Brookfield Property Partners L.P.
Q4 2015 Earnings Call Transcript

Published: 5 Feb 2016

[Operator:]

Good day ladies and gentlemen. Welcome to the Brookfield Property Partners’ Fourth Quarter and Full Year of 2015 Results Conference Call. As a reminder, today’s call is being recorded. It is now my pleasure to turn the call over to Matthew Cherry, Vice President of Investor Relations and Communications. Please go ahead.

[Matthew Cherry:]

Thank you. 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’ll turn the call over to CEO of Brookfield Property Partners, Brian Kingston.

[Brian Kingston:]

Thank you, Matt. Good morning everyone. Thank you for joining the 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 2016. Bryan will then provide an overview of our results for the quarter and the year just ended. And following those comments, we’d be happy to take questions from any analysts or investors on the call today. So as you would have seen in our release this morning, 2015 was a transformative year for Brookfield Property Partners. We recorded solid financial results, driven primarily by our U.S. office and retail operations, as well as contributions from new investments that we’ve made. As a result, I’m pleased to report the Board of BPY approved 5.7% increase in our quarterly distribution to unitholders to $0.28 per unit beginning with the March distribution given where our units are currently trading that equates to about 5.3% dividend yield. At this time last year, we set out four main strategic priorities for 2015 and I’ll recap a few of our accomplishments related to each. The first priority was to be active in recycling our capital. The breadth and scale of our global platforms provide us with a unique ability to allocate capital around the world to those areas where we see the best returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing our returns. Over the course of the year, we took advantage of strong pricing and private markets to sell down partial interest in a number of our assets including the Manhattan West development in New York as well as stabilized office buildings in London, Melbourne, Toronto, Boston, and Washington, D.C. On average, these sales took place at valuations that were 13% above their IFRS carrying value at the beginning of the year, and produced over $2 billion of net proceeds, which have been redeployed elsewhere including buying our own units. The prices achieved on these sales clearly demonstrate that if anything our IFRS value per share provides a conservative view on the value of our high quality real estate portfolio. The second priority was to reduce corporate leverage and increase our liquidity. And to that end, we utilized a portion of these sale proceeds to retire the remaining $650 million balance of our $1.5 billion BPO acquisition facility in the fourth quarter, greatly enhancing our balance sheet flexibility. In recognition of the strength of our balance sheet in this improved liquidity profile, earlier this week, Standard & Poor’s assigned a BBB corporate credit rating to BPY. Our third priority was to increase the level of pre-commitment on our development projects. Our ground-up developments and many of the world’s most dynamic markets around the world continue to attract world-class occupiers. In the City of London and New York City, we kicked off two office development projects totaling over 3 million square feet of space as a result of leases we signed with RBC and Skadden. In total, we have 6.5 million square feet of active office developments underway, which are on average 50% pre-leased. And when completed between 2018 and 2020, these projects will provide over $300 million of incremental net operating income. Our fourth priority was to rationalize our structure and the most notable initiative in this regard was the privatization of Canary Wharf in April of last year. This transaction allowed us to convert what had been a passive, non-controlling investment into a direct ownership in some of the highest quality properties and development opportunities in the world. Canary Wharf is an irreplaceable asset with tremendous upside and we’re already seeing the benefit of our more active hands on management of the estate with the launch of several development projects over the course of 2015. So in short, a pretty busy year, but overall, we are very pleased with the progress we’ve made with respect to our strategic goals. I’ll now turn the call over to Bryan for a review of how all of that translated into our operating results. And then I’ll provide an overview of the market environment and our outlook for the year ahead. Bryan?

[Bryan Davis:]

Thank you, Brian. The highlights for our fourth quarter performance include Company FFO of $242 million, which compares with $190 million for the same period in 2014. On a per unit basis, FFO for the current quarter was $0.34 per unit compared with $0.27 per unit in the prior year. Net income for the quarter was $863 million, or $1.21 per unit. Total return for the quarter, which is calculated as our FFO plus capital appreciation was $1 billion. And on a last 12-month basis, we have reported a total return of $3 billion, which represents an annual return in line with our target of achieving a 12% to 15% return over the long-term. On a year-to-date basis, Company FFO was $389 million, or $1.18 per unit compared with $739 million or $1.11 per unit for the same period in 2014. This increased FFO combined with the appreciation and value of our underlying assets contributed to an increase in our IFRS value per unit to $30 per unit, up from $28 per unit at the end of the prior year. In reviewing our Q4 Company FFO in a little more detail, the main drivers that contributed to the 27% growth on a year-over-year basis were in our office platform, where we finished the year with 92% occupancy, on 7.8 million square feet of total leasing, and where we were able to capture mark-to-market spreads of 35% on new leases and renewals. We had an increase in same property net operating income in natural currency of 7%. In addition, we have had contribution from the acquisition of Canary Wharf in the first quarter of 2015. We also did earn termination income and incremental fees from recent joint ventures in the quarter, but this was offset for the most part by incremental one-time increases in our general and admin expenses that weren’t adjusted for in Company FFO. In our retail platform, where our Class A mall portfolio maintained a healthy 96% occupancy rate, and achieved positive leasing spreads of between 8% to 10%, we had an increase in same property net operating income of 5.5%. In our opportunistic investing activities, our earnings benefited from the allocation of almost $1 billion in incremental capital to Brookfield sponsored funds, where we grew our multi-family portfolio from 28,000 units to almost 40,000 units during the year, mainly through the successful acquisition of Associated Estates in the U.S. In addition, we more than doubled the number of hotel rooms to 18,000 through acquiring Center Parcs in the UK. These pluses were offset by a reduction in FFO of approximately $15 million in the quarter from our exposure to foreign currencies that we can relative to the U.S. dollar and the cost of incremental capital used to fund this growth. In arriving at company FFO, which we detail in our supplemental, amongst our standard adjustments for the net contribution to company FFO from our GGP warrants and the add-back of depreciation of non-real estate assets, we adjusted for $11 million in transaction costs related to the acquisitions of Potsdamer Platz in our core office platform and through the investment in Brookfield’s second opportunistic real estate fund of a portfolio of office properties in Brazil. Included in net income, we recorded fair value gains of $854 million during the quarter. Just over 60% of these gains were from our office portfolio, where we continue to see improved cash flows and transaction metrics mainly in properties located in our Australian and Canadian markets. Lending support to our fair value process, we executed or are in the process of executing on five asset sales in our office portfolio in Melbourne, Sydney and Vancouver, which are at prices over 30% higher than we had valued the properties at just prior to starting the sales process. We also had $290 million in value appreciation in our development properties as we completed two properties in the quarter and turned over two tenants

[Brian Kingston:]

Thank you, Bryan. Real estate fundamentals in all of our key markets remained positive with some markets like London and New York City, particularly strong throughout the majority of 2015, although we are sensing a leveling off in some of those markets over the past couple of months. In our commodity driven markets, the price of oil and other commodities has began to have some impact on tenant demand. However in the near-term, we are largely insulated with high occupancy and long-term leases in place, particularly in Calgary, where we have an average remaining lease life of over 10 years. Headwinds created by the strength of the U.S. dollar over the past 12 months have offset some of the gains related to our real estate activities outside of the U.S., which were otherwise strong in local currencies. 2015 featured a significant divergence between the prices of publicly traded real estate companies and private real estate valuations. Late last year, the U.S. fed began a deliberate measured movement upward in interest rates. However, it’s our view that any further interest rate increases are likely to be gradual. And as a result, real estate continues to provide a very attractive investment alternative to fixed income. And if anything, the increased volatility, particularly in public markets, has created a much more favorable investment environment for us. In 2015, this volatility allowed us to privatize the multifamily REIT and a discount in net asset value, as well as acquire a portfolio of 90 self-storage assets at a very attractive valuation in and off market transaction. We’ve also been very active in Brazil, closing on the acquisition of seven high quality office properties in Rio and Sao Paulo in the fourth quarter at a significant discount to replacement cost. Late in the year, we closed on the acquisition of Potsdamer Platz, a 3 million square-foot mixed-use estate in Central Berlin. We’re in the early stages of developing a capital plan for the asset and they’ve already begun leveraging our asset management and operating expertise to unlock the value of this great piece of real estate. Since taking over the property in December, we have already completed over a 130,000 square feet of leasing with another 200,000 square feet either under contract during serious discussion. Within our core retail portfolio, the focus continues to be on redevelopment initiatives. Over the past five years, GGP has invested over $1.5 billion in these types of projects at an average unlevered return of 10%. We have a further $1.1 billion of projects currently underway and expect that we can continue to put $400 million to $500 million to work each year at similar returns, which will continue to drive earnings in the years ahead. Our priorities for the year ahead remain largely unchanged. We will continue to enhance the flexibility of our balance sheet increasing the capacity and extending the maturity profile of our corporate facilities, as well as seeking ways to reduce our overall cost of capital. We continue to focus on increasing occupancy in our core office and retail portfolios to above 95 – above 94%. And then we aim to recycle between $1 billion and $2 billion of net equity from mature assets to fund new investments and enhance our liquidity. And if we continue to generate cash in this way should our units continue to trade at a meaningful discount to NAV. We plan to continue to repurchase them as we’ve done over the course of 2015. So with those remarks, we are happy to turn the call over to questions from analyst and investors. Operator?

[Operator:]

Thank you. [Operator Instructions] And we will take our first question from Sheila McGrath with Evercore ISI.

[Sheila McGrath:]

Yes, good morning. I was wondering if you could address Brian, there is increasingconcern on any change in investor appetite for commercial real estate and also the availability of the debt markets. I was wondering I see you did a good financing at 250 Vesey Street, but just wondered if you could address big pictures, you’ve noted any change in interest levels and availability in the debt market.

[Brian Kingston:]

Sure. So I’ll maybe answer the first question on investor appetite and then let Bryan talk a bit about debt markets and what we’ve been experiencing there. But as we certainly said in the prepared comments, certainly on the public market side, there has been a large sell off generally in REITs this year; we have not seen the same sort of sentiment permeating the private markets. There is still a very strong demand for real estate in all the major markets that we are in and we’re obviously fairly active in number of sale processes. There is certainly a little bit more talk within markets as to pricing and whether or not that demand will slowdown but we’re still seeing a lot of interest from the large offshore investors particularly to invest in the United States today and given the economic outlook here.

[Bryan Davis:]

As it relates to debt market Sheila, may be two comments. In Europe, Canada, Australia and the U.S. the bank lending remains relatively strong and active. Spreads are increasing a little bit, but I think all-in costs for five to seven year financings remain in sort of the 4% range. I would say that the debt capital markets in each one of these regions including the U.S. in particular the CMBS market; it’s probably a little bit choppy. As a result of issues, we’ve seen with oil prices and China volatility in the early part of this year. You can still get stuff done, but spreads are widening in those markets probably in the neighborhood of 50 to 75 basis points.

[Sheila McGrath:]

Okay. And also you mentioned in your prepared remarks that, discount that most real estate stocks are trading at, I was just wondering, if you could help us understand. How you can capitalize on that opportunity, when BPY shares are also trading at such a discount? Would you have to do – execute in the funds in the opportunistic bucket or just help us understand that?

[Brian Kingston:]

Yes. I think, it’s one of the unique things about our business relative to some others is the number of levers that we have to pull to be able to execute on those kind of transactions. And I say that because we have – as you mentioned our opportunistic funds strategy, which has sort of a formal partnership with a number of institutional investors that provides us with lot of dry powder to take advantage of public markets. We have the ability to sell assets and redeploy that cash into more – into these higher returning investments. As opposed to having to distribute all of that cash out and be reliant on where our shares are trading to make new acquisitions. So you’re right in that our stock trading at a discount takes away one of the potential ways of making those acquisitions but we have not had any trouble being able to source capital to make some great acquisitions, Associated Estates last year was a good example of that.

[Sheila McGrath:]

Okay, last question, in terms of asset sales in 2016. Could you help us understand what bucket will this be JV’s and developments or core assets in specific markets?

[Brian Kingston:]

I think the nature of the assets will be very similar to what you saw in 2015, it will sort of be a little bit of all of the above. Generally, what we’re trying to do is sell those – sell down interest in those stabilized assets, where we think the upside is more limited than in some of the new acquisitions that we’re making. But also we did sell a half-interest in Manhattan West, where it had reached a point where it would been substantially be risked. But would become a large capital commitment to complete the development from that stage so it’s a little bit of risk mitigation on the development side as well as selling down assets, where we think the returns are lower.

[Sheila McGrath:]

Okay, great. Thank you.

[Brian Kingston:]

Yes. Thanks, Sheila.

[Operator:]

We will take our question from Mark Rothschild with Canaccord.

[Mark Rothschild:]

Hi, good morning guys. Maybe just following up on your comments about valuation and unit repurchases

[Brian Kingston:]

It’s a – I guess it’s a balance Mark. Like we do have a number of investment opportunities that, as you mentioned that we’ve been executing on and one of them is buying back our stock. So, I’d say if it continues to trade at a discount our plan would be to be more active. I’m not sure I’d want to put a specific number on it. But we do continue to see value and in fact as the assets have increased in value over the last year and the share prices have been largely unchanged that discount has gotten even bigger. So, I would say if it stays where it is, will be more active, but I’m not sure I want to put a number on it right now.

[Mark Rothschild:]

Okay. There have been reports in the press that Brookfield is looking to be aggressive with taking advantage of opportunities to buy properties in energy-related markets, such as Calgary. I'm curious if you can comment to that as far as to what extent that's true. And if you are seeing any significant opportunities in these markets that you're looking at to buy office properties?

[Brian Kingston:]

I guess, it’s a general comment. We consider ourselves to be value investors and then often means being contrarian. And so obviously, where – what’s happening with energy markets right now is creating a lot of dislocation in some of those markets. So it’s logical I guess to assume that we’re looking at those markets. And given we do have a fairly large presence in places like Calgary and Houston. We feel like, we’ve got a pretty good finger on the pulse of what’s happening on the ground there. So, we – I don’t think there’s anything imminent that’s noteworthy to report at the moment, but we’re certainly spending time in those markets. And there could be some interesting opportunities given what’s happen.

[Mark Rothschild:]

Okay, thank you very much.

[Brian Kingston:]

Okay.

[Operator:]

[Operator Instructions] We will take our next question from Mario Saric with Scotia Bank.

[Mario Saric:]

Maybe just coming back to this whole public versus private – you know, we've heard kind of similar commentary in terms of this wide gap between the two, not only in real estate, but we've heard it from your peers on the infrastructure side, on the power side earlier this week as well. With respect to your comment on increased volatility, especially in public markets, creating kind of a more favorable investment environment for you, does that mean that public companies are looking more interesting to you from a valuation standpoint? Or is there simply less competition from publicly-traded vehicles in terms of the investment environment, and so you can get a better deal because there's just not as many people bidding for a scheme?

[Brian Kingston:]

Yes. It’s certainly both, I think when the public companies were trading at or above NAV. They were – we were seeing them as competitive bidders in even private situations for assets or portfolios. And certainly given where everyone’s stocks are trading today. We’re seeing fewer and fewer of them competing with us for acquisitions. But also, as you mentioned it creates some opportunities with the public companies themselves to potentially privatize them or potentially acquire assets from them. They can utilize for other purposes and they may be more willing to sell assets that they have not previously been willing to do so. But I think it’s a little bit of both Mario

[Mario Saric:]

I see, okay. And then coming back to your comment with respect to sources of funding for potential acquisitions – the unit price obviously trading at, I think it's a 28% or 29% discount to your revised IFRS, and AV hasn't been that wide, with the exception of maybe a couple days earlier this year. How do you think about that discount to NAV versus, let's say, a very strategic acquisition? So, for example, back in 2013 BPY was trading at roughly 25% discount to NAV – IFRS NAV – and issued shares to buy BPO. So a very strategic transaction and in, hindsight a very good one but looking forward, how do you think about that disconnect? Is there something strategic enough in the pipeline or that you see out there that would have you considering doing a meaningful amount of equity even at the current valuation

[Brian Kingston:]

Well. As you mentioned, BPO was strategic and so there were particular reasons behind why we did that. I’d say at the moment there is nothing that I would – if your question is there anything imminent on there that we were actively pursuing. I don’t – and our business plan doesn’t really – doesn’t require us to issue equity. As we mentioned we’ve got a lot of different sources of capital whether it’s partnering with our institutional investors or selling assets. And so I would say that we’d think about it and it’s always a relative value proposition and so there may be certain situations where the assets that you are acquiring at a bigger discounts that where our stock is trading. It may make sense to issue equity as part of that. But as we see it right now, it’s far more accretive for us to sell assets at premiums to our IFRS value and use that cash to fund acquisitions rather than issue equity at a discount.

[Mario Saric:]

Okay, understood. And then maybe two more quick questions, more detailed – maybe for Bryan Davis. Just on the fee income, as you noted, it was up quarter-over-quarter. Is the annualized fee income that you're disclosing a pretty good run rate to use going forward?

[Bryan Davis:]

I would say that, so as you mentioned our fee income went from 18 to 27, 27 maybe a bit high, but it’s been around that range. So I’d say a middle point would be good for a run rate. As I indicated a number of the transactions that we executed in the second quarter and third quarter from an asset sale perspective, and in early part of the fourth quarter were joint venture transactions, were on the income producing properties we earn our asset management fees and as it relates to our development properties we’re in development fees associated with that. In addition, the transactions that we executed on in the latter part of the fourth quarter had similar fee profiles as well. So our expectation is that as we continue to execute these joint ventures that fee income will increase.

[Mario Saric:]

Okay. And then maybe last question

[Ric Clark:]

So, first on stabilization.

[Bryan Davis:]

Yes, I don’t think I would read too much into that, Mario, as we kind of look across our portfolio and make sure that we have defined stabilization on a property-by-property basis in a consistent manner, sometimes we are moving those dates. I would say it’s nothing more than just making sure that we’re presenting to the unitholders the most accurate date for stabilization.

[Ric Clark:]

So, Mario, it’s Ric. On the leasing percentage, I mean, the one thing I would mention is that since the quarter end, we launched another development in Dubai, ICD Brookfield Place. So that’s actually going to bring our overall lease percentage down a little bit, probably to around 45%. I don’t think we have a hard-and-fast target leasing for the end of the year. But I will say, there’s lots of activity on our major projects here. We’ve got over 2 million square feet of discussions underway at Manhattan West. Probably 40% of this new 1 million square-foot development in Dubai – we’ve got discussions underway there, and discussions with a couple of large tenants for 100 Bishopsgate in London. So our expectation and goal is certainly to make very meaningful progress by the end of the year. And hopefully, we’ll have the number considerably over 50%, but it's a little hard to say exactly at this point.

[Mario Saric:]

Okay, that’s great. Thank you.

[Operator:]

We will take our next question from Neil Downey with RBC Capital Markets.

[Neil Downey:]

Good morning everyone. Brian, can you just remind me – at year-end, how much capital had BPY committed to the private fund, and how much does that leave to go in terms of future commitment?

[Brian Kingston:]

So yes, on the most recent, so there is two funds. The first fund, we had committed $1.3 billion, and that’s fully funded and invested in, I think what you are referring to is the second fund.

[Neil Downey:]

Yes.

[Brian Kingston:]

Where our total commitment was $2 billion. That fund is currently above 40% invested, but it’s all been on a subscription line. So that will largely get funded over the course of 2016. So you won’t see it in our numbers yet.

[Neil Downey:]

Okay, okay. The deal you did in Brazil to buy that portfolio of seven office buildings – can you give us a bit more detail on that in terms of, I guess, in U.S. dollar terms, how big a deal was that and some metrics in terms of occupancy and weighted average lease term and would that be a high single-digit, low double-digit yield on costs going in?

[Brian Kingston:]

Yes, so Neil this one is done through the opportunity fund. So I’ll give you all of the – I’ll give you the deal metrics. But from a BPY perspective, we’re about a third of all these numbers. But in total, the gross asset purchase price is about $850 million. We assumed a little bit of debt on one of the properties, but otherwise largely left it on financed, given where interest rates are today in Brazil.

[Neil Downey:]

Yes.

[Brian Kingston:]

So it was, give or take, $450 million of equity in total. Going in cap rate was about 10.5% cap with 70% occupancy. All of the – so at seven buildings all of the occupancy was in is really in two properties that we’re completed in the last 12 months. Our purchase prices at about 40% discount to replacement costs. So the investment thesis here, the 70% that is leased as about and average remaining lease term, I think it’s about 12 years, its north of 10. And the remaining vacancy – we think given the basis that we have in these assets. We should be able to lease that up relatively, quickly, just given where rents are in the markets today. So we sort of assumed that it takes us a couple of years, I think we will probably able to do that a lot quicker. We obviously think that these are – this is a great time to be investing in Brazil for number of reasons. One is these assets are all three years or less old. We bought them at 40% discounts to what they cost to build three years ago, a very high quality in the best submarkets in Rio and Sao Paulo. These are exactly the type of assets that you would see us owning in London or in New York. And given the long-term nature of the lease profile in them, while we expect Brazil will likely be volatile for another year or two. These are going to be great assets in the long-term.

[Neil Downey:]

Okay. And just to be clear, I guess most of the vacancy is in two buildings?

[Brian Kingston:]

Correct, that’s right.

[Neil Downey:]

Okay.

[Brian Kingston:]

And as I say, it’s because they were recently completed and they have – haven’t leased up yet, but we’ve got actually pretty active discussions underway on both of them right now.

[Neil Downey:]

Okay. Super. One last question and it's a bit of a minor point given the balance sheet allocation. But on a proportionate basis, BPY has $1.9 billion in multifamily assets at year-end, but that was down about $300 million through fourth quarter. So am I to read in there that you sold some of the Associated Estates assets or – I didn't see any commentary, but what happened there? I think it was $2.2 billion or $2.3 billion of multifamily assets at September of 2015.

[Brian Kingston:]

Yes – so, yes, it is – the reason is because when we closed on the Associated Estates transaction earlier last year, the fund was still in its fund. We had made our full $2 billion commitment to the fund, but the fund was still in the process of closing on their investors. And so as the year progressed and other investors closed into the fund, our percentage of Associated has come down.

[Neil Downey:]

I see. Okay.

[Brian Kingston:]

Okay.

[Neil Downey:]

Thank you.

[Brian Kingston:]

Okay.

[Operator:]

Our next question will come from Michael Bilerman with Citi.

[Michael Bilerman:]

Great, thank you. Good morning. Maybe either Ric or Brian Kingston, you think back to Security Capital, when it was around in the late 1990s and the early part of the 2000s – when REITs traded at discounts to NAV, they sort of got the double discount, right? Because their underlying holdings were trading at discounts, and then people put a discount on Security Capital, which itself was a REIT. So I'm curious

[Brian Kingston:]

To be honest, Michael, we don’t spend a lot of time thinking about that. Our focus – obviously, our preference would be that the stock doesn’t trade at a discount and it trades closer to NAV. We think the best way for us to do that is to continue to execute on the business plan that we’ve got. We’ve talked about in the past our holdings of the public securities. And when we launched BPY, it was a very substantial portion of the balance sheet. Today, it’s really just GGP and Rouse. And I think Ric said a number of times we’re substance over form investors. We like the investment in those. And so the form of that doesn’t necessarily factor into our thinking. I think BPO and the potential Rouse transaction were more around either particular opportunities or where we thought there were benefits from being able to manage those businesses more closely. But the actual form of it doesn’t – we don’t spend a lot of time to thinking about it.

[Michael Bilerman:]

And as you think about the Rouse transaction, is that all funding from the opportunity fund? Or are there sidecar investors that are part of that cap structure?

[Brian Kingston:]

We would all be funded through the fund, yes.

[Michael Bilerman:]

And then as you think about the fund, you have $2 billion, which is – that's a third of the entire $6 billion total of equity commitment?

[Brian Kingston:]

It will probably – we haven’t had our final closing on it. It will end up being somewhere between $7 billion and $8 billion of which will be $2 billion. So we’re probably 25% to 28%.

[Michael Bilerman:]

And when you're saying 40% invested, are you saying that on the gross, $7 billion to $8 billion, or how should we think about that 40%?

[Brian Kingston:]

Yes, it’s a little over $3 billion has been committed to the various transactions.

[Michael Bilerman:]

$3 billion.

[Brian Kingston:]

Not including rest.

[Michael Bilerman:]

Equity or total purchase price.

[Brian Kingston:]

Equity.

[Michael Bilerman:]

Of equity. And so your remaining $5 billion of equity, call it two to three times levered – so just within the fund itself, you'll have anywhere from $10 billion to $15 billion of gross purchasing power left over?

[Brian Kingston:]

Yes. That’s probably right, yes.

[Michael Bilerman:]

And then how should we think about – you know, you talked about your selling assets, and having the fund, and using BTY equity, potentially, if the relative value makes sense. How should we think about your other sources of partners? You think about the Qataris putting substantial capital in the privatization of Canary Wharf as well as in the Manhattan West. How many more of those investors are there and their willingness to put up capital in today's environment?

[Brian Kingston:]

Well, look, there is a substantial number of them. I think we – you mentioned one in particular, but we obviously have large and deep relationships with a lot of sovereign wealth funds and other large institutional investors around the world. And I would say with where interest rates are here and in Europe and elsewhere around the world. They are increasingly looking for alternatives for fixed income. And that’s real assets whether that’s real estate or some of our other businesses like infrastructure. And they are – in many cases looking to just on the types of assets that we have, which are very long-term predictable cash flows in great cities around the world. So we see a very deep pool of capital for these types of investments. Our fund that you are referring to is targeting more opportunistic high returning strategies. But we talk to these investors and number of them are also looking to put core and core plus, capital to work, its earning more like 8% to 12% as well. And so there is number of things like a Potsdamer Platz where we had significant amount of demand from our institutional partners to participate in the transaction like that with us.

[Michael Bilerman:]

And is there any sort of, at least on the core side, preference over property sector or geography in terms of – when look at the aggregate of those partners, is there any desire to be, let's say, whether it's office, or retail, or apartments; or a certain geography, whether it's Europe or the US, where you think the appetite is the highest?

[Brian Kingston:]

I think – we think that office, retail and multi-family are probably the areas where we see the most interest, because those typically have that – it is a longest term leases in the case of retail and office or the long – the most stable and in terms of multi-family. And it’s generally in major cities in I’d say the U.S., Western Europe and Australia.

[Michael Bilerman:]

Okay. And then I just want to clarify just a comment you made when Mario asked about you talked about discounts the public stocks you are trading at, and you characterized it as potential privatization opportunities or less competition to acquire assets. And I think you said you are not pursuing. There is nothing pursuant on the privatization front currently I’ve assume that’s just outside of Rouse. Is that correct?

[Brian Kingston:]

Correct.

[Michael Bilerman:]

So all these things about GGP in the press are untrue?

[Brian Kingston:]

So I was wondering when you were going to ask that Michael. [Multiple Speaker]

[Michael Bilerman:]

I tried every which way without directly saying it. I'm surprised no one else did, everyone tried to couch it. But I figured I would just get it out the open.

[Brian Kingston:]

Look we – as we’ve said in the past, we’re happy with our investment in GGP and its current form that management team there is doing a great job focusing on the business. You know driving – we’re getting good capital appreciation and good cash flow out of it. There’s obviously a disconnect between the private markets and public markets as we’ve been talking about and I think naturally that leads to speculation generally about privatizations and whether they make sense. And so I guess we’re not surprised that that this has come out. But there’s nothing imminent, there’s nothing to report on at this point.

[Michael Bilerman:]

And you said at Investor Day that you have agreed with Sandeep not to be buying shares in the open market as they are doing their share repurchase program. Is that still the case?

[Brian Kingston:]

We are not buying shares in the open market, no.

[Michael Bilerman:]

Okay. Thank you so much.

[Brian Kingston:]

Okay.

[Operator:]

And we’ll take our next question from Sheila McGrath of Evercore ISI.

[Sheila McGrath:]

Yes, earlier this week and last week, the New York-centric office REITs were weak after some slightly more cautious commentary on the earnings conference calls. I was just wondering if you could give us your view of Manhattan right now, and commentary on Manhattan West and demand there, and also on downtown?

[Ric Clark:]

Hi, good morning, it’s Ric. Maybe I’ll answer that and Brian can jump in if he want. So on the New York, our experience is there’s still an abundance of activity. We’re less cautious, I’d say then some – on the call this week. We’re still seeing a lot of activity. For sure, tenants, I think are taking a moment or two to reflect on global what’s going on in the global market – equity market. And what else is going on around the world. And if anything maybe deals are taking a little longer to get done. But we’re still pretty optimistic. And maybe the market have sort of flattened out a bit, but we don’t see any retreat in economics or fundamentals at least from where we said.

[Sheila McGrath:]

Okay. And then on the multifamily, it’s – just so we understand, there’s some in the opportunity funds, and there’s some on balance sheet, like Manhattan West. How should we view where you’ll allocate the multifamily? Is it more the urban infill would be on balance sheet? Just help us understand where the multifamily is going to end up.

[Brian Kingston:]

Yes, Sheila so, we do have two things going on in multifamily a lot that we have done over the last several years has been done through the opportunity fund. And those transactions are typically done in suburban or infill markets around the country. But we have recently in the last year or so, started to sort buy or build Brookfield – kind of the high-quality kind of properties, similar to our office business in major urban markets. So we’ve got a couple of things going on in New York. We’ve got some apartments through Canary Wharf. We’ve got a project that may will start in the next 12 months in Downtown, LA. So those things will be done on balance sheet in some instances with the JV partner.

[Sheila McGrath:]

Okay. And do you think you’ll be targeting growth in the urban multi-family area.

[Brian Kingston:]

Yes, for sure. We’re little bit late to the multi-family game as we sort of look – look behind us in the performance of the number of the multi-family companies. But we like the factor, we like a lot. And we think it’s a good complement to our urban office business. So we will be doing more of it.

[Sheila McGrath:]

Okay. Last question, just on the Rouse bid – I know you can't get into specifics there, but I just want to reconfirm how much BPY, if you were successful, what percentage BPY would own of Rouse versus what would be in the opportunity fund? And also if you could comment on the B-mall space versus the A-mall space? It was my understanding that you're much more focused on the long term for the A-mall space.

[Brian Kingston:]

So the quick answer is should we be successful on Rouse, BPY would effectively on 50% of the company, today, we own 34%, but because so we’re not selling our one-third interest. The opportunity fund is buying the other – would buy the other two-third. And we would be one-third of that, two-thirds. So the math works out about 50%. And with respect to the B-mall space, I think we’re – clearly when we talk about GGP, and Class A-malls, and the long-term prospects for them. It’s a different proposition then for B-malls, which is a bit more of an active, an active strategy in terms of buy it, fix it, and sell. So I don’t think that we have a particular view on the long-term fundamentals of one sector versus the other, but they are – the investment strategy in each of them is quite different.

[Sheila McGrath:]

Okay. Thank you.

[Brian Kingston:]

Okay. Thanks Sheila.

[Operator:]

We have no further questions in queue at this time. I would now like to turn the conference back over to our moderator for any additional or closing remarks.

[Brian Kingston:]

Okay. Thank you, everyone, for your continued interest and for dialing in. And we look forward to providing you an update on the first quarter soon. Thank you.

[Operator:]

This does conclude today’s conference call. Thank you all for your participation. You may now disconnect.