Brookfield Property Partners’ (BPY) CEO Brian Kingston on Q4 2019 Results – Earnings Call Transcript

Brookfield Property Partners L.P. (NASDAQ:BPY) Q4 2019 Earnings Conference Call February 5, 2020 11:00 AM ET

Company Participants

Matt Cherry – Senior Vice President of Investor Relations

Brian Kingston – Chief Executive Officer

Bryan Davis – Chief Financial Officer

Conference Call Participants

Sheila McGrath – Evercore

Mario Saric – Scotiabank

Operator

Good day, ladies and gentlemen, and welcome to the Brookfield Property Partners Fourth Quarter and Full-Year 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.

Matt Cherry

Thank you, Daniel 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 press release issued this morning.

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

Brian Kingston

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

So as you may have seen in our disclosure this morning, BPY earned company FFO and realized gains of $459 million or $0.48 per unit in the fourth quarter, closing the year with a strong performance in our office business, good performance in retail and continued active recycling of our capital. For the full year of 2019, cash flow from operations and realized gains was $1.5 billion or $1.57 per unit. And that compares to $1.6 billion or $1.97 per unit in 2019 – 2018, the prior year having benefited from several unusually large realizations in our opportunistic fund strategy.

In light of this performance, our board approved the declaration of quarterly dividend of $0.3325 per unit, which represents a 1% increase over 2019. We’ve continued to utilize cash flow generated from the expansion of our business to – but understand the importance of this dividend to many of our investors. Since our initial launch in 2013, we have increased the distribution by 5% on a compound annual basis and as more of our development activities become cash generating in the years ahead. This will enable us to continue to increase the dividend in-line with that earnings growth.

Consistent with prior years, we completed $3.3 billion of asset sales at prices that were 6% higher than our IFRS carrying values, generating net proceeds of $1.8 billion to BBY, which were redeployed into our business last year at much higher returns. We utilized some of the proceeds from sales to repurchase over $500 million of our units in 2019 and expect to remain active, should our units continue to trade at a meaningful discount to their intrinsic value. Over the next several years, as we continue to monetize investments in our real estate opportunity funds as well as mature stable assets on our balance sheet, we expect to generate between $1.5 billion and $2 billion of net proceeds each year, which can then be reinvested into our business.

Performance in our Core Office business was strong in 2019. In total, we leased 7.8 million square feet of office space at rents that were 32% higher than our expiring leases. We achieved same store growth of 3% in this business and occupancy finished the year at 93% up 90 basis points over the last year. Our retail portfolio remains resilient. We finished the year at over 96% occupancy, no decline from the prior year, and completed 10.5 million square feet of new leases in 2019, demonstrating the continued demand for high-quality well-located retail space. Importantly, we continue to see positive rent spreads and growing tenant sales at our centers.

As presented at our Annual Investor Day in September, we’ve identified 15 near and long-term value creation initiatives at several of our best performing centers that will add $1.8 billion of value when they’re completed. We look forward to providing you with updates and milestones on these projects as they progress.

The year was also highlighted by the delivery of several of our largest development projects, including 1 Manhattan West, 100 Bishopsgate and the SoNo Collection in Norwalk, Connecticut. These assets are best-in-class premier properties in their respective markets. Office tenants began occupying space at 1 Manhattan West and in 100 Bishopsgate in late 2019. And SoNo opened its doors just in time for the holiday shopping season with most retailers reporting sales that were above expectations. These newly developed assets and others that are nearing completion will begin contributing meaningfully to BPY’s earnings in 2020 and moving forward.

Furthermore, our development pipeline remains active with major projects underway in New York, Toronto, London, Dubai, Sydney, Melbourne, and Perth. Completion of these substantially pre-let office projects will continue to drive above average earnings growth in our Core Office portfolio for the foreseeable future. We remained active in capital markets in 2019 as the environment offered favorable terms to well-capitalized asset owners and corporate issuers.

In our Core Office and Core Retail businesses, we raised over $10 billion of non-recourse property mortgages while reducing our average cost of debt by 30 basis points. We also issued $434 million of perpetual preferred shares and CAD600 million of five-year unsecured notes. While sustainability and other ESG initiatives have been in great focus within the business environment over the past 12 months, they’ve always been an integral part of how we do business.

By constructing energy efficient buildings, we’ve reduced energy demand through our operations and lowered annual associated operating costs by over $30 million since 2008. Specifically in 2019, we were able to maintain our green star rating under the annual global real estate sustainability benchmark. We issued the first ever perpetual green units in our industry and continued our commitment to build 100% of our new office developments to a minimum lead gold standard.

In December, we announced that we will construct the largest mass timber building in the United States at Pier 70 in San Francisco, demonstrating how we’re applying emerging technologies and innovative design to create environmentally sustainable solutions. Our Core Retail business is ranked sixth in the U.S. in terms of corporate installed onsite solar capacity and generates over 25% of our portfolio’s common area electricity needs. We’re committed to continuing to set the standard for sustainable real estate in 2020 and beyond. With that, I’ll turn the call over to Bryan for the detailed financial report.

Bryan Davis

Thank you, Brian. During the fourth quarter of 2019, BPY earned company FFO and realized gains of $459 million compared with $749 million for the same period in 2018 and compared to $324 million earned in the prior quarter.

Our earnings, this quarter consisted of $185 million earned from our Core Office business, $217 million earned from our Core Retail business and $150 million earned from our LP investments. These investment level earnings were offset by $93 million of corporate level interest and administrative costs. In the current quarter, our Core Office results benefited from earnings of $26 million related to the delivery of condominium units at our Principal Place and Southland projects in London as well as $80 million in realized gains from our LP investment strategy. I will provide some more detail on these shortly.

In the prior year, we benefited from land sales gains and investment income of $28 million in our Core Retail business and $333 million of realized gains in our LP investment strategy as we completed the sale of our North American logistics business. On a per unit basis, company FFO and realized gains for the current quarter was $0.48 compared with $0.77 earned in the prior year. For the full year in 2019, we earned $1.51 billion or $1.57 per unit compared with $1.57 billion or $1.97 per unit earned in 2018. Net income attributable to unit holders for the quarter was $1 billion or $1.07 per unit and that compares to $534 million or $0.55 per unit earned in the prior year.

In the current quarter, we recorded unrealized fair value gains of $773 million, which included $595 million in gains from our investment properties related to higher cash flow forecasts and improved valuation metrics from both our core operations and our LP investments and gains in our active developments as we hit a number of construction milestones and progress leasing on a number of our projects. Our Core Office business had a strong fourth quarter. Our same store operating properties benefited from 4.1% same property NOI growth on a natural currency basis, and 3.5% in U.S. dollars reflecting the recent strength of that UK pound and Canadian dollar.

Lastly, investment in other income increase to reflect earnings from our condominium projects as I previously mentioned. At our 299 unit principle place project in London, we have sold 269 of those units as of the end of the fourth quarter or 90% and we delivered 199 units to their owners recognizing a gain of $22 million on this project. The remaining profit is expected to be expected to be realized is $12 million. The majority of which we will earn in Q1 as units are delivered to their owners with the balance throughout 2020 as the remaining 30 units are sold and delivered.

At our 476 unit tower at Southbank in London, we have sold 436 of those units as of the end of the fourth quarter or 92%, and delivered 61 units to their owners recognizing a gain of $4 million. The remaining profit that is expected to be realized is $23 million, which we expect the majority to be received in the first half of 2020 as units are delivered. We have one more condominium project in London and Wood Wharf that will impact earnings in 2020. It is a 346 unit tower with 80% of the units already pre-sold. Construction is expected to be complete by the middle of the year with our estimated profit of between $15 million and $20 million reflected in earnings in the last half of the year as units are delivered to their owners.

In addition, included in investment and other income, we earn $12 million this quarter related to the monetization of tax credits associated with the affordable units at our for-rent residential property, The Eugene in New York. These increases in earnings were partially offset by the impact of asset sales over the past 12 months where proceeds were either reinvested into another business segment used to reduce leverage or invested in our development and redevelopment projects that are not yet generating a similar level of current earnings.

In our Core Retail business, we earned $217 million of company FFO, compared with $270 million earned in the prior year. A few things are contributing to this year-over-year decline. First-off, same-store results this quarter continued to be impacted by the bankruptcies as it took place over the last 24 months and was down 3%. These bankruptcies, which aggregate about 3.2 million square feet have put pressure on our same property results, which otherwise were flat on a period-over-period basis. We have made significant progress in releasing 75% of that space at higher rental rates. So we expect this impact to be only temporary.

In addition, the prior year benefited from a favorable acquisition related straight-line rent adjustment, lower operating costs, particularly related to insurance and property taxes and higher investment in other income, primarily due to prior your condo sales at Ala Moana prior year investment income and also a prior year land sale gain. Lastly, we had an incremental $7 million in general and administrative expenses this quarter, as a result of the requirement to expense internal leasing costs that were previously capitalized.

Company FFO for our LP investments was $70 million in the quarter and reflects $60 million earned from our investment in the three series of real estate opportunity funds that we highlight on page 32 of our supplemental and $10 million from our investment in real estate finance funds, multifamily funds and our Brazil retail fund. Investment level earnings were in line with expectations and variances over prior year results is largely due to the sale of stabilized investments in earlier vintage funds with the reinvestment of capital and to newer investments where operations are not yet stabilized.

In addition, in the prior year we benefited from a merchant build gain of $11 million from the sale of a residential development project in our multifamily fund investment. As I previously mentioned, we earned realized gains of $80 million this quarter. These gains came from the sale of a multifamily investment in New York where we earned an 18% IRR and a 2.1 times multiple of capital on the investment that was made in our first real estate opportunity fund and from our second real estate opportunity fund on the sale of two office towers in Brazil where we earned an IRR in the mid-20% range and a multiple of capital of over two times.

Our proportionate balance sheet ended the quarter with equity attributable to unit holders of $28.5 billion or $29.72 per unit. Our overall assets increased to $88 billion to reflect, an increase in value of investment properties, stronger foreign currencies relative to the U.S. dollar, particularly the pound and the acquisition of joint venture partner interests in London wall and at a portfolio of four mall properties in our Core Retail business.

We executed a number of financings during the quarter that raised incremental capital, added term and reduced our overall cost of debt. We highlight these financings in our press release. Assets held for sale this quarter include one hospitality property and our first real estate opportunity fund investment and one office property in our second real estate opportunity fund investment. We expect to close on both those transactions by the end of the second quarter. We continue to hold 100 Bishopsgate and 1 Manhattan West and 1 Bank Street in development properties on our balance sheet, even though we’ve completed construction as of the end of Q3 of the last year. We will do so until their tenants make further progress in building out and occupying their space, which we would expect will take until the middle of this year. Once these properties are stabilized, they will earn about $160 million in net operating income.

Lastly, and this will be the last quarter I refer to this as, we will no longer see any impact to comparable results. We did adopt 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, an addition to the expense of direct leasing costs as I previously mentioned is an increase in net operating income of $10 million and a corresponding increase to interest expense to reflect the recharacterization of the land lease payments to principal and an associated interest charge.

With that as my planned remarks. I’ll turn the call back over to you Brian.

Brian Kingston

Thanks, Bryan. Before we open the line to any questions from our analysts, I wanted to reiterate our strategic priorities for 2020 which remain largely unchanged from this year.

First, we’ll continue to monetize stable, mature assets and redeploy that capital into higher returning strategies including unit buybacks. We’ll also continue to access capital markets to try to optimize our cost of capital and keep our balance sheet flexible. We have a number of new developments on track for completion in 2020 in cities, including: New York, London, and Dubai, and continue to progress our mall redevelopment, repositioning and densification strategies to unlock values in that portfolio of properties. And there’s always, we’ll work to keep our core portfolios highly occupied and marketing rents to market as those leases mature.

So with those as our prepared remarks, we’re happy to take any questions from analysts on the call today.

So operator if I could turn it back over to you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Sheila McGrath with Evercore. Your line is now open.

Sheila McGrath

Yes. Brian, I was wondering if you could give us your insights on how we should think about the retail performance in 2020. Do you think that new bankruptcies or store closings that were recently announced, like Macy’s, for example, make you more cautious in the near term and will the 75% of the lease up of bankruptcy space that you mentioned, will that start to impact positively in 2020?

Brian Kingston

Yes, thanks, Sheila. So as Bryan mentioned, over the last two years, so 2018 and 2019, we had about 3.5 million – 3.3 million specifically, square feet of closures due to bankruptcies, which we’ve re-leased about 75% of that. That’s a pretty elevated number compared to historical. And it’s always difficult to say in January how the year is going to pan out. But I do think it feels as though the holiday season was pretty good this year, and so our expectation is that 2019 probably was sort of peak for that, and we’re anticipating that 2020 may get a little better.

You mentioned Macy’s. They came out with an announcement yesterday on 125 closures. Between Rouse and the GGP portfolio, the former GGP portfolio, we have about 14 of those locations. We knew about all of them. We obviously work closely with all of the major department stores around which stores are performing, which ones aren’t. So I don’t think there was anything that was a surprise there. And those closures are happening over a very long period of time. We’ve got plans in place for most of them. So I don’t expect that, that will have as large an impact as some of the in-line retail bankruptcies that we saw last year.

And in fact, that’s typically where we see the biggest impacts around leasing up. But as we mentioned, we did manage to get 75%. We should have the rest of it leased up this year. And on the assumption that we have something less than 1.5 million feet, which is what we’ve averaged the last couple of years of store closures, then you should start to see the bounce back this year.

Sheila McGrath

Okay. And then could you talk about your thoughts on leverage levels over the next one or two years and balancing the desire to reduce leverage some with how we should think about share buybacks?

Brian Kingston

Yes. So I think as Bryan’s talked about a number of times, our focus on reducing leverage very specifically is focused on, most particularly, the acquisition debt on GGP. And as we said, the repayment there is through a combination of asset-level financings as well as some asset sales. And so when we think about deleveraging, that’s really the primary focus. And that really gets driven by those two items, right?

Asset sales and as some of these lower levered mortgages roll over, and we refinance them, we’re able to take that down. So I don’t think it’s necessarily a decision around dedicating capital to delevering versus buying back units. I think we’ve got a pretty well set out plan as far as where that deleveraging capital comes from. And it will continue to be a focus, but it’s sort of naturally occurring.

I think the unit buybacks are really just part of our normal capital allocation decision. When we have a dollar that we can put to work, we compare the relative returns of putting it into developments or new acquisitions or investments in our funds or indeed buying back our units. And so I think we continue to believe where the shares trade today, it’s a very attractive – particularly when you adjust it for the risk around – these are assets that we know very well, a very attractive place for us to put capital to work. So I think you’ll see us continue to be active on both buybacks as well as the leverage reduction.

Sheila McGrath

Okay. One more question, I’ll get back in line. If you could just give us an update on how leasing progress is going at 2 Manhattan West and also Manhattan West Retail?

Ric Clark

Hi, Sheila, it’s Ric. So I think as you’ve probably seen, we signed a large lease at 2 Manhattan West with accrued assets for about 25% of the 2 million square foot building, lots of activity on the remaining space. The building won’t be delivered until 2023-ish. So we’ve got lots of time to finish the leasing. And our expectations are we’ll make a lot of progress during the year, just given the level of activity.

On the retail front in Manhattan West, we have as of – we have about 240,000 square feet. As of today, about 80% of that is leased. We have a lease out with another restaurant, which will take us to about 85%. Hopefully, that will be done in the next 30 days. And we’ve got about a year left until the retailer really starts to come online. It will start to come online over the course of next year. And again, activity on pretty much every single piece of retail space that we have left there. So it’s – I just – all in all, the leasing has been a great success in Manhattan West.

Sheila McGrath

Okay. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Mario Saric with Scotiabank. Your line is now open.

Mario Saric

Hi, good morning. Just maybe coming to the distribution and the buyback. It’s sometimes dangerous and not appropriate to kind of compare two points in time. But with your Q4 results, you kind of announced a 5% distribution increase in SIB. How would you compare your sentiment today versus a year ago in terms of allocating capital to those two exercises? And why not perhaps be more aggressive in the share buybacks today as you were last year?

Brian Kingston

Yes. I mean, you’re right. It’s sort of dangerous just to pick a particular day of the year around the buyback. I think at that – what in particular was driving the thinking on the SIB a year ago was that the shares were dramatically lower than they are today. And we felt that it was a good opportunity to put a lot of capital to work in that buyback. And it’s not to say that we may not do that again at some point in the future. But where we are today, I think the focus really is around the normal course issuer bid. And as we said on the dividend, I think what we were trying to do is make sure that we’re growing that dividend in line with earnings growth. And given the headlines that we had over the course of 2019, I’d say it really seemed more prudent to keep it in line with the earnings growth we saw this year.

Mario Saric

Got it. So would it be fair to say that with your target kind of 5% to 8% distribution growth per year over time hasn’t really changed?

Brian Kingston

That’s right. That’s right. I think it’s – and as we sort of pointed out, I think we’re – that’s what we have been doing for the last five or six years. I mean, we would anticipate that earnings growth gets back on track once we clear some of the headwinds around retail, et cetera, and then the distribution moves in line with that.

Mario Saric

Got it. Okay. And then maybe switching gears to retail. Can you talk about how much of the almost 4% negative same-store put in Q4 related to Forever 21 and issues there and potential restructurings and leases and how may that impact your 2020 outlook?

Brian Kingston

So the – I’m not sure I can split it out necessarily, but it was not a material amount of that 3.7%. A lot of the, as Brian said, the 3.7% was due to store closures, which we have not had any Forever 21. I don’t think we’ve had any Forever 21 store closures within the portfolio anywhere. So I guess the simple answer is zero of it is due to that. But there were a number of other bankruptcies and closures, including Payless and a few others earlier on in the year, and that’s really where the bulk of that impact came from.

Mario Saric

Got it. And of the 3.3 million square feet of identified bankruptcies, of which 70% – 75% is re-leased, how much of that would be income-producing to start next year in Q1 of 2020?

Brian Kingston

Virtually – well, sorry, at some point in 2020, all of it will be. I don’t know offhand exactly in Q1, but certainly by Q2, it should all be. In general, that once the space is leased up, you might have six months at the most of sort of either free rent or fitting out time. So by Q2, all of that 75% will be online and I’d expect by the end of the year, all 100% of it will be.

Mario Saric

Okay. And so given that color and you’ve been successful in kind of maintaining your occupancies in the mid-60s in the portfolio, how has your outlook changed in terms of same-store growth in 2020 from the result?

Brian Kingston

Yes. Look, I think we’re still anticipating for 2020 positive same-store NOI growth. But it’s – it will be modestly above zero, somewhere between zero and 1.5%.

Mario Saric

Okay. Got it. And then sort of 2021 is a bit further out. But given the re-leasing success that you’ve had, would the anticipation be that, that number should get better in 2021 versus 2020, assuming that the level of bankruptcy isn’t as high in 2020 versus 2019.

Bryan Davis

Yes, I think, when we do get back to a sort of stable long-term market, the expectations in our same store NOI growth from that business should be 2.5% to 3%. So I won’t get too specific about 2021, but I think it’s going to move from that zero to 1.5% to 2.5% to 3% over time and 2021 should be in that direction.

Mario Saric

Got it. Okay. And then just by my last question, just on the realized gains. The net proceeds from asset sales totaled $1.8 billion in 2019 sounds like you are expecting something similar for the next couple of years. The disclosed realized gains per unit were $0.18 kind of below the $0.50 that you delivered in the last couple of years and I think your annual target on a longer-term basis is that just a mix issue, timing increase in units outstanding last year and do you expect to return to that kind of $0.50 per unit going forward?

Bryan Davis

Yes, it’s almost entirely timing related. So we had a number of large realizations toward the end of 2018. We had fewer in 2019. And I think there’s number of things in the works for early 2020, that’s where it gets it back on. So I think that, that $0.40, $0.50 on a long-term basis is a good stabilized measure, but it is lumpy as you pointed out, because these transactions don’t necessarily follow the calendar years.

Mario Saric

Got it. Okay. Thank you.

Brian Kingston

Yes. Okay.

Operator

Thank you. And our next question is a follow-up from Sheila McGrath with Evercore, Your line is now open.

Sheila McGrath

I guess a couple of modeling questions. Can you give us an insight on 100 Bishopsgate, 1 Manhattan West and the SoNo Collection, when did they hit? Were they in for the full quarter or fourth quarter? And then similar question on the re-leasing of the 3.2 million square feet of bankruptcies, has the re-leasing of that, has that already impacted the income statement or is that something that should impact sometime in 2020?

Brian Kingston

Yes, Sheila, I will just take 100 Bishopsgate and 1 Manhattan West first. I’d say they actually had a negative impact to our earnings this quarter, although construction is finished, tenants are still moving in. At 100 Bishopsgate, we’re only about 20% physical occupancy and at about – at 1 Manhattan West, I think we’re only 5% physical occupancy and typically rent tracks the tenants moving in. So we don’t expect until towards the end of 2020 to reach stabilization on those two properties.

SoNo, had about 85% physical occupancy when it opened, but I’ll remind you that, we now only own 19% of that property because we sold the balance to partners. So it didn’t really have that much impact on our current period results. The one other one I may mention is 1 Bank Street. That again was another property that we completed construction in 2000 – in Q3. It’s at 40% physical occupancy too. So it’s about breakeven, but we’ll start contributing to earnings in the early part of 2020 of this year.

And I think just to reiterate Bryan’s comments on the 3.2 million square feet. There may be elements of it that were contributing to results, but on an overall basis as you saw from our same store performance in Q4, not a lot of it was contributing to our results. And our expectation is that by the end of 2020, that we’ll be fully at least that space and that will be contributing to NOI.

Sheila McGrath

Okay, great. And then on – you have a couple through Forest City acquisition, a couple of San Francisco developments Pier 70 and 5M. I know you announced a new timber building at Pier 70, but then there were reports that you were in discussions with a single tenant for the entire project. Can you just update us on what’s going on at Pier 70 and 5M?

Brian Kingston

Yes. So it would be a little premature to comment specifically on any tenants, but what I will say is, the San Francisco market is virtually fully occupied. There’s a lot of demand for this. And as I think Pier 70 is a pretty unique offering for large scale tenants in that market, particularly with the transportation links it has. So we’ve got a lot of interest on that and I anticipate over the course of this year, we’ll probably have more to say, but it’s a little early to comment specifically on any tenants.

Sheila McGrath

And do you need Prop M allocation for either 5M or Pier 70, are there already?

Brian Kingston

Yes, they’re both – they’re both fully allocated. Yes.

Sheila McGrath

Okay. And then just on the London Wall acquisition of buying out your partner, can you just give us some insight on what drove that transaction?

Bryan Davis

Well, it was a 50-50 partnership. Our partner on that one had decided to take their interest to market. They got offers that we thought were below the value of the asset. And so as 50-50 owner, we had sort of a last look at the price. And so we elected to buy it rather than see somebody else purchase it that price.

I think the expectation was and you’ll sort of roll back the clock. This was a pretty uncertain time with respect to Brexit and we thought that the bids were discounted as a result of that. My expectations over the course of this year, you’re going to see values move pretty materially in London and that’s we think it’s going to be a pretty attractive basis that we’ve got on that asset. Yes.

Sheila McGrath

Okay, great. Thank you.

Brian Kingston

Okay.

Operator

Thank you. And our next question is a follow up from Mario Saric with Scotiabank. Your line is now open.

Mario Saric

Hi. Sorry, just one more for me. The IFRS NAV was up 4% quarter-to-quarter, which is probably the strongest increase that we’ve seen in three-plus years, albeit some of it was due to the stronger British pound I think, Bryan, as you mentioned. How much specifically related to 1 Manhattan West and 100 Bishopsgate, how much additional fair value increase do you see in those two assets going forward in terms of recognizing fair value gains in IFRS?

Bryan Davis

There will be a fair bit. I’m going to avoid giving exact percentages or exact numbers because we don’t specifically talk about values on assets, but I’d say a little bit less for 100 Bishopsgate because we are farther along in terms of occupancy and getting our tenants in place. But as you can imagine, with these IFRS models, the cash flows and the free rent periods burn-off, that really drops to the bottom line value of these underlying properties. So I’d say that we still expect to see a fair bit more of unrealized gains associated with both of these properties as the tenant fill up and ultimately, the tenant’s cash, free rent period start to burn off.

Mario Saric

Got it. So, would it be fair to say that of the roughly $500 million of fair value gains in Core Office this quarter modest amount of that would be related to those two?

Bryan Davis

Yes. And you can specifically see in our supplemental where we do break out fair value gains associated with our development properties in the continuity. So you could probably get a sense that those values are attributed to the projects at 1 Bank, 100Bishopsgate and 5 Manhattan West in particular, but then – almost two-thirds of the fair value gains that we had related to our operating properties, just related to sort of our Core Office, Core Retail and operating in LP investment properties.

Mario Saric

Got it. Okay. Thank you.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. Now I’d like to turn the call back over to Brian Kingston, Chief Executive Officer for any closing remarks.

Brian Kingston

Okay. Thank you everyone for joining the call today and we look forward to providing you further updates over the course of 2020. And obviously in the meantime, should you have any questions, please don’t hesitate to contact any of us. Thank you.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

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