Brookfield Property Partners L.P.
Q1 2016 Earnings Call Transcript

Published: 6 May 2016

[Operator:]

Good day, ladies and gentlemen. Welcome to the Brookfield Property Partners’ First Quarter of 2016 Results Conference Call. As a reminder, today’s call is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Matthew Cherry, Vice President of Investor Relations and Communications. Please go ahead, sir.

[Matthew Cherry:]

Thank you, and good morning everyone. 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 and assumptions. The risks, uncertainties and assumptions that we believe are material are outlined in our news release issued this morning. With that, I’ll turn the call over to our CEO, Brian Kingston.

[Brian Kingston:]

Thank you, Matt, and good morning everyone. Thank you for joining our call. With me on the call today are Ric Clark, Chairman of BPY; and Bryan Davis, our CFO. In my prepared remarks, I’ll provide an update on our strategic priorities as well as some observations on real estate fundamentals in the investment environment, as well as our outlook for the balance of 2016. Bryan will look through our quarterly financial results and then following those comments, we would be happy to take questions from analysts and investors on the call today. As you would have seen in our press release this morning we reported strong earnings growth for the first quarter of 2016, with an increase in company FFO per unit of 24% over last year. Our results continue to benefit from leasing in our office portfolio strong performance in our core retail business and investments that we made over the course of 2015. We also benefitted from lower interest costs as a result of the repayment of the Brookfield Office Properties acquisition facility. While debt and equity capital markets experienced some volatility in the early part of the year, fundamentals in all of our major markets remain sound. Real estate investment activity in most markets continues to be robust. And we’re hopeful this increase in volatility will create some attractive investment opportunities for us to acquire high quality real estate assets on a value basis. In last quarter’s letter to unit holders we laid out four strategic priorities that we would be focused on in 2016. The first was to enhance our balance sheet flexibility by increasing the capacity and extending the maturity of our corporate credit facilities. Following the receipt of a corporate credit rating of BBB from S&P in February, we refinanced our corporate credit facility. Increasing its capacity from $2 billion to $2.5 billion and extending its maturity to 2019. The cost of this new facility is 55 basis points lower than the one that it replaced. At the property level, we completed refinancings of over $2 billion on maturing loans in our core office portfolio during the quarter. Resulting in net incremental proceeds of approximately $500 million and reducing interest costs by 30 basis points. We also secured a $375 million construction loan facility to support an apartment development project at Canary Wharf in London. Subsequent to quarter end. We further extended our maturity profile by issuing 200 million Canadian dollars of perpetual preferred shares with an initial fixed coupon of 6% from Brookfield Office Properties. The proceeds from this issue will be used to repay BPO’s Series H capital securities, which are currently redeemable on-demand by holders. Our second priority for the year was to continue our program on recycling capital from mature stable assets into higher returning investments strategies by surfacing between $1 million and $2 billion of net equity. During the first quarter, we closed on the sale of an office building in Vancouver and a retail property in Sydney that netted a total of $400 million of net proceeds to BPY. So far during the second quarter, we have completed or contracted to complete further asset sales which will result a net proceeds of an additional $1 billion. These asset sales were all completed at premiums to their IFRS carrying values, which just highlights that the value of our real estate portfolio is far in excess of where our shares are currently trading. Our third priority for the year was to increase occupancy in our core office and core retail platforms to 94% on a same-store basis. During the quarter, we completed over 1.5 million square feet of leasing in our core office portfolio and 5.1 million square feet in our core retail portfolio. We also continue to make good progress in leasing our development projects signing of 115,000 square foot lease with Jefferies Group at 100 Bishopsgate in London and are in ongoing discussions with eight tenants representing over 3 million square feet of space at our Manhattan West project in New York City. Finally, we said that in addition to recycling cash from asset sales into new investments and paying down debt. We would also look to repurchase our own units should be continue to trade at a meaning discount to NAV. Since starting to actively repurchase units in the third quarter of 2015, we have bought back almost 2 million units at an average price of $21.86, which is 27% below our IFRS value per share. With the repayment of the BPO acquisition facility and refinancing of our corporate credit facility both completed and good progress made on achieving our targeted asset sales for the year. We’re now in a position to ramp up these efforts and expect to be more active particularly if our units continue to trade at a discount to where we’re seeing private market sales occurring. At this point, I’ll hand the call over to Bryan for our quarterly financial report.

[Bryan Davis:]

Thank you, Brian. During the first quarter we earned company FFO of $217 million compared with $181 million for the same period in 2015. On a per unit basis FFO for the current quarter was $0.31 per unit compared with $0.25 per unit in the prior year an increase of 24% is operating performance of strong across all business units. Net income for the quarter was $251 million or $0.35 per unit and includes fair value gains of $147 million. Although not reflected in current period FFO and only partially reflected in current period net income. We realized gains of $314 million or $0.44 per unit on assets that were sold in the quarter. As a result of strong execution on the sale of Royal Centre in Vancouver and World Square retail in Sydney. At prices well in excess of the capital we had invested in these assets. These realized gains combined with our FFO this quarter provides strong support for our increased quarterly distribution of $0.28 per unit that was paid at the end of March. And represents an almost 6% increase over prior periods. In reviewing our Q1 Company FFO in a little more detail. The main drivers that contributed to the $36 million year-over-year growth were an increase in same property net operating income in natural currency across our core office and retail platforms of over 10% and 4% respectively. As well as same property growth and certain of our opportunistic investments including our multi-family industrial and hospitality assets. Investment activity specifically into our new strategic real estate fund which acquired interests in Center Parcs in the UK, Associated Estates in the U.S. and an office portfolio in Brazil, and most recently a self storage portfolio in the U.S. These investments contributed $16 million to Company FFO. A reduction in corporate interest expense, as we paid down our BPO acquisition facility in full during the prior year and this is offset by asset sales which reduced company FFO by $16 million and a reduction in FFO of $9 million from our exposure to foreign currencies that weekend relative to the U.S dollar. In arriving at company FFO, which we detail on Page 9 of our supplemental, amongst our standard adjustments for net contribution to Company FFO from our GGP warrants and the add-back of depreciation of non-real estate assets, we adjusted for $9 million in transaction costs related to recent acquisitions and $6 million of gains on non investment properties, related primarily to our share of a gain earned by GGP on the sale of marketable securities. Not included in our earnings this quarter is income recognized by GGP from their share of the LMO [ph] on a condominium development project. As a result of the difference between IFRS and U.S. GAAP which requires that we defer recognition until a later date. If there were no GAAP difference our company FFO would have increased by $11 million to $228 million or $0.32 per unit for the quarter. Included in net income we recorded fair value gains of $147 million during the quarter. The majority of these gains were in our opportunistic sector investments, notably our multi-family suburban office and industrial assets. In our multi-family business we completed a number of renovation projects at select assets, which resulted in higher rents. And then our suburban office in European industrial portfolio, we were the beneficiaries of leasing activity that increased property level cash flows. These increased cash flows resulted in valuation gains in the quarter. In our core office portfolio our fair value benefited from the successful execution of the sale of Royal Centre in Vancouver at a price $33 million above where we had marked the asset at the end of Q4. In addition in New York our values increased to reflect higher cash flows through a combination of the burn-off of free rent periods and higher rents in the terminal year. These gains were offset by lower values in our energy markets of Houston and Calgary. In aggregate we wrote down the – this portfolio by approximately $150 million in the quarter to reflect impact of future cash flows of current leasing market. This relatively modest impact of value as largely due to our contracted cash flows to high credit quality tenants, which in Calgary have an average term of 10 years and in Houston of four years. In comparing our results to the fourth quarter of 2015, company FFO decreased by $25 million from $242 million earned in that period. This decrease was primarily due to seasonality in our retail assets, which benefits on the holiday shopping season in the fourth quarter earnings results. We did not have any new leases impacting earnings of Brookfield Place New York this quarter. As discussed in previous quarters we benefited from tenant to begin to occupy their space towards the end of last year and begin recognizing income at a run rate of $15 million per quarter or $60 million on an annual basis. Over the balance of the year mainly in Q3 and Q4 we expect to see the same trend with tenants occupying space and adding another $15 million per quarter in income, bringing us to $120 million on an annual basis by the end of the year. On our proportionate balance sheet our total assets remain largely unchanged to $66 billion. Our focus through the first quarter of this year was to continue to make progress and increasing the flexibility of our balance as Brian had mentioned. We achieved this through entering into a new three year corporate credit facility for $2.45 billion with 15 of our banking relationships. This new facility allowed us to extinguish our $1 billion line with our parent Brookfield Asset Management. And subsequent to quarter end, we issued a $200 million rate reset preferred shares for our wholly-owned office subsidiary that will be used to repay a series of capital securities that are redeemable on-demand. This will further extent the maturity profile of our capital. And although the coupon on this preferred share may seem high relative to where corporate level debt could be issued. The security provides us with perpetual capital and our option to redeem in five years, something that you don’t get when you issue debt and work the incremental cost to us. Lastly and we continue to be successful in executing on our asset sales programs to raise capital to fund developments, to fund our commitments, to our fund investments and to repay corporate level debt. And as Brian mentioned, we expect to execute a few more transactions in the coming weeks and months that will further enhance our liquidity position. We ended the quarter with an IFRS value per unit of $30. This is consistent with where we ended the prior year. As the benefit of earnings and a stronger foreign currency at the end of the quarter, was offset by the mark-to-market of our currency hedges and adjustment to equity related to a transaction in the quarter and our distributions paid. When speaking of distributions, our board of directors yesterday declared a quarterly distribution of $0.28 per unit to be paid at the end and June. With that, I’ll turn the call back over to you, Brian.

[Brian Kingston:]

Thanks, Bryan. Before get into questions I’ll provide a brief operating report from each of our three business segments. Our global office portfolio finished the quarter at 92% occupancy on 1.5 million square feet of total leasing. Our core office markets of New York, London, Toronto and Sydney continue to perform well. Office tenant demand remains healthy although decision making has slowed modestly in the phase of uncertainty around the U.S. election later on this year, as well as the referendum vote in June in the UK Fundamentals in our commodity driven markets continues to be challenging, but our earnings are insulated through long-term leases to high credit tenants and only modest development exposure. Government markets are stable with continued healthy private investments demand. Occupancy in our core retail portfolio finished the quarter at 95.2% and 110 basis point increased from the same period in the prior year. Over 1,200 leases were signed during the quarter comprising 5.1 million square feet with suite-to-suite releasing rates at 25% on average higher for leases that are commencing in 2016. Tenant sales increased 2% to $20.3 billion. And our Class-A mall business which represents about a quarter of the top 400 malls in the United States. We have stable occupancy, increasing traffic and fewer tenant bankruptcies than we did a year ago. And while the impact of e-commerce and changing customer taste continually brings new challenges to our tenants. Our belief is that this is nothing new and high-quality well located shopping centers like the ones that we own, we will continue to form the bedrock of retail spending in the United States. Redevelopment initiatives continued to be the focus of our growth strategy and we see numerous opportunities to put between $300 million and $500 million of new capital to work each year at very high rates of return relative to where we could make new acquisitions in the space. Our opportunistic investing strategy occurs primarily through our participation in Brookfield sponsored private equity funds, which provides us exposure to higher returning strategies in our core portfolios provide, while mitigating risk by partnering with other investors. You may have seen recently that we held a final close on our latest global opportunity funds with total investor commitments of $9 billion. BPY’s commitment to this fund was $2.3 billion or about 25%. During this first quarter, the fund closed on the acquisition of a portfolio of self-storage assets in the United States. The gross purchase price was about $1 billion and BPY share of the equity was just over $100 million. We see this is an attractive opportunity to build scale in a highly fragmented sector with high growth and high cash yields. And the fund is already made several follow-on acquisitions at very attractive returns. Subsequent to quarter end, the fund acquired is student housing business in the UK that owns a portfolio of 13 high-quality assets totaling some 5,700 units for about US$600 million. BPY’s equity was about $50 million in this transaction. The assets have an average age of just five years and are located in four very attractive university markets. We view the UK student housing sector as a compiling investment opportunity given the supply demand imbalance in the market. And similar to self-storage we are seeing plenty of opportunities to put more capital to work in this sector. So enclosing despite some of the macroeconomic headwinds that are affecting certain pockets of the global economy, we are experiencing record interest in capital from around the global, seeking to invest in our core flagship assets and opportunistic strategies. And while there is no shortage of opportunities for us to continue to attract this capital and assist with the continue growth of our business. We’ll continue to execute on our strategic objectives seeking to provide investors total returns of between 12% and 15% from our various strategies. And with those remarks, we’re happy to turn the call over to any questions from analyst or investors on the line. Operator?

[Operator:]

Thank you. [Operator Instructions] And we’ll now take our first question from Mark Rothschild with Canaccord.

[Mark Rothschild:]

Thanks and good morning guys. Maybe in regard to the unit repurchases your comments on the call and in the letter to unitholders said that you would be repurchasing units should they continue to trade at a meaningful discount to NAV that’s been consistent for the last little while and considering where you guys have guided to NAV going in your presentation, that is significantly higher than the current unit – than the current NAV as well. So I’m curious if there is a point, is it 20% or is it 30% where you would be significantly more active.

[Brian Kingston:]

I’m not sure we can give you a specific numbers to point to, but clearly where we’re trading today which is above 20%. We view that is significantly below where the underlying value, as you said that the NAV is our expectations that NAV will continue to grow 10% to 12% a year. The asset sales that we have been executing demonstrate that it’s probably a conservative view at best, at the moment of what our NAV is. And so at these sort of levels I view that is significantly undervalued. I’m not sure where that cut off or it becomes less active is, but hopefully that answers your question.

[Mark Rothschild:]

And then kind of related, you sold a number of your mature office properties or at least partial interest in many of them or a number of them how do you think about asset sales going forward and management versus acquisitions which appear to generally be more in the opportunistic bucket.

[Brian Kingston:]

Yes, look I think this is how we have sort of always operated the business over the last 20 years which is acquired these assets that have maybe some leasing challenges are require some capital or otherwise need to be repositioned bringing them to a point where they are stable and have the bond-like characteristics and then they sell out completely or sell down an interest or to take our capital out of it and then redeploy it into the next strategy. So its really just a continuation of that and we think as long of the assets that we are acquiring as you say in a more opportunistic basis really fit that profile and as they become more mature it creates new opportunities or new assets to resurface that capital out of.

[Mark Rothschild:]

Okay, great. And then just lastly on maybe this I don't know if there is any you can provide now on the call but is it possible just to quantify the timing and the amount of NOI that in the place of New York assets coming online just to help us to understanding of the numbers.

[Bryan Davis:]

Yes, sure. So I think I mentioned in my prepared remarks that currently we have $15 million per quarter that included in our results we expect that $15 million to stay consistent through Q2 of this year. And then moving into Q3 towards the end of Q3 we’ll probably start to see half of the remaining $15 million that I had talked about with by the end of Q4 the total of the remaining $15 million that I talked about, so by the end of Q4 we should be close to the $120 million of current rate on an annual basis.

[Mark Rothschild:]

Hopefully that helps.

[Bryan Davis:]

Yes, thank you very much.

[Brian Kingston:]

Okay. Thanks, Mark.

[Operator:]

And we’ll now take our next question from Mario Saric with Scotia Bank.

[Mario Saric:]

Hi, good morning. Brian maybe just a quick clarification on the comment that sales were down at 22% or 20% above IFRS value. Was that applicable to the $0.4 billion of net equity completed during Q1. Does that also include the incremental $1 billion and you expect to close shortly?

[Brian Kingston:]

Yes. The 22% relates to the $400 million that was completed in Q1.

[Mario Saric:]

Okay. And then if we would look at the $1.4 billion in total would the number be – it’s really different from that?

[Brian Kingston:]

Yes. The $1 billion in Q2 is not at 22%. So off the top of my head it will be more near probably on average above 10% to 12% above IFRS. I think when you blend the two in the $1.4 billion.

[Mario Saric:]

Got it, okay. So just coming back to the asset sales you have done or you will have done about $1.4 billion shortly your target for 2016 was $1 billion to $2 billion of net equity given the kind of insatiable demand by additional investors for core product. Does it incentivize you or is it perhaps increase that target especially given where the units were trading today?

[Brian Kingston:]

Potentially, I think the assets that we have sold these were – when we said it was start of the year what we were targeting for the $2 billion, we obviously already had some of these underway or in mind. The timing although we have done a little over half of it now in the first half of the year as you would expect its going to be quiet over the summer. And so I think the $2 billion is probably still a good number for the year. Its possible markets remain strong that we may take advantage of that and do a little more. But I don’t think it will be dramatically more.

[Mario Saric:]

Okay. And then just maybe more of a philosophical question. But you are continuing to sell assets kind of well above IFRS valuation it was 13% above in Q4, 22% from Q1 and then, 10% to 12% on an average basis going forward. What do you think the market is missing? Why do you think the unit price isn’t reflecting the true private end of value of the underlying assets?

[Brian Kingston:]

I guess specifically as to why we’re – why I think we are achieving sales that are well in excess IFRS. I think given we are in a relatively robust market right now that’s not surprising. IFRS is a very long-term view on the values. It’s not meant to be necessarily a point in time valuation. So at times like this when the markets are strong you would expect that you would that asset sales would be happening somewhere above IFRS so I don't think that delta between the sale price in IFRS is that surprising to us given how the approach differs generally happens. But if you question is with respect to the share price relative to those values I don't have a great answer for you. I am not clear on why those trade at a discount.

[Mario Saric:]

Okay. And then maybe just from a leverage perspective it seems like floating rate exposure is coming down and there's a lot of kind of ins and outs in terms of capital leasing capital coming in on asset acquisition dispositions. Can you maybe just give us an update in terms of where you stand at the cap today and kind of where they goal posts are in terms of target, in terms of what the time and quantity of kind of debt reduction going forward?

[Brian Kingston:]

I think today we are either 52% to 53% debt to capital as we’ve mentioned in pervious calls our targeted to get to the 50% debt to capital level and it's definitely something that we are focused on over the balance of this year. Still left to execute on the repayment of some of the fund subscription facilities those will be repaid as a result of fund capital cost that we expect to happen over the balance of the year. That combined with asset sales reducing our non-recourse asset specific mortgages and providing excess capital that we can used to repay our corporate credit facilities. I think will get us towards that goal we might not get to 50% by the end of the year. But we are trending in that direction and I think that's our focus over the long-term maintaining a 50% debt to capital is something that I think we are comfortable in operating our business with.

[Mario Saric:]

Okay. That's helpful. And then just maybe at what point would you expect to measure upon what point would you expect harvesting of assets from that fund to accelerate and can that timing coincide somewhat with the capital requirements for those were up to.

[Brian Kingston:]

So we are – the fund started making investments in late 2012, so we are about four and a bit years into generally most of the realizations I would expect to happen between five and seven years. So you'll start to see some realizations happening as we get further into 2016. But the bulk of it will probably be 2017, 2018. [indiscernible] is obviously in its investment period right now so it will be fairly close, but it more likely that the third series in the fund that will coincide with a larger realizations out of the first fund.

[Mario Saric:]

Okay. Maybe last question from me, just pertaining to your presence in London which is very high-quality and meaningful can you talk about how Brookfield is thinking about any potential implications from the June 23 referendum on your future investment strategy in the UK number one and number two, whether you are seeing any kind of impact on a real estate fundamentals and evaluation in medium term [indiscernible] uncertainty over the outcome?

[Ric Clark:]

Mario, hi it’s Ric. Maybe I’ll start that Brian. So the referendum late June the outcome is uncertain. I think the majority of people we talked to think that the UK will stay in the European Union but it’s really a jump off. So under the scenario where the UK exits it will take many years we think to sort of short that out. We don’t think there will be immediate impact on our business. But having said that, we are seeing a bit of a slowdown in decision-making leading up to it. It’s not unlike the slowdown and decision-making that’s occurring in the U.S. We think spending the outcome of the presidential election. We are keeping a close eye on it spending a lot of time in Europe. And we’re happy with our assets working hard to get them least I think we will be in good shape no matter what happens.

[Mario Saric:]

Okay. And you sold a partial stake in a development there. Are you seeing any impact on valuations in the market today?

[Ric Clark:]

We have not so far.

[Mario Saric:]

Okay, great. That’s it from me. Thank you.

[Ric Clark:]

Okay.

[Operator:]

[Operator Instructions] And we’ll now take our next question from Michael Bilerman with Citi.

[Michael Bilerman:]

Good morning, guys. I’m curious, Brian you in your opening comments talked about the volatility in the capital markets and the hope that potentially could open up some opportunities. I was wondering you can sort of drill down a little bit more in terms of where do you see those opportunities coming, is it volatility in sort of public listed securities prices which could give you an opportunity to do more privatizations AEC and Rouse, is it geography in terms of where that volatility. So is it breadth of creating some of that opportunity is it in Asia, is it in the U.S. or is it in sort of what’s happening with the CMBS maturities that are coming down the pipe this year and next from a lot of the five year and 10 year deals that should have been done in 2006 and 2011. I guess where do you sort of see the biggest opportunities from that volatility?

[Brian Kingston:]

I guess we are seeing opportunities in a lot of place around the world but the comment that I sort of made was referring specifically to the U.S. and more around CMBS maturities, and changes in banking regulations and the impact that’s having on the more leveraged buyers of assets. And so I think the opportunity comes from a few places. The volatility we saw in public markets both created some potential opportunities for privatizations or carve-out of assets from public companies. But the other thing that it did was lessened competition on some of the private transactions we were looking at which were given where share prices were, it may the REITs a little less competitive or less aggressive in bidding. And so it's not full scale distress that we’re seeing obviously, but it is – this volatility does tend to – tend to lessen competition on some of the transactions. I think that's the real thing that we’re trying to take advantage of at the moment, given that we do have fairly large war chest with the opportunity funds and are able to move quickly and write large checks. When you have that kind of volatility it tends to be a few small number of larger players that can do that.

[Michael Bilerman:]

Now is there any property type within the CMBS stuff that you’re looking at or any certain markets where you see that opportunity?

[Brian Kingston:]

No, we are seeing it across a lot of different sectors, yes.

[Michael Bilerman:]

And then as you think about sectors the traditional core Brookfield for many years ago was really in the core property types office and then expanded into retail, and expanded into multifamily, and industrial is really sort of four pillars. And then you did some lodging, you have done student housing, self storage, how further into the specialty field would you be willing to go. What other sort of types of assets would you consider manufactured housing, data centers, would you think about billboards or towers, how far would you take the investment scope? And how much of at it’s just a sort of a chase of higher yields within some of those specialty sectors?

[Brian Kingston:]

Yes, so the way we sort of think about our capital is about 80% of the balance sheet today is invested in core office, core retail and multifamily. And the other 20% is in these more opportunistic strategies that I mentioned are primarily us putting capital to work through Brookfield private equity funds. Within that 20%, I think any or all of these sectors that you just mentioned are potentially investable asset classes and it’s really about generating higher returns than you would typically see on the core side of the portfolio and at the moment as you mentioned particularly some of those sectors that are generating very high cash yields which is particularly attractive given the investment environment today. So I think you could see us committing relatively modest amounts of capital through that strategy to a number of these newer sectors and we really view it as opportunistic it may be that 5 to 10 years from now we don’t have any investment in some of those sectors. But core office, core retail, multi-family will sort of – and will be here for the longer-term, the rest of it is more transactional based on where we see the opportunities.

[Michael Bilerman:]

And then thinking about NAV I’ve always tried to think about NAV as a backstop to value not a driver of value. And sometimes there is impediments in listed securities that don’t allow a stock to trade relative to its NAV. And as I think about BPY and I’m curious how you think about it – you think about owning public shares as well as private assets and stuff in JV, stuff in the funds. You think about being a limited partnership based in Bermuda with no voting rights for the public shareholders. You think about being global, you think about being diversified by many, many different property types, being externally managed, having a majority shareholder in Brookfield. Being more levered than the rest of the publicly listed of these U.S. REIT companies and in totality obviously all of those things adding up to a lot of complexity. How do you way all of those sorts of factors in terms of the trading price of your stock relative to the trading price of what you could sell individual assets for?

[Bryan Davis:]

Well, I’m not sure I agree that everything that you just listed out as a…

[Michael Bilerman:]

That’s why I said I don’t know if all I mean the Asian, right, okay.

[Bryan Davis:]

But look I think if your question is we’ll – are we entirely focused on having the stock trading at NAV and is that our expectation. I think we’ve built a business plan around the assumption that – we can’t be assured that we have an ability to issue equity at IFRS or above it. And there is a number of tools in our portfolio including what we’ve been doing which is selling assets. I think some of the advantages of some of the structural things that you just mentioned are that we are actually able to very actively recycle capital and redeploy it. And so we have a business plan that’s not built around and our continued growth not built around necessarily having to access the public markets. And I think if it becomes an efficient cost of capital to raise equity rather than continuing to sell assets then we may do that. And if it doesn’t then we’re happy to continue doing the opposite which is recycling at the asset level and using that to outgrow the platform.

[Michael Bilerman:]

I guess to your point, in your stock business are actually trade at IFRS to be a good stock. Right, so if you’re seeing growth in the underlying NAV per share and you can make accretive investments by not having to raise equity in the public domain, but raise it privately or through asset sales, you were under – you can still get good growth in cash flow and ultimately growth in the underlying stock

[Brian Kingston:]

Right. And that's really what our focus on the NAV and growing the NAVs even if the percentage discount that we are trading out for whatever reason that is stays the same. If we are able to grow that NAV at 10% to 12%, you’re going see good performance in addition to dividend.

[Michael Bilerman:]

Just last question on the Manhattan West, can you sort of just provide a current status update in terms of the office leasing that's going on, but also whether you guys participated and how you participated in either Moynihan or in Penn Station redevelopment, either both or one of them in terms of the bidding process?

[Ric Clark:]

Michael, good morning, it's Ric. Maybe I will take that. I start by saying Manhattan West to continue to progress as planned and we expect it to be a great economic success for us, constructions on schedule within budget. Recent milestones there we topped off three Manhattan West, which is our residential tower a few weeks ago. Expect our first tenants to move in within a year, so we are on track to be the first of the major developments in that area to deliver an apartment building. Five Manhattan West is effectively fully leased. The redevelopment of it will be done around most of that by the end of the year, some of that will spill over into the first quarter of next year. One Manhattan West is on target as well. It put down a couple additional floors on option over the last quarter, so we are now 30% leased. We have about 3 million square feet of leasing prospects activity that is going on throughout the entire project, so we are pretty excited about that. We've got a great basis, so we can be pretty competitive over there. All-in-all we remain excited about the project between us and the other large development. I think we are creating probably the most exciting mixed-use neighborhood in the entire country. As far as the Moynihan station, I think that's all part of continuing to create that neighborhood. Although I can't comment specifically on our involvement, I would say it's fair to guess that we're not a disinterested party in seeing a succeed and we will do what we can to make sure that it does. As to the Penn Station part of that project – I think there's one natural company that has a bit of an edge, owning all of those estate around that. But again every thing that's happening over I think it’s good news for New York City.

[Michael Bilerman:]

Well, there's one way, you can buy the whole company. I'm just kidding. All right. Have a good night.

[Bryan Davis:]

Okay, thank you, Michael.

[Operator:]

And with no further questions in the queue at this time. I’d like to turn it back over to Mr. Brian Kingston for any additional or closing remarks.

[Brian Kingston:]

Great. Thank you everyone for joining the call today. And we look forward to providing another update next quarter.

[Operator:]

And ladies and gentlemen, that concludes today’s conference call. We thank you for your participation.