Q2 2022 H&R Real Estate Investment Trust Earnings Call
Yeah.
Good morning, and welcome to each of our real estate investment trusts 2022 second quarter earnings Conference call.
Before beginning the call ichihara would like to remind listeners that certain statements, which may include predictions conclusions forecasts or projections in our remarks that follow may contain forward looking information, which reflect the current expectations of management regarding the future events and performance and speak only as of today's date.
Forward looking information requires management to make assumptions or rely on certain material factors and are subject to inherent risks and uncertainties and actual results could differ materially from the statements and the forward looking information.
In discussing <unk> financial and operating performance and in responding to your questions. We may reference certain financial measures, which do not have a meaning recognized our standardized under I FRS, our Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting.
Yours.
non-GAAP measures should not be considered as alternatives to net income are comparable metrics determined in accordance with I F. R. S.
As indicators of agent Orange performance liquidity cash flows and profitability.
Agent Ares management uses these measures to eat in assessing the reach 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 statements and the forward looking information and the material factors or assumptions that had been applied in making such statements together with detailed on HR is the use of non-GAAP financial measures are described in more detail.
And H&R is public filings, which can be found on H air's website at www Dot SEDAR dot com.
I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R wheat. Please go ahead Mr. Hofstetter.
Good morning.
I'd like to thank everyone for joining us today to discuss H&R second quarterly financial and operating results with me on the call are Larry from our CFO and Filippo points President I'm delighted to share with you today, our strong second quarter results. Our results highlight the quality of our properties and the embedded growth within our portfolio the portfolio of organic growth coupled with Uni.
Unit buybacks of creating value for our unit holders dispositions announced to date furthering our portfolio.
Simplification strategy capital location is our utmost top priority and where our focus remains year to date, we have recycled capital out of or have under contract to sell $406 million of office retail and other noncore assets and repurchased and canceled $250 million of our units highlighting a few key dispositions is 120.
$8 $7 million being with executed in July to South of the Canadian office property located at 100 Woodford drive in Toronto.
Have an option to repurchase the property, thereby retaining future redevelopment optionality at no cost to our unit holders. We also entered into a $47 million agreement to sell the second Canadian office property in California to Canadian retail properties in line with our values, providing further support to our net asset value.
Closing of these sales remained subject to certain customary conditions being satisfied and are expected to occur in September 2022.
Our net asset value per unit grew to $21.06, if Q1 to $2 to $20 a 14th at June 32022, driven by the $10 5 million units that we purchased and canceled whether it's JV during the quarter organic net operating income and the growth and strengthening of the U S. Dollar year to date, we have bought back.
$22 1 billion dollar units at a weighted average cost of approximately $13 a unit representing a substantial 41% discount to our NAV per unit of $22.14.
Our active unit buyback with very strong same property net operating income growth are driving NAV growth and financial results.
Today's strong quarter result, we are on our way to creating a simplified growth oriented company that will surface to surface significant value to our unit holders and with that I'll turn it over to Felipe to discuss our residential platform lento.
Good morning, everyone and happy to deal with a call to discuss the Q2 updates to go over our quarterly highlights, but before I do I.
I wanted to thank our investors for their time generosity and feedback over the last 90 days.
The team and I are encouraged as H&R has been among the best performing Canadian rates year to date.
We still have a lot of work to do and look forward to share more exciting updates for four years.
You had some built in gateway markets continue to experience amplified population and income growth driving affordability in our rental portfolio.
As of Q2, our rent to income ratio sits at approximately 20% well below the standard benchmark for affordability and so we are confident that we will continue to see strong future rental growth. However, not at the detriment of our residents' ability to pay.
Inflation is undoubtedly another area of conversation regarding how the overall economy will impact multifamily fundamentals. The common thinking goes that with inflation comes equivalent expense increases while we do expect some increase cost creep in the future we have experienced only marginal increases in most expense categories.
Through operational efficiencies stemming from our smart technology initiatives.
Self guided leasing and negotiated national accounts are quarter over quarter and six month year to date expenses have actually decreased slightly compared to the same time periods for 2021.
And more good news as we have seen in previous quarters, we are continuing to experience substantial rental rate growth in all of our U S. Sunbelt markets, but we have example during Q2, our new lease trade up for the entire portfolio. Excluding Jackson Park was approximately 16, 6%.
Moving on to Jackson part, we continue to see positive trends in the amount of traffic renewal rates. The number of leases executed at the end of the second quarter Jackson park's occupancy was 97, 2%.
Percent of residents renewing their leases during the second quarter hovered in the high 50% range, which reflects another quarter of continued strength in demand fundamentals for the New York City sub market.
On to dispositions in June we strategically dispose of our only asset in San Antonio, Texas, given that San Antonio did not fit in our long term growth strategy, we felt it prudent to dispose of that asset at a premium to our fair market values further reinforcing our conviction in our down.
We intend to reinvest the proceeds of our core markets as the transfer of the equity in a tax efficient manner into more accretive long term investments.
On the on the portfolio evaluation front, considering what is occurring in the capital markets and the ongoing adjustment for monetary policy, we erred on the side of caution regarding valuation cap rates.
While we are still witnessing competitive sale processes and believe in the sustainability of our values. We have elected to increase our portfolio of cap rates by an eighth of a point.
However, in light of our rent and NOI growth, our overall portfolio value actually increased slightly in Q2.
We feel confident that our strong NOI growth fundamentals will support valuations, despite the potential headwinds of future cap rate expansion.
On the JV development fronts, and Hercules, California Phase two of our development team. The granite Bayfront received a final certificate of occupancy in March and is currently 59% leased.
Shoreline gateway, our long beach tallest residential power 35 stores.
Strong renter demand and is now 69% leased.
On the wholly owned development front Landstar West Love in Dallas, Texas is on schedule as we expect to lay the foundation for the tower Crane in the coming weeks.
Also in Dallas, Texas, Landstar, Midtown recently broke ground with site work well underway.
And lastly in Tampa, Florida, we are wrapping up the building permit for a development called Landstar baseline. This development will consist of 271 units and is expected to break ground in the coming months.
More good news on the development front again during the second quarter, we successfully rezoned a five acre land site from industrial to multifamily.
This project will consist of 430 apartments, it is adjacent to downtown Dallas.
Also in Dallas, we closed on <unk> phase two land sites, which will accommodate 250 apartments eliminate story podium development next we're currently planned 295 apartments five story around development in North Dakota in North Dallas.
In April we closed on infill sites, along highway 90, and in Clearwater that will accommodate a 400 unit five storey wrap developments.
Lastly in late June we closed on a 381 apartment garden style development sites in South of Orlando, Florida that sits at the entrance of New York City, a mixed use development anchored by planned research Park.
Our residential development platform supported by our land pipeline of over 5000 potential units at a basis of approximately 28000.
In U S dollars per unit, which is a substantial discount to the 50000 plus per unit pricing that we're seeing in the sunbelt markets for similar eight plus sites such as ours.
In summary, we have continued excitement about the future value creation opportunities at <unk> and with that I will pass a long conversation.
Yes.
Thank you Felipe and good morning, everyone.
As Tom mentioned, we are excited to report our results this quarter, which reflects our simplified portfolio strategy and alignment with properties producing higher growth that growth is clear from our year to date results. Our same property net operating income on a cash basis, which grew 19% compared with.
The first half of 2021.
Q2 total same property net operating income on a cash basis continued to be strong and grew 18, 8% compared with the same quarter last year.
<unk> Division led the way with a 43, 7% increase or 39% in U S dollars for the quarter, primarily due to an increase in occupancy of Jetson Park in New York, which was in lease up last year, excluding Jackson path growth was a very healthy 28%.
As Felipe has already discussed land tower residential continues to see significant increases on new leases and renewals.
Same property NOI cash basis from office properties increased 23, 2% for the quarter, primarily due to the burn off of Hess Corporation's rent free period that expired in June 2021.
Excluding the rent free period, the increase is one 5%.
Office properties are located in strong urban centers with a weighted average lease term of eight five years and leased to strong credit worthy tenants.
I would like to point out that only 5% of our total office footage is subject to lease expiries between now and the end of 2023 23000 square feet expiring during the remainder of 2022 and 349000 square feet expires in 2023.
Retail same property NOI on a cash basis decreased by three 5% for the quarter driven by higher non recoverable property operating cost at <unk> lending commercial which is in lease up.
Two major tenants are expected to commence occupancy in the near term.
49000 square foot lease in Q4 of this year and another 63000 square foot lease in Q1 2023.
And lastly, industrial same property NOI on a cash basis increased by four 9% for the quarter.
Primarily due to increased occupancy and contractual rental escalations.
During the quarter, we leased the vacant 314000 square foot industrial property at $21 21, Cornwall in Oakville, Ontario, which will commence in Q3 2022.
H&R has a 50% ownership interest in this property.
We also completed a five year lease renewal on a 371000 square foot Montreal property at our ownership interest with rent set to increase by 125% in January 2023.
Overall <unk> for Q2, 2022 was $28.04 per unit and <unk> unit was 25 seven.
Based on our distributions of $13.05 per unit for the quarter, our <unk> payout ratio was a very healthy 52, 5%.
Debt to total assets at June 32022 was 44% we finished the quarter with cash on hand of $71 7 million and $619 6 million available under our unused lines of credit.
Our net asset value per unit grew from $21 six <unk> at March 31, 2022 to $22 14 at June 32022, primarily due to the purchase and cancellation of $10 5 million units under our and CRP and the strengthening of the U S.
Darla, we repurchased these $10 5 million units at a weighted average price of $13, a 41% discounts of $22 14 NAV per unit at June 32022.
And so in summary, we are very pleased with our Q2 results our high quality portfolio of properties are well positioned to produce strong operating results going forward.
And with that I will turn the call back to Tom to open up for questions.
Please go ahead.
Operator.
Thank you I'd like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, we'll pause for just a moment to compile the Q&A roster.
Okay.
Our first question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.
Thanks, Good morning, everyone and congratulations on the solid results.
First off just on the dispositions.
Perhaps.
With the agreements set on these latest acquisitions set in June obviously, the process was underway in the spring.
During the market volatility what if you could tell us how that went.
What sort of buyer youre working with and.
How the fair about how the pricing compares to the fair values at Q1.
Okay.
Okay.
Turning to the U S retail results.
No Im referencing story, specifically 100, winford and the three other assets that are also under contract.
In line with our average values the rights purchases because it has residential densification potential although that's down the road we control.
Zoning and that's why we gave ourselves the right to buy back.
And was there any fair value change on them during the quarter to true them up to the sale price.
No.
Okay, Alright, that's good but overall the process like how would you characterize the process given the market volatility.
So it was not it wasn't often market and off market deal. So I can't respond to your question on market volatility.
<unk> gone to the market I can't speculate but since it was an off market deal was very fluid. It was not this is not an issue.
Okay.
And just on the leasing in the residential and industrial side have you seen any deceleration of momentum that would indicate.
Slowing of the economy in your portfolio.
Hi, Tim its belief Bob no not yet.
We're still having obviously a record level of renewals.
As I as I previously mentioned that we're seeing.
Our rental rates that is in line with what we've seen in the last three quarters.
And so obviously paying close attention to the data, making sure that we're not increasing our rents at the detriment of our.
Residents of the balance sheet, but.
No, we're not noticing any slowdown whatsoever.
And just on the same property for four land tower, Excluding Jackson Park was over 20% I guess.
How does that.
How does the portfolio do that it stabilized I guess I'm, just kind of struggling a little bit with the math.
Sorry, Tim lowered home how does it how does the what is that come across clearly an area that we call sorry, once that balances will decrease the volume.
Tim do you mind repeating the question.
Sure Yes.
Just wondering how does how does the portfolio.
Mid to high 90% leased how does it generate 20% plus same property I guess was there some properties that had an occupancy increase year over year.
Okay.
Just help us understand how the how the occupancy rent change would triangulated to a 20% plus same property NOI.
I mean, the math is really simple right. So if youre looking at a if you think about our NOI margins of the upper $50 I think it's 57 or 58%.
And as I previously stated no significant expense creep in year to date yet.
I can't recall, we did last quarter, but we did 16, 6% this.
This quarter.
The math is ultimately civil rights and so it doesn't tie perfectly but no. It is not an occupancy being it's purely a matter of revenue is growing at a very fast clip and expenses are somewhat muted.
And the unit expense experienced that Youre enjoying right now is that something you see.
Somewhat sustainable just given the specifics of the portfolio or.
Do you see ultimately the portfolio being impacted by the macro inflation that we're seeing.
I think 95% of the expense creep that folks are experiencing we have abated through by leveraging its not just us rates of some of the larger publicly traded REIT in the U S. With all the same but our utilization of technology is really muted that expense creep, though the folks who haven't made the investment in the last 18 months are now I guess wishing that they have.
Having said that I think there's nothing that technology can do to help our property taxes and insurance and I would anticipate that we're obviously accrue for it but I would anticipate there being year over year, some significant increases, especially on property taxes.
As you own as you would imagine given that our values are obviously skyrocket as a result of Ara.
Very healthy NOI growth by capital type answer your question no I mean, I'm not surprised to see that there hasnt been much of a change because of the monumental investment we made on that side of the house.
Two years ago Roger.
And realize that Tam.
And credit goes to the team in Dallas, we're really pushing that through I mean, we're in the middle of a vacuum of Covid is a very difficult setting stone groups have done it hasn't been <unk>.
<unk> proven yet despite that.
A tremendous amount of viewership in Dallas to sort through and the execution was near flawless and so much credit goes to the casinos all of the implementation of the tech packages.
Great. Thank you I'll turn it back.
Our next question comes from.
BMO capital markets. Please go ahead your line is open.
Thanks, Good morning.
Good morning, Jamie.
Maybe just expanding on the multifamily metrics.
So let me just say that there was 16, 6% same property rental.
The portfolio.
That's right for the quarter.
Okay great.
Can you talk to us about how you are raising rents on renewals on your tenants.
The technology yield management software angle, but given how tight the market is are you leaning on that or are you looking at.
The tenants' individual financial situation in China pushes as far as we can without losing them and.
How does that branch will differ across the markets you're in.
It's a great question I think <unk> last question first generally speaking we see the same thing across the board only because we have a Catholic hijacking park, we happen to be in the sunbelt markets and so the story is similar in North Carolina, Florida and Texas.
As it relates to the renewals in the first quarter I'm using round numbers from the first quarter. Our renewal rate was about four 5% in terms of the increases that we are.
Asking over current residents and the reason we have done that with a self imposed governor.
Though Q1 much of the growth came from new leases and so the delta between new leases was probably around the volume behind us is anywhere between 12% and 15%.
These were seeing very healthy 18, 40% increases in the first quarter. This quarter I think the delta is less than 2%. So we took the governor off and I think our renewals are somewhere in the ballpark of 14% to 16% as is our new leases thats on a blended basis, it's a much more balanced.
The increase that we're seeing.
In some respect unexpectedly or a renewal ratio is also at an all time lines until last quarter was in the low <unk>. This quarter was approximately 6% historically, we've seen anywhere between 40%, 50% and so not only are we increasing at a very healthy clip.
Uhm.
They're renewing at a healthier clip than we've seen in the past and so.
My biggest concern and what keeps me up at night is ultimately be the balance sheet and the credit of the residents as we're increasing rents within our renewal and new leases is it really coming at the detriment of their launch.
Balance sheet and more importantly, the ability to pay and I take comfort in knowing that the 20%.
So the rent to income ratio of 20% is almost identical to what it was in 18 and 19 and pre Covid, which leads me to believe that there is still a ton of runway left.
Okay.
Are the tenants are willing to pay the higher rents because market rents are just going up across the board or is there any element of the housing market cooling down with affordability actually getting worse and maybe some tenants that may have bought let's say last year earlier.
The state is there any element back in your markets.
Yes, I mean, it's a great. It's a great question I think just to summarize the questions is an enormous shortage of housing period rightful apartments and homes in the sunbelt markets.
Yes.
Obviously that was true before COVID-19 with Covid and the migration patterns within the U S such as these.
That's really the issue.
But obviously with interest rates rising.
I don't know what the latest latest was that a couple of weeks ago, you can get a mortgage for about 5% and ultimately what that made was.
Otherwise already expensive purchase that much more unattainable for residents and so we're seeing and with the data would suggest is that the on the right side of the standard deviations are residents are staying longer but they are also a little bit older in our communities and I think thats because of a lack of opportunity for them to move up to another.
We're frankly, the just lack of supply for them to move from one community to another.
And so I think all of those factors play come into play, but the truth of the matter is there is an enormous honor.
On the supply of apartments in the funnel.
And frankly, the stats that we're seeing.
'twenty three 'twenty four we gain construction starts are going to start floating and so it's going to exactly further exacerbate the issue.
And so I think that it is more a supply issue. There is a ton of demand. There's just not enough supply to meet the demand and therefore, what we're seeing is obviously very healthy increases across the board.
Okay great.
Turning to the development is the intent of H&R skill to eventually sell the partial interest that you have in shoreline Hercules phase II.
Just wondering if you could comment on whether or not the buyer of the previous.
Previous crush interests might be interested in coming back to the fund.
I think the answer is yes, there are definitely meant to be sold.
They are not meant to build to core and they're also in markets that were not in and so from an operational standpoint.
I don't know that it would make a ton of sense, but we want to be opportunistic and frankly, we think that perhaps now is not the right time to be sold those assets, but in short order they will be sold.
Without whether through our partners with a third party you. My guess is it's probably going to be a third party.
It's going to be no shortage of buyers for that type of product.
When you say now is not the right time do you mean, just given the uncertainty in the market or the fact that it's a partial interest makes it harder to low like make it could you expand on that point.
No it's not a portion of interest because we're all on the same page, where we're selling it as one so it really is.
Or.
The lack of liquidity for that discount interest no I think it's more along the lines of given the potential headwinds that we bought that in fact that the properties are stabilized.
We believe we could be wrong, but we believe that.
To get maximum pricing.
Probably the best that we waited for the essence to beliefs about 80% is offshore and were six 9% Hercules were little bit behind that in sales into Q4 Q1 feels like just about the right time to put what we believe to be a best in class assets to the largest audience possible.
Okay, Okay gotcha.
On the dispositions for the temporary one like kind exchange I think your sales exceeded the land purchases in Florida.
Anyone like kind exchange apply to land acquisition or is it just for IPP I'm just trying to figure if you could maximize.
The room that you have on 10 31.
No you're absolutely can do it for wins, we still have <unk>.
Proceeds left to deploy it and as Paul mentioned.
We're obviously very good busy on the disposition side, both in Canada, and the US and works for a variety of opportunities and so whether those funds are commingled. Another disposition proceeds are in of itself there will be reallocated to either land for development or income producing assets within manpower.
Okay great.
And then my last question is when looking at the leasing activity, particularly with the industrial assets.
<unk> and Montreal, just wondering if you can give us a bit more guidance on how to model that income coming in in Q4, and perhaps Q1 of next year.
Hey, Jamie.
It's hard to say because it's single tenant assets.
I want to be cute.
We have confidentially agreements with our tenants.
To give you the ramps and what the increases are I think as I said on C&I.
But I can they are substantial increases.
Sure.
Ballpark that we're coming off the the one in Montreal is coming off.
About $5 per square foot ranch chicken model it that way I think we said, 125% increase in maintaining all leases and the relationship with the market. There was no discounts or was really very vibrant market and we got market for us.
Right. So in Montreal is going to go.
The big step up Oakville remind me was it bacon throughout Q2.
Okay.
And who is very control governments.
That's right Okay alright.
Alright, I will run the math on that thanks, very much I'll turn it back thanks Jay.
Our next question comes from Matt <unk> from National Bank Financial. Please go ahead. Your line is open.
Good morning, guys.
I guess, Larry just a quick follow up to Jenny's question. There on <unk> is there any fixed hearing or otherwise that would prevent it from being cash rent in Q.
Q3 or is that a cash contribution.
That is a good question is that free rent period, I am not sure wisdom.
In signal that there's a one month rent free period okay.
Okay perfect.
And then also follow up too.
Jenny with regard to shoreline and the Grand can you give a sense as to I know that's in the joint venture portfolio nearly a one third interest but.
The NOI contribution how you think that kind of ramps up as you lease up.
You have to get over your threshold of covering costs, there may not be much there.
But just what should we expect on that front.
So we've got estimated figures, but I would tell you Matt is.
I guess from our perspective, rather than trying to underwrite what a stabilized NOI items I think for us talking to back of your mind. The fact that we will be proceeding disposition of those assets.
<unk> to be held.
But in the event that they were to be hold the health.
Yes.
Okay.
Approximately about both of them combined basis that our interest is approximately $6 million.
Hey.
And if it wasn't negative in the quarter, but was it above zero.
At this point or.
It was actually slightly negative thought there's a couple of hundred thousand dollars negative in the quarter.
Okay. That's helpful.
And <unk> <unk> on the 110 million.
Is being held as restricted cash on the $2 31.
You are pretty certain that you will ultimately.
Find an acquisition that you can.
But that tax.
Benefit too is that fair to say.
Yes, it will help kind of tilting our hand, and we're going to have some exciting updates for the following quarter, but we're seeing some pretty enticing mispriced arbitrage opportunities, especially in the fund.
So not not mean acute at the flex that stay tuned and hopefully we'll have an interest in Q3 Q to expand on that very question.
Okay.
Fair enough and the last one for me just theres been some transaction activity at some pretty impressive pricing for Calvert and are close to Cowen and land I know you have a fair value that's not included in.
Some of these H&R.
Interest cost numbers for the.
The industrial land and calling in but can you give us a sense as to.
Where youre holding that on your books on a price per acre.
$2 $5 million an acre.
Okay.
Some recent transaction activity proved side of it if not more.
There's been one or two five but there has been a more of it.
More acreage around three there's nothing been below two and a half that I'm aware of.
Fair enough okay. Thanks, guys.
Okay.
Our next question comes from Sam ISI, Ed from CIBC. Please go ahead. Your line is open.
Thanks. Good morning, just I wanted to go over 145, Wellington with the zoning progress this quarter.
Wondering what the next steps as you guys are in discussions or receive interest or just what the plan is with that asset.
Thank you.
One.
Oh, I'm, sorry, I couldn't hear the question.
Can you repeat going forward.
Yes, I just wanted to I guess go over 145, Wellington given their learning progress and in the quarter I'm. Just wondering about next steps if there's any discussions or interest on that asset.
Right now its leased and <unk>.
<unk> zoning as you know and so right now we're going to just went off leases, there's no imminent plans to redevelop or to sell.
Okay, and then just turning to Atlanta, we were wondering if you could go over just the turnover trends in our portfolio and how they are sort of comparing to what you've seen historically.
Sorry did you say renewal the renewal volume ratios.
Turnover trends.
Turnover trends there historically is low so back to my original point, our renewal ratio was in the low <unk> and now the good first quarter, it's around 60% in the second quarter. If I look back over the last nine years is probably a little lower than 50% and so not only are we achieving record record rental revenue, but also.
Record renewal percentages and that's also true of Jackson Park in New York City.
Okay, and then just sticking to you.
You ask multifamily just wondering if theres any update or changes on the transaction market side in terms of pricing having moved from last quarter to today.
No.
That's surprising I must admit it somewhat unexpected but the.
Thankfully.
Yes.
This is the sheer amount of equity and capital that wants to be placed multifamily either because of a preference for that asset type or frankly, just the ability to come on and to have that explosive growth is running most of the Barclays facilities valued as a mid 3%.
What I think is going to happen as evidenced by our disposition San Antonio arguably or at least best performing Athens fleet use of all of our markets still achieving a three six cap rate.
I don't see there being any softness in our net in our fair market values.
I think the transactions that are going to occur in the next 60 days as everyone comes off from the summer break and and activity picks up from Labor day.
We're going to see further transactions being done at a sub four cap rate. Despite the fact that interest rates may imply that there would be a negative leverage in the first year. The fact that people enrolling or otherwise of 14 and 15% in getting out of that negative leverage very quickly is enticing to much both private and institutional capital.
So in short no if anything from.
The amount of coal of inbound calls.
On our own assets from folks trying to secure them in an off market basis at those numbers give us additional comfort in our.
And our fair market values.
Okay, great. Thank you.
Our next question comes from Jimmy Shand from RBC Capital markets. Please go ahead. Your line is open.
Thanks, Yes, so just on the office assets that you have in the process of re zoning.
Can you can you remind me how are they being valued on the balance sheet I guess I am thinking specifically at 145 Wellington.
B zone is there any incremental value or or those assets essentially being valued.
Mr existing office properties.
It's valued at an existing office property, but in reality what happens in this in the entire REIT sector is the value of the revenue producing asset has gone up and the Tampa has been lowered by the fact that that you'd have an intensification does not value added and youll find the same thing the choice in Rio Canada, we've been else not evaluating based upon 250.
$300 a square foot to evaluating based upon a decrease cap rate overall for someone buying a revenue producing asset and you can see the wind.
The old <unk> building, a willing to cheat so to West Hill. It was actually sold on the same basis as well as more of a aggressive cap then actually evaluation based upon the residential and commercial density there'll be available upon rezoning. So in essence, you do get a lift but you don't get a lift a full lift to the market values it with land value get a lift as a more aggressive cap is.
The buyer is not buying a project that's shovel ready at this point in time as we have tenants.
So the aggressive cap I guess and Thats the incremental density into our 145 Wellington.
<unk> assumed the value was.
Even with the rezoning, because we shouldn't see any kind of lift this quarter and next quarter.
Not this quarter, but my guess is youll find add value increase over time as as we get closer to burn off of the lease and as now that with the fact that we just recently result.
Sales into our <unk>.
Re appraisals.
Just to put more color Jimmy that.
We did a revaluation had a third party appraisal on that asset in Q1, and we got a bit of a bump up based on the expected resigning.
The expected resigning came subsequent to the second quarter. So we didn't change that value from Q1 that should still be a little bit more of an uptick now that we actually have it in our hand that rezoning, but we didn't change from Q1, which was still expected. So there's a bit of a discount based on expected resigning that we know at the timing of this recent other rezoning you can expect.
It to increase gradually but not to the level of the value is vacant land.
Okay got it and then.
The appraisers will never do that they won't give you the full value.
That's just the way the system works.
Okay.
On wind for drive.
And maybe this is too simple simplistic.
We look at it.
<unk>.
Embedded upside in the rezoning of that asset.
Secondly, the difference between the sale price and the option price is that kind of.
If that were to gauge what.
What that incremental value could be essentially that $39 million difference that's time value of money.
Yes.
Okay.
Sorry, I don't understand the question, but I'm also not hearing it well.
So the question is how is that repurchase option cost based was it based on the revalue of the potential now it's not priced at all and there is no math to it.
It's just a negotiation.
Yes.
Specifically the potential of the resigning as far as far more cover delays as I understand it. The rezoning is speculative at this point in time, we have absolutely no idea whats going to happen and when it's going to happen is we are controlling the process, but we're not confident that it's necessarily going to happen and or what we can achieve and we're going to have to give to the city in order to get it. It does have the potential that we retain the rights.
Well I wouldn't evaluate that option as significant.
I don't know, it's totally speculative it's very similar to the option in the bow, which I cant put a dollar amount on either.
The real question you should ask yourself is can I sell that option today and what we.
It's only pay me for that option today and the answer is since that person would have to pay in cash out of their pockets. They probably wouldnt pay a whole lot, but it does have is a freebie a whole lot of potential value.
Good luck trying to evaluate it it's not evaluated in our books at anything at this point in time.
Okay.
Okay.
Lastly, just on the topic of Alex until.
U S multifamily.
Asset pricing some of the U S visa, commenting seeing cap rates moving as high as 50 to a higher basis points in markets like Dallas Raleigh.
You're talking about four to four and a half to.
Three and a half of the peak.
I don't know if cap rates are tricky. These days I think that the I don't know what NOI people accounting. So I'm just trying to square that with what you're talking about kind of sub four is it that we are seeing pricing pressures in certain different types of assets or not and just trying to see if there's any.
Any comment you can make in that regard.
No I'm not disputing the information we received.
Not indicative in any of the data sets that we're looking at both.
We're tracking about in every markets Lithia mentioned previously when we talked about 100 light yields to get a better feel for in the event that we had to make a quick acquisition or we are looking to take advantage of a mispriced opportunity.
Both of the opportunities that will sort of take a look at that would argue almost 90% of them are at a sub three.
3738 cap rate currently.
Now there hasn't been many trades, but.
The one confusing part as I think everyone is pontificating on cap rates, because naturally you would expect cap rates to expand based on the cost of capital.
And more specifically the cost of debt. However, there there haven't been many trades if any.
Not in the public trades.
That would support a cap rates moving.
How about the fourth.
Now what happens in the next 90 days, who knows but again I'm not looking at anything right now apart from the odd mispriced opportunity here, they're buying perhaps the developer thats distressed, but I would argue that.
Most folks that are active in the market currently working at current stabilized opportunities and sunbelt in the class a.
Asset class there are the order forecast.
Sure.
Okay. Thank.
Thank you.
We have no further questions in queue I'd like to turn the call back over to Philip <unk> for closing remarks.
Thank you everyone for joining us today, and we look forward to continuing to update you on our progress over the upcoming quarters. Thank you and have a great weekend.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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