Q4 2020 Brookfield Property Partners LP Earnings Call
Good day, ladies and gentlemen, and welcome to the Brookfield property partners fourth quarter, 2000, and 'twenty financial results Conference call.
A reminder, today's call is being recorded.
And it's now my pleasure to turn the call over to Mr. Matt Cherry Senior Vice President of Investor Relations. Please go ahead Sir.
Thank you Liz 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 and our actual results and future periods may differ materially from those currently expected because of a number of risks uncertainties and assumptions.
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The risks uncertainties and assumptions that we believe are material are outlined in our press release issued this morning.
We acknowledged that on January 4th Brookfield property partners received an offer from Brookfield asset management to acquire the units of BP why it didn't already own for approximately $5 9 billion.
A special committee of <unk> Independent directors has convened and have hired independent legal and financial advisers and collectively they are currently considering the merits of the proposal.
<unk> unit holders are not required to take any action at this time, we anticipate being able to provide further information to the market later this quarter.
With that said the purpose of today's conference call is to discuss <unk> Q4, and full year, 'twenty and 'twenty financial and operational results and accordingly, Accordingly, we ask that any questions from analysts pertains solely to that subject matter on.
Now I'll turn the call over to Chief Executive Officer, Brian Kingston.
Thank you, Matt and good morning, everyone. We hope everyone listening on the call today has remained healthy since our last update in November.
With me on the call and Brian Davis, our CFO and George your pilot and the CEO of our retail business.
And looking at the fourth quarter, we were encouraged by the return on a private market real estate investment activity, which picked up significantly and institutional investors continue to rotate capital from fixed income investments into real assets that generate long term derisked yield.
Following the sales of one London wall place and our self storage business as discussed last quarter. We recently went into contract to sell our U S Life Sciences office portfolio.
This agreement followed a very competitive bidding process that resulted in extremely strong execution and pricing.
And Brazil, we sold to so Paulo office towers, totaling 1 million square feet at a blended cap rate of five 5%, which is very low and historic terms from the Brazilian market.
These sales were prime examples of how our operations oriented approach leads to outperformance.
We acquired these two buildings approximately four years ago, when they were 68% and zero percent leased respectively, and as a result of our strong operating capabilities and execution.
You can see on those two towers now stand at 92% and 100% with long term leases in place with high quality tenants at both properties and.
Sales of these assets will return approximately $50 million of net proceeds to <unk>.
And looking at our core operating portfolios rent collection from our office tenants remained at normal levels during the quarter, even as physical occupancy continues to lag and many of our U S and North American operations operating markets.
We're encouraged by markets, such as China, South Korea, and the Middle East, which have seen physical occupancy revert to normal.
And Dubai for example, rapid testing has been rolled out broadly and hotels restaurants and stores and offices are all up and without restriction in person business meetings are once again the norm there.
And our newly developed asset and Dubai ICD Brookfield place, we recently signed office leases totaling 80000 square feet with tenants, including UBS and Dubai Aerospace enterprise.
And London, we signed a 15 year 250000 square foot lease with Lytham and Watkins to anchor one leadenhall, our newest office development and securing a strong tenant for about 60% of that tower.
We believe this noticeable increase and leasing activity is a strong indicator of economic confidence and a desire for companies to returned to innovate and workspaces and over.
Over the coming quarters as COVID-19 vaccines become more widely available we expect office utilization will begin to return to normal.
Collections and our retail portfolio continued to improve as retailers have adjusted to the new normal as well in.
And the fourth quarter, we collected more than 80% of our billings and importantly continued to reach settlement agreements with our tenants regarding outstanding arrears.
As a result of those negotiations we ended the year with 85% of our outstanding arrears from the second and third quarter and some form of agreement.
While sharper footfall and our malls has not yet recovered to historic levels. All of our centers remain open and are key tenants showed resilience through the holiday season with many reporting 2020 sales figures that compare favorably to 2019 holiday sales.
And silver lining to the restrictions put in place during the pandemic is that there is significant pent up demand for consumer spending given the savings that people have accumulated over the past nine months in.
In addition, the $900 billion stimulus Bill approved by Congress in December will help both consumers and retailers alike.
The proliferation of one channel E commerce centered around using the store not only as a point of sale, but also as a distribution and return center continues to benefit our mobile fleet.
Consumer use of buy online pickup and store has grown approximately 500% since the beginning of the pandemic.
Dick's Sporting goods recently reported that stores fulfilled 70% of their online sales and contributed 90% of their quarterly sales growth.
While the showroom area of the store may shrink retailers are using more space for inventory returns and fulfillment, making the distribution channel itself less relevant but the location of its physical real estate more important than ever.
Retailers have quickly realized that overall sales volume can benefit from wider profit margins when maximizing on one channel strategy.
With that I'll now turn the call over to Bryan Davis for the detailed financial report.
Thank you Brian during the fourth quarter of 2020, BP Y earned company <unk> unrealized gains of $287 million or.
Our <unk> per unit.
This compares with $459 million and 48 per unit from the same period and 2019.
Net income attributable to unit holders and the current quarter was a loss of $390 million or <unk> 43 per unit compared to income of $1 billion or $1 seven per unit and the prior year.
Yeah.
In the current quarter, our core office business earned $138 million of company <unk> compared to $185 million earned and the same period and the prior year variance of $47 million.
$25 million of that variance relates to higher transaction income earned last year.
And.
In the prior in the prior year, we benefited from $26 million and income earned on condominium deliveries at our principal place and South Bank properties in London. We also earned $12 million and income on the monetization of tax credits associated with affordable units at the Eugene and New York.
And in addition to that we had $7 million and other investment income.
And the current quarter are only transaction income related to the continued delivery of 210 units to their owners and our.
Condo projects, and London, South Bank, and 10 Park drive, which earned us $23 million.
Of our active condo projects and London, which totaled 1605 units, we have sold 1336 units or 83% and we have delivered 750 units or 47%.
We are targeting to both sell and deliver the remaining units and 2021 and as such will recognize the remaining profit associated with these projects.
The balance of the variance over the prior period.
Largely due to the ongoing impact of the general economic slowdown and partial shutdowns that we continue to experience and certain markets.
We estimate the direct impact to be about $13 million and this quarter, which is in line with the third quarter and an improvement over the second quarter of the impact $8 million represents lower than normal parking volumes and $5 million represents higher credit loss reserves and lower retail rents.
Indirectly we are also being impacted by lower and leasing volumes, which has caused occupancy on a same store basis to debt from 92, 7% to 99%.
Lastly, we had $6 million and incremental lease termination income earned in the prior year.
The fair values of our office properties were largely unchanged during the quarter as cash flow projections and valuation metrics remained steady.
Further evidenced our valuation process. We've had a few live examples of strong pricing for high quality, well located and well leased office assets.
As evidenced by the sale of London Wall place two of our asset office assets and the Brazilian market.
And on some recent property level financing all of which Brian referenced in his remarks.
Our core retail business generated company <unk> of $118 million for the current quarter compared with $217 million earned in 2019.
Although we saw many signs of positive improvements and our retail operations over and this holiday season.
And as Brian highlighted and as evidenced by a 22% increase and company <unk> over last quarter. Our results continue to be impacted by the pandemic, which contributed to a decline and mall revenues fee income and and increasing credit loss reserves.
Net operating income for this business was $356 million compared with $466 million earned and the prior year.
The major variances include a reduction and overage rents percent and lean rents and business development income of $47 million.
And increase in credit loss reserves of $32 million.
And the amortization of agreed upon abatements and associated renegotiation of lease terms and payment plans of $16 million and the continued impact of bankruptcies and related co tenancy claims of $16 million.
Fee income also declined by $15 million due to lower leasing volumes property revenues and joint venture fees.
Partially offsetting these negative variances, we did benefit from a reduction and property level operating costs General administration expenses to reflect the cost control efforts, we focused on during the year and lower interest expense.
Fair values for our retail property declined by $600 million during the quarter as we revised cash flows and risk profile for certain properties most impacted by the events of this past year.
With the vast majority of our rent being collected and the majority of our tenant negotiations completed and having extended our refinanced all of our 2020 debt maturities, we are well positioned for 2021 as the operating environment continues to improve.
And lastly, our LP investment business generated company <unk> unrealized gains of $138 million this quarter compared to $150 million and the comparable period in 2019.
Results and the current quarter were negatively impacted by a year over year decrease and earnings from our hospitality investments of $50 million due to hotel closures.
And largely concentrated in our investment and center Parcs, which was required to close during the quarter and the Atlantis, which incurred incremental costs as a result of its reopening this quarter.
Realized gains and this business were $120 million as we were able to execute on a number of asset sales and the quarter, including our U S self storage business. The two office assets in Brazil.
And the sale of a triple net lease property portfolio.
In addition to these realized gains we had $70 million and unrealized fair value gains on our LP investments this quarter.
During the quarter, we did invest a further $125 million to fund capital costs related to our existing fund commitments, but as mentioned in previous calls we expect to generate cash from these LP investments in the near term as distributions are made from recent and planned transaction activity.
The projected returns for our LP investments continue to be strong on a gross basis best Rep. One is projecting a 23% IRR and a two six times multiple of capital.
<unk> rep to a 16% IRR and a two times multiple of capital and the third fund beds Rep, 319%, IRR and a two times multiple of capital.
We ended this quarter with almost $5 $5 billion of group wide liquidity, which positions us well to continue to support our existing assets fund, our LP commitments and pursue opportunities for growth as.
As a result of our board of Directors has declared a quarterly distribution on our LP units for 30, 325 cents per unit, which will be payable payable on March 31, 2021 to unit holders of record at the close of business on February 26 2021.
So with those as my planned remarks, so I'll turn the call back over to Brian.
Thank you Brian as.
Brian mentioned, we completed several large asset refinancings.
Attractive borrowing terms during the fourth quarter <unk>.
Including two and our New York Office portfolio, One New York Plaza and the Grace building.
In aggregate. These two new mortgages totaled more than $2 billion at an average interest rate below 3% and importantly, we generated over $400 million of net proceeds refinancing these assets.
In addition, we refinanced or extended mortgage maturities for an average of three years on five core retail assets totaling approximately $900 million at.
And at a blended interest rate of just under 4%.
And summarizing some of our recent ESG initiatives, we continue to focus and invest and creating healthy and safe environment for our employees and our tenants. These include enhancements to air quality filtration and circulation and addition to sanitation and security protocols.
And our North American portfolio were pursuing third party verified well health and safety rating for all of our buildings to ensure that we are at the forefront of the industry and a post pandemic environment.
Since the onset of COVID-19, nearly a year ago, we've encouraged our management teams to find creative ways to support their local communities. During this unprecedented time needs at the beginning of the pandemic. We offered many of our shopping center parking lots as mobile testing facilities and our hotels as kitchens for food banks and distribution centers.
This month with the rollout of vaccines underway. We're now pleased to be providing space for vaccine clinics at several of our malls, including sooner Lansing Chula Vista Barnes crossing and Washington Park Mall and will soon be opening additional clinics at stone Brier Center and are in negotiations to open up further.
Open clinics and a further 20 of our shopping centers.
So before opening up the call for questions and answers I'd like to briefly acknowledge one of our leaders who will be leaving the organization.
As many of you know Ric Clark has been instrumental and building Brookfield property business over the past number of decades.
He led the company's response to the tragic events and September 11th 2001, and became a trusted leader and visionary and the lower Manhattan business community.
And later years, he oversaw Brookfield real estate expansion beyond North America and served as <unk> Chief Executive Officer upon creation of the company and 2013 he.
He has served as our chairman since 2015.
With the utmost gratitude that we wish him the best of luck and and all of his future endeavors.
And so as we turn the page on 2020, a year, we collectively will never forget we wish you continued health and safety and appreciate your continued interest and investment and Brookfield property partners.
So with those as our prepared remarks, we'd be happy to take any questions from our analysts that are on the line.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.
Withdraw your question press the pound key.
And again Thats Star then one to ask a question.
Our first question comes from Sheila Mcgrath with Evercore. Your line is now open.
I guess good morning, Brian I was wondering if you could comment on the retail portfolio, how fourth quarter results came in versus your expectations and just any insights you might give us on how you how things are progressing so far and 2021 and your outlook in terms of collections and bankruptcies.
Yes, so I'll, maybe I'll, let Derek chime in and the second on on our tenants and how businesses are performing I would say that the our expectations both with respect to.
Collections and settlements and the outcome of the settlement negotiations with our tenants is largely in line with what we've been.
And certainly forecasting and our own business planning and what we've been expecting since really the middle of last year. So and in fact some of those negotiations concluded a little quicker than we had otherwise anticipated. So I'd say it's neutral.
Neutral to positive on on that front.
As far as.
For 2021, and I'm going to let Jerry speak to.
Foot traffic and the centers and how we see that rolling on.
Sure.
Sure.
So Sheila just to follow up on what Brian stated.
He mentioned collections and the prepared remarks since the close of the fourth quarter.
And throughout January those collection discussions and resolution of discussions with our retailers have improved.
We are now greater than 90%.
Resolved across the portfolio.
And continue to make headway with some of our most important retailers from.
And the bankruptcy standpoint.
I think.
We look at our watch list tenants.
Throughout the upcoming year Theres still some noise out there but.
The size of the potential bankruptcies.
For the most part.
And our view will be smaller than what we experience in 2020.
One potential exception to that would be potentially.
Players and the entertainment side of the business.
Peter and others and family Entertainment.
As we watch them through the remainder of 'twenty, one and the reopening of the country and.
Social activity.
With regards to traffic at the centers, we continue to see improvement January actually closed.
Okay.
A higher traffic overall across the portfolio since the pandemic began back in March.
We're continuing to see a return post holiday to footfall and traffic through the centers, we're now seeing.
Opex and north of 70% on average.
And continuing to grow.
Yes.
Okay, Great and then Brian and Jeremy maybe could explain more about your vision and our thoughts on.
Yeah.
Thing that you mentioned in your letter the one channel Commerce.
And how do you think retailers will perform under this concept will they be able to pay the same rents as they did.
Previously with less showroom space and just how do you think retailers.
And will desire a mall location versus other locations and this transition.
I'll take that.
So just to sort of set the stage on one channel when we speak of that we're speaking of retailers that have merged their digital and physical owned assets and are extending them to third party platforms, such as social media, which really means they are present and seamless experience and brand representing the consumer and.
What we feel has been proven through the pandemic as those retailers that we're already.
In a place to operate and a one channel environment.
Really saw success and continued success and mitigation.
Through the difficult year.
And our view of value as debt.
One a one channel.
Retail strategy.
And we would argue.
Actually improves value for brick and mortar location.
It's the closest touch point to the consumer and is enabling.
Your line and pickup and store curbside pickup and more recently and increase and buy online ship from store, where we're seeing an increase and the use.
And the stores as micro fulfillment centers.
Okay great.
And then just just quickly on office.
Brian You mentioned, a lease and London, bringing development to 60% pre leased and one and Dubai just wondered if you could give us a little more information what were these two leases.
And under negotiations.
Pandemic or just your thoughts on.
Two transactions.
No.
The negotiations really took place over the course of the second half of <unk>.
Last year I suspect both of these tenants may have been in the market looking for space pre pandemic, but really our engagement with them.
Was it was in the latter half of 2020. So these these I would consider.
And fully negotiated under current circumstances.
And good day rents come out where you had hoped.
Yes.
So Dubai was was a little above what would have been and underwritten for that space.
For four years ago, when we started construction and.
And for London, and this was a and office building that was not yet under construction.
And so the rents hit our requirements for a feasibility to kick the rent off so the good news with that one was.
And we didn't need to be a price taker, we would've just not built the building if we weren't hitting the rents we want it and we did so it allowed us to kick that development off.
Okay, Great I'll get back on line.
And.
Our next question comes from Mario <unk> with Scotiabank.
Alright, thanks, and good morning.
Maybe just coming back to the one channel concept on the retail side.
And how do you think about kind of a.
And <unk> Doctor.
And <unk> between the tenant.
And with the excellent on the world in terms of distribution versus treaty.
Okay.
And charge relate to in place rents on those.
Okay.
And sensors.
And maybe in terms of redevelopment.
Yes.
<unk>.
Mario maybe your question is really centered around.
And if.
And if this is space that have previously been taken in.
Warehouses, how does that rent compared to what we would expect to collect and are in a mall and what we've really seen over the last couple of years as a convergence between those two numbers frankly.
So shopping centers sit in close proximity to the end customers meaning.
Meaning they have a significant transportation advantage over over warehouses, which are generally on on.
On other than last mile distribution centers on it.
On parcels on the edges.
Of cities. So there is a higher transportation cost associated with it and <unk> got a factor both of those things into it and so if you actually look at where rents on.
Last mile distribution facilities.
On in inner city locations relative to our typical retail rents the delta is not that great anymore and so what that means is when these.
Retailers are looking at putting shared fulfillment centers or taking additional space within the shopping center for four <unk>.
For this fulfillment through one channel the rents we're able to achieve there are pretty close to what we've been achieving.
There's not a dramatic change and oftentimes for these these fulfillment centers they are in.
I'll say the lower value ends of the malls, whether that's an old department store box or otherwise it was not your prime.
Prime customer facing areas of the mall, and so being able to utilize those underutilized areas.
Accretive so from our perspective, the economics of putting this shared fulfillment or.
Evolving our centers.
And be more directly facing on one channel.
As net positive economic on the rents.
And you got it and just got it.
Curiosity was that Delta and then look like five years ago, how much of the compressed.
I mean look at it obviously depends which market you're in but warehouse and warehouse rents and industrial warehouse rents would have been 50% of typical retail and today they are probably 85%.
And that's a very broad general statement, but just to give you a sense for COVID-19.
Overall movement.
Okay I appreciate that.
And then just maybe sticking to retail.
Comparable sales.
And I'm, sorry, this quarter and 62 million and core retail.
Good morning, Bob and personal portfolio.
And are there can you highlight on small that may be.
The average tenant sales per square foot.
For those malls.
Water portfolio and.
In terms of the write down from Q2.
Our retail assets this quarter.
How would the percentage write down on those loans compared to the broader breakdown.
Yes.
Yes.
The answer on the dispositions, probably not going and give you. The answer you are looking for that was actually a sale of a shopping center in Brazil.
I could give you the metrics for it but I think youre trying to take that and triangulated across the broader U S portfolio and they are obviously quite different metrics. So that number is skewed by one large asset sale and.
Brazil, which was at sub 6% cap rate.
And.
And get you the dollars per square foot and as that but it doesn't exactly translate to the portfolio.
I'd say in general on the valuations the $600 million in.
Packed that we.
And that came through.
Not surprisingly was just proportionately on the lower <unk>.
And 50% of the portfolio relative to that.
The upper yeah, perhaps so so meaning.
Sure.
Shopping centers with sales below $750, a square foot would have been the bulk of where that write down happens.
Okay, and then just finally on the distribution partners.
I think it would be targeting kind of $1 2 billion loans.
And this nation's equity value per year.
What's your sense in terms of what can be accomplished in 2021.
And from the commentary that the private market seems to be picking up.
And whatever that may answer items, whether it's moving on to Q ones too.
And any time soon share between off.
And this retail.
LP and Boston.
Yes.
We had a last six months or so and in 2020 from a transaction volume perspective, which I think will get made up over the course of 2021. So if you look on a on a combined basis across the two years. It should average out to what we normally expect which would tell you 21 is going to be a pretty busy year I do think as we.
<unk> and we've sort of highlighted in our comments a couple of times there is a tremendous amount of demand for.
And long leased stabilized assets that have a lot of <unk>.
Predictability to them and so we've got <unk>.
And new office buildings that we've developed and a number of places.
Around the World I think those are high on the list of likely.
Disposition candidates I think shopping centers remain a.
Challenging.
Story however.
And.
The the weight of capital is inevitably going to bring people back around to once they once they have realized that the for these high quality shopping centers the cash flow is more secure.
And they feel like the worst is behind them I do think there will be some return there but is that 2021 is that 2022 I don't know so its possible that that would be.
Certainly less certain.
And then within our LP investments.
We have a number of portfolio companies or large scale assets that are on the block to be sold this year and I think they're going to trade very well.
Got it okay. Thank you I'll turn partners.
Okay.
Our next question comes from Sam Damiani with TD Securities.
Thanks, and good morning, I Wonder if we could go into a little bit of detail on what's going on on the call.
Office leasing front, specifically in North America, where the bulk of the occupancy growth occurred in 2020.
It was most of this drop is a result of tenants, making physical changes to their premises or is it just natural burn off of leases.
A week economy.
And so I guess are you seeing.
On the pandemic actually having impact on People's long term plans with their space needs.
Yes, so the.
And the.
And the drop in occupancy, so leases expiring and not being renewed.
And in most cases.
And were tenants that were.
Consolidated space elsewhere.
Probably underway anyway.
So like one and pick up and particularly on large bank here and at Brookfield place had been consolidating their space into a different location and really had been running the lease out here. So so as opposed to it being pandemic driven.
Space consolidation. This was just more natural part of their lives.
The offset to that or.
Big impact of the current crisis is just leasing new leasing.
Or expansion as you would expect is virtually.
Nonexistent at the moment and so when we do have a situation like that where space doesn't get renewed.
We're not we're not terribly active on the new leasing from most of the new leasing to the extent that we did any of this this quarter was.
And.
Renewals and some small expansions so it's a very quiet on the demand side I would say for the most part.
And the leasing that we are doing is rollover, we're not seeing dramatic I think your question is around and are we seeing dramatic shifts and peoples.
Decisions around space at the moment, not really I think a lot of people are thinking about if they don't they don't know whether they need less space or more space.
And so as a result, if they don't need to make a decision they are choosing not to and.
So that's really the and activity that youre seeing here.
So the drop in occupancy last year.
Would be kind of as expected if you simply turned off the top of new leasing and in other words, just the natural desktops and the natural falloff and not be offsetting natural wood.
That's right there wasn't there wasn't any tenants we lost that we probably wouldn't have expected even pre pandemic.
That they were going to move out we would've just expected we could've re let that space by now right.
Alright.
And is there anything you can share in terms of your discussions with with tenants that might have leases coming up over the next one to three years in terms of.
Is there any hint of any changes and plans as a result of the pandemic.
No as I said I think a lot of them are thinking through what what reopening looks like.
There are two offsetting.
Challenges for them. One is I think everybody agrees, they're going to need more space for the most part going to need more space per person, which would lead you toward maybe we need to take on more space certainly in the short term.
The offset to that is as they think about having more either remote work or a different locations or on some cases from some.
A bit more of a rotational work force they may have fewer people and the office on any given day. So while they may need more space per person and so those two things, obviously offset one another and it's the moment I think.
As I say a lot of them are trying to keep every we're trying to keep their options open and so that means when we do have renewals lots of them are looking for shorter term renewals until they there's a bit more clarity on this ore and nobody seems to be making large.
Decisions around the overall direction of the business, one way or the other until they actually get people back and the office and field.
How it's going to work.
Got it and just finally, you mentioned some <unk>.
And disposition activity in the coming year, So would you care to comment specifically on battle ignore.
No I think look it's in the market I think everybody knows we had been marketing that I think we'll have more to report on that next quarter, but.
And it's exactly what I was describing earlier, which is a brand new and in fact, not even completed yet asset.
And with a high quality long term lease in place.
It's the type of thing Thats highly sought after at the moment.
And if it's I'll turn it back thank you.
Okay.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time that's star then one.
We have a follow up question from Sheila Mcgrath with Evercore.
I guess just back to the retail assets.
Non recourse debt is definitely a risk mitigated or I did see that you were.
Electing to give back and ask today, I think and Georgia what are your plans.
Like the bottom tier of retail assets and the portfolio and have there been other than giving back and asset have you had many opportunities to buy backs and note.
At a discount.
Yes, Sheila it's Brian I think we've reported in past calls that there are about say 20 or so more.
<unk> and our core retail portfolio.
Where our value is equivalent to the amount of debt associated with it and as a result, we're in negotiations typically with the servicer because it is in most cases their MBS.
To see what our options are.
And those options include and cases, where sort of the mall isn't performing well too.
Settle either a deed in lieu of foreclosure.
And the case, where there are quality b malls are there and markets.
And they are well positioned or and they have opportunities for mixed use.
And whether we can achieve some sort of loan modification.
And that can allow us to inject incremental capital.
Or ultimately.
Buyback.
At a discount and I would say that we.
We're actively in negotiation on all of these properties and the process is a little bit slow.
So far we have been successful and negotiating a couple of assets where.
We've settled for deed in lieu.
Which we described.
And we've also negotiated in one instance, a long term extension on the underlying debt.
There are opportunities.
And we're seeking to.
To see what we can do in order to modify the existing loans. So that we can pursue some sort of accretive opportunity from <unk>.
Okay, Great and then just curious Brian on your perspective, when you mentioned that things are opening up and I think you said, China and Korea and Dubai.
Just in terms of the U S and kind of the Lockdowns being more.
Restrictive in Manhattan, and California.
Wondering.
And if you're having any dialogues with local government to try to get these cities to open back up and just your thoughts there.
Yes, absolutely we spent a lot of time with.
And with local government and agency I think wanting to be thoughtful about how you how you do it safely, but trying to emphasize with all of them the importance of getting people back to work.
And getting them back in and not just the importance to us, but the importance to the economy generally and all of these businesses that rely on.
People being and offices, whether that's restaurants or other service providers and.
And.
A lot of these places. These these restrictions are having a huge impact on all of those businesses and so.
Governments are obviously scrambling around trying to figure out how best to do that we have and our own office, we have about 85% of our people here and the office every day.
We've produced a white paper based on how we did that.
Been highly successful and having that many people here in the office working on a long term basis really since last June.
And.
A lot of the government and other tenants are trying to take some of that learning and use. It. In addition, as I mentioned, we're providing space and our buildings for testing.
Provide space for vaccinations when that time comes and we've been working very closely with.
On local and state governments here and the U S as well as and Canada on those reopening plans, but obviously, we're just sort of.
And we're one voice, there's a lot of moving pieces here.
Okay. Thank you.
Okay.
We have a follow up question from the line of Mario <unk> with Scotiabank.
Hi, Thank you two more quick ones from me one on August one on retail and Trophy office.
And in the past couple of years and it remains profitable.
On a broader occupancy target of 94% and 95%, which is kind of the historical average.
Operating debt.
Given the pandemic.
On Keystone.
Pushed on a couple of years.
Evaluation that you disclosed and have changed.
On loans.
On the margin.
And whether you still think 49, 5% structural.
Office occupancy and achievable and if so.
And how long people can be.
Sure.
Relative to your 91%.
Yes.
And the.
The short answer is we don't think anything structural has changed and that that is still the.
That should be the normalized occupancy level for a portfolio like this office portfolio like this going forward as to when that's going to happen.
And you tell me when the vaccine gets rolled out and people get back to work and and I could answer the question, but I think we are hopeful debt.
And that we are already seeing early green shoots of that.
<unk> that people are now seeing at least there is a vaccine and is getting rolled out maybe its not as quick as everyone would like it to be but there is an end in sight and so therefore, a lot of these companies who up until now have been able to sort of kick the can and say well, we'll just we'll wait another six months and figure it out a lot of it and now we're saying well that timing is coming and we do need to start thinking.
About all of this and so that bodes well for <unk>.
For activity to get back to get back on it but I think we all need to recognize as well when we do everybody does come back to work, we are still dealing with a pretty challenging economic environment. Like you would typically see in AR and AR market low. The net positive is we don't have a lot of oversupply and like we have in past cycles. So I think our product is <unk>.
And really at the newer and and all of the markets that we're in which should be and higher demand.
And let's say relative to older more commodity stock and on a lot of these places that should bode well for our leasing, but it's going to take time and so I think to.
Pre pandemic, we would have thought towards the end of this year, we would've been getting back to that more stabilized number its probably been pushed out a year or two.
Got it Okay and then just on the core retail maybe a question for Brian Davis.
Okay great.
And this quarter.
I mean can you tie that into the market.
Question on you'll see that trending over time and executed.
The cash NOI.
Yes specific to the the abatement discussions.
I think we had guided.
In the past, where we think.
And between sort of 25, and 30% of one quarter worth of.
Rent billed revenues.
And abating I E, meaning we're never going to collect that rent.
Abating as part of a negotiation of their underlying lease terms are based on the negotiations that we've completed a day, which Jared said are up to about <unk>.
90%, that's the right number.
That translates you're sort of on gross rents of say a little over $200 million, maybe 200 to 200 and a quarter.
Which means that if we amortize that over the life.
The average license life of the lease and the lease life is going to be a little bit shorter because it's going to include some visit business development.
Type of kiosk type leases, which are shorter term in nature and youre, probably looking at 20 to 25 million per quarter and amortization that flows through that line item and so that's the largest sort of factor.
I think that's contributing to that increase this quarter and youll see it each quarter for the next sort of two and a half to three years.
Shouldnt getting on either.
Okay. Thank you.
That concludes today's question and answer session I would like to turn the call back to Brian Kingston for closing remarks.
Thank you everyone for dialing in again and for your continued interest in and.
Brookfield property partners and we look forward to giving you an update again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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