Brookfield - Earnings Call - Q3 2011

Transcript

Operator (participant)

This time, I would like to turn the conference over to Katherine Vyse, Senior Vice President, Investor Relations for Brookfield Asset Management. Please go ahead, Ms. Vyse.

Katherine Vyse (SVP of Investor Relations)

Thank you, Lori, and good morning, ladies and gentlemen. Thank you for joining us for our Third Quarter Conference Call and Webcast. 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 operations and financial results. Bruce will then provide some comments on the current investment environment and our investment initiatives and opportunities. At the end of our formal comments, we'll turn the call over to Lori to open the call up for questions. In order to accommodate all who want to ask questions, can we please ask that we refrain from asking multiple questions at a time so as to provide an opportunity for others in the queue?

We will be very happy to respond to additional questions later in the conference call if time permits, or at the end of the session or afterwards. I would at this time 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 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 now I'd like to turn the call over to Brian.

Brian Lawson (CFO)

Thanks, Katherine, and good morning. Thanks for joining the call. This morning we reported aggregate net operating cash flow for the quarter of $465 million, of which $241 million accrues to Brookfield shareholders, with the balance accruing to the co-investors in our consolidated funds and subsidiaries. We achieved improved results in most of our areas, although these were partially offset by some of our more cyclical businesses. Water flows in our power-generating operations returned to normalized levels, and we achieved strong leasing in our commercial office and retail businesses. Net income, which includes fair value changes, increased to $716 million, of which our share was $253 million, and this compares to $112 million last year. Our share of valuation gains recorded in income was approximately $200 million, and that relates to our U.S. office, retail, and our timber businesses.

Recall that a number of our other assets are not revalued until year-end, and the net income also reflects depreciation. Taken together, the operating cash flow and fair value changes resulted in the total return to our common equity of $240 million during the quarter, or $1.4 billion for the first three quarters. This is prior to capital distributions such as dividends and currency fluctuations, which I will return to in a moment. Our intrinsic value at the end of the quarter we calculate to be $37.93 per share. That's at the end of September in comparison to $39.31 at the end of June and $37.45 at the beginning of the year. Turning to the operating results, in our asset management and other service activities, base management fees were unchanged overall and continue to track at an annualized rate of approximately $190 million.

They're actually up slightly quarter to quarter when you factor in the catch-up fee that we had in the previous quarter, and overall fees also included $20 million of success fees. Construction contributed $30 million. That's similar to the 2010 quarter. We continue to expand the asset management franchise. We're in the process of establishing a managed listed fund to own our global renewable power operations, expected to have an initial market capitalization of roughly $6 billion, and Bruce will comment further on this initiative later in the call. We're also in the process of raising capital for eight additional funds, looking for total third-party commitments of roughly $5 billion, and we issued nearly $500 million of additional equity to co-investors from Brookfield Infrastructure Partners in October, increasing our fee-bearing capital under management from our listed entities.

In our power operations, the results for the quarter include a $12 million gain on the partial monetization of a wind facility. Excluding this gain, cash flows increased to $50 million from $46 million. This reflects increased generation from a return to more normal water flows after unusually low levels in 2010, and it's offset, on the other hand, by the proportion of cash flow that's attributable to non-controlling interests following the sale of a portion of our interest in our Canadian power operations last year. Generation increased by 27% compared to 2010, and realized prices declined by 11%. We have eight projects in advanced stages of development, estimated cost of $1.4 billion, and that'll have approximately 500 MW of installed capacity, which have annual expected generation of 1,500 GWh. That's a good step up in our capacity there.

On the office property side, the contribution, excluding the dividends from Canary Wharf, was $65 million compared to $57 million in 2010. The increase reflects the impact of properties acquired since the 2010 quarter. It's offset somewhat by the reduced interest in our Australian portfolio and the impact of some lease expiry at the end of 2010. We also received a $16 million dividend from Canary Wharf in the quarter. Turning back to the leasing, we signed nearly 4 million sq ft of new commercial office leases. That brings the year-to-date total to more than 8 million sq ft, and we have a further 6 million sq ft in serious discussion, so we're making tremendous progress on that front this year. On the office development activities, we have five projects in the pipeline, roughly 9 million sq ft, and a total value once built of $7 billion roughly.

This also includes a flagship property in Perth that's 100% pre-leased and will be completed in early 2012 on budget and ahead of schedule. On the retail side, our investment in general growth contributed nearly $60 million during the quarter. General Growth continues to increase its cash flows through higher lease rates, better occupancy, reduced costs, and lower financing charges by actively refinancing debt. These operations are in the process of spinning off a portfolio of 30 non-core retail malls in order to focus on its core fortress mall portfolio. Bruce will have some more comments on this later on. In infrastructure, overall, the returns from utilities, transport, and energy were steady. That's as expected. Timber results improved significantly over the 2010 quarter. We continue to have higher volumes and good pricing on shipments to Asia.

On the business development side there, we reached agreement to acquire two key toll roads in Santiago, Chile. Gross purchase price is $750 million. We also completed a major long-term contract that will enable us to commence a nearly AUD 600 million expansion in our rail lines in the west part of that country and are pursuing an expansion of our coal terminal in the eastern part of Australia. In addition, we've commenced construction of a $750 million transmission line in Texas and have a number of capital projects in our South American transmission and U.K. connections businesses. Private equity and residential development activities, they generated lower activities than in 2010. In large part, this was due to a number of favorable gains in 2010, particularly from the sale of multi-residential properties that simply didn't recur in 2011. The Brazilian residential operations continue to perform very strongly.

Contracted sales there during the quarter increased by 61%. North American results declined due to a lower level of closings in the U.S. and some Canadian closings slipping into the fourth quarter. We were successful in completing a number of attractive investments, both within our private equity and our opportunity real estate operations. Investment in other income slipped. The more steady contribution from dividends and interest was offset by roughly $50 million of negative market adjustments on financial assets. In the comparable period, we benefited from $80 million of positive adjustments. We didn't get much of a contribution from that area this quarter at all, certainly compared to prior quarters. Just turning to the total return and changes in intrinsic value, as I mentioned earlier, we recognized a total return of $240 million. Roughly, that's $1.4 billion for the first three quarters.

As I mentioned, that was prior to capital distributions and currency fluctuations. The quarterly return is due primarily to the cash flow generated in the businesses as fair value changes were pretty much flat overall. The recent market volatility resulted in an approximate 10% decline in the carrying values of our non-U.S. operations due to foreign currency. If you keep in mind that roughly 50% of our tangible capital is invested outside of the U.S., that translates into a roughly $1 billion variance. We note that just about 50% of that has reversed itself since September 30, and that brings us to being essentially flat on a year-to-date basis and nicely ahead over the longer term as we continue to benefit from the Australian, Brazilian, and Canadian growth economies.

I should emphasize that these fluctuations are the impact of short-term currency fluctuations on long-term capital and not reflective at all of the performance or potential of the underlying operations. A couple of other notes, we repurchased 2.4 million shares in the quarter for $67 million at an average price of $27.50, and 5.6 million shares year to date. We also paid common equity dividends of $0.13 per share in the quarter. Completed $6.1 billion of capital raising initiatives in the third quarter. That brings the total for 2011 to just over $22 billion. We are continuing to accelerate refinancing initiatives to continue to take advantage of the current low interest rate environment and extend our maturity profile. With that, I will hand the call over to Bruce.

Bruce Flatt (CEO)

Thanks, Brian, and good morning.

In general, during the quarter, I think we made good progress in executing our business plans, and while volatile periods such as these are challenging for everyone, I would say that we think this type of market favors our style of investing. As Brian noted, in our operating businesses, we continue to generate strong cash flows to reinvest back into the businesses and are fortunate to have many other ways to put it to use, which includes organic expansions within the business and new acquisitions. We continue to see the U.S. economy emerging slowly from the crisis that's played out over the last five years, and European nations obviously are working through their problems. We expect to find opportunities to acquire international assets from European companies which are endeavoring to deleverage their balance sheets, and we're working with a number of excellent companies to assist them in this regard.

We're experiencing growth across virtually all of our businesses, and the outlook in Brazil, Australia, and in Canada particularly is very strong. Turning specifically to the operations, in our renewable power business, as Brian said, we're advancing a number of new wind projects, one in California, one in Ontario, and one in New Hampshire, all of which will be completed shortly. Even more importantly, we announced a merger of our privately owned power assets with those of our publicly listed renewable power fund in Canada, and this transaction will be voted on by unit holders later this month, following a favorable vote of bondholders which was held in late October. We are excited about the opportunity to establish this well-capitalized listed global entity, which will provide us with long-term capital to continue to grow the business.

It will be one of the largest pure-play renewable power businesses in the world. It's in a public entity with fully contracted cash flows. It will be virtually a pure-play hydro and small amount of wind company, and it will have a very attractive cash flow distribution profile. With listings on the Toronto and the New York Stock Exchanges, when we accomplish that, this should provide enhanced liquidity to the current entity that we're merging with our private assets and opens up many other forms of access to capital for us, allowing and should allow this entity to compete very effectively for capital to grow its business.

The creation of this renewable power entity does not diminish, and it's important to note for our shareholders, it doesn't diminish our economic interest in the renewable power business, nor our alignment with the unit holders of the renewable power company, as we will own after the transaction approximately 70% of this entity. Furthermore, we at Brookfield Asset Management will retain the upside and the downside associated with the rising long-term power prices or with long-term power prices on those assets which are contracted to, were not contracted to external counterparties, and that were owned at the creation of the entity. This will enable us to position Brookfield Renewable Partners with a stable and growing cash flow profile that can pay strong dividends for the foreseeable future while offering us significant upside based on our belief that power prices will increase over the longer term.

Turning to infrastructure, our infrastructure business is hitting its stride with excellent results over the last number of quarters, including this one. As Brian noted, we completed a recent equity issue to ensure that we're in a very liquid position in this business to capitalize on opportunities, and a number of extremely good organic growth projects are in the company today. We think there's a number of potential acquisitions which could allow our infrastructure group to grow at rates which are well in excess of what we could have imagined five years ago. The private infrastructure sector specifically is growing in quantum steps, being really the privatization of government infrastructure and the corporations putting more infrastructure assets into the market to raise capital for their own balance sheets.

We're very well positioned to assist governments and corporations solve their capital needs, particularly because of our operating presences across many of the markets where this is required. Furthermore, we have very good access to capital to assist them with these needs, and therefore we're very positive about our infrastructure business. In the commercial property operations, which the predominant assets were in as office and retail, our cash flows continue to increase, and largely as a result of that corporations are still making leasing decisions despite the volatility that's out there in large measure, and this definitely contrasts with that which occurred in 2009. As a result of this, we are experiencing rent step-ups in most of our major leases that rolled over and uplifts when that occurs in rents. We leased, as Brian said, a significant amount of space in the quarter.

We also acquired a 20% interest in our U.S. office fund, which added almost $1 billion of assets to the portfolio. We sold some non-core retail assets, and after quarter end, we both signed up Bank of America to just over 750,000 sq ft of space at the World Financial Center and purchased just approximately a 50% interest in one of the buildings there. We also sold a large property just across the river from Lower Manhattan in New Jersey for just under $400 million after reworking it and releasing it over the past six years, and we refinanced approximately $3 billion of mortgages within our different commercial property businesses. In our opportunistic funds, we continued to buy multifamily properties in the U.S., believing that there is cap rate compression and rent growth continuing into the future.

Just for reference, we purchased in a number of our funds with clients approximately 12,000 units over the past few years. In GGP, leasing done, the good news is leasing done during the bankruptcy is finally behind the company, and results are turning. As reported by GGP this week, cash lease spreads and uplifts on rent rollovers are highly positive now versus those leases that are rolling off and should be for another two to four years, leading to excess cash flow growth and more cash flow growth than you would expect in a portfolio such as this one. The portfolio occupancy increases that are either locked in or should be coming based on new leasing, and select redevelopments in some of the great malls that we have should also contribute very positively over the period I just mentioned.

Full-year results for 2011 were announced yesterday by GGP, which should beat expectations of most people, and we're very pleased with what management has achieved on both the financial front and on the reorganization of the company in the last year since they've been working at it. More importantly than the short-term results is that all of the things I said a minute ago should vote very well for the 2012 to 2015 period, and it looks like they're on, and the results are on an excellent trajectory, well better than what we underwrote when we made our investment a couple of years ago. With that, operator, I'd like to turn the call back to you, and Brian or I would take, we'll take any questions that anyone has.

Operator (participant)

We will now begin the question and answer session. Anyone who has a question may press star and one on their touch-tone telephone. You will hear a tone acknowledging your request. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. The first question comes from Brandon Mairana of Wells Fargo. Please go ahead.

Brandon Mairana (Analyst)

Thanks. Good morning. Bruce, I had a kind of, I guess, a two-part question as it relates to the opportunity set that you mentioned that was out there. I think you said that you're working with a number of European companies to look at and to help them solve some financing issues with the assets that they have. I guess you mentioned assets, but I don't think you mentioned the geographic regions. Is this to assume that most of the, would you still be comfortable investing in Europe given everything that's happened on the political side over the past couple of months, or are most of these assets that you're looking at held by European companies but in other geographic regions? The second part is, it sounded like you mentioned there was a lot of opportunity set on the infrastructure side.

Is the disproportionate amount of the opportunities that you're looking at on the infrastructure side similar to the Chilean toll road that was done, I guess, a couple of months ago?

Bruce Flatt (CEO)

Okay. I'll try to answer some of those questions for you. I think there was more than two, but I'll try to lump them together, and hopefully I can give you the flavor of it. I guess the points I would make are as follows. Maybe I'll go from back to front. We're seeing both real estate and infrastructure opportunities from European entities, and in fact, I would say from more entities around the globe today than we've seen since we saw in late 2008 or early 2009, just because of the volatility that's out there. There's probably more in infrastructure than specifically in real estate, but there are a lot of real estate opportunities as well, and those break down into really two categories.

There are large international corporations which are shedding assets in other places, and those assets, some of them are in our businesses that would be assets we'd be buying in North America. Some of them are in South America. Some of them are in Australia. There's a number of things we're buying from international corporations in each of those, would be in each of those jurisdictions. In addition, there are a number of things we're looking at Europe with corporations in Europe or others that bought assets in Europe. You know, we're a micro underwriter of assets, and there are not that many things we do that rely solely on sovereign credit.

The bottom line is we think there will be thoughtfully done, we think there are going to be some great opportunities to buy assets in Europe in many of the countries which are undergoing distress and some of the turmoil they're undergoing today. Obviously, they have to be well thought through, and the risks taken on are going to have, we're going to have to get paid for them, but we think there are some opportunities to come, and they are working on a number of things.

Brandon Mairana (Analyst)

Great. Thank you.

Bruce Flatt (CEO)

You're welcome.

Katherine Vyse (SVP of Investor Relations)

The next question comes from Michael Goldberg of Desjardins Securities. Please go ahead.

Michael Goldberg (VP and Director)

Thanks. Good morning. If I assume that BAM fully underwrites the planned Rouse Rights issue, what % ownership would you increase to, and do you expect other GGP consortium members to participate?

Bruce Flatt (CEO)

Michael, the rights offering hasn't been mailed, so our consortium members don't have to participate would be the first answer. I don't have an answer for you as to whether they will or won't. We'll discuss that over the next while as we go into a rights offering process.

As to our underwriting commitment, it'll be for the $200 million, and we're backstopping it because we think this is a very important thing for GGP, and we think it's going to be a great little company that's trading in the market, and we think that the Rouse company in the B-mall sector can be, I'll call it, an industry consolidator in that space, and it can do a very good job reworking the assets that GGP is spinning off. We're doing it for those really two reasons. I think to answer your other question, I think if we ended up with the full $200 million, we'd be approximately 50% of GGP along with our consortium members.

Michael Goldberg (VP and Director)

That'd be up from 38%.

Bruce Flatt (CEO)

Correct.

Michael Goldberg (VP and Director)

Okay. Can I ask another or should I re-queue?

Brian Lawson (CFO)

Give you one more.

Michael Goldberg (VP and Director)

Okay. You know, you've done a lot to make progress along the asset management theme. Nevertheless, many of the investors that focus on Brookfield continue to be specialists in real estate or utilities or infrastructure or whatever, and not asset management or financial services. What are you doing in order to change the, call it the audience of investors that you address to better focus on the asset management or financial services audience?

Brian Lawson (CFO)

Hi, Michael. It's Brian. I'll take that one. We're doing a number of things. First of all, this is an evolutionary process, and if you look at where a lot of the cash flows and the value is of the company, there still is a lot of it that would lend itself to a more fundamental view as to value and performance from those various constituencies that you referenced. Having said that, increasingly, I'll say the strategic approach to the business is entirely on an asset management basis, and increasingly more and more of our cash flow and value is attributed to that type of, to that business or that part of the strategy, which really encompasses everything that we do now.

Specifically, we've been trying to reshape some of our disclosures to emphasize those elements of the performance, and we've been doing things such as seeing more conferences, for example, that are focused on asset management and financials, and I think we're seeing some of our investor base increasingly shift that way as well in terms of contact and interest. It'll take time. We are extremely appreciative and thankful for all of the support that we've got from the folks that are, I'll say, more focused on the real estate property and power side of the business, and we welcome as well those investors and analysts and folks that are viewing us through the asset management lens as well. I think we're fortunate in that we can really play to all those constituencies and provide value to all of them.

Michael Goldberg (VP and Director)

Thank you.

Operator (participant)

The next question comes from Mario Saric of Scotia Capital. Please go ahead.

Mario Saric (Analyst)

Hi, good morning. Just sticking to the asset management side, there was a recent article in The Wall Street Journal with respect to one of your competitors in a real estate offering out in the market and potentially adjusting some base asset management fees on that fund, specifically pertaining to some of the funds that you're out in the market with. Can you talk about the discussions that you're having with potential investors as far as the structure of the fees going forward?

Brian Lawson (CFO)

Sure. I'll start off with that, Mario, and you know, we noticed the same thing as well. I think that depends to a certain degree on the time cycle. We are finding that we are not under undue pressure with respect to fees. This is a market business, so it does tend to fluctuate up and down. We've seen that in the past, but we are certainly working towards and able to achieve the type of fee economics that we think makes sense for our business.

Bruce Flatt (CEO)

I would only just add to that in saying that I don't, I think our franchise is stronger today than it's ever been, and each of the funds that we have in the market, we think will achieve the exact economics that we went out with or we expected to end with.

We don't see any shift on that, and I think there is a divergence in capital users in the world that are taking money from pension funds and sovereign funds, and there's the ones that have availability, and unfortunately, there's others that may not. I don't, it's not in that circumstance, it's not really about the fees. It's about whether people are going to commit a fund or not. We haven't had any real issues with that, with respect to that.

Mario Saric (Analyst)

Okay, great. Appreciate the color, and maybe just one other question with respect to the Dubai property fund, a very exciting announcement. Bruce, can you maybe talk about how long that fund took to put together, the process behind it, and looking out what targets or goals there are internally with respect to growing the business in the Middle East?

Bruce Flatt (CEO)

For background, we have been in Qatar, Abu Dhabi, and Dubai in the construction business for seven, six years, I guess, and we've had a large operation there. We've built many buildings in the market and have a marquee brand for construction and other services in the market. We have 2,000 people in Dubai today that work for Brookfield, and we have a very substantial interest there already, not from a capital investment perspective, but from a services perspective. We knew the market, and we always spent a lot of time there. We've never invested any money in the country, in fact, in any of the countries.

A number of years ago, when Dubai was going through its issues, we spent a lot of time talking to them for the past three or four years on various matters, and six or nine months ago, we thought that a great way to take the business to the next level was to put together a fund, and we sought out the partnership with the holding company of the government. We're in the midst of that today, and we put that together, and we're going to be acquiring real estate in the market, and we'll see where we go over the next 12 months with that. We're actually very positive about it, and we'll see from here. It's not a massive or major commitment from Brookfield, but we're quite excited about what it could turn into in the future.

Operator (participant)

The next question comes from Bert Powell of BMO. Please go ahead.

Bert Powell (Analyst)

Thanks. Brian, it seems like there's a little bit of new disclosure in the press release talking about average term during which uncalled capital can be called for 18 months. Is that 18 months for you to call it to deploy it, or 18 months after which those that have subscribed can pull it?

Bruce Flatt (CEO)

No, that would be generally the call, and the investment occurs coterminously.

Bert Powell (Analyst)

Help me understand that just in terms of the 18 months. What does that signal?

Bruce Flatt (CEO)

Typically, there's a three-year investment period for a fund when it's formed, and from the date of first closing or second closing, you have three years to invest the capital. At that stage, you go, and that's when you're launching your next fund. You try and time your fundraising and closing of your next fund so that when the investment period in the one fund closes, you're there with your successor fund, and ideally, you have it fully invested, but not necessarily.

Bert Powell (Analyst)

Okay, maybe I'll circle back on that. One other question, just in terms of, you know, FX had a big impact on the intrinsic value in the quarter, and you did have $325 million of mitigation. Given that your functional currency, the country, you know, the U.S. seems to be doing relatively better, I'm just wondering if you guys have a different view today than maybe in the past in terms of, you know, hedging to mitigate the impact on some of your net investments.

Bruce Flatt (CEO)

Sure. That's definitely worth chatting about in today's context. We have roughly 45% of our equities in the U.S. dollar. The balance, most of it is spread Australia, Brazil, Canada. We will hedge those currencies, but typically only when we consider them to be at a pretty full or pretty full value relative to the U.S. dollar. We do not attempt to hedge on a static basis or certainly don't try and hedge the entire amount. That, in fact, would be extremely risky liquidity position and would be detrimental to returns as well. That's really the approach that we follow.

Bert Powell (Analyst)

Okay, with the $325 million this quarter, would that just signal that tactically you had your timing right on the view?

Bruce Flatt (CEO)

Yes.

Bert Powell (Analyst)

Okay, perfect. Thanks.

Operator (participant)

The next question comes from George Smith of Davenport Asset Management. Please go ahead.

George Smith (Chairman of Investment Policy Committee and Managing Director)

Hi, thanks. Bruce, a lot of your investments on the margin have been in emerging markets or markets like Australia that are heavily dependent on areas like China. When you hear the argument that some of those places may cool a bit, is the counter that you'd be relatively immune just because of the contractual nature of your investments and cash flows, or how should we be thinking about that risk?

Bruce Flatt (CEO)

It actually is a very good question, and I guess I'd say the following. We generally have tried to benefit in the emerging markets, but do it in an indirect way so that our risk-reward was probably not as good as if we had invested in many of the emerging market countries and in the type of assets you might have made extremely high returns. What we've done is gone to more contracted long-term streams of cash.

For example, instead of building an iron ore mine in Western Australia, we own the railway there, and we're writing triple net taker pay contracts to good credit companies that will put their ore on our tracks. We do get a muted return on the upside, but our risk is far, far less if something does occur. The first thing I'd say is I think your comment is right, that our exposure to those countries and the benefit we get from it is dependent on some of those issues you mentioned, but it's much less at risk because it's been muted and because of the long-term nature and contractual nature of the cash flows we have. Despite that, it could be affected if a very significant issue comes about.

In the short term, it's not really a problem because most of the things we have don't get affected in the short term. The real question is whether these countries are going to do well in the longer term. I guess our belief is that most of the countries will sort their issues out just like we think the United States will and Europe eventually will, I guess, and they will sort their issues out, and therefore, the longer-term thesis is still in place. As a result of that, we're quite positive to those markets still. Maybe the last comment I make is just on Australia because it is quite dependent on China, but today, and you know, a lot of it is investment in infrastructure that's getting built, and there's an enormous amount of money that's getting put into these projects.

It's hundreds of billions of dollars that's being spent today. It's by some of the giants of industry. Today, these are between $10 billion and $20 billion and $250 billion companies, and the money is, you know, pouring into the country building these LNG, bauxite, iron ore, and coal projects. You know, some of that might slow down, but they are extremely good projects and by very high-quality companies. I think there is some downside protection to that, but we always do try to do it in that type of fashion.

George Smith (Chairman of Investment Policy Committee and Managing Director)

Okay. One other, if I may, have you explored any ways via which you could invest just on a bigger scale in the U.S. in residential real estate or housing?

Bruce Flatt (CEO)

We've been buying multifamily apartments, and in the short term, we do think that rents will continue to increase, and therefore, we probably will continue to buy more multifamily. In the single-family business, I think it'll be just continued organic growth of the business that we have. There are not really any big targets out there that you could acquire into our residential businesses, but what we have is very substantial, and when the markets turn, I guess we think it's going to be quite valuable in itself, and adding around the edges can even make it better.

George Smith (Chairman of Investment Policy Committee and Managing Director)

Thanks very much.

Bruce Flatt (CEO)

You're welcome.

Operator (participant)

The next question is a follow-up question from Michael Goldberg of Desjardins Securities. Please go ahead.

Michael Goldberg (VP and Director)

Thanks. I wonder if you could give us any more color on the $50 million below normal in financial markets this quarter?

Brian Lawson (CFO)

Sure, Michael. It's Brian. I can give you a bit. As you know, we have, that generally rises from the cash and financial assets. We have around $1.7 billion invested, most of which is in things like corporate and government bonds, but we do have a smaller amount of the portfolios invested in common equities and high-yield bonds. On that specifically with the $50 million this quarter, that comes from a variety of smaller common equity positions that we, along with the rest of the market, suffered with some downturns.

We believe, we think we made the investments for the right reasons, and we think, just as much as we had $80 million of positive mark-to-markets in the preceding quarter, that we'll benefit from these going down the road.

Michael Goldberg (VP and Director)

Okay. This is, call it direct securities related as opposed to derivatives?

Brian Lawson (CFO)

Correct.

Michael Goldberg (VP and Director)

Okay. Thank you.

Operator (participant)

The next question comes from Michael Smith of Macquarie. Please go ahead.

Michael Smith (Private Banker)

Thank you. Why was the Canary Wharf dividend down this year versus last year?

Bruce Flatt (CEO)

The amount of monies that are paid out of Canary Wharf Group are not a set amount. Each year, an amount is declared, and it has varied in a significant proportion over the years. There is no specific amount that gets paid out based on any, like we pay $0.13 out every quarter and we consider whether it gets increased. There are just amounts that are paid out when there is excess cash in the company, so it was just that was what was paid out this year.

Michael Smith (Private Banker)

It has nothing to do with the underlying performance of the assets?

Bruce Flatt (CEO)

No, not at all. In fact, there is significant cash in the company, and the underlying company is doing better today than it ever has.

Michael Smith (Private Banker)

Okay. Just second question, you have positive views on the multifamily market in the residential market in the U.S. What are your views on it in Canada?

Bruce Flatt (CEO)

I don't really have a view. We're not spending a lot of time in Canada looking at any, and there are many that do it. In fact, housing, as you know, Michael, in Canada has not been hit like the United States. I'd say we think there's greater value in the United States to buy it, and we've not had any focus on it, so I couldn't really give you a view.

Michael Smith (Private Banker)

Okay. Thanks.

Operator (participant)

The next question is a follow-up question from Brandon Mairana of Wells Fargo. Please go ahead.

Brandon Mairana (Analyst)

Thanks. I just had a quick one for Brian. The accrued performance fees dropped fairly significantly in the quarter. I think you were at, you know, the unrecognized number was $400 million, went down to around $225 million. What drove the drop in Q3?

Brian Lawson (CFO)

Really, just a decrease in what we would expect the values to be if we liquidated all the funds at the end of the quarter. That's the policy that we follow for determining that amount, Brandon. What you might expect is that there's a certain amount of it that gets tied in with capital markets, but there's also a lot of it that just reflects the power of compounding and IRR because you're dealing with longer-term cash flows there.

Brandon Mairana (Analyst)

If your cash flows in the business held up reasonably well, and I don't think you guys typically adjust cap rates, or I would assume you probably didn't adjust cap rates from Q3, is it like, is it FX related, or is there something, or is it just securities that have gone down in value that you're holding that drove that number down?

Brian Lawson (CFO)

Yeah. The liquidation is not based off, for example, our fundamental values or IFRS. It would be based off of a point-in-time calculation, so definitely capital markets valuations would have an impact on that.

Brandon Mairana (Analyst)

Okay. All right. Thank you.

Operator (participant)

This concludes the time allotted for questions today. I will now turn the conference back over to Mr. Flatt for concluding remarks.

Bruce Flatt (CEO)

Thank you, everyone, for joining the call. We appreciate your time and your interest in Brookfield. If there's anything that we didn't answer for you today, please feel free to call Brian, myself, Katherine, or others. If not, we look forward to speaking to you next quarter. Thank you very much, and have a great day.

Operator (participant)

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