All dollar references are in
“We had another successful quarter with strong operational results driving year-over-year Company FFO per unit growth of 12%,” said Brian Kingston, chief executive officer. “We continue to generate attractive returns from our capital recycling initiatives from both balance sheet assets and private real estate funds.”
Financial Results
| Three months ended March 31, |
||||||
| (US$ Millions, except per unit amounts) | 2018 |
2017 | ||||
| Net income(1) | $ | 1,023 | $ | 187 | ||
| Company FFO(2) | $ | 268 | $ | 237 | ||
| Net income per LP unit(3) | $ | 0.69 | $ | (0.21 | ) | |
| Company FFO per unit(4) | $ | 0.38 | $ | 0.34 | ||
(1) Consolidated basis – includes amounts attributable to non-controlling interests.
(2) See "Basis of Presentation" and “Reconciliation of Non-IFRS Measures” in this press release for the definition and components.
(3) Represents basic net income attributable to holders of LP units. IFRS requires the inclusion of preferred shares that are mandatorily convertible into LP units at a price of
(4) Company FFO per unit is calculated based on 703.6 million units and 706.9 million units outstanding for the three months ended March 31, 2018 and 2017, respectively. See reconciliation of basic net income in the "Reconciliation of Non-IFRS Measures" section in this press release.
Net income for the quarter ended March 31, 2018 was
Company FFO was
Operating Highlights
Excluding a one-time gain last year, our Core Office operations generated 13% quarter-over-quarter growth and Company FFO of
Occupancy in our Core Office portfolio finished the quarter at 92.6%, consistent with the prior quarter and up 1.1% over the prior-year period, on just shy of a million square feet of total leasing. New leases were signed at average rents approximately 17% higher than leases that expired during the quarter.
Our Core Retail operations generated Company FFO of
Same-property Core Retail occupancy finished the first quarter of 2018 at 94.3%, a decrease of 0.4% over the prior-year period, with average suite-to-suite rent spreads of 21% for leases commencing in the trailing 12 months. Tenant sales (excluding anchors) increased by 1% on a trailing 12-month basis to
Our opportunistic investments generated Company FFO of
| Three months ended March 31, | |||||||
| (US$ Millions) | 2018 | 2017 | |||||
| Company FFO by segment | |||||||
| Core Office | $ | 153 | $ | 136 | |||
| Core Office gain | − | 20 | |||||
| Core Retail | 116 | 110 | |||||
| Opportunistic | 114 | 83 | |||||
| Corporate | (115 | ) | (112 | ) | |||
| Company FFO(1) | $ | 268 | $ | 237 | |||
(1) See "Basis of Presentation" and "Reconciliation of Non-IFRS Measures" below in this press release for the definitions and components.
Strategic Initiatives
Dispositions
During the first quarter, we advanced a number of our capital recycling initiatives:
- Sold a 50% interest in Bay Adelaide Centre East and West towers in
Toronto forC$850 million . The properties were refinanced (details below) concurrent with the sale, resulting in total net proceeds ofC$566 million which were used to pay down the term loan and revolver used to privatize Brookfield Canada Office Properties in 2017. - Sold our 51% direct interest in 1801 California Street in
Denver for$286 million , resulting in net proceeds of$159 million . - Sold three
U.S. hospitality properties for$572 million ($348 million at BPY’s share). - Sold three
U.S. multifamily properties for$282 million ($66 million at BPY’s share). - Sold three opportunistic office assets in
Southern California for$60 million ($18 million at BPY’s share). - Sold three triple net lease properties for
$41 million ($12 million at BPY’s share).
New Investments
The proceeds raised from asset sales were used to invest in our active development pipeline and to fund new acquisitions, including:
- A 15-property student housing portfolio servicing 12 university cities in the
UK for £520 million (£133 million at BPY’s share). - A
UK -based owner-operator of 1,160 serviced apartments with assets in theUK and continentalEurope for £457 million (£126 million at BPY’s share). - The office building at 333 West 34th St. in
New York City for$225 million ($56 million at BPY’s share).
In addition, subsequent to quarter-end, we acquired:
- The Equinox Business Park, a four-building, 1.3-million-square-foot class A office park in
Mumbai, India for$375 million ($121 million at BPY’s share). - The 1.4-million-square-foot office building at 175 West Jackson St. in
Chicago for$305 million ($78 million at BPY’s share). - SI Centrum, a 1.2-million-square-foot mixed-use complex in
Stuttgart, Germany for €145 million (€45 million at BPY’s share).
GGP Transaction Update
On March 26, 2018, we announced that we had entered into a definitive agreement with GGP Inc. for BPY to acquire all of the outstanding shares of common stock of GGP other than those shares currently held by BPY and its affiliates. The preliminary proxy statement/prospectus was filed on May 2 and the transaction is progressing in normal course.
Balance Sheet Update
During the quarter, we executed on the following transactions to increase our balance sheet flexibility, increase liquidity and extend the maturity of our debt:
- Refinanced the Five Manhattan West office building in
New York for$1.2 billion . The loan has a seven-year term at a fixed rate of 4.2%. Net proceeds to BPY were$303 million . - Refinanced the Principal Place office tower in
London for £460 million, generating net proceeds to BPY of £123 million. The loan term is for 10 years at a fixed interest rate of approximately 3%. - Refinanced the Bay Adelaide Centre office complex in
Toronto forC$900 million . The loan was secured through the issuance of bonds with 10-year terms and a blended fixed interest rate of 3.9%. - Financed or refinanced a portfolio of
U.S. industrial operating and development assets for an aggregate of$286 million . The loans have three-year terms at a weighted average floating interest rate of L+1.56%. - Refinanced the EY Tower office building in
Los Angeles for$265 million . The loan term is 2.5 years at a floating rate of L+2.0%. Net proceeds to BPY were$42 million .
Distribution Declaration
The Board of Directors has declared the quarterly distribution of
The quarterly distributions are declared in
Additional Information
Further details regarding the operations of the Partnership are set forth in regulatory filings. A copy of the filings may be obtained through the website of the SEC at www.sec.gov and on the Partnership’s SEDAR profile at www.sedar.com.
The Partnership’s quarterly letter to unitholders and supplemental information package can be accessed before the market open on May 4, 2018 at http://bpy.brookfield.com. This additional information should be read in conjunction with this press release.
Basis of Presentation
This press release and accompanying financial information make reference to net operating income (“NOI”), same-property NOI, funds from operations (“FFO”), Company FFO (“Company FFO”) and net income attributable to unitholders.
Company FFO and net income attributable to unitholders are also presented on a per unit basis. NOI, same-property NOI, FFO, Company FFO and net income attributable to unitholders do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore may not be comparable to similar measures presented by other companies. The Partnership uses NOI, same-property NOI, FFO, Company FFO and net income attributable to unitholders to assess its operating results. These measures should not be used as alternatives to Net Income and other operating measures determined in accordance with IFRS, but rather to provide supplemental insights into performance. Further, these measures do not represent liquidity measures or cash flow from operations and are not intended to be representative of the funds available for distribution to unitholders either in aggregate or on a per unit basis, where presented.
NOI is defined as revenues from commercial and hospitality operations of consolidated properties less direct commercial property and hospitality expenses. As NOI includes the revenues and expenses directly associated with owning and operating commercial property and hospitality assets, it provides a measure to evaluate the performance of the property operations.
Same-property NOI is a subset of NOI, which excludes NOI that is earned from assets acquired, disposed of or developed during the periods presented, or not of a recurring nature, and from opportunistic assets. Same-property NOI allows the Partnership to segregate the performance of leasing and operating initiatives on the portfolio from the impact to performance from investing activities and “one-time items,” which for the historical periods presented consist primarily of lease termination income.
FFO is defined as income, including equity accounted income, before realized gains (losses) from the sale of investment property (except gains (losses) related to properties developed for sale), fair value gains (losses) (including equity accounted fair value gains (losses)), depreciation and amortization of real estate assets, income tax expense (benefit), and less non-controlling interests of others in operating subsidiaries and properties. FFO is a widely recognized measure that is frequently used by securities analysts, investors and other interested parties in the evaluation of real estate entities, particularly those that own and operate income producing properties. The Partnership’s definition of FFO includes all of the adjustments that are outlined in the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. In addition to the adjustments prescribed by NAREIT, the Partnership also makes adjustments to exclude any unrealized fair value gains (or losses) that arise as a result of reporting under IFRS, and income taxes that arise as certain of its subsidiaries are structured as corporations as opposed to real estate investment trusts (“REITs”). These additional adjustments result in an FFO measure that is similar to that which would result if the Partnership was organized as a REIT that determined net income in accordance with generally accepted accounting principles in
Company FFO is defined as FFO before the impact of depreciation and amortization of non-real estate assets, transaction costs, gains (losses) associated with non-investment properties, imputed interest and the FFO that would have been attributable to unitholders’ shares of GGP Inc. (“GGP”), if all outstanding warrants of GGP were exercised. Prior to the third quarter of 2017, the adjustment assumed net settlement of the outstanding warrants. For the third quarter 2017, the adjustment is based on the cash settlement for all applicable warrants to reflect the Partnership’s stated plans for settling the warrants on such a basis. The warrants were exercised in the fourth quarter of 2017. Company FFO, similar to FFO discussed above, provides a performance measure that reflects the impact on operations of trends in occupancy rates, rental rates, operating costs and interest costs. In addition, the adjustments to Company FFO relative to FFO allow the Partnership insight into these trends for the real estate operations, by adjusting for non-real estate components.
Net income attributable to unitholders is defined as net income attributable to holders of general partnership units and limited partnership units of the Partnership, redeemable/exchangeable and special limited partnership units of Brookfield Property L.P. and limited partnership units of
Brookfield Property Partners
Brookfield Property Partners is one of the world’s premier commercial real estate companies, with approximately
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