Q3 2020 Brookfield Property Partners LP Earnings Call
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I'd now like to hand, the conference over to your host today Mr., Matt Cherry Senior Vice President Investor Relations. Please go ahead.
Thank you and good morning, before we begin our presentation. Let me caution you that our discussion will include forward looking statements. These statements that relate to future results and events are based on our current expectations. Our actual results in future periods may differ materially from those currently expected because of a number of risks uncertainties.
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The risks uncertainties and assumptions that we believe are material are outlined in our press release issued this morning.
With that I'll turn the call over to Chief Executive Officer, Brian.
Thank you, Matt and good morning, everyone I hope everyone listening on the call today has remained healthy since our last update in August.
With me on the call are Bryan Davis, our CFO and Jerry Jupiler, the CEO of our retail business.
Looking at the third quarter, we were encouraged by consistent improvement in our operations. Each day, we see more office workers retailers customers in visitors returning to our properties around the world.
Well there may be temporary setbacks as different regions reach different stages of recovery, we expect any closures in the future will be shorter and less severe than they were earlier in the year and therefore less disruptive to our overall business operations.
Certainly capital markets are open and accessible to sponsors with strong balance sheets and premium quality assets, we continue to be able to finance and refinance properties raised preferred equity in issue corporate bonds at attractive rates.
As global economies stabilize Weve also seen an increase in private market activity, allowing us to sell certain of our assets at premiums to the IRS carrying values.
De risked assets generating income that is backed by strong credit quality tenants like the ones that we own continued to be attractive investments for institutional investors seeking yield and stability in a low interest rate environment.
Rent collection in our core office business has remained normal and earnings have begun to recover in our end syllabary retail and parking operations as activity. There has returned.
Well, new leasing remains muted in North America, we have been encouraged by an increase in activity in markets, such as Asia, where office utilization rates and tenant activity have returned close to normal.
We have strong conviction that here too workers will eventually return to the office as they did prior to the plant pandemic.
The demographic forces that were driving increased white collar employment urbanization and demand for high quality high amenity office buildings have not gone away they.
They are merely on pause temporarily.
For example, we're in active negotiations with a global tenants to anchor our next office development project in London, One let us know.
Importantly, the rents being negotiated are consistent with what we were anticipating prior to the pandemic.
In New York, we observed a meaningful increase in tenant touring activity over the past several weeks with corporate head corporate headquarter requirements of over 2 million square feet currently looking for space in the market.
In fact, even companies that have publicly promoted a more flexible work from home policy of not scale back on their own long term office requirements opting instead to take advantage of the current disruption to secure even more space for their businesses.
Large number of tech and financial services tenants have recently reconfirmed their commitment to either maintain or grow their office footprint in New York City and other major commercial hubs, which comprise the majority of our portfolio.
Within our own business, we see the importance of face to face interaction for developing culture training collaboration and overall efficiency and our discussions with tenants indicate that we are not alone in.
In our corporate offices, we've put in place the requisite spacing sanitation and health checks protocols to welcome back essentially all of our employees not creating a blueprint for our tenants to do the same.
As it stands our office portfolio is 91% leased on a long term basis with the remaining average lease term of over eight years organic growth continues to be driven by incremental earning contributions from newly developed assets, which this quarter totaled $25 million of in Hawaii in excess of the prior year.
Our retail results, which Brian will go through in detail in a few minutes continued to be impacted by the economic shutdown, which caused the decline in mall revenues fee income and an increase in credit loss reserves.
Operationally. However, we saw a marked improvement in the third quarter over the prior three months and cash collections are once again approaching normal levels. We continue to progress negotiations with tenants regarding their contractual rent arrears and believe any significant impact will be isolated to the second quarter.
With the economy on a more stable footing than it was earlier in the year and with over 94% of our retail tenants now open and operational we are beginning to see sales that are not only approaching normalized level, but outperformance in certain markets.
Customer traffic at our retail centers continues to increase returning to 65% to 70% of normal in the third quarter.
Tenant sales and similarly recovered and in certain segments are experiencing stronger sales versus this time last year.
Not surprisingly class eight centers are performing the best with sales per square foot nearly 50% better than class B centers in the third quarter.
And the growth we're seeing a sequential sales in September up 9% over August.
The best performing categories were luxury fashion jewelry with year over year sales.
Growth between 36, and 13% respectively brands enjoying continued success include Lubich on Chanel, Christian Dior, Ziggo, Veneta, Gucci cardiac and Tiffany income.
At the Miami Design District for example, our high speed High Street retail corridor, featuring 120 luxury brands comparable sales for these retailers in the month of September were up 40% year over year.
Strong performance is not isolated to luxury however sales for retailers with broad appeal, including Pandora in American Eagle Outfitters, we likewise growing.
Sales at large format retailers boxes are also up 14% year over year, a testament to the strong involving one channel capabilities of retailers in this category.
And the back to school shopping center produced year over year sales growth in several additional categories, including children and teen apparel athletic shoes and sporting goods.
Digitally native retailers continue to expand their physical footprint and overall offerings just last month Amazon opened its 27th location for its fourth Forestar concept at our Willowbrook mall in New Jersey, the first of its kind in the state along with their bookstores and go and fresh concepts Amazon now has over 80 physical store.
Locations in the us with plans to open more.
As we head into a busy holiday shopping season, many market observers are predicting year over year sales growth with a greater focus on goods rather than services.
To ensure visitors to our properties continue to feel safe when they shop, we have lunch spot holder a virtual line queuing software that enables customers to skip physical lines and schedule onsite visits ahead of time from their phone.
This technology also helps store managers accommodate social distancing requirements by tracking occupancy restrictions.
We also came to an agreement recently with collection sites to establish a network of pop up COVID-19 testing sites in the parking lots of 75 of our six centers across the US. These sites will make fast convenient and accurate testing available to our communities in the weeks and months ahead.
Similar to office the majority of our LP investments continue to perform well the one outlier continues to be hospitality. However, the majority of our hotels have now reopened.
At the Atlantic we have a plan in place to welcome guests to the island beginning December 15.
With the assistance of the Bahamian government, we have established a COVID-19 bubble at the resort following the Cleveland clinic protocols.
We have procured rapid testing facilities, which we located onsite and all of our guests will be tested prior to boarding their inbound flights per.
For those receiving a negative result for COVID-19, there will be no quarantine restriction.
And guess will be free to enjoy all of the resorts Beach Waterpark casino and other entertainment options.
We plan to start flying planes to the island, beginning December 15th from East Coast locations, including New York, Toronto and Montreal.
I'll now turn the call over to Brian for a more detailed financial report. Thank you Brian during the third quarter of 2020, BP Y earned company FFO and realized gains of $164 million or 16 cents per unit.
Compared with $324 million or 34 cents per unit for the same period in 2019.
Net income attributable to unit holders in the current quarter was a loss of $229 million or 26 cents per unit compared to income of $474 million or 49 cents per unit in the prior year.
In the current quarter, our core office business earned $141 million of company FFO compared to $150 million earned in the same period in the prior year.
The gradual reopening of the economy, the residual impact to earnings this quarter of the shutdown is estimated to be about $12 million.
This is a 7 million dollar improvement over the negative impact we experienced in the second quarter.
Of that $12 million half can be attributed to reduced parking volumes.
With the balance being split between higher credit loss reserves and lower retail rents.
Excluding this impact net operating income in our office business increased to $334 million.
Pair to $316 million in the third quarter of last year, an improvement of almost 6% country.
Contributing to this increase were two main things first off our developments.
One Bank Street 100, Bishopsgate, one Manhattan, West and 655, New York Avenue, which in aggregate are 92% leased and now 63% occupied and contributed $25 million an incremental net operating income this quarter compared to the same period last year.
We also recently completed our ground up development at I. CD Brookfield place in Dubai, and our redevelopment at 388, George Street in Sydney, and expect them to contribute to earnings in future quarters, as we advance lease up and tenant move ins progress.
Secondly, we benefited from foreign currencies, all have strengthened relative to the US dollar this quarter and that contributed an incremental $9 million to our net operating income.
During the quarter this business earned $20 million and condominium income as we delivered 152 units to their owners are.
Our active condominium projects in London, which total 1605 units.
We've already sold 1336 of those units or 83% and we have delivered 594 of those units or 37%.
As we sell and deliver the balance of the units we expect over 70 million pounds of profit on these projects to be realized between now and the end of next year.
Fair values for our office properties were largely unchanged during the quarter. However, we are starting to see signs of market pricing for high quality, well located and well leased office assets improving income.
Including the sale of one London wall place as Brian will expand upon in some recent refinancings, including the 1.8 billion dollar financing at one Manhattan West for seven years at a sub 3% coupon and subsequent to quarter end, another well located office asset, which we expect to price in the mid 2% rate.
10 year mortgage.
Our core retail business generated company FFO of $97 million for the current quarter compared to $173 million on a comparable basis in 2019.
And $201 million in total, including the $28 million in transaction income that we earned last year.
Although we saw many signs of positive improvements in our retail operations as Brian highlighted our results continue to be impacted by the economic shutdown.
Net operating income for this business was $349 million this quarter, which compares with $422 million in the prior year.
The major variances compared to the prior year include an increase in credit loss reserves of $46 million.
A reduction in overage rents percentand, Lou rents and business development income of $19 million.
And the continued impact of bankruptcies and related co tenancy claims of $11 million.
Fee income also declined by $12 million due to lower leasing volumes property revenues and joint venture fees.
All of these were partially offset by lower interest expense.
Compared to the prior quarter results were impacted by $30 million of incremental credit reserves largely to address recent bankruptcies and in addition, we had incremental operating expenses.
As our properties resumed.
As all of our centers reopened in those expenses resume to their normal levels.
Fair values for our retail properties declined by $322 million during the quarter as we revised cash flows and risk profile for certain properties that are most impacted by the slowdown.
We made significant progress in rent collections in advancing tenant negotiations and in extending our refinancing debt maturities.
And with close to $1 billion of available liquidity in this business, we are well positioned as the operations continue to improve.
Lastly, our LP investment business generated company, FFO and realized gains of $26 million this quarter compared to $74 million in the comparable period in 2019.
Results in the current quarter were negatively impacted by year over year decrease in earnings from our hospitality investments $38 million.
The hotel closures and travel restrictions. We also saw a decrease in contribution from our multifamily business, which earned $10 million and transaction income from merchant build sales in the prior year.
We hit all but two of our hotels opened during the quarter and achieve reasonably good occupancy levels, particularly at our leisure based and extended stay hotels. As a result, we earned 29 million more in company FFO from these investments compared to last quarter.
Fair values for our LP investments were largely unchanged, we did invest a further $150 million to fund capital costs related to our existing fund commitments, but we do expect to generate cash from these LP investments in the near term as asset sale activity resumes.
The projected returns from our LP investments continue to be strong on a gross basis, our investment in best Rep. One is projecting a 23% IR are in a 2.6 times multiple of capital.
Our investment in beds Rep to is projecting a 15% IR and at two times multiple of capital and our most recent investment in beds Rep. Three is tracking at an 18 times IR are in a two times multiple of capital.
At the corporate level, we executed on a Canadian 500 million dollar five year medium term note at an attractive coupon of 3.93% earlier in the quarter.
We use the proceeds to fund capital required by our business to pursue green development and redevelopment initiatives.
We ended the quarter with almost $6 billion improve wide liquidity, which positions us well to continue to support our existing assets.
To fund, our LP commitments and pursue opportunities for growth.
As a result, our board of directors has declared a quarterly distribution on our LP units for 33.25 cents per unit, which will be payable on December 30, Onest 2020 to unit holders of record at the close of business on November Thirtyth 2020.
So with those as my planned remarks, I'll turn it back over to you Brian.
Thanks, Brian So turning to transaction activity after a pause for four months private market transactions have resumed in the second half of this year.
Cobra, we entered into contracts to sell two important stabilized assets at above our eye out for us carrying value an office building in London, and our U.S. self storage business.
We acquired the development site for the London Office asset one London wall place in 2012.
And with our 50% partner commenced development in 2014 upon signing a lease for 100% of the building with a financial services tenant.
The 310000 square foot development was delivered to us in.
In 2018 and.
And in 2019, we purchased our partner's 50% interest for a gross valuation of 440 million pounds.
Concurrent with the 50% acquisition, we put in place a new $368 million 368 million pound mortgage on the building returning almost all of our equity that had been invested in this development.
We are now under contract to sell 100% of the property at a price of 480 million pounds, a 3.8% cap rate and a 9% premium to the price we paid just 12 months ago.
This sale will generate a $125 million of net proceeds to BP Y and set a new benchmark for office buildings in London.
In summary over the past six years Weve earned a 150 million pounds or $200 million of profit on a net investment of just 75 million pounds.
With continued strong occupier demand and concerns around.
From Brexit beginning to fade, we'll continue to source opportunities to monetize our Premier London office assets in a strong market moving forward.
Subsequent to quarter end, we also entered into a contract to sell our U.S self storage business for over $1.2 billion $313 million BP was share.
This generated net proceeds of $110 million, our five year investment in this business yielded a total return of 28% in 2.3 times our original investment.
Both of these transactions demonstrate that real assets producing stable and growing streams of income are still high so highly sought after particularly as expectations for long term interest rates continue to trend lower.
Now as I mentioned earlier debt markets are open at favorable terms to high quality borrowers in aggregate in the third quarter refinanced refinanced or extended mortgages on nearly three and a half billion dollars of office and retail properties at interest rates below 4%.
In August as Brian mentioned, we completed a $1.8 billion refinancing of one Manhattan West at an all in rate of just 2.94%.
This financing replaced the existing construction facility and returned approximately $138 million of net proceeds to BP y.
It was one of the largest single asset single borrower transactions in 2020 and represents a great execution tapping into strong demand in debt markets for Premier de risked office assets.
We're also nearing completion on a three year $475 million refinancing of Oakbrook Center in Chicago at a coupon of LIBOR plus 3.5%.
Demonstrating the debt capital markets continue to be available for high quality retail assets as well.
We anticipate being able to execute similar financings in several of our retail shopping centers over the next 12 months.
In July we launched a $1 billion substantial issuer bid that was funded by an equity commitment from Brookfield asset management in certain institutional investment partners.
This offer concluded in August with approximately $514 million of BP Y units and BP Y you shares being tendered and taken up in the offer.
The balance of $486 million remains available to us until the end of 2020 and as a result was used during the quarter to fund the purchase of approximately 13 million units and shares under our normal course issuer bid.
In summary, we continue to see signs of the recovery.
From the economic shutdown is building in the worst is now behind us our focus for the remainder of the year is on working with our tenants to help them restart their businesses and welcome their employees and customers back in a safe and secure manner.
While there is a great deal of work yet to be done to get economic conditions back to where they were this time last year the high quality nature of our assets and the durability of the income they produce has allowed us to weather the storm.
So with those is our prepared remarks, we'd be happy to take questions from any of our analysts that are on the line today.
Let's maybe if you could open it up for questions.
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Our first question comes from the line of Mario Saric with Scotiabank. Your line is now open.
Hi, good morning.
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Right I was wondering if there was perhaps too early to maybe shed some light on BP wise potential bolt.
Transactional backward.
Last week in terms of kind of the nature.
Enrollment in any any quantum in terms of our womens.
Yes, so the the capital that will be invested.
In to JC Penney is coming from.
From Brookfield asset management not from BP y.
So we won't have any actual investment in the transaction itself.
That being said, we do have 99, JC Penney locations within the portfolio and so it's a it's an important transaction.
For BP Y as the landlord to this tenant, but where BP wise on making an investment in the actual deal.
Okay, that's great and then.
Maybe for Brian Davis in terms of the fair value change.
On the retail side. This quarter, you mentioned that it was related to a percentage of assets where were you reduce your record cash flows.
Forward, Gary can you share what percentage of the portfolio would have been.
Impact good alright, great there.
This would be a small handful of assets that I think were particularly impacted by recent bankruptcies that we saw.
Our experience during the third quarter and we just.
Made adjustments not only to cash flows to reflect that but also to the risk profile associated with being able to to lease up some of the space.
We think it was.
Sort of focused primarily on a small group of assets that were most impacted and so don't expect.
It too broadly impact the portfolio.
As we progress but of course, we'll have to monitor cash flows and tenant health in that equation.
Got it Okay, and then just maybe sticking to core retail.
Most of them 50 million debt maturing.
23.
3.5 to three point gets going from 21 million.
Proponents of Brookfield.
Pointing to gradually partners.
Recourse market level.
When you think about it can you can back.
Four malls, where you think it makes more sense. So when you look out over the next 12 months.
Had SREC market color on expectations.
Turning more columbia's thank you.
Both.
Okay.
Well 0.2 4.3 billion.
Yes so.
I think that the way to think about it really is it's not overly complicated as as we look at each of these loans and their maturity relative to the value of the assets to the extent that we think that.
The equity is impaired are underwater.
We will certainly look at handing back.
Some of those assets to the lenders on on these non recourse facilities as you would expect.
Other cases, the marrow look we're going to look at it and say there is there continues to be equity value in there.
May require us to put some capital in and.
Pay down the debt a little bit in hang onto it but its sort of case by case I was in it and as you would expect it sort of the 80 20 rule, which is there may be a relatively large larger number of mortgages, where we are in that situation, where you're heading back there.
Heading back the asset to the lenders but.
But it's a very small amount of equity.
Ed I have for us that that's that's associated with those and a relatively smaller number of larger malls, where.
We'll be hanging onto them so.
I don't want to handicap, how many will end up being in that situation, but it's a relatively small number of assets where we.
We think that that is in excess of the value of the asset and lenders may elect to take the asset back rather than restructure the loan.
Okay Thats helpful. And then maybe one more question on my end switch.
Switching gears to the core office.
Argument.
Brian Davis, I think you mentioned.
25 million dollar contribution from completed during the quarter and they were 62%.
Okay occupied or or against rent paying.
Look on a go forward basis.
What's the estimated.
Incremental and award or what we did in Q3 charge perspective, what you expect.
Well it's about.
To achieve.
Good bye.
Yes.
Good question I don't have those figures with me.
On hand, but Marios you were at our Investor Day, We did include a slide.
That effectively gave you a sense of what the stabilized NOI would be over the next five years with respect to our completed development projects. So I might reference you to that slide. In addition included in our supplemental.
We do give you a sense of the yield that we construct two in particular for IC di Brookfield place in Threeeighty George Street, and so you can get a sense there, but the one comment I will make is typically our NOI follows tenant move ins and so for though.
Specific ones that I referenced.
We're earning about 60% of what we would expect to be earning based off of our move ins.
Understood. Okay. Thank you.
Our next question comes from Sheila Mcgrath with Evercore. Your line is now open.
Yes, good morning.
Brian I was just wondering if you can clarify the buyback because we get a lot of questions on it it's.
It's actually Dan buying back shares group BP Y and these shares are not retired Bam just owns more SPP why is that accurate.
That's correct.
So what about what percent right now does ban on.
CP line.
Yes so.
So about 65%.
Is that number now they acquired as Brian indicated.
An increased number of shares in the third quarter and subsequent to the end of the third quarter.
I've been continuing to buy back under the normal course issuer bid.
Okay, Great and then.
Brian You mentioned, you're in progress on refinancing Oak Brook Center.
Can you just give us a bigger picture view of how the financing market is for retail assets.
And on most of the near term maturities do you expect you'll have to put in more capital.
Yes. So as you would expect is a big difference between.
Financing markets for class, a and class B shopping centers and and.
For the types of lenders between sort of balance sheet lenders and CMBS in terms of that is the kind of discussions that you can have so and what I mean by that is for for a center like Oak Brook.
Which does.
New $8000 a square foot in sales.
The capital markets are open they are available.
And the pricing is pretty reasonable frankly, it's a little higher than you'd want it to be but it's but it's but it's still pretty reasonable given especially given where base rates are.
As you start to move out the risk spectrum to the lower productivity malls, it gets harder and harder and as in particular as you are starting to deal with refinancings that are in the CMBS market, where there really isn't an investor to speak to directly it's sort of run through these special Servicers I think thats, where you will tend to see some of the more.
Challenging financings to be done in particular needing to be replaced with new lenders, not maybe where we need to put a little bit of capital into them, but like on on Oak Brook, just as an example, we won't be putting any of.
There is no material paydown associated with that one.
Because it is such a high quality center and its relatively lowly levered.
Okay, and handing back the keys is always an option but.
I'm just wondering if there's any opportunities where you could repurchase debt at a discount to kind of re equitize.
Yes, Sir.
Yeah, and I sort of I sort of alluded to that.
In answering Marios question, which is it may be that we ended back it may be a consensual restructuring that involves either buying the debt back at a discount or structuring it into a and b notes, where new capital going in going ahead of some of that debt. So there is a wide range of structures and as you can imagine these are not.
The shopping centers are not easy assets for a receiver or a.
Just a typical lender to to be able to own and operate.
And so often times, it's a much better situation for them to restructure the debt and keep us in places the operator and so for that reason that we tend to have a.
Lisa willing audience to hear some of these proposals on these assets. So some of them may end up definitely in that kind of situation as opposed to just a straight pass back or give us the keys kind of negotiation.
Okay, Great and then on retail as you can imagine it's very difficult.
Our seat to forecast at this juncture.
Just wondering your thoughts if you could give us a big picture thoughts on this third quarter results.
Either and even same question for hotels could that be low point.
Do you think that the credit the trend in the credit reserve on that.
In third quarter could could be lower in fourth quarter.
Do you have more visibility on that.
Yes, I'm going to I'll start and then could ask Jarrod, just maybe give a little bit of color on.
Yeah, I'll say the debt.
Mood of our retail tenants.
And in particular on on outlook for the holiday sales and and then into the new year, but to sort of answer. Your question I do think we are probably at or very near a low point in terms of.
That sort of.
Dramatic impact that the economic shutdown brought on was thinking about it in the second quarter, everybody was forced into closures.
Now they have largely all reopened.
In the end the challenge is getting retail or customers retail customers back in the store and building up and so many of the.
Weaker balance sheets or or or more challenge retailers. They have hit the wall and they've gone bankrupt or they've.
Restructured and work through that and so we've taken those impairments and I think what we are left with now is a much stronger.
Field of tenants.
Whose businesses have largely stabilized and so to the extent that there were issues credit reserve issues et cetera, I think weve largely taken them.
And are optimistic that we are now in a place where.
It will be more with the question of what is the pace of the.
The recovery of these tenets as opposed to you know is there another leg down but I'll, maybe let Jerry just talk a little bit about the mood with retailers.
Yes, Thank you Brian.
Sheila that that is.
Consistent with.
With what we're hearing and what Brian just stated what I'd add is.
Clearly there are still some categories.
Yes.
Due to local mandates or occupancy limitations and ability to advance to more normalized operating.
Environment.
Such as the theater industry restaurants, and so I think in those categories you will still see.
Some has.
Hesitation and going concern.
Broader mix of our tenant base to Brian's point.
I think now have a good understanding of the challenges that they have dealt with in our dealing with they are.
Largely reopened they have accelerated there.
Efforts investment and movement to.
One channel strategy to improve there.
Product fulfillment options.
And I think they're entering the holiday.
In a much better operating position.
Our optimistic for what holiday sales will be as we continue to pick up steam towards the end of the year.
Okay. Thanks, I'll get back in the queue.
As a reminder, ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key.
Our next question comes from Mark Rothschild with Canaccord. Your line is now open.
Thanks, and good morning, guys.
Looking out over the next year.
What is that what should our expectation be in regards to the balance sheet and leverage obviously, you just announced.
On some significant asset sales and to that point, which areas should we see further asset sales over the next which portfolios might be up for sale over.
Over the next over the near term.
Yes, so certainly within our.
The LP investments.
The the those investments in those opportunity funds those are buy fix sell type strategies and so like the self storage portfolio that I referred to earlier that fits that category.
And so you should expect every year that there's a certain amount of of.
Capital recycling, that's happening within that segment.
Because activity slowed to a halt for maybe half of this year, maybe even nine months of the year Theres a fair bit of.
Of those businesses that are backed up in the Q that we had planned to.
Potentially monetize earlier in the year. So I think the next six to nine months will probably be a little busier out of that.
That sector than than normal.
Just because there are a number of other of their businesses that sit behind.
Not that we had planned to bring to market and as I said, there's there's a lot of demand that there is a lot of capital these businesses have been.
Oftentimes, we bought broken businesses, we stabilize them and they are now.
Very clean simple easy easy to understand story. So I think that will be relatively busy I think on the office side again similar to the London Wall example, I gave earlier, we have a number of assets that we've either developed leased up and are now stabilized at that are highly desirable for these institutional investors because they have a relatively low.
So capex profile they are fully leased they generate.
Stable predictable yields.
As well as some some assets that we bought with vacancy in them that have now leased up and stabilized as well so I think you'll see.
Some activity in the on the balance sheet side of it.
In the office portfolio I think retail as you would expect is going to be more challenging to find.
Buyers of those assets at values that we would be willing to transact that will of course.
Test the market from time to time and occasionally there are particular circumstances where media.
A particular asset has a particular appeal to a particular investor and so we may do things in a few things in retail, but I would expect that it's not going to be big dollars in that part of the business.
Mark as it relates to sort of leverage should say, we're operating our office balance sheet at the leverage levels that we feel very comfortable with so no major initiatives there in fact.
No, we'll be looking to up finance, where we've created value and the underlying properties and have mortgage is rolling.
In our retail business, we've talked about for a couple of years since the acquisition of GGP that theres about two and a half billion dollars of incremental leverage.
That we will look to pay down over time that will come through equity that we raise out of asset sales, whether we're recycling out of office or LP investments or ultimately being able to execute upon asset sales within the retail business that will be something that we look at but it may take a little bit longer.
And we have adequate maturity within that debt stack in order to be able to address that and I'd say lastly, our corporate level leverage went up slightly.
During sort of this code that period as we used our credit facilities and our corporate liquidity to help support our businesses and as we advance some of these recycling activities that Brian talked about we'll look to pay that down slightly but but no major changes from that perspective.
Okay, Great and just one more question just following up on something you've already discussed on the call, but trying to reconcile that there was a discussion about given keys back in malls and you answered that already somewhat but I'm trying to reconcile that we're having that discussion and yet there is no major write down on.
The malls on your books and.
If we're having that discussion and clearly there's been some impairment value should we not expect a far more significant drop in the IRS values for those malls or from any of them.
Yes, so I guess I'll answer it two ways one the malls that were talking about.
Or that are potentially on that list that we're heading keys back.
They're IRS value is at or below the depth.
So there's no. So so the meaning in the circumstances, where we do think the value is less than the debt the IRS value already reflects that.
And then as far as overall impact on the portfolio like we have.
We have for the last three quarters.
Been going backwards on valuations and in fact, it's over $1 billion of of negative fair value increments that we've taken through that portfolio. So I think it is happening through there, but I think it's entirely consistent with what I said, it which is in those situations where.
The value, we think the value is at or below the debt that's already in the numbers.
Okay. Thank you.
Okay.
Our next question comes from Mario Saric Misco should bank. Your line is now open.
Hi, Thank you just a couple of quick follow up question for me on.
On the retail side.
So on the back of much question as well.
Right.
Your way you can give a sense of what percentage of your retail for us volume would have.
With that equity barely be relatively comparable.
Well.
Sorry, the gross asset to me.
Yes, so the yes, we've got it is there.
Yes.
So.
The overall I'll say gross asset value of the retail portfolio is roughly $30 billion and the gross asset value of the debt that.
That is probably in that impaired number is probably in the order of two two and a half billion.
I'm doing off top of my head, but it's it's not much more than that so thats.
But five or 6% I, suppose, but but yes, but importantly, Mario and our net.
Asset value it.
Yes zero zero in equity, but I think youre, referring to gross assets.
Yeah.
Trying to get a sense of the potential.
We will.
In that situation.
So from your pretty bonds.
Okay. That's good and then just lastly in terms of like collection on the core retail side can you give us a sense of what it was in Q3.
Brian you mentioned that approaching normal levels here, perhaps elsewhere.
Sales for our collection with October and how that compares.
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Yes, so it sort of steadily improved each month over the quarter I think on average for for Q3.
For the Q3 billings, we collected in the order of 70, 75%.
And and the reconciliation between that and the 95% of the tenants that are open that Jerry referenced earlier is we still got ongoing negotiations with a few of the tenants around their Q2 arrears.
And so as part of that there. They are it's all getting rolled into the mix. So we expect we expect in Q4.
The collection should should much more approximate the actual number stores that are open made me, it's gotten better and better on average of 70% to 75% were well above that today for say November and December.
Got it okay. Thank you.
Okay.
Your next question comes from Sheila Mcgrath with Evercore. Your line is now open.
Yes, Brian It was in some real estate reports that the Cambridge life Science assets from four city for sale can you just give us an insight on where you are in that process and how much to BP Bligh on at those assets because they're in a fun correct.
Okay.
Yes, so they are in in.
The opportunity fund so our exposure there is relatively low we have about 7% of that fund.
And.
Comment too much on the process, because it's just sort of getting started.
But broke.
Brokers have been hired.
The assets are in the market and I think we had I'm.
Im going to say in the order of 40.
40 interested parties signed the India. So we do expect there going to be highly sought after and go for a great price, but it's early.
Okay, and then I know, it's not BP y, but I'm just wondering if you could give us any insight on that.
Vans retail fund, how how that's going and if you expect that BP Y will benefit from some of these.
Recapitalize retailers.
Yes, so the JC Penney transaction is part of that and.
It's a good example to talk about how BP Y will will definitely benefit from that we as I mentioned we have.
99, JC Penney stores out of their 830 or so stores.
And not one of them will be closing.
And so thats it it's obviously great for BP y.
So I think that having having that capital available to.
Invest in and stabilize some of these retailers and there is a number of others that are.
And in various stages of discussions I think is a net positive for BP y.
Okay and last question for me is on.
Just you did declare your fourth quarter dividend just updated thoughts on that.
Dividend policy I know, you've said before if you see visibility to get back to.
Coverage that the thought is to maintain the dividend to just your updated thoughts on that.
Yes, so I think with the election and all these other things that are going on right now Investor day seems like it was a long time ago, but.
But it really was only.
About a month or six weeks or so ago, and so our thoughts on that really haven't haven't changed or evolved switches.
We do view the.
Payout ratio and earnings as being related.
We continue to see the business recovering and getting back to more normalized levels.
So for that reason we.
We think the dividends appropriate where it is even if in the short term the short term quarterly earnings move around either sometimes.
Sometimes are higher or lower but but we see getting back to more normal levels over the next couple of years, and so able to maintain that through there.
Okay. Thank you.
Thank you.
That concludes today's question and answer session I'd like to turn the call back to Brian Kingston for closing remarks.
Okay. Thank you everyone for joining US again this quarter and your continued interest in.
In Brookfield property partners, and we look forward to providing you an update again after the fourth quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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