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Brookfield Property Partners LP (NASDAQ:BPY)
Q3 2019 Earnings Call
Nov 6, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Brookfield Property Partners Third Quarter 2019 Financial Results Conference Call. [Operator Instructions]

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 -- Senior Vice President of Investor Relation & Communications

Thank you, and good morning. Before we begin our presentation, let me caution you that our discussion will include forward-looking statements. These statements that relate to future results and events are based on our current expectations. Our actual results in future periods may differ materially from those currently expected because of a number of risks, uncertainties and assumptions. The risks, uncertainties and assumptions that we believe are material are outlined in our press release issued this morning.

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

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Thank you, Matt, and good morning, everyone. And thank you for joining our call. With me on the call today are Ric Clark, the Chairman of BPY; Bryan Davis, our CFO, and Sandeep Mathrani, our Global Head of Retail Real Estate.

In my prepared remarks, I'll recap our operating performance from 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 may have seen in our disclosure this morning, the third quarter of 2019 was highlighted by the recent completion of several of our development projects, including two marquee buildings for Brookfield in New York and London, delivering over 3 million square feet of modern office space, that's approximately 85% leased upon opening. These buildings demonstrate the strong demand we continue to see for our premier well-located office assets.

Despite a strong asset performance, BPY shares currently trade at a discount. We therefore continued on the path of repurchasing shares this quarter since we believe it represents an attractive investment opportunity for us. As a result, total purchases for this year now total over $500 million. Gross dispositions totaled $3.7 billion in the third quarter, $1.4 billion at our share -- prices that were 4% above our IFRS carrying values. These sales generated $723 million of net proceeds to BPY, bringing our year-to-date total to $1.2 billion.

With expected sales in the fourth quarter of this year, we expect to achieve our goal for the full-year of 2019. Asset sales completed during this quarter included office buildings in Sydney and Boston, and multifamily development in Brooklyn, and a newly developed Mall in Norwalk, Connecticut. The typical real estate cycle movements in cap rates tend to move in lockstep with interest rates. Over the last 12 months, while we've seen a dramatic decline in interest rates in both the US and in Europe, this is yet to be reflected in the valuation of our assets.

To put this into perspective, 100 basis point reduction in cap rates, adds almost $20 to our net asset value per unit. The continued low interest rate environment should translate into higher demand for real assets, which will increase the value of our portfolio of properties. It also assists us in continuing to monetize mature, derisked assets at great prices and reallocating that capital to development and other higher returning investment opportunities.

Moving to our core business operations, our global office business completed over 1.9 million square feet of leasing in the third quarter at rents that were more than 30% higher than leases expire during the period. The significant mark-to-market on rents drove same-store growth of 2.5% over the prior-year.

Strong leasing results coupled with increased fee income led to a 10% increase in company FFO, in this segment, this quarter. Our development program has begun to deliver brand new premier office buildings in our strategic operating markets. In October, we completed three of our largest office development projects to date, two office towers in London and one in New York, totaling nearly 4 million square feet. These projects cost $3.6 billion to build, and will be worth approximately $5.5 billion at stabilization. More importantly, they will add approximately $150 million of net operating income to our operations.

We also signed our first lease at two Manhattan West with law firm Cravath, agreeing to a lease for 481,000 square feet or approximately 25% of the building. The Manhattan West campus is state-of-the-art office environment, engaging amenities and direct access to transportation continue to attract leading companies to relocate there.

Overall, the pre-let commitments on our entire 8 million square foot active development pipeline has increased 800 basis points to 60%. As these projects complete and stabilize over the next four years, collectively, they will contribute an additional $300 million of net operating income.

In our core retail business, over 10 million square feet of leases have commenced in 2019, with rent spreads on a suite-to-suite basis growing at 5.4%. At quarter end, the portfolio was 95% leased and we expect to be at 96% by the end of the year. Comparing to the prior year period, in-place rents increased 2.4% and NOI weighted tenant sales increased 5.4% to $787 per square foot, another new high for the portfolio.

Less than a month ago, we opened the doors to our new 700,000 square foot mall, the Sono collection in Norwalk, Connecticut. The first several weeks of operations have been extremely successful with consumer traffic in the tens of thousands, and several of our retailers reporting sales above their expectations. This type of productivity should only increase as we enter the holiday shopping season.

We continue to see a backlog of digitally native retailers who wish to open stores within our malls. Our biggest issue today is deciding which retailers to lease space to in the limited vacancy we have available for them. We believe this will increasingly be a focus for our business as online and store based retail coverage converge.

Looking forward to 2020. We've established a leasing goal of over 8 million square feet in our retail business, of which, almost half is already completed. We continue to focus on opportunities to redevelop, reposition and densify our retail centers. At Investor Day in September, we described nine near-term and six long-term projects, which in aggregate will create approximately $1.2 billion of asset value over the next several years. This represents a unique organic investment opportunity for us to drive meaningful growth in our retail business.

Before I turn the call over to Bryan to discuss our quarterly financial results, I wanted to briefly update you on our latest financing initiatives. Capital markets continue to be very conducive for well capitalized property owners to finance high quality real estate at attractive -- on attractive terms.

Consistent with our strategy of placing non-recourse investment grade debt on each of our assets, during and subsequent to the quarter, we executed the following transactions. We refinanced the recently completed 100 Bishopsgate office tower in London for approximately $1.1 billion, returning 100% of our equity in this development and generating net proceeds to BPY of approximately $450 million.

The new mortgage has a five-year term at a floating interest rate of approximately 2.5%, and going forward, this property will produce approximately $40 million of annual FFO to BPY with zero capital invested. In core retail, we completed an aggregate of $1.3 billion of asset level financings, generating net proceeds to BPY of approximately $343 million. These new mortgages are all floating rate with an average term of approximately five years.

And finally, we issued $250 million of Perpetual Preferred green units. The first of their kind in the industry.

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

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Thank you, Brian. During the third quarter of 2019, BPY earned Company FFO and realized gains of $324 million compared with $302 million for the same period in 2018. This increase is due to a combination of the additional capital raised and invested in our core retail business. Same property growth and higher fees earned in our core office business.

In the prior year, we also benefited from $53 million of realized gains from the sale of a portfolio of self-storage properties in our BSREP II investment. We did not earn any realized gains in the current quarter from our LP investments, but do expect to earn gains in the fourth quarter related to the sale of our Manhattan Multifamily Portfolio referenced in our press release.

On a per unit basis, company FFO and realized gains for the quarter was $0.34 per unit, compared with $0.38 per unit earned in the prior year. Net income attributable to unit holders for the quarter was $474 million or $0.49 per unit, compared with net income of $380 million or $0.47 per unit earned in the prior year.

In the current quarter, we recorded unrealized net fair value gains of $322 million which included $518 million in gains from our investment properties, primarily related to higher cash flow estimates for our core properties and improved valuation metrics in our LP investment properties.

In addition to that we had gains in our active developments as we progressed construction and leasing and reduced overall risk.

Our core office business earned $150 million of company FFO compared with $136 million in the prior year. The current quarter benefited from 2.5% same property NOI 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 an additional $13 million performance-based fee on a property that we had sold back in 2015.

This increase was in addition to the $38 million earned in the prior quarter related to the same fee. 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 or used to reduce leverage, or were invested into our development and redevelopment projects that are not yet generating a similar level of current earnings.

In addition, the strong US dollar continued to have a negative impact on earnings. In our core retail business, we earned $201 million of company FFO, compared with $146 million earned in the prior-year. Our additional investment in this portfolio contributed to this increase. We also benefited from the sale at one of our -- the sale of land at one of our properties and from the gain on the sale of part of an investment we had made in an operating company. In aggregate, these two transactions contributed $28 million to our results.

Results this quarter continue to be impacted by bankruptcies that took place since the beginning of 2018. These bankruptcies which aggregate 3 million square feet have put pressure on our same-property NOI results, which were flat on a period-over-period basis. But a significant progress has been made in releasing 75% of that space at higher rental rates. We expect this impact to only be temporary.

In addition, we did have an incremental $7 million in general and administrative expenses this quarter compared to last. As a result of the requirement to expense internal leasing costs that were previously capitalized.

Our LP investments earned $74 million of company FFO and realized gains, compared with $127 million earned in the prior year. The decrease of $53 million was entirely due to the realized gain I previously mentioned. Absent that gain, company FFO was flat with the prior period as the benefits of increased earnings in our best BSREP III investment, merchant build income in our multifamily fund investments were offset by realizations in our first and second opportunity fund investments and the impact of Hurricane Dorian on our property in the Bahamas, which sustained no damage, but was impacted by cancellations.

In the prior quarter, we earned Company FFO and realized gains of $362 million or $0.38 per unit. The prior quarter benefited from the $38 million performance fee earned in our office business and from $27 million in realized gains earned from the sale of an office complex in California.

Our proportionate balance sheet ended the quarter with equity attributable to unit holders of $27.5 billion or $28.61 per unit, our overall assets were largely unchanged at $85 billion. Assets held for sale this quarter included an office property in Sydney, Australia and five properties in our Manhattan Multifamily investment in BSREP I which were sold subsequent to quarter end. And in that case, where we realized a 19% gross IRR and a 2.2 times multiple of capital.

Although, we completed construction of three office developments this quarter that Brian referenced, they will remain classified as developments until the tenants make further progress in building out and occupying their space. We also added to our development listing on Page 29 of the supplemental, the 784-unit, multifamily high rise at 755 Figueroa in Downtown LA, that was highlighted at our Investor Day this past September.

We expect this development to cost about $540 million in total and be built to a yield on cost in excess of 7%.

Lastly, as a reminder, 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 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.

Now, with those as my planned remarks, operator, we are pleased to open up the line for questions.

Questions and Answers:

Operator

Certainly. [Operator Instructions] Our first question comes from the line of Sheila McGrath from Evercore. Your question please.

Sheila McGrath -- Evercore -- Analyst

I guess, I had a question on the retail asset sale in Connecticut. I guess you are selling an interest in that prior to stabilization, what was the philosophy there, and if you could give us some insight on cap rate or how that sale price related to your cost basis?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes, sure. So we sold an 80% interest in the mall to an investment vehicle that we're managing for some of our investors and the philosophy was it's actually been sold on a stabilized basis, so we're underwriting that lease-up and getting our full development profit that we would expect for a project like this. So the sale price was based on a stabilized NOI.

Sheila McGrath -- Evercore -- Analyst

And Bryan, was there a remaining capital to spend on that asset that shift to the new entity?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

No, so we retain the liability to spend the remaining capital, and they effectively by a fully stabilized completed mall.

Sheila McGrath -- Evercore -- Analyst

Okay. So the -- but was there a valuation that you sold it, was it higher than your cost basis?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Absolutely. Yes.

Sheila McGrath -- Evercore -- Analyst

Okay.

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

This is a fully stabilized mall in one of the highest income demographics in the United States. We made a lot of development profit on this one.

Sheila McGrath -- Evercore -- Analyst

Is there any way you could give us some insight on the cap rate on that?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

It's at 5%.

Sheila McGrath -- Evercore -- Analyst

Okay. And then on the Bishopsgate refinancing, at the lenders valuation of that building, how much value did BPY create on that project. Just give us kind of the cost basis and new valuation?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes. So the lenders value is exactly the same as what we talked about at Investor Day in September. So, there's actually a slide in there that highlights that for you as well as the development profit, but it's almost $1 billion of development profit.

Sheila McGrath -- Evercore -- Analyst

Okay, great...

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Know this, the lenders value would be consistent with that value that we have in upfront [Phonetic].

Sheila McGrath -- Evercore -- Analyst

Okay. And then on buyback of shares, it certainly makes sense. At current levels where the shares are versus NAV, how much room do you view that you have for additional buyback or just tell us how are you thinking about that right now?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yeah, well, obviously, in August we renewed the normal course issuer bid. So I think we have about the ability to buy back another 30-ish million shares under that, and so as we sort of highlighted in the press release, we've been fairly active in the market over the past quarter and continue to be into the fourth quarter and I'd expect we will be over the course of the year, as we have been in past. The only other thing to think over and above that is whether we do a another substantial issuer bid as we did in January, and I think that really is a function of where the share price trades versus other investment opportunities that we've got. But we'll certainly continue to be very active on the normal course issuer bid.

Sheila McGrath -- Evercore -- Analyst

Okay, great. I'll get back in the queue.

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

All right. Thanks.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Mario Saric from Scotiabank. Your question please.

Mario Saric -- Scotiabank -- Analyst

Hi, good morning. Just on the -- just on the commentary of I guess an increasingly disconnected private versus public market valuation for real estate in general given cap rates haven't responded to the decline in the US 10-year treasury. Based on your historical experience and maybe even discussions with LP investors today. What do you think is going to be a primary catalyst for the private market valuations i.e. cap rates to react to these lower sovereign bond yields. And are you concerned at all of what potential spread expansion going forward that would offset the declined in the [Indecipherable]?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Well, look, I think there is always a lag effect between when the interest rates move, and then, when private markets keep up and that's because bond markets react on a daily basis and it takes time for the sort of larger liquid transactions to happen. So I'd say in our discussions with both potential investors in our various fund vehicles and whether that's in real estate or infrastructure, any of our asset classes, their number one issue right now is -- where to put capital to work that's going to earn them a yield and replace some of these fixed income investments that they have as they're rolling over that are at zero and sometimes less than 0% reinvestment rates.

So I'm not sure there is a hard catalyst for that to happen. I think it just takes a bit of time for those prices to adjust. But we think it's coming, we're clearly in a relatively low interest rate environment and while it may move up a bit from here. I think there is still, as we sort of highlighted, there's still a fair amount of spread between where those base rates are and where we're seeing capital markets transactions happen. I think it's just a matter of time for that adjustment to take place.

Mario Saric -- Scotiabank -- Analyst

Okay. And would the comment be consistent across asset classes. Because clearly based on where publicly [Indecipherable] across various asset classes. The outlook for retail versus industrial, multifamily is quite different in the marketplace with our [Indecipherable], would it be fair for retail as well or is that something different?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes, well, look, I mean, cap rates are a sort of a convenient way. First, I'll talk about where pricing is. But obviously, what's more relevant is the overall return. And so, clearly, in sectors where investors are predicting or anticipating higher growth, whether that's multifamily or industrial, that can justify a lower cap rate than some other sectors where they may think that growth will be somewhat harder to come by, or where there are -- there may be more capital associated with that. So I'd say the cap rates are sort of a useful headline, but it is hard to compare them across various asset classes. You really do have to just look at investor return expectations.

Mario Saric -- Scotiabank -- Analyst

Right, OK. And then you mentioned the SoNo collection is a unique asset, are -- were there any implications or -- that you can take away from the pricing on that transaction, whether it's on a per square foot basis cap rate or whatever the primary metric you want to look at in terms of the value, you're subscribing to the rest of your retail portfolio?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

No, I'd say it's in line with how we're carrying the portfolio, overall. So I think it's good validation for that, and as we often talk about, it's not for these type of assets, there's not a lot of transaction volume, given how closely held they are, and so, I think having some market evidence is helpful, but I don't think it indicated anything other than we're comfortable with, again with the difference [Phonetic] value on the portfolio overall.

Mario Saric -- Scotiabank -- Analyst

Got it, OK. And then, maybe, just switching gears to development. I just want to confirm, Bryan Davis mentioned in terms of the accounting for the 4 million square feet that was put into production on the office development side, I just want to confirm that there was really no FFO or NOI contribution from those projects in Q3?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

That is correct, other than -- as they remain development projects, we continue to capitalize interest associated with the equity that we have invested in them. Likely, the fourth quarter maybe the first quarter, it probably depends project by project, they will shift over into operating properties, at which point we see capitalizing any interest and/or costs, and start recognizing rent. There is typically a lag period between when these things start generating full stabilized earnings, but that transition is likely to take place end of the year, beginning of next year.

Mario Saric -- Scotiabank -- Analyst

Got it, OK. And on the $1.9 billion of value creation that you referenced on that 4 million square feet -- how much of that would be reflected in your IFRS, now, as of Q3?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

That, I'd say about 60% of the value creation has been recognized in our values as of Q3.

Mario Saric -- Scotiabank -- Analyst

Got it. Okay. And then just maybe sticking to Manhattan West. I think you identified that about 80% of the entire development is occupied or at least at this point. Can you maybe provide us with some internal benchmarks in terms of how you expect that 80% to progress over the next couple of years?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes. So at this point One Manhattan West is actually probably 90% leased, and the overall project is even higher than that. So, the project is substantially leased to Manhattan West, which is under development and three-ish years away from being delivered, is about 25% pre-let. With the recent signing of the Cravath lease. Does that answer your question, Mario?

Mario Saric -- Scotiabank -- Analyst

Maybe, more specifically, then I think in terms of to Manhattan West, the 25%, like what would be a good outcome for Brookfield in terms of the trajectory of the pre-leasing in that building...

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes, we have about 1.5 million square feet of current interest and discussions going on right now. So it's a little hard to predict, but I'd say our business plan is hoping for, have the building something like 50% leased by the end of next year with over two years to go before it is delivered. We could potentially outperform that. So our expectation is, given the nature of the market. The interest in new and redeveloped buildings, the interest in the West side is that we will have to substantially put to bed before it's delivered similar to the outcome of One Manhattan West.

Mario Saric -- Scotiabank -- Analyst

Okay. And broadly speaking, I'd say in the market, there has been or there is a bit of negative sentiment on the New York office leasing side, your portfolio is doing relatively well. Can you go through over the next couple of years, in terms of, lease expiries and whatnot. Is there anything on the radar, that could impact kind of your same-store numbers in your New York office portfolio either positive or negative over the next couple of years?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes, we don't have a lot of exposure to lease rollover over the next few years. And I'd also say, Mario, that the -- in New York City, it's in Manhattan, it's sort of the tail of have and have-nots. Brand new buildings and redeveloped buildings are actually performing extremely well and achieving rental rates higher than ever seen and that's consistent with our portfolio here. So that's our experience currently, no near-term rollover of any significance. So I think that we're in great shape.

Mario Saric -- Scotiabank -- Analyst

Okay. And just my last question before I turn it over. Just on -- on the increased interest in the retail component of the Crown Building. Can you kind of share updated thoughts in terms of what the plans are there, timing and targeted returns.

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

So, we basically have three spaces on Fifth Avenue, which we are in negotiations with tenants. So we expect the Fifth Avenue and the 57th Street [Indecipherable] of the project to be all leased by the first or the second quarter of 2020, that just leaves us with the second floor space, which is going to be constructed before we leased it out into -- into small stores. So the good news is the more expensive space should be all leased up by the first half of 2020, [Indecipherable] work in lease negotiations right now.

Mario Saric -- Scotiabank -- Analyst

Okay. And then, I guess, the target returns on the $700 million incremental spend would be in what range?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Well, it's consistent with our targeted returns across all of our various retail investment. So I think, we think we can get sort of mid-teens returns on the type of risk that we're taking.

Mario Saric -- Scotiabank -- Analyst

Okay, that's great. Thank you.

Operator

Thank you. Our next question comes from the line of Neil Downey from RBC Capital Markets. Your question please.

Neil Downey -- RBC Capital Markets -- Analyst

Thank you. Good morning. Part of the program or the plan at the time of the GGP privatization was to continue to sell some additional whole or partial interest in some of those core retail properties. Can you give us an update as to where you may stand in terms of potential negotiations with respect to asset sales or plans over the next 12 months?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yes. So as you would expect the investor appetite particularly at the prices that we think would justify selling assets in the current environment is not easy. So I think it's taking a little longer than we would have anticipated. I think we did give ourselves, Neil, to be fair, four years to get this done and it won't necessarily be evenly spread over the four years. I think in part it will just depend on investor appetite. These are large chunky assets, there is a relatively small number of institutions that are capable investing in them, and so it will, it will come in time, but it won't be a sort of smooth line over those four years. So there, we've got a number of discussions under way. But I think it would be premature to predict timing.

Neil Downey -- RBC Capital Markets -- Analyst

Okay, thank you for that. And with respect to the core retail net operating income, whether I'd take the nine months figure, and kind of pro-rate it to an annualized number or whether I take Q3 and multiply by four kind of to get a run rate. Either way, I do that, there is about $1.7 billion of annualized NOI, you've also clearly articulated that you've got a lot of leasing done, and that will be taking occupancy through the fourth quarter. How much of an uplift on an annualized basis in dollar value should we expect from the 75% of that vacant space or the former bankruptcy space that you've got released like, what's the impact relative to the $1.7 billion current run rate?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

So I'll try to answer it at a high level and see if we can get there together. But our expectations overall, we should be -- the NOI should be growing in the neighborhood of 2% on an annual basis, so 2% on that $1.7 billion is probably a good number and that captures a number of things, Neal, so I'm not sure how to quite isolate necessarily the 3 million square feet that was a result of the bankruptcies that we've released back up but it's all -- so that's a combination of marking-to-market leases that are rolling, as well as the uplift, it's coming from that.

Neil Downey -- RBC Capital Markets -- Analyst

Okay. So I guess, to rephrase that -- you do talk about carrying of the weight of these bankruptcies, but you seem to not be suggesting that there is a significant NOI upside to be captured over the next 12 months or 24 months, as this -- if these leases start paying rent or that's what I'm struggling with a bit, Bryan.

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Yes, I guess, in the context of 120 million square feet, getting a 7% percent mark-to-market on 3 million square feet is meaningful. It's not moving our NOI by 10%.

Neil Downey -- RBC Capital Markets -- Analyst

Yeah, yeah.

Sandeep Mathrani -- Chief Executive Officer, Retail Group and Vice Chairman

And again, as Bryan said, I mean, you know the same store, the core NOI growth in 2020 is -- is accounted there to be about 2%.

Neil Downey -- RBC Capital Markets -- Analyst

Okay, thank you.

Operator

Thank you. Our next question is a follow-up from the line of Sheila McGrath from Evercore. Your question please.

Sheila McGrath -- Evercore -- Analyst

I guess, Bryan, you mentioned in core retail you refinanced several assets. I was wondering if you could give us insights on how the lenders valuations were compared to your expectations. And any thoughts on how the lenders are looking at financing retail assets right now?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Yes. So I'd say, similar to the comments on Bishopsgate, the lenders values and the various appraisals and that sort of thing are all coming in line with our IFRS which shouldn't be surprising, because as we say, we sort of use these opportunities through refinancings, etc., to make sure that our IFRS values are consistent with what we're seeing in the market. So I'd say there is no big difference in terms of where the valuations came out relative to our thoughts on value or where we're carrying them. I would say, generally, the mood within retail is there is significant amounts of capital available at reasonable prices, to well-capitalized owners of scale such as ourselves. And so, although, I wouldn't characterize these refinancings all as easy. They certainly are on attractive terms and the capital is readily available. I don't know that that necessarily applies as a broad spectrum to all owners of of retail today or all assets frankly. But I think for very high quality malls like we own, with a high quality operator like we own the -- our ability to refinance and not only refinance but up-finance these assets, we took a significant amount of additional capital out of them as a result of these refinancings at good prices. These are sort of 3.5% interest rates on malls that might have cap rates that are significantly above that. So it is creating a pretty attractive equity yield on these malls.

Sheila McGrath -- Evercore -- Analyst

And why -- what is your thoughts on doing all floating rate debt. Interest rates are so low. Why not do fixed rate?

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Yes, so in part our decision around fixed or floating and this is true for malls or industrial or malls or office buildings, etc. We try and match up the financings with our business plan. So it just so happened in this case, all of the malls that we refinanced this quarter, either are transitional in nature where we're spending some capital. And we think there will be an opportunity to refinance again in a couple of years, or assets where we're looking to sell or bring in partners, and so for that reason we keep the debt terms a little more flexible. In the fourth quarter, we were in the process of completing a couple of others and they're all going to be at fixed rates because they're sort of longer-term hold. So it's more driven by the business plan of the assets for that -- than an interest rate call.

Sheila McGrath -- Evercore -- Analyst

Okay. And then on the 75% of bankruptcy space that you've already backfilled, when will those new leases start to impact the bottom line? Is it mostly next year, or will we see some impact in the fourth quarter? And also can you let us know how Brookfield fared with Forever 21?

Sandeep Mathrani -- Chief Executive Officer, Retail Group and Vice Chairman

So, should I -- it is [Indecipherable]. It will start to roll in by the second to third quarter of next year. We are ending this year at 96% leased. So we are pretty much at full occupancy, but these new tenants will come into roll by second and third quarter, next year, because it takes about six months to nine months as you know to build out the space and for them to open. Again, with Forever 21, we had -- the only closures we had in our portfolio were the Riley ROS concept. We had no actual Forever 21 closures and so that was the status of how we fared.

Sheila McGrath -- Evercore -- Analyst

Okay, great. And just on the fee streams, you mentioned in the office segment. Could you remind us the driver of those fees and is that a good run rate in the quarter?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

I did mention that there is a -- probably an incremental $13 million that we included in the quarter, that's more transactional based. It was really a performance fee related to an asset that we sold a while ago. But if you subtract out that $13 million, I think you get to about $28 million in fees, in the core office segment. That is a -- an attract -- that is a consistent run rate going forward. And it really represents property management fees, leasing fees, which can be lumpy at times, and then construction and development fees as well.

Sheila McGrath -- Evercore -- Analyst

Okay. And last question, the perpetual green units, what are those exactly? And do you, is the use of proceeds have to be targeted to environmental or sustainable kind of spend?

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Yeah. At the end of the day, they're really just Perpetual Preferred shares that have been issued by BPY, unlike our previous strategy for issuing Perpetual Preferred Shares, these were issued into the US market. And instead of being issued out of a subsidiary into the Canadian market, like we have in the past, they were issued right out of the BPY to get them to be labeled as effectively as Green Preferred shares. The proceeds have to be used effectively for Green Projects as you had indicated. That just really broadens the investor base, and hopefully, over time, as people get comfortable with respect to this instruments, since ours was the first, it will actually benefit us in pricing as well.

Sheila McGrath -- Evercore -- Analyst

Okay, thank you.

Operator

Thank you. And this does conclude the question-and-answer session of today's program. I would like to hand the program back to Brian Kingston, CEO, for any further remarks.

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

So thank you again everyone for joining us on the call today, and we look forward to providing you an update again at the end of the fourth quarter.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Matthew P. Cherry -- Senior Vice President of Investor Relation & Communications

Brian Kingston -- Managing Partner, Chief Executive Officer Real Estate

Bryan Kenneth Davis -- Managing Partner of Rest Estate & Chief Financial Officer

Sandeep Mathrani -- Chief Executive Officer, Retail Group and Vice Chairman

Sheila McGrath -- Evercore -- Analyst

Mario Saric -- Scotiabank -- Analyst

Neil Downey -- RBC Capital Markets -- Analyst

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