Brookfield Property Partners L.P.
Q4 2017 Earnings Call Transcript

Published: 8 Feb 2018

[Operator:]

Good day, ladies and gentlemen. Welcome to the Brookfield Property Partners' Fourth Quarter and Full Year of 2017 Financial Results Conference Call. As a reminder, today’s call is being recorded. It is now my pleasure to turn the call over to Mr. Matt Cherry, Senior Vice President of Investor Relations and Communications. Please go ahead, sir.

[Matt Cherry:]

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 and future periods may differ materially from those currently expected because of a number of risks, uncertainties, and assumptions. The risks, uncertainties, and assumptions that we believe are material are outlined in our press release issued this morning. Also as our discussions with the special committee of GGP related or non-binding offer - excuse me non-binding offer announced in November are subject to strict confidentiality restrictions. We will not be able to answer any questions specifically related to our offer on the call today. With that, I'll turn the call over to Chief Executive Officer, Brian Kingston.

[Brian Kingston:]

Thank you, Matt. And good morning, everyone. And thank you for joining our call. With me on the call today are Ric Clark, the Chairman of BPY and Bryan Davis, our CFO. In my prepared remarks I'll recap our initiatives and accomplishments from the past year, as well as reiterate our strategic objective and outlooks for 2018. Bryan will go through the details of our quarterly and annual financial results and then following those comments, we'd be happy to take questions from any analysts on the call today. As you will have seen in our disclosure this morning, we recorded another quarter of strong earnings growth, company FFO was up about 6% on a per unit basis over the prior year. Since BPYs inception we've grown earnings at a compound annual rate of 9%. In line with the strong financial results, our Board of Directors has approved a 7% increase in our distribution to a $1.26 per unit annually. Based on where our units were trading this morning, that equates to a little over a 6% percent yield. Since the BPYs inception, we've now established a four year track record of earnings and distribution growth and funding a total attractive return for our unitholders. Bryan will provide further detail on what drove these positive results in his remarks. In our letter to unitholders published this morning, we recounted our strategic objectives for 2017 and provided some highlights on initiatives and transactions in line with those objectives over the course of the year. One of those objectives was to enhance the flexibility of our balance sheet, capitalizing on favorable debt markets during the year. We completed over $5 billion of asset and portfolio level financings at excellent long-term rates. We refinanced everything from office and multifamily buildings in New York and L.A., to our industrial and triple net portfolios in the U.S., to hospitality and student housing assets in the UK. Importantly these transactions reduced our overall floating rate debt exposure by 340 basis points to now less than 40% of our total debt outstanding, which seems opportune given the recent rise in interest rates. Additionally, we reinforced the balance sheet with further liquidity through the Canadian Preferred Share market issuing 800 million Canadian dollars of perpetual preferred shares and an average coupon of less than 5%. This market continues to provide relatively low cost permanent capital as an additional liquidity option for us. And importantly in the midst of all that we maintained our BBB corporate credit rating with S&P. Selling mature assets and recycling capital into higher growth investment was another key priority for us this year. In 2017 we completed approximately $11.7 billion of gross asset sales and on average these sales were transacted at a 7% premium to our IFRS carrying value. These sales returned over $2.4 billion of net equity to BPY, which exceeded our objective of $1.5 billion to $2 billion. We redeployed this capital into higher yielding, a higher growth opportunities, including the continuation of our multibillion dollar development pipeline, as well as investment in regions and sectors where we found greater value. Additionally we repurchased 5.9 million of our own units at an average of 21% - of average discount of 21% to our IFRS net asset value. Moving to the core business operations, Brookfield is known for its proactive and intensive operating capabilities. And it's one of our key differentiating factors in the market. We utilize our vertically integrated operating capabilities to maximize the value of our existing assets, redevelopment initiatives and ground up construction projects. Our two core operating businesses, Office and Retail each had a strong year both financially and operationally and our global office portfolio released 9.7 million square feet increasing occupancy by 30 basis points. And importantly these new leases were signed at average rents that were 37% above the leases that expire during the period. And despite negative sentiment regarding bricks and mortar retail throughout much of the year, occupancy in our core retail operations remained steady at 96% due to over 9 million square feet of leases that were completed during the year. Same property NOI increased by 2.1% in office and 1.6% in retail. During 2017, we deployed about $1.6 billion of capital in both our core and opportunistic businesses. We highlighted many of these transactions over the course of the year and transactions of note are listed in the letter to unitholders for your reference. Further to just individual asset acquisitions, we took further steps to simplify our balance sheet investing $463 million to privatize our listed Canadian and Australian office funds into BPY. At the time BPY was spun out from Brookfield Asset Management in 2013, more than 90% of our invested capital was held and separately trade in public securities. Through the privatisations of Brookfield Office Properties, Canary Wharf, Rouse Properties and the regional office funds I just mentioned that ratio is now 32%, with the last significant public investment being our ownership stake in GGP. In October we cash settled all of the remaining GGP warrants which were nearing expiry for $462 million, resulting in the acquisition of $68 million additional GGP shares and increasing our common equity ownership from 29% to 34%. And as Matt mentioned, in November we announced a proposal to acquire the balance of the GGP shares that we do not already own. As we saw following the privatisation of Brookfield Office Properties and Rouse, consolidating our GGP portfolio within BPY will allow us to create long-term value in those assets in a way that would simply not be possible under separate ownership. We continue to believe the transaction is in the best interest of both GGP shareholders and BPY unitholders. With that, I'll now turn the call over to Bryan Davis for a detailed financial report.

[Bryan Davis:]

Thank you, Brian. During the fourth quarter we earned company FFO of $286 million compared with $268 million dollars for the same period in 2016. On a per unit basis company FFO for the current quarter was $0.41 per unit compared with $0.38 per unit in the prior year. BPY recorded net income attributable to unitholders for the quarter of $134 million or $0.19 per unit compared with a net loss of $62 million or $0.09 per unit in the prior year. BPY realized gains from its opportunistic investing activity of $440 million in the quarter or $0.58 per unit, which largely comprised of the sale of our interest in the European Logistics business that we acquired in our first opportunity fund back in 2013. In reviewing what contributed to the $18 million year-over-year growth in company FFO, I will highlight the main drivers by our 3 business units. First off, in our core office business we earned $148 million of company FFO compared with $138 million in the prior year, before considering the $44 million development fee we earned last year in London. That was an increase of $10 million and the main items contributing to this increase were same property net operating income growth of $16 million or 5.1%, with incremental fee income of $13 million, half of which relates to major lease completed with the balance related to construction progress and property management on buildings that we earn with joint venture partners. Offsetting these increases were additional interest expense of $6 million due to the cessation of capitalized interest on two developments completed in the third quarter in advance of achieving rent recognition. And the impact of core office asset sales, which contributed to a $12 million reduction in company FFO, as we've redeployed the capital raised into other parts of our business. Operationally our same property net operating income growth was driven by strong rents on in quarter leasing activity on renewals with new rent commencements in Sydney at 10 Shelley Street, and Brookfield Place Tower 2 in Perth. We also had an increase in same store occupancy by 40 basis points to 92.6%, as well as a benefit from foreign exchange this quarter. As it relates to the recently completed developments, as mentioned in previous calls, in the second quarter we completed the Eugene, a rental apartment tower at Manhattan West. The Eugene is now 65% leased and contributed $1 million in FFO this quarter. Once stabilized which we expect to achieve by mid 2018, we will earn $10 million in FFO on an annual basis from the Eugene. In the third quarter we completed construction on Brookfield Place Calgary East and Tower 2 at London Wall and this quarter we completed Tower 1 at London wall. The accounting impact of moving these properties to income producing was a negative $6 million, as we are in a transition period where we can no longer capitalize costs, but have either not achieved rent recognition or stabilization. Brookfield Place Calgary East which is currently 81% leased will achieve stabilization by late 2018 at which point it is expected to contribute approximately $25 million to FFO on an annual basis. For our London Wall office towers which together are 79% leased, we also expect to stabilize by 2018 and earn approximately $10 million of FFO on an annual basis. Secondly, in our core retail business we earned $158 million of company FFO compared to $132 million in the prior year, a $26 million increase. During the quarter we realized income of $12 million related to the transfer of title of most of the remaining condominium units at Ala Moana to the purchaser's, which pretty much completes the recognition of revenue related to these sales. We had same property growth of 1.3% or $3 million this quarter, largely driven by higher rents as we continue to lease space at positive rent spreads. In addition we earned an incremental $8 million in investment income and joint venture fee income. At the beginning of the quarter, we exercised our GGP warrants, which resulted in an additional investment of $460 million and increased our shareholding by 68 million shares to 323 million shares which now represents a 34.4% interest. Lastly, our opportunistic investments earned $99 million compared with $68 million in the prior year, a $31 million increase or 46%. Much of this increase is due to an additional $900 million of capital invested in this business through our commitment to various Brookfield sponsored funds, which generated $15 million of FFO. We list some of the major investments made on page 7 of our supplemental. In addition to that, we are benefiting from same property growth, primarily in our hospitality portfolio and seasonality in our retail portfolio. We’ve reduced interest expense as we repaid high cost debt secured by retail assets in Brazil and we had the positive impact of foreign exchange. We did not earn any significant merchant build income this year, but are actively constructing and positioning for sale a number of projects which we are forecasting to earn upwards of $65 million and such income in 2018. In arriving at company FFO which we detail on page 9 of our supplemental, amongst our standard add back of depreciation of non-real estate assets, we adjusted for $15 [ph] million in transaction costs related to acquisition activity in the quarter. We had $16 [ph] million capitalized interest on active development projects that we account for under the equity method to reflect a return consistent with our consolidated development projects. In comparing our results to the third quarter of 2017 company FFO decreased by $50 million. Company FFO decreased -our strong fourth quarter earning increased by $50 million from $236 million earned in that period. This increase in company FFO was primarily attributable to three things. The first was a $23 million increase due to peak seasonality in our retail business. The second was $18 million in our core office business, due to a combination of same store NOI growth of 2% and the lease commencements that I mentioned earlier in the Australian market. And we also had $9 million in incremental fee and investment income. Our strong fourth quarter earnings helped us end the year with $1.44 of company FFO which as Brian mentioned was a 6% increase over 2016. But more importantly a 9% annual increase since our first full year of results in 2014. For the full year, we are in company FFO including realized gains from our opportunistic investments of $2.10 per unit. This provides significant coverage for our $1.18 annual distribution that we've paid out during the year. As mentioned at our Investor Day presentation, we expect to realize on average $400 million in annual investment gains from our opportunistic investment activity. This income which forms a major part of our expected 18% to 20% returns on this invested capital does not get included in our company FFO, but does generate significant cash flow that is then available to distribute to our unitholders, as part of our regular distributions. As a result of this and our expectation for continued growing company FFO, as Brian mentioned, our Board of Directors declared a 7% increase in our quarterly distribution to $0.315 per unit to be paid at the end of March to holders of record as of the end of February. For the quarter, we had fair value losses of $280 million on our asset. These are subject to valuations each quarter. This compares with losses of $144 million for the same period in the prior year. As is typical of every fourth quarter, we finalize our core asset level business plans and complete an extensive revaluation of all of our assets by applying these updated cash flows to our valuation model. Cash flows are updated for asset specific capital expenditure plans, actual leases signed and assumptions related to renewals downtime leasing rates and leasing costs. In addition, valuation models are updated to reflect the appropriate discount rates and capitalization rates at the asset level. In many cases these rates are verified by independent market research, market transactions or prepared by third party consultants. Although the value we include in our audited financial statements are prepared using our internal models, we appraise a number of assets each year using qualified third party professionals. For 2017, we had 197 properties appraised for a gross value of $47 billion. In aggregate these external appraisals resulted in values that were approximately 1% higher than the values we included in our IFRS financial statements. For the fourth quarter, this deep dive resulted in $380 million reduction in the value of our core office assets. The majority of these changes were the result of modest reduction in rent growth rates in a few of our markets compared to the prior year to reflect expectations for future cash flows based on the current leasing environment. In addition, we had an $800 million reduction in the value of our core retail portfolio to reflect the impact of a similar process. This was offset in part by a $440 million gain on the exercise of our warrants during the quarter. These downward adjustments in our core operations were offset by a $110 million gain on our opportunistic investment portfolio where we continue to see forecasted cash flows increase in our industrial, manufactured housing and student housing portfolios. In addition on execution of the sale of our European industrial business, we recorded an additional gain of $260 million in the quarter to reflect the final negotiated price. As our balance sheet remained relatively consistent to the prior quarter, that will end my prepared remarks and I'll turn the call back over to you Brian.

[Brian Kingston:]

Thank you, Bryan. As we begin 2018 building on the success of the last several years, our priorities remain largely unchanged. We’ll seek to continue to grow our distribution in line with the growth in our underlying cash flows, seek to enhance the flexibility of our balance sheet, as well as our access to liquidity, further reducing our floating rate debt exposure and lowering our overall debt to capital ratio. We’ll continue to recycle capital out of stable mature investments into higher yielding opportunities across both our core and opportunistic investment strategies and repurchasing our own units should they continue to trade at a discount to intrinsic value. Maintain or increase the occupancy in our core operating businesses, while capturing mark-to-market increases as leases roll over and further advance and to begin to monetize our maturing development pipeline. With many exciting initiatives and opportunities on the horizon and 2018 is shaping up to be another year of substantial growth for BPY. We look forward to visiting with many of you over the course of the year and interacting with you at various conferences or in person. And of course, we’re accessible here, should you feel the need to reach out to Matt or Bryan or myself. So with those as our prepared remarks, I'm happy to turn the call over to any questions from analysts. Operator, are there any questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Sheila McGrath with Evercore ISI. You may begin.

[Sheila McGrath:]

Yes, good morning. Without getting into any deal specifics, I just wanted to ask about your capacity to do other transactions if you go forward with the GGP, Brookfield's mentioned on the wire all the time as a potential acquirer for other public companies and just given the size of its GGP do you think that you would have the firepower or capacity to do other public company transactions?

[Brian Kingston:]

So Sheila, without commenting specifically on any companies or specific rumours, you know, we do get - we do get mentioned a lot, sometimes it's true, sometimes it's not always true. But obviously, a big part of our business is raising capital from institutional investors and then deploying it into new investment opportunities. And so not necessarily everything that - that we're looking at or working on is coming off of the same balance sheet. As you know, we have a significant amount of institutional capital that we're managing on behalf of clients and putting the work into these kind of thing. So I guess without stating the obvious, we're not pursuing anything that we don't have the capital or the capacity to absorb.

[Sheila McGrath:]

Okay, great. And then you also mentioned Brian in your 2018 goals further enhancing balance sheet flexibility and access to liquidity. I was wondering if you could give us more detail on that comment. And then where your leverage levels that you're targeting?

[Brian Kingston:]

So I'll start with your last question first. The leverage levels as we had sort of indicated in previous calls and at our Investor Day, our target is 50% debt to cap on a proportionate basis in the long-term. Having said that, we're comfortable being above that and/or below that for periods of time, just depending on opportunities and the ability to extract capital from investments. As it relates to flexibility, I think our focus is really maintaining you know, an investment grade balance sheet. We feel that that gives us the ability to access all debt whether it's at the property level, preferred share market in Canada, in terms of some of the initiatives that we are focused on is potentially accessing a bond market, whether that be in the U.S. or on a global basis. And in similar fashion we are always looking at opportunities to access preferred share capital and others - other markets outside of Canada. So I would say those are sort of the major initiatives that we're focused on in terms of preserving flexibility of our balance sheet.

[Sheila McGrath:]

Okay. Thank you. And I'll get back in the queue.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Mario Saric with Scotiabank. You may begin.

[Mario Saric:]

Hi. Good morning, guy. Just Bryan Davis, just want to come back to the year the value change in the office portfolio and you kind of highlighted it related to modest to lower rental growth in select markets. Can you maybe provide a bit more color in terms of which markets you've adjusted expectations in?

[Bryan Davis:]

Yeah, I'll say energy markets is one area that we're adjusting expectations on. I think in particular Houston has been a market that has been challenged over 2017 and I think we're reflecting on that in terms of what we think we're going to be able to deliver from a business plan perspective over the near term. You know, similarly you know, we're seeing some significant strength in certain of our assets in midtown Manhattan, but some of the growth that we have experienced in Lower Manhattan is starting to taper off a little bit. And so we've adjusted some of our expectations for future growth in that market going out over the next couple of years. I’ll say those are probably the 2 big ones that impacted the overall values.

[Mario Saric:]

Okay. And then just maybe on the office occupancy side, you're showing good momentum on a quarter-over-quarter basis you're year end core occupancy was 92.6%. I know in the past we've talked about a kind of a target of mid 90s in terms of your – I am not sure if it’s your U.S. portfolio or your broader portfolio. So going back to historically where BPO tended to operate, when we look at the occupancy levels within your portfolio today the U.S. that was 90%, so there was markets like Washington, LA, Houston that are in the kind of mid 80s or low 90s. So I guess my question is, do you still think you can push that occupancy level into that mid 90 range in the next couple years. And if so where do you see the upside from this point forward?

[Bryan Davis:]

Yes. So Mario, I'd say on any individual properties the objective is to get the occupancy into the mid 90s. But the challenge with having out an overall portfolio basis is that as soon as those properties do get into the mid 90s or 100% occupied, we sell them and buy something with 30% vacancy in it. And so you know, I think it's sort of got that working as an offset, as we're investing new capital and things with lower occupancy or shorter lease duration and selling things with longer it somewhat you know, offsets the benefit as we get that leased up. So I think individually business plan on a same store basis, you know, absolutely, we can - we'll continue to do to get that leasing toward the 95%. But I think realistically just based on how we've been actively recycling capital when they do get up there, you've got that natural headwind against it. And so we're not overly concerned about where the overall portfolio gets, we did 9 million square feet of leasing in the Office business this year and a lot of that was either rollover leasing or in our development business which doesn't necessarily show up in the occupancy yet, but will once those assets come online.

[Mario Saric:]

Okay. And can you maybe just touch on what you're seeing in LA. Any incremental change in trend?

[Bryan Davis:]

No, look - you know, I think we've been - we've been strong proponents of the downtown LA market for a number of years. We see it as very similar to Lower Manhattan in that you know, what has traditionally been a 9 to 5 office market is rapidly becoming a 24/7 market with lots of new residential and retail offerings et cetera in the market and I think what we've seen - as we've seen here in New York as those residents flow into those areas, the office tends to follow and then the rents come with that. So I think you know we're still in the early innings of that, but certainly a lot of exciting things happening in LA with respect to new development in the downtown market.

[Mario Saric:]

Okay. And may be on just capital deployment, I was hoping you can provide bit more color on the investment pieces behind the large office portfolio acquisition in India and then Houston Center as well. I Brian mentioned that - a little bit challenge at the moment. So maybe kind of what you're seeing on those two acquisitions perhaps going in yield on both and then expected longer term IRRs?

[Bryan Davis:]

Yes. So look India, the portfolio - actually the portfolio size of both transactions is pretty similar. They're both about 4 million square feet of total space. The Indian portfolio, this is really an opportunity to acquire an almost an entire township in Mumbai. It's about 20 minutes from the airport. That's been developed over the last 20 years. And so we acquired was all of the office and retail in this one specific neighbourhood. It was developed by a residential developer who had some capital constraints, as well as some family succession issues that caused him to want to monetize the portfolio in its entirety. We think it's been under managed and rents today sit at 10% to 12% below market. So a going in yield it's about a 10.5% cap rate going in. But we think as leases roll over and we will market these leases to market. And invest some modest capital in it we should be able to get that to 12.5%, 13% unlevered. And you know, debt rates today in India are 8% and cap rates are 8% or 9% on these types of assets once they stable. So you know, this is in our opportunity fund, so obviously we're anticipating returns well in excess of 20% IRRs to answer your question there. Houston Center, slightly different stories, as Brian mentioned the market there is a little bit challenge, but I think as a result of that capital is a little more scarce in that market. And we saw a good opportunity to invest countercyclical in a market that we know well. We're one of the largest landlords in downtown Houston. Again for different reasons than Los Angeles, but we do think, you know, similar to many other metropolis that we're investing in there is a large movement - there has been a large movement from downtown Houston into suburban locations. We're seeing that migration starting to reverse and come back into downtown. And so we do think as the Houston market recovers and gets better over the next couple of years downtown in particular is going to be the first to benefit and should outperform the more tertiary markets and this is just - you know, is a prime asset in that market with some vacancy, with some upcoming lease rollover that we think we can - we can do something pretty special with the complex. So it's more much more of a typical, Brookfield turnaround situation in the U.S. where we think we can invest some capital, some hard work on the leasing and the return should be good and again I - we would anticipate those would be in the mid teens type region.

[Mario Saric:]

Got it. Okay. My last question just kind of relates to the unit price and kind of a broader blue sky question, the stocks come down back to early 2016 levels which almost matches kind of levels back in 2014. The U.S. REIT [ph] space has come off as well over - concerns over interest rate or deepening yield curve. But maybe the markets are concerned a little bit about the potential index selling BPY [ph] the GGP deal goes through [indiscernible] So I know I know you're focused on longer term value creation, but same time stocks come down a little bit. You've put up good FFO numbers. Good distribution per unit growth. So you're effectively executing your communicated strategy, your 2018 goals are a continuation of that. I guess my question is how resolute are you in your patient and focused on the long-term and what kind of interim benchmarks do you think about or look at when you're assessing whether to do something more drastic near term to kind of capitalize on the big discount to now that exist today?

[Bryan Davis:]

Well, you know, I think you're right in part, there's some of the impact on the share price, may be due to the GGP proposal that’s out there. But I actually think our performance since then has acting up and not dramatically different than the index, so I think more of it is overall sector sentiment. You know, as you know we think our business plan and the growth and the numbers that we've - that we've been setting out as far as our objectives it's a robust plan and it takes into account a rising interest rate market and a wider cap rates et cetera in all of our assumptions. We've been assuming that for a couple of years. So in terms of what the market seems to be overly concerned about with respect to the REIT markets and that, we're not concerned that it really has any impact on our ability to deliver the kind of operating results that we have. So there's no change to the business plan. You know, your question about how resolute we are? I think you know we've demonstrated in the past that if our shares represent a better acquisition opportunity than there are other investment opportunities that we're looking in the market. You know, we may continue to buy back shares. And I think obviously if these prices and a 6% yield as we highlighted earlier this is - this is a very attractive entry point for that. So you know, I think it probably can't be any more specific than that there.

[Mario Saric:]

Okay. Thanks, for the color.

[Bryan Davis:]

Okay. Thank you.

[Operator:]

Thank you. Our next question is a follow up from Sheila McGrath with Evercore ISI. You maybe begin.

[Sheila McGrath:]

Hi, yes. Brian you mentioned that the Brookfield platform is well positioned to bring different disciplines to retail. I was just wondering if you could give us some specific examples of recent either of retail acquisitions or repositioning that you've done in the portfolio?

[Brian Kingston:]

Well you know, without getting too specific you know, I think obviously a big part of our overall thesis on retail and why we think some of the net negative sentiment out there is overdone, is that there are numerous opportunities to add density or other uses on what had been historically just pure retail - retail real estate, real estate sites only. So things like hotels, residential apartments or other uses. And obviously we have very large operating and development capabilities in all of those sectors, which you know, oftentimes pure play companies who are only focused on one sector either have to outsource to someone else or you know or invest with other partners we’re able to have all that in-house and actually make the sort of better - the better long-term decisions with subject matter experts on each of those sectors. So I think that's really what we think one of the key benefits is if you're a retail only company or an industrial only company your skill sets tend to be focused in one of those sectors and most of your investment ideas or plans tend to be focused around that. I think we've got the flexibility and the expertise to pivot where it makes sense and I think we've seen that certainly with office as we brought BPO in-house. You know, we're doing a tremendous amount of retail and residential development now in these mixed use complexes that was a pure office company would have been much more challenging to do.

[Sheila McGrath:]

Okay. And if you could give us an update on Manhattan West, just leasing there and any conversations with anchor tenant, the second tower how this might be progressing?

[Ric Clark:]

Sheila. Hi, it’s Rick. I’ll take that one. So as you know, leasing last year at Manhattan West was phenomenal. I think we leased 1.7 million feet for the year and that momentum is carrying into this year. The project overall for the properties that are either already up or on their way up are 91% leased. And so we've obviously turned our attention on the south tower to Manhattan West. So we have discussions underway with a few prospects. We're not there yet with any of them, but our expectation is that momentum that we saw last year will carry into this year.

[Sheila McGrath:]

And is Loft office building is that pretty well leased and what's the status of the boutique hotel that you are…

[Ric Clark:]

Yes. Okay, so the Loft building is essentially fully leased. We signed a lease on half of it with Regis [ph] sort of new urban concept spaces to take half of that and we had a various smaller tenants and the other part of the building. So it's basically done. The hotel we expect to launch in the next few months. Not quite ready to announce the flag that we're putting on it, but it's great, it will be a great amenity in addition to the building. They'll probably open 3.4 to 4 years from now. And that's basically it. So the majority of the attention is on leasing the South Tower and finding an anchor to get that development underway.

[Sheila McGrath:]

Okay, great. And then back to your comments, I think on the valuation of the retail and office, if you could just update us, I think last quarter you had GGP on - in the IFRS value added 29 or 30. What does that value currently?

[Bryan Davis:]

Yeah, the value currently is $27.33 using our IFRS value which we highlight in our supplemental divided by the 323 million shares that we currently have invested in GGP.

[Sheila McGrath:]

Okay. Thank you.

[Operator:]

Thank you. Our last question comes from Neil Downey with RBC Capital Markets. You may begin.

[Neil Downey:]

Thank you. Good morning. Just a quick follow up question for Bryan Davis, is there something peculiar to IFRS in so far as your assets held for sale in your opportunistic segment have negative equity, some 400 million of assets held for sale versus over 600 million of associated liabilities?

[Bryan Davis:]

I guess, the short answer is yes there is a peculiarity. We have one asset that we effectively took possession of through one of our real estate finance funds. It's a hotel that's currently for sale. We actually have zero economic interest in this except for the ability to earn fees to the extent that we can execute on a successful transaction to sell this property. But for historic reasons we've had to carry this on our financial statements had a negative equity value. So once that building gets sold which we expect in the first quarter of this year we'll have in the neighbourhood of $280 million of a gain that gets flowed through our P&L..

[Brian Kingston:]

Thank you for that. It’s now coming back to me.

[Bryan Davis:]

Yes.

[Neil Downey:]

Great, thanks.

[Bryan Davis:]

Thank you.

[Operator:]

Thank you. This concludes the Q&A session. I will now like to turn the conference back over to Brian Kingston for closing remarks.

[Brian Kingston:]

Thank you everyone for dialing in again this quarter and we look forward to speaking to you next quarter after our Q1 results are released. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.