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Brookfield Property Partners LP (NASDAQ:BPY)
Q3 2020 Earnings Call
Nov 6, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Brookfield Property Partners Third Quarter 2020 Financial Results Conference Call. At this time, all participant lines are in listen-only mode. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded.

I'd now like to hand the conference over to your host today, Mr. Matt Cherry, Senior Vice President, Investor Relations. Please go ahead.

Matt Cherry -- Vice President of Investor Relations

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 And Chief Executive Officer

Thank you, Matt, and good morning, everyone. We hope everyone listening on the call today has remained healthy since our last update in August. With me on the call are Bryan Davis, our CFO; and Jared Chupaila, the CEO of our Retail business.

Looking at the third quarter, we were encouraged by consistent improvement in our operations. Each day we see more office workers, retailers, customers and visitors returning to our properties around the world. While there may be temporary setbacks as different regions reach different stages of recovery, we expect any closures in the future will be shorter and less severe than they were earlier in the year and therefore less disruptive to our overall business operations.

Importantly, capital markets are open and accessible to sponsors with strong balance sheets and premium quality assets. We continue to be able to finance and refinance properties, raise preferred equity and issue corporate bonds at attractive rates. As global economies have stabilized, weve also seen an increase in private market activity, allowing us to sell certain of our assets at premiums to their IFRS carrying values.

Derisked assets, generating income that is backed by strong credit quality tenants, like the ones that we own, continue to be attractive investments for institutional investors, seeking yield and stability in a low interest rate environment.

Rent collection in our core office business has remained normal and earnings have begun to recover in our ancillary retail and parking operations, as activity there has returned. While new leasing remains muted in North America, we have been encouraged by an increase in activity in markets such as Asia, where office utilization rates and tenant activity have returned close to normal. We have strong conviction that hereto workers will eventually return to the office, as they did prior to the pandemic.

The demographic forces that were driving increased white collar employment, urbanization, and demand for high-quality, high-amenity office buildings have not gone away. They are merely on pause temporarily. For example, we're in the active negotiations with a global tenant to anchor our next office development project in London, 1 Leadenhall. Importantly, the rents being negotiated are consistent with what we were anticipating prior to the pandemic. In New York, we observed a meaningful increase in tenant touring activity over the past several weeks with corporate headquarter requirements of over 2 million square feet currently looking for space in the market.

In fact, even companies that have publicly promoted a more flexible work from-home-policy, have not scaled back on their own long-term office requirements, opting instead to take advantage of the current disruption to secure even more space for their businesses. A large number of tech and financial services tenants have recently reconfirmed their commitment to either maintain or grow their office footprint in New York City, and other major commercial hubs, which comprise the majority of our portfolio.

Within our own business, we see the importance of face to face interaction for developing culture, training, collaboration and overall efficiency. And our discussions with tenants indicate that we're not alone. In our corporate offices, we've put in place the requisite spacing, sanitation and health checks protocols, to welcome back essentially all of our employees, and thus creating a blueprint for our tenants to do the same. As it stands, our office portfolio is 91% leased on a long-term basis with the remaining average lease term of over eight years. Organic growth continues to be driven by incremental earning contributions from newly developed assets, which this quarter totaled $25 million of NOI in excess of the prior year.

Our retail results, which Bryan will go through in detail in a few minutes, continue to be impacted by the economic shutdown, which caused a decline in mall revenues, fee income, and an increase in credit loss reserves. Operationally, however, we saw a marked improvement in the third quarter over the prior three months, and cash collections are once again approaching normal levels. We continue to progress negotiations with tenants regarding their contractual rent arrears, and believe any significant impact will be isolated to the second quarter. With the economy on a more stable footing than it was earlier in the year, and with over 94% of our retail tenants now open and operational, we're beginning to see sales that are not only approaching normalized level, but outperformance in certain markets. Customer traffic at our retail centers continues to increase, returning to 65% to 70% of normal in the third quarter. Tenant sales have similarly recovered and in certain segments are experiencing stronger sales versus this time last year. Not surprisingly, Class A centers are performing the best with sales per square foot nearly 50% better than Class B centers in the third quarter. And the growth we're seeing is sequential with sales in September up 9% over August.

The best performing categories were luxury fashion and jewelry with year-over-year sales growth between 36% and 13%, respectively. Brands enjoying continued success include Louis Vuitton, Chanel, Christian Dior, Bottega Veneta, Gucci, Cartier and Tiffany & Co. At the Miami Design District, for example, our high street retail corridor featuring 120 luxury brands, comparable sales for these retailers in the month of September were up 40% year-over-year.

Strong performance is not isolated to luxury, however, as sales for retailers with broad appeal, including Pandora and American Eagle Outfitters were likewise growing. Sales at large-format retail boxes are also up 14% year-over-year, a testament to the strong evolving one channel capabilities of retailers in this category. In the back-to-school, shopping center produced year-over-year sales growth in several additional categories, including children and teen apparel, athletic shoes and sporting goods.

Digitally native retailers continue to expand their physical footprint and overall offerings. Just last month, Amazon opened its 27th location for its fourth 4-star concept at our Willowbrook Mall in New Jersey, the first of its kind in the state. Along with their bookstores and go and fresh concepts, Amazon now has over 80 physical store locations in the U.S. with plans to open more. As we head into a busy holiday shopping season, many market observers are predicting year-over-year sales growth with a greater focus on goods rather than services. To ensure visitors to our properties continue to feel safe when they shop, we have launched Spot Holder, a virtual line queuing software that enables customers to skip physical lines and schedule on-site visits ahead of time from their phone. This technology also helps store managers accommodate social distancing requirements by tracking occupancy restrictions.

We also came to an agreement recently with Collection Sites to establish a network of pop-up COVID-19 testing sites in the parking lots of 75 of our centers across the U.S. These sites will make fast, convenient and accurate testing available to our communities in the weeks and months ahead. Similar to office, the majority of our LP Investments continue to perform well. The one outlier continues to be hospitality. However, the majority of our hotels have now reopened. At the Atlantis, we have a plan in place to welcome guests to the island beginning December 15. With the assistance of the Bahamian government, we have established a COVID-19 bubble at the resort, following the Cleveland Clinic protocols. We've procured rapid testing facilities, which will be located on site and all of our guests will be tested prior to boarding their inbound flights. For those receiving a negative result for COVID-19, there will be no quarantine restriction and guests will be free to enjoy all of the resorts, beach, water park, casino and other entertainment options. We plan to start flying planes to the island beginning December 15th from East Coast locations, including New York, Toronto and Montreal.

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

Bryan Davis -- Managing Partner

Looking at the third quarter, we were encouraged by consistent improvement in our operations. Each day we see more office workers, retailers, customers and visitors returning to our properties around the world. While there may be temporary setbacks as different regions reach different stages of recovery, we expect any closures in the future will be shorter and less severe than they were earlier in the year and therefore less disruptive to our overall business operations.

Importantly, capital markets are open and accessible to sponsors with strong balance sheets and premium quality assets. We continue to be able to finance and refinance properties, raise preferred equity and issue corporate bonds at attractive rates. As global economies have stabilized, we've also seen an increase in private market activity, allowing us to sell certain of our assets at premiums to their IFRS carrying values.

Derisked assets, generating income that is backed by strong credit quality tenants, like the ones that we own, continue to be attractive investments for institutional investors, seeking yield and stability in a low interest rate environment.

Rent collection in our core office business has remained normal and earnings have begun to recover in our ancillary retail and parking operations, as activity there has returned. While new leasing remains muted in North America, we have been encouraged by an increase in activity in markets such as Asia, where office utilization rates and tenant activity have returned close to normal. We have strong conviction that hereto workers will eventually return to the office, as they did prior to the pandemic.

The demographic forces that were driving increased white collar employment, urbanization, and demand for high-quality, high-amenity office buildings have not gone away. They are merely on pause temporarily. For example, wee in the active negotiations with a global tenant to anchor our next office development project in London, 1 Leadenhall. Importantly, the rents being negotiated are consistent with what we were anticipating prior to the pandemic. In New York, we observed a meaningful increase in tenant touring activity over the past several weeks with corporate headquarter requirements of over 2 million square feet currently looking for space in the market.

In fact, even companies that have publicly promoted a more flexible work from-home-policy, have not scaled back on their own long-term office requirements, opting instead to take advantage of the current disruption to secure even more space for their businesses. A large number of tech and financial services tenants have recently reconfirmed their commitment to either maintain or grow their office footprint in New York City, and other major commercial hubs, which comprise the majority of our portfolio.

Within our own business, we see the importance of face to face interaction for developing culture, training, collaboration and overall efficiency. And our discussions with tenants indicate that were not alone. In our corporate offices, we've put in place the requisite spacing, sanitation and health checks protocols, to welcome back essentially all of our employees, and thus creating a blueprint for our tenants to do the same. As it stands, our office portfolio is 91% leased on a long-term basis with the remaining average lease term of over eight years. Organic growth continues to be driven by incremental earning contributions from newly developed assets, which this quarter totaled $25 million of NOI in excess of the prior year.

Our retail results, which Bryan will go through in detail in a few minutes, continue to be impacted by the economic shutdown, which caused a decline in mall revenues, fee income, and an increase in credit loss reserves. Operationally, however, we saw a marked improvement in the third quarter over the prior three months, and cash collections are once again approaching normal levels. We continue to progress negotiations with tenants regarding their contractual rent arrears, and believe any significant impact will be isolated to the second quarter. With the economy on a more stable footing than it was earlier in the year, and with over 94% of our retail tenants now open and operational, we're beginning to see sales that are not only approaching normalized level, but outperformance in certain markets. Customer traffic at our retail centers continues to increase, returning to 65% to 70% of normal in the third quarter. Tenant sales have similarly recovered and in certain segments are experiencing stronger sales versus this time last year. Not surprisingly, Class A centers are performing the best with sales per square foot nearly 50% better than Class B centers in the third quarter. And the growth we're seeing is sequential with sales in September up 9% over August.

The best performing categories were luxury fashion and jewelry with year-over-year sales growth between 36% and 13%, respectively. Brands enjoying continued success include Louis Vuitton, Chanel, Christian Dior, Bottega Veneta, Gucci, Cartier and Tiffany & Co. At the Miami Design District, for example, our high street retail corridor featuring 120 luxury brands, comparable sales for these retailers in the month of September were up 40% year-over-year.

Strong performance is not isolated to luxury, however, as sales for retailers with broad appeal, including Pandora and American Eagle Outfitters were likewise growing. Sales at large-format retail boxes are also up 14% year-over-year, a testament to the strong evolving one channel capabilities of retailers in this category. In the back-to-school, shopping center produced year-over-year sales growth in several additional categories, including children and teen apparel, athletic shoes and sporting goods.

Digitally native retailers continue to expand their physical footprint and overall offerings. Just last month, Amazon opened its 27th location for its fourth 4-star concept at our Willowbrook Mall in New Jersey, the first of its kind in the state. Along with their bookstores and go and fresh concepts, Amazon now has over 80 physical store locations in the U.S. with plans to open more. As we head into a busy holiday shopping season, many market observers are predicting year-over-year sales growth with a greater focus on goods rather than services. To ensure visitors to our properties continue to feel safe when they shop, we have launched Spot Holder, a virtual line queuing software that enables customers to skip physical lines and schedule on-site visits ahead of time from their phone. This technology also helps store managers accommodate social distancing requirements by tracking occupancy restrictions.

We also came to an agreement recently with Collection Sites to establish a network of pop-up COVID-19 testing sites in the parking lots of 75 of our centers across the U.S. These sites will make fast, convenient and accurate testing available to our communities in the weeks and months ahead. Similar to office, the majority of our LP Investments continue to perform well. The one outlier continues to be hospitality. However, the majority of our hotels have now reopened. At the Atlantis, we have a plan in place to welcome guests to the island beginning December 15. With the assistance of the Bahamian government, we have established a COVID-19 bubble at the resort, following the Cleveland Clinic protocols. We've procured rapid testing facilities, which will be located on site and all of our guests will be tested prior to boarding their inbound flights. For those receiving a negative result for COVID-19, there will be no quarantine restriction and guests will be free to enjoy all of the resorts, beach, water park, casino and other entertainment options. We plan to start flying planes to the island beginning December 15th from East Coast locations, including New York, Toronto and Montreal.

I'll now turn the call over to Bryan for a more detailed financial report. Thank you, Brian. During the third quarter of 2020, BPY earned Company FFO and realized gains of $164 million or $0.16 per unit, compared with $324 million or $0.34 per unit for the same period in 2019. Net income attributable to unitholders in the current quarter was a loss of $229 million or $0.26 per unit, compared to income of $474 million or $0.49 per unit in the prior year. In the current quarter, our core office business earned $141 million of Company FFO compared to $150 million earned in the same period in the prior year. With the gradual reopening of the economy, the residual impact to earnings this quarter of the shutdown is estimated to be about $12 million. This is a $7 million improvement over the negative impact we experienced in the second quarter. Of that $12 million, half can be attributed to reduced parking volumes with the balance being split between higher credit loss reserves and lower retail rents. Excluding this impact, net operating income in our office business increased to $334 million compared to $316 million in the third quarter of last year, an improvement of almost 6%. Contributing to this increase were two main things. First off, our developments. We had 1 Bank Street, 100 Bishopsgate, 1 Manhattan West and 655 New York Av., which in aggregate are 92% leased and now 63% occupied, and contributed $25 million in incremental net operating income this quarter compared to the same period last year. We also recently completed our ground-up development at ICD Brookfield Place in Dubai and our redevelopment at 388 George Street in Sydney and expect them to contribute to earnings in future quarters as we advance lease-up and tenant move-ins progress. Secondly, we benefited from foreign currencies. All have strengthened relative to the U.S. dollar this quarter, and that contributed an incremental $9 million to our net operating income. During the quarter, this business earned $20 million in condominium income as we delivered 152 units to their owners. Our active condominium projects in London, which total 1,605 units, we have already sold 1,336 of those units or 83%, and we have delivered 594 of those units or 37%. As we sell and deliver the balance of the units, we expect over 70 million of profit on these projects to be realized between now and the end of next year. Fair values for our office properties were largely unchanged during the quarter. However, we are starting to see signs of market pricing for high-quality, well-located and well-leased office assets improving, including the sale of 1 London Wall Place, as Brian will expand upon, and some recent refinancings, including the $1.8 billion financing at 1 Manhattan West for 7 years at a sub-3% coupon and subsequent to quarter end, another well-located office asset, which we expect to price in the mid-2% rate for a 10-year mortgage. Our core retail business generated Company FFO of $97 million for the current quarter, compared to $173 million on a comparable basis in 2019, and $201 million in total, including the $28 million in transaction income that we earned last year. Although we saw many signs of positive improvements in our retail operations, as Brian highlighted, our results continue to be impacted by the economic shutdown. Net operating income for this business was $349 million this quarter, which compares with $422 million in the prior year. The major variances compared to the prior year include an increase in credit loss reserves of $46 million, a reduction in overage rents, percent in lieu rents and business development income of $19 million, and the continued impact of bankruptcies and related co-tenancy claims of $11 million. Fee income also declined by $12 million due to lower leasing volumes, property revenues and joint venture fees. All of these though were partially offset by lower interest expense. Compared to the prior quarter, results were impacted by $30 million of incremental credit reserves, largely to address recent bankruptcies. And in addition, we had incremental operating expenses as our properties resumed -- as all of our centers reopened and those expenses resume to their normal levels. Fair values for our retail properties declined by $322 million during the quarter, as we revised cash flows and risk profile for certain properties that are most impacted by the slowdown. We made significant progress in rent collections, in advancing tenant negotiations and in extending or refinancing debt maturities. And, with close to $1 billion of available liquidity in this business, we are well positioned as the operations continue to improve. Lastly, our LP Investment business generated Company FFO and realized gains of $26 million this quarter compared to $74 million in the comparable period in 2019. Results in the current quarter were negatively impacted by a year-over-year decrease in earnings from our hospitality investments of $38 million, due to hotel closures and travel restrictions. We also saw a decrease in contribution from our multifamily business, which earned $10 million in transaction income for merchant build sales in the prior year. We had all but two of our hotels opened during the quarter and achieved reasonably good occupancy levels, particularly at our leisure-based and extended stay hotels. As a result, we earned $29 million more in Company FFO from these investments compared to last quarter. Fair values for our LP Investments were largely unchanged. We did invest a further $150 million to fund capital calls related to our existing fund commitments, but we do expect to generate cash from these LP Investments in the near term as asset sale activity resumes. The projected returns from our LP Investments continue to be strong. On a gross basis, our investment in BSREP I is projecting a 23% IRR and a 2.6 times multiple of capital. Our investment in BSREP II is projecting a 15% IRR and a 2 times multiple of capital. And our most recent investment in BSREP III is tracking at an 18 times IRR and a 2 times multiple of capital. At the corporate level, we executed on a C$500 million five-year medium-term note at an attractive coupon of 3.93% earlier in the quarter. We use the proceeds to fund capital required by our business to pursue green development and redevelopment initiatives. We ended the quarter with almost $6 billion of groupwide liquidity, which positions us well to continue to support our existing assets, to fund our LP commitments and pursue opportunities for growth. As a result, our Board of Directors has declared a quarterly distribution on our LP units for $0.3325 per unit, which will be payable on December 31, 2020, to unitholders of record at the close of business on November 30, 2020. So, with those as my planned remarks, I'll turn it back over to you, Brian.

Brian Kingston -- Managing Partner And Chief Executive Officer

Thanks, Bryan. So, turning to transaction activity. After a pause for four months, private market transactions have resumed in the second half of this year. In October, we entered into contracts to sell two important stabilized assets at above our IFRS carrying value, an office building in London and our U.S. self-storage business. We acquired the development site for the London office asset, 1 London Well Place in 2012. And with our 50% partnered commenced development in 2014 upon signing a lease for 100% of the building with a financial services tenant, the 310,000 square foot development was delivered in 2018, and in 2019, we purchased our partner's 50% interest for a gross valuation of 440 million. Concurrent with the 50% acquisition, we put in place a new 368 million mortgage on the building, returning almost all of our equity that had been invested in this development. We're now under contract to sell 100% of the property at a price of $480 million, a 3.8% cap rate and a 9% premium to the price we paid just 12 months ago. This sale will generate $125 million of net proceeds to BPY and set a new benchmark for office buildings in London.

In summary, over the past six years, we've earned $150 million or $200 million of profit on a net investment of just $75 million. With continued strong occupier demand and concerns around -- from Brexit beginning to fade, we'll continue to source opportunities to monetize our premier London office assets in a strong market, moving forward.

Subsequent to quarter-end, we also entered into a contract to sell our U.S. self-storage business for over $1.2 billion, $313 million at BPY's share. This generated net proceeds of $110 million. Our five-year investment in this business yielded a total return of 28% and 2.3 times our original investment. Both of these transactions demonstrate that real assets producing stable and growing streams of income are still highly sought after, particularly as expectations for long-term interest rates continue to trend lower.

Now, as I mentioned earlier, debt markets are open at favorable terms to high-quality borrowers. In aggregate, in the third quarter, we financed, refinanced or extended mortgages on nearly $3.5 billion of office and retail properties at interest rates below 4%. In August, as Brian mentioned, we completed a $1.8 billion refinancing of 1 Manhattan West at an all-in rate of just 2.94%. This financing replaced the existing construction facility and returned approximately $138 million of net proceeds to BPY. It was one of the largest single asset, single borrower transactions in 2020 and represents a great execution tapping into strong demand in debt markets for premier derisked office assets.

We're also nearing completion on a three-year $475 million refinancing of Oakbrook Center in Chicago at a coupon of LIBOR plus 3.5%, demonstrating that debt capital markets continue to be available for high-quality retail assets as well. We anticipate being able to execute similar financings in several of our retail shopping centers over the next 12 months. In July, we launched a $1 billion substantial issuer bid that was funded by an equity commitment from Brookfield Asset Management and certain institutional investment partners. This offer concluded in August with approximately $514 million of BPY units and BPYU shares being tendered and taken up in the offer. The balance of $486 million remains available to us until the end of 2020, and as a result, was used during the quarter to fund the purchase of approximately 13 million units and shares under our normal course issuer bid.

In summary, we continue to see signs of the recovery from the economic shutdown is building, and the worst is now behind us. Our focus for the remainder of the year is on working with our tenants to help them restart their businesses and welcome their employees and customers back in a safe and secure manner. While there is a great deal of work yet to be done to get economic conditions back to where they were this time last year, the high-quality nature of our assets and the durability of the income they produce has allowed us to weather the storm.

So, with those as our prepared remarks, we'd be happy to take questions from any of our analysts that are on the line today. Liz, maybe if you could open it up for questions.

Questions and Answers:

Operator

Our first question comes from the line of Mario Saric with Scotiabank.

Mario Saric -- Scotiabank -- Analyst

Good morning. Brian, I was wondering if it was perhaps too early to maybe shed some light on BPY's potential involvement in the JCPenney's transaction with the headline that came out last week, both in terms of kind of the nature of involvement and any quantum in terms of dollar amount.

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, the capital that will be invested into JCPenney is coming from Brookfield Asset Management, not from BPY. So, we won't have any actual investment in the transaction itself. That being said, we do have 99 JCPenney locations within the portfolio. And so, it's an important transaction for BPY as the landlord to this tenant. But we're -- BPY is not making an investment in the actual deal.

Mario Saric -- Scotiabank -- Analyst

And then, maybe for Bryan Davis, in terms of the fair value change on the retail side this quarter. You mentioned that it was related to a percentage of assets that where you reduced the expected cash flows, going forward. Can you share what percentage of the portfolio would have been impacted by the writedown during the quarter?

Bryan Davis -- Managing Partner

This would be a small handful of assets that I think were particularly impacted by recent bankruptcies that we saw or experienced during the third quarter. And we just made adjustments, not only to cash flows to reflect that, but also to the risk profile associated with being able to lease up some of the space. We think, it was sort of focused primarily on a small group of assets that were most impacted. And so, don't expect it to broadly impact the portfolio as we progress, but of course, we'll have to monitor cash flows and tenant health in that equation.

Mario Saric -- Scotiabank -- Analyst

And then, just maybe sticking to core retail. About $750 million of debt maturing in 2020, and another $3.5 billion or $3.6 billion I think in 2021. One of the components of Brookfields financing strategy over time has been a nonrecourse asset level debt, one of the benefits of that is potentially handing back the keys on malls where you think it makes the most sense. So, when you look out over the next 12 months, and maybe touch or provide some color on expectations for returning mall to lenders and how you think about the refinancing of that $4.2 billion, $4.3 billion through '21?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, I think, the way to think about it really is, it's not overly complicated. As we look at each of these loans and their maturity relative to the value of the assets, to the extent that we think that the equity is impaired or underwater, we will certainly look at handing back some of those assets to the lenders on these non-recourse facilities, as you would expect.

In other cases, Mario, like we're going to look at it and say, there continues to be equity value in there. It may require us to put some capital in and pay down the debt a little bit and hang on to it, but it's sort of case by case. And as you would expect, it's sort of the 80-20 rule, which is there may be a relatively large -- larger number of mortgages where we are in that situation where you're handing back the asset to the lenders. But, it's a very small amount of equity at IFRS that's associated with those and a relatively smaller number of larger malls where we'll be hanging on to them. So, I don't want to handicap how many it will end up being in that situation, but it's a relatively small number of assets where we think the debt is in excess of the value of the asset and the lenders may elect to take the asset back rather than restructure the loan.

Mario Saric -- Scotiabank -- Analyst

And then, maybe one more question on my end, switching gears to the core office segment. I think, Bryan Davis, I think, you mentioned that $25 million contribution from completed developments during the quarter and that there were 62%, I guess, occupied or I guess, rent paying. When you look on a go-forward basis, what's the estimated incremental NOI that wasn't included in Q3 from a cash perspective, as you expect those developments to achieve once Dubai and Sydney are

Bryan Davis -- Managing Partner

Good question. I don't have those figures with me on hand. But, Mario, you were at our Investor Day, we did include a slide that effectively gave you a sense of what the stabilized NOI would be over the next five years with respect to our completed development projects. So, I might reference you to that slide. In addition, included in our supplemental, we do give you a sense of the yield that we construct to, in particular, for ICD Brookfield Place and 388 George Street, and so you can get a sense there. But, the one comment I will make is typically our NOI follows tenant move-ins. And so, for the specific ones that I referenced, we're earning about 60% of what we would expect to be earning, based on our move-ins.

Operator

Our next question comes from Sheila McGrath with Evercore.

Sheila McGrath -- Evercore -- Analyst

Yes. Good morning. Brian, I was just wondering if you can clarify the buyback, because we get a lot of questions on it. It's actually BAM buying back shares through BPY, and these shares are not retired, BAM just owns more of BPY. Is that accurate?

Brian Kingston -- Managing Partner And Chief Executive Officer

That's correct.

Sheila McGrath -- Evercore -- Analyst

So, about what percent right now does BAM own, of BPY?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, about 65% is the number now. They acquired, as Bryan indicated, an increased number of shares in the third quarter. And subsequent to the end of the third quarter, they've been continuing to buy back under the normal course issuer bid.

Sheila McGrath -- Evercore -- Analyst

And then, Brian, you mentioned you're in progress on refinancing Oakbrook Center. Can you just give us a bigger picture view of how that financing market is for retail assets? And, on most of the near-term maturities, do you expect you'll have to put in more capital?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, as you would expect, there is a big difference between financing markets for Class A and Class B shopping centers, and for the types of lenders between, sort of balance sheet lenders and CMBS in terms of the kind of discussions that you can have, so. And what I mean by that is, for a center like Oakbrook, which does nearly $1,000 a square foot in sales, their capital markets are open, they're available, and the pricing is pretty reasonable, frankly. It's a little higher than you'd want it to be, but it's still pretty reasonable, especially given where base rates are.

As you start to move out the risk spectrum to the lower productivity malls, it gets harder and harder. And as -- and in particular, as you're starting to deal with refinancings that are in the CMBS market, where there really isn't an investor to speak to directly, it sort of runs through these special services. I think, that's where you will tend to see some of the more challenging financings to be done, in particular, needing to be replaced with new lenders, not maybe where we need to put a little bit of capital into them. But like on Oakbrook, just as an example, we won't be putting any -- there's no material paydown associated with that one, because it is such a high-quality center, and it's relatively lowly levered.

Sheila McGrath -- Evercore -- Analyst

Okay. And then, handing back the keys is always an option. But, I'm just wondering if there's any opportunities where you could repurchase the debt at a discount to kind of reequitize the asset?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. And I sort of alluded to that in answering Mario's question, which is, it may be that we hand it back, it may be a consensual restructuring that involves either buying the debt back at a discount or structuring it into A and B notes where new capital going in, goes in ahead of some of that debt. So, there's a wide range of structures. And as you can imagine, these are not -- these shopping centers are not easy assets for a receiver or just a typical lender to be able to own and operate. And so, oftentimes, it's a much better situation for them to restructure the debt and keep us in place as the operator. And so, for that reason, we tend to have at least a willing audience to hear some of these proposals on these assets. So, some of them may end up definitely in that kind of situation as opposed to just a straight, pay us back or give us the keys kind of negotiation.

Sheila McGrath -- Evercore -- Analyst

And then, retail, as you can imagine, is very difficult in our seats to forecast at this juncture. Just wondering your thoughts, if you could give us big picture thoughts on the third quarter results. And even same question for hotels, could that be a low point? Do you think that the credit -- the trend and the credit reserve in third quarter could be lower in fourth quarter? Do you have more visibility on that?

Brian Kingston -- Managing Partner And Chief Executive Officer

I'm going to -- I'll start and then I'm going to ask Jared, just to maybe give a little bit of color on, I'll say, the mood of our retail tenants and in particular on outlook for the holiday sales and then into the new year. But to sort of answer your question, we do think we are probably at or very near a low point in terms of that sort of traumatic impact that the economic shutdown brought on was -- think about it in the second quarter, everybody was forced into closures. Now, they have largely all reopened. And the challenge is getting retailer or customers -- retail customers back in the store and building up. And so, many of the weaker balance sheets or more challenged retailers, they have hit the wall, and they've gone bankrupt or they've restructured and worked through that. And so, we've taken those impairments. And I think what we're left with now is a much stronger field of tenants whose businesses have largely stabilized. And so, to the extent that there were issues, credit reserve issues, et cetera, I think we've largely taken them, and are optimistic that we're now in a place where it will be more with the question of what is the pace of the recovery of these tenants as opposed to is there another leg down? But, I'll maybe let Jared just talk a little bit about the mood with retailers.

Jared Chupaila -- Chief Operating Officer

Yes. Thank you, Brian. Sheila, that is consistent with what we're hearing and what Brian just stated. What I'd add is, clearly, there are still some categories that due to local mandates or occupancy limitations and ability to advance to a more normalized operating environment, groups such as the theater industry, restaurants. So, I think in those categories, you will still see some hesitation and going concern. But, the broader mix of our tenant base, to Brian's point, I think, now a good understanding of the challenges that they have dealt with and are dealing with, they are largely reopened. They have accelerated their efforts, investment and movement to a one channel strategy to improve their product fulfillment options. And, I think, they are entering the holiday in a much better operating position and are optimistic for what the holiday sales will be, as we continue to pick up steam toward the end of the year.

Operator

[Operator Instructions] Our next question comes from Mark Rothschild with Canaccord.

Mark Rothschild -- Canaccord -- Analyst

Thanks. Good morning, guys. Looking out over the next year, what should our expectation be in regards to the balance sheet and leverage? Obviously, you just announced some significant asset sales? And to that point, which areas should we see further asset sales over the next -- which portfolios might be up for sale over the near term?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, certainly, within our -- the LP Investments, those investments and those opportunity funds, those are buy, fix, sell type strategies. And so, like the self-storage portfolio that I referred to earlier, fits that category. And so, you should expect every year that there is a certain amount of capital recycling that's happening within that segment. Because activity slowed to a halt for maybe half of this year, maybe the nine months of the year, there is a fair bit of those businesses that are backed up in the queue that we had planned to potentially monetize earlier in the year. So, I think, the next six to nine months will probably be a little busier out of that sector than normal, just because there are a number of other businesses that sit behind that that we had planned to bring to market. And as I said, there's a lot of demand out there. There's a lot of capital. These businesses have been -- oftentimes, we bought broken businesses, we've stabilized them, and they're now very clean, simple, easy to understand story. So, I think that will be relatively busy.

I think, on the office side, again, similar to the London Wall example I gave earlier, we have a number of assets that we've either developed, leased up and are now stabilized that are highly desirable for these institutional investors because they have a relatively low CapEx profile, they're fully leased, they generate stable predictable yields, as well as some assets that we bought with vacancy in them that have now leased up and stabilized as well. So, I think you'll see some activity on the balance sheet side of it, in the office portfolio. I think, retail, as you would expect, is going to be more challenging to find buyers of those assets at values that we would be willing to transact at. We'll of course test the market from time to time. And occasionally, there are particular circumstances where maybe a particular asset has a particular appeal to a particular investor. And so, we may do things in -- a few things in retail. But, I would expect that it's not going to be big dollars in that part of the business.

Bryan Davis -- Managing Partner

And Mark, as it relates to sort of leverage, let's say, we're operating our office balance sheet at the leverage levels that we feel very comfortable with. So, no major initiatives there. In fact, we'll be looking to up-finance where we've created value in the underlying properties and have mortgages rolling. In our retail business, we've talked about for a couple of years since the acquisition of GGP that there's about $2.5 billion of incremental leverage that we will look to pay down over time. That will come through equity that we raised out of asset sales, whether we're recycling out of office or LP Investments or ultimately, being able to execute upon asset sales within the retail business. That will be something that we look at. But, it may take a little bit longer. And, we have adequate maturity within that debt stack in order to be able to address that.

And I'd say lastly, our corporate level leverage went up slightly during sort of this COVID period, as we used our credit facilities and our corporate liquidity to help support our businesses. And as we advance some of these recycling activities that Brian talked about, we'll look to pay that down slightly, but no major changes from that perspective.

Mark Rothschild -- Canaccord -- Analyst

Okay, great. And then, just one more question, just following up on something you've already discussed on the call, but trying to reconcile that. There is a discussion about giving keys back on malls and you answered that already somewhat. But, I'm trying to reconcile that that we're having that discussion and yet there is no major writedown on the malls on your books. And, if we're having that discussion, clearly there's been some impairment of value. Should we not expect a far more significant drop in the IFRS values for those malls or for many of them?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, I guess, I'll answer it two ways. One, the malls that we're talking about or that are potentially on that list that we're handing keys back, their IFRS value is at or below the debt. So, there's no -- meaning in the circumstances where we do think the value is less than the debt, the IFRS value already reflects that. And then, as far as overall impact on the portfolio, like we have for the last three quarters, been going backwards on valuations. And in fact, it's over $1 billion of negative fair value increments that we've taken through that portfolio. So, I think, it is happening through there, but I think, it's entirely consistent with what I said, which is in those situations where the value -- we think the value is at or below the debt, that's already in the numbers.

Operator

Our next question comes from Mario Saric with Scotiabank.

Mario Saric -- Scotiabank -- Analyst

Thank you. Just a couple of really quick follow-up questions on the retail side, just on the back of Mark's question as well. Is there a way you can give us a sense of what percentage of your retail IFRS value would have the debt and equity value to be relatively comparable?

Brian Kingston -- Managing Partner And Chief Executive Officer

Sorry, the gross assets you mean?

Mario Saric -- Scotiabank -- Analyst

Yes. So, the debt is -- yes.

Bryan Davis -- Managing Partner

So, the overall, I'll say, gross asset value of the retail portfolio is roughly $30 billion, and the gross asset value of the debt that is probably in that impaired number is probably in the order of $2 billion, $2.5 billion. I'm doing it off the top of my head, but it's not much more than that. So, that's about 5% or 6%, I suppose.

Brian Kingston -- Managing Partner And Chief Executive Officer

But importantly, Mario, in our net asset value, it's almost nil.

Bryan Davis -- Managing Partner

Yes, zero in equity. But, I think you're referring to gross assets.

Mario Saric -- Scotiabank -- Analyst

Yes. I guess, I'm just trying to get a sense of the potential delevering in that situation with asset at zero equity value. Okay. That's good. And then, just lastly, in terms of rent collection on the core retail side, can you give us a sense of what it was in Q3? I think, Brian, you mentioned that it's approaching normalized levels here, perhaps what cash rent collection was in October, and how that compares to let's say September?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, it's sort of steadily improved each month over the quarter. I think, on average, for Q3 -- for the Q3 billings, we collected in the order of 70%, 75%. And the reconciliation between that and the 95% of the tenants that are open that Jared referenced earlier is we still got ongoing negotiations with a few of the tenants around their Q2 arrears. And so, as part of that, they are -- it's all getting rolled into the mix. So, we fully expect, in Q4, that the collection should much more approximate the actual number of stores that are open, meaning it's gotten better and better. On average, it was 70% to 75%. We're well above that today for say November and December.

Operator

The next question comes from Sheila McGrath with Evercore.

Sheila McGrath -- Evercore -- Analyst

Yes. Brian, it was in some real estate reports that the Cambridge Life Science assets from Forest City or for sale. Can you just give us insight on where you are in that process? And, how much does BPY own of those assets because they're in a fund, correct?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, they are in the opportunity fund. So, our exposure there is relatively low. We have about 7% of that fund. And I won't comment too much on the process because it's just sort of getting started. But, brokers have been hired, the assets are in the market, and I think we had, I'm going to say, in the order of 40 interested parties signed the NDA. So, we do expect they're going to be highly sought after and go for a great price. But, it's early.

Sheila McGrath -- Evercore -- Analyst

Okay. And then, I know it's not BPY, but I was just wondering if you could give us any insights on BAM's retail fund, how that's going? And if you expect that BPY will benefit from some of these kind of recapitalized retailers?

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, the JCPenney transaction is part of that. And it's a good example to talk about how BPY will definitely benefit from that. As I mentioned, we have 99 JCPenney stores out of their 830 or so stores, and not one of them will be closing. And so, that's it. It's obviously great for BPY. So, I think that having that capital available to invest in and stabilize some of these retailers, and there's a number of others that are in various stages of discussions, I think, is a net positive for BPY.

Sheila McGrath -- Evercore -- Analyst

Okay. And last question for me is, just you did declare your fourth quarter dividend, just updated thoughts on the dividend policy. I know, you've said before, if you see visibility to get back to coverage that the thought is to maintain the dividend. So, just your updated thoughts on that.

Brian Kingston -- Managing Partner And Chief Executive Officer

Yes. So, I think, with the election and all these other things that are going on right now, Investor Day seems like it was a long time ago, but it really was only about a month or six weeks or so ago. And so, our thoughts on that really haven't changed or evolved, which is, we do view the payout ratio and earnings as being related. We continue to see the business recovering and getting back to more normalized levels. And so, for that reason, we think the dividend is appropriate where it is, even if in the short term -- the short-term quarterly earnings move around, sometimes they are higher or lower. But, we see getting back to more normal levels over the next couple of years and so able to maintain that through there.

Operator

That concludes today's question-and-answer session. I'd like to turn the call back to Brian Kingston for closing remarks.

Brian Kingston -- Managing Partner And Chief Executive Officer

Okay. Thank you everyone for joining us again this quarter and your continued interest in Brookfield Property Partners. And we look forward to providing you an update again after the fourth quarter.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Matt Cherry -- Vice President of Investor Relations

Brian Kingston -- Managing Partner And Chief Executive Officer

Bryan Davis -- Managing Partner

Jared Chupaila -- Chief Operating Officer

Mario Saric -- Scotiabank -- Analyst

Sheila McGrath -- Evercore -- Analyst

Mark Rothschild -- Canaccord -- Analyst

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