Brookfield Asset Management Inc (BAM)

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Brookfield Asset Management Inc. (BAM)

Q4 2009 Earnings Call Transcript

February 19, 2010 11:00 am ET

Executives

Robert Harding – Chairman

Brian Lawson – Senior Managing Partner and CFO

Bruce Flatt – Senior Managing Partner and CEO

Analysts

Cherilyn Radbourne – Scotia Capital

Mark Rothschild – Genuity

Michael Goldberg – Desjardins Securities

Brendan Maiorana – Wells Fargo

Neil Downey – RBC Capital Markets

Ari Black – Thomas Weisel Partners

Andrew Kuske – Credit Suisse

Rossa O'Reilly – CIBC World Markets

Linda Ezergallis – TD Newcrest

Presentation

Operator

Hello, this is the Chorus Call conference operator. Welcome to the Brookfield Asset Management 2009 year-end results conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator instructions) At this time, I’d like to turn the conference over to Mr. Robert Harding, Chairman of the Brookfield. Please go ahead, Mr. Harding.

Robert Harding

Thank you, operator. And good morning, ladies and gentlemen. Thank you all for joining us for our fourth quarter and year-end earnings announcement. On the call with me today are Bruce Flatt, our Chief Executive Officer, and Brian Lawson, our Chief Financial Officer. Bruce will provide an update on our major initiatives and a brief comment on our market views, and Brian will discuss the highlights of our operations and our financial results.

Before turning things over to Brian, I’d like to just comment on two things. First, our name has been speculated widely in the media and in the newspapers with respect to General Growth Properties. We do not intend to answer any questions on this matter as we have a policy of not commenting on rumors such as this, that we will respectfully decline and are not in a position to comment ahead of time on that item.

Secondly, I’d also like to remind you that in responding to questions and in talking about our new initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on our known risk factors, I would encourage you to review our Annual Information Form or our Annual Report, both of which are available on our website.

With that done, I’ll now turn the call over to Brian Lawson.

Brian Lawson

Thank you, Bob. Good morning. We reported $1.45 billion of operating cash flow of 2009, $381 million for the fourth quarter. This represents a 54% increase on a per share basis for the fourth quarter and 4% on a year-to-date basis. Our results are further detailed in our media release and supplemental, both of which we published this morning.

In summary, we achieved strong and stable results from Renewable Power and commercial operations, our two largest businesses, which is as expected. Our residential operations in Brazil and in Canada performed extremely well. We received only a negligible contribution from certain of our more economically sensitive shorter cycle businesses such as our US residential and timber operations. The good news out of this I suppose is that we believe we are past the point of declining returns, and these businesses will be additive to our bottom line as they improve with the economic recovery.

Our financial position remains strong, with core liquidity of $4 billion at the corporate level and our principal operating units, and we have very few maturities to deal with in 2010. We were able to invest approximately $2.4 billion in our businesses during 2009 in addition to the $1.7 billion we invested in 2008, which we believe will contribute to solid future cash flow growth and value appreciation, some of which we have already experienced.

The underlying value of our net assets at year-end was $28.53 per share, which together with dividends represent a total return of 9%. I’ll comment further on our underlying values towards the end of my remarks. So we are well positioned to pursue the many business opportunities that we find in front of us, and Bruce will elaborate on this and some of the things we’ve done last year in his remarks.

So turning to our operating results, Renewable Power contributed $660 million of cash flow during the year that compares with $466 million last year. Generation was 5% above long-term average. Our average realized price was $70 per megawatt hour. In contrast, the 2008 generation was 8% above average and the average realized price was $77 per megawatt hour. The decline in price does reflect lower average currency rates over the year as well as the impact of low electricity prices, although this continues to be offset by the high proportionate generation that we have locked in under contract.

We did transfer the remainder of our Canadian facilities to the Brookfield Renewable Power Fund during the year. This generated $525 million of liquidity for us and a $369 million gain in the business. Another important step was the signing of a major 20-year contract with the Ontario power authority to sell all of our Ontario generation at a predetermined price that escalates annually.

Together with ancillary services, we believe this should net us prices in excess of $80 per megawatt hour. This took effect towards the tail end of last year, and so it has already begun to contribute to our pricing. That helps as well with the forward sale of power, which we have pre-sold 84% of our anticipated 2010 generation at the average price of $82. We did start the year with storage levels that were 13% above average, and so that puts us in good shape to achieve our objective this year.

Turning to commercial properties, it contributed $356 million of cash flow, up from $297 million from 2008. We achieved a 2% increase in rents for existing properties. We also benefit from the contribution from newly completed developments and also lower interest rates. Retail properties, in addition, also contributed higher cash flows. We added seven properties to our portfolios through the completion of development activities; four in Australia, two in Canada, one in the US.

These properties contained 3 million square feet of well positioned Class A office space that is over 90% leased and should add nearly $100 million of operating income on a full year basis. We continued work on our 930,000 square foot City Square office project in Perth, which is 82% leased to BHP Billiton, the world’s largest mining company, and it’s scheduled for completion in 2012.

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