Brookfield Property Partners L.P.
Q1 2015 Earnings Call Transcript

Published: 2 May 2015

[Operator:]

Welcome, ladies and gentlemen to the Brookfield Property Partners 2015 First Quarter and Financial Results Conference Call. Today’s call is being recorded. It is now my pleasure to turn the call over to Matthew Cherry, Vice President, Investor Relations. Please go ahead, sir.

[Matthew 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 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 will turn the call over to Chief Executive Officer, Ric Clark.

[Ric Clark:]

Thank you, Matt. Good morning everyone. With me in the room remotely in addition to Matt are Brian Kingston, John Stinebaugh, and Bryan Davis. Hopefully you would have had an opportunity to look through our press release this morning and in our release, we announced that John Stinebaugh and Bryan Davis will be taking on expanded roles within our organization. Since the inception of Brookfield Property Partners in April of 2013, we've experienced very meaningful growth. In this short period of time on our proportionate balance sheet, total assets have almost doubled to $60 billion. In light of our recent projected growth, I'm pleased to announce a couple of organizational changes. John Stinebaugh has been named Chief Operating Officer and will be shifting his responsibilities to overseeing the performance of our opportunistic investment platform. More on that portion of our business later, but congratulations to John on his new responsibilities. And Bryan Davis has been named Chief Financial Officer for Brookfield Property Partners. Bryan will be known to most of you on the call for his role as CFO of our global office business, Brookfield Office Properties, for the last eight years. We're happy to have him formally on board. So, congratulations to both John and Bryan. We have a big business and have had a very active quarter. There's plenty to report, but we'll try to focus our remarks on the bigger things in order to provide time for questions. I'll start by saying that Brookfield Property Partners began 2015 with a solid performance, in line with our expectations. Operational performance was strong across virtually all of our regions and property sectors led by our US based office and regional mall investments, which make up the bulk of our holdings. We remain active with capital recycling, new acquisitions, and working toward achieving our strategic objectives and I'll have a few things to report on these fronts. But first, let's get Bryan to take us through our financial report. Bryan?

[Bryan Davis:]

Thank you, Ric. The highlights for our first quarter performance include Company FFO of $181 million, which compares with $157 million for the same period in 2014. On a per unit basis, FFO for the current quarter was $0.25 per unit compared with $0.28 per unit in the prior year. Net income for the quarter was $833 million, or $1.17 per unit compared with $372 million are $0.67 per unit in the prior year. Driving the increase in net income were fair value gains of $845 million compared with $483 million in the prior period. We also had total return for the quarter calculated as our company FFO plus capital appreciation of a $1 billion which compares with $640 million in the prior year. This represents annualized return in line with our target of achieving 12% to 15% total returns over the long-term. And lastly, we saw IFRS value per unit increased to $28.79 per unit, up from $28.35 at year-end, as a result of net income offset by distributions to unitholders and the impact of our unhedged equity that's invested in foreign currencies, which depreciated in the quarter relative to the US dollar. Recent performance of our units has narrowed the discount to around 15% from closer to 20% at the end of the prior year. In reviewing our funds from operations in a little more detail, the main driver that contributed to the $24 million growth in Company FFO to $181 million was the acquisition of the remaining interest in Brookfield Office Properties in 2014, which resulted in an increase of almost $40 million. This was offset by the depreciation of our foreign currencies relative to the US dollars, which reduced FFO by $15 million compared to the same period last year. In arriving at Company FFO, we adjusted for a $14 million gain on the extinguishment of debt in our retail operations, which has been included in the investment and other income line, and we added in the net contribution to Company FFO of $11 million from our GGP warrants assuming they were net settled during the period. In the prior year, we did adjust our Company FFO for a $19 million gain on the extinguishment of debt also in our retail operations, which we hadn't adjusted for in our Company FFO reported in the previous year and we did add in the net contribution to Company FFO of $10 million from our GGP warrants to ensure a comparable figure. As mentioned in the highlights, we did record fair value gains of $845 million during the quarter. The majority of these gains were from our office portfolio where we continue to see improved cash flows mainly in our New York based assets, improved transaction metrics particularly in the Sydney market, which resulted in the tightening of our discount in [term loan] cap rates on selected properties. And in addition to that, we recognized gains on our GGP warrants and our original 22% interest in Canary Wharf to reflect the transaction metrics. In comparing our results to the fourth quarter of 2014, Company FFO declined by $9 million largely due to the impact of the strength of the US dollar. Absent this, FFO would have been consistent with the prior quarter at $190 million. Now in reviewing our results by operating platform on this basis, we saw office FFO increase to $170 million from $150 million in the prior quarter. The main driver was the earnings on our incremental capital invested in Canary Wharf to increase our interest of 50% where we recorded $32 million in FFO representing a combination of a $15 million dividend received in January and our proportionate share of earnings for February and March This was offset in part by a in net operating income as the prior quarter included a beneficial $5 million parking settlement at one of our properties in Toronto and in addition to that, benefited from stronger foreign currencies. Secondly, our retail Company FFO declined to $114 million from $137 million in the prior quarter. The main driver of this decline was seasonality as the fourth quarter is typically the strongest we report from this platform. And lastly, our other platforms had Company FFO increased to $33 million from $13 million in the prior quarter. The main drivers were the full quarter of earnings from our recent investments in the triple net lease portfolio and in the multi-family portfolio in Manhattan, which contributed an incremental $3 million and in addition to that, we had strong performance in our hotel operations, which contributed an incremental $17 million in the quarter. Now, turning to our proportionate balance sheet. As we highlight on page 10 of our supplemental, our investment properties plus developments were valued at almost $55 billion at the end of the quarter. That was an increase of $5 billion since the end of 2014. This increase is largely attributable to the Canary Wharf acquisition, which added $4.7 billion to commercial properties and almost $800 million to developments. And in addition to that, we had $600 million of fair value gains across our portfolio. These increases were offset by asset sales primarily in our retail sector of $400 million and the impact of weaker foreign currencies of almost $1 billion. We finished the quarter with a proportionate debt balance of $28.6 billion, which increased mainly due to the acquisition of a further interest in Canary Wharf and the proportionate consolidation of our 50% interest. With relatively little property debt coming due in 2015, we are focused on opportunities to refinance 2016 and 2017 maturities to lock in term and the low interest rate environment we are currently in. In addition, we are focused on reducing our corporate debt balance over the next two quarters with proceeds from the sale of stabilized assets as we've mentioned previously. At quarter end, our partnership capital was little over $20 billion resulting in a proportionate debt to capitalization that was 52%. On page 46 of our supplemental, our group-wide liquidity dip slightly from $5.2 billion at the end of last year. But remained at healthy $5 billion. This decrease was largely due to the investment of $1.6 billion of the proceeds raised from our recent preferred unit issue into our Canary Wharf joint venture and office platform. This decrease was partially offset by an increase in corporate liquidity as we paid down our corporate credit facility and added a new $1.25 billion construction facility to fund the majority of the capital required to complete the $1.9 billion office tower at our Manhattan West development site. Finally, our Board of Directors declared a quarterly distribution of $0.265 per unit to be paid at the end of June, which is consistent with the dividend paid in March and represents a 6% annualized increase over distributions in the prior period. Now with that, I'll turn the call back over to you, Ric.

[Ric Clark:]

Thank you, Bryan. We started 2015 with a number of specific strategic objectives and I'm pleased to report that during the first quarter, we produced significant achievements again those objectives. One of those was to move our significant pipeline of development projects forward. This is important as these projects, many well advanced, will add meaningfully to our anticipated future earnings growth. We achieved a major milestone against this objective at our 7 million square foot Manhattan West project in New York City's Hudson Yards district with the signing of an anchor tenant for the first office tower. To date at the Manhattan West site; we've finalized construction of the platform effectively site, we've commenced the redevelopment of Five Manhattan West formerly known as 450 West 33 Street where we are installing a new facade and lobby among other improvements. We launched construction of an 844 unit residential tower earlier this year and most recently announced the signing of the anchor lease with Scranton to launch One Manhattan West, the first of two 2 million square foot office towers. In light of this progress, we were able to secure construction financing totaling $1.2 billion for this office tower and are essentially on our way advancing all aspects of this project except for Two Manhattan West, our second office tower, which will proceed once a pre-let is secured and significant leasing has been achieved at One Manhattan west. So when complete, our $4.5 billion Manhattan West project will include two new and one redeveloped Class A office towers retail rooftop gardens, restaurants, cafes, and a luxury residential building. A 2 acre public park will transect the site and will be curated with an active arts and events program by the Arts Brookfield Group, similar to our Brookfield Place projects around the world. With this project in full motion, we now have over 7 million square feet of office development underway, 51% pre-leased on average. These projects are projected to cost approximately $4.6 billion in total and are expected to come online over the course of 2016 to 2019. And as I said, these are penciling out to generate meaningful incremental NOI at stabilized levels of approximately $330 million per year. Another key goal this year for us is to continue to rationalize the structure of our various investments to enhance the value and transparency of our holdings. We've been working on this goal as well and have been successful focusing on Canary Wharf in London. You'll know that for over a decade we had held a minority stake in Canary Wharf Group and while we have been pleased with the long-term results of our investment, we had limited insight and no input into the strategic plan of the business and its growth potential. Working towards our goal last December with a leading sovereign wealth fund, we launched a bid to take control of Canary Wharf. In early February, it was announced that our offer has been accepted allowing us to move ahead with the acquisition. And last week, we concluded this transaction giving us a 50% interest in a world-class collection of operating assets and development sites. Canary Wharf remains one of the most treasured property estates in the world. With the transaction now concluded, we're working with our JV partner and the Canary Wharf Group management team to advance the substantial development pipeline and to realize the full potential of the site for our tenants and stakeholders. We'll provide further detail on Canary Wharf's future plans including the 11 million square feet of future mixed-use development over the course of this year beginning with an investor tour in London on May 19 and 20. If you haven't already registered, we invite you to join us if you can as it should be a pretty informative and worthwhile event covering both our Canary Wharf investment and our investments in the City of London. Please reach out to Matt Cherry if you have any questions and if you're able to join us. Our third main objective for this year was to execute on our capital recycling initiatives. Investor demand for high quality stabilized real estate continues to be robust. I don't think that's news to anybody. Capitalizing on this, we've completed or are well advanced with several transactions to monetize positions in mature assets including the sale of interests in select properties in Seattle, Boston, Washington DC, and London. Net proceeds of close to $1 billion are expected from these initiatives by the end of the second quarter. Overall, our office sales program in 2015 is expected to produce net proceeds of approximately $1.5 billion. Proceeds from our asset sale and other liquidity initiatives will be used to pay down the debt from our Brookfield Office Properties acquisition facility to pay down draws on our short-term corporate lines of credit and to further fund our development projects. So, good initial progress on our stated strategic objectives for 2015. We'll provide further updates on these as the year progresses. Moving to a review of sector highlights for the quarter, I'll start with our office division which had a solid quarter. During Q1 we leased 1.9 million square feet of space in our core office portfolio increasing global occupancy by 30 basis quarter-over-quarter to 92.5% and capturing healthy market rent increases in the process. Manhattan and London continue to be markets that are performing incredibly well. As mentioned earlier, we have been very active at our Manhattan West development and the retenanting of Brookfield Place New York Downtown is essentially complete. Our London portfolio and team continue to outperform in response to healthy tenant demand. A good example of this is Moor Place, a property we acquired in December of 2014. Moor Place is a new building adjacent to our London Wall development project that was only 7% leased upon our acquisition. We're pleased to report that over the four months that we have owned this property, we have brought this 232,000 square foot building to 94% occupancy with leases out of the remaining 6%. So, expecting in the very near-term we have that property fully leased. So, a lot of success for us in New York City and London, which will support earnings growth for us in the future. Like our office operations, our retail and regional shopping mall investments had a strong quarter. General Growth Properties, which represents our largest investment in the retail sector, continues to execute its focused strategic plan, which has included expansion into street retail. Earlier this month, GGP announced along with co-investors the acquisition of the iconic Crown Building at 730 Fifth Avenue in New York City for approximately $1.8 billion. GGP's repositioning plan for this asset includes a reconfigured lobby and an increase in the high value square footage along Fifth Avenue. In addition, GGP acquired through a 50-50 joint venture with Sears 12 department stores within its malls from Sears. GGP will redevelop and reposition some of these stores capitalizing on the real estate premium of in-line retailers. Investors continue to show a strong appetite for high quality US real estate and have been allocating an increasing portion of their capital into such properties including the region shopping centers. In light of this, General Growth Properties recently sold the two transactions interest of 25% and 12.5% respectively, in Ala Moana Center in Honolulu valuing the property at $5.5 billion. GGP's redevelopment and expansion of Ala Moana continues to outperform expectations and should prove to be a successful high yielding venture for all the partners. Within Brookfield Property Partners direct holdings, in March we unveiled our new dynamic and curated retail center at Brookfield place New York, which is transforming downtown Manhattan into a premier luxury fashion, dining, and cultural destination. At this center, we recently held the grand opening celebration for many of the shops including Le District, a 30,000 square feet French inspired marketplace. Over 60% of our luxury and aspirational retailers have opened with the balance coming online shortly. Saks Fifth Avenue will open downtown Manhattan's only full-line department store in early 2016. Eight signature restaurants will open at Brookfield Place New York throughout the year many from highly acclaimed celebrity chefs. And I'd say also that many of our new office tenants at this center have begun occupying their space, which they will continue to do as the year progresses and shortly we'll have very full occupancy in this project. In 2007 we set out to create a number of showcase properties in many of the world's most important cities with the rebranding and renaming of BCE Place in Toronto as Brookfield Place Toronto. With the redevelopment and retenanting of Brookfield Place New York essentially complete, we're happy to include this project as one of our premium showcase properties in our global portfolio. I know several of those listening on the call have been to Brookfield Place New York recently for property tours and for those that haven't, please come down and take a look, the transformation of the center has really been astounding. If you happen to be visiting Toronto or Perth, please stop by those Brookfield Place properties as well. And soon we'll be opening Brookfield Place Calgary and we've also been exploring other international cities to add this concept to as well. Although investments in the office and retail sectors represent the majority of our office holdings, we do have growing investments in industrial multifamily hospitality and net lease areas as well. These investments are primarily held through our participation in Brookfield managed real estate funds. At this time, Brookfield's $4.4 billion real estate opportunity fund is essentially fully invested and the focus for this fund has shifted to maximizing the value of this portfolio. As monetizations occur, Brookfield Property Partners anticipates realizing meaningful opportunistic returns on its $1.3 billion participation in this initiative. In addition, in the past quarter Brookfield Property Partners has continued to commit and deploy significant amounts of the additional capital to opportunistic real estate investments. Recently it was announced that a Brookfield real estate fund in which Brookfield Property Partners is the largest investor had entered into an agreement to acquire Associated Estates Realty Corporation, a US multifamily company. Earlier this month, the Board of Directors of Associated Estates recommended to shareholders to accept Brookfield's cash offer of $28.75 per share. That correlates with a gross transaction size of $2.5 billion. The ultimate equity commitment from Brookfield Property Partners would approximately $200 million successful, the transaction should close in the second half of 2015 and will add over 15,000 high quality multifamily units to our portfolio. Associated Estates portfolio overlaps with many of our existing multifamily markets and we see attractive opportunities to leverage our existing in the Associated Estates platforms to generate the best risk adjusted returns within these assets. We also continue to acquire assets opportunistically in developing markets as well such as Brazil, a market that Brookfield has been invested in for over 100 years. Notwithstanding the short-term problems the country is facing; the growing middle class, evolving economy, and maturing political system has given Brookfield the ability to earn excellent returns by staying committed to our long-term disciplined and value-oriented approach. Given the headwinds created by the weakness in commodity prices, we are seeing numerous opportunities to invest in Brazil. To that end, we recently entered into an agreement to acquire an interest in a premier quality portfolio of seven essentially new office buildings in Sao Paulo and Rio. Now these two initiatives, both Estates and these office assets that we're pursuing in Brazil, are still in relatively early stages so we're limited in what we can say. But I will say that we're very excited about both deals and think they will prove to be accretive investments for Brookfield Property Partners. In terms of a more macro outlook on our markets, overall our office and retail properties continue to perform solidly and office vacancies are shrinking, rental rates are moving up, concessions are tightening, supply is in check for now, and the near term looks very promising. London along with most of the US markets have been particularly strong, we're seeing office occupancy levels and rents trending towards historical levels. Demand for office space has weakened in Calgary, Houston, and Perth; cities as the economies are driven by oil and gas companies or those involved in commodities. However, investments in these cities make up a small portion of our portfolio and the overall impact of lower energy and commodity prices we believe is a net benefit to the balance of our holdings as is in the case of consumer spending, which helps our regional retail centers. In retail, the majority of our tenants are performing well and experiencing sales growth. Lower energy has helped fuel consumer spending. Our mall occupancy remains high notwithstanding a higher than usual volume of bankruptcies. The most compelling attribute of our current portfolio is that irrespective of positive or negative market conditions, we have a defined path to grow our NOI by over $1 billion by 2020. About half of this growth will come from the completion of the development and redevelopment projects that I mentioned earlier, which are already well underway. The balance is a combination of leases that have been signed, but have yet to commence as well as opportunities to capture rent increases on our below market leases upon expiration and by also normalizing our office occupancy to historical averages. On top of all this, we should see further improvements in NOI as we monetize our opportunistic and mature investments, redeploying this capital into more accretive initiatives. So, just to sum it up. We feel that we're on track. We're excited about Brookfield Property Partners' near and long-term prospects. And with those comments, operator, we'd be happy to field any questions from analysts or investors.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Mark Rothschild with Canaccord.

[Mark Rothschild:]

Hi, good morning guys. Maybe, Ric, could you expand on the office sales you spoke about that the market's somewhat mature. Can you maybe talk about are the sales driven more by the goal to reduce leverage or is to take advantage of values in the market and how does that compare to the returns you're getting on some of your new investments?

[Ric Clark:]

Good morning, Mark. I'd say the goal is actually driven by both those things. We do want to reduce leverage in the Company and we think that it would be a worthwhile thing to do. But additionally, these are mature assets. A big part of our plan is to recycle capital not necessarily selling 100% of assets, but selling down our interest in them and redeploying it into opportunities that we think will be more accretive. So, just basically working to create value for unitholders.

[Mark Rothschild:]

And is there a plan or a target for leverage that you're looking at in the next year or two?

[Ric Clark:]

Bryan, you want to speak to that?

[Bryan Davis:]

Yes, I don’t know if we have a specific target, but what we have been fairly transparent about is the $3 billion of corporate leverage that we currently have, half of which relates to the acquisition of BPO and the other half is our credit lines. We would like to bring those balances down. If we are able to do that, I think we'll reduce debt to market capitalization to below 50% and I think on a go-forward basis, we feel comfortable maintaining it at those levels.

[Mark Rothschild:]

And then in regard to Brazil where it seems like you found some interesting opportunities, can you maybe expand on the properties you're buying as far as the value and the cap rates and what you see for fundamentals over the near term in that market?

[Ric Clark:]

Mark, that as well as the apartment acquisition are all sort of have been worked through. I think we want to be a little bit careful about giving too much detail at this point. Of course we'll have a more fulsome disclosure once we're able to conclude and assuming we are able to. But in Brazil, I think in our view the emerging middle class is huge, the demographics you can't really argue with, and we do see an opportunity within the office sector to essentially put our platform behind a collection of high quality assets in order to enhance performance. A number of our global tenants have sort of talked to us before about participating in developing markets where they all lease space. They find that the management of those that they do business with is inconsistent certainly from a New York standard standpoint. So, we think that there's opportunities there. These properties that we're looking at in Brazil are all new, they're all virtually new; I think they were all built in the last four or five years so they are very high quality. Some are fully leased, some are almost fully empty. So, I think similar to the Moor Place property that we bought in London, there's an opportunity for us to come in and use our relationships and get properties leased up in a hurry. As you can imagine in an economy that has slowed down a little bit and it is struggling with inflation, demand is somewhat less than historical average. But again with our relationships, we think there's certainly the ability for us to outperform the market. Brian Kingston, if you're on the phone, anything you want to add to that. I talked a lot, but anything you want to add.

[Brian Kingston:]

No, I don't think I have anything to add, Ric. As you said, the fundamentals are pretty challenging for the next couple of years in Brazil, but we're seeing some pretty good opportunities to acquire assets at good value and we think we have a longer-term view and particularly with the currency is today. This is a very attractive place for us to be putting our capital to work right now.

[Mark Rothschild:]

Okay. Thanks a lot.

[Ric Clark:]

Okay, Mark, thanks.

[Operator:]

Our next question comes from Mario Saric with Scotia Bank.

[Mario Saric:]

Hi, good morning. Just with respect to Brazil, Ric, I know you mentioned that you're limited in terms of what you can say. But you just closed the $20 million equity requirement for AEC, can you give us the similar number from a BPY standpoint for the Brazilian office portfolio?

[Ric Clark:]

Brian, do you mind responding to that?

[Brian Kingston:]

Mario, it's just $100 million at BPY share.

[Mario Saric:]

Okay. And then maybe just coming back to the balance sheet. There's a lot going on with the Company right now, you're selling a lot of assets at very low cap rates and you are looking to - there's a lot of opportunities whether it's in Brazil or in the US in terms of value-add acquisitions. You've indicated that the $1 billion of net proceeds will go towards debt repayment. And I'm just wondering kind of over the medium to long term, how do you balance kind of reducing leverage versus entering into interesting acquisitions that may be a part of [indiscernible] real estate client with trading at a 17% or 18% discounts to your disclosed NAV? How do those three things kind of combine in terms of your capital structure policy going forward?

[Bryan Davis:]

I'll just make one opening remark and then Brian and Ric can chime in. But as it relates to reducing leverage, I think one of our main focus is to deal with the leverage that we put in place to acquire the Brookfield Office property portfolio and we think that is the right thing to do in terms of sort of rightsizing our corporate debt. We will – we always use our corporate credit facilities as opportunistic capital in the event that we pursue a transaction and want to execute in advance of raising funds. And so as an add-on to paying down our acquisition facility to the extent that in the near term we raise incremental proceeds, we'll focus on paying down our corporate credit facility. I think those are kind of the major focus, but outside of that there is a number of other opportunities that we pursue where we're looking to sell out of stable mature assets and reinvest on an accretive basis which has been a normal part of our business going forward.

[Ric Clark:]

Yes, I think just to add to that comment. Our stated goal for Brookfield Property Partners is to deliver 12% to 15% total return, hopefully the higher end of that range, to our unitholders and we do that through a combination of core plus value-add and opportunistic investing. The core plus and value-add type of deals are typically done directly on the balance sheet of Brookfield Property Partners and the opportunistic transactions just by their nature are little more risk also typically larger deals are done in a fund format in a Brookfield sponsored fund. But the combination of all of those initiatives are intended to generate the best kind of risk adjusted returns in that strike zone that I mentioned. So, selling something at a 4% cap rate or a 5% cap rate and redeploying it into something that's expected to earn 20% levered return seems to be a pretty good initiative for unitholders.

[Mario Saric:]

Yes, thank you. I would totally agree with that. I guess I'm just trying to understand with respect to your mature portfolio, you identified $2 billion as potential sales previously you had. Is there upside to that number? If for example in advance next fund is a $9 billion fund and your core investment is 30% so you're looking at a $2.5 billion to $3 billion type of core investment. How much upside is there to the mature assets so that you can access that source of capital as opposed to other sources of capital on that?

[Bryan Davis:]

I think these funds are finite life funds and there is monetizations of the investments that are relevant. I'd say in the first fund we're very much focused on maximizing value and then starting to generate monetization so money comes back into us. So, there is no hard and fast rule that Brookfield Property Partners have to be 30% of a fund. Our intention is always to be in a position to be a significant participant in the fund. But if the next fund is $9 billion, there's no reason why we couldn’t be $2 billion if that's what the internal resources were at the time. So, part of the process into how much money we put in the fund is what liquidity we think we'll have available looking at monetizations that are coming in over a period of time that we expect to make new investments.

[Mario Saric:]

Okay. That makes sense. My last question is just, Ric, in the past you've highlighted an 8% to 11% FFO per unit annual growth target. Given all the capital recycling that we are seeing in terms of income producing assets, the low cap rates, and redeployments and developments which are more valuable, but they take a bit of time to get online. Is that a number that is achievable in the near term or is that 8% to 11% let's say a five-year average?

[Ric Clark:]

Yes, I think I'm sure we've sort of said before in prior calls that 2015 and maybe the beginning of 2016 are transitional years for us. We've done a tremendous amount of leasing and have been involved in a tremendous amount of redevelopment and also development and all of those things are going to add very meaningfully to our NOI. As I said in our prepared remarks, we've got visibility on an increase in NOI of $1 billion just on things that are in the works right now. And so, I think it's over a longer period of time that's our expectation, but certainly 2015 and the beginning of 2016 are transitional periods for us.

[Mario Saric:]

Okay, thank you.

[Ric Clark:]

You are welcome.

[Operator:]

[Operator Instructions] Our next question comes from Tom Catherwood with Cowen & Company.

[Tom Catherwood:]

Yes, good morning everybody. Just a quick question from me. Looking at your portfolio of opportunistic investments, you hold an interest in 12 hotels in North America and Australia, obviously it's a small part of your overall portfolio. I was hoping you could talk a little bit about your plans for the hotel business and whether you have any interest in expanding these holdings, especially given reports of high profile M&A opportunities in the market right now?

[Ric Clark:]

Yes, good morning Tom. So when it comes to hotel investing, I say we view investing in the hotel sector very much opportunistic versus a core holding. It's not to say we'd never find a hotel that we want to hold on a long-term core basis, but are investing in hotels. Given the nature of the industry, the fact that leases are daily and that we view these opportunities as we're looking for hotels that we can come in and they have a flawed capital structure or through aggressive asset management in changing thought of the business plan we can create value. So our goal is to buy assets like these, pick them up, turn around and then put them in the hands of good experience operators and move on to the next one. So our expectation is as long as the opportunities are there and are good, we will continue to invest in this sector. So we hold 12 hotels now, that number could go up or down in the near term through the acquisition that was done earlier up there, the hotel asset manager; we expect to be in this business and look for more opportunities.

[Tom Catherwood:]

Got it. Appreciate it.

[Ric Clark:]

Okay thank you.

[Operator:]

Our next question comes from Neil Downey with RBC Capital Markets.

[Neil Downey:]

Hi, good morning all. Ric, I believe you mentioned on the asset sale side proceeds of $1 billion or more in the relatively near term, I guess I understood the first half of the year. Is that $1 billion on a gross 100% basis or is that $1 billion net to BPY?

[Ric Clark:]

That’s net to BPY. Okay.

[Neil Downey:]

And along the same lines, Bryan Davis, maybe you could just clarify or help me understand specifically assets held for sale are $2.5 billion on a consolidated basis. What's the big delta between the $2.5 billion consolidated versus $1.1 billion at BPY share.

[Bryan Davis:]

So the $1.1 billion is equity, oh so hold on what is the difference, because we are selling partially interest, lot of these assets that we are pursuing at least the ones we've identified for to close in the next couple of quarters. So, the difference is really just the maintenance in our proportionate interest after selling partial interest in those assets.

[Neil Downey:]

Okay. All right. Thank you.

[Ric Clark:]

Thank you, Neil. End of Q&A

[Operator:]

And it appears there are no further questions at this time. I would like turn the conference back to management for any additional or closing remarks.

[Ric Clark:]

Thank you, operator. Thank you everyone for dialing in and joining us today. We look forward to meeting with many of you in London on our London Property Tour and of course updating you as the year progresses. So, thanks in the mean time for your support.

[Operator:]

This concludes today’s conference. Thank you for your participation.