Brookfield Asset Management Inc (BAM)

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TRANSCRIPT SPONSOR
Wall Street Breakfast

Brookfield Asset Management (BAM)
Q2 2007 Earnings Call
August 03, 2007, 11:00 AM ET

Executives

Robert J. Harding - Chairman of the Board
Brian D. Lawson - CFO, Brookfield Asset Management
J. Bruce Flatt - Managing Partner and CEO
Aaron W. Regent - Managing Partner and Co-CEO, Brookfield Infrastructure Partners
Sam Pollock - Managing Partner, Private Equity and Co-CEO, Brookfield Infrastructure Partners
John Stinebaugh - CFO, Brookfield Infrastructure Partners

Analysts

Neil Downey - RBC Capital Markets
Cherilyn Radbourne - Scotia Capital
Rossa O'Reilly - CIBC World Markets
Andrew Gus - Credit Suisse
Brendan Maiorana - Wachovia Securities
Peter Sklar - BMO Capital Markets
Michael Goldberg - Desjardins Securities
Ross Haberman - Haberman Funds

Presentation

Operator

Hello, this is the Chorus Call conference operator. Welcome to the Brookfield Asset Management Incorporated conference call and webcast to present the Company's second quarter 2007 results to shareholders. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. [Operator Instructions].

At this time, I would like to turn the conference over to Bob Harding, Chairman.

Robert J. Harding - Chairman of the Board

Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining us for our second 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 current market environment. He will be followed three of our executives who are leading the spin-off of our infrastructure business, Brookfield Infrastructure Partners to our shareholders. They will discuss various aspects of this strategic initiative. Aaron Regent and Sam Pollock, Brookfield managing partners and co-CEOs of the Brookfield Infrastructure and John Stinebaugh, Chief Financial Officer of the partnership, will be speaking to those issues.

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 be making forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risks factors I would encourage you to review our annual information form and our annual report, which are available on our website.

With the formalities out of the way, I will now turn the call over to Brian Lawson.

Brian D. Lawson - Chief Financial Officer, Brookfield Asset Management

Great, thanks, Bob. As Bob mentioned, we're going to take the opportunity of this call to have Aaron, Sam and John make some comments on Brookfield Infrastructure Partners. So, given the time we want to dedicate to that, I will keep my remarks on our financial operating results relatively brief.

We did report strong results for the second quarter. Cash flow from operations was $440 million. That’s significantly higher than the $267 million we reported for the same quarter last year. And nearly all of our operations contributed to this growth. Our net income increased at a more modest pace, roughly 20% on a per share basis, as the growth in operating cash flow was offset to some degree by increased depreciation recorded in respect to the assets acquired last year.

Some of the highlights of the quarter included the following. We continued to show growth in assets under management and fees. Total assets under management increased to around $77 billion at quarter end compared to $71 billion at year-end. And that’s due to new acquisitions and new funds from clients, both new and existing clients.

We increased our client commitments through our second Restructuring Fund and received capital commitments for our second Bridge Lending Fund. We also increased assets under management within our fixed income securities operations.

Fees earned during the quarter, increased to $95 million from $69 million last year. And importantly, the annualized level of base management fees has continued to increased and now stands at roughly $90 million. And I would also note that these fees do not include a number of accrued performance fees to which call-back provisions still apply.

Our property operations recorded $513 million of operating cash flow, up significantly from the $337 million recorded in the same period last year. The increased contribution came mostly from our core office properties, and that was due to properties acquired since this time last year, a higher level of realization gains and increased rents on existing properties. Leasing activities remained strong in many of our markets. We leased 3.8 million square feet of space within our North American portfolio so far this year, at an average net rent of $29 per square foot, and that was replacing leases that averaged $20 per square foot. Occupancy across the North American portfolios stands at 95% and a little over 97% at Canary Wharf in the U.K.

The diversification of our residential operations was quite apparent in or quarterly results as the weak U.S. market was offset by continued growth in our Canadian operations and solid results in Brazil. Our total cash flows were off by 15%. The contribution was virtually unchanged quarter-over-quarter after taking into account carrying costs, taxes and co-investor interests.

Our power operations contributed $170 million of total cash for the quarter. That’s up from $156 million in the same period last year. Water levels were below average, and lower than that experienced at our facilities owned in the same quarter last year. But this was offset by higher realized prices. And we also benefited from the contribution from facilities acquired or constructed since this time last year.

Roughly 80% of our power continues to be under contract for the period through the end of 2008 at an average price of roughly $67 per MW hour. There is two points I would like to make in that regard. First, these prices are below where we see prices trending over time and second, we typically realized prices in excess of these levels through ancillary revenues such as capacity payments, and also by capturing peak pricing opportunities.

And turning to our infrastructure operations, our timber operations exceeded targets during the quarter. Favorable weather conditions enabled us to achieve higher harvest levels and prices were also favorable due to good demand in our markets. We closed the acquisition of Longview Fibers during the quarter which added 588,000 acres of very high quality timber in Washington State in Oregon. This brings us to 2.5 million acres of pre-hold timber and positions us as one of the top five owners and operators of private timberlands in North America. These operations contributed $22 million of operating cash flow during the quarter.

Transmission systems, performance there was on target. That includes the Chilean operations acquired last year which contributed $50 million of cash flow during the quarter and that’s a significant increase over the same quarter last year, which we bought the operations at the end of June 2006.

And we continue to benefit from having a good level of capital deployed between our Bridge and Restructuring activities and experience continued favorable results. The increase in cash flow was due largely to improved results within two of our restructuring investments.

Investment in other income nearly doubled to $248 million in the quarter on a cash flow basis. The result included a gain of $126 million on the sales of exchangeable debentures during the quarter. Carrying charges increased during the quarter commensurate with the increase in our asset base and the amount of cash flow attributable to co-investors also increased and that’s both as a result of the increase in the assets held within partially owned funds as well as growth in cash flows within these funds.

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