Brookfield Asset Management Inc (BAM)

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Brookfield Asset Management Inc. (BAM)

Q3 2012 Earnings Call

November 9, 2012 11:00 AM ET

Executives

Katherine Vyse – SVP, IR

Brian Lawson – CFO

Bruce Flatt – CEO

Analysts

Michael Goldberg – Desjardins Securities

Brendan Maiorana – Wells Fargo

Mario Saric – Scotia Bank

Neil Downey – RBC Capital Markets

Bert Powell – BMO Capital Markets

Cherilyn Radbourne – TD Securities

Andrew Kuske – Credit Suisse

Michael Smith – Macquarie Asset Management

Presentation

Operator

Hello, this is the conference call operator. Welcome to the Brookfield Asset Management 2012 Third Quarter Results Conference Call and Webcast. (Operator Instructions)

At this time, I’d like to turn the conference over to Katherine Vyse, Senior Vice President, Investor Relations for Brookfield Asset Management. Please go ahead.

Katherine Vyse

Thank you, Brock, and good morning, ladies and gentlemen. Thank you for joining us for our third quarter webcast and conference call. On the call with me today are Bruce Flatt, our Chief Executive Officer, and Brian Lawson, our Chief Financial Officer. Brian will start this morning discussing the highlights of our financial and operational results; Bruce will then discuss a number of our major growth initiatives during the quarter.

At the end of our formal comments, we will turn the call over to the operator to open up the line for questions. In order to accommodate all who want to ask questions, can we please ask that you refrain from asking multiple questions at one time to provide an opportunity for others in the queue. We will be more than happy to respond to additional questions later in the conference call, if time permits, at the end of this session or afterwards, if you prefer.

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

Thank you. And I’d like to turn the call over to Brian.

Brian Lawson

Great. Thanks, Katherine, and good morning. We had a strong third quarter. We reported our results this morning. And we are confident that the investments we are making across our platforms will increase our future cash flows and the intrinsic value of our business.

As evidence of that, funds from operation, or FFO, for shareholders was $282 million for the third quarter, that’s up 17% over last year’s result. Net income, which includes FFO as well as certain non-cash items such as depreciation and fair value changes, increased by 32% to $334 million. And total return, a key metric for us, and that includes FFO as well as changes in the value of the business, totaled $578 million for the quarter or $1.6 billion, $2.48 per share on a year-to-date basis; that’s for the first nine months.

So the first component of our total return is FFO. We achieved growth in this metric throughout most of our businesses, with the one exception of our Renewable Power operation. They were negatively impacted by unusually low water flows. I’ll come back to that.

Our asset management operations, this includes our Construction and Property Services businesses, contributed $146 million of FFO; that’s up 18% over the same period in 2011. Base management fees, an important metric, grew by 29% to $53 million in the quarter. That reflects the continued growth of our fee-bearing capital.

We also earned $101 million of performance-based income from our listed entities in private funds, although recall that this is most almost entirely deferred for financial statement purposes and is therefore not included in FFO, but is included in total return. The fee-bearing capital within our public and private funds increased by nearly $6 billion so far this year through new client commitments and value increases, which far outpaced the $1 billion of client distributions in expiry of un-invested commitments. We are continuing to see strong interest from clients and investors in our real asset-based strategies that we believe will lead to continued expansion in fee-bearing capital.

Turning to the contribution from the capital invested in our primary real asset businesses, and this includes our Property and Renewable Power and Infrastructure businesses, that totaled $246 million for the quarter. This represents a 6% decline compared to 2011, as good increases from our Property and Infrastructure operations were offset by the lower Renewable Power FFO.

Our Property operations, they increased their contribution by $40 million. Office properties FFO benefited from an increased distribution from UK Property operations and a 2% increase in same property net operating income. We leased 1.8 million square feet of space in the third quarter. That brings the year-to-date total to 5.6 million square feet. The new lease rates were 33% higher than the expiry rents and that increased overall rents by nearly 4% on a constant currency basis and also reduced our five-year rollover exposure by 210 basis points.

Retail properties FFO growth reflected continued strength in the U.S. operations. GGP’s reported FFO increased by nearly 9%, driven by a 4% increase in net operating income for the regional mall portfolio. Initial rents for leases commencing occupation in 2012 increased by over 10% over the comparable expiring rents. And the lease percentage for the regional mall portfolio increased by 130 basis points during the quarter to 95.5%. Our other Property operations, the FFO there increased due to investment gains and operating income from recent acquisitions. We continue to be active in both investing and harvesting capital in these portfolios, as well as repositioning recently acquired assets, and this has resulted in a number of a disposition and valuation gains. Our office property development initiatives are focused on five projects, totaling approximately 9 million square feet and that could add more than $7 billion in assets to our portfolios.

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