Brookfield Asset Management posts Q3 net income of US$716M up from US$342M last year; CEO says economic uncertainty, market volatility favor company's style of investing
November 11, 2011
– Investors, analysts and other interested parties can access Brookfield Asset Management's 2011 Third Quarter Results as well as the Shareholders' Letter and Supplemental Information on Brookfield's web site under the Investor Centre/Financial Reports section at www.brookfield.com.
The 2011 Third Quarter Results conference call can be accessed via webcast on November 11, 2011 at 10 a.m. Eastern Time at www.brookfield.com or via teleconference at 1-800-319-4610 toll free in North America. For overseas calls please dial 1-604-638-5340, at approximately 10 a.m. Eastern Time. The teleconference taped rebroadcast can be accessed at 1-800-319-6413 or 1-604-638-9010 (Password 2811#).
Brookfield Asset Management Inc. today announced its financial results for the quarter ended September 30, 2011. The financial results are based on International Financial Reporting Standards ("IFRS") unless otherwise noted.
"Our businesses continue to generate strong cash flow, reflecting the quality of our assets, and we are moving forward with many growth initiatives across our global operations," commented Bruce Flatt, CEO of Brookfield. "Economic uncertainty and market volatility present both opportunities and challenges; however, these conditions favour our style of investing."
-- Net operating cash flow was $465 million on a consolidated basis, of which $241 million ($0.35 per share) accrued to Brookfield shareholders.
We achieved improved results in most of our operations, although these were partially offset by the results from our more cyclical businesses and some of our financial assets which were below our long-term expectation. We experienced favourable water flows in our power generating operations and achieved strong leasing results in our commercial office and retail businesses.
-- Invested capital was virtually unchanged during the quarter prior to the impact of foreign currency fluctuations.
We generated a total return prior to currency variances of $240 million, which was derived mostly from operating cash flow. Valuation gains from our commercial properties and infrastructure assets were offset by negative mark-to-markets on energy and interest rate contracts. Volatility in the exchange rates for the Australian, Brazilian and Canadian currencies against the U.S. dollar decreased our net invested capital by approximately $1 billion, although approximately half of this has reversed as at the date of this report.
-- We continued to expand our asset management franchise.
We are in the process of establishing a managed listed fund to own our global renewable power operations, that is expected to have an initial market capitalization of approximately $6 billion. We also announced a partnership with the Investment Corporation of Dubai to form a platform for investing in real estate with expected commitments of $1 billion. We are in the process of raising capital for eight funds with the objective of obtaining total third party commitments of approximately $5 billion. We issued $460 million of additional equity to co-investors from Brookfield Infrastructure Partners in October, increasing our fee bearing capital under management.
-- We completed $6.1 billion of capital raising initiatives in the third quarter of 2011, bringing the total to $22.1 billion for 2011.
We continue to accelerate refinancing initiatives to take advantage of the current low interest rate environment and extend our maturity profile. These activities enhanced our liquidity, refinanced near-term maturities and funded new investment initiatives. Core liquidity was $4.1 billion at September 30, 2011.
-- Our operating teams completed a number of important initiatives to increase the values and cash flows of our assets.
We acquired assets with a total value of $2.3 billion, which enabled us to invest $1.9 billion of capital, to expand our asset base and cash flows across all of our operating segments. This includes the purchase of interests in two office properties in Melbourne and Perth. We signed nearly four million square feet of new commercial office leases, bringing the year-to-date total to more than eight million square feet, and have a further six million square feet in serious discussions. We also reached agreement to acquire two key toll roads in Santiago, Chile at a gross purchase price of $750 million. Our Brazilian residential businesses completed R$913 million of launches and contracted sales of R$1,330 million, reflecting continued growth in this market and our U.S. retail mall interests benefitted from continued sales growth and better leasing.
-- We are working on a number of attractive growth opportunities, including expansion of our existing operations and potential acquisitions.
We completed a major long-term contract that will enable us to commence a nearly A$600 million expansion in our Western Australian rail lines and are also pursuing an expansion of our coal terminal in Eastern Australia. We have commenced construction of a $750 million transmission line in Texas and have a number of capital projects in our South American transmission and UK connections businesses. In our renewable power business, we have eight projects in advanced stages of development with an estimated cost of $1.4 billion that will have approximately 500 megawatts of installed capacity and annual expected generation of 1,500 gigawatt hours. Commercial office development activities are focused on five projects comprising approximately nine million square feet and a total value of approximately $7 billion. Our U.S. retail operation is in the process of spinning off a portfolio of 30 non-core retail malls in order to focus on its core fortress mall portfolio.
-- We announced a major initiative to combine our renewable power assets into a single global listed entity.
This entity, to be named Brookfield Renewable Energy Partners ("BREP"), is expected to be listed on the New York and Toronto stock exchanges, with a market capitalization of approximately $6 billion, a stable cash flow profile, and an attractive distribution profile. The launch of this entity is a major step forward in the further expansion of our asset management activities. We believe BREP will have favourable access to capital to fund the substantial anticipated growth of our renewable power business on an accretive basis to unitholders thereby providing long-term value creation for both Brookfield and unitholders.
Basis of Presentation
This news release and accompanying financial statements make reference to net operating cash flows, invested capital and intrinsic value.
Net operating cash flow is defined as net income prior to fair value changes, depreciation and amortization, and future income taxes, and includes certain disposition gains that are not otherwise included in net income as determined under IFRS, and after deducting the associated interests of non-controlling shareholders. Brookfield uses net operating cash flows to assess its operating results and the value of its business and believes that many of its shareholders and analysts also find this measure of value to them.
Invested capital represents the capital invested by the company in its operations on a segmented basis, net of the underlying liabilities and non-controlling interests. These balances are derived from the company's IFRS balance sheets and adjusted to exclude deferred income taxes and to include adjustments to reflect the fair value of assets and liabilities that are carried at historical book values or otherwise not recognized in the company's IFRS balance sheets. Common equity on this basis is referred to as net tangible asset value.
Intrinsic value includes net tangible asset value, as represented by its invested capital, as well as the value attributed to the company's asset management franchise. Asset management franchise value represents management's estimate of the value attributable to the company's asset management activities that is not otherwise included in net tangible asset value, based on current capital under management, associated fee arrangements, and potential growth.
Net operating cash flow, invested capital and intrinsic value per share are non-IFRS measures which do not have any standard meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. The company provides additional information on the determination of net operating cash flow, invested capital and intrinsic value and a reconciliation between net operating cash flow and net income attributable to Brookfield shareholders and invested capital and intrinsic value and common equity in the Supplemental Information available atwww.brookfield.com.
The intrinsic value of Brookfield's common equity was $37.93 per share at September 30, 2011. This includes net tangible asset value of $31.85 per share and $6.08 per share related to the company's asset management franchise. Please see page 6 of this release for further information on the company's intrinsic value.
The Board of Directors declared a dividend of US$0.13 per share, payable on February 29, 2012, to shareholders of record as at the close of business on February 1, 2012. The Board also declared all of the regular monthly and quarterly dividends on its preferred shares.
Information on Brookfield Asset Management's declared share dividends can be found on the company's web site under Investors/Stock and Dividend Information.
The Letter to Shareholders and the company's Supplemental Information for the quarter ended September 30, 2011 contain further information on the company's strategy, operations and financial results. Shareholders are encouraged to read these documents, which are available on the company's web site.
The attached statements are based primarily on information that has been extracted from our unaudited financial statements for the quarter ended September 30, 2011, which have been prepared using IFRS. The amounts have not been audited and are not subject to review by Brookfield's external auditor.
Brookfield Asset Management Inc. is a global alternative asset manager with approximately $150 billion in assets under management. We have over a 100-year history of owning and operating assets with a focus on real estate, infrastructure, power and private equity. We have a range of public and private investment products and services, which leverage our expertise and experience and provide us with a distinct competitive advantage in the markets where we operate. Brookfield is co-listed on the New York and Toronto Stock Exchanges under the symbol BAM and on NYSE Euronext under the symbol BAMA. For more information, please visit our web site at www.brookfield.com.
Industry Intelligence Editor’s Note: In an omitted table, Brookfield Asset Management reported Q3 net income of US$716 million. For the same period a year ago, the company reported net income of US$342 million.
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