Q4 2022 H&R Real Estate Investment Trust Earnings Call
Speaker 1: Good morning and welcome to H&R Real Estate Investment Trust 2022 4th quarter earnings conference call.
Speaker 1: Before beginning the call, H&R would like to remind listeners that certain statements which may include predictions, conclusions, forecasts and projections in the remarks that follow may contain forward-looking information which reflect the current expectations of management regarding future events and performance and speak only as of today's date.
Speaker 1: forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties. An actual result could differ materially from the statements and in the forward-looking information.
Speaker 1: In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures which do not have meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles and are therefore unlikely to be comparable to similar measures presented by IAS.
Speaker 1: The Missionary Management uses these measures to aid in assessing the REITs underlining.
Speaker 1: performance, and provides the additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks, and uncertainties that could cause actual results to differ materially from the statements and the forward-looking information.
Speaker 1: and the material factors or assumptions that may have been applied in making such statements. Together with details on H&R's use of non-GAAP financial measures are described in more detail in H&R's public filings which can be found on H&R's website and www.cedar.com.
Speaker 2: I would now like to introduce Mr. Tom Hofstadter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstadter. Good morning, everyone. I'd like to thank you for joining us today to discuss H&R's fourth quarter financial and operating results. With me on the call are Philippe LaPointe, President, Louis Frome, our CFO , and the rest
Speaker 2: and Matt Kingston Executive VP Development and Construction. 2022 was a very important year for us, despite the volatility in the public markets, our teams accomplished many substantial milestones, aligned to our simplifications strategy through capital recycling, stock buybacks, a 9.1% distribution increase.
Speaker 2: and a new focus on our investment communication program. Through these actions we have enhanced our geographical exposure, asset mix, and tentative risk vacation driving strong, operating, and financial results while also strengthening relationships with investment community. In 2022, we sold over $463 million in non-core properties.
Speaker 2: reallocating that capital to buy back stock through our NCIB. During the year, we bought back and canceled almost $300 million of our units or 22.9 million units at a not 39% discount to our net asset value, creating 63% per unit and nav increase.
Speaker 2: On the development front, our $370 million of industrial and U.S. Sun Belt residential properties are progressing well and embedded value on growth to be realized over the next two years. Given the current macroeconomic environment and keeping with our Putin-Cappell location strategy, we've taken a conservative approach and have paused the majority of our development projects.
Speaker 2: until we have more visibility into future stability. As a result of the heavy lifting, our teams have a completed jury the year to streamline and simplify this company. Our 2022 financial and operating results are very strong.
Speaker 2: In 2023, we plan to continue to recycle out of the non-core office in retail properties and offer a great start with anticipated $277 million daily 160-elgin street in downtown Ottawa.
Speaker 2: which is expected to close in April of this year. This physician program will continue to carefully synchronize property sales to match our capital funding requirements.
Speaker 2: But today's strong point of results we are on our way to creating a simplified, growth narrative company that will serve a significant value for our unit holders. And with that, I'll turn it over to Felicia. Thank you and good morning everyone. I'm happy to be able to call out to discuss our Q4 updates and to go over our quarterly highlights.
Speaker 3: But before I do, I'd like to take a moment to specifically highlight the progress to date of our strategic repositioning plan released in October of 2021.
Speaker 3: Since announcing a strategic plan, HNR has sold off or spun off over $4.2 billion worth of office and retail, including the primary spin-off and over $1.8 billion excluding the spin-off, all figures and Canadian dollars.
Speaker 3: This includes 21 office and retail assets encompassing over 4.2 million square feet of space when excluding the primary spin-off.
Speaker 3: Our office portfolio garners a lot of attention as a legacy asset class at H&R Reads, and thus I'd like to take a moment to help unpack the remaining office portfolio.
Speaker 3: From our perspective, H&R's office portfolio consists of three segments totaling approximately $3 billion Canadian.
Speaker 3: The U.S. Office segment almost exclusively consists of two high rises in New York City and Houston, representing approximately 1.3 billion or approximately 42% of the 3 billion office portfolio.
Speaker 3: The second office segment is Canadian office currently undergoing rezoning.
Speaker 3: representing $750 million using current office cap rates, which will be inapplicable once the rezoning is complete as the value created will push the entire property to be mostly valued on a developable square foot basis.
Speaker 3: And lastly, our Canadian office segment, not subject to rezoning, represents the remaining one billion.
Speaker 3: Of this 1 billion, 160 Lgant represents 27% of that office segment's fair value, and is the only office property located in Ottawa.
Speaker 3: which is not considered a core market for H&R.
Speaker 3: On a square foot basis, 160 Elgin represents nearly 1 million square feet out of 3.2 million square feet, or said differently, 160 Elgin represents approximately 30% on a square footage basis of our Canadian office not currently being rezoned.
Speaker 3: Furthermore, 160 Elegant Sale Price of $277 million is in line with our IFRS value, further on their scoring or conviction in our office IFRS values.
Speaker 3: It is important to remind that this transaction has not closed and while we cannot share any more details about the transaction, we look forward to disclosing relevant details post-closing.
Speaker 3: However, we hope that this potential transaction further demonstrates through our unit holders of our tireless and steadfast commitment to simplifying our company despite the challenges and headwinds that the market is currently experiencing.
Speaker 3: Now moving on to Land Tower residential's results. When excluding Jackson Park, same asset property operating income from our portfolio in US dollars.
Speaker 3: increased by 11.8% and 13.6%, respectively, for the three months ending on December 31st, 22, and for the full year 22 compared to the respective 21 periods.
Speaker 3: When including Jackson Park, same asset property operating income from our portfolio in US dollars increased by 6.9% and 27%, 25.7%. Respectively for the three months ending on the 731st 2022 and for the full year 22 compared to the respective 21 theories.
Speaker 3: In recent reports, we have read headlines describing the de-selleration of rents in many of the U.S. sum belt markets. While we are no longer seeing 25 to 35% rental rate increases, we are still experiencing healthy and above historical rental rate trade-offs.
Speaker 3: For context or trade-outs and rental rates in the fourth quarter was nearly 11% when excluding Jackson Park.
Speaker 3: We do expect this to revert to more sustainable and historical levels in 23. However, it is important to remember how healthy historical rental rate growth has been in our Sunbelt markets.
Speaker 3: And secondly, if the fact that our rent to income levels still have an increase by any meaningful measure since the beginning of COVID, allowing for future headroom and rental growth.
Speaker 3: Moving on to Jackson Park, at the end of the fourth quarter, Jackson Park's occupancy was nearly 99%.
Speaker 3: Occupied and experienced a retention rate of over 50% for the fourth quarter, which reflects another quarter of continued strength in demand fundamentals for the Jackson Park Submarket.
Speaker 3: On the development front, Lanter Westlove and Dallas Texas is on schedule and on budget and started framing work this quarter. Also in Dallas, Texas, Lanter Midtown is on schedule and on budget with the first building foundation for expected at the end of this month.
Speaker 3: Westlove's hard costs are 99% bought out, while Midtown's are approximately 90% bought out, and we have entered into guaranteed maximum price contracts with very reputable general contractors.
Speaker 3: Based on this, we expect limited variance in our hard-cost budget and timeline.
Speaker 3: Lastly, a comment on this closures as Landtower and Multitamily Division of H&R continues on its path to becoming the majority asset class of the REIT, we wanted to provide more visibility into the platform.
Speaker 3: And to that end, we have expanded the level of disclosures, which can be found in our investor deck posted online as of yesterday.
Speaker 3: For our 2022 year-end reporting, we are providing additional visibility into our operating fundamentals such as occupancy, average monthly rent, lease tradeouts, and retention rates on an individual market basis and compared to the respective metrics in 2021. And with that, I will pass along the conversation to Larry.
Speaker 4: Thank you for the good morning everyone.
Speaker 4: As I mentioned, we are excited to report our results this quarter.
Speaker 4: Our strategy of increasing exposure to residential and industrial properties is bearing fruit.
Speaker 4: H&R, same property, net operating income on a cash basis.
Speaker 4: In 2022, GRU, by 14.9%, compared with the year ended December 31, 2021.
Speaker 4: Q4, 2022's growth over the same quarter last year was 10.9%.
Speaker 4: Breaking the growth down between our segments.
Speaker 4: Our residential division let the way with a 30.7% increase for the year and a 16% increase for the quarter compared to the respective periods in 2021.
Speaker 4: primarily proven by an increasing occupant in Jackson Park in New York and good growth in rent from our properties in the Sunbelt States.
Speaker 4: Industrial same property NOI on a cash basis increased by 7.2% for the year and 12.1% for the quarter compared to the respective periods in 2021 driven by increased occupancy and ranging increases for new and renewing tenants.
Speaker 4: After the same property and net operating income on a cash basis increased by 13.3% for the year and 3.8% for the quarter compared to the respective periods in 2021.
Speaker 4: Our office properties are in strong urban centres with a weighted average lease term of 7.5 years and leads to strong credit worthy tenants.
Speaker 4: I would like to point out that only 346,000 square feet of our leases in our office properties expire during 2023, which is approximately 5% of the total square footage in our portfolio.
Speaker 4: And lastly, retail same property NOI on a cash basis increased by 5.8% for the year and 18.7% for the quarter compared to the respective periods in 2021, primarily driven by the lease-up of rubber landing in Miami and the strengthening of the US dollar.
Speaker 4: For 2023, we are expecting St. property net upperiod income to grow in the range of 2 to 5%.
Speaker 4: Q4 2021 FFOL is 35 cents per unit.
Speaker 4: Primaries have contributed 10 cents to all that.
Speaker 4: Excluding primaries, FF1 and Q4 2021 would have been 25 cents a unit compared to the 31 cents per unit for Q4 2022, a 24% increase.
Speaker 4: For 2021, FFI was $1.53 per unit. For months, Premarist had contributed 39 sales to all dating positions.
Speaker 4: excluding Primeras, FFO in 2021 would have been $1.14 per unit compared to $1.17 per unit for the year end of 2022, a 2.6% increase.
Speaker 4: Our 2020 FFO-TAP ratio was a very healthy 50% and our FFO-TAP ratio was 60%.
Speaker 4: For Q4 2022, FFO was 31 cents per unit and AFFO was 22 cents per unit.
Speaker 4: Our net asset value per unit decreased from $22.58 per unit on September 30, 2022.
Speaker 4: to $21.80 at December 31, 2022, primarily due to Q4 fair value adjustments throughout properties, which resulted in a real estate assets decreasing by $187 million.
Speaker 4: Most of the decrease in value came from our office portfolio, which now has a weighted overall capitalization rate of 6.43%.
Speaker 4: Dance to total assets at the San Mateo Club 2022 was 44% compared to 46.6% a year ago.
Speaker 4: At your end, liquidity will be an exception of $1 billion.
Speaker 4: Last month we borrowed $250 million in a land of credit to repay the series of senior debancers.
Speaker 4: The only remaining debt maturing in 2023 on 9 mortgages totaling $144.7 million.
Speaker 4: These non-incumid assets have a weighted average loan to value of 25% at December 31st.
Speaker 4: In terms of development spending for 2023, we expect to spend approximately $140 million on our US development project and approximately $65 million on our Canadian development projects.
Speaker 4: So in summary, we are pleased with our 2022 results and confidence that our high quality for properties and strong balance sheets will continue producing good results for 2023.
Speaker 4: individual pulled was about to complete,
Speaker 3: Operator, please move on to questions.
Speaker 1: Thank you ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a three tone prompt acknowledging your request and your questions will be pulled in the order they are received. If you wish to decline from the polling process, please press star follow.
Speaker 5: Thanks and good morning everyone. First of all, thanks for the guidance for 23. Just on that same property, I would look 2 to 5%. Can you give a breakdown or a sense as to how it's going to look by quarter and by segment?
Speaker 5: Thanks and good morning everyone. First of all, thanks for the guidance for 23. Just on that same property outlook, two to 5%, can you give a breakdown or a sense as to how it's gonna look by quarter and by segment? Good morning, Sam.
Speaker 4: I don't really want to get specific numbers for segments, but maybe I can just show some color that will help you.
Speaker 4: for the segment but maybe I can just show some color that will help you.
Speaker 4: That growth is going to be driven by our residential division, which we're expecting, call it low-teens growth in 2023, followed by our industrial division, which we're probably expecting the same kind of growth as we saw in 2022.
Speaker 4: And then we expect in our office and retail divisions to probably be pretty much flat.
Speaker 4: I'll be right out, but I don't know, in a specific number, it's a specific segment.
Speaker 5: Okay, then kind of the unusual things that we're driving, some tailwinds, frankly, in 2022 on the same property. Are those going to be continuing at all into the early part of 23, or is all that pretty much in the past now?
Speaker 5: I mean, the first one that comes to mind is Jackson Park. We anticipated that to be someone normalized by now. I don't understand, but are you thinking about any particular tailwinds? Well, just with, I guess, River Landing and obviously that free rent that you had too. So just, you know, there's sort of the three factors that drove someone usually high.
Speaker 5: I mean, the first one that comes to mind is Jackson Park, we anticipated that to be someone normalized by now. I don't understand, but are you thinking about any particular tailwinds? Well, just with, I guess, River Landing and obviously that free rent that you had to. So just, yeah, there's sort of the three factors that drove someone usually high, same property last year.
Speaker 4: So most of those factors are not going to be there. We're not going to have the same growth in Jackson Park as we have this year. We're not going to have the same, you know, 2021 we had that free rent period on Hess in Houston, so that led to growth in 2022. We're not going to have that. But all in all, we're also expecting good growth from residential, from industrial and increasing rents on both those different ...
Speaker 5: have been in the office sector. Just wondering how you see the retail portfolio potentially being a
Speaker 5: Part of the disposition, execution, and miniatur.
Speaker 2: There's no urgency. As we said, we're going to be matching our dispositions where we have required funds. So if we pull through on the office, we have a little bit of retail that we expect to sell, and then it'll be slow and steady. There's no reason to sell.
Speaker 2: preemptively at this point in time and we'll do that as we require funds.
Speaker 5: That makes sense. Last one for me is just on capital allocation. With this position expected to close in April , and you've got some development spending, but how do you view
Speaker 5: that versus...
Speaker 5: Titting the leverage or even unit buybacks. How are you looking at 2023 capital allocation?
Speaker 4: That's a good question Sam.
Speaker 4: Our first course of action we would like to buy back our units, but we want to ensure we do that in a responsible manner. And when I say responsible manner, you know, that's ensuring our balance sheets stay strong and that we have enough liquidity for our needs going forward. So for example in 2022, as you know, we bought back almost $300 million dollars.
Speaker 2: as you'll find the sector is really on our balance sheet, protecting our balance sheet first and foremost. When we're comfortable, we've protected our balance sheet for 2024, then we'll be loosening up and going back to our end, Jebi.
Speaker 5: Very helpful. Thank you very much and I'll turn it back.
Speaker 5: Very helpful. Thank you very much and I'll turn it back.
Speaker 1: Your next question comes from Mario Sirique with Scotiabank. Please go ahead.
Speaker 5: Hi, thank you and good morning. Just coming back to those two topics, the guidance and then the disposition outlook. What are the primary drivers that comprise the gap in the 2-5% range? Like that 300 basis point, what are some of the uncertainties that can result, you think?
Speaker 6: the lower end of the range 2% versus the higher end of the range at 5%.
Speaker 3: The different property segments that consist of H&R REIT, I mean they have four very different growth profiles and as such next year they'll offer different NLI growth percentages. But to be honest, we're also, as you've noticed from previous calls, we're also very, very conservative and so we've given a conservative range. Yeah.
Speaker 3: The different property segments that consist of H&R REITs, I mean they have four very different growth profiles and as such next year they'll offer different NOI growth percentages. But to be honest, we're also, as you've noticed from previous calls, we're also very, very conservative and so we've given a conservative range. As best as the visibility has given us.
Speaker 2: But, Mario, just remember that contractually the Aloncone Leases in Office ironically is reversed. When you have office and industrial, Aloncone Leases, that's contractual and historically it's always been 2% on a lumpy basis, 10% or 5%. So that you can actually predict and as you well know we have very few lease roles coming off an industrial. That's not really the issue. The drier real notes is where you...
Speaker 2: very tempered at your 2% level and the anything as industrial and is retail in our case we have in retail very solid so it's really just mostly residential that creates that fluctuation and you need to have that gap you just can't predict what the world's going to look like over the course of the next 12 months.
Speaker 4: We're seeing good strong growth right now in residential and we just hope that continues throughout the year but we're not sure that's going to flow all the way throughout the whole year.
Speaker 6: God, it's sort of paraphrase. Kind of the 2 to 5% range is really kind of predicated on the uncertainty associated with the US economy in 23.
Speaker 4: I would say yes.
Speaker 6: Okay and then just coming back to Larry maybe your comment on the growth being good thus far. I appreciated the new disclosure on Land Tower in the investor presentation. Can you, I think the least...
Speaker 6: Credo data was for 22 in total.
Speaker 6: can you provide what those numbers were? It doesn't have to be for each market, but can you give us a resonance of what the new renewal and blended lease spreads were in Q4 for Land Tower and how those are looking in January ?
Speaker 3: Hi, Mary, we want to stick to annual 22 over 21 metrics. This is the 1st time of us giving guidance for land tower. Like I said in the speech and I think I've reiterated some calls. We will look for additional opportunities to add quarter over quarter disclosures throughout the year.
Speaker 3: But as of right now, other than to say somewhat counterintuitively that the renewal rates has been by multiple higher than new leases, I think that's what we're going to limit ourselves to on this call today.
Speaker 6: Got it. Okay. And then stepping back more of the...
Speaker 6: and broader question. Heading into 22, you announced this transformational plan, you're steadily executing on that sense.
Speaker 6: What would you identify as the key 2-3 tangible goals that you set for the organization for 2023?
Speaker 3: I think in summary it's a continuation of our plan. I think we were very meticulous and careful in taking out the plan in October 21. I think today's results are further evidence of a conviction in that plan. On a relative basis we had a very strong year last year we'd like to continue that momentum going into 23 tr Program to 23 upp SEIT TALOGY OS? Civic
Speaker 3: of the Selected Better Word Development Readiness of our remaining pipeline.
Speaker 6: Okay, great. Maybe one last one for me. On 160, I'll go ahead and I appreciate and provide additional disclosure or detail going forward. But can you give us a sense of what the disposition price was in relation to the Q322 I first fair value for the asset as opposed to Q4? Morning, Mary. Yeah, we can't wait.
Speaker 4: 160 Elgin is one of those properties and we wrote down 160 Elgin by $25 million in Q4.
Speaker 6: Alright, okay, thanks Larry – sweet.
Speaker 7: Your next question comes from Matt Kornack with National Bank Financial. Please go ahead. Hi guys. With regards to appreciate the guidance for 2023 but looking past that 2024, you have a fairly sizable amount of industrial lease maturities.
Speaker 7: And I think about a third of it, maybe $7,900 airport road. Can you give us a sense as to what you're expecting market to market on that? And is there a chance to get to market or is there a fixed renewal there?
Speaker 2: No, that's complicated transaction. I can't give you too much details on it, but we are working on it. So we're not concerned, but as they can see, we're not concerned about the rental rate is significantly higher than what we're currently leased at.
Speaker 2: Regretfully, since we are currently working on the transaction and talking, we can't give you too much color on that. That is our significant role, but again, it is of no concern of ours.
Speaker 4: And I really want to say the word buildings that we have in our portfolio Market rental on industrial away the low out the average rents that are currently in the market So we would expect to get good growth coming forward from that division
Speaker 4: all the way out. Well, I don't know about it.
Speaker 7: I was tired of airport road is it a few other assets in the GTA that would make up the remaining sort of 600,000 square feet or so? No, no, no, no. No concern to us. We're not the ones we sleep.
Speaker 7: Okay, fair enough. And then with regards to some of the – well, the Dallas High School transaction and the opportunity there on the adjacent land, can you give a bit more colour and then maybe also with regards to the Cove if there's been any progress on that project?
Speaker 7: With regards to some of the Dallas High School transaction and the opportunity there on the adjacent land, can you give a bit more color and then maybe also with regards to the Cove if there's been any progress on that project?
Speaker 2: The COVID is in the final stages of completing drawings. We are going to go for permit application, but we're going to put pencils down after that. We're not really allocating any funds into development at this point in time as we mentioned in our speech. So we see better visibility into the economy.
Speaker 2: So it's, it's zone, it's always was zone. It's ready to go, but we're going to wait and see if we're, so we're going to pause on that. And that's probably been the next 30 days that we shall complete all the drawings and do our submissions on the cove. On Downs High School, down high school, we, I'll put you to the land around Downs High School for a higher rise residential. There is a, to be built.
Speaker 2: Perkins and Will's one of them, a significant architecture firm, has a long-term lease on substantially most of the balance of the space. And the part and a lot that is part of the office building is adjacent to the balance of the lands and should be integrated into a higher-rise development in the future.
Speaker 2: The wheels want a significant architecture firm has a long term lease on substantially most of the balance of the space. And the part of the law that is part of the office building is adjacent to the balance of the lands and should be integrated into the high rise development in the future. High rise residential development in the future.
Speaker 7: And I noticed the description of your sort of target markets in the US now includes Sunbelt and Gateway markets. I guess you've always been in Gateway markets. But is that sort of other than buying land in Miami, do you anticipate expanding kind of the residential investments?
Speaker 3: in some of these gateway markets. No, I think there's more commentary on what we currently own and perhaps anticipated developing. For all intense purposes, the growth in the U.S. residential segment will be predominantly, if not exclusively, some bought markets, other than what we currently own.
Speaker 2: We do have relationships with Letcore Qualcomm, our partners in Canada and the Gateway Cities. We never actually went to the Gateway Cities without partners. So it's been an opportunity to turn down any opportunity that may come up into the future for long-term strategically. But we do have relationships and land holdings with Letcore Qualcomm.
Speaker 7: Thanks, and switching over to office appreciate the disclosure on the fair value that you're holding some of the redevelopment assets that On my math that that's about 700 hundred bucks per square foot and you have the ability to grow the square footage from a million square feet to Two and a half on the the office front. I know there's a few retail flash industrial assets that I
Speaker 7: existing office or what the potential rezoning value would be. Yeah, just if someone's buying it, it's a million square feet today. $700 per square foot on that million seems.
Speaker 7: Cheap, but I guess do you have a sense as to what it would be per square footage? I understand someone's going to look at it as a development play, but a price per square foot maybe on the two and a half million then?
Speaker 4: So three of the properties are downtown Toronto ones in in Burnaby in Toronto We have seen a big drop in terms of land trees. So there was sort of the high-water mark on Plymouth Boulevard at Young and St. Clair between King set and a private developer hitting the $350 square foot mark
Speaker 4: for residential mix use. There have been a few trades this year, one notably at Mount Pleasant and Englandton through CZRE, which traded about 2.16 a foot, but the market has really just been quiet. So we're not seeing fire sales. King set had a property at Yacht Wellesley as well as the one at Stimington and Gourmet.
Speaker 4: they couldn't attract the price they wanted, so they pulled the deals from the market. So I would say prices are still quite high for what is trading. If people can't achieve the price they want, they are pulling it. In terms of our values, we are being relatively conservative at the moment, partially because 145 Wellington is the only property that has achieved rezoning. Of that million square feet, it's about a h-
Speaker 7: and fair value for a lot or for no.
Speaker 2: We've taken a partial upside, but not a full one at this time. The simple answer mathematically is that you don't take an upside predicated on, call a $2.50 a script of what times a dent to do you get. The market always uses just more of an aggressive cap rate on the commercial. It looks at the commercial, says, hey, there's some residential potential over here, but it trades on the basis of a more.
Speaker 7: for the joint venture, it was a pretty significant increase in revenues. FX played a part of that, but is that a normalized figure for Jackson Park, for Q4 that would have driven the sequential increase there? And then just quickly the bad debt was elevated this quarter. It seems like it's non-recurring, but any color there.
Speaker 4: Jackson Park actually did have a bit of an increase in bad deaths. Other than that...
Speaker 4: So we should have a bit of a look from Jackson Park next quarter, not much, a little bit. And therefore, thereafter it should be back to regular growth of 2 to 3%.
Speaker 4: and that is all about our equity joint ventures at first.
Speaker 7: Any difference this quarter? Okay, so that's a clean figure. Okay, thanks, Ed.
Speaker 1: Your next question comes from Jimmy Shen with RBC. Please go ahead.
Speaker 8: Thanks, good morning. Larry, on the 250 million adventure that was redeemed, I assume the line was drawn to pay that down and then subsequently the sale.
Speaker 8: See the asset sale will pay down the line that's here
Speaker 4: Yes, that is correct.
Speaker 8: Okay, and with the net proceeds, it looks like there's no dead on 160 alligator, so would the net proceeds be similar to what the asset health for sale amount is?
Speaker 4: We will get more details on that when it closes, but yeah, pretty much the same.
Speaker 4: We will get more details on that when it closes, but we are pretty much the same.
Speaker 8: And what would the in-place rent be? Would they be largely in line with market rent at 160 Elegant?
Speaker 2: The answer is on average yes, but it's made up of various tenants paying various different rent rates. So on average the market rent is there, but I wouldn't say it's every tenant paying that rent.
Speaker 8: okay butI know we did average
Speaker 8: But on a weighted average basis. Anyone at home can announce this. Sorry? I'm sorry I missed that.
Speaker 2: It's very typical any multi-tenant acid, which is least a stagger period at times, and some tenets are older and some tenets are newer ones, this would be a reflective of that.
Speaker 2: It's very typical of any multi-tenant asset, which is leased at staggered periods of times, and some tenants are older rent and some tenants are newer rent. This would be reflective of that.
Bell Canada being the largest tenant was there long before the other ones were so it's going to have a different profile of rent than the other tenants.
Okay. And then on Land Tower, there was a, from Q3 to Q4, the NOI did increase by about $4 million.
I'll give it a take.
other than just market condition that's a pretty big change but would have caused that sequential change.
I think it was just simply put it was organic growth in the animal. I think we had, I'm using randomism, born back to Mayor's question as it relates to the same store growth of the new leases and renewal leases. In the fourth quarter.
I must have misunderstood and married your stolen align apologize for misunderstanding your question. I give you an example. Our new lease is with 5.4% in Q4 and 15.6% on the renewal for total blended rate of 10.5%.
I would anticipate to have something in that ballpark for the remainder of 23, but if you take a look at those statistics, you'll quickly realize that our revenues by far outstripping the expense growth, therefore leading to outsized NOI growth. And that NOI growth is what you're identifying.
OK.
Just lastly, on the asset sale, how would you characterize the level of interest or liquidity of the US office assets and do you see yourself selling either one of those two assets this year? That's something that's super exciting.
The United States market is on pause right now, so we actually don't expect to sell it this year. We do have long-term leases, but we still, with the interest rate environment, the office environment, it's not clear where people are working right now. We don't expect to put it on the market and we don't expect to sell it.
I think you're hearing that sentiment from all the office re-players in the United States.
Okay thank you. Ladies and gentlemen as a reminder should you have a question please press the star follow by the one.
Your next question comes from Dean Wilkinson with CIBC. Please go ahead.
Thanks. Good morning everyone. Just one question for Larry. When you're looking at the debt stack and what's coming up in 2023, how are you thinking about term and maturity and the balance between perhaps going longer at a higher rate or do you have a view around what rates ought to do?
side on the secure side.
We have around 144 million dollars of mortgages maturing. We will do financing, I guess is we're financing, there's one property that's multi-res.
that that will be refinanced at $77 million.
And we are looking to do a refinancing of some of our industrial portfolios, more of our pets are followed up to leave by the next recording date.
So we're interested for going where we take a longer term view, whatever our long term view is, the economy will be, the interest rate will be where it is. So we think we have the dispositions coming in in order to repay off a lot of those moreviages maturing. So we're in the fortunate position to be able to decide to take out more financing, which we've just used our back time to repay them off. But...
I'm sorry, I'm secure for the benches. I quote, we see around from all the banks, as of yesterday it's like 5.4% all in. And on a secure basis, we're probably looking at like a 5%.
But the coninverte of yield curve, so you ask the question on term, and that we can't answer because five is cheaper, is in line with three or two percent three. Yeah, no, that's the weird part of it anymore. Do you go shorter and hope that the yield curve normalizes by the front end going down, which geez, I hope it does.
So we want more short, we'll look at how maturity comes up and we'll find take a responsible approach of stay-grooming out.
look at our maturity, then they come up and we'll try and take a responsible approach of staggering them out. Yeah.
Thanks, guys.
There are no further questions at this time. Please proceed.
Thank you for joining us on our Q4 calling. We look forward to speaking to you. Follow in quarter. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in SAU Please Disconnect Your Lines.
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