Q1 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Today, ladies and gentlemen, well into the Brookfield property partners first quarter of 2020 financial results Conference call. As a reminder, today's call is being recorded.
Is now my pleasure to turn the call over to Mister <unk> Senior Vice President on the bus relations. Please go ahead Sir.
<unk> Daniel went good morning, everyone before we get our presentation.
Caution you've got artist will conclude forward looking statements.
Statements that relate to future results and events are based on our current expectation or actual results in future periods may differ materially from those currently expected because of a number of risks uncertainties on functions that risks uncertainties and assumptions that we believe our material are outlined in our press release issue.
This morning.
What's that I turned the call over to Chief Executive Officer, Brian kicks.
Thank you ma'am and good morning, everyone. We hope everyone listening on the call today has remained safe unhealthy threat. This crisis.
It goes without saying that the world has changed dramatically from our last quarterly results update during the first week of February.
The impact of the covert 19 health crisis continues to be felt around the world.
Focus during this time has been on the safety of our people our customers in tenants in the communities in which we operate.
We continue to be inspired by the dedication of essential workers on the front lines of our businesses.
The safety of their homes in the comfort of their family every day.
In order to keep our property safe and operational.
We'd also like to acknowledge and thank all of those working in the health care food and retail industry is more broadly for their bravery in selfless dedication during this unprecedented time.
While we are not yet of the woods. It is refreshing to see that our teams are beginning to shift their focus to the safe reopening of our retail properties and preparing for tenants to return to the office.
Well this will be a gradual process. It's encouraging that we are closer to a return to normal than we thought possible, even just a few weeks ago.
Well the virus will have an impact on our operations over the course of the year ahead, our business remains in good shape financially due to a strong liquidity position in the high quality nature of the assets we own.
Despite this or unit price has declined dramatically over the past two months and today traded at price days disconnected from the performance of an hour underlying assets.
We remain conscious of the importance of capital preservation, we were active in buying back or unit throughout the first quarter over $100 million in total.
Turning to our property operating sorry segments are core office business earned company Fo of $135 million in the first quarter with same store net operating income growth of 3% over last year.
The high quality nature of our assets in the financial stability of the tenants we lease space too. It's meant to collections for the month of April were very good no material declined from prior periods.
Our portfolio is 93% least on a long term basis with the remaining average least term of almost nine years. These office properties provider tenants with critical infrastructure from which to operate their businesses. Even if their employees are working remotely from the time beam.
And while we expect some short term impact on the office leasing markets, we are well protected against the downturn due to the long term nature of the lease as we have in place.
We also believe that one of the results of the current crisis, maybe an increase demand for I. quality office space as tenants seek to reduce density within their existing premises.
With regard to new development. We currently have over 8 million square feet of active office and multifamily projects underway, primarily concentrated in New York City in London.
These projects require very little equity from us to complete as we have construction facilities in place on all of them that will fund the remaining construction costs.
In the first quarter, we completed a 1.5 billion dollar refinancing of to Manhattan West for a term of five years at whiteboard, plus 225 basis points.
Spread will decrease as certain development milestones are met.
While construction on several of our office developments were temporarily halted as they did not qualify as essential civics civic projects, we have been able to put mitigation measures in place to ensure that we will deliver these buildings to their pre committed tenants on time.
As a result, we do not expect any material impact on the schedule delivery dates.
New York City, the temporary halts are being lifted on a case by case basis, and we hope to be back on sake with activity resuming on all of our remaining project shortly.
Company Fo in our retail business was $195 million in the first quarter up 6% from last year.
As we mentioned in or update to investors in March March 20th.
Core retail business is where we expect to see the greatest impact from the health crisis as the majority of our retail properties have been closed for over a month yeah.
In some states where regulations now allow we have begun process reopening centres and are working closely with our tenants and local authorities to ensure that is completed in a safe manner.
As of today around 50 of our retail centres have reopened under restricted capacity.
We're supporting these reopenings by concurrently launching curbside pickup programs that are properties designed to seamlessly integrate online shopping with inventory held in stores in our most effectively turning those stories into fulfillment centres, located where our tenants customers live and work.
The feedback from tenants has been very positive with many of them reporting a significant proportion of their online sales being fulfilled through this channel.
We believe this is more than a short term stop gap during the retail shutdown and expect this to become a permanent feature inner tenants supply chain in the future.
This will further underpinned the value of our premium assets, which are located in densely populated urban areas throughout the country.
Are centers are on average within one hour of 60% of the U.S. population.
In the coming months as or tenants continue the process of restarting their businesses. We will continue to work closely with them to assist in getting them back up and running as quickly as possible.
Our properties, we're implementing comprehensive health and safety mitigation measures, including P.P.E. worn by all employees and available for guests upon request and sanitizing stations at high touched locations sanitizing wipes available in food courts frequent signage with health and hygiene reminders and strict enforcement of social distancing and density.
Pickles.
We're also working with our smaller and regional tenants to provide them with financial accommodation.
Diagnosing their ability to fund short term operating losses is not the same as our larger breaths. We expect this will have some impact on earnings over the balance of this year. However, that's expected to rebound quickly as the industry industry recovers.
In addition, we'd been active participants in supporting the industry's efforts to work with the U.S. Federal government on its economic stimulus packages, specifically the cares Act.
We've taken a proactive role in working with retail tenants to ensure that those who qualify for stimulus funding received the subsidies they're entitled to.
Are dedicated tenant resource page and web in R. devoted to the cares Act has attracted over 23000 visitors providing valuable information on how to understand and determine the potential options available for our tenants businesses.
These subsidies if applied him distributed correctly could play an important role in easing the financial burden that retailers in restaurant operators are faced with.
The hundreds of billions of dollars earmarked for a small businesses to pay their employees wages as well as cover operating expenses, including rent should mitigate some of the financial and emotional hardship they're facing.
Although we remain excited about the value creation opportunities we've identified in our retail portfolio preserving liquidity within our existing operating assets is currently are primary focus.
As a result, we will differ some of these projects for the time being and reassess our options once we have greater clarity regarding the recovery of the broader economy.
Turning to our current liquidity position, where in excellent shape, well public markets of experience extreme public equity markets civics experienced extreme volatility over the past two months credit markets have remained robust, particularly for high quality borrowers in assets.
Banks and other financial institutions remain open for business with strong balance sheets and discussions with our various lenders had been productive.
As a result of our ladder debt maturity profile with an average remaining least term remaining term of five years, we have relatively few mortgages maturing over the balance of this year and anticipate being able to finish refinance all of them and in some cases, even increased alone amounts.
To give a couple of examples to have our largest mortgage maturities remaining in 2020 or secured by 200 busy Street at Brookfield place in New York, and Tyson's Galleria shopping center in Northern Virginia.
200, Veazey is the best in class office property that is 100% least weighted average remaining least term of more than eight years.
Tyson's Galleria is a highly productive shopping center with average tenant sales of $1200 per square foot and is 97% least featuring over 20 exclusive to market luxury brands.
These are best in class properties with great visibility to long term contractual cash flows from high quality well capitalised tenants in.
In other words, we do not anticipate any difficulty in refinancing these two assets.
Regarding our disposition initiatives as capital markets around the world had been disrupted we haven't seen a dramatic slowdown in private market transactions, which is delayed some of our planned asset sales for the year.
We do believe there are significant pent up demand for high quality assets like the ones that we own to provide stable and predictable cashless with an enormous amount of capital currently sitting on the sidelines, we're expecting higher than normal transaction volume once markets begin to reopen.
Particularly with interest rates near zero today.
We're optimistic we will be able to to achieve our plan level of dispositions later this year in early into 2021.
And although we are prioritizing retaining with quitted MBP wise balance sheet, we had the benefit of our participation in Brookfield sponsored private equity real estate funds.
Currently have in excess of $8 billion of Drypowder to put to work.
Once the market stabilizes, we expect environment with attractive risk adjusted investment returns and what may be a less competitive landscape.
Or funds have remained active continued to invest capital and if pivoted some of their focus toward public markets, where there may be opportunities to acquire high quality assets Andorra inefficiently priced portfolios.
We are well positioned from illiquidity perspective to mitigate any short term disruptions in our cash flows.
The end of the first quarter, we have approximately $7.2 billion of capacity Undrawn credit lines in cash on hand.
We expect this will be more than sufficient to withstand protracted downturn.
In addition, our sponsorship by Brookfield asset management Fortifies, our financial position should we ever require additional assistance.
Regarding our distribution as we've stated in the past our policy is based on a long term view of our business with a healthy respect for the cyclicality of economic and real estate real estate cycles.
Well, a prolonged economic contraction would impact cash flow in the longer term, we continue to have more than sufficient resources to pay or stated quarterly dividend.
As such our board of directors today is approved the declaration of our regular 33 and a quarter cent per unit distribution.
Before I get some of the ways that we as an organization or contributing to the covert crisis relief efforts around the world turn the call over to Brian Davis for the detail financial results from Q1 right.
Thank you Brian.
During that first quarter of 2020, B.P.Y. earned company I thought Oh and realize games at $323 million.33 per unit. This compares with $367 million.38 per unit for the same period 2000 at 19.
Earnings consists of $135 million aren't from our core office business $195 million or from our court retail business.
$76 million earned from our L.P. investment strategy.
And these investment level earnings were upset by $83 million corporate level interest and administrative costs.
In the current quarter, our core office business performed very well.
Earned $333 million, a net operating income compared with $313 million that <unk> earned in the same period last year.
<unk>.
$308 million represents our same store in Hawaii, which was 4.4% higher than the prior periods on a natural currency basis.
This increase in that same store was largely concentrated in our downtown New York portfolio in Toronto and in our London properties.
Nonsame store in Hawaii increased by $11 million to $25 million this quarter as we're benefitting from our recently completed developments, which are over 90% least in our about 45 per cent occupied how good the end of the quarter.
Lastly to providing update to the discussions we had last quarter on our condominium pro Jacks. We've made progress this quarter generating 29 more unit sales and 107 deliveries.
Did only recognize $3 million a burnings at our share an investment and other income from our active projects.
At our 299 unit principal plays project, we've sold 274 units or 92% and delivered 251 unit.
At our 476 minute tower, it's South bank in London, We've sold 455 of the units or 96% and we've delivered 116 are those units.
And lastly at a 346 unit tower at Woodward, We've sold 276 units are 80 per cent.
Not yet started delivering.
The impact of the health crisis is cause construction delays of about three months, which may impact our ability to deliver units.
Saint pace as we had forecast it at the end of last year and could impact sale prices from some of the remaining Unix as a result, the recognition of the remaining income of approximately 40 million.
Pounds from these projects will shift to the latter part of this year and into the first cat.
He's increases in earnings were partially upset at these increases in earnings in our office business were partially upset by the impact of asset sales over the past 12 months, where proceeds were either reinvested into another business segment or used to reduce leverage or were invested into our development redevelopment projects, which are not.
Generating similar level of current earned.
In our core retail business, we earned $423 million net operating income compared with $430 million in Hawaii.
Period last year.
This 389 million represents our same store and a lie which was 3.4% lower than the prior period.
Nonsame store in Hawaii increased by $70 million to 34 million as we're benefitting from our net acquisition activity towards the end of last year.
Same store results this quarter continue to be impacted by bankruptcies and store closures Cotenancy claims and additional reserves taken against receivables.
He's reducing store this reducing store by $24 million, but were upset in part by $10 million and contractual increases.
And spreads on renewal.
On the space impacted by Bankruptcy's through the end of 2019.
We expect to begin to see benefits next quarter of the leasing we've executed attendance occupy and we begin to recognize rent.
Investment and other income in this business increases quarter to $37 million. This is primarily due to what 30 million dollar game in as we sold our remaining interest in authentic brands group and an airport style.
Moving to our L.P. investments company I thought was down 27% $62 million this quarter.
I just contributor to this decrease where our hospitality investments, which were impacted by the abruptness the travel restrictions and stay at home orders that were put in place, which essentially close the majority of our properties for the latter part of Mark.
Earnings from this business, where $2 million this quarter compared to $27 million earned in the prior year.
We will continue to see pressure on our Q2 earnings as most of these properties will have operated with low occupancy through April and May.
Earnings from our other investments however were largely in line with the prior period.
Highlight all of this information on page 27, a bar supplemental information package.
Shipped grant to net income attributable to unit holders for.
For the quarter, we had a loss of 406 $486 million or 52 cents per unit compared to income of $333 million.34 per unit in the prior year.
Attributing that this last <unk> unrealized fair value losses.
Hundred and $75 million.
Which can be further broken down into losses of $315 million from our investment property.
And losses of $360 million, primarily related to the mark to market interest rate hedge is we put in place to swap a portion of our floating rate exposure to fix great.
For property valuation it wasn't more challenging environment to calculate for about.
There was an increased uncertainty to input factors, including capitalization rate and discount rates due to a lack of market transactions since March 2020, and to near term and potentially longer term impacts to cash flows.
Our approach this quarter was to focus on sensitizing cashflows based on expected scenarios, which are anticipated to occur over the near and mid term period, we did not adjust discount rates to reflect interest rate cuts in most of our markets. As we felt it was offset by increase spread in the debt markets.
For terminal rates, we took the view that the markets will stabilize by the terminal year in our models and as a result should not have a direct impact on those rates.
Cashflows, we have a set each asset class taking into account rent collection rates renewal percentages and the credit quality of our tenant base.
Classic classes, which were most impacted where retail hospitality student housing.
In aggregate, we had on a proportionate basis $650 million and losses related to our Qubic 19 assumption.
These were partially upset by gains in certain assets that we're not as impacted.
Actually benefited from higher cash flows <unk> or lower discount rates, it's construction and leasing advanced on our development pipeline.
There's likely that there will be further cash flow evaluation metric changes in the future periods as new information related to the impacted this health crisis unfold.
I will point out that additional disclosure will be included in our quarterly reports related to the impact of.
Called the 19 on our results and our evaluation process in particular.
Oh, and my notes highlighting at our proportionate balance sheet, we had $13.7 billion invested in our office business with $13.8 billion invested in our retail business and another $5 billion invested in our L.T. investment strategy.
These businesses are capitalize with the low amount of corporate debt $2 billion $2 billion of longer term preferred equity and $27 billion of equity attributable to you know holders, which translates to $28.52 per unit.
But those as my plan remarks, I'll turn the call back nobody Brian.
[noise], Thanks, Brian before turning the call over to Cuba day, with our analysts I wanted to provide a brief update on some of the amazing things are people are doing around the world to help contribute to the relief efforts.
As an organization, we're utilizing our various real estate locations and human resources encouraging all of our local managers to find creative ways to support the communities and this time of need.
Efforts to date include a number of our retail center parking lots are being used for blood drives food banks mobile testing sites or other community needs, including drive through farmer markets.
Global hospitality platform or support efforts of range from donating property uses to first responders accommodating military and National Guard groups at no cost.
Use of hotel kitchens to feed furloughed employees, and providing food inventories two other employees.
We're providing parking spaces at several of our properties proximate to healthcare facilities for use by medical personnel that are participating with local or organizations to provide meals and other basic necessities to health care workers after their ships.
Participating in a mobile phone drive to collect and distribute mobile phones to vulnerable individuals that may not have access to communication during the locked up.
We've made a portion of our free community Arts programming available virtually so that local residents can continue to access and enjoy these cultural experiences.
And we've contributed meals to food sensitive individuals' by acquiring food from our idol restaurants, and donating it to targeted organizations.
So to summarize we have been preparing for an economic slowdown for sometime now and while it would've been impossible to predict the speed or depth of the covert crisis or business is set up to withstand its impact and capitalize a new opportunity should they present themselves.
Lastly on behalf of our entire management team I'd like to thank all of our 22000 real estate professionals around the world for their hard work and dedication during this difficult time.
We would also like to think all of her unitholders for their continued interest in support.
So with those as are prepared remarks were happy to take any questions from our analysts on the line Daniel maybe you could get people instructions on how to do that.
Ladies and gentlemen to ask a question you will need to press star one on your telephone to scroll. Your question press the pound key please stand buying while we compiled the q. and a roster.
Our first question comes from Sheila Mcgrath <unk>. Your line is now open.
Yes, combining Brian I'm, Michelle Bam Bam.
Yeah, I made a big announcement yesterday on a program with retailers and I'm. Just wondering if you could explain that program in any potential benefits were impact to P.P. wise core retail clothing.
Sure. So so the <unk> for those of you or for those who didn't see it <unk> brookfields enough to 5 billion dollar retail revitalization program.
Which is targeted.
At investing in retailers, who had sort of pre covert crisis sales of $250 million a year or more and you know I'd say this is a pretty classic or to or typical brookfield approach to to investing which is we think are on a large number of very high quality retailers or retail businesses that have been.
Impacted on a short term.
Basis, because of this crisis to continue to to have great longer term businesses, but capital was very scarce and we're seeing this you know in our discussions with our tenants et cetera that you know frankly, the the well the support from the U.S. Federal government has been enormous it's not enough you know in all these businesses been shut down for two months.
And they continue need access to liquidity and and we think this is a really interesting opportunity for us to utilize the knowledge the relationships in the understanding of these tenants that we we have in the real estate business through our relationships with these tenets and bring some capital to you know to to bear on.
This in the inner an interesting investment returns. So you know while it's not targeted specifically at you know tenets of of hours you don't have to be a tentative brookfield to to qualify for the program.
With 150 retail locations around the United States and close to 20 410, It's no question some of our attendance.
You know will will benefit from this access to capital.
Okay, <unk> and then on the collections in <unk> you mentioned it was about 20 per cent any insights on may and what kind of vaccines his book field.
Taking to get the higher are you working on invented for all programs or how should we think about attempting to model.
Yeah. So so it's you know we're only eight days intimate. So it's it's a little early but I I would say, it's tracking pretty closely to to what we experienced in April. So I would anticipate this month is likely the same although as we mentioned over the course of of this month, we we expect to have the vast majority of our centres reopened.
That should mean is that that we should start to see that recovery in June I think we're through the worst of of.
From a collections perspective, the worst of it.
You know weren't active dialog with with every single one of our tenants and you know the conversations range from those tenants who were saying it's look it's a short I haven't ability to pay it's a short term liquidity issue and and I I I just need time short term deferrals to some tendencies businesses are struggling and they are looking.
For you know more of an abatement. So it's really going to be you know literally 2400 individual negotiations with all of these tenants our retail leasing teams had been a very active dialog from you know really from the started this back in February as we began closing down centres in in March I think we've got a pretty good handle on.
<unk>, where all of those retailers are it's going to take three to four months probably to work through all of those negotiations, but we are.
Optimistic that the vast majority of those rents that we're not paid in April and May will ultimately be collected it may just take a longer period of time.
Okay, and one more and I'll get back in the queue, but you guys are different in the way you can answer your assets with more secure debt I'm. Just wondering how do you think that <unk> positions you in the current environment and if you are considering any you know purchases I get at.
Discount are there any opportunities that would in this environment surface.
Yeah, a little you know I think the.
These types of situations are exactly why we do finance the portfolio. The way, we do which is you know if we have.
Particular assets or or markets or or areas, where.
There are disproportionately impacted by by a situation like this it doesn't it doesn't impact the entire business and so you know for example, the.
The lower rate of collections within our retail business isn't having a huge impact on the debt that securing our office business.
And so you know this exactly why we designed the the structure of the way we did any any right. There is potentially there may potentially be the opportunity to either you know restructure or in some cases by back some of the debt on those individual assets were.
We we maybe have a a different longer term view on the prospects.
Than the current holders a bad debt, but half of our debt is in the retail businesses in C.M.B.S. and the other half his with.
Banks insurance companies life codes et cetera, and so.
You know I think there's there's for the C.M.B.S., there's sort of screen prices every day and for the others. It's more on balance sheet and there's a bit more on a direct negotiation basis, but you you could see us do some of that absolutely.
Okay. Thank you.
Thank you.
Next question comes from Mario Sorry, with Scotiabank. Your line is now.
Alright, good morning, and thank you maybe just a a couple of fall when questions core retail in terms of work Clarkson.
What what percentage of the 80 per cent.
But hasn't been paid by tenants in April would you consider coming from tenets that have the ability to pay but I'm willing to do so given a poor visibility color.
It's a it's more than half it's I don't have the number off the top of my head, but but but certainly the if you look at our portfolio and the the type the nature of the tenants in the types of assets that we have they generally you know, though the largest proportion of our income comes from large.
International you know global retail companies.
And so as I say that I think the you know some of the smaller local regional players where they they only have a couple of locations and they're they're these private businesses.
Not really is where you know the stress is the most acute and you know those are the tenants that we're trying to to work with.
See our ability to do that is highly dependent on those large international tenants.
Do have an ability to to pay to ultimately paying so that we are able to to work with the smaller ones.
Right. Okay, and then that's another follow up on ER revitalization formed it's it's I guess, it's our understanding or that the or the capitals going to come from lifting damn fun huh huh capacity, so <unk> three I'd imagine.
<unk> three Bam has an 18% cones asking <unk> so in terms of structuring potential investments.
Is it so that each investment would fit within bounds ruck would have an 18% Ben Cohen, Boston, 7% P.P.Y. cone biased or can you have investments that are 100% B.P.Y. in terms of the filling the books Joel Coen bus man in zero percent family Vice versa.
Yes, so I think by understand the question right. It's not so much concept of Coinvestment. The the fund has $15 billion of total commitment from.
From investors, including both Bam M.B.B.Y. band can has committed to 18% of that $15 billion B.B.Y. His <unk> committed to 7% of that $15 billion and so to the extent that had a an investment gets made in that fund whether it's you know these retail things or anything else.
Capital called was there to all investors and seven so if it's $100 seven dollar capital called comes to B.B.Y. for every investment so to the extent that any of these investments to answer. Your first question is extent that any of these investments.
Do get made.
Through beds Rep, and BP wise commitment would be seven per cent of them.
But but to be very specific the.
The mandate of beds rep. The the real real estate opportunity fund is to invest in real real estate not to invest in real estate operating companies operating businesses.
So therefore, the to the extent that any of these investments for this rescue program get made through beds Rip. It would really only be things that are secured by real estate. So could as an example via a sale leaseback on you know logistics facilities from a retailer or or those types of investments it wouldn't be likely be a direct investment in the the retailers himself.
<unk>.
Understood, Okay, or as I was trying to go to some given the size of.
It'd be fun, Yeah books she'll pick we'll call investment funds as you can get tons of what the central incremental.
<unk> capital from D.P. or it could be.
Yeah, exactly so so I would say very very little to none of that 5 billion would be incremental to be why because we do have our commitment to the global opportunity to fund and fixed anything got done through that global opportunity fund. It would those commitments were already on the books for us there's not really a new commitment as a result of this.
Okay, and then maybe a question for blind date, but it's just in terms of yard for us.
<unk> this quarter can you highlighted or the block visibility in terms of maybe keeping things where the yard to some extent.
How should we think a boat do G.P. evaluation, that's corridor in terms of lack of visibility versus.
Remaining hi conviction in kind of long term value.
The portfolio.
Well so just.
Over riding theme is that you know, we think all of our properties office and core retail or high quality and supported by long term leases you know hence the reason why we sort of focus initially this corridor on the impact to short term cash flows.
Is Brian indicated as we begin include our negotiations with the 10 and over the next.
Two three months, we're gonna have a good sense as we get into two two valuations as to what sort of the actual impact is to near term cash flows and similarly, as the economy unfolds and we get a better insight into the health of our underlying tenants, we'll get a better sense.
You know what the next sort of to to to 10 years looks like as it relates to contractual cash flows as well as our ability to lease up space and and and we set up at rental rates.
At the end of the day, we think we have a great well positioned portfolio <unk>, we know that there's gonna be some challenges in the retail industry, but I think a lot of retailers aren't going to look to adjust their balance sheet. So that they can positioning themselves to be a profitable business going forward.
And we think you know our malls provide them with the best opportunity to achieve that so you know our expectation is that there will be pressure on valuations, but we don't think the pressure is near what's anticipated by the public markets.
Guarded and I think Brian mention there's been no transactions post March 20 years to kind of point too, but there was a proposed merger now five days after or your queue for resulting from farming apartment <unk> without valuation I've been package.
Your your estimates this quarter or about something that they're going to look to the next couple of months.
You know.
You know as we look at valuation metrics for large transactions those influence.
I think you know we reflect on all of that stuff, but.
I would say that you know overall you know we mentioned in our our scripted remarks, we didn't adjust our discount rates are terminal rates specific too.
You know any market transactions that may have taken place post cold day that to the extent that there were any then we'll have to reflect on those as we sort of advance through this experience and to keep too much.
Right. Okay. One last question for me if I mean, just on the distribution are really quickly clearly with stark you'll be 14% today, but market.
Concerned about.
But would you have a distribution as you pointed out many times before today, you've taken a longer term or you take a longer term view on the sustainability about distribution. So in terms of the crisis bowling today.
The way or read the commentary was that it would take a little prolonged economic contraction or substantial let's say reduction in liquidity in terms of real fast food distribution.
In terms of how you would define a a pool warm dot com on your contraction.
Yeah. So so.
<unk> you know I think obviously it it it goes to time, but also severity right. So so there it's a combination of both things so I would say that our comments.
Around the sustainability of the dividend our confidence that we're able to continue to to pay that dividend.
Are based on our current assumptions around the you know the likely severity and the length of the.
The the length of this downturn, which you know we think and I think you can probably gather from a rural <unk>. Our overall comments, what we think that is which is there's a short sharp impact right now over the next couple of months as a number of our retailers.
You know struggled to pay their rent a everybody else's paying the rent, though so from a liquidity perspective, that's really where you know our our cash flows are impacted in the short term and as I said, we do expect that as our shopping centres start to reopen you know those <unk> those collections and numbers will normalize again, so assuming that that.
Occurs that the way, we think it will bend them, there's no real we have no liquidity concerns.
Your question is what would cause that to change you know look a recurrence where every one of our shopping centres get closed down for a longer period of time could have some impact on that as an example, you know a second wave later on in the are those sorts of things might.
Might change our view on that but based on our current projections around timing of reopening or discussions with the tenants around you know how long post that reopening it will take before they start to become current on their rent again.
Not anticipating that that will have any meaningful impact on on the distribution.
Okay very helpful Cranky Kuechler.
Okay.
Thank you are next question custom deal Downey with our capital markets. Your line is now though.
Oh, Thank you good morning.
Bright David I think you made reference to some sensitivities.
We may see <unk> future disclosures can you give us just a sense as to.
What some of those might look like for say the core a retail business where.
I think your balance sheet shows 35 billion have a a property assets.
How what you express those sensitivities and and what might they look like.
Yeah, and without getting into specific numbers. The sensitivities that were you know going to include in our disclosure materials. When we filed them early next week really relate to what is the impact two values. If you see your movement in discount rates by 25 based.
Points and or movements in terminal rate by 25 basis points and.
Do you think about our portfolio and it's pretty consistent cross office and retail.
What you see is that if.
Val discount rates moved by 25 basis points it impacts values by about two and a half per cent.
It's both discount rates and terminal rates were by 25 basis points it impacts value by about 5%.
We're not specific you know and it's pretty binary or it goes both ways you know discount rates, increasing discount rates increase that the percentage is consistent so that'll give you a sense of what you know ultimately you know movements maybe to the extent that.
The market would suggest that there's incremental risk over and above the current risk free rate to suggested there should be a movement discount rates airports.
Okay. Thank you.
The climate for borrowing against malls.
Can you talk a little bit more about that and and I believe the number is that there's 1.6 billion.
Of debt do this year in the core retail business <unk>, what's the character of that that kind of the timing.
Throughout the the year et cetera.
Yeah sure. So the majority of that debt you know comes do June September and and December sort of those three time periods.
I'd say.
Probably 60% of it is it C.M.B.S.C.
C.M.B.S. type execution in the balance so that was direct with insurance companies and or banks as it relates to all of our maturities for 2020, we have been in front of all of our lenders and just requested 12 month extensions to give us sort of an opportunity and of course.
Lenders an opportunity to.
Reflect on what is happening in the market and to give us a time, a chance for the market and volumes to stabilize but the good news with respect to our our retail portfolio is these are low lever.
These are malls, you're at our have L.T.V.'s are less than 40 per cent their high quality malls. Brian gave an example of one of them with high occupancy and good average lease like so we feel comfortable that the markets.
You know stabilize and volume gets gets worked through we'll be able to refinance those.
You know taking into consideration that we'll have 12 month expense extensions to deal with that.
C.M.B.S. was a form of refinancing that we had used quite a bit 2000 in 19.
You know that market just recently opened up a this week with I think it's first new issue conduit.
But it is not exposing itself yet to hospitality or retail assets and so it may be an avenue that that continues to be a little bit disruptive over the next you know 12 months, but having said that insurance.
Market is open for for good quality asset some good quality cash flows in banks are open as well. So we feel comfortable that we'll be able to address all of our matures.
Okay. Thank you for that you you just mentioned the word hospitality assets, which.
Clearly on my mind as well I think the N.Y. last year was.
215 million from the hospitality assets.
What might the 2020 budget.
Oh I have looked like.
At the beginning of this year for obviously for the assets you owned at the beginning of this year.
And in terms of the the short term.
Impact.
Q too and maybe Q3 is it possible that those assets actually have a an N.Y. deficit due to the operating leverage.
In in those properties.
Yeah, and the L. and and you know all sort of jump between N.L.Y.N.N.F.F. So just.
Put those numbers you gave in context, we earned about $110 million in F. old from our hospitality business last year, we expected that number to be higher. This year you know when we began the year without taking into consideration.
The impact of the health crisis.
You know as yet shift it just profitability you know typically a margin on a hotel assets.
Yeah, you know about 35% and.
And I'd say in a normal market you operate a hotel at about 50 per cent <unk> and you can break either.
You know you do have a bit of flexibility definitely in your hospitality property to to deal with expenses and so in that time, when you're dealing with less than 50% occupancy you can adjust your expenses such that break even is probably 30% occupancy.
To 40% occupancy, but if you operate below that I think you indicated there is a chance that you could run.
You know at sort of a negative.
Margin is your fixed costs sort of remained relatively high so as we look out into the second quarter and I think as I mentioned in my speaking notes you know that is one area with most of our hotel properties being closed April and May.
That may put pressure on our earnings may ultimately be negative contribution.
To our earnings you know one thing that we.
Remain hopeful is there's a lot of talk that these properties get back up and open by June we had an experience with one of our hospitality properties and decree a market. It is already at 50% occupancy growing and we do have.
We do have eight the majority of our hospitality properties in the leisure sector, and we think that will be one of the quicker sectors Ah debt recovery post cold bed relative to hospitality properties that catered towards business travel.
So it remains to be seen but we will have pressure on earnings definitely for the balance of the year.
Right, Okay, and finally, it's I may.
I I I didn't hear you comment specifically on foreign currency movements, and maybe I missed it but.
Presumably that had a negative impact on your equity value, which was as you indicated 27 billion. The March 31st, but what was that would the net effect of of currency I've been sort of <unk>.
Yeah quite significant as it relates to equity you know.
The number you know after you take leverage would have been in the 500 million dollar negative range.
If you look at the continuity that we include on our.
But you know supplemental on page 10, you'll see from a gross perspective values of our properties were down by $1.7 billion related to so solely to effects.
We finance most of those properties and local currency I. So we get the benefit of the liability being mark to market it as well.
And we had hedges that I think we you'll see as we show sort of the net exposure.
To our currency that we took the opportunity to monetize during the quarter is as well as particularly is that.
The pound dip to a low you know 118, and and and we saw the Australian dollar dipped below you know 60 cents and so that provided a little bit of offset to the exposure to equity, but it definitely did have an impact.
On the $28.52 I.F.R.S. per unit.
The score.
Okay, Yeah, I could see the asset level. It backed I was aware of the hedges, but I couldn't.
I couldn't appropriately pencilled up to the equity exposure. So thank you.
<unk>.
Thank you are next question comes from Mark Rothschild was can't according to your line is now open.
I think that maybe you can just provide a little more detail on any changes and <unk> that you're planning open next year as a result, what is going on no I realize that development distillate slightly base still going out those projects and you have the commitments that that's rep. So maybe it'd be more encap acts and you talked about what the <unk>.
<unk> would be in any changes you would have based on that or anything else.
Yeah. So so the main the main place as I Sorta mentioned earlier that where we've we've read looked at the cutbacks budget is in in relation to some of the retail redevelopment project and at the moment you know it's <unk>, it's really been a.
There's number projects that were not in the ground yet that we were not starting that we said, let's let's delay the the start of those and see how the environment looks like on the other side of this to decide whether we want to proceed with the same project or a modified project or or maybe there's a different way to glad it or in some cases you know we may we may decide and a new in the new world those are no longer Bible and it may cancel them entire.
<unk>.
Overall capital allocation strategy as I mentioned on the office development side. The equity is largely funded in there we have leases in place on on all of these projects and the debt lined up to to actually fund the remaining costs. So that'll continue on the investments in in the opportunity funds are going to be driven by the pace of investment.
There were putting capital to work and at the moment.
With the markets all being.
Largely on hold deployment pace within those funds is relatively slow, but I expect that's going to pick up in the second the second half of the year.
And so it really the the the end up study is going to be around retail and some of those projects.
Okay. Great then maybe just one of the question I'm in the letter I'm basing your comment sounds like you guys have a lot of confidence that markets will open up as far as asset sales over the course of the year. When you make that comment generally across all asset classes or would that be more specific to certain ones and.
To relate to your budget and plans for asset sales for the next year.
Yeah. So so it it I you know I'd say, we're would it's informed by is is you know conversations that we're having regularly with her institutional investment partners, who are calling saying look I've got capital to put to work as or more things we could be doing what are you seeing for sale.
So we do see we do see a large pent up demand on the sidelines waiting for markets to reopen hmm, but I think where a lot of that.
Investment focus is going to be is on you know very high quality.
Yield replacements, you know with the assumption that rates are gonna be very close to zero or or lower than many of us had been anticipating even as recently as six months ago.
Healed is going to be king and so I think when you have assets in you know in high quality markets with long term leases in place and a lot of that predictability, there's a ton of demand for that and I think those would be the first things that will.
That will you know sort of <unk> reemerges as sale candidates.
Mmm as you get further down further up the risk spectrum and whether that means moving you know from those longterm leases to short term leases like hotels or things that are more directly impacted like retail that's going to take more time in it and I think you know those institutional investors are reading the same headlines as publican equity investors are reading around.
Future retail and and what this means for some of the shopping centres and so I think they're going to take a more cautious approach to those so your question around asset classes, yeah, it's going to depend on on the asset class, but I think.
You know with office as we mentioned or collections are pretty normal I've been pretty normal cash flows of held up I think that's sort of bears out. The thesis that this is a pretty safe unstable asset class to invest in I think multi family is held up well as well. So there there could potentially be a lot of interest in that.
You know given that that you know come into the last crisis you saw a lot of increased demand for that product a lotta people are saying the same thing could happen here. So so I think both of those sectors are going to be in demand clearly industrial and logistics <unk>.
Continue to be in in high demand as well so.
Maybe just following up quickly on that that that comments, there's there's a lot of negative cometary regarding to New York office market would it be fair to say you don't agree with that commentary.
We've never agreed with that commentary. So so no no no question that like if we had into a recession and we have 15% unemployment.
It's going to make it it it more challenging than we had had been anticipating the leasing market would be in in 2020.
But but that being said you know we in our conversations with office tenants me. The the idea that you know 50 per cent of office workers are not going to start working from their living rooms is is not.
We really don't think that's a big risk.
These tenants are being thoughtful about timing of when they return to the office frankly, the biggest conversation they're asking now is do we have enough space. Because you know clearly when people start to come back to work densities are going to have to be reduced from from the trend that we've seen over the last 10 years in so many of these these sort of larger space users are.
Looking around scrambling around frankly for shorter term space that will help them sort of accordion back into there.
Into more normal operation. So so while there may be some negative impact from a slowdown in business expansion and and and job losses and that sort of thing there's a huge counterweight to it which is you know we think for those businesses when they do reopened they're going to need to reduce density and that's going to drive office to map.
Okay, great. Thank you so much okay.
Thank you.
A reminder, ladies and gentleman that stars done one to ask a question.
<unk> Wilkinson with C.I.D.C. Your line is now.
Thank smart guys.
Most of my questions have been answered just coming back to the retail revitalization program and recognizing that it's it's barely less than 24 hours old you have a sense of of what percentage of your tenant base would qualify for that that.
Sales threshold and and perhaps participation in that program.
You know, it's not a it's not a scientific number so it was take this as sort of a rough estimate, but it would be you know somewhere between two thirds and three quarters of them.
You know that that if you I mean, you could you could do a survey of the universe to see how many retailers at greater than 250 million and sales, but that's a.
Fairly large national business, but it doesn't need to be global in international so that that covers a very large proportion of our 10. It's it's it's it's it's it's the majority of and with those generally be tenants that would already be in that 20% of rent has collected bucket or or would it sort of be spread across.
You know my my guess is if they were in that 20 per cent bucket. They don't need the capital they don't need the money in it yeah and the demand for the capital is going to come from the the 80% to you know who who didn't make the rent payments.
Yeah that makes sense.
And then just I I know, it's it's 2400 individual conversations but.
As an average <unk> what are the the terms you're looking up in in in sort of your deferral agreements like is it a collection over you know between now and the end of the years at one year is it sort of the remaining lease term what would sort of be the general goal posts around when you look into to sort of recover that.
Yeah, It's maybe two maybe three months of of <unk>.
Yeah. It's you know it's it's it's early to comment on where the likely outcomes are I can tell you that we're we're starting from is assured his period as possible and where the tenants are starting from is the longest period as possible right. So so my expectation is though for the for the most part those deferrals likely get repaid over the first 12 months post reopening.
Okay that makes sense.
That's it for me <unk>.
Okay. Thanks.
Thank you are next question comes from Sheila Mcgrath with Evercore. Your line is now okay.
I guess, Brian I, just wondered if you could comment on the fact that.
Seem to be more elevated bankruptcies in retailers <unk> Neimans Dayquil gives any sense right. Now if you know maybe this shedding that that makes them stronger and it doesn't include a lot of a store closing.
What's your view on how.
Ah store closings well trend her your portfolio.
Yeah. So so.
I won't come in in any names, specifically, but but one of the things I do think that is going to come out of this you know out of out of this whole situation with the shut down is what we're going to see is <unk> would all of US expected to play out over the next five to 10 years is going to play out over the next one to two years in what that means is is.
Retailers with weak balance sheets or weak business models.
Or either going to your file for bankruptcy and and liquidate or or ultimately restructure their balance sheets, and and sort of emerge in a more sustainable fashion and weak retail real estate or you know poorly located are low quality retail real estate that you know might have been able to hang around for a long.
Period of time.
You know, we'll we'll quickly see it values diminish and possibly something different happening with meaning you know a lot of the repurchasing one of the the.
A big hold up to some of this lower quality retail real estate being refurbished into something else was that it's still at a higher and better you says as sort of low quality retail real estate. So I think bringing all of this forward is going to allow a lot of that to happen, including store closures over a much shorter period of time, that's good and that's bad.
You know for groups like ourselves that own very high quality, you know centers in great locations that we're always going to be the survivor.
In that situation, it's fantastic because it's bringing forward that consolidation and ultimately the the strong will be stronger it'll be more demand from the tenants, but in the short term, it's going to cause a lot of disruption because you know, while we would like to take back as many of these department store boxes, and re purpose them into something else over a period of time.
You'd want to get too many of them back at the same time because it. It you know there is capital and and you know earnings impact associated with that so I think over the next 12 to 18 months, it's going to be a bumpy period for for all of us, but when we come through the other side of it both we and the retailers that remain are going to be in a much stronger position and and.
You know I think we'll we'll get back to what we we expect a long term.
Growth of of this sector to be.
Okay, and then just real quick on Manhattan, less to Manhattan, lest I guess it does it's construction stopped on that and just on leasing discussions your previous.
25% and just comment on leasing discussions at that property.
Hi, Hi, <unk>. So as you can imagine most candidates at the moment our focus on what they need to do to get back into their offices. So we've seen discussions are low having said that our our pipeline still remains pretty strong and we expect in the near term to.
Picking up policing discussions again.
So you know we've got a lot of time to go and or 25% Lisa to map out west So <unk>.
Retain our competence and just today, we got to go ahead to we commence construction in that tower. So you know, we're we're not that far behind schedule.
Okay. Thank you.
Yep.
Think you are next question comes from Mario Kart Scotiabank. Your line is not open.
Alright, thanks for taking the follow up just one little question on the office market and just coming back to the work from home versus the lower square footage for employees equation, just curious to hear weather.
Turnley, you have any thoughts on on what percentage of.
Previous tenants are.
Or go to work from home permanently coming out of this or that brought and you mentioned no 50% is is not what you're seeing or hearing.
<unk>, so I'm just curious to hear.
Or what you think that percentage might be and whether you do think that.
Incremental demand from less density outstrip.
The last demand from people working from home or the long term.
Yeah. So so like I I could I can give you an opinion I'm not sure anybody really knows the answer to that or nor will we know it for a year or two you know I think we've seen situations in the past.
Where.
You know there's been disruption like this and and people have debated whole new models and ultimately I think when it comes back to his.
People like working in an office they like having the collaboration they like having you know the ability for their teams to to interact with one another.
And you just in as as much as much as all of US are surprised at the productivity of zoom meetings and and your ability to get things done you know over the short period of time, you know the vast majority of the tenants an employer is that we're talking to our anxious to get their people back in the office and and and interacting so.
You know, while they're there may be differences in how.
Maybe <unk> as an example, how many days a week that people are in the office and they may allow a little bit more flexibility. We don't think it's a dramatic shift in you know suddenly note. There is no. There there isn't a lot of of demand for for office I think in the short term a lotta people are going to experiment with it they're going to look at different models, you know as as we've seen in the.
Boston, So there there could be.
There could be some negative.
Negative impact as as a result of that compounded by you know potential economic slowdown.
But but you know we just we just don't see.
Being a a a a. I'll see a structural shipped in in the office market longer term.
Guarded okay, well I'm not sure if you heard my three year old screaming in the background. During one of the question is but if you did that would attest to the notion that some people do want to go back to work in the office. So that we could also related.
Thank you.
Our next question comes from Neil Downey with our B.C. capital markets. Your line is now open.
I. Thank you hopefully well maybe the last a question on the Brookfield.
Revitalization retail revitalization program given this is B.P.Y. call but.
<unk> can you talk a little bit about the nature of how investments.
Might be made is this akin to like a bridge lending fund or will it make preferred equity investments or or.
Common equity investments or what what will that looked like.
Yeah, you know it it'll be all of the above and it's going to depend on the situation and and I think the you know really that is sort of the tool kit that were.
You know hoping to have these conversations with retailers about is is what is it that they need because you know there are some fantastic businesses out there that no. This is just a short term.
Cash impact and they may be reluctant to you know seed control of their business, they're not looking for somebody to buy the whole business, but they they need some short term financing. So perhaps you know a bridge loan would be appropriate for them. You know in other cases, they are looking for more longer terms you know permanent capital.
And so we can we can provide you know common equity and then in of course, there's everything in between so you know I think there is no.
<unk>, one size fits all or it's not targeting a particular, one I think it's going to depend on on each of the individual retailers. You know obviously there's situation in their desire. But also are are preferred investments structure, there will be certain things, where we'll say may not be willing to take risk on the common equity, but but we are willing to lend against certain assets that they have and and so it may end up there and.
But it it's going to spend the whole gamut.
Okay. Thank you and the second follow up question.
Really <unk> relates to <unk>.
Can you give us a sense as to what the liquidity.
Numbers are.
Within B.P.Y.U. at at quarter end.
And are there any governors are limitations that cetera.
The ability to effectively drop down additional liquidity into into that entity.
[noise] [noise] no <unk>. So you you shouldn't you shouldn't think of it as a separate entity or at least not in the sense that that there's any sort of governors or or limitations on our ability to move.
Capitol you know amongst the businesses you know what it is effectively be P.Y.
And it's all one company and so when you think about our liquidity you shouldn't put boxes around it in particular areas. It it the the entire balance sheet of the company is available to the extent that we need it.
So I think you're you're you're.
The yeah the way the way they did it it is structured up there's there's no limitations on what we do.
Okay. Thank you.
Okay.
Thank you, ladies and gentlemen, just conclusive days question and answer session Oh, now like to kind of call Dakota, Brian Kinks in for any closing remarks.
Okay. Thank thank you Daniel and thank you everyone for joining the call today, we hope all of you remain safe and healthy and look forward to providing you and update again next quarter. Thanks for joining the call today.
Ladies and gentlemen, this conclusive days conference call. Thank you for participating you may now disconnect.
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