Brookfield Asset Management Inc. Q3 2007 Earnings Call Transcript

Nov. 4.07 | About: Brookfield Asset (BAM)

Brookfield Asset Management Inc. (NYSE:BAM)

Q3 2007 Earnings Call

November 02, 2007, 11:00 AM ET

Executives

Robert J. Harding - Chairman

Brian D. Lawson - CFO

J. Bruce Flatt - Managing Partner and CEO

Analysts

Brendan Maiorana - Wachovia

Michael Goldberg - Desjardins Securities

Cherilyn Radbourne - Scotia Capital

Peter Sklar - BMO Capital Markets

Andrew Kuske - Credit Suisse

Rossa O'Reilly - CIBC World Markets

Ronald Redfield - Redfield Blonsky

Louis Sapir - Oppenheimer and Company

Neil Downey - RBC Capital Markets

Christopher Haley - Wachovia Securities

George Denninghoff - Vista Research Management

David Henley - DOH Capital Management

Michael Goldberg - Desjardins Securities

Operator

Ladies and gentlemen, welcome to the Brookfield Asset Management Inc conference call and webcast to present the Company’s Third Quarter 2007 Results.

At this time, I would like to turn the conference over to Mr. Robert Harding, Chairman of the Board. Please go ahead.

Robert J. Harding - Chairman

Thank you very much. Good morning ladies and gentlemen and that you for joining us for our third quarter 2007 earnings announcement.

Joining me today on the call is Brian Lawson, our Chief Financial Officer, who will discuss our financial results and provide an operating overview. Following Brian's remarks, Bruce Flatt, our Chief Executive Officer will discuss the number of currently completed transactions and provide an update on some major initiatives currently underway, following the remarks, of course, we look forward to taking your questions and comments.

At this time, I would like to remind you that in responding to questions and in talking about new initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual information Form and our report, which are available on our website.

With the done, I would like to turn the call over to Brian Lawson. Brian?

Brian D. Lawson - Chief Financial Officer

Thank you, Bob and good morning. We achieved our target in most of our operations during the quarter and exceeded expectations in a few. In particular, we continue to expand our assets under management and recorded increased revenues from these activities. We also realized meaningful gains in our investment activities. At the same time, our results were adversely impacted by lower generation levels within our power generation operation due to low leverage water condition, continued weakness in the U.S. housing market, and the strike in the Canadian coastal forest product sector.

Operating cash flow on a year-to-date basis was up substantially. On a comparable basis, which excludes realization and major disposition gains, our third quarter results were $342 million compared with $289 million last year, this represents an 18% increase. Including all these items, cash flow from operations for the third quarter was $321 million compared with $368 million last year, which included in particular a large fund formation gain. While we are disappointed with the negative components of our results, we recognized that they are largely as a result of expected cyclicality. The important thing to add is that in almost all areas of our operations, the businesses are performing well and the underlying fundamentals are strong. And looking-forward, we continue to be on target to record the highest cash flows in our history.

On a comparable basis, net income, prior to realization and disposition gains for the third quarter, was $175 million compared with $202 million last year. The increase in operating cash flows noted above were offset by depreciation on newly acquired assets, which reduced income by $76 million in the quarter.

The depreciation is significantly higher than projected annualized sustaining capital expenditures further assets, due to their high quality of long life and value appreciation potential. And this is why we focus on operating cash flow as a more appropriate measure in managing and measuring our operating performance.

Net income for the quarter, including all items, was $93 million. The decrease over last year represents… reflects the depreciation noted above as well as the lower level of realization and major disposition items recorded this year versus last. And in addition, it’s worth noting that $66 million of disposition gain that have been recorded in opening retained earnings whereas they otherwise would have been reported in the current period income and that’s due to a prescribed industry-wide change in accounting policies.

Turning to the individual areas. Our are fee revenues increased $90 million… to $96 million during the quarter from $64 million in the same quarter last year, due to higher asset management fees as well as an increase in property advisory fees. Base management fees on existing funds now totaled $90 million on an annualized basis.

As we discussed previously, our accounting policy differ the recognition of performance income, this includes performance fees and carried interest until the end of any claw back period. We estimate that accumulated performance fees at the end of the quarter that have not been recognized to date neither our operating cash flow or net income, totaled approximately $150 million, of which $80 million accumulated during the quarter. We will continue to update you on these fees on a quarterly basis, so you can better asses the value been created through these activities.

We continue to make progress investing funds that we have formed over past 12 months, including our second restructuring fund, with approximately $1 billion of committed capital, our $800 million Brazil retail fund, $1 billion follow-on bridge funds, and $450 million follow-on real estate finance fund. The Brazil retail fund is already half invested and we have a number of promising opportunities. In addition, we have also fully invested our real estate opportunity fund.

And finally, we are in the final stages of completing the necessary regulatory and organizational steps to form Brookfield infrastructure partners. We expect to complete this in early 2008. The process has taken longer than originally anticipated due to our objective of launching Brookfield infrastructure as a fully invested entity with a select group of operating businesses in United States, Canada, Brazil, and Chile. This resulted in a more complex formation process, but will enable shareholders to participate immediately in returns for these operations and provide greater visibility to the type of business that we are trying to build. In the long-term, we believe the time spend doing this will be well with the effort.

Our property operations, recorded a slightly higher level of cash for this quarter than the same quarter last year. Core properties increased due to the acquisition of a major portfolio around this time last year and we recorded continued growth from existing properties due to favorable leasing results.

Occupancy rates are at high levels across the portfolio and we continue to lease base at higher rates and the leases being replaced. Our residential businesses in Canada and Brazil recorded strong growth due to the favorable conditions in their respective markets. However, the weakened environment in the United States did lead to a negative contribution from these operations following a write-down in the values of some of the land holdings.

On the development side, we are continuing to advance a number of important projects in Huston, Toronto, New York, and Washington, as well as in Australia and U.K.

Now turning to our power generation operations. Low water flows resulted in generation that was 20% lower than long-term averages. This was offset in part by higher realized prices and the contributions from facilities that we acquired or built during the year. Fortunately, our storage levels for this time of the year are consistent with long-term averages and this should enable us to achieve our generation target for the balance of the year, assuming normal water inflow conditions prevail. We continue to expand our portfolio with a number of acquisitions during the year in new several development projects underway to expand our portfolio, particularly in Brazil. The contribution from our infrastructure operations was lower in the quarter.

Transmission results were inline with expectations. You might note that the topline cash flow results appear to be lower, but that is because we moved from full consolidation of the Chilean operations to an equity basis of accounting at the end of the last quarter. There has been no impact on the net contribution from these operations. The operating results in this business are typically very stable on a quarter-over-quarter basis and this quarter was no different. And we are exploring a number of opportunities to invest additional capital at attractive returns so as to expand the scale of our operations in this sector.

Our timber operations experienced lower demand due to the weakness in the U.S. home building market and a strike in the Western Canadian coastal forest industry. The strike was resolved in October, which has allowed us to resume normal operations. However, the weakness in the U.S. home building market is expected to persist well into 2008. We recorded continued growth in our specialty funds, with increases in committed capital and invested capital. Operating results improved in all areas with the exception one investee company in our restructuring fund that is facing a difficult operating environment. And our private and public equity portfolio has produced strong results in the quarter. We capitalized on rising equity markets to monetize a number of common equity positions, and in the process, we realized disposition gain and at the same time established a higher than normal level of cash liquidity with which to fund our acquisition of Multiplex. We also recorded increased cash flows from our private equity portfolio

Carrying charges increased compared to last year, although, they were relatively unchanged from the second quarter of 2007. The increase over last year relates to the capitalization of the acquisitions in late 2006 and then the second quarter of 2007, which, of course, in term contributed to increase net operating cash flows from the acquired assets. Our capitalization overall is relatively unchanged from the end of June. We did take advantage of market volatility during the quarter to repurchase approximately 4 million of our own common shares at an average price of approximately $33. Our liquidity remains strong. Core liquidity which consists of cash and financial assets and committed credit facilities remained above $2 billion and included cash of $1.6 billion that we had raised to acquire the remaining shares of Multiplex for an equivalent amount.

Our core liquidity is supplemented by and replenished from our secondary source of liquidity, which include our operating cash flow, which exceeds $I billion each year and asset monetizations, and this continues to be strong. Following the Multiplex acquisition, we are in the $1.5 billion range of core liquidity and we expect to return to above the $2 billion range very shortly. It is worth noting that this amount of invested… that the amount of investable capital at our disposal far out weighs this amount and continues to increase as we raise additional funds with committed capital from our investment partners.

The outlook for the fourth quarter is positive. We continue to experience high levels of occupancy across our office portfolios and strong leasing activity in almost all of our markets.

Our Canadian and Brazilian residential businesses continue to experience strong demand, although, the slowdown in the U.S. home building markets, as I mentioned before, is expected to persist in the next year.

Power generation results for the fourth quarter should be inline with our expectations, based on the storage levels I referenced earlier in the call, and the current pricing environment. And within our infrastructure, transmission operations are expected to produce stable results consistent with recent quarters and as I mentioned the strike that had impacted our Western Canadian Timber operations has been settled. And as Bruce will describe in a moment, we will record two sizable investment gains in the fourth quarter. So, all in all, we believe we are well positioned to report favorable operating results.

Finally, the Board of Directors approved the declaration of our regular and quarterly dividend, $0.12 per share payable at the end of February 2008 to shareholder of record at the beginning of the month.

And with that, I will now turn the call over to Bruce.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Thank you Brian and good morning everyone. Firstly, as Brian just mentioned, we did close two transactions this week, which are not… either of them related specifically to our core operations, in fact, we had very little capital invested, but the results were outstanding for the Company.

The first one is that we closed the sale of our shares at Stelco to U.S. Steel and our restructuring fund was integral to that process, and we realized proceeds of approximately eight times the original investment and expect to report a pretax gain in the fourth quarter of around $250 million. I guess, firstly, just to ensure that we record substantial returns in our Tricap one fund much higher than originally promised and are carried interest in the future should be larger.

The second transaction was secondary offering of the Brazilian stock exchange with the Bovespa closed this week. The Bovespa was taken public through an IPO that raised about $3.7 billion. We owned the number of seats formerly thorough our investment bank on the Bovespa, which were converted to common shares and we have now monetized them. Proceeds to us were approximately $160 million, and again, in the fourth quarter, we expect to record a substantial gain on this sale.

With respect to our operations, we continue to make progress as Brian described, during the quarter and expanding the business and accomplished number of the objectives, we set out. And although, the third quarter, in general, in the capital markets was characterized by high volatility, particularly the debt markets, I guess, I’ve noted are conservative balance sheet, the term financing that we have in place on our type of assets. The very high quality asset base that we have on our balance sheet in our funds and the associated cash flow to come with those stood as well and we are very positive of those assets. The underlying fundamentals in almost… virtually all of our operations with the exception of a couple remain favorable, now withstanding the variability that Brian talked about on some of those during this specific quarter.

On Multiplex, we recently announced our offer to acquire… Multiplex was unconditional and we seen secured about 95% of the outstanding shares. We hope to be in a position to acquire the remaining shares by mid-November. And this adds about, as I think it’s noted in our… materials about $6.6 billion of office and retail assets under management. It expands our asset management operations. It adds the full scale… fully developed Australian operation to the business. It has a presence in the Middle East which given what’s going on in this region and where oil prices are very extreme. We believe it can be extremely valuable to us in the future and it adds further scope to our European business.

Most of the initial capital of our investment is in Australia and the markets of Sydney, Melbourne, and Brisbane and Perth. It also includes about $700 million of assets in Europe most in the U.K.

In the Middle East, mostly operations are in Dubai. We know on the large scale construction business there, and we believe we can expand this property construction business in other infrastructure categories and geographically into other markets, specifically today we are focused on new contracts, which we recently secured in India.

Most of these markets that we’ve just invested into are resources driven. And therefore, like our operations in Canada and in Brazil are currently being very positively driven by resources, oil, metals, and coal. The Multiplex assets include about $3.5 million of core office and retail properties within nine funds… actually funds that are managed by us. But there is also about $3 billion of assets which we now own virtually a 100% of through the Multiplex property trust that used to be stable to the entity that we purchased. Essentially, we now own 100% of those, and as with all of our initiatives, we are looking at the best utilization of the assets within our capital platform and our fund raising platform, and during 2008, we will likely establish further funds with these assets. During the process of integrating the European operations and Multiplex with our own and this should… and this will enable us to expand our capabilities in that market.

Turning to Latin America. We continue to grow operations where we… with a particular focus on Brazil and Chile where we have major operations today and we think we have a competitive advantage. This includes the formation of new funds, the expansion of existing operations and the pursuit of new opportunities to enter new infrastructure areas. Most specifically, in the quarter, we added a number of retail malls to our Brazilian retail fund. Today, we are both 11 centers encompassing 2.6 million square feet and with the closing of this purchases and another major acquisition expected shortly, we are one of the largest owners of retail properties in this market, which I guess, we think of is 25 years ago in the United States in a rapidly consolidating market. Shortly, this fund will be fully invested and we expect returns to exceed those when we launched… but we expected when we launch the fund.

In the Brazilian residential operations, we purchased a major piece of land this quarter, which encompasses about 20 million square feet of potential density. It has significant infrastructure in place and the acquisition will provide us building density for next 10 to 15 years as we build the business out.

Turning to the commercial property operations. We have recently been asked a number of times about our office building business which is most of you know as a significant component of the Company, and how it could be affected by market disruptions. And I might just point out five things with respect to the business. First, vacancy rates in virtually all of our markets are extremely low. In our resource driven countries where we have office properties I would say that being in Canada and Australia. Vacancies are likely… are probably never been lower in history. They are all sub 5% and some are effectively are 0% vacancy. In our financial markets, those being New York, Boston, Toronto, London, and Sydney, vacancies are also very low driven by strong financial services over the past five years.

Second point I’d make is that construction overbuilding is generally not existent. Since coming out of the last cycle space, construction has been relatively constrained with the exception of a few select markets and as a result the supply side of the equation is positive in virtually all of our markets. Third, rental rates are still very high. In fact, they are, the highest they’ve been for many, many years in a lot of markets. In general, the rents locked into leases in properties and therefore the cash flows of the properties are significant. So, even our… in fact the rents locked into leases are lower than the market rents that are out there. So, even if rents go down, cash flows likely will stay the same or even keep increasing despite that. To give an example, just referring to midtown Manhattan rents are currently solidly in the $125 to $150 range in the marketplace for most properties, and the range of values of cash flows locked into properties is generally in the $60 per foot range, $60 to $70. So, today, there is significant mark-to-market uplift occurring in rental properties. And there’s a big margin between where those properties are getting rented and cash flows in the buildings.

Fourth, I just talk about financing of commercial real estate and while there have been some over leveraged acquisition deals done in the marketplace with terms that were likely looking at hindsight quite aggressive. By and large, the financing of the office building is solid… office building business is solid and a few problem loans, home loans on properties are out there. CNBS underwriting standards were largely good; I would say definitely not all. And value increases in properties over the years have insured that most underwriting has been corrected through appreciation and growth in cash flows.

Fifth… and people should note that of the type of properties that we own and the many others own, lease terms in them are very long and ours are around 10 years plus on average in the portfolio. As a result, cash flows don’t change overnight, they adjust over the longer-term. As a result, even if rents go down in a… for a short period of time, it takes a very long period of time to materially effect cash flow streams in those properties. And all in all, I guess those five points we think that the office building business is still in very good shape looking forward.

Lastly, I’d say we're becoming… excited about some of the opportunities presenting themselves in the marketplace. We have been capitalizing on… I’d say smaller incremental transactions in each of our businesses over the past two months to add assets. We think many of these tuck-in acquisitions will be lucrative for us, most of them been easier to do in this current environment. We have yet to capitalize on anything substantial in the Company, but we are positioning ourselves to be able to accomplish this in the months and the years ahead.

Thank you, and I’ll now turn it over to the operator, and we would be happy to take anybodies questions.

Question and Answer

Operator

Thank you, sir. We will now begin the question-and-answer session.

[Operator Instructions].

Our first question today comes from Chris Haley of Wachovia.

Brendan Maiorana - Wachovia

Hi, good morning guys. It’s Brendan Maiorana with Chris. Couple of questions. First, in terms of the accrued performance fees, are most of those fees calculated based on a percentage of the increase in value of the underlying assets within the funds?

Robert J. Harding - Chairman

The way we determine those fees, Brendan, is we look at the… it’s obviously dependent on the contractual terms of each particular fund, and we assess where the fund is at that date… at the date of… the reporting date and assume as though the fees are realized at that time. So, it’s not necessarily a percentage of the increase. There’s often a threshold involved it, so with the portion of the increase in value above that threshold or in some cases it may simply be a performance on a cumulative basis of net operating income over again a specific return threshold.

Brendan Maiorana - Wachovia

Okay. So, I guess, it sounds like you have a mix in between sort of… a percentage above a threshold of value creation plus some percentage of operating cash flow. If I think about adjusting the funds that you are… or the accrued fees you are getting on the value creation part of it, it would strike me that a lot the value creation for the underlying assets could have been early on in the lifecycle of the asset, just by either acquiring the asset and a more attractive purchase price then maybe a market price or picking up some of the low hanging fruit. So, thinking about that, how do you think the trajectory and the growth of accrued performance fees likely to be relative to where it has been over the past couple of year just for the existing fund?

Robert J. Harding - Chairman

I guess, I responded, obviously, in general, we try to take a pretty conservative approach to how we determine these and why there are certainly going to be some situations where you might be able to acquire something at discount where it is very quickly revalued, what we focus on is how that revaluations is done. And so, if it’s something that’s pretty objective in a market price that can be pretty clear and easy. On the other hand, if you are looking at discount rate or cap rate things like that, we would be less likely to major adjustments based on movements and those sorts of factors. Absent a objective benchmark that pertains specifically to those type of assets such as the underlying cash flow for example. For example, we might not change the cap rate on something, but we would certainly apply that same cap rate to… and increasing the cash flow, which would give rise to an increase in valuation.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

And Brendan, maybe just one additional comment to that is when you look to these funds often the assets that we are buying in them are more opportunistic in nature, and therefore, in fact, it takes till latter years to effect the plans that you want to put in place. Sometimes you are buying an asset and it’s a redevelopment asset, so it take a number of years to get there. So, I think the… a lot of the value creation come in the mid to latter stage of fund than right away.

Brendan Maiorana - Wachovia

Okay. Great. That’s very helpful. Thank you. And then, Brian, just a quick point of clarification. So, is the… I guess the value assessment is that being done by you guys or is that being done by an independent party?

Brian D. Lawson - Chief Financial Officer

Again there is a mix where lot the funds will have a valuation stuff… formal valuations done on a periodic basis, obviously, those are the ones we would use. Absent those, we will use our own estimate to value.

Brendan Maiorana - Wachovia

Okay. Great. And then in terms of just… obviously with the Stelco investment, that’s an investment that I am sure you guys are getting large performance fee on. And just the commentary that most of these would not be recognized for the accrued performances… not be recognized for six years. With Stelco, is that… is there still a claw back at the Tricap level rather than at the individual investment levels of that… the performances or I guess the Stelco individual investment when we realize until the termination of the Tricap.

Brian D. Lawson - Chief Financial Officer

Yes, the Tricap one would be… fund would be consistent with most of the other funds, meaning that there is not an asset-by-asset specific realization on the performances fee side. So, we get pulled and that base would come into a number once the fund is largely realized.

Brendan Maiorana - Wachovia

Okay. Great. And then last, just in terms of Timber just both for Island and for Longview. How much of your potential sales, can you divert to Asia and jurisdiction outside of North America?

Brian D. Lawson - Chief Financial Officer

Yes. It would be in the order, it varies market-by-market and it can fluctuate from quarter-to-quarter. But it’s probably a quarter, let’s say, in a given period. Sometimes it will be little less, sometimes we can get more of it. But it certainly, in terms of the overall supply demand balance, that’s the pretty significant number for us and able to… being able to manage the sales of the log. We also have the ability to shift and you might have noticed, we made some commentary on this between the various species. So, for example, if you think that the margins are getting more compressed on Douglas Fir, let's say, which was the case during the last quarter relative to where we see the launch of values of those trees. We see… simply leave them on the stump and let them grow more, and sell them once values recover. And what we did in the meantime we shift over to a white wood… more white wood species where the margins held up much better. The lower margins that… but held up relatively strongly, and so, that the kind of thing us doing to maximize value there.

Brendan Maiorana - Wachovia

Great. Thank you.

Brian D. Lawson - Chief Financial Officer

You’re welcome.

Operator

Our next question comes from Michael Goldberg of Desjardins Securities.

Michael Goldberg - Desjardins Securities

Good morning. I had a few questions. First of all, can you bring us up to date on the lease negotiation with Merrill Lynch?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Michael, Rick Clark dealt with that in the Brookfield Properties call yesterday. And since it’s in a subsidiary of ours and separately publicly traded I'd rather that people on the line actually referred to his comments that he made on the call.

Michael Goldberg - Desjardins Securities

Okay. I will look….

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Just because it’s a little bit sensitive obviously and rather not have two people speaking about in the marketplace.

Michael Goldberg - Desjardins Securities

Okay. Second, now that Multiplex is almost wholly owned, can you talk a bit what assets in Multiplex your view is non-core?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Michael, we are in the process of… there is a… as when you buy all companies, there is a number of assets in the Company and the business sourced out really into three groups, the construction business, the funds management business, and then the… all of the assets that were in the Company. And the assets in the Company, I guess, segment into two groups. There is whole scale development business, like we have here, a little bit of residential development, not that much. But significant amount of commercial development and these are the early stages of office buildings and office building being completed by us at the time. So, all of those projects are in a pipeline that we are building out. For example, we are building American Express, a new building in Sydney, and we are building Quarry Bank, a new office building in Sydney. We are building BHP Billitin, a new headquarters building in Perth. And so, those are all in a pipeline. There are some assets in the completed category, which we will sell, a few not that many that are just non-core of our long-term strategy. Most of the balance of assets will find themselves into fund that we will be creating over the next 12 months. And so, we are going through that process with the management today to identify the long-term hold that we want to hold with our institutional investors, and a few assets that ultimately will be sold.

Michael Goldberg - Desjardins Securities

Okay. And finally, can you bring us up to date on what funds are pending formation and what the size of those funds would be?

Robert J. Harding - Chairman

Michael, that’s one of the areas that we are pretty strictly restricted from commenting on because of the private placement rules in the U.S. So, I am afraid we really can’t give you any specific visibility in that regard.

Michael Goldberg - Desjardins Securities

Okay. But you will be press releasing when they do actually happen?

Robert J. Harding - Chairman

Absolutely.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Yes, Michael, we will either… if it very large, we will put it inside, if not, we will include within our quarterly materials like we do with other information that isn’t maybe as larger as material for the Company.

Michael Goldberg - Desjardins Securities

Okay. Thanks a lot.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

You are welcome.

Operator

Our next question comes from Cherilyn Radbourne of Scotia Capital.

Cherilyn Radbourne - Scotia Capital

Thanks very much. I was wondering if you could speak more about the opportunities that you refer to deploy further capital into your transmission operations both in Canada and Chile. Just give us a sense of the dollars that you are thinking about timing and what sort of rates of return you would be targeting.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Maybe just on the deployment of capital, I guess, we have targeted a number of… I guess, we target all of our areas to put incremental capital into. And I guess, one of the comments that I made… and the comments that I had set was that we are seeing a number of other opportunities come to us because of the environment we are in. And I would just say it’s easier for us to be able to negotiate in closed transactions in this environment than it is in other places than it has been over the last 18 months. Specifically to the utility sector, we have a number of greenfield or new build operations that are in Chile that we are working on expand the system. The country of Chile is doing extremely well. The commodity producers are doing… are booming and we own the major transmission lines in the country. And these… the Chilean operations are essentially add-on infrastructure assets to the system we have which… there is approximately $1 billion of add-ons in the regular course of business, so we can add into system. And then there is one major project in the south of the country that’s in the $2 billion to $3 billion range. All of those get added into our rate base. And our returns are, in Chile specifically in that system, are 10% real return on a regulated rate base that we get.

With respect to other utility areas, we have been… we bought some assets in Brazil last year, and we are looking at a number of other assets in Brazil. In addition, we hope to be able to find things in North America. And we think there will be some of those that will come along.

Cherilyn Radbourne - Scotia Capital

Okay. I also wondered if you could talk about the team you are assembling to start investing in real estate in Asia. Just how much capital you would contemplate committing initially and what your preliminary thoughts are as to you how long it might take before you were ready to start raising third party capital?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

When we go into a new market, I guess, we always want to be careful with… firstly with our own capital, but secondly with anyone’s capital. We are now in the process and we have been for last year, I guess, assessing the markets and what we should do in Asia. We have now hired a team of people, specifically one individual to head the group, on a real estate opportunity fund, will commit our capital to it in a… the way we call this fund one and it will be $200 million of our own money, that we will commit to it. But it will be all our capital. And once we are invested that, we will work out the issues we have. As you always do, starting up with new management team in the new market and then we will look in fund to be able to bring in the institutional capital. And we hope to probably do that within 12 to 18 months.

Cherilyn Radbourne - Scotia Capital

And last question for me. It sounds like in the process of acquiring control of Multiplex and just spending more time getting to know that operation that you become a bit more excited about the footprint that they had in the Middle East. So, I wonder if you could just talk more specifically about that footprint. And what kind of opportunities you think that gets rise to?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Well, I guess, in the most basic sense, oil seems to be heading over a $100. And the Middle Eastern countries are booming. There is a lot of capital coming out and I would say the interest for us is two fold. The first one is that given our presence there, we have a lot better connections into some of the capital sources because we are actually doing business for them, and working for them, doing things with them, and they actually know us. And we think that will be helpful to our fund raising capabilities in the future. Secondly, on the opportunity side, today we are solely a construction business in real estate. We think we can take that into other infrastructure type assets and being able to develop and possibly own. And there is a lot of money there, and there is a lot of infrastructure that that needs to be built. And secondly, we think we take the business we have there and expand it into some of the other markets that are close by. And India being a specific one and that we have… we believe a competitive advantage of a major workforce… a lot of it is Indian to be able put back in India, and possibly to deploy, and we are starting that as we speak.

Cherilyn Radbourne - Scotia Capital

Okay. Thanks very much. That’s all from me.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Thank you.

Operator

Our next question comes from Peter Sklar of BMO Capital Markets.

Peter Sklar - BMO Capital Markets

Back on the $82 million of carry fees you talked about that were not recorded for GAAP purposes. I just want to understand, that $82 million of fees, is that cash fees that you received?

Brian D. Lawson - Chief Financial Officer

No, that wouldn’t necessarily the cash fees. In some cases, it might be, Peter. But typically that’s not cash fees.

Peter Sklar - BMO Capital Markets

So, what is that… I don’t… some notional amount, I don’t’ understand, what it is?

Brian D. Lawson - Chief Financial Officer

It is… the way we approach is, as we look at every given fund, at the end of each quarter, and based on the value that’s been created in that fund to that date, we look at that in the context of what the management arrangements with that specific fund provide for a payment whether it’s a carried interest or performance fee or what have you. And that is the amount that we would accumulate in this performance fees, because the assumption is if that fund was wound up on that date or if you maintained the status, well, let’s say going forward, that’s what we should earn over time.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

But, Peter, it’s Bruce. It will be cash amount, just to be clear. It has been calculated by us at the quarter-end as… is that if we want to fund up, it will be owning to us, and it will become cash when it gets paid. But for the time being it has not been recorded in either our cash flow statement or our income statement.

Peter Sklar - BMO Capital Markets

No, but I won’t pay cash if the value of the investments or assets decline?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

That is totally correct and that’s why the conservative way is to not record it in our income or cash flow statement, it’s just to show you that at the current time, that’s the value of those fees.

Peter Sklar - BMO Capital Markets

Right. And that $82 million calculation, is that gross or is that net after the split that would be taken by the managements of those funds?

Brian D. Lawson - Chief Financial Officer

That is gross and what we are also referencing in the discussion around that… around the cumulative performance fees that we would expect out of the $153 million that we have accumulated to date, roughly $25 million of that would go to direct associated expenses, which would include those types of arrangements.

Peter Sklar - BMO Capital Markets

Okay. On… your disclosure… on Multiplex, when you talked about assets under management, the $3.6 billion within the nine funds and the $3 billion held within the trust, you are not… you are talking about capital deployed. Is that correct?

Brian D. Lawson - Chief Financial Officer

Not on the $3.6 billion. We have basically nothing. None of our… none of our own capital and none of Multiplex’s existing capital is invested in those… in the $3.6 billion. What…

Peter Sklar - BMO Capital Markets

But I meant… I didn’t mean your count. I am really trying to drive at how much third party capital.

Brian D. Lawson - Chief Financial Officer

Right. The $3.6 billion here is all third party capital. The $3 billion that we referred to… that Bruce referred to in his comments that is the Multiplex property trust, which was… unit to that was stapled to the units of Multiplex Group. And so when we acquired Multiplex, we ended up acquiring 100% of that trust, so that… so the way to differentiate it is the $3.6 billion is all third party money, the $3 billion from Multiplex trust is all… as it stands today our money.

Peter Sklar - BMO Capital Markets

That’s why I want to make sure I understand we are talking about equity, not assets?

Brian D. Lawson - Chief Financial Officer

Those are… the $3.6 billion. Yes, that’s right.

Peter Sklar - BMO Capital Markets

Okay. And lastly, on the sale you talked about of your seat on the Brazilian stock exchange, that would convert it into equity. I noticed that you are reluctant to give an estimate… like you talked about the proceeds, but you are reluctant to give an estimate of the gain. I was just wondering if you could give us your viewpoint on what the gain is going to be.

Brian D. Lawson - Chief Financial Officer

I can’t really give that to you right now, Peter. Frankly, we are just working our way through that one and it is a little bit more complicated because we just recently acquired a half of that business from Mellon Bank, and so, we need to factor through purchase equations and things like that.

Peter Sklar - Bmo Capital Markets

And sorry… one last question. I think I calculated this right when I looked in your supplemental information package and looked at the amount of third party capital that you have under management. It was unchanged relative to the second quarter. I thought it might have grown because you are launching funds, is it possible that capital was repatriated as investments were monetized?

Brian D. Lawson - Chief Financial Officer

There is a little bit of that, Peter, and then some of the newer funds were raised more towards the beginning of the year or the first six months of the year.

Peter Sklar - Bmo Capital Markets

Right. Okay. Thank you.

Brian D. Lawson - Chief Financial Officer

You're welcome.

Operator

Our next question comes from Andrew Kuske of Credit Suisse.

Andrew Kuske - Credit Suisse

Thank you. Good morning. Given some of the gyrations we've seen in the credit markets, how have you seen competition for certain infrastructure asserts really around the globe? And I asked the question in part, one of the most recent toll road options we saw in Brazil, the rumored number of bidders is around 30 and the price that was actually paid at the end looks fairly hefty. So, I’m just curious as to what your thoughts are on competition and how that’s been in the last few months compared to say six months ago?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

It’s Bruce. Andrew, I would make two comments. The first one is, there is a flight to quality in the world and the type of assets that we generally own are high quality streams of cash and high quality assets that appreciate in values over time and given a slight to quality. Those are the type of assets. People are still comfortable with funding and comfortable with putting equity into. So, if there are going to be transactions on assets, it’s these type of assets that the people have capital availability to buy. Secondly, I’d say on the margin, there are less buyers today than they were before, because the high leverage buyers and those… the type of buyers who were on the margin. So, it sometimes force the price up a lot… are non-existent there or don’t have the capital availability.

Third comment is… and you specifically referred to Brazil. There are other parts of the world that are not as affected by the U.S. banking and subprime issues. And as a result of it and Brazil being one of them, Brazil is still booming. The banks have capital availability. In fact, availability of capital in Brazil is probably higher today than it’s ever been in history. And the banks are extremely positively disposed to lending that capital in the marketplace for appropriate returns. So, I’d say it depends on the markets you are in as to what's going on.

Andrew Kuske - Credit Suisse

Well, guys just following up on that. When you look at your cost of capital in Brazil… in Latin America broadly, how much of a compression would you estimate you have seen on your cost of capital in Brazil? Really in part because the economic turnaround there and then I really want of see on a go forward basis a fairly booming economy.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Why don’t I… I’ll try of answer it and if I don’t specifically answer your question, you can try again. But I guess I’d say that as the short-term interest rates were 18 months ago in the close to 20%. Six months ago, they were 14% and today they are 11% to 12%. That’s a nominal rate pickup 3 percentage points through inflation and get you to a 9% real rate, which is still high, but it’s come down dramatically from where it was before. In essence, what that forced anyone that bought an asset in the country to do, was to put to… to buy with no leverage. And no one used any leverage in an acquisition in the country including ourselves. What you are seeing now is that… with interest rates coming down and the expectation that is short interest rates will come down more, long interest rates are actually must lower than short rates in Brazil. And then as a result to that expectation, the capital markets are developing and people are starting to use leverage, and we believe that as Brazil, which is largely expected to do in the next shot while become investment grade, that will continue to happen. And that rates will continue to come down and the cost of capital will be lower. So, it just means higher equity returns, even though, asset values have been going on.

Andrew Kuske - Credit Suisse

As matter of fact, your existing asset base there has already appreciated given the compression on your cost of capital?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Now the… in fact, the increases in values of the assets we have there on an NAV basis is twofold. It's one that, but secondly, the appreciation of Real has been by far I think the strongest currency appreciation against the U.S. dollar, almost without exception in the world, and that says a lot today actually. There has been some very significant increase in last 24 months.

Andrew Kuske - Credit Suisse

And then if I may just one final question. If you look at yourselves where you are allocating capital, what your longer term view on… on really the U.S. dollar because you mentioned, really focusing on countries that have resource driven economies and that's where you see a considerable amount of opportunities. So, how do you look at that in the context with the U.S. dollar?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Well, firstly, I would say we are definitely not currency experts. We try to invest on… NAV basis and make money over the longer term and assets values. Sometime, we take a little bit into account where we are putting capital. We just happened to be lucky and have a lot of assets in three countries which have exceptional resource driven economy. Just to give you… everyone on the phone, that basis and we essentially act as a U.S. company. 60% of the assets are outside of the United States. So, we are like a… we are like an international… U.S. International Company. And the values of the assets as they appreciate in those markets, obviously, the values of the company continue to go up inside. When some people see the Canadian stock price and they convert it into U.S. dollars, as a higher exchange rate, it goes down because we trade on both exchanges. But what doesn’t get factored in some times unit later stages, is that the value of the assets in the company we are not. And I guess, we believe that we are benefiting from some of those things, although, we generally don’t invest off of that and take… try to take the use on currency.

Andrew Kuske - Credit Suisse

That’s great. Thank you, Bruce.

Operator

Our next question comes from Ross O’Riley of CIBC World Market.

Rossa O'Reilly - CIBC World Markets

Thank you very much. At the end of September the common shares held by Multiplex are either under cash and financial assets of $558 million. That seemed like a rather low number to me. Was that because of some off balance sheet financing or had you actually only paid for enclosed a relatively small number at that time?

Brian D. Lawson - Chief Financial Officer

It’s the latter. That’s how many we had acquired to-date as with any takeover bid Ross as you might imagine most of the shares come in right at the end of the day. We did not declare our bid unconditional until mid to late October so what you saw was a, most of the shares that we've , now through 95% and that really came in over the last week or so.

Rossa O'Reilly - CIBC World Markets

So the point at the A2 do you happen to know what percentage of the shares that represented.

Brian D. Lawson - Chief Financial Officer

Oh Gosh! That was most of our original shares and some of the shares that we had acquired from the Robert and Roberts family. We can get you that number Rossa but I’m not exactly sure

Rossa O'Reilly - CIBC World Markets

And then I note that, as you frequently do, you've updated the value of your investment in Canary Wharf which is on your books at $182 million and for the appraisals that were done for that company in the U.K. have now indicates that, that investment is worth close to a $1 billion and as you go increasing the global and with real estate investments which I guess Canary Wharf was the first step answer like North America. Are you contemplating at all the adoption of international accounting standards with respect the real estate operations which, of course, include regular updates on appraised values?

Brian D. Lawson - Chief Financial Officer

Sure. We are certainly… as you alluded to the whole Canadian GAAP has been replace with international GAAP in these developments not regard in the U.S. with respect to multinational and others adopting international standards close to U.S. GAAP. So, we are looking at that definitely. And I just say to the extent that where they are publicly available valuation metrics, we will… do our best to share those with you. I’ll just come back to your early comment… question about the Multiplex, The investment on our [inaudible] represented around 13%.

Rossa O'Reilly - CIBC World Markets

13%, thanks very much. And then… but I guess it will be too early to expect that at the end of this year, you would switch to any kind of international accounting standards or include the current value component to disclosure?

Brian D. Lawson - Chief Financial Officer

That’s correct.

Rossa O'Reilly - CIBC World Markets

But next year could that be in place?

Brian D. Lawson - Chief Financial Officer

Ross, I think the timeframe in Canada is posted at 2009, 2010. So you’re really not going to see it there until… that’s one we would be doing it within that framework.

Rossa O'Reilly - CIBC World Markets

And then looking to the Brazilian operation the… are there any currency reserves that relate to that, or I am just wondering if we should view any changes in the Brazilian assets and liabilities has been reflected generally in the consolidated financial statements that they are trying to exchange rates?

Brian D. Lawson - Chief Financial Officer

Yes. What we do… some of them we do… some of the asset do end up getting carry a current value, although, you don’t see that coming through our P&L. You see that going through what we call accumulated other comprehensive income, which is the same as the accumulated translation adjustment in Canada. So, we go through our ET and perhaps the fluctuation in our equity that is no current earnings impact.

Rossa O'Reilly - CIBC World Markets

And the final accounting thing, I may, when you have full control of Multiplex, will it then come in as a segment on the property income in the same way as you have Canadian, U.S. and U.K. investments there?

Brian D. Lawson - Chief Financial Officer

Yes. It would come in… and Bruce mentioned the various segments that within Multiplex, which frankly lineup very well with our existing segments for disclosures. So, the core office properties would be including our core office segment, same thing for the residential, same thing for the development, and then the construction would be a new area.

Rossa O'Reilly - CIBC World Markets

And then you have 90% plus of the shares, how quickly do you expect that it will be a 100%?

Brian D. Lawson - Chief Financial Officer

I think we’re in the steps of proceeding towards compulsory acquisition and so it should be within… I am hopeful within next four to five weeks. But frankly I don’t know the strict legal timing.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Definitely before year-end, Rossa, we should have a 100%.

Rossa O'Reilly - CIBC World Markets

Well, thanks very much.

Operator

Our next question comes from Ronald Redfield of Redfield Blonsky.

Ronald Redfield - Redfield Blonsky

Hi, good morning. I have a question on total assets managed. In the past I believe you included invested capital and committed capital. When you broke that down and previously under totally for the total Company, but you never listed the Brookfield committed capital. Can you tell me if… what is the Brookfield capital committed versus funded currently? And if it’s unfunded, when is the capital due?

Brian D. Lawson - Chief Financial Officer

There is no specific timeline for when the capital is due that we come in as we make investment amount. The total amount… I think if you look at our disclosure what we show the committed capital by the current investors versus the total… I would estimate it at… versus invested is probably around $1 billion, two in the one segment. So, it’s probably about $3 billion in aggregate of commitment. That was… a big chunk of that’s already invested.

Ronald Redfield - Redfield Blonsky

So, $3 billion committed total--?

Brian D. Lawson - Chief Financial Officer

I wish there is probably about $1 billion of committed capital that has not been invested.

Ronald Redfield - Redfield Blonsky

And of that how much would Brookfield’s share?

Brian D. Lawson - Chief Financial Officer

That would be a share of it.

Ronald Redfield - Redfield Blonsky

Okay. My other question would be, on Liberty Plaza, One Liberty Plaza, can you give any greater terms on that? Was it principle interest, interest only?

Brian D. Lawson - Chief Financial Officer

Again, that’s a Brookfield Properties financing. So, it’s probably something that should get… that disclosed more by them. I think we’ve disclosed with the general term and the financing rate is. There is an IO component to that for a period of time. But I think you probably best following up with the folks at Brookfield Properties. So, we can get back to you on their behalf.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

But in general and what is disclosed, it was a 10 year fixed rate 6.1% traditional commercial mortgage financing.

Ronald Redfield - Redfield Blonsky

Okay. And then my last question would be for Brookfield power operations which is primarily Brookfield Power Inc. but not solely, can you please give us a three months net income for that… where it came in?

Brian D. Lawson - Chief Financial Officer

For that particular… I can’t give off, I am not.

Ronald Redfield - Redfield Blonsky

Okay. And currently that’s rated, if I am not mistaking Brookfield Power Inc. or Brookfield Power Corp. The bond issuance is rated BBB minus, which is the lowest grade of investment grade or one step above junk. Are you doing anything to hopefully change that, and have that upgraded? Or can you discuss how you feel about the BBB minus rating?

Brian D. Lawson - Chief Financial Officer

It’s actually the… corporate on secured notes are rated BBB by S&P and BBB high by DBRS, and BBB by Fitch. I think they are a little higher than what you are listening?

Ronald Redfield - Redfield Blonsky

Are you saying there’s no Brookfield power notes rated BBB minus by Fitch?

Brian D. Lawson - Chief Financial Officer

They are rated BBB corporate unsecured notes are BBB. Now I… what I don’t know is whether there is a single issue in a prior specific project that might be BBB minus? I am frankly not aware of one.

Ronald Redfield - Redfield Blonsky

In February they gave you a rating BBB minus, but if you are not familiar with that then I guess we can’t discuss it?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Maybe on… they may rate one of the securities issued by one of the Power plan and one of them may have a rating as that but if you want it Brian you could send the materials to Brian and he can certainly clarify it for you sir.

Ronald Redfield - Redfield Blonsky

Sure. I had just spoken to them and I guess I confirmed it, but I guess you are just not… no that’s fine. Thank you.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Yep.

Operator

Our next question comes from Louis Sapir of Oppenheimer and Company.

Louis Sapir - Oppenheimer and Company

Thank you very much. Would you kindly give ma an idea of the adjusted book value of Brookfield properties in total and the amount of the value that goes spinning off to Brookfield infrastructure partners?

Brian D. Lawson - Chief Financial Officer

Okay. Starting with the latter question. We have given an approximate range of value for the equity of Brookfield Infrastructure partners of $1 billion.

Louis Sapir - Oppenheimer and Company

How would that be per share?

Brian D. Lawson - Chief Financial Officer

That would be… so that would translate into… we are spinning off 60% of it so that’s around $600 million and that’s’ about $1 per share.

Louis Sapir - Oppenheimer and Company

And how about the Brookfield?

Brian D. Lawson - Chief Financial Officer

Brookfield properties? Is that what you were asking about?

Louis Sapir - Oppenheimer and Company

Yes, sir.

Brian D. Lawson - Chief Financial Officer

That I couldn’t give you that one off hand but if you like we can follow up with you on that point.

Louis Sapir - Oppenheimer and Company

I would appreciate it. Thank you.

Brian D. Lawson - Chief Financial Officer

You’re welcome.

Operator

Our next question comes from Neil Downey of RBC Capital Markets.

Neil Downey – RBC Capital Markets

Good afternoon everyone. Two quick questions. Periodically in the past you have received some special dividends or special distribution to the Canary Wharf. Any visibility for that to occur in the near-term again?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Hi. I think as most people know we own about 16% of Canary Wharf so we don’t control it and the dividends come as they come. There is a significant amount of cash that’s been monetized on the balance sheet so it is possible that they could pay a dividend, but we don’t have any visibility of the when that will be.

Neil Downey – RBC Capital Markets

Okay. And in light of the comment on the appraised value of $1 billion versus the carrying value of sub $200 million. It’s also kind of interesting that I think that some of these big U.K. property stocks seem to be trading substantially below the recently published NAVs. And I am seeing comments about West End prime property yields moving from 3.5% or 3.75% yields upto 4%. Maybe the expectation is that… actually continues to revert in the near term? Any comments on that phenomenon and can you tie that in to maybe… your thinking with respect to Asian property stocks as well, Bruce, which I know you had some comments on your last call?

J. Bruce Flatt – Managing Partner and Chief Executive

I guess I would generally say that we are quite positive longer term about the office building business and the fundamentals are good. London, itself, well you may have seen… people might think that cap rates move by 50 basis points or 75 basis points, a longer valuations of this business is sort of irrelevant. That’s actually quite possible, that has happened so I’d say in general cap rates have moved up a little bit, some of that depend on the fact that debt cost that people can put in place are a little more costly and a little lower loaned value so your equity returns are less and therefore you need a little more… a little higher cap rate to get your returns but I would say those are all short term phenomenon the business is as I make the five points in extremely good shape and London, barring actually, it has a few developments that are going on compared to New York which has very few.

It’s in great shape so we are positive to it. As to the NAVs of the U.K. companies and the trading values clearly a number of the trading values has gone down a lot and they are trading below their net asset values, what the expectation is that some of those net asset values will be lowered, but I don’t think to the extremes that the market has done. What I think has happened I guess our expectation… our view of what’s happened is the financials and the real estate have all got caught up in the same trend that’s in the marketplace, and that just takes time to work itself out.

I guess your last question was on Asian securities and real estate. And I’d say 12 months ago, the valuations on Asian securities were probably the only place in the world you could find discount NAV. That’s not the only place in the world today and therefore there are other places that are probably equal. Equal discounts to NAVs and in fact maybe easier to buy or easy to access in the marketplace in some of the Asian securities. And so, I would say there not is solid candidates on a relative basis to other prices for them.

Neil Downey – RBC Capital Markets

Which is the other… some other areas are easy to value?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Yeah.

Neil Downey – RBC Capital Markets

Okay. Thank you.

Operator

Our next question comes from Chris Haley of Wachovia.

Christopher Haley - Wachovia Securities

Yes. The follow-up, Brian, could you precise is to how much the power business fell below your expectations, or what type of impact on either on operating cash flow number or a revenue number that… the third quarter was impacted relative to your expectation?

Brian D. Lawson - Chief Financial Officer

I think maybe the easiest way to think about that that is you’re roughly 20% below that long-term average on a hydrology basis. So, if we had picked that up, we should have had around another 600 gigawatt hours. And so if our contribution there was around… let’s see, would have been around… I am just trying to work that one out.

Christopher Haley - Wachovia Securities

Are you using your average price then?

Brian D. Lawson - Chief Financial Officer

Yes, probably around 24 million bucks… $24 million more based on what our average realize price was during the period.

Christopher Haley - Wachovia Securities

And that was basically slow, all the way through, correct?

Brian D. Lawson - Chief Financial Officer

Yes. And what I have done there, simply, what we are getting there, see, $42 per megawatt that was our average realization per gigawatt hours during the quarter. And multiple that by the 600 megawatts shortfall based hydrology.

Christopher Haley - Wachovia Securities

How much of that business would you characterize as, obviously, weather played a part obviously, but seasonality to the business. I want just a simple question about question about seasonality. And then secondly, how do you think that might play into eventual monetization of the business? How do you think investors are thinking about these types of risks?

Brian D. Lawson - Chief Financial Officer

Sure. There is a definite seasonality of the business and we do… trying and give some reference to that. The long-term averages that we do provide are adjusted for the seasonal trend. But I think what’s important is that we are working up a very long… very substantial data in terms of coming up with those long-term averages and as much as you might be plus or minus a certain percentage point in any given quarter that over the long-term, the cash flows are quite consistent and predictable and as we continue to broaden the portfolio, the actual overall volatility is reduced.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

And Chris I might deal with your second comment, which is just on the asset values and whether it changes our mind to monetization and what people are thinking about. And I would say that we have been in the business long time water comes and goes, but the durability of the cash flow is very strong. And our long-term average which have proven themselves out over the years you can highly predict cash flows. You have few ups and down once in while in quarter-over-quarter. But the… we still think these are one of the great groups of assets that are out there and we will continue to buy them, and continue to believe that these assets are great. And ultimately, we know that there are a lot of investors that if we want to put them into a fund, would be highly attractive to them.

Christopher Haley - Wachovia Securities

I would agree with that, Bruce. I would… and then follow the question with… how much of the value of the business, well, I; guess, you can’t say value for the business, but how much do you think the upside or the sustainability of the business is driven by the increased diversity in scale of the portfolio versus in individual market or individual group of assets of hydro plant, and how that might play into the eventual monetization of the assets? My suspicion is just thinking this through, it might make more sense obviously there will be more interest for a larger portfolio versus one-off sale or one-off contributions or small amount of contribution and those investors might want the access… they want the whole operation involved rather than a country or a continent?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

I think you are right to a large degree because the… and I will make a differentiation. With an office building or a country where their office buildings and the people will generally like to invest place-by-place and they have view because the market all are different. With the hydro business, it’s one business and what the diversity of operations allows you to do is smooth cash flows out because precipitation which is big… the real variable factor. It is smooth by having operations in many different places. And as a result of that, clearly, the business… if you worry about variability in it, it is smooth by having a larger portfolio. And therefore, that… if people think of that that is important component or their view of the business, that’s the important factor.

Christopher Haley - Wachovia Securities

So, it’s Interesting to think of that in the context of say some commercial assets might be more valuable on a one-off basis versus inverse with this power portfolio.

J. Bruce Flatt - Managing Partner and Chief Executive Officer

That’s very possible.

Christopher Haley - Wachovia Securities

Thank you for that. Brian when do you expect to have some disclosures, balance sheet disclosures, cash flow disclosures on Multiplex.

Brian D. Lawson - Chief Financial Officer

I would expect that will be forthcoming with our 2007 annual report.

Christopher Haley - Wachovia Securities

Okay. And then last is. The promotes or the performance fees that you're disclosing. In our perspective is it, there’s very little doubt that you have an excellent track record in creating value. So I’m trying to understand why you would disclose the potential earnings upside which is in the magnitude of, lets just call it $50 million to $150 million. Hopefully that will continue to recur. What is the rational behind disclosing these promotes given the variability of those promotes which is somewhat inconsistent with the long-term consistent business model that you've espoused over the last several years?

Brian D. Lawson - Chief Financial Officer

Well that’s certainly a fair observation, Chris. And I think we thought long and hard about the merits and some of the considerations with this whole thing. Those figures I think, bottom line that’s information that a lot of people are interested in assessing how we build out the asset management side of how we conduct our operations and the value that we create there. Frankly we had some of our peers that disclosed that kind of information in their results. Some who actually book it right through the financial statements and others who record it more through their MD&A and I’m specifically, we're referring to Fortress and Blackstone and it’s an important benchmark for us as well. So we felt it was appropriate to share that with people I think it obviously is a number that may have some degree of variability quarter-over-quarter I think we will be continuing to take a pretty conservative approach to how we put those numbers forward and I think hopefully what you’ll see is over time that part of the value creation in our business increased substantially.

Christopher Haley - Wachovia Securities

I appreciate the color. Those figures… the numbers you’re providing on a net basis are roughly consistent with what we've calculated. So, prior year’s disclosures. Though if someone wanted to do the work they can get to close number but that does take a way some of the… In our mind it takes away or introduces a level of volatility in terms of earning stream and a check-on value creation that might or might not happen that we knew was unnecessary in terms of the long-term communication of your story.

Brian D. Lawson - Chief Financial Officer

I obviously respect that. It is the one observation that we would make is, as much as if you think about our fees. The base management fee which we've been providing building that business out on an annualized basis quarter-by-quarter that’s obviously a very consistent stable fee. The performance fees and the carried interest obviously there’s a little bit more potential volatility there as value is being created. Having said that, we wouldn’t to expect to see as much volatility in that figure as compared to lets say a pure private equity manager because of the nature of the assets and the creation of value within those assets that give rise to those carried interest and performance fees and so we think that over time as we build out the portfolio and the assets that are under pining those fees that in fact there should be a reasonable degree of stability relatively speaking to the generation of those fees as well or those interests as well.

Christopher Haley - Wachovia Securities

Thank you for that, Brian. I appreciate it and I don’t know if the goal is to try to attract a different type of investor. I think your goal is obviously, more toward disclosure which you've been very good at over the years. I would recommend not disclosing this. I don’t necessarily think it’s important to try to compare yourself to two other private equity firms which have completely different business models than Brookfield asset management.

Brian D. Lawson - Chief Financial Officer

Great thanks we appreciate that

Operator

Our next question comes from George Denninghoff of Vista Research Management.

George Denninghoff - Vista Research Management

Hi guys. I just have a couple of quick questions for you. One in regards to how you see the market place with regards to the sovereign wealth funds affecting your potential acquisitions abroad as well as here. If you could talk a little bit about that and my second question is on the carried interest the tax bill and the ramifications that that will have on your long-term growth prospects.

Bruce J. Flatt - Managing Partner and Chief Executive Officer

Maybe I’ll deal with the first one Brian can I think quickly deal with the second. On the Sovereign wealth funds, clearly and just for everyone’s reference. That refers to the capital that’s pouring into a number of these country funds which have been set up to accumulate wealth for a number of different countries. Some in the Middle East but also other countries such as China, Norway back to Alberta in Canada and a number of other places. I guess I’d make two comments on the supply side we believe they are and they will be an increasing component of the supply side equation to investing into funds and providing capital to managers like ourselves to deploy in transactions. So we intend… we have some of them today invested with us and we intend to court a number of those to invest into our funds and we think a substantial amount of capital will be deployed by them both directly but indirectly through fund managers like ourselves so that’s a first component.

On the demand side, clearly, when they do direct investments their will be a competitor to ask for assets and some of them will choose to do it themselves and we will have to compete with them just like everyone else but we think by and large the skills that some managers like ourselves have will be attractive to them in some places in the world and we think that… I would say the supply far outweighs the demand outpaces demand.

Brian D. Lawson - Chief Financial Officer

On the second point, on the taxation of carried interest we operate our funds in a number of different jurisdictions around the world most of which will be not impacted at all by that. Recently monitoring it and I suppose there’s a possibility that there could be some impact on those but we expect to be relatively contained.

George Denninghoff - Vista Research Management

Great. Those were the questions that I had. Thank you.

Brian D. Lawson - Chief Financial Officer

Thank you very much.

Operator

Our next question comes from David Henley of DOH Capital Management.

David Henley - DOH Capital Management

Good afternoon guys. I was wondering if you could talk a little bit about the distribution side of the business. Those people that are out there to really help grow your asset management product. I wondered if you could talk about how big that group is now. Is most of their activity kind of episodically around when you do private equity oriented funds and maybe as a follow up to that if you could give us some kind of guidance on fee bearing assets of $44 billion. Ex-market appreciation. How do you expect the new moneys to grow on top of that base over the course of the next 12 to 24 months?

J. Bruce Flatt - Managing Partner and Chief Executive Officer

Maybe I’ll do with the first part and then Brian will come to the second part of your question and just to deal with the first one on who is marketing our funds. I guess we… first we split funds into private funds where we market to institutional investors or high net worth as investors call it and those are generally funds done with a group of institutional investors and secondly we have funds like Brookfield infrastructure that are being created in the capital markets to appeal to, I’ll call it a retail/institutional public securities owner. Largely they own the same things but they are just a different group of investors so on the public side dealing with that one. We have investor relations people and the management of each of the entities that go out and talk to institutional and retail and market those story so we have a highly tuned shop of investor relations people that market those stories and have been doing it for many years with all the public companies that we have been involved with. On the private side for private funds we have been building up our marketing operations. Those people are largely headquartered either in Toronto or New York today. It’s run out of our New York office and we are adding people to our Sydney office, in London and in the Middle East and I guess those will be where we will have people situated to market these funds. They are generally done, where we create a fund we come up with a strategy to invest and then work with the marketing people to identify which institutional investors on the private side will be appropriate for it and that’s how we market the funds so it is generally done in that fashion.

Brian D. Lawson - Chief Financial Officer

And then just on your… I think I will interpret your second part to your question is starting with the $44 billion with the fee bearing assets

under management where do we see that evolving over the next period of time and we spoke about it a fair bit in our Investor day a month or so ago and what we are actually focusing on perhaps a bit more is the actual amount of net invested or committee capital so the $44 billion that would translate to around $31 billion, $30 billion of net invested of committed capital of which roughly $26 billion of that, $27 billion of that is third party and in other words fee bearing other than from ourselves. And what we laid out there was a scenario whereby we would love to take those of committed capital up substantially over the next period of time by the tune of $50 billion, $60 billion, $80 billion and that is going to come from a number of different asset classes, obviously we have a very substantial footprint in the property sector particularly on the corrosive side so it is logical to see that’s a very strong basic growth from… very well established on the power side as well, although, perhaps the hydro-electric sector there is not as large a class overall but in particular what we are focused on is on the infrastructure side and so if we take the infrastructure and the property side as a business. They are two of the largest asset classes globally and so hence a significant opportunity to establish higher level of invested capital there and also to attract capital from institutions because we see strong interest in institutions continuing to increase their allocations there. And lastly with the establishment of additional public special issuers like a Brookfield infrastructure part is that’s out of the business I first referred to. We like to see that part of the capital significantly increasing as well.

David Henley - DOH Capital Management

One other things that would be helpful to all of us, you don’t have to do this but it would be extremely helpful people if you could start reporting what your net new moneys are in a given quarter because to me one of the great value creation side of your story is just the distribution network you are going to build as an asset manager based on the wonderful performance that you have but the best way to be able to provide a metric on that or get a benchmark on it is to see how many net new assets you are bringing in any quarter and you have to or whatever because obviously you have a lot of funds that are harvesting themselves constantly and assets are rolling off. It would just be an easy way for us to see how powerful and quickly your distribution network is building?

Brian D. Lawson - Chief Financial Officer

I think that’s a great idea and we will endeavor to do that and we thank you for the suggestion because we can provide lots of information. We always pass through what we should and should not be providing but I think that’s a good idea.

David Henley - DOH Capital Management

Thank you.

Operator

[Operator Instructions]. Our next question is from Michael Goldberg of Desjardins Securities.

Michael Goldberg – Desjardins Securities

Thanks. What you are doing to get your stop properly included by the TSX and the sub index that better reflects the nature of your asset management business instead of the real estate index?

Brian D. Lawson - Chief Financial Officer

Well, Michael, we used to be in the mining index. So, if I say made some progress by getting ourselves into the real estate side which is obviously a better reflection of a significant component of our underlying asset base and that’s going to happen over time. And I think as you would be well aware from… the composition of our balance sheet and the earnings that the asset management side is… the contribution there from the internet earnings side is relatively small compared to the other contributors and we are hopeful that that will change over time.

Michael Goldberg – Desjardins Securities

So what’s the actual process for this happening or what are the impediments to it happening?

Brian D. Lawson - Chief Financial Officer

With the TSX?

Michael Goldberg – Desjardins Securities

Yes.

Brian D. Lawson - Chief Financial Officer

That’s a committee decision that the TSX makes.

Michael Goldberg – Desjardins Securities

The TSX committee.

Brian D. Lawson - Chief Financial Officer

Yes

Michael Goldberg – Desjardins Securities

Okay. Thank you.

Brian D. Lawson - Chief Financial Officer

Thank you.

Operator

Gentlemen there are no further question at this time.

Robert J. Harding - Chairman

Thank you very much everyone for joining us and for your questions and comments. We as always appreciate it and we look forward to speaking to you in the New Year when we announced our year-end results. Bye for now.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.

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