Q4 2020 H&R Real Estate Investment Trust Earnings Call
Yeah.
Good morning, and welcome to each and our real estate investment Trust Twenty-twenty fourth quarter earnings Conference call.
For beginning of the call each mark we'd like to remind listeners that certain statements, which may include predictions conclusions forecasts or projections and the remarks that follow may contain forward looking information, which reflect the current expectations and management regarding future events and performance and speak only as of <unk>.
Today's date.
Forward looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties and actual results could differ materially from the statements and the forward looking information.
In discussing each and our financial and operating performance had been responding to your questions. We may reference certain financial measures, which do not have a meeting recognize for standardized under ifr S or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measure.
Yours presented by other reporting issuers.
Non-GAAP measures should not be considered as alternatives to best income or comparable metrics determined in accordance with I F. R. S as indicators of each and ours performance liquidity cash flow and profitability.
<unk> management uses these measures to aid in assessing the right underlying performance and provides these additional measures so that investors can do the same.
Additional information about the material factors or assumptions risks and uncertainties that could cause actual results to differ materially from the statements in the forward looking information and the material factors or assumptions that may have been applied in making such statements together with details on each and ours use.
Non-GAAP financial measures are described in more detail in each and our public filings, which can be found on our website and Ww dot SEDAR dot com.
I would now like to introduce Mr. Tom Hofstetter, Chief executive of each and our REIT. Please go ahead Mr. Hofstetter.
Thank you and good morning, everyone.
Half sitter HR suite.
CEO and I'd like to thank everyone for joining us on today's call with me here virtually are Larry from our CFO Felipe Lapointe CLO land tower at Sullivan and C. O primaries, Alex Avery EVP asset management, and strategic initiatives and Robin Katzenberg EVP corporate development.
Rather adhere to day to celebrate the end of 2020 and a good rhythm to 2020, despite being one of the worst years for humanity and a long time. We're pleased to report solid financial operating results. We responded to the challenges of 2020 day manner consistent conservative nature legionaries, we prioritize the safety of our employees tenants and visitors.
For our properties and followed all recommended protocols and things.
Social distancing and frequent cleaning and temporary closure select properties.
This is prospective we batten down the hatches folks from both ensuring smooth operations and maintaining a strong financial position and the team is about to discuss we are pleased with how well our portfolio has performed and aligning the stability and resilience of our business now I'll turn it over to Felipe Who'll review, our multi residential operations, followed by Pat who will provide an update on our retail portfolio.
And then for Larry will provide some context on our financial results and finally that make some closing remarks Filippo with you.
Thanks, Tom and good morning, everyone.
As reported the closing of 'twenty and 'twenty I'd like to begin by revisiting the dedication of our on site and corporate staff members.
As mentioned in previous quarters, our collections rates remains above the industry average largely due to the exceptional work.
On the JV development from the Pearl and Austin, Texas is scheduled to fully deliver and the third quarter 'twenty 'twenty 119, Gail and Seattle, Washington is and the early stages of pre leasing.
And the project will be fully delivered in April of this year.
Phase one of our Hercules development North of San Francisco and named the exchange is currently 74% occupied.
Construction of Phase II named the grant has remained on schedule and is expected to deliver and the second quarter of 2021, lastly, shoreline gateway or 35 storey tower and long Beach, California is also on schedule.
And I'd expect it to be delivered and the summer of 'twenty and 'twenty one.
To supplement our JV development partnerships and the U S Gateway markets wind tower has been increasingly focused on expanding its wholly owned ground up development platform.
Internally managed multifamily development is in our opinion, the best strategy to increase shareholder value within our space.
Do you expect the development yields relative to historically low class a cap rates provides strong value creation and risk adjusted returns.
With over 175 bps of yield coverage, coupled with the benefit of retaining a 100 per cent of the upside economics, our recent land purchases and Dallas, Texas, and Tampa, Florida underscore our intent to capitalize on this development strategy.
Tower was able to leverage as Brendan network to source opportunities as market level experience to select sites and.
And its property management division to help design plan and operate and exceptional multifamily community.
The synergies between our divisions bolster our competitive advantage as a vertically integrated multifamily investment platform and operating company.
As previously mentioned and led tower has been able to secure additional classic sites for development and our target markets and expect to source additional opportunities and the upcoming quarters.
For instance, we recently acquired and infill site in Dallas, Texas and proximity to the Dallas Love Field Airport and medical District.
And the plan for the five port for acre site is a five storey community with approximately 415 units.
Additionally on January 28th we purchased a 4.2 acre infill site with direct frontage to highway 75, North Central Expressway, one of the most traffic thoroughfares and the core Dallas.
We expect to build a similar five storey wrap product with approximately 360 units on that site.
As always we look forward to share more information on the timing of these developments next quarter.
On the topic of prevailing class a multifamily credit cap rates, we found a prudent to convey what we're seeing and a private market from a valuation perspective.
Due to favorable debt terms stemming from historically low interest rates paired with an increased institutional appetite and capital allocation for multifamily investment we're.
We're seeing substantial cap rate compression and Theyre sunbelt markets.
For context, we witnessed cap rates for comparable and tower assets decreased by well over 50 bps on average across all of our markets and.
And 2020.
The sentiment is shared by most of our peers, both public and private.
Quite counter intuitively public real estate valuations are trading at an elevated this guilt illustrating and increasing detachment from valuations of the underlying real estate.
Consequently, this reiterates our observation that many publicly traded multifamily res and are thus undervalued.
On the later of river lending front or leasing pace continues to beat expectations as of today, we are 28% occupied and have leased a 169 apartments. We are pleased with the leasing velocity that we experienced during the fall and winter months and expect and even more impressive spring and summer leasing season.
Well at the Jackson Park, as we mentioned last quarter, we're encourage with what we believe to be the start of a rebound from an operational perspective, the return to stabilization will largely be driven by the vaccine rollout workers returning to the office and students returning to the classroom.
With that said the property is expected to gain positive absorption as we entered the favorable spring and summer leasing season, and we hope to experience and noticeable recovery by the end of 'twenty 'twenty one.
We remain confident that Jackson Park is one of the best if not the best value proposition for prospective residents and the submarket, when considering and location amenities and quality of construction.
We have been encouraged by the elevated recent traffic and most importantly, the stronger lease conversion rates as an anecdote the average lease conversion rate over the past few weeks has been over double the historical average underscoring our belief that a recovery is in sight.
On the financial front, when excluding Jackson Parker same as a quarter over quarter operating income growth equates to a positive 2.5 per cent for the fourth quarter and a positive six for 9% for the 12 months ending December 'twenty and 'twenty compared to the respective 20th 19 periods.
Lastly on a personal note I'm very pleased with the positive same store growth achieved in 'twenty and 'twenty quite exceptional when considering all of the challenges related to Covid and quite frankly, all the credit must go to my colleagues and our U S markets and other corporate office, who worked tirelessly for the betterment of our communities.
And with that I will pass along and conversation to pack.
Thanks, Felipe and good morning.
During the fourth quarter, the retail division reported a decline in same property NOI of one 7% a marked improvement from the $15 seven decline reported in Q3, primarily due to a significant reduction in bad debt improved occupancy and growth and retail rents.
During the quarter and closed malls reported and an increase in NOI of two 5%, despite recording $1 2 million and bad debt.
Without any bad debt provision for the quarter. The retail division would have shown an increase of one 8%, but then closed malls growing by five 5%.
For the full year, the retail division would have shown an increase of 2% without bad debt being recorded and in closed malls would have grown by four 5%.
Difficult leasing completed in the past few years with a large with large format retailers and premises formerly occupied target and Sears is the primary driver of NOI growth and enclosed malls.
Positive rental growth lower expenses and improved recoveries in the quarter were offset by bad debt the impact of <unk> tenant filings, coupled with reduced percentage rent, and especially and especially leasing revenue, which were down 69% and 30%, respectively and 2020 compared to 2019.
We were well positioned moving into 2020, having completed re merchandising the majority of our vacant anchor boxes.
Since the start of the pandemic our primary focus has been providing for support to our local retail partners and to maintain occupancy occupancy and the retail portfolio is 92% is at the end of 'twenty and 'twenty compared to 91, 5% at the end of 2019, while occupancy and it isn't the enclosed malls ended the year at $88 one per.
And compared to 87% at the end of 2019.
Unfortunately government mandated closures and Manitoba, Ontario, and Quebec, starting in Q4 2020 will result in further bad debt provision and will negatively impact our specialty leasing program and percentage rent potential.
Fortunately our properties are now opened or scheduled to open prior to the end of February and limiting the downside risk and 2021 anyway.
We anticipate a further $1.8 million contribution during the during the year from tenants scheduled to open from premises formerly occupied by Sears.
In addition, we completed a number of notable transactions and the third and fourth quarter that will positively contribute to rental growth later in 'twenty and 'twenty, one with full year contribution in 'twenty and 'twenty to <unk>.
Including a new food and 15000 square foot government passport office and plaster lean and 27 2008, approximately 28000 square foot lease with the city of Toronto to occupy second floor office space at Duff and mall and rent one eight times higher than the prior tenant and a 20 year lease renewal with Walmart at debt from mall with a 55 per cent increase and rent starting and.
<unk> 'twenty 'twenty, one and rental Escalations every three to four years thereafter, a 12 year renewal of Alberta Health services 47007 hundred square foot premises at Sunrise mall with and expansion of 8000 square feet occurring in late 2021, 15 year renewal for the 23005 hundred square foot Boomtown casino at Fort Mcmurray.
And coupled with an expansion of 6500 square feet and the redevelopment of an out parcel and Sandridge mall with occupants being medical dental and average rents being two 5% higher than prior rents.
Collection of rents and the retail portfolio of trended higher since the low point and made in Q4, we collected 83% from our enclosed malls and 88% from the retail segment overall.
Collections for January and in closed malls or 82%.
We've leased 23 of 49 locations vacated following <unk> filings.
And a 61% of the gross revenue associated with space vacated due to C. C. Double a tenant filings is located and five of our stronger malls, including Stone Road and Orchard Park as such we are optimistic that the space will be filled in a timely manner once leasing activity improves.
Over the past few weeks there has been a notable increase and tenants expressing interest and opening new locations and we expect discussions to progress over the remainder of the year.
Our enclosed malls reported Q3 reported sales in Q3 of 86% compared to the prior same period last year. However, due to government mandated small players and Ontario, Quebec, and Manitoba, coupled with occupancy limits in Alberta.
And those were significantly lower in Q4 and.
And general sales and property in larger markets had been trending at about 80% of normal until the shutdowns.
While smaller market properties, such as Medicine hat Mall, Allegiant mall, and Frederick tender and park place and that bridge have posted sales and about 90% for several properties, including Corona and and Winnipeg, and Mcalister and replacement St. John showing some monthly gains over the prior year periods.
Generally those tenants to sell products associated with office works, such as suits formal footwear, and even cosmetics are experiencing lower sales as compared to retailers that sell casual apparel athletic footwear and other school household growth.
Some of which are posting higher than higher comparable sales figures food court tenants typically a significant driver of sales productivity had been down about 30% prior to.
Prior to recent mall closures.
Primarily due to reduced seating or service being restricted to take out on me.
As a result of the pandemic traditional bricks and mortar retailers are accelerating the adoption of E commerce.
E Commerce sales in Canada have risen due up represent five 7% of Canadian retail sales for the 12 months ending November 2020, or $35 8 billion of the $626 6 billion of overall retail sales.
During this time period bricks and mortar online sales grew to $13 7 billion or 38% of all of the online sales.
Five years ago bricks and mortar online sales represented and represented just 28% of online sales.
Since the beginning at the beginning of the pandemic and increasing number of our tenants have invested and their operations to facilitate E commerce sales and an effort to improve last mile efficiencies, primarily as well as other landlords have identified this as an opportunity to develop and E commerce platform exploring innovative technology that facilitates.
For seamless online purchase and delivery of real time inventory directly from our shopping center real estate.
Digital strategy and our primary is exploring will soon be a prerequisite to attract new bricks and mortar locations retailers and direct to consumer brands to a center.
Thank you and I'll now turn it back to Larry.
Thank you Pat and good morning, everyone.
Since the onset of Covid, our number one goal was to protect our employees our tenants and our shoppers.
We also ensured we protected our balance sheet. We finished the year with 63 million of cash on hand, and $1 $1 billion of unused borrowing capacity under our lines of credit.
In addition, we have and unencumbered property pool of approximately $3 7 billion, which is set to grow in 2000, and 'twenty one and debt.
To total asset ratio at December 31, 2020 was 47, 7% and increased from $44 four per cent to you earlier.
This increase was all due to the fair value adjustment of $1 $2 billion to our real estate assets.
And the offer is fair value of <unk> retail portfolio was reduced by approximately 660 million and Q1, where the changes related primarily to inputs into the forecasting of cash flows including vacancy rates market rental rates tenant retention rates and released and assumptions.
The off price value of ethanol as office property was reduced in Q1 by approximately 670 million primarily from properties with significant energy sector tenancies. This.
And these properties are generally subject to long term leases and as such Theres been limited changes to cash flow models, but more significant changes to discount rates.
While they have been very few recent transactions for comparable properties.
Valuation team gears prudent assumptions, reflecting crossing signals observed and oil prices and the energy sector corporate credit market.
These fair value adjustments of Hittite portfolio, and Alberta, the hardest as shown by the decline and fair value of approximately 900 million from $3 2 billion a year ago to $2 3 billion at December 31 2020.
As a result for the significant write downs on net asset value per unit decreased from $25 17 non per unit to $21 93 per unit at December 31, 2020.
We are optimistic we may see some of these fair value adjustments for reverse as we emerge from Covid.
Moving on to operations.
We're pleased to report that Q for collections of 95% continued the upward trend since the Q2 lows, including continued improvement and our most challenging segment of in closed malls, which reached 83%. This.
And this trend has continued into January where we have collected 82% to date for Mt closed malls and 94% overall.
Similar positive trend has been since <unk> seen and our bad debt expense, our bad debt expense in Q4, 2020 was $3 $9 million and.
And significant improvement from $13 5 million and Q3, 2000, and 'twenty and 'twenty for 5 million and Q2 2020.
Our bad debt expense for the year 2020 was $42 2 million compared to only $2 2.002 million and 19.
Most of the bad debt expense incurred as a result of H&R, providing abatements to hardest hit retail tenants many of which were mandated to close as part of provincial Lockdowns.
At December 31, 2020, we had a provision for expected credit losses, and accounts receivable and a 15 point and $1 million, which will believe provides ample room against the gross accounts receivable balance of $34 7 million.
Given the pandemic backdrop, we are extremely pleased to report our 2020 <unk> per unit was $1 67 compared to $1 76 for 2019.
Q4, 2020, <unk> per unit was <unk> 42, compared to 40 for Central Europe.
2020, <unk> per unit was $1 27, compared to $1 33 for 2019.
Turning to 2021, there are a few items, which you expect to influence results going forward.
Firstly as Rover land and construction is completed interest debt was kept lobster overland and project will no longer be capitalized interest.
Interest capitalized for 2020 amounted to approximately 11 million U S dollars, we expect a net drag on <unk> until the project achieved stabilized occupancy and.
Notably, we expect the project to reach stabilized occupancy and NOI contribution of approximately 25 million U S dollars and a second half of 2022.
Secondly, as noted in our subsequent event note.
In January 2021, H&R converted $140 million.
U S mezzanine loan on a 12 point for acre development starts and New Jersey City.
So a direct ownership position.
This will reduce interest income by approximately 14 million U S dollars and 2021 compared to 2020.
And interest will not be capitalized on the project until development commences.
While these factors will temper out 2021 results are expected to substantially reverse in 2022 with anticipated lease up of lending.
Offsetting these drags in 2021, we expect there'll be positive contributions from other factors, including.
And one lower bad debt expenses.
Two contractual rental escalations, and our office portfolio and three lower leasing expenditures and tenant inducements.
And within our equity accounted investments five multi residential development projects, we have interest in for commenced lease up creating a modest drag on <unk>, initially, but adding to the upside potential over the course of 2021 and 2022.
Overall, we expect higher <unk> per unit and 2021 compared to 2020, but lower <unk> per unit for the significant positive growth trajectory over the course of the next two years. We also expect the development activities to contribute to niv per unit growth and overall.
And improve the overall quality of our portfolio and.
And with that I will turn it back to Tom.
Thank you Larry and thank you for your entire H&R team for their hard work and dedication and 2020, we were pleased with the operating and financial results for the team just reviewed and believes the read as well positioned as we progress towards a return to a post pandemic.
<unk>.
<unk> I'll make a few comments on the outlook for office and retail operating segments.
This is our largest segment accounting for 44% of our revenue work from home and returned to officer and Mark most hotly debated topics and the real estate world today, perhaps markets for blooming as the world entered the pandemic with broadly low vacancy broadly high market rents and high asset pricing for 2019, and 20 HR took action to fortify our office portfolio.
Assets and had significant near term lease expiries and his strong demand and.
And bill and.
After cycle and negotiating significant lease extensions with major tenants and other properties.
The result is a portfolio with an average remaining lease term of over 12 years 85 per cent of revenues coming from investment grade tenants and high quality properties, well located and markets and leases and only 1% of office GLA expiring in 2021, we believe the long term value proposition of office properties and specialized environments designed designed.
Quickly for people to come together to work collaboratively on office work activities. We expect many office users and looks for ways to incorporate more flexibility and to have their employees use office space over the next few years and that is exactly right the ordinary softness and office leasing conditions and follow a cyclical office market peaks, our portfolio is defensively positioned and will be closed.
And monitoring the market for opportunities for both buy and sell properties and enhance the reach portfolio and create value for our unit holders.
Our retail portfolio accounted for 34 per cent of revenues has delivered very solid results and challenging market conditions.
Only includes a mixture of grocery anchored property single tenant properties and closed centers that are dominant in their respective markets common thread through all of these properties and just focus on providing affordable space for more staples oriented retailers a lot of the stores to be profitable.
Store closures of aggregate and list and 1% and retail GLA and our portfolio since the beginning of 2020 retail rent collection reached 88% and Q4 and retailers have begun signing new leases and making expansion plans as they look forward to a post pandemic environment and.
And 2021, we look forward to the right and contributions from our lending for other multi residential projects included in our equity accounted investments due to begin lease up this year as well as making progress and our industrial and multi residential developments and the GTA and Vancouver.
Elements create a temporary drag line episodes during the early days and lease up and as Larry just outlined this will be the case for H&R and 2021. However, we are focused on the positive contributions to cash flow and naphtha unit as these projects reach save stabilization over the next 18 months to 24 months.
We remain committed to maximizing value for our unit holders and plan to take advantage of opportunities in 2021 to evolve H&R until more narrowly focused fleet consistent investor's preferences and now.
And I'll be pleased to answer any questions from call participants operator, please open the line for questions.
Thank you if you would like to ask a question. Please press star one on your telephone handset.
Our first question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.
Thanks, and good morning, everyone first on Jackson Park Felipe I'm wondering if you could just give us a little bit of detail on one on the occupancy at Jackson Park, I guess during Q4 and and where it is today for you I guess, what your expectations might be for for Q1 and Q2.
Hi, Sam Good question, so and the last quarter. It has hovered around let's say a tad over 60%.
My expectation for the next month or two is it probably starts and inching towards.
The sixties, it's going to be really interesting I don't I want to be careful and not offering too much guidance only because of the outliers. If this was just for market demand issue than it would be easier to give a prediction, but because of the vaccine and rollouts and frankly, what happens with Midtown office are not terribly a certain like.
Like I mentioned, though we are we are seeing a ton more traffic than we have seen in the last six months and obviously our conversion rate from traffic to actually signing has has been double than the historical average and so.
Somewhat encouraging.
But I you know just out of Prudence.
Hi, I'm not I'm not capable to give you accurate guidance from them.
Okay. That's fair and then just on the NOI impact I mean, when you look at 60% to 65% occupancy there how does that impact either the margin or the absolute N Y dollars compare to let's say Q1 or Q2 of last year. When it was obviously much higher.
It's a good question and I think perhaps lower can apply and and the specifics, but because the property is a very large property and classy and for water and the percentage of NOI clearance from revenue.
And there's obviously much lower than where the breakeven points are from an occupancy perspective is much lower than the class a building or.
And our class B building and so.
As far as I can tell I believe we're still positive on it and a wide basis, even at 60 per cent and something that Larry can can confirm and so.
From that perspective lessor worried.
And obviously like I said, all signs are pointing to us reaching the bottom and so from here on out I would expect only a positive NOI growth.
I'll just add for <unk>.
It is correct, we are still positive on an NOI basis.
At Jackson Pollock.
And you know theres been a significant reduction and NOI.
Okay. That's great. Thank you and then just on the BOE with the mortgage bonds maturities starting to come up here this year I.
And I Wonder if you could just share your thoughts on how youre going to sort of a protest situations or for anything.
<unk> been accomplished to date.
Nothing has been accomplished to date.
Obviously, there have been two bonds are trading very very well compared to where they were a year ago asses their stock performance quite frankly, so that opens up a whole new and more opportunities and didn't exist a year ago. So I'm optimistic, we'll get somewhere but and it's kind of where this for the short term we have a bond that's expiring from $50 million in June 2021 that you'll be paying off by issuing unsecured debt.
Hey.
And to the markets.
And the first half of the year.
Okay. Thanks, I'll turn it back.
Thank you and our next question comes from Mario <unk> from Scotiabank. Please go ahead. Your line is open.
Hi, and good morning.
Sorry, Tom given the given some of your commentary and your letter to your older and books and deploying them structure.
And from 'twenty, one would you from putting that argument.
Maryann I don't I'm not hearing you that well can you share.
Try again.
And you've got better.
Yeah.
Right.
Perfect. Okay. So.
So and <unk>.
And given some of the commentary.
With respect and simplifying the structure.
And 2021, which is something that you've looked at it since I guess 2019 and can you give us any sense in terms of what the.
But that's a fair values for each of the verticals would be.
Q4.
And I'm, losing I apologize the depth and the what.
That's it for value.
The whole for Austin, I can't I can't hear and Larry can you hear.
And I think Mario are you asking.
What the debt to fair value would be per segment.
And amongst all asset classes and virtual question.
Yeah. Thank you.
And.
We haven't given that information Maryann and I don't really have it offhand attitudes and maybe speak to and give you some guidance offline, but I really don't have it right now yeah and I.
And its benefit.
Its Alex I think Mario.
It's difficult to allocate.
By segment, when you've got as much.
Unsecured corporate level debt as we have.
<unk>.
Maybe what you're asking is a little bit more about.
What we think maybe the appropriate level of debt would be by different property types.
Yeah, if we just take a look at your mortgage debt outstanding.
B and mortgage debt to asset value by vertical would be something I'd be interested in.
Oh, Okay and mortgage the mortgage debt Oh, sorry.
And maybe that's not very relevant that's where the opportunities and I too you'll get your total unencumbered pool and you've got to maintain a certain.
<unk> overall, where the opportunities lie to go ahead, and do secured debt and best better pricing and do that and you take the ones that are less receptive to getting good pricing unsecured debt and your outlook.
Not by a division by division and that's by and asset by asset basis.
I think qualitatively you could say that if you look at the availability and cost of debt the trend over the past few years has been to have less secured debt on retail assets.
And the H&R portfolio in particular, there are a lot of.
Very long standing office properties that have quite low loan to value.
They're very long term fully amortizing mortgages and.
And we highlight some of those coming due over the next 12 months to 18 months.
But there are some properties within the office portfolio that have higher loan to value and and all.
And within the multi residential and we tend to have higher leverage as a result in part due to the tax advantages and the natural hedged and that provides.
Given that those are U S assets and and there is clearly abundant availability of debt and aggressive pricing on the industrial portfolio.
And also Mario obviously.
And certain asset classes, where we want to sell properties you want to let him to lead them debt free and you'd have to pay through yield maintenance and to get rid of that debt. So you look at our office portfolio. For example, Hess as a debt free so it really is not and an asset by asset sorry category by category Tomorrow and asset by asset basis, and would make those decisions, whether it's secured or unsecured.
Okay and then.
The associated to that.
In terms of creating these new public entities and what your view internally that each of the verticals and office retail industrial and residential.
And a large enough and strength.
And as we ought to be able to stand on their own.
The answer is yes.
Okay, and then in terms of the structure, how should we think about.
The relationship between those for locals in HR and corporate in terms of and internal relationships with external so hypothetically. If these were to be spun out.
And would you consider and external structure.
You won't be internal structurally.
I don't think I'd want to give them out and the guy and we know what the market wants so we're going to try to get what the market and what he wants but I don't think I can answer that question at this early stage of the game.
As far as the structure goes up there and there's many.
And it shows involved and making the decisions like that but you'll see wait and see.
Okay.
That's fair.
And the question just for me for me.
And Tyler.
And you know what a day.
Wide gap between how the public and private markets and have been treated.
During the Covid crisis in terms of the U S Sunbelt.
Market.
What do you think you can do and.
In terms of trying to marry back out and.
And I recognize it's hard to understand what landstar was implied cap rate change for them given.
And the bigger organization, but and.
And can the strategy what do you think you can do come down and back out going forward.
Well, it's a very good question and I don't know that necessarily there's anything we can do to narrow that gap and change the public perception of U S multifamily rather what what I think we ought to do is take advantage of the historical.
Historically wide delta between the development yields and the in place cap rates.
And if cap rates like I mentioned and went down 50 basis points and are closer to four than they were five and we're developing closer to a six.
And then it probably behooves us too.
You know look increasingly towards.
<unk>.
And our sunbelt markets.
And the Delta as well from our private and public market is more pronounced on.
Or rather with reef that have gateway exposure and so and my belief is that's temporary in nature, only because and you know our house view is the gateway cities will always remain and gateway cities and and Covid will one day subside.
But as it relates to the.
And the development yields or frankly in my opinion, and they're just too wide and so.
We like I said, we made the announcement that we bought and the last 90 days two more sites I would anticipate that we continue.
That strategic acquisition initiative, moving forward, and 2021, and and look to quite honestly put a shovel in the ground and some of these sites towards the latter latter half of this year.
Great and I think it was maybe six months ago or nine months ago, There's discussion mode.
Sure.
And trying to monetize the land tower.
Brand and platform and in terms of possibly bring in partners.
Can you maybe provide an update in terms of where that stands from a capital allocation perspective.
Yeah, like all things I mean, there's 24 hours and a day and seven days and a week and so we its just a matter of where we want to place the focus and in our opinion and land towers.
But for the platform.
Has consistently risen quarter over quarter and value and we've grown exponentially as evidenced by our quarter over quarter growth last year, especially given the challenges of Covid.
And so and this environment, where the platform keeps getting better and my opinion and is worth more and we are.
In tune with how to create additional value for development.
It's just a matter of when we find it opportunistic to bring other parties, while we're still growing.
And so I don't think there's a.
And there's a month a day that goes by where we don't hear about interest about buying into either a participation and the existing platform for on a future partnership.
But frankly, we have to we have to allocate where we focus our energies and it is our opinion and debt as of right now given COVID-19 and especially what we're seeing on the development for.
<unk> is doing that and asset management and would risk being a dilution of focus and so the appetite is certainly there on the third party side to join US and it's just more a matter of us determining the best timing for unit holders.
Got it and does the does the GAAP between public and private and proudly ratio that you noted does that change.
Xyrem timing at all in terms of.
And possibly bringing partners and are now.
I don't think it does because I think that the delta is temporary in nature I think it will of course correct fairly quickly.
And the U S.
As it relates to the next six months with the rollout with the vaccination and obviously, having a better handle and Covid I would suspect that that delta would compress from further and so I think the public market is going to go and meet the private market and not not not vice versa.
And so trying to capitalize on that Delta is.
I think I think it will disappear too quickly and so I don't know that that's necessarily a factor and a decision making right now.
Got it okay. That's it for me and thank you for your patience from the new technological issue for smart.
Yeah.
Thank you and our next question comes from Janney Mont from BMO Capital markets. Please go ahead. Your line is open.
Thank you good money and other one off.
Two shacks and part I'm just wondering when you look at sort of a post COVID-19 deal I know for inkjet lumps and of the past that a large portion of their problems.
So Thats college students.
And you expect that to share.
And you pick them up and the Boston and they turn at Midtown Office and do you think that the tenant base.
That's helpful, especially from Covid.
It's a great question I think first and foremost it really depends on what opens up for it if they're both concurrent and nature, where universities are opening up for the same time as employers are asking their employees to come back for the office.
And I'd say, it's probably going to be a good mix and and we're gonna see is similar.
M. A similar mix of tenants, but if one opens before the other then I suspect that that's probably the first wave that's going to hit.
But my expectation and candidly is that once the situation and New York City and.
And it's obviously five boroughs normalizes Jackson Park will probably stop and stabilize fastener and most properties and the reason I say that is casting aside.
And the quality of the construction and its location and proximity to the subway and obviously one stop away from Midtown.
I think if anything Covid has taught US is the idea that somehow you want to stay and your 304 hundred square foot studio apartments, and and be content with that without access to a park for nearby.
Walking trails I think is has moved and I think people are putting a premium on that open space and I know you you remember this but there was a two acre park, a private park for Jackson Park, which quite honestly no other property and nearby has certainly.
Certainly not in New York City, but there's theres not that and many of the long and the city and so I think that when and when tenants come back you'd have to work for this study.
And value that open space and wanted to be outside and and have the fresh air I think that theyre going to be flying and drove us to to Jackson Park.
Okay great.
So I guess on the Internet and like let's say if you think students are going to be a reasonable driver I guess the low.
And the problem, they're trying to summer hopefully.
And the interim.
Okay.
Occupancy.
And five.
And I can say sales sort of fixed.
And the top line.
Alrighty and at the mall and coming back are you willing to talk a lot better and bankruptcy hardly sleep occupied or how you're thinking about that within a very short time.
It's a great question and I think for strategy lives and obviously without.
And without reducing rates, just using strategic blend of concessions, but also for a term maturity and when.
And I mean by that is.
Being aggressive with the month of concession of free rent that is being offered but also pushing the leases that historically had been nine to 12 months pushing the 15 to 24 months and and spreading and the concession and along be determined.
For lease.
And so I think price I think those are the leavers debt, they're gonna be successful and are currently being and use.
Okay. So are you, saying that you haven't had to move face rents much.
Great day right there too.
Right, that's exactly right I think the.
Other net effective basis.
And the rents have moved but obviously if you have other concessions.
Yes.
Okay great.
Moving on to retail I think Pat.
I Didnt get here and I'm not sure if I heard you correctly, you mentioned that for Walmart and leased at Dolphin Mall.
And the neutral.
Correct.
Yeah. It was a blend and extend they had some term left on it but yes. We did have 20 years, it's a 20 year term now.
And you said that there was some bad stuff and box.
Oh, Yeah, there is and if there's an initial rents debt that kicked in and the spring and then every three to four years theres rental bumps.
Can you give us a rough magnitude about volume.
The first one I mentioned was about 55% is a significant bump and the bumps thereafter are also pretty significant.
Okay, No I guess I need that's not necessarily typical from Walmart.
And because of and.
And merchant strength that location in particular is that is that the case or is it because it's been I.
Firstly for quite a long time of day.
And I can't like Whatsapp, and that's really driving that yes, I know it's.
It's reflective it is.
<unk> of the location and the strength of the location and the fact that market was under rent. It was a it was at least a that was done a long time ago.
And the market clearly has changed from what it was and.
It was an early renewal so it's like I said, it was really a blend and extend and and that's part of that deal. We got development rights back to facilitate our redevelopment at the property.
Okay great.
I guess last question on that specific store.
The Walmart deal.
And with five for copay for what it is or is there any possibility down the road and expanding that.
It sort of for bite size for that market.
I'd suggest you did the store is a good size, given what walmart's footprint and today it's.
And really I don't think either one I don't think we would even look to expand it.
By expanding and we would diminish our ability to read and smaller shop space, which pays much higher rents.
I think they are kind of their footprint is what it is.
Okay, well I guess it seems like they think it's good for the next 20 years and that's great.
And then moving on to industrial and that's.
The first building of the caliber and development.
From basic basketball, but I know your commentary.
Instead of reiterated by total two and three year.
Still on hold and I guess, just given what we know about from industrial market now and the success you've had with total one what.
What are you waiting for to change pointed allophone and and I recognize it.
And you've got to start and stop with industrial and thoughts.
And what else do you need for that.
Absolutely nothing we're just waiting for the winter.
And we don't need to have winter construction pay for construction. So when we are negotiating with someone from one of the larger building and whether we land and are not we're gonna be preceding after the winter.
Okay, and and then Miami, the build time and that was that.
Laughter, and 12 months or is it sort of net 12 to 18 inch and 10 to 12 ish range.
Okay, great. Thank you very much I'll turn it back thanks.
Thank you and our next question comes from Matt <unk> from National Bank Financial. Please go ahead. Your line is open and.
Good morning, guys I'm not sure what information you can provide but I'm going to ask the question anyway is and it's a follow up to mario's line of questioning.
And notwithstanding the ability of these segments to Standalone do you anticipate that H&R.
For the surviving entity is would own a stake and each of these going forward.
So that's detailed that we are not at the stages are answering and answered yet.
Okay fair enough.
It's a great question, but it's too early days, we're not we're not there yet.
And I guess at the end of the day and well it'll either be a asset management type structure or you could parse it out but is there a single well and I don't know if I can.
But you can also have and ico versus and spend you could spend it all here and I feel part of it there's a lot of waste and go on this thing and.
And just from a fixed income standpoint, because we have been fielding some questions from them there will be a surviving entity large enough to sustain the unsecured debt. That's currently.
Absolutely.
And then on the retail front Pat there was some positive on the leasing of space that was subject to see see double H and it sounds like it was 35000 square feet on 100000 square feet, what what is the nature of those tendencies.
And and you provided and leases and your commentary would some of that have been on previously occupied.
Occupancy space for the guys that went into C C Dudley.
Yeah, and you know what.
The deal structure went into a pier one at.
And at a mall.
We back filled a lot of the Davids tea and Theres not I Wouldnt say theres, a theres not theres no fashion deals, replacing needs right now and the fashion guys are pretty much not doing anything at the moment, although theres discussions from them for doing deals next year.
So it's a lot of the smaller space.
Moving forward, we have two more pier ones that debt we have.
Negotiating LOI is on right now and that that would be the end of our peer ones would have gotten rid of all three at that point and then.
Yeah, and Theres a lot of it.
Just in terms of the <unk> space. There is a there is quite a bit of activity and discussion and the last you know it really start up and the last few weeks for a number of our better malls that really where the where the brunt of the impact of the <unk> filing. So again and look for instance, at Orchard Park, and and we've got active discussions with about six.
Deals right now.
Real space so.
It's good to see some positive momentum on the leasing side.
Sure and then and are in.
Any of these.
New tenants to Canada, and new to your portfolio or are they all kind of existing guys, even though with across the portfolio already.
Nothing new to Canada, not at right now and I've I've heard stories of some.
Some brands are looking at.
Bringing coming to Canada and opening that are not.
Now right now and our portfolio, we're just doing domestic players.
And your commentary around sort of the E commerce play and enclosed malls and it was interesting.
Is is the structuring of the malls and the loading docks et cetera.
Is it suited to to provide that and.
And just what are you what if anything do you need to do to the malls to make it a better sort of place.
Place to either take and returns or and that product.
I suggest you know that the if there is still a bit early days in terms of what we're doing that there's a lot of technology. That's out there one of the big one of the big issues was really dealing with real time inventory and and for customers and consumers to be able to to source, our inventories thats actually available and the shopping center and that seems to have been something that's been.
Overcome now according to people who can talk to.
The beauty of it and closed shopping centers as you know there really really flexible we can.
And we can kind of move things around and create space for them.
At a fairly and it's not I wouldn't say easy, but it's very doable.
And we create certain areas where need be not exactly sure what our net needs will be going forward day.
Clearly, we want to continue with curbside pickup but the.
But the buy online pickup and store model and such for it and.
It's something that we're really going to push along.
Okay and that makes sense.
On the residential side and I guess, it's a two pronged question with regards to the projects like the Pearl Hercules Nightingale shoreline and there's some question as to whether those are sold off or purchased at some point and <unk>.
Adjusted and your thoughts there and then on the Canadian residential offer and offering our opportunity and when.
And when we think of that as a silo.
And as land tower and exclusively U S operation and those residential.
Suites would stay with the asset class that theyre going to be built on top.
And I'll answer the last and the latter question and that's we.
We don't have visibility to that as you know we have quite a number of projects that fit the bill and 45, Wellington Front Street, a 55 young and our large joint venture and the Telus tower and <unk>, So and then Theres definitely mall.
And we don't have the answer and so what what bucket that would work or how would it work for you just gonna be mixed use between office and residential early days on that as far as the Canadian bucket of land tower and at this stage of the game land towers not.
It doesn't have to be exclusive U S can be and but there's too many questions just atlanta or where it goes just to be able to answer that question and the futures, which bucket to place these things because quite simply there and a ways off the first project wouldn't be really probably for shoveling. The ground for at the earliest I would say a year and a half two years.
So it's early days.
Thanks, Seth Yeah, Matt and as it relates to your first question I think just like any other asset and their portfolio, we have and evaluation internally of what we think is the fair market value for the assets and the case of those.
Developments.
And then when they stabilize.
For before stabilization, but upon debt review, if the market, which is what I suspect is going to happen and I think that's what you're trying to get to I suspect that the markets given the frothiness for U S multifamily and especially given the quality of that construction and dislocations.
Suspect the market is going to value those assets more than we do internally and so and so it was a betting man and I would say, we'll probably end up selling those assets and.
And at a very very low cap rates and and quickly redeploying that capital into more accretive investments such as what we just discussed earlier today on the call. Okay that makes sense and then last one.
On Jersey City, just wondering if you plan on developing that on your own or if you'd bring and a partner if he's got any ideas as to what was going to go on there I know, it's probably going to be a few years out but just interested.
And so is it mixed use developments and it has.
It can be a mixture of Saddam zone and offer little and residential or we can actually for commercial and we can actually put a lab space, which is very much and vote today right now we're marketing it to users for both the the lapsed.
Lab space.
Oh Gee, that's a life sciences, and that's very much and Vogue, and we'll see where we land there and that'll follow with residential for from a residential perspective, where basically I would say 2021 is year on hold because I would say overall and you look at and Good example, Mack Cali, which is one of the largest residential developers and as you read in that and.
And how you're probably seeing rents and occupancies, rather trend and 80% to 85%. So this is a post COVID-19 story and if we're not in a rush for the shoveling the ground ultimately to be great and this is one of the spectacular.
It really repeat but it has a good affordability and.
And as it mixed use developments and mixed use development really been tail, bringing and either a partner who has experience in that sector or landing a major tenant which we are currently marketing for so whenever it comes first is really going to be the answer and residential my guess will follow because it doesn't have to wait till Jersey city recovers from that from the pandemic.
Sure. Thanks for the color looking forward to more news on the spin out so that just means a lot more work for us but.
I'll go and take care guys.
Thank you and our next question comes from Matt Logan from RBC Capital. Please go ahead. Your line is open.
Thank you and good morning.
On a ton and theres a lot of losses.
There's a lot of opportunity across your business and when you take a step back and think about that 30000 foot for Ya.
Could you give us a sense for what your top three priorities are for 'twenty and 'twenty one.
Yeah, I can give you the top two pretty easily the tough to not and that order and then necessarily and orders prime merits and the bowl.
That's definitely within the top three and the third one.
And whether it really NFC and get everybody.
And vaccine and moving on line from opening.
Opening up.
Those are the top two I'm looking forward to getting where we're landing.
We have a lot of action on the office space.
And what you're reading the newspapers is actually true theyre flooding to people moving to <unk> and went to Miami and drugs and we've had more showings and we were lending on office and they've never seen before so I'm very encouraged and we think will and our first 10 and finally, it's been dragging on for <unk>.
And then make probably within the next within the next 60 days and very much certainly will and thereafter, we have actually more users and we have space for us.
And which is interesting to see my and the small tenant market and other large cinemark and and all of a sudden and it depends I think it turned into a large cinemark and and we have one of the and we have a 40000 square for floor plates, which is unusual and the market. So I'm looking forward actually to stabilizing and we were landing a lot sooner and I would've thought and looking forward to actually signing a restaurant leases and having space to open again.
So I stayed primaries and the bow are definitely rankings are high out there for 2021, finishing off from lending and some of our other developments and.
Basically this and general overhead recovery.
Great recovery and certainly positive news on River landing was that did you say six days are 66 years 60, 60 day I think I see every day.
I can't imagine the last season and that one.
And when we think about the stabilization of that project as a whole is that really more of an H two.
Event or could that come a little bit sooner.
Is it and age I come here as it is and.
Is it a second half second half from 'twenty 'twenty one event.
Well as and it depends on the terms of the stimulation as Felipe mentioned, where we're leasing and a conservative leaving 30, but we've been heightened 40 30 to 40 units a week. So we initially.
We initially thought that was going to be a two year lease up from now and it's really because you're probably going to finish. This within 18 months. So that's going to happen sooner rather than later.
Retail is basically 80% there. So we're just waiting for the market to Covid subsides, and we can actually fill up the balance of the restaurant space, which we haven't done but the office space takes I would say the earliest is gonna be the end of the year before I have other leasehold and built out and the tenants paying rent and that's something that's realistically speaking once we clear the committee.
Approval within the next short while even on the first tenant and it's not going to happen for you engineer so stabilization from.
From a realistic perspective, it's probably I would say 16 months 16 months from now.
Okay, and stabilization, meaning basically fully leased up.
Okay.
And maybe just changing gears to capital allocation could you give us a sense for maybe your acquisition and disposition targets for 'twenty and 'twenty one.
Probably not.
I think start up the residential sales at least had mentioned all of the properties and we have with our joint venture partners and we're building and the and the markets of Seattle, Los Angeles, San Francisco, etcetera, well that can be geared for sale and that are that's.
And that's something that my guess is this for leap did.
<unk> and <unk>.
Clarify and it's probably too expensive for us to buy because I think the cash you're gonna be maybe alone and there around the for each range. So that's not accretive enough for us so that'll be a disposition.
I think as far as industrial goes there'll be no dispositions as far as office those I think the world.
We obviously have some targets and office buildings, and we want to sell but I don't necessarily think that 2021 is the right year to do that until there is some light at the end of the office recovery tunnel and even though we have long term leases and quite frankly, so our assets can wait and be sold and we want to sell later on to generate cash and so I can't give you clarity on what assets are going be sold and when we're looking at it and when they.
And when the time is right we will do so but I don't think the time is right now and those sectors. So I cant hang them aggressively can't give you a clarity.
It's really too and the pandemic has really caused too much uncertainty as to which are what the timing is as to sell assets and aim is to purchase assets from a purchase perspective, I don't think Canada has for its much.
Much.
Much opportunity I think the opportunities and every months and waiting for distress and distress and it's only going to happen and certain key markets like New York City, they're not going to happen and Austin or Dallas or quite frankly, any other target markets and they won't happen in Canada and the assets we want to buy.
So bottom line is Canada is good and we're gonna be they choose.
Challenge to go ahead, and buy Accretively and Canada, I think we will be able to purchase things and the United States, but I think it's more of a balance sheet management for 2021, and and Opportunistically sale, if the market opens up.
Well that's good color I appreciate all the comments I'll turn the call back. Thank you.
Thank you and that concludes our question and I will now turn the call back to Tom Hofstetter for closing remarks.
Thanks for everyone stay healthy stay well and he'll play and export are that there will be vaccines.
Thank you have a good weekend.
Thank you for joining us today, ladies and gentlemen, this concludes our call and you may now disconnect.
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