U.S. Markets close in 5 hrs 2 mins

Edited Transcript of BPY earnings conference call or presentation 2-Aug-19 3:00pm GMT

Q2 2019 Brookfield Property Partners LP Earnings Call

Hamilton Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Brookfield Property Partners LP earnings conference call or presentation Friday, August 2, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brian William Kingston

Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited

* Bryan Kenneth Davis

Brookfield Property Partners L.P. - Managing Partner of Rest Estate & CFO - Brookfield Property Partners Limited

* Matthew P. Cherry

Brookfield Property Partners L.P. - SVP of IR & Communications

* Richard Byron Clark

Brookfield Property Partners L.P. - Chairman & Senior Managing Partner of Brookfield Property Partners Limited

* Sandeep Lakhmi Mathrani

Brookfield Property Partners L.P. - CEO of Brookfield Properties Retail Group & Vice Chairman of Real Estate

================================================================================

Conference Call Participants

================================================================================

* Mario Saric

Scotiabank Global Banking and Markets, Research Division - Analyst

* Mark Rothschild

Canaccord Genuity Corp., Research Division - MD & Real Estate Analyst

* Sheila Kathleen McGrath

Evercore ISI Institutional Equities, Research Division - Senior MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Brookfield Property Partners Second Quarter of 2019 Financial Results Conference Call. As a reminder, today's call is being recorded. It is now my pleasure to turn the call over to Mr. Matt Cherry, Senior Vice President of Investor Relations. Please go ahead, sir.

--------------------------------------------------------------------------------

Matthew P. Cherry, Brookfield Property Partners L.P. - SVP of IR & Communications [2]

--------------------------------------------------------------------------------

Thank you, Daniel, 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 press release issued this morning.

With that, I'll turn the call over to Chief Executive Officer, Brian Kingston.

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [3]

--------------------------------------------------------------------------------

Thank you, Matt, and good morning, everyone. Thank you for joining the call today. With me on the call are Ric Clark, the Chairman of BPY; Bryan Davis, our CFO; and Sandeep Mathrani, our Global Head of Retail. In my prepared remarks, I'll recap our operating performance for the quarter as well as provide an update on our various ongoing strategic initiatives. Bryan will then provide a detailed update on our quarterly financial results. And after that, we'd be happy to take questions from any of our analysts on the call today.

So as you would have seen in our disclosure this morning, the second quarter of 2019 was highlighted by company FFO and realized gains growth of 6%, and the continued monetization of mature, de-risked assets. We have continued to allocate additional capital to unit repurchases as we believe those represent the highest returning investment opportunity available to us today. Following the $400 million closing of our substantial issuer bid in the first quarter, we invested a further $56 million under our normal course issuer bid in the second quarter and an additional $7 million in July.

We also continued to monetize mature assets. In the second quarter, we completed $1.3 billion of asset dispositions, $331 million at our share, at prices that were 9% above our IFRS carrying value. These sales generated or created $178 million of net proceeds to BPY, and included an office building in Washington, D.C; another in Brisbane, Australia; and the sale of Marina Village office park in Alameda, California. Following the end of the quarter, we entered into further contract to sell additional assets that will generate $500 million of net proceeds to BPY. With total proceeds realized year-to-date of approximately $1 million, we're on pace to reach our target of between $1 billion and $2 billion of capital recycled through asset sales in 2019.

In our Core Office business, we leased 1.2 million square feet in the second quarter at rents that were 25% higher than leases expiring during the period. This mark-to-market on rents help drive same-store NOI growth of 3% over the prior year. This strong leasing result coupled with performance-based fee at Five Manhattan West led to a 26% increase in cash flow from operations this quarter. Last quarter, we announced our intention to move ahead with the construction of Two Manhattan West, the second of two 2 million square foot towers at our mixed-use development on the west side of Manhattan with an estimated completion in early 2023.

Leasing interest in the building has been very strong, and our target is to have 25% of the building leased by the end of this year, more than 3 years in advance of its scheduled completion. We're excited about the future of this brand-new 7 million square foot mixed-use neighborhood in the heart of New York City's most vibrant submarket. In addition, we're excited to be delivering 2 other office developments later on this year, One Manhattan West and 100 Bishopsgate in London are both nearing completion. These 2 towers are 86% and 75% preleased, respectively, and will yield nearly 10% on our equity investment when fully stabilized.

Our Core Retail business has leased over 9.8 million square feet over the past 12 months. And with the exception of a few short-term transitional leases, rental spreads were up 7.2%. At quarter end, the portfolio was 95% leased and we expect to be at 96% by the end of the year. In-place rents increased 2.2% through the portfolio and NOI-weighted sales increased 5.2% to $777 per square foot, which was a new high watermark for the portfolio. This performance in a challenging market environment speaks to the high-quality nature of our retail portfolio, which continues to see strong demand from an ever widening array of tenants. We're on track to lease over 10.3 million square feet this year, well ahead of our budget. This is a strong indicator of the value of bricks-and-mortar stores itself, where consumers are able to browse, purchase, pick up and return online orders. We have a very active anchor box redevelopment pipeline that is bringing in new tenants to our malls. And we also continue to identify opportunities to increase the density of our malls through ground-up mixed-use development. Earlier this year, we indicated that we're focused on 12 such opportunities that we believe will create an additional $3 billion of value in our portfolio.

Almost all of the development programs include a residential component with others featuring hotels, office, medical office as well as entertainment and food offerings. We look forward to providing you with further details on these projects later this year.

Before I turn it over to Bryan for a recap of the quarterly financial results, I wanted to briefly update you on our latest financing initiatives. Consistent with our strategy of placing nonrecourse investment-grade debt on each of our assets, during and subsequent to the quarter, we executed the following. In our Core Office business, we raised $1.1 billion of fixed-rate mortgages with an average term to maturity of 9 years at an average interest rate of 4.28% as well as $1.2 billion of floating rate mortgages with an average term of 5 years. Net proceeds of $772 million were generated from these financings. In our Core Retail business, we raised $1.4 billion of fixed-rate mortgages with an average term to maturity of 10 years at an average rate of 4.32% as well as $515 million of floating rate mortgages with an average term of 5 years. Net proceeds of $569 million were generated and were used to pay down a portion of the term loan, which helped finance the acquisition of GGP.

With that, I'll now turn the call over to Bryan for a detailed financial report.

--------------------------------------------------------------------------------

Bryan Kenneth Davis, Brookfield Property Partners L.P. - Managing Partner of Rest Estate & CFO - Brookfield Property Partners Limited [4]

--------------------------------------------------------------------------------

Thank you, Brian. During the second quarter of 2019, BPY earned company FFO and realized gains of $362 million compared with $250 million for the same period in 2018, an increase of $112 million. This increase is due to a combination of additional capital raised and invested in our Core Retail business, higher earnings from our LP Investments and same-property growth and higher fees earned in our Core Office business. On a per-unit basis, company FFO and realized gains for the current quarter was $0.38 per unit compared with $0.36 per unit earned in the prior year. Realized gains from our LP investing activity for the quarter were $27 million compared with $4 million earned in the prior year. The gain this quarter was earned on the sale of a 1 million square-foot office complex in California as Brian had mentioned. This complex was purchased in our first real estate opportunity fund, where we've an approximate 30% LP Investment. The profit to the fund on the sale was over $130 million and represented a 30% growth IRR and a 4x multiple of capital. Net income attributable to unitholders for the quarter was $127 million or $0.13 per unit compared with net income of $534 million or $0.76 per unit earned in the prior year. The most significant variance to the prior year relates to fair value movements. In the current quarter, we recorded unrealized net fair value losses of $41 million on our investment properties, primarily related to our retail properties, where estimates of future cash flows were further adjusted to reflect the current operating environment. These losses were offset in part by unrealized fair value gains in our Core Office business, where we benefited from a combination of higher property level cash flows, market comps and reduced risk as we progress our active development pipeline. In addition, we had unrealized fair value losses of $135 million, mainly driven by our interest rate contracts that we have in place to reduce our exposure to floating rates. We have 5.6 billion of these contracts, which reduce our overall floating rate exposure by 1,200 basis points.

Our Core Office business earned $187 million of company FFO compared with $149 million in the prior year. The current quarter benefited from 3.2% same-property net operating income growth on a natural currency basis and an increase in fee income as this quarter in addition to higher property management fees, we benefited from a $38 million performance-based fee earned at Five Manhattan West to reflect an increase in value since we sold a 44% interest in the property in 2015. These increases in earnings were partially offset by an impact of asset sales over the last 12 months, where proceeds were either reinvested into another business segment or where were invested in our development and redevelopment projects that are not yet generating a similar level of current earnings. In addition, higher interest rate environment and the resulting strong U.S. dollar continue to have a negative impact on earnings.

In our Core Retail business, we earned $170 million of company FFO compared with $119 million earned in the prior year. Our additional investment in this portfolio contributed to this increase. Results this quarter continue to be impacted by the bankruptcies that took place since the beginning of 2018, as Brian had mentioned. These bankruptcies have reduced net operating income by an incremental $7.7 million in the current quarter and by almost $14 million on a year-to-date basis when compared to the prior year. And as a result, has put pressure on our same-property results. But a significant progress has been made in re-leasing this space. We expect this to be only temporary. In addition, we had an incremental $8 million in general and administrative expenses this quarter as a result of requirement to expense internal leasing costs that were previously capitalized.

Lastly, the prior year benefited from a significant lease termination gain of $7 million at our share. Our LP Investments earned $106 million of company FFO and realized gains compared to $87 million in the prior year. The increase of $19 million includes the realized gain I previously mentioned in addition to increased earnings in our third real estate opportunity fund to reflect capital deployed since the fund launch, and this was partially offset by investment realizations in our first and second opportunity fund investments. Compared to the prior quarter, company FFO and realized gains on an overall basis remained flat at $0.38 per unit. In the prior period, we earned realized gains of $60 million related to asset sales in China and Brazil in our real estate opportunity funds. Excluding these realized gains, company FFO for the current quarter was $28 million higher than Q1 of this past year.

This increase is largely due to improved Core Office results as a result of higher fees, termination income and same-property growth and the positive impact of seasonality in our hospitality investments offset by a reduction in Core Retail earnings and a $17 million merchant build gain that we earned in the prior quarter. Our proportionate balance sheet ended the quarter with equity attributable to unitholders of $28 billion or $28.89 per unit. Our overall assets were largely unchanged at $85.6 billion. We did add assets to held-for-sale as we expect to transact on some Core Office property sales and additional realizations in our LP Investments, which we detailed in the press release. During the quarter, we did reopen our latest bond issuance and raised an incremental CAD 250 million, reflecting the strength of our program since we launched our first issuance in 2018. We used the proceeds to repay higher-yielding and shorter-duration capital securities.

Lastly, as a reminder, we adopted the new leasing standard IFRS 16, which resulted in an increase in our proportionate assets and liabilities by a little over $630 million to reflect land lease liabilities in an offsetting right-of-use asset. The impact to the P&L is an increase in net operating income of $10 million and a corresponding increase in interest expense to reflect the recharacterization of these land lease payments to a principal payment and an associated interest charge.

With those as our planned remarks, operator, we're now pleased to open up the line to analysts for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from Sheila McGrath with Evercore.

--------------------------------------------------------------------------------

Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

--------------------------------------------------------------------------------

You already hit $1 billion of realizations this year, you mentioned in your comments, Brian. If you get towards the top end of your guidance of $2 billion, should we consider that there is more potential capital that you might allocate to share buyback? And also can you explain the conditions when it makes more sense to pursue the substantial issuer bid for share buyback rather than just intra-quarter buys?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [3]

--------------------------------------------------------------------------------

Yes, sure, Sheila. I guess sort of answering them in reverse order. The decision around substantial issuer bid versus normal course issuer bid is, one I think -- we sort of consider from time-to-time. As you know, in January, when we did launch this substantial issuer bid, it wasn't fully taken up, which -- we view the SIB as an opportunity to sort of buy on a larger scale. It wasn't fully taken up, which tells us there is not a lot of large volume necessarily that's available that way. So the normal course issuer bid is the way for us to be in the market on a daily basis and sort of providing liquidity to the market. And so that's largely what we've been doing for the remainder of the year. And so as I mentioned, at the outset, we did about $400 million through the SIB. We've done about $60-or-so million now since then through the normal course issuer bid and expect it will be pretty active -- continue to be pretty active on the NCIB over the balance of the years as far as, like, whether the asset sales or the volume of recycling that we do has an impact on that or not. As I mentioned earlier, we think that our shares are the best investment opportunity available to us right now. So we will continue to dedicate more capital toward it. And logically if we had -- if we hit the larger end of that range, it might allow us to be a little more active. But I actually think at this point we're more limited by the market as opposed to the capital in terms of the size of buybacks that we're doing.

--------------------------------------------------------------------------------

Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [4]

--------------------------------------------------------------------------------

Okay. That's helpful. And then on retail, maybe you or Sandeep can talk more about the retail environment, recent bankruptcies and what kind of tenants are backfilling this space at this point?

--------------------------------------------------------------------------------

Sandeep Lakhmi Mathrani, Brookfield Property Partners L.P. - CEO of Brookfield Properties Retail Group & Vice Chairman of Real Estate [5]

--------------------------------------------------------------------------------

Sheila, this is Sandeep. Since the beginning of 2018, we've actually encountered about 2.75 million square feet of bankruptcies, and that's about $150 million hit. We've leased back about 2.1 million square feet to date, which will all be opened this year. And actually net-net, we've recovered $110 million of the $150 million, again speaking to the strength of our portfolio. So -- and again, we do feel that we'll end the year at 96% occupancy. We're about 95% today. So high-quality retail real estate has tremendous demand from all sorts of retailers. On the big-box side, for example, Sears announced closure of 5 stores in our portfolio. And they were at Natick, Willowbrook, Pembroke, Oakbrook and Coronado. And literally within the 60-day period of their announcement, we've leased all 5, 2 to entertainment uses, 1 to a supermarket and 1 to a wholesale club and 1 to a home furnishings. So it's a wide variety of retailers that are taking the big-box spaces. Sporting goods is another category that's taking quite a bit of our big-box space in the portfolio. So the anchor stores, there seems to be very good demand because again the retailers go after the best retail real estate. On the in-line side, it is again a wide variety of retailers. I might just add that I think Bryan Davis talked about our sales productivity being the highest it's ever been. And I will say that every category in the A and the B-plus malls, every category had sales increased including apparel in our portfolio. And so the growth comes from Athleisure, it comes from (inaudible) companies like Casper, Warby Parker, UNTUCKit, Bonobos, a large variety. Home furnishings is another category that is expanding quite well within our shopping centers. So it's a wide variety. Foot Locker has again announced doing these larger format stores of 10,000, 12,000 square feet. So they're expanding within the property. So we're seeing this across the board, whether it be home furnishing, entertainment, restaurants and food. And so our demand is across the board.

--------------------------------------------------------------------------------

Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [6]

--------------------------------------------------------------------------------

Okay, And then just last question for me on office. Just wondered if you can comment more specifically on the level of tenant interest at Two Manhattan West. You did mention some potential preleasing there. Just an update on that project?

--------------------------------------------------------------------------------

Richard Byron Clark, Brookfield Property Partners L.P. - Chairman & Senior Managing Partner of Brookfield Property Partners Limited [7]

--------------------------------------------------------------------------------

This is Rick. Things are going incredibly well in Manhattan West. You didn't ask about One. But I think to talk about Two, it's important just to reference One a little bit. So in September, we cut the ribbon on One Manhattan West. We have only 8 floors left between the tenants' demand from -- unexpected demand from tenants in the building, a couple of new deals and executing our spec suite and flex-based program. Our leasing team thinks that building will be 100% done by the end of the year. Couple of floors may roll into the first quarter. But we've got a clear path of that being completely done. Activity at Two Manhattan West is strong. We are targeting getting about 1/4 of the building leased by the end of the year. Our goals for next year are to have the building 50% to 75% leased. And we'll have by the end of next year, 2 years to go before the building is completely finished. And we've got a level of activity to give us confidence in pursuing those targets. So things are looking good. Demand is great on the West side.

--------------------------------------------------------------------------------

Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [8]

--------------------------------------------------------------------------------

Who is the biggest competition, would you say -- tenants are looking at which other buildings?

--------------------------------------------------------------------------------

Richard Byron Clark, Brookfield Property Partners L.P. - Chairman & Senior Managing Partner of Brookfield Property Partners Limited [9]

--------------------------------------------------------------------------------

Yes, we -- anyone that comes and talks to us, talks to Related and talks to Tishman for their building, potentially Moynihan and also Vornado. So they're talking to all of us, I think what we like about our building, Two Manhattan West was designed to be attractive to service firms, professional firms, whereas most of the other product in the Hudson Yards area has bigger floor place and is more going after financial service firms or technology firms, who want big base floor place. So I think we're positioned really well in that submarket.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

And our next question comes from Mark Rothschild with Canaccord.

--------------------------------------------------------------------------------

Mark Rothschild, Canaccord Genuity Corp., Research Division - MD & Real Estate Analyst [11]

--------------------------------------------------------------------------------

In regard to the office portfolio, you talked about getting occupancy up over the next while. The 2 markets you have been expiring over the next year or 2, Houston and D.C., can you talk a little bit more about your expectations for the market maintaining or even growing occupancy in those markets specifically?

--------------------------------------------------------------------------------

Richard Byron Clark, Brookfield Property Partners L.P. - Chairman & Senior Managing Partner of Brookfield Property Partners Limited [12]

--------------------------------------------------------------------------------

Yes, maybe I'll start, it's Rick. We have a little bit of roll in D.C., and we're also developing a building in 655 New York. But similar to New York, there is lots of activity, our expectation is occupancy might dip just a little bit, but should be probably in the 90s next year. So the D.C. market has historically, other than the last 4, 5 years, been sub-10% occupancy. That has creeped up. But I think we're holding our own and we should be sort of low 90s, approaching mid-90s by the end of next year in that market. Houston...

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [13]

--------------------------------------------------------------------------------

Yes, I'd take this. Yes, Mark, look, I think the reason those 2 jumped out at you from an occupancy perspective, with 655 coming in this quarter, it's brought down the overall portfolio occupancy, and there because that's one I think 64% pre-let, but it's recently completed and we're...

--------------------------------------------------------------------------------

Richard Byron Clark, Brookfield Property Partners L.P. - Chairman & Senior Managing Partner of Brookfield Property Partners Limited [14]

--------------------------------------------------------------------------------

Yes, Brian, maybe I'll just add. We have a lease-out that will take that building well into the 90s, hopefully will be done in the next couple of months.

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [15]

--------------------------------------------------------------------------------

Right. And then in Houston, the repositioning at Allen Center also is having some short-term impact on occupancy, if you look at our overall Houston number, which that market's actually been -- certainly the Texas market overall has been very strong with what's happening in the Permian basin. We're starting to see that come back in Houston. Demand is pretty good there. We've got a bit of time as we work through the repositioning at Allen Center anyway to get that all leased back up. So we're seeing -- we feel pretty good about that one over the next 18 months as well as that gets completed. But I think there is a couple of particular things going on in those 2 markets, which is why the number jumped out at you.

--------------------------------------------------------------------------------

Mark Rothschild, Canaccord Genuity Corp., Research Division - MD & Real Estate Analyst [16]

--------------------------------------------------------------------------------

Okay, great. Maybe one of the question maybe for Bryan Davis, and you might not have this right here, but early in the year, you were negatively impacted or maybe late last year from floating rate debt. To what extent did it help this quarter, if you have that information?

--------------------------------------------------------------------------------

Bryan Kenneth Davis, Brookfield Property Partners L.P. - Managing Partner of Rest Estate & CFO - Brookfield Property Partners Limited [17]

--------------------------------------------------------------------------------

It didn't help a tremendous amount this quarter. I think when I look back to Q1. In Q1, we had an average 1-month LIBOR of about 2.5%. The second quarter, the average 1-month LIBOR was only 2.47%. But as you can see, particularly with respect to the rate cut that we saw the other day, the momentum through the first part of Q3 has LIBOR down in the low, sort of, 2.2% range. So we do expect there will be a 25 basis point improvement in the floating rate interest environment, which will, of course, help our earnings. As you look at our floating rate exposure, in aggregate, it's about $14 billion. That split amongst many different markets. But I'd say 65% of that sits in the U.S. and sort of the extent that we have a lower floating rate environment in the U.S., that will benefit our earnings.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Mario Saric of Scotiabank.

--------------------------------------------------------------------------------

Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [19]

--------------------------------------------------------------------------------

Maybe just coming back to the office segment, the occupancy came down a little bit quarter-over-quarter, I think, both Brian and Rick highlighted maybe some of the reasons why in Washington and Houston. But on a portfolio-wide basis, how do you see that occupancy trending over the next year or so, excluding development coming online?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [20]

--------------------------------------------------------------------------------

Yes, so I think there's always 2 things that we are working against on occupancy, which is oftentimes when the buildings get fully stabilized and leased up. We sell them and then we buy something with vacancy. And so on a like-for-like basis, which is really what your question is, occupancy is trending up. We're -- so on a same-store basis, we are seeing a pretty good demand across most -- almost all of our markets. And if you sort of just go around the world, Australia is very hot right now in terms of occupancy. We're repositioning [388 George st.] (corrected by company after the call) down there and completely emptied the building. We've already got leases completed on half of the building and probably we'll have the remaining half of it completed by the end of the year. London despite all of the turmoil around Brexit, et cetera, continues to see very good demand. There we've had good leasing momentum both at Canary Wharf and in our city portfolio. So overall on a like-for-like basis, you'll see good occupancy growth there and then here in the U.S., we touched on most of the markets. As Rick said, New York is strong. D.C. and Houston, we touched on and in LA, we've got a little bit of leasing out there, but downtown continues to get stronger. And then, of course, Toronto is -- the portfolio is virtually full there. So there's not lot of gains to be had.

--------------------------------------------------------------------------------

Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [21]

--------------------------------------------------------------------------------

Okay. And then may be switching to retail. There has been a lot of press recently about China-U. S. trade negotiations and the retailer stocks were down quite a bit yesterday. Are you seeing any impact of the political uncertainty in terms of your tenant expansion plans, capital allocation plans to date and how does that impact kind of your targeted 96% occupancy at the end of the year or heading into next year?

--------------------------------------------------------------------------------

Sandeep Lakhmi Mathrani, Brookfield Property Partners L.P. - CEO of Brookfield Properties Retail Group & Vice Chairman of Real Estate [22]

--------------------------------------------------------------------------------

So for this year, again, our goal was to lease 10.3 million square feet. We've actually leased 10.4 million square feet already. So we think we will exceed that even 10.4 million square feet number. So feel pretty comfortable at 96% for the end of this year. Again, we have benefited by the strength of our portfolio. What we are seeing in this environment is you read about store closures, but what's certainly going on is consolidation and growth. And so retailers are going into the best shopping centers and increasing their footprints in the best shopping centers, which is really benefiting the high-quality retail portfolio that we have. I sort of sit back and say when I look at costs going up and costs going up will create a little bit of inflation and a little bit of inflation will actually give us an increase in sales productivity. So we actually don't view that to be negative. And again, the power of which is not only 35% of our portfolio, which could have the most impact are food, entertainment, sporting goods. Those kind of activities don't have -- they aren't importing any merchandise. So I think because of our renewed curation of our portfolio, we actually think we'll be okay.

--------------------------------------------------------------------------------

Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [23]

--------------------------------------------------------------------------------

Okay. That's helpful. And then maybe a broader level question in terms of operations over the next year or 2. You highlighted kind of the GGP repositioning opportunity. I think we'll get more color on that at the Investor Day in late September. Construction there really starts in 2021 as you've noted in your disclosure. So like if we look at over the next year or 2 from an operational perspective, like internally, what do you think are the biggest game changers in terms of positively impacting investor sentiments and operational results?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [24]

--------------------------------------------------------------------------------

Well, I think from an operational perspective, on the Core Office and Retail business, the focus is the same as it's always been, which is leasing up the vacant space, getting our occupancy stabilized and moving -- recycling that capital into other investment opportunities. I think on the repositioning, specifically on retail, some of the larger ones are kicking in in 2021, but there's a number of projects that are underway currently. It will probably be 2021 before you start to actually see the NOI coming through. But -- and you're right, we're going to touch on this in a lot more detail at our Investor Day in September. But what you will start to see over the next 6 to 12 months is at least progress against milestones, where we're getting shovels in the ground, where we're progressing on leasing or progressing on the developments. And although it may take till 2021 before you see the bottom line impact or these things coming through in NOI, I think that's really where I think we'll be focusing investors' attention over the next couple of years is just on the progress toward that goal.

--------------------------------------------------------------------------------

Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Got it. Okay. My last question just comes to capital recycling, specifically kind of the tension between balance sheet and share buyback activity. So you've communicated you're very comfortable with your balance sheet leverage today given the non-recourse nature of the debt. And you've also communicated desire to kind of lower your leverage over time. How much of a governor is desired debt reduction to optimal buyback activity? Or I guess, maybe said differently, how do you kind of decide between -- the balance between reducing leverage and ultimately kind of creating value given the steep discounts in NAV that the units are trading at today?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [26]

--------------------------------------------------------------------------------

Yes. So the leverage that we're specifically targeting to reduce over the next couple of years really is at the corporate level, as you said, and it really is from 2 principal areas. One is the GGP acquisition facility and then the other is the overall BPY revolving credit facility. So as far as the first one, the GGP acquisition facility, there is a very specific capital plan that's set out and how that gets reduced. And as we mentioned, it's really comes about through 2 specific things, further asset sales within the retail portfolio, either bring in partners on individual assets or some outright sales, and up financings at the asset level over the next couple of years. And so the combination of those 2 things will reduce that leverage just naturally over time. At the BPY corporate level, that is more driven around Core Office asset sales as well as some of the capital that's coming back through our LP opportunistic investments. And so there's a bit of a -- that is where there's a little bit of a decision time around what do we allocate toward buybacks versus the leverage. But at the moment, the answer has been toward both. As I sort of said in response to Sheila's question at the start of the call, we've done what we can with respect to very large-scale buybacks. And I think in the context of a normal course issuer bid, we're able to dedicate as much capital as we want toward those buybacks to do that and still maintain the plan on the corporate debt paydown. So it's a bit of a mix between the 2, but a lot of it is sort of -- is already earmarked capital, like I say, from the mall sales et cetera for that debt reduction.

--------------------------------------------------------------------------------

Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [27]

--------------------------------------------------------------------------------

And you mentioned planned mall sales. Does the U.S. Fed potentially entering into an easing cycle.. does that improve your ability to sell the desired malls or is it irrevelant?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [28]

--------------------------------------------------------------------------------

Absolutely. Yes. No it is. Look, I think there's a huge difference in overall investor sentiment today versus December with respect to where interest rates are going. And as a result of that, institutional investors are finding -- when they look at our portfolios today, they think they are under allocated to real estate and are looking around for places to invest. So I think it's -- people having an outlook in particular for lower for longer on interest rates is very helpful for that liquidity.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

And our next question is a follow-up from Sheila McGrath with Evercore.

--------------------------------------------------------------------------------

Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [30]

--------------------------------------------------------------------------------

Bryan, you have a fair amount of capital tied up in the for sale condominiums in London. I was just wondering if you could give us some insight when you'll start receiving capital back from those sales. And how are presales tracking at those projects?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [31]

--------------------------------------------------------------------------------

Yes. So it's in 3 places primarily. One is Principal Place, which is the apartment building we built next toward the Amazon headquarters. We'll begin handing over apartments there in October, November of this year and so it's staged over about a 6-month period. Presales there are...

--------------------------------------------------------------------------------

Bryan Kenneth Davis, Brookfield Property Partners L.P. - Managing Partner of Rest Estate & CFO - Brookfield Property Partners Limited [32]

--------------------------------------------------------------------------------

84%.

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [33]

--------------------------------------------------------------------------------

84%. So they're virtually locked in. It's really just a matter of collecting the receivables. All of those buyers have significant down payments on, so we don't -- we don't expect any surprises with respect to settlements. Number two is -- Number two and three are really through Canary Wharf. One is it was on the estate and then the others are off the estate, Southbank Place. Southbank Place starts to settle next -- Q4 of this year, sorry, and so we'll start to get cash in on those. So the ones at Canary Wharf are later on in 2020. So there should be a substantial amount of it that, Sheila, comes in over the next 12 months. And all of it should be in the next, I'll say, 24.

--------------------------------------------------------------------------------

Bryan Kenneth Davis, Brookfield Property Partners L.P. - Managing Partner of Rest Estate & CFO - Brookfield Property Partners Limited [34]

--------------------------------------------------------------------------------

Yes. And just to give context because I think we have in the past, in aggregate, across the 4 projects, which are Principal Place, Southbank and the Park Drive developments in the Canary Wharf estate, there's about $110 million -- GBP 120 million in profit left to be recognized as we hand over the condominium units to their respective purchasers.

--------------------------------------------------------------------------------

Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [35]

--------------------------------------------------------------------------------

Okay. Great. And then one kind of big picture question on the Opportunistic segment. As you can imagine from our seat, it's hard for us to project that line item. If you have a fair amount of realizations in the back half of the year, should we expect that to go down or is the new fund investing at a similar pace that it would not go lower?

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [36]

--------------------------------------------------------------------------------

Yes. So if you had a lot of realizations, then the overall number would go down because of the size of our commitment to the new fund. You'll recall we've reduced our commitment to that fund to below the one that's coming back in. So it would end up as a net reduction.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

And I'm not showing any further questions at this time. I would now like to turn the call back over to Brian Kingston, CEO, for any closing remarks.

--------------------------------------------------------------------------------

Brian William Kingston, Brookfield Property Partners L.P. - Senior Managing Partner & CEO of Brookfield Property Partners Limited [38]

--------------------------------------------------------------------------------

Great. Thank you, everyone, for joining our call today, and we look forward to seeing you at our Annual Investor Day on September 26 here in New York as well as giving you an update on our next quarterly call.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, and you may all disconnect. Everyone, have a wonderful day.