'd like the battery to last longer, they like the reception to be better, maybe they'd like it to be smaller or way less. They wouldn't have been able to imagine or articulate what their smartphone could do from them now and what we've all consumed what we've all grown to expect as consumers. That's all to say that to stay current, we have to go beyond today's feedback and constantly be asking ourselves what's going to be coming in the next few years that's going to change the way people are going to live, work and play?
And what do our tenants and customers expect in the next 3, 5, 10, 20 years and how are we going to make sure that our properties lead the way? So these are just a handful of examples. It's not a full list of new technologies and operational offerings that we've been piloting in our properties. New physical amenities like flexible meeting space and co working with Convene that we've introduced to several of our office buildings in New York and Downtown Los Angeles. Driverless vehicles, we've actually rolled out earlier this year as a tenant service in Reston, Virginia with Optimus Ride.
Right now, they're taking people from their cars to their office and back, but we're imagining that in the future, it could be a mixed use service once we complete the residential and retail development phases of that project. Some high touch personal services that are tech enabled like Hello Alfred, which we have introduced in our property at Greenpoint, Brooklyn. Here, our residential tenants get an Alfred, this is a real human, who comes to your apartment every week. Their name isn't really Alfred, but they have a name. You communicate with your Alfred through an app throughout the course of the week about things you need him or her to do for you.
And then once a week, they show up to your apartment. They do a hotel style tidy up and they complete whatever tasks they've been given. It could be grocery shopping delivered to your refrigerator, it could be dry cleaning pickup, buying a birthday gift, making dinner reservations, tickets for the weekend, essentially your apartment has a personal assistant. We're also always looking at potential industry disruptors and exploring how we can align them with us rather than have them disrupt us. We're currently piloting our 1st Airbnb friendly buildings and have invested in 2 neato's in Orlando and Nashville.
These models take the traditional practice of prohibiting Airbnb in apartment leases and then turn that upside down on its head by having operations that actually encourage and facilitate hosting as a strategy both to boost the tenants' income and the landlords' income. Again, it's a very exciting time to be doing what we're doing and many really interesting opportunities to innovate. The other key idea that constantly drives our focus is creating value through place making. Our geographic reach, the range of asset classes we operate and the full lifecycle development skill sets we have are unique to have all under one roof. And all of that gives us an opportunity that virtually no other development platform has.
And that's that our scale and our skill sets enable us to co locate mutually accretive uses, essentially build mixed use, ultimately amplifying asset value through placemaking. We get to do more than just build a bunch of different kinds of buildings, but to carefully curate them into experiences that are memorable, desirable places to be. And that takes us to our next polling question. What rent premiums do you think landlords achieve in walkable mixed use locations versus suburban drive only locations within the same metro area? You can answer that on your iPads.
No results. Okay. A good amount of enthusiasm for it, but maybe this will increase that enthusiasm perhaps if we're oops. So the answer from a study this year by George Washington University and Smart North America is 75% on average across these 30 metros. Likewise, we've seen that quality high the quality mixed use projects can realize 25% to 30% premiums even within the same submarket.
And these data points really are just telling us what I think we all intuitively know And that's that values are higher in places where people want to be and people want to be and will pay for where there's a real sense of place. Today, 74% of Americans prioritize experiences over products and that's really different than the days when buying a TV, a car or a house in the suburbs were central life aspirations. And that idea ties directly into our approach to place making and to mixed use development. We are really strong believers in the value of purposeful design and the quality and the programming of the interstitials public spaces. This is what really excites us and what our people take pride in making happen every day.
We're in constant pursuit of those elements that make a place truly special and what sets us apart is your choices where to live, work or spend your precious leisure time and dollar. We to create the best of those places where the local community and culture are made and where people's experience and memories happen. And so I'll close on that idea and before passing it to Brian Davis for the last segment, show a short video that shares some more color on our place making philosophy and also showcases some of the properties where we've done this, both in the U. S. And globally.
Have a coffee.
Have a glass of wine.
Meet a friend for lunch.
Sit and read your paper,
table watch, go ice skating.
People are naturally drawn in different places at different times for different
reasons. You have
to think about everything.
Activity, simulation, excitement, something unexpected. The light, the air, the special places to sit. Tokyo creates iconic place making
someone wants to be in.
What are the elements of placemaking? Everything that it takes to make a place special.
There's excitement. There's human vibration. There's also a sense of sanctuary.
As taste and styles change, do you want to make sure we're changing along with them?
The commitment is to evolution and change the needs of the client.
We like to weave together and incorporate from our context, our communities, whether it be at the waterfront or historical architecture. It's important to have a depth of experiences. And as each layer is experienced, it can peel back and reveal another.
The difference
to partner with our tenants to create the kind of environments that help them attract, retain and get the very most out of top talent. So there starts to be
a blend between the notion of going to work in this great place where you could be around people that
I like to do
things that are productive and enjoyable.
You need the right ingredients to organically develop a very special place.
It takes the expertise
and it takes a lot of passion. In the end, it feels like a beautiful piece of music. You've made a place that's truly special. We've made a place that's lasting. We've made a place for people, and that is the best way to do it.
Thanks for the opportunity to share some of what we're doing with you.
Thank you very much, Bea. I'm going to now try to pull this all together in my section. I'm going to focus on 3 topics and the intention is to summarize what we focus on really to achieve growth in earnings, to fund our distributions, to manage our balance sheets and ultimately to be good corporate citizens. First thing that we focus on is the growth in our core business. We've seen a tremendous amount of that over the last number of years with the privatization of Canary Wharf, Brookfield office properties and of course GGP.
In addition, we've advanced a development pipeline towards completion and I'm going to talk about what this means for the next 5 years. 2nd, I'm going to discuss the potential for liquidity generation within our LP investment strategy, a topic I did spend a lot of time on at last year's Investor Day. And last, I do want to touch on our approach to ESG with a specific focus on the sustainability initiatives that we are currently pursuing. We had another successful year in 2018. We earned company FFO and LP investment gains of $1.88 per unit, which gave us support to raise our distributions for the 5th consecutive year by 5% to $1.32 per unit.
Now despite some headwinds that we've seen through the first half of twenty nineteen, we continue to generate strong earnings, which really speaks to the quality of our assets and the resulting resilience of the cash flows they produce. Annual growth from 2014 to now has been very steady. CFFO was up by 5%, CFFO and realized gains has been up by 10%. And as a result, we've been able to raise our annual distribution by a compound annual 6%. Equally important, we have seen a 27% increase in the earnings that we retain within our businesses, which we have used to sustain the high quality of our assets to advance our development and redevelopment pipelines and to fund our commitments to the LP investing strategy.
Our objective really over the next 5 years is just to continue to add to this track record. As Brian had mentioned, 85% of our balance sheet is invested in core office, core retail and multifamily properties in 6 different countries around the world. This has grown into a huge business. In terms of assets under management, it totals 266 properties, 200,000,000 square feet, which on average are 94% leased with an average lease term of 7 years. And we have a 12,000,000 active development pipeline, which is nearing completion.
But the main focus of this business is really operational. We want to execute leases, we want to contain costs and we want to manage capital budgets. Specific targets include achieving stabilized occupancy of 95% with a focus on increasing occupancy in some of our major markets including Los Angeles, Houston, Washington, D. C, Berlin, London and New York. We're focused on generating annual net operating income growth of between 2% 3%.
This is going to come from higher rents, higher occupancy and lower expenses. We have a track record of being able to achieve this level of same store growth over sustained period of time. If you look back to the launch of BPY in 2013, we've achieved 4% annual same store growth in our office portfolio over that time and 3% in our retail portfolio over that time. Our 3rd target is managing the $2,000,000,000 needed to complete our active development pipeline on time and on budget. This will require only $400,000,000 of incremental BPY capital, but all of that will be funded from the capital return to us from the condominium projects in London that will be delivered to their owners in the next 12 to 18 months.
And lastly, we are focused on repaying about $2,000,000,000 of acquisition debt that we raised last year to increase our investment in core retail. If we achieve these targets, net operating income from our business will grow by $600,000,000 over the next 5 years to $3,700,000,000 This represents over 4% annual growth and most of that will fall directly to our bottom line. We expect cash needed in our business to fund CapEx and leasing costs to remain consistent as we stabilize occupancy and add new developments into our portfolio, which require minimal capital and almost no leasing costs for a long period post completion. As a result, the cash generated by this core business will increase by 9% on an annual basis. Achieving these targets will generate a 9% total return over that period and that's on the $30,000,000,000 of capital that we have invested in our core office and core retail business.
And it assumes a conservative assumption that cap rates stay consistent with where our properties are valued today. This to us represents a very attractive core return. Importantly, a combination of repaying a portion of our retail acquisition debt and growth in our cash flows will delever our balance sheet. Earnings alone improves leverage by 500 basis points over the next 5 years. But our focus is also on reducing the leverage on our core retail portfolio, which is no different than when we privatized our office businesses in the past.
But it takes time, particularly owing to the countercyclical nature of this particular investment. And as a result, as Brian mentioned, we put in place acquisition debt with enough term to maturity to allow us to be patient in determining the right time to raise the capital that we need. If we achieve these balance sheet targets, not only will our business have funded all of the required building and leasing capital and generated a sizable distribution, it will have delivered to 45% loan to value. Now we can choose to operate at that level and generate a healthy core return from that business or we can do what Brookfield does best. We can work our balance sheet to achieve the best risk adjusted return on our equity.
By refinancing our assets and selling mature core properties each year, we can generate significant capital to redeploy into accretive investment opportunities. Actively doing this gets us to our total return target for this business of 10% to 12%. Now what are those accretive investment opportunities? Well, they could be incremental asset acquisitions. We're in a number of regions.
And as Natalie mentioned, we have scale and we have a business. But more likely, they include a pipeline of retail redevelopment opportunities that Brian just highlighted or another 14,000,000 square feet of future ground up development potential in our major markets spanning office, multifamily and other mixed use opportunities, some of which Bea has highlighted. Very few businesses out there have this type of organic growth potential. To achieve our overall target return for BPY, we have supplemented the core investment strategy with targeting opportunistic type returns. Again, as Brian said, this is unique to us.
Very few public real estate companies allocate capital to this type of investment. Our major focus for managing this business is pretty simple, track the performance of the investments in the funds and ensure we have a sufficient access to liquidity to fund capital calls on existing funds and to make commitments to new funds. These funds are performing well. Our first fund is in year 8. It's realized on 9 investments to date and it's tracking at a 2.1x multiple net multiple of capital.
The second fund is almost fully invested although has no realizations to date is now entering into that phase of its lifecycle and is tracking at a net 1.8x multiple of capital. And the 3rd fund is in its investment period until 2023, but has already invested or committed a significant amount of the capital that it has raised and it's targeting to achieve 1.7 times multiple of capital. We expect the $5,000,000,000 that we've committed to these investments to return us a profit of over $4,000,000,000 With the pendulum in this business shifting from requiring cash to being able to produce cash, we expect that over the next 5 years $4,500,000,000 to be returned to BPY, consisting of $1,900,000,000 of our initial investment in these funds and $2,600,000,000 of profits. In addition, we have a little under $1,000,000,000 that are invested in other LPs as an LP and other legacy real estate strategies and we expect over that same period a significant amount of that capital and profit to be returned to us as well. Now sure the next in the series of funds could be launched in that period and we hope that it does.
And if so we will have the liquidity available to continue to commit capital to investment strategy going forward. There's plenty of work, there are execution risks and timing of course may vary, but we have a long track record of achieving these results. So now I'm going to shift gears and focus a little bit on ESG. And I did want to ask our last polling question of the day. How much do you consider an organization's ESG practices prior to making an investment in that company?
Your choices are not at all, it is of minor importance, it is of considerable importance or lastly, it is of paramount importance.
Okay.
It's kind of balanced. I was going to say that is what I thought, but I didn't think you would say not at all. To us, the E, the S and the G by themselves weren't focused. But when you combine them, they should form a significant input into any investment decision. At Brookfield, we think ESG is essential to creating long term value for our investors.
And I'm going to focus on sustainability initiatives, particularly on energy use, because that is the single largest operating expense in a commercial property and it accounts for 20% of greenhouse gases in developed countries. So there's really a direct link between efficient buildings and reducing the impact to the environment. There is also a clear and measurable business case for investing in sustainability initiatives. We look to make energy efficient improvements in core office, core retail and in our LP investments, a number of which we listed on this slide. The why is just as I had mentioned, but it is also because more and more tenants demand energy efficient buildings from us.
The how for office has been focused on the use of benchmarking tools to reduce energy consumption and the shift of that remaining consumption to renewable sources of energy. Since 2008, these initiatives have lowered our annual energy cost by over $30,000,000 a direct positive impact to both earnings and to the environment. In core retail, the How has been focused on solar power. Solar now accounts for over 25% of our portfolio's common area electricity needs and is so extensive that we are the 6th largest corporate user of on-site solar panels in the United States. We have spent over $300,000,000 in that business to improve energy efficiency in our retail properties and have yielded a 15% return on our investment.
We have a goal to be a leader in sustainability. And to further that goal, we are focused on a number of priorities. Those include improving climate related disclosures, making further asset level sustainability upgrades, enhancing our sustainability due diligence and sharing internal knowledge and collaboration opportunities, not just within our real estate group, but with our sister platforms as well. So lastly, to finish off my section of the presentation, we did want to emphasize the compelling investment opportunity that exists today in BPY. We as a company have been capitalizing on this opportunity by buying back almost $500,000,000 of our own units this year.
And we are excited about our ability to continue to earn attractive returns from our core business and our LP investment strategy. We are excited about the opportunity to continue those to continue to enhance those returns through the businesses that we have built and are building and through the place making that we are developing. These returns will support our current yield and appreciation of our capital. And using today's multiples could generate a 14% compound annual return on your investment. Now with the potential to deliver much higher and more meaningful returns, if spreads narrow to reflect a potential for a lower for longer interest rate environment and the increased demand for real assets as Bruce had talked about earlier today and if it results in our discount shrinking.
With that as a conclusion for our presentation, I just wanted to say we're very excited about the next 5 years for BPY and I wanted to invite Brian Kingston back up to answer any questions.
So I think we have a couple of minutes for questions. And then I'm just going to turn it back over to Bruce just to make a few concluding remarks. For those of you that have iPads, if you'd prefer, you can submit your questions via iPad and we'll take a couple from that way. But maybe just to start, I'll see if there's any here in the crowd. So if you do have a question, maybe raise your hand.
Sheila McGrath from Evercore. Brian, it's about a year since you closed on GGP. Retail headlines are challenging and mall stocks are trading poorly. Just wondering how you think about that investment? Any regrets and how returns are penciling out compared to your first analysis?
Yes. So you're right. I mean, the last 12 months have been a little challenging for retailers in the sense that we've had a number of bankruptcies, particularly higher profile ones, and we haven't been immune to that within GGP. We've had a couple of 1,000,000 square feet come back to us as a result of those bankruptcies. But the important thing is out of those 2,500,000 square feet, we've released all of that space to new tenants.
And in some cases, these are digitally native tenants that are now moving into bricks and mortar. But on average, the rents were actually 7% higher than tenants that were going away. So what you're seeing really as a result is the lower quality, poor performing retailers are getting weeded out, newer ones are coming along and taking their place. And when you own high quality malls like ours, they fill back up very quickly. There's a lot of demand for them.
We're still 96% occupied notwithstanding all of that. So in the short term, you have an FFO impact, there's a bit of downtime, but longer term and to your question about returns in that, the longer term value story is in place. This has always been the thesis with GGP, which is, yes, retailers are going through a tremendous amount of change. There are probably too many malls in the United States. But this portfolio of 125 is going to survive and be stronger in the future as those lower quality locations go away.
And I think that's what we're seeing. There's a huge divergence now between what's happening in high quality retail and the kind of performance we're getting out of these malls. And then obviously, I touched on a little bit earlier, but a big part of the thesis around GGP was not even retail related. These are tremendous development sites where we think we can build residential or other uses like that and obviously you can see the result of just those sort of last 12 months. We're finding more in there than I think we had expected probably.
A quick follow-up on Forest City, how is that penciling out since closing?
Yes, great. It's a I think Bea touched on a little bit with the overlay on the two businesses, but this was a really unique opportunity with Forest City and that it lined up so closely with our existing business and had a huge concentration in California and here in the Northeast, those two markets are both very strong. And so I'd say that we, if anything, any of the surprises that we have been finding within the business are upsides, things that we weren't 100% sure and we didn't attribute a lot of value to them, we are seeing great opportunities there and particularly on some of the development projects where we may not have attributed a lot of value to them, we're going vertical on them already. So I'd say that's been a home run.
I ask you this question from a Canadian perspective. Looking back over the last 5 or years, the stock really has gone nowhere except up with a high of about CAD32. It floated down to CAD21, CAD22, now it's back to CAD26, CAD27 and back to CAD26. I'm just wondering, considering the market over that period of time, why has the market not produced a positive interest by investors in your company? Because the volumes aren't there And there's no growth in the stock price
for many years now. Yes. So I would turn it around and ask all of you the same question. So all we can really control within the business is the operating results that we're delivering. And so as Brian went through, really from day 1, 5 years ago, what we've talked about is this business should be able to grow its earnings between 7% 9% on an annual basis, grow its dividend at 5% to 7% and increase NAV over that period of time and sort of lockstep with that.
That's what we've done for the last 5 years. I think there's a lot of things happening in the market. As Sheila sort of touched on, mall stocks are out of favor, office stocks are out of favor, and I don't know that we're any different than that.
Yes, you're producing 7% return now on a dividend basis, that's because the stock went down. Is that not really
Well, sorry, I was referring to the earnings growth and the growth in the distribution, which has been, as Brian said, it's about a 10% earnings growth over 5 year period and 6% distribution growth. Okay. So maybe I'll turn to the iPad. And the first question on here is, does the 2% to 3% NOI growth number depend on acquisitions and development or does that come from the current portfolio? So I think the number Brian specifically referred to was actually a 4% NOI growth over that period of time.
That's a combination of both acquisitions and distribution. So on a same store basis backing out any of our growth initiatives and just with the portfolio we have, it should be in that 2.5% to 3% and it's really going from 3% to 4% that comes from acquisitions and new developments. See if there's any more questions in the room and then I'll go to the iPad again.
You talked about releasing spreads at 7% on the new other re leased anchor space. What does that come out to when you net out the TIs that you put against it to get those tenants in?
Yes. So I mean, that's on a suite to suite without factoring in the capital, it's about 2%. It's still a net positive in terms of where the leasing is. And I'd say frankly, we would be happy even if that was a neutral trade. But overall on the portfolio this year was about 2.5% same store NOI growth and a portion of it was due to that re leasing on those bankruptcies.
Okay. So a significant portion of your office and multifamily businesses in London. Could you update us on how Brexit is impacting your business? Sorry, I thought the question was going to be updated on Brexit, which I'm not going to wade into. But in fact, how it's impacting your business in general and especially as it relates to the pricing and terms on your leasing and condo sales.
So that it's sort of I'd say 2 different answers, which is office and leasing. So obviously, the Brexit vote happened about 3 years ago. And from an office leasing and development perspective, one very positive thing came out of that rate from day 1, which is anyone who is considering developing a new office building in London at that point, put it immediately on hold. And so for the last 3 years, there's been no new development starts in the City of London. However, there's been continued growth in tenant demand, a lot of growth from just like we've seen here in New York, a lot of growth from tech and media tenants, and no real new supply coming along with that.
And so as a result, the vacancy rate in London today is very low. Leasing rates have actually held up very well. If you go back to the 2 development examples that I showed earlier, one was a major office building we built here in New York, where our yield on cost was 6%. The other one was our building in London, which was almost an 8% development yield on cost. And the reason for that is rents were actually above what our pro form a was.
And it's largely driven by a lot of this. So from a leasing perspective in London, it's actually been very positive. On the condo sales side, things have been a little bit slow over the last 12 months. Certainly for the 1st 2 years, they were very strong. And if anything, the drop in the currency helped with offshore buyers and demand from a number of offshore buyers, which is where a lot of the condo demand in London comes from.
Last 12 months have been a little bit quieter, but what we're seeing is there's a real pent up demand for people just waiting to see where Brexit goes. So I think once you get a resolution one way or the other, that should all goes. So I think once you get a resolution one way or the other that should all reverse. I think we have time for maybe one more question and then I'm going to turn it over to If there's none from the audience, I see a couple here on the iPad. Okay.
So the next question really is where do we see the most compelling opportunities globally today? That's more than a I have 28 seconds, more than a 28 second answer. But look, I think it is one of the really unique things about our business that we are in 30 countries around the world and we can pick and choose. Certainly, from an economic and underlying fundamental perspective, the U. S.
Is a fantastic place to be investing today. The challenge obviously is that everybody knows that and pricing is tough, particularly for high quality assets here. So having an edge like Bea and Natalie talked about, whether it's having this development capability or an ability to operate these businesses and drive synergies that way, It's a big advantage for us investing in the U. S. And so we've been very active here.
But with the business is growing a lot in Asia right now as well, India, China, South Korea, etcetera. And so I think and that's really a new frontier for us. So I think in percentage terms, it's just a lot more runway for us to grow in that part of the world. So with that, I will thank everyone for coming and turn it over to Bruce for some concluding remarks.
So I was considering taking a few questions, but after 7 hours, I've had enough. Not because I don't answer your questions, I'll answer any of them and we can do it after as Suzanne can tell you what we're doing for cocktails. But I guess I'd just say, I really we really appreciate you coming. We will be around at cocktails and there's many of us, so we can answer any of your questions if you have them. I hope we made your time useful today.
We thank you for your interest in Brookfield. We care about your capital a lot. We appreciate your support and your interest in us. It means a lot. And anything we can ever do for you, just please ask.
So without anything else, I'd just say thank you again for enduring us today. And thank you for being here and thank you for your support. So Suzanne, maybe you'll tell us what we're doing now.
Okay. So it is cocktail time. It's also raining, unfortunately. So we have for those of you who here last year, it's in the same place as it was last year, it's just on the inside part. So that's down 2 flights of stairs on the 4th floor.
And for those of you who have bags checked or coats or whatever, they'll take them down for you and there's a coat check right at where we're having cocktails. And leave your wristbands on and we'll see you there. Thanks again for coming.