Q1 2022 H&R Real Estate Investment Trust Earnings Call

Good morning and welcome to hnour real estate investment trust 2022 first quarter earnings conference call.

Before beginning the call ear would like to remind listeners that certain statements.

Which may include predictions conclusions, forecast or projections. In their remarks that follow may contain forward-lookinging information which reflect the current expectations of management. 's.

Regarding future events and performance, and speak only as a pity state.

Forward-looking information requires management to make assumptions or rely on certain material factors. It is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information.

In discussing hnr's financial and all operating performance and in responding to your questions, we may reference certain financial measures which do not have a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles.

And are therefore unlikely to be comparable to similar measures presented by other reporting issuers.

non-GAAP measures should not be considered as alternative net income or comparable metrics determined in accordance with IFR IFRS, or as indicators of HR's performance liquidity, cash flows and profitability.

agnr's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures So that investors can do the same.

Additional information about the material factors assumptions. This claned uncertainties that could cause actual results to differ materially from statements in the forward-looking information, and the material factors or assumptions that may have been applied in making such statements, together with detail on hnr's use of non-GAAP financial measures, are described in more detail in HR's public filings, which can be found on hnr's website and W C com.

I would now like to introduce Mr Tom hooffedter, Chief Executive Officer of each another. Please go ahead, Mr hooffsteter.

Good morning. I'm Tom hob edter. I'd like to thank everyone for joining us today to discuss hnrour's first quarterf financial and operating results and to provide an update on our transformational strategic repositioning plan. With me on the call are Larry firm, our Chief Financial Officer, and fleip laappoint to reach's newly appointed President.

Our strong first quarter financial results Mark a pivotal moment in the continuation of our strategic transformation and the servicing of the better value within our portfolio. Following the successful spin out of our enclosed shopping center division and the sale of the boe and betal office campus, our portfolio today is significantly more concentrated on higher growth asset classes within strong urban markets.

Since the launch of the REIT' transformational strategic repositioning plan, we have spent considerable time meeting with many of our unitholders and are encouraged by their helpful comments and feedback regarding our strategy, our team and our disclosure.

We recognize that we have an opportunity for better and broader communication, in addition to continuing to demonstrate meaningful steps to drive at our capital allocation goals.

As we move through our repositioning plan, increasing our allocations to reach U's residential platform. I'm thrilled announced that the leteal pointints as accepted the role as President of the REIT. The Le's leadership capabilities and achievements in the creation and development of the REIT's residential platform make him exceptionally well qualified to further contribue during our exciting phase of transition and growth. The leap will continue to oversee our growing residential platform as well have more as well as have a more influential role in investment strategy, capital redeployment and Investor Relations.

Our portfolio of high-quality properties with long weighted leaseterms credit worthy tenants holds great value. This quarter our net asset value per unit increased to $21 and six tths as same property. Net operating income quickly rebounded and surpassed our projections, while cap rates continue to compress in our industrial residential portfolios.

This added value is captured in our $1 billion in favorable fare adjustments over the for fourth quarter, acquating to an increase of $3 and 36 cents on a per unit basis.

Capital location is our top priority and at this time, one of the best uses of our capital is buying back our units, which are trading at a substantial discounts to net asset value. Year-to-date, we have bought back 13.7 million hnr units for one hundred and seventy-eight million dollars at aweighted average cost of $12 and 96 cents, representing a 38% discounts to our net asset value per units of $21 in six cents. We plan to continue to buy back our units as a significant discount percent.

With strong, strong today's strong quarterly results, we are our way to creating a simplified growth areient and companies that will serve a significant value for our unittholders. And with that I will turn it over to Philip to discuss our residential platform, ninepower. Good morning everyone. I M delighted to be on this call during these money metal changes to discuss our residential updates over the last couple of months as to go over our first quarter highlights.

Starting from a high level. As you've heard from times, we've continued to execute on our strategic plan by redeploying capital to residential development pipeline while managing the remaining divestitures of our legacy assets.

Before I laatch you to our updates, I'd like to take a moment to comment on our residential platform founding and its ensuing growth.

Since our residential platforms founding in 2014, we have steadily increased our footprint in the? U's subumbll marketts via timely acquisitions. Those acquisitions were funded with recycled capital from dispositions of other nonresidential assets- in essence, a nearroidentical strategy as our ongoing repositioning plan.

That very recycling of our capital is deeply embedded in our corporate DNA, and I will humbly submit that over the last eight years this formula has proven to be quite accretive to our unitholders.

As such, and in light of a recently published strategic repositioning plan, we would like to reiterate that the remaining steps of our plan are a continuation of that exact process that has brought us much success.

And on a more personal note, there in lies the main, a reason why I'm very motivated to move into the role of presents of HR REIT. I'm very optimistic about our future and of the upcoming value that we intend to create for our unitholders.

And so thank you for indulging me for a moment. Let let'sjump into a review of yet another quarter of strong multifamily fundamentals.

When excluding Jackson Park, same property net operating come from our portfolio in U's dollars, increased by 11% for the three month ending on March thirty-first 2022, compared to the respective 2000 and twenty-oneth period.

When including Jackson Park. Same asset property income from our portfolio in U's dollars increased by 31, 22% for the three month, any on March thirty-first 2000, and 22 compared to the respective 2000 and twent-one period. As we have seen in previous quarters, we are continuing to experience substantial rental rate growth in all U sassembled markets.

By way of examplple, our new lease trade-outs for our entire portfolio, excluding Jackson Park, was approximately 12% in the first quarter. This represents nearly an entire year of double-digit increases of new leases across our entire portfolio.

And for additional context, we're still observing comparable elevated renewal rates as of the date of this call.

Moving on to Jackson Park, we continue to see positive trends in the amount of traffic, rennewal rate and number of leases executed.

At the end of the first quarter, Jackson parkss occupancy was 98% and the percent of residents renewing to leasesis hovered in the mid- 60% range, which represents a renewal rate of over double debt of Q1 last year.

Furthermore, in marchks the team sign the least for the last remaining retail space, Jackson Park. Bring in retail occupancy to 100% and then it go. That, we believe, marks the full return of the city.

As for River Landing and lan River Landing, the property has continued its strong performance.

As of the end of the first quarter, the property was nearly 95% occupied and for the month of April , new lease rates increased 33% and renewal lease rates increased 20% compared to previous leases.

renllanding continues to outpay for performance budget and we're preping for future fair market value increases as we capitalize on these outsized rental rates.

As previously mentioned in our disclosure, the first quarter saw a material increase to our fair value and I would like to cover the adjustments to our residential fair market values in a nutshell. Compressing cap rates, coupled with continued double-digit NOI growth have supported substantial increases to our multifamily values. Our valuation cap rates are supported by an independent Appraisal and several market research reports.

Furthermore, our valuations are also supported by multiple recent U's multifamily REIT privatizations.

The market recognizes that sunundbelt multifamily is proven to be of recession resilient asset class with many years of strong storical fundamentals, underscoring the strength of the asset class as a long-term investment.

Additionally, due to the shorter-term duration of the leases, in the additional disposable income available to renters during times of wage growth, multifamily represents one of the best inflation hedged investments. Further in the appeal to private and institutional capital.

The fair value cap rates, paired with a demonstrate organic noigrowth supported the fair market value adjustment of over $5 million this quarter.

On the JV development front, we are pleased to report that the Pearl in Austin, Texas was successfully sold after a very active scale process. The return calculation equate to a three point fifteen and.

Times of return on invested equity and a 41% IR for the REIT in H Le California, Phase two of our development names in grant up pay fronts, received its final certificate of occupancy in March of this year and is currently 43% lease.

Lastly, Shoreline gateway along these tallest residential tower with 35 stories has seen strong rental demand since receiving its final certificate of occupancy in late 241. the asset is now 47%. Lease is achieving higher leve rates than originally budgeted.

On the wholly owned development front, we expect to break ground on the least 11 distinct projects in 2000 and twenty-twoand thousand and and 23 ininter Sunbelt markets.

In two thousand -pointy-two, we expect the breakground of five projects: West love, Midtown and city line, all in Dallas, based ide in Tampa and Sunrise Phase one in Orlando, which represents, on a combined basis, one thousand and six hundred and sixty-one apartments.

First of I like to provide an update. atlanto at westloves in deallas, Texas. We're happy to announce that we brokegraround on the five story 413 unit raf development last month and we expect to turn the clubhouse and commmenced leasing of the first unit and approximately 18 months.

Also endallas. Texas is lancar Midtown in a five story 350 unit rap development with direct frontage to the North Central Expressway and is expected to break ground this quarter.

Our third Dallas development: antpower City line. A 295 unit, five -story raf development in the CityLine. ix-use development is expected to breakground in the fourth quarter of this year. The 186 acre City line development includes major employers like state farms, regional headquarters. That emimplies over that employees, over one thousand employees, and with walkable access to a whole foods market.

In Tampa Florida, we are wrapping up the building permit for a development called antcar base side. This development will consist of 271 units and is expected to breakground this quarter.

Lastly, in or, lando we are currently designing Phase one of our sunmarise development. The 332 unit gardenstyle development is located within a short drive of Disney world in the I four commercial corridor of Orlando.

We expect to breakgram of this development in the fourth quarter of this year.

In 2023, we intend to break gramilyly six more projects in our existing market, the landsite that we either currently owned or on the contract which combined, would be an additional 2200 units.

We expect this pipeline to grow as our in-house development team leverages the relationships and local expertise to secure institutional quality and development opportunities.

landpowerwers's process and foststered partnerships with best-in-class brokers consultants, architects and engineers allow platform to scale to support the needs of a repositioning plan.

We are currently under contract in pursuing rezoning of multiple tracks across Florida on exxis, And so we look forward to provide more color on our expanding pipeline and recent project additions next quarter.

Lastly, as part of our ESG commitment, we are pursuing an ngds green certification on all new developments. landpower's pursuit of a silver or better rating from this nationally recognized green building certifier represents our promise of providing sustainable, energy-efficient homes to our resonance into our communities.

Lastly, in alignment with our past initiatives ever since our founding, we have welcomed two refugee families from Ukraine into one of our communities in Florida. Add no cost to them.

And in the first quarter of this year are employees donated with a adellar for dollar match from hationr- over 17 thousand- to unicef Ukraine and we continue to look for additional ways to help the cost.

In summary, we are excited about the future value-creation opportunities at additional REIT and I look forward to contributing even more to those efforts in my capacity of pres, and with that I will pass along the compensstation to lay.

Thank you Philip, and good morning everyone.

Before I review our financial results, I would like to highlight four disclosure enhancements we have made this quarter. The first is a portfolio of summary on Page six of the M? Dna with the concentalized consolidated table of property, stps and metrics.

This is HR at a glance.

The second is a summary table of net operating income located in our press release.

The third is the recent balance sheet on Page 14 of mdna, which proportionately consolidates equity accounts investments. And the fourth is the recent income statement on Page 29 of the mdna, which proportionately consolidates equity accounts and investments.

We will continue enhancing our disclosures going forward and invite thesujetitones for further improvement.

As Tom mentioned, we are excited to report our results this quarter, which have already begun to reflect the rewardsces of the strategic repositioning plan we announced last octoberafter shedding four point seven billion of higher risk and lower growth assets in 2021, we are well on our way to streamlining our portfolio and aligning ourselves for higher growth.

That growth is clear from our Q1 same property net operating income cash basis, which grew nineteen point 1% compared with the same quarter of last year.

Each division contributed to the growth, with landtower residential leading the way with a 31% increase in same-property NOI cash basis.

31% if you dig deeper and exclu jackin path which was in E up last year growth was a very healthy 11% and.

As silippe has already discussed, land tower residential continues to see significant increases on new leases and renewals.

Same property. Noi cash basis from office prperit ES increased 24%, primarily due to the burnoff of hest corporations. Rent prereeperiod that expired in June 2021.

Our office properties are located in strong urban centers with a weighted average lease term of just under nine years, leadased to strong, investment-grade tenants.

I would like to point out that we have only four thousand square feet of office pieces expiring during the remainder of 2020 -two and.

Retail same property. Noi cash basis increased by 5% for the quarter driven by the lease upper River lending commercial.

Committed retail occupancy at River Landing is now at 90%.

And lastly, industrial same property. Noi cash basis increased by 5% for the quarter, primarily due to increased occupancy and contractual rental escalations.

Subsequent to the quarter released the vacant 314 thousand square foot industrial property at 21, 21 corwall HR as a 50% ownership interest in this property.

For the remainder of 2022. We have just under five thousand square feet of industrial leases expiring, at an average rent of $5 12 per sweare foot.

We look forward to reporting further strong NOI growth from and industrial portfolio.

As the rents in these properties continue to increase.

Overall sfo per unit for 28 cents and iffo per unit for 26 cents of Q1.

Based on our distribution of 13 cents per unit for the quarter, our asfo payout ratio was a very healthy 50%.

During the quarter, hnr completed independent appraisal for 23% of our real estate assets.

We are seeing continued rental rate growth and cap rate compression in both the? U's residential and industrial sectors, as has been evidenced by many significant transactions over the last quarter.

As a result of the independent appraisals and what we are observing in the markets we realized by favorable gains on the fair value of our real estate assets of $1 billion.

Philippe has already described the? U's fandal resrental markets and how cap rate compression, along with robust rental growth, contributed to the portfolio's large increase in value.

On our Canadian industrial portfolio.

cappeate compression and continued growth in market rent were confirmed through 53 independent appraisals received during the quarter.

The 53 appraisal amounted to 57% of the total value of our industrial portfolio.

Land and property under development were affected, primarily due to industrial lands and two prperties under development in California.

We obtained an independent appraisal for the industrial land bank in calladan which reflected the values of comparable land sales in the area.

The fair value increases resulted in our NV per unit increasing from $17: 70 cents per unit at December thirty-first to $21, six cents per unit at March thirty-first, and also improved our leverage from forty-six point 6% of December thirty-first to 43% at March thirty-first.

We finished the quarter of cash on hand of 103.0008285 trillion available to be drawn on our allance of credits.

And four in summary, we are very pleased with our Q1 results, our high quality portfolio of properties, of position to produce strong operating results going forward and with that I'll turn the call effect to come. Thank you, Larry H and's blush liquidity and we are very confident in our plan, in the direction that we are going. We are rewarding our unitholdholders for their support and patients and are increasing the distribution by 6%. We have significant embedded growth in our properties. That gives us the confidence for the distribution increase announced today. Having lifting our teams have completed to date is beginning to bear fruit, as evidced by our strong first quarter results with an increase asset growth profile and to be joining with the executive team. We are moving towards our goal. We will endeav to continue the cadence of our work and will perform this year executing against our strategic positioning plan. Management and the Board remain fully committed and are actively valueuating opportunities to increase unithholder value and address the significant discount at which our units trade. Founders, management and members of the Board and their famil collectively owned more than than $3 million, or approximately 9% of the equity of H REIT, providing strong alignmentof the unitholdholders and pursuit of the REIT objectives.

Looking ahead, we will continue to enhance our communication of our strategic repositioning plan. In addition to demonstrating meaningful steps to derrive at our capital allocation goalswe, equipped with a strong balance sheet, significant liquidity, enhanceced portfolio concentration to large primary markets, with strong population and economic growth, and a deepening of the executive teams Ben strength, we are very well positioned to drive forward our repositioning plan'd now be pleased to answer any questions from the call participants. Operators, please open the line for questions.

Thank you. If you would like to ask a question, Please press Star, followed by the number one on your telephone. ippad to withdraw your question. Please press Star one again.

Our first question comes from Jenny Ma from bemo capital markets. Please go, aheck. yuline is open.

Hi good morning and congratulations on a very strong quarter and lief, on your promotion.

Thank you veryent much. Appreciate morning, Jamie.

I want to touch on the the IFRS cap rate moves. When we look at what they were throughout 2021, particularly in the? U's multifamily division, they were fairly stable. But we've seen market cap rid for U's undbelt multifamily properties the client throughout that period. So I'm wondering the move that you guys made on that division? Is it a big catch up, MO that really factors in the market moved from the past 12 months or so, or is it reflective of just the past three months and the transaction that you've seen in the in the market on the M a side?

It's a great question, Jenny. Frankly it's left a catch up, but more so the resullt of some very substantial transactions that occur towards the back end of Q4, and it took a bit of time to have an economic rethroughw. Where the fundamentals were, but also pricing, they were' three multiamily pure place. They had a capital structure that was a little exhaed, And so it took at the time. But when we put in the in the press release that in conjunction with an inpetitive appraisal, frankly enough third-party research reports clearly indicated us that capital rates had a significant compressed compared to where we held their fair market validance, And so there was about time for us to recognize that deeply embeded value.

Well I'll just just to add a little bit of color. Some enactments and government en, actments restrictions- came off in the fourth quarter and so we may be a were a little bit gunsharp before they came off in the COVID-19 environment. Subsequent to that, and seeing just a space of transactions that there's been just tonunne of transactions, thatat these lower cap rates we have evidenced that of the capture of the of that value in our portfolio.

Did you have a higher volume of appraisals on your properties this year versus 2021?

In two ythousand and 21. we normally do about a 25% - 33% of our portfolio in the year. So yes, this quarter was a higher level. A lot of that is driven by the industrials where we are looking to do a refinancing on our portfolio. So of industrials that we own, 50% was pssp and quest point. So we have done apaisal for that refinancing and that was really a large part of industrial refinancing.

And then we had an appraisal done on the land- a bank that we had in caledin as well, and the other appraisals were on some of our development on our office properties. We diddeny appraisals on our office properties that we felt had intensification opportunities and although they weren't much of an increase, there ly there was something there.

Okay going back to the? U's multifamily portfolio given up, part of it was driven by other Ma transactions in the market. Does the 307 caprate you guys carry now contain any sense of the portfolio premium, or is that just a weighted average of the individual properties?

So So we, an average of the individual properties- both say we've got gabway market, that obvious- have a capperate lower than some beult marketts. Still in a full basis it lands around 3.7. interestingly enough, the transactions that was referring to trad that cap rates significantly lower than three point seven as a vintage. In quality the assets were not compable and when instance the assets for both in the eightas, the other assets are in the other case, some of the assets were in tertiary markets. So trank, then a personal no. I believe that we're still very conservative.

Given where our capforts are't impreive with the market is I suspect that obviously with the increase in interest rates one is wondering. Ultimately more capptforts are but frankly if the battle of the inflows of capital versus the increase in capital and the increase in interest rates and as of right. Now the inflow capital seems to be winning in all of our multiaming markets in the yors.

Right right, okay. So when you see that kind of caprate compression in the market as it relates to L tower, how should we be thinking about its growth profile? Acquisitions built the portfolio, but are you going to be pulling back from that a bit, given these kinds of cap rates, and really have development drive the growth, or would you be speaking acquisition opportunities, maybe in other markets that you're not currently and in search of some stronger yields?

Yes So love impack there I would. I would homly submit that one way with atland. wer is a spectacular growth engine for each in our recent and for all its uniolders.

As it relates to, as it relates to ultimately, with the arbitgoing strateies, is what we were building, being opportunistic and seeking arbitron opportunities between the markets, between asset types. That that doesn't go away. But frankly, as of right now we're seeing the delta between current existing products and our development yields is historically wider. That it's been in a very, very long fun so far. As long of that's true, I think, pivot significantly to develop and create doing that way. But yes, there's a a deepdecompression of carings in those opportunities to the pl one market versus some other one asset PE one a.ssetic ulture is another that will definitely take. Take advantage of that. And right now we have, on the folks fans will five a fixed development projects in the U's. We applied how year six makes here and we're, in the contrast, negotiating acquisition of a few more. So there's going to be a lot of activity in a lot of value creation coming from that side of the of the platform.

greatparticularyou busy. I want to turn to dispositions. You had previously guided to the positions being back end weighted to on this year and there hasn't been anything completed so far. Can you give us an update on whether or not that still holds your confident in the dispositions that you plan on doing and as the market shaping up close to sort of what you re expecting late last year, or have you seen any shift in the market conditions?

Morning the market has shift, But if veryrecently would say shifted around two all two weeks ago, I think the trades that happened prior to that to would received a from pricing today. Our goal has been an organized sale process over a period of length, period of a few yearsit's not a fire sale, is not a sale that's going to be, anything has to be. So we don't have these shorter lease expiries. We have have quality assets that can be sold, So're not going to sell justfor the sake of selling. We do haveone hundred million dollars of dry powder through debt, through cash, to consider, continue to go with their N C, B we. We currently have 7, seven service ations under contract for for a $6 million. I expect that to go hard. We have a couple of other otherwise that have been signed that have subject to a p's and due diligence. I expect that to go hard ultimately as well. But again, the organize of the market continues to shift negatively, then we will obviously not to tobe achieving our goals, are selling, butthen our goal is to sell. nota ire sale, as I mentioned, and therefore over the period of the next few years we will be selling as the market is there to buy assets. I expect, with the volatility industrates, that throughout the summery you're going to see a, a very weak market in totality. I think multires will be finded, industrial still hold. I think the other sectors are going to have be under pressure.

And I'm sure you'll see, in the laterter half of qut, the laterter half of the year, we will have more dispositions than we for sure I have in Q1 right, but then a Q1. We never expect to have lot of dispositions because we're sitting with too much cash as it is. We just are offful. Our two thousand and and twenty 1, a large amound est sales that, where definite, gave us ample liquidity, So therefore we had no necessity to So.

Tom do you care to venture like a rough quantum of ile kind of sales do you think you could put under your contractor? Complete this year.

You know I have a never in my head But I can Pell out. The number is subject to the volallarility in the market and two weeks ago I think the market had a major shift where everything's frozen. I think there the it's not only interest rate, it's also to the sentiment. Going back to work- and I don't think you look at trontotor right now, I'm looking at dedifferent Street. I' not seeing any cars. I don't overtheperiodof the summer people are going to be Act to go that quickly back to the office. That sht has to occur. So it's hard for me to give you a number because there's so many variables out there that really will impact the success of trying to sell. I do think we will succeed to have a significant amount of sales towardit by the end of the year, but I can't really to put a number on it.

ok why have at least for that? Thank you very much. I'll turn it back.

Thanks jy.

Our next question comes from seiaed, from ciibc. Please go ahead, your line is open.

Thank good morning and conraps sleep on your new and expended role.

um' just a.

Wondering if you could share someof your top priorities in this annew ro.

It's an interesting question and I think there are many that. I think, first and foremost, we definitely want to improve our communication to our uniolders and franklly, to the market. I think we've done a good job. We haven't done a great job, but that's one of the first things that I want to.

To work on. Frankly, someway we've got a great story. We, in my mind, GI ven inexplicable Delta from our now for a share price, and I look forward to sharing the story with as many people at are interest herearit, because I werere obviously tremendous confidence in this value proposition.

Okay Thanks for that. And then Tom, like obviously really good buyback activity year -to-date, the historically agent or hasn't really gone down this path of this fderring what shifted or presued you now to invest in your own units?

Well that's a good question smaya, it's Larry way, I think. What changed is we really derisk our business with selling the Boeing Primaris in Q4 2021 and still seeing the big discounts in our units. We feel that it's a great opportunity now, and the best.

Optimal allocation that we can make is to bond out our capital while this countpus ES.

But not only that we are loaded up with cash and capacity because of our success to selling the Bow and build the portfolios last year. So it's the pricing the overhang on this stock should have been somewhat related to the Primaris and the Bow. Now that we have disposed of it. There should be nothing wrong with the stock rising. We do have the capacity and therefore we're much more comfortable today by it where we relative to to where we were around a year athough.

And we see good growth going forward in the busoniness.

Right okay, and just the last question I had was on the retail and property growth.

Fairly strong and helped by River Landing, but do give have a sense of what would be retail organic growth on a more normalized level.

Yeah it was basically all retail. It was basically all of a landing. If you de part ubver, Landing will be pretty ffl.

ok Thank you.

Our next question comes from mattcornoick, from National Bank financial. Please go ahead in line is open.

Hi guys, been waiting for this quarter for a while and glad that finally happened. Good results here on the capital recycling front. A lot of attentions been paid to the office and retail assets, but is there an opportunity also, I guess, to maybe turn out of some of your existing legacy multifamily assets and use the fund a three cap to fund some of your mid five cap new developments in the of similar markets?

I think we've got enough liquidity right now not to have to do that, but it's an interesting question, Matt. What we're seeing currently is there's some of of a charge opportunities between one Sunbelt market versus another, And so I think what is a more probable outcome is thus recognizing, using fictitious numbers. But if I can buy for, if I cansell sub three and Austin and buy for a four qu capital ando.

R 6, three a.

An accretive exchange if you will, and that's maybe something that we're look to you. But what Frank does T right now- my biggest, I guess- reluctant in doing this. Also if you take a look at our NOI growth.

we'looking at double-digit Y growth or margins in Form. So I wouldn't be hard to sell a no commodity for an unknown asseset.

Fair enough. And then on the sort of 64 million of identified cost to complete on your development projects, how much of that would you anticipate funding with sort of standard construction financing as opposed to equity?

He met.

So we've got our lines of credit available could be used and we expect to use that up in the short term and then hoping that we'll have asset us positions to replenish that, those lines of credit. So that's what we're planning, our plans at the momentth. Just remember matad, that we took our. We are now down to run 42% on our debt assets and we are comfortable with the mid 40- 40 Five is. We've always stated So we did to have capacity issue war, unsecured debt at appropriate time and we're comfort able doing so. And our development spend for 2022 is not that large. I mean in police projects in the land, we've got probably be budgetingfor $75 million to be spent. We have a couple of other projects in Canada and that will probably be another. Call it 40, Five million, the most like ck, looking at 11.02 billion up and spend this year the largest seven 3, three M ro, which we had $25 million spent on industrial.

Okay So the bulk of that, those 2022 start of construction for the, the U's multifamily, that that that will be mostly 2020 three and.

Into 2024 and you've got 2024 as kind of a date of completion, but is it mid and staggered of how should we think about that from the development?

And I think a good way to look at it from the moment we move dares. So the speaker begin construction. The first units usually come online within 18 months.

And so there's going to be some cash flow contribution within 18 months of the day of construcing.

Okay and on riverlanding, those spreads you gave on, both the new and renewal leasing, are pretty impressive, is that? And how much of that is kind of you releasing earlier on in the development process versus kind of market rent escalation?

Is it assume it's a bit of bolt?

It's a bit of vote. We're not offering any concessions now, where we wewere offering concessions initially to induce the leaseup, but I think it's the majority of the latter. I think the market is obviously very good to our assets and the competitives set as well, but I'm also very bullish and excited about the next 12 months. I think we've only seen the very beginning of rental growth that that properate.

Okay and then 2, two quick ones just on 6, 49 North service road. I'm glad to see traction there. What should we think of timing wise for that lease commencement, if it in fact does go through?

I think tomers made up sort of Q3 or early part of Q4, just kind off memory.

And no. I ask you onewhat.

Q4 four

Okay last one for me on CapEx. Larry, there's a insurance proceeds in your redevelopment conpex. You know what it would have been? X the insurance proceeds.

With we didn't have much CapEx.

X.

six the insurance proceeds. It would have been: I'm up, I'll get back MAT, I don't ill back to, but don't think anything right to that. ok again, and I guess that's a broader theme, I guess as well across this new entity, is that CapEx this quarter has come down substantially and you'd expect uh.

It to stay in through to these lower levels.

Yes I think we will be a bit of a CapEx increase. Our budget is a bit higher than the amount is spendended for Q4, but not substantially. Maybe another million dollars or solar quarter, and just if you can work out the number of your, if you have in front of me AP, the surance proceeds were welve five thousand U S.

Perfect Thank you very much guys, and and again, great quarter.

Our next question comes from Mario Eric from Scotia bank. Please go ahead, your line is open.

Day good morning.

Thanks for taking a question. I wanted to maybe just uh come back to uh the land tower.

And the strong same-sterw growth.

A three power. How sustainable D you C kind of you know high single digit, low double digit, same store in W growth.

Within the portfolio over we taking month. I would believe it to be very sustainable. one of the metrics up off the up last summer call, but one of the metrics that we rent to income ratio before this run up in rents and in Act's and in a barely move, which indicates us that ultimately there's still a lot of room, that there is more Form. There were no sinesses.

Un belial amount of income growth on that for tenants and most the general population. So for as long as that's true, I'm very bullish on the rents and even if that were to abate somewhat, we still have a time to catch up. Versus is ultimately the their capacity to pay high rents.

Not to mention, by the way, just is, and not to mention the impact of how expensive single family housing has become. And so, as you take a look at your demand for your product, not onlyither that they're making more money, but the opportunity to purchase a home and ultimately move out of our apartments is diminishing.

And can you, can you remind us of where that rent income ratio may be after Q?

It's a little 41%.

Just to give you a frame of reference, if you were to apply for aloan to a mortgage Y house, I think the maximum ratios about 33%, at which point that the breathrough point, And so that's implyed that we would ever get there. But there's, there's always a a tonor runwayhave.

Yes okay and then just maybe coming back to one of the original questions in terms of the IFRS cap rate I just want to clarify the.

The three point seven one.

When you're looking at the.

Comps.

You guys are excluding.

Presume portfolio premium that was being paid in those.

prioratitizations in terms of assessing the benchmark of.

That's exactly correct. I would also add, for additional classx and clarity, two things. The one has: at any point in time, we have about 80 to one hundred assets that were currently underwriting a respective market. To get better sense of of the market and get a pullse sport as, as of right now, the vast majority, the opportunities that are actionable today with today's interest rates, are all in a capate of self. three a half percent.

And so is that subject the changes up in the future TBD, But as of right now that's the reality which we live in. The second, and this is more to go than anything else, but we are currently selling anasset or on the contract of selling assets. And santonio due diligence was actually weighed late last night and the again in today's environment, with today's cap rate, that value is in excess of the viil, the value that we're holding it on ourfoks, So in excess of ouririfr value in San Antonio, arguably as slowest the fall seven ments.

netok.

That's great, and then just maybe uh, shifting to the distribution increase.

Curious is how, how you ended upon 6% and how should we think about?

The potential for kind of recurring distributioning.

Going forward in relation to.

Know perhaps at full orana growth.

Is there a specific PAT ratio that you're targeting?

How should we think about that policy and how that's changed?

If there's really a function of the great growth we've seen this quarter and the confidence in our assets to kind of continue that growth, definitely for next quarter and probably into the second half of this yearaffo payout ratio for the quarter was 51. So as 50% - excuse me 50%, for that's very healthy payout ratio and we wanted to return, we wanted to increase that- how do we look at the amount going forward and what ratio you should think of? We said more or less we've wanted to be between 45 percentand 55% payout ratio of asfo and that's where we are landing at and continue on that path going forward.

But again we have the confidence. We ut preCOVID. We very conservative, as you will know, both on our appraise values and our pice values and on our path. We have the confidence now post both post primaries. There's no more drag on us and no more drag on our stock to go aand increase distributions going forward to the levels of we mentioned.

We have no real-leased expiries that are bothering us. We have no assetts weak tenants at all and of bad debt, So we're in a position to just keep on coupons. Our industrial rents have gone up dramatically, even from January to today are we've G around two point zero zero zero seven million fifthe OD thousand square et to industal renewals and around going from an EV AB 8, 60 to 11 to 57 as a fifty two point 8% increase. That are represented 10 milliondollars to hundred level, five milliondollars our level and we can. We expect the industrial and the residential to continue to cput, along with the Ren retail and office achieving its contracttor rental escalations, which will course, are more muted but overall gives us the confidence to continue to increase distributions over time.

Perfect and then just maybe an associated question.

uh in terms of uh and in May, kind of moving.

Asset faaled like the other sense of.

The level of passive sales that are I.

Capable of being achieved without having to do a special distribution.

This yearwell's a little bit of the difficult time because depends' the United States or Canada. So where we have our plan ultimately, always in the vision selling some UN United States and some Canada. So the the, the we're no bouncing Act of what. Where that Delta lies in UN United States be 10 31, and it's not an issu. Or Canada, of course it's an, an sueso. There's not a lot of capacity to go head.

distriions and then again. That's again why we increase the distribution now in antipation. Fact that we will be telling assets and potentially have to do with a special distribution lied that we go. We were confident in the increase that we did, provideed to the unit host in.

Okay and then just maybe last question.

No coming back to the dispositions.

And kind of the pivot to to a growth strategy on one hand.

You have the multifamily and industrial which are growing.

Quite nicely. But on the other hand as well, there's there's growth through maybe a bit of addition by subtraction, in terms of some of thoselittle.

A growth as cross that you're looking to dispose of over time when it makes.

If Tommy mentioned the.

Kind of the market dislocation last couple of weeks, or are you?

Are you seeing mead do early? But are you seeing kind of differentiation within that market, this location?

So for example, for your office and for your retail assets that are very long lease dation.

No contractual rental estcalations which during period.

Stress I would argue, maybe get a bit more value.

As opposed to last to.

Are you seeing that the differentiation in the market today? And Yeah, I.

Think about, you know, the public market volility imping whatyou'regoingto the private.

So it's. I think I have mentioned before- it's very, very new develoll of a couple weeks old- that the markets. Basically, i'would almostly taken our strong pause for everything.

You've seen the office completely dry up. I in their retail again dry up. I don't think any body's moving to cap rates, se or for. Still I think the markets, but the capital markets, are in a very strong position as far as their deadt levels go, So there'sno urgency're going to. It's almost like a wait and see till people find their levels of where interest rates is going to lie. I don't you're going to see over the course of the summer a whole lot of transactions taking place in Canada and I say will obviously see some more sowe. The answer to the question is it's too early. I don't know. I don't think anybody knows. I think what're going to see H r be doing many old gravitated the same.

Formula is a lot of off market deals rather than a widely market deals. To give the buyer the reading of that, they go ahead and deal with an off market but the comfort that there's not a lineup over there, and I think you'll see relationships, the relationship deals. You'll see structured deals. You'll look at ourbo deal. That was a highly structured deal. I think you'll see that going forward as well as the market comes, as the market finds in place. Overall though, I'm pretty confident we re able to achieve our objective itself: assets, but again, I think they'll be off market until the market findthose place.

Got it and just on the off-market we've seen some reates.

Kind of stell assets and kind of with, you know, taking back units at at IFRS valuations.

Or the starts are trading rightdoyou you see potential possibility for you in terms of now? And I Don' thinkit. I don't think it's a big driver. We talked about that a long, long time ago. H are traded to discoun AP. We always suggested naf. Now would make sense. I think the deal you'referring to, the chur AL ideal, was structured I think was close enough that they could achieve their objectives from an optics perspective. But I don't think it's a driver going forward at all. I think that the it's very hard to do N? Nv because no one agrees on whether the ponents hand hours of the world will not agree necessarily with the other side of what they have is. I don't think you're going to see that becoming a big part of our, of our sales program, or the market sales program for that matter.

Right okay, And my last question.

Again this may be looking out a bit too much, but start just structurally speaking.

The portfolio of it sits today like the same partp of why growth is has been really good. This quarter like.

Next quarter as well. ven what landterwer is doing structurally? What kind ofthingsed D and why growth? Do you think the?

He set up to deliver after we kind of get past the Jackson Park year-over-year and the half power year-over-year. But what kind of start.

Interest parwide growth to achieve 23 kind of ymentso. If you backed our Jackson Park and riubver lending from our same assets, same property andnoi you would be at 5% growth. So we think in our lande residential achieving.

In single teen-digit growth. That's going to definitely be the driver, the industrial, when you're looking at great growth going forward as well.

hiants to put any numbers on it, but you know the think we ieve this court should be going forward for next year or two and then office and retail will be smel Y less will be more mutto will just the contractual rental, less escalations coming in. Basically our office and retail portfolio least long term and the new growth coming in from there will be the Ren? calations. Right and don't get that lumpy: office, retail and office or five year. For the most part, five year, as at the post of industrial which is now the market is one year annual, three to even 4% as Ann escalators. The, the retail is the least. We right across what's always been least. It's more like contractual rental ations is not based on a percentage or rather a 50 cents or dollars square foot for the larger box deals and the office is contractual with 10% every five So it's lumpy. But again, as lar mentioned, there's no least turnovers, there's no well Wee tenants. So we expect to get that, the IE, those type of growth, that type ofgrowth in the retail and office over time and again, the driver being, at this point in time, residential and industrial taking it forward.

ok briing first.

Our next question comes from Jimmy Shan from RBC capital markets. Please go ahead to line and open.

Thank you. I just wanted to follow up on the the comment about the market taking a pause. So is that? Is that also happening in the hot sector? Is like industrial in Canada and and so that's one and then, and then in the multires some Belt. It sounds like there is no pause there. So I just kind of cur us to how you think people are justifying paying a three and a half cap. You know when the cost of debt is.

You know is ahead of that and you know is it. Is it just a confidence in the underwriting?

Continued high run inflation and maybe.

Maybe your thought it would be great.

Well the driver on industriis very simple: CY rate throughout North America, you know, 2% across many markets. They're expecting substantial rental rental escalations and that that basically compensated for the rise in interest rates. You are seeing a lot of the demand for industrial also because a lot of institutions, such as pension of insurance companies have to grow their real estate allocation and they don't want to grow in other sectors necessarily. So they're putting more capital into the industri markets which they right now, for the sealable future, nobody Cs pause. And I would T to say it's the same thing with the residential. The residential powered in the United statesnot in Canada, United States by that rental growth and that's compensating for the rise interest rates.

The pause that you're seeing in the market is really more in the office sector, in the. The retail sectorers did J? Y like an cidence wer. What I would tell you as well is that also we speculate and from what we're hearing is poster frankly underwriting you considerable NOI growth and so while they're in a negative leverage situation, day one allow's going to perfor calls for that' lower in the case, with in sevent, eightetwo month and I think it's more a.

It's more bet on the fundamentals and frankly a share in that optimism. However frankly when we'retire a negative leverage.

I hate the bence expression, but it's the pitch over swell. We're frankly not going to swing it.

You also have to remember that when you rise interest rates, the lending world changes and the loan values change. And right now when you're underwriting a seven in the UN pface more so they can again when you're underwriting deals on this on the private side, you're doing layering. First, mortgage financ vents, financing the amount of equity requiredly greater. There'll be more becausethe demand is shift in the monount who the buyers are. But the mand is so strong that are, I think it'll still. The values will be maintaining. They'll just see a whole lot of private money off the table as the loan, as their they're funding through debt, decrease and they have to put to more equity. But again that this market so strong that just be. Have shift in players, but the different player, same pricing.

ok Yeah, So that's So. And then on the the fair value gain with respect to the calvin industrial land that maybe you know I not to familiar- I know that youve got a couple of assets there. Can you provide some co there? Is it just excessed debt land that we valued up or is it the actual development projects being valued and highiring enough? Can you maybe provide some color?

For ris land, industrial land in the, specifically in counand the Toronto, couver markets- even much for that- that have seen the larger growth a short period time in any other after the Class by far. You've seen, for example, residential two $300 square. What for illable square foot intoronto, substantially higher vancou. That's been a gradual increase over a large period of time. The industrial market has gone, has gone from a million half dollars three million doll acre, really over a period of very few months. We bought Mr the road and we the 1, one artermillion acre. We bought the slave road, say drive, that we CRE a million a half acre and those properties are north a $4 million acre. A lot of the increase in the count in the market happened over the past sixmonth. And's real. It's because the uses that there they TA the space in our particular case was also the release of the land's we. We, unlike many of the others, are land is actually Z for industrial. A lot of's that you're seeing were subject to the release of lands into the, into zoning that achieve those type of goals. We actually zone where we were subject to the highly exstate the extension which is now at the process of probably being finished now this year, as opposed tosixmonths go to not have told you and as such I expect this chie somewhere between the quarter milliondollars for AC per acre and I expect that the values SL going to revaluated clo four illion dollars AC. justto give you a heads up on what that means in English. It means in English that you're taking calt lands $70.8 million AC. You're ping to a 7% cap and by a time you factor in the current market value industrial, industrial buildings are being built toa 4, a quarter cap today which still achieve some appreciation versus three half three point 7, Five value if upon Bill. But you can see the proper margin has been, has been E very, very dramatically. It still supports thethree half to four milliondoll acre. I think what you're going to find industrial because of this' illing land values, the have to be pushed forward, had to increase in development charges but almost double. So you're going to see industrial land. Sorry, industrial Ren continue to calate cities like toron and ancouover just because the land is so expensive and the development cost or that are that expensive. Create a Y some profit to the developers.

Okay great thanks that color sorry. Last one last quarter, there was some comment about jasm Park having some concession costs and showing up in Q2 and Q3. I just was that that's still the case and I couldn't remember what what the impact would be in Q2 and Q3.

Yes yes, So there's finly going to be contition burnoff. I would say that we're still well within margin of 1% off of our budgets, And so our projections are fairly accurate, but I think that by the end of the third quarter, we should see a significant burn evidence by the factor were're nine 9% lease.

Given that high occupancy rate and also the renewal rate I would anticipate that that number come down quite significant Q4 and 2020 -three.

Our aricating iteance is to be additionally helpful. ginia, or our early estimates, are that the conceptcession costs are going to be amorered by in excess 50% twent.

ok right, but.

The number should not be coming down from Q1, in other words, in Q2, then the number should not be going.

Is if anything, it goes up in Q4 when.

No no, we are expecting the number to come down a bit in Q2 and 3, just for the amount of turn we have at Jackson Park. Most of that turn comes in the summer months So there will be commissions that we have to pay for those leases renewal, those leases renewing and in addition to the burn off of the concessions that we gave on the original release up during covert. So we are expecting a decrease in Q2 and Q3 of Q1 numbers.

And but just to give some color up in the reverber land in commercial side and the retail on the office side, what kind of offset the Jackson path decrease?

ok got it, Thank you.

Our last question comes from Sam demioni, from.

B.

Hi good morning and thank you for well. Thanks for the question and Congrats on a great quarter. Great to hear and see results on a much more refined portfolio and congratulations, fleep. Just wanted to start off on the development development plans for this year. Looks like the average cost per suet on the 20 20, two starts is about Twitter and eight thousand is that. Is that an increase to reflect sort of current market costs and how of your budgeted yields moved, I guess since she last cut the numbers and how how rents moved?

Yes So what are we have looking at? A development yields is frankly, in line with the conservative underwriting we underwrote, these rens. We publish yields when I think lumber was at 1200 bucks a lar foot, and I think now, as we check the figures, but there's sou 8, eight hundred, And so we got a significant amount of cushion, the denominator of the development yield, not to mention that the numerator seems to be increasing. Obviously we Wee every month as evidence by the growth and unnoi revenue that we've been disclosing. However, we are using a very, very conservative growth factor for our trend yields, And so it that' what I' might trying to say- saying our numerators conservative, our denominor has a cushion And so obviously don't want to J us by saying this, but we've got the capacity to take on some supply chain disruptions and an increase in labor cost- and what? Not even an increase in cost of capital, and still have a significant margin of safety for those F those yield.

And what would be the average rent across those? I guess five or six starts that you're planning this year would be the typical rent per sweep.

It's a great question. I think that perhaps we can give you that information off line. I don't have this really available, but I would tell you that because the threeree markets are very different. The rents are going to be somewhere at the ballpark- what dollly? $60- 70. But I want to give you the exact figures and so, if you want, I can absolutely share that at some point in the future on an individual basis.

And sure. Okay, thanks. And the last question on this is: how is that- 28 thousand per suet compared to the current ifrs- fair value for your land tower portfolio, excluding jacksonappark?

It's a tough comparison. Samples are comparing new construction is going to come out of the gate in two years or 18 months from now, looking forward with light at the assets, our average perortfolio age of the least point fifteen, two thousand and sixteen, And so it's a little bit like comparing out the anges until in some respect is higher than our current cost, but I'm not sure what can be inferred by the Delta.

But my my, I thought the question Sami'm just trying to to be a problem do.

Well fair hand, you can't take existing product divided between land and building, So you really have no method to calculate the answer to that question.

Right.

If you have a $35 thousand per unit mixed of land and Bill, that doesn't. There's no way to allocate the the land ability to compare today's cost of dsp' cost. In addition, in the residential world the big driver between nor South Carolina and Florida will be the milkty taxes, which has a huge impact on the overall value. So there is no answer to your question.

Well Thanks for tring. And just last question for me is: is for Larry mentioned the expiries on the industrial side, averaging about five bucks of foot for the rest of the year? Is that all in the gt?

Substantially in the gts. Not all but substantially.

And how does that look for 2023 if you have it. It's in the M D a I pl't have it readily heavy but it's in that in D a's would it all be the G T as well. Sorry you ask people if it's all in the G T a one se M sorry I'm actually pulling it up and.

No I was wrong. 2020 to to 5000. the biggest part of it is actually in Quebec.

Of with 500 ch space feet expiring 2022 in Quebec and for 2020 -three.

It is. We have one large one in the? U's maturing which makes up, I would space, 75% of the maturities in 2020. -two and.

Okay and just bllastly, when you say Quebec is at greater Montreal area or another location.

It's F.

And the address is a 2, 20 Shank O no sh miss. Yeah, So it's. It's a greater M ater, greater than very much greater materal.

Good.

It's great. Thank you all. I'll turn it back.

We have no further questions in queue. I'd like to turn the call call over to the presenters for any closing remarks.

Oh okay, Thank you everybody, and I D have a great summarmer, I guess, and a nice weekend, right.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.