Q3 2023 H&R Real Estate Investment Trust Earnings Call
Good morning, and welcome to <unk> Q3, 2023 conference call before beginning the call H and I would like to remind listeners that certain statements, which may include predictions conclusions forecasts or projections in the remarks that follow may contain forward looking information, which reflect our current expectations of manager.
Regarding 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 or standardized under ifr S. Our 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 alternatives to net income are comparable metrics determined in accordance with the ifr S. As indicators of H&R performance liquidity cash flows and profitability.
<unk> management uses these measures to aid in assessing w's underlying performance and provides these 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.
And the material factors or assumptions that may have been applied in making such statements together with details on ancient our use of non-GAAP financial measures are described in more detail in H unites public filings, which can be found on <unk> website at www Dot SEDAR dot com.
I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R beat. Please go ahead Mr. Hofstetter.
Thank you and good morning, everybody I'd like to thank everybody for joining us this morning to discuss each of our third quarter financial and operating results of the strategy with me on the call are Mary <unk>, Chief Financial Officer, and Emily Watson, Chief operating officer from Atlanta, Our residential division.
Year to date, our portfolio and team are producing strong financial and operating results across all of our property classes with digital continued to see rental rate growth for high quality well located off the shelf space with long weighted average lease terms remained attractive investments for potential buyers at 98% occupancy industrial properties located in key industrial markets remained high.
And as we realized continued rental rate growth in our high quality grocery anchored and single tenant retail property portfolio, performing well, providing essential services to their respective communities.
Capital structure remained very conservative with low leverage and our low payout ratio with limited exposure to floating rate debt.
During the quarter, we sold or Quebec retail properties for $68 million, but small office property in temple, Paris, Florida, with $13 3 million U S and in automotive tenants with tenants is related to property in Roswell, Georgia for approximately $3 6 million U S. Net proceeds from these dispositions were used to repay debt and repurchase units.
The NCI with.
With these sales completed during the quarter <unk> 2023, non core property sales totaled $431 $7 million.
Given the line of sight, we have into our current disposition pipeline, we plan to sell or have under contract to sell an additional $170 million of noncore assets by the end of the year during the nine months of the year, the repurchased and canceled over 4 million units at a weighted average price of $10 30 per unit or <unk> 40 to $42 7 million.
Representing approximately $52 one discounts.
To nap per unit.
As a result of our disciplined capital allocation boat, we have augmented our growth profile meaningfully achieving double digit growth in same property NOI since the announcement of our repositioning strategy.
Our allocation to residential industrial from 'twenty, five and 10%, respectively in Q2, 2021% to 42% and 18% respectively. A total of 60% as of Q3 of this year over this time period, our office exposure, excluding the rezoning portfolio has declined from 36% to 17%.
The signing of this progress is improving our liquidity position and balance sheet metrics and with that I'll turn it over to Larry.
Thank you Tom and good morning, everyone.
I'll start on the operating results in my comments to follow references to growth and increases in operating results are in reference to the three months ended September 32023, compared to the three months ended September 32022.
H&R same property net operating income on a cash basis increased by 12, 6%.
Breaking the growth down between our segments land tower, our residential division led the way with a 19, 5% increase or 15, 2% increase in U S dollars.
Emily will provide more details on those closed shocking.
Industrial same property net operating income on a cash basis increased by 11, 1% driven by rent increases for new and renewed tenants.
Office same property net operating income on a cash basis increased by nine 9%.
The increase was largely attributable to lease termination payments bad debt recoveries and the strengthening U S dollar.
For the nine months ended September 32023, same property net operating income from our office portfolio increased by six 3% compared to the same period in 2022.
Our office properties are in strong urban centers occupancy at September 32023 was 19, 8% and a weighted average lease term is approximately seven years.
H&R received the termination payment of $856000 in Q1, 2023 and received an additional $2 5 million in Q3 dollars 20 to 2023 from a sub urban office tenant occupying 105000 square feet, who is lethal amount and on the <unk>.
Remember 31 2023.
And I'll quote but.
Last month's H&R submitted a suntan application to the city of <unk> for a new single story 122400 square foot industrial building to replace the 105000 square foot office building.
Plan approval is expected during Q1 2024.
And lastly, retail same property net operating income on a cash basis increased.
By eight 8%, primarily driven by increased occupancy at Robert lending and the strengthening of the U S. Dollar.
Q3's, 2023, SFO funds from operations was <unk> 42 per unit compared to 30.
Unit in Q3 2022 included in <unk> for Q3, 2023 is $36 million of proceeds from the sale of an option to purchase land.
Excluding this item and other nonrecurring items, such as lease termination fee.
<unk> would have been $86 million for the three months ended September 32023, or 37 cents per units.
<unk> for the nine months ended September 32023 was $1 <unk> per unit and excluding the unusual items would have been 92 three cents per unit, a 7% increase from $86 <unk> per unit for the respective 2022 period.
We are proud of our <unk> growth. Despite the current headwinds of higher interest rates spacing, all real estate classes and the current headwinds facing the office sector.
Commencing in January 2023, <unk> monthly cash distributions increased two five cents per unit of <unk> 60 per annum and 11% increase over the 2022 distribution, excluding the special distributions in December.
<unk> Q3, 2023 payout ratios remained healthy at 35, 7% of <unk> and 41, 6% of <unk>.
Net asset value as at September 32023 was $21 49 per unit an increase from 21 four at June 32023.
The following overall weighted average cap rates, we used in deriving the fair values of our investment properties.
Four 9% overall for the residential properties, which are split between sunbelt properties at an average cap rate of 475% and gateway cities at four one.
1%.
5% to 8% for industrial properties.
647% for retail properties.
765% for our U S office properties and $6 two 5% for the Canadian office portfolio.
The increase in cap rates used to value our properties resulted in a downward fair value adjustments of $139 9 million for Q3 2023 at the reach proportionate share the fair value adjustment for the nine months ended September 32023 was $328 9 million at the reach proportionate share.
As at September 30, our office portfolio of 22 properties comprised 24% of our total real estate assets.
Debt to total assets at September 32023 was 43, 9% compared to 44% at the end of 2022 and liquidity at September 32023 was in excess of $1 billion.
Debt to adjusted EBITDA at September 32023, based on a trailing 12 months was eight seven times and with that I will now turn the call over to Emily.
Thanks, Larry and good morning, everyone. Today I will cover our third quarter same store result from our multifamily platform as well as discuss some operational update.
Same store revenue growth for the quarter was in line with expectation demand fundamentals continue to be favorable positive migration trends and continued job and wage growth in our markets combined with the relative affordability of our renting versus owning our evidence and our increasing resident retention and strong traffic trend we bill.
<unk> land towers market diversification with Sunbelt Gateway city infill and suburban exposure continues to serve us well during the third quarter. We saw an increase in supply pressure in our sunbelt region, which resulted in flat blended lease over lease pricing for Q3 as discussed on our last quarter's call. We are focused on.
Increasing resident retention as the new supply is absorbed with our diversification strategy innovative tools focused on increased efficiency and customer experience and a deeply experienced operating team. We believe we are positioned well to outperform our market.
We continued to deliver solid operating results with same asset revenue growth in U S dollars, increasing by eight 1% for the third quarter and same asset net operating income from our portfolio in U S dollars, increasing by 15, 2% for the three months ending on September 32023 <unk>.
To the respective 2022 period.
Occupancy ended the quarter at 95 to 21 basis point increase over the second quarter and 79 basis points over Q3 of 'twenty two.
Despite the supply headwinds in the Sun belt occupancy remained stable as a result of our strong consumer base with a 20% rent to income ratio and strong retention underscoring the continued positive fundamentals for send out multifamily.
Lingering high interest rates continue to dampen the number of deals that traded during the third quarter based on our recent internal third party appraisals and a handful of recent sunbelt sales comp holding our F&B cap rate at 475 is appropriate and supported.
We expect demand to remain healthy for institutional quality assets in the sunbelt given the substantial capital flows interest in and focused on long term heavy sunbelt multifamily allocation.
On the development land tower, West La and Dallas, Texas remains on schedule and budget with framing nearly complete.
Wanting to have painted and textured drywall installed and the interior courtyard has fully installed facade material, which will allow for the poor construction to start by the end of the year, we expect to start pre leasing Lane tower West lab in early January of upcoming year with Tcs and occupancy starting at the end of.
First quarter 2024.
Also in Dallas, Texas, Wayne Tower, Midtown has progressed considerably with framing reaching four five the top four and note that charge one and two.
We expect to start pre leasing land tower Midtown near the end of the first quarter 2024 as mentioned in previous quarters. We are progressing through the different phases of design dry and permitting on the remainder of our sunbelt development pipeline.
<unk> currently has four fully permitted development that can be started at anytime with five more developments expected to be ready in 2024.
On the operational front, we continue to focus on what we control versus managing to the headline.
As part of our innovation strategy, we made large strides in launching our centralization platform in the third quarter.
Through enhanced technology, including a new CRM system and artificial intelligence, we are focused on increasing our bottom line, while improving the customer experience.
Our office associate to resident ratio started at one per 100 and ended the quarter at $101 15, with a target to increase to wildfire 120 to 30 range.
Our technology enhancements are focused on improving efficiencies and expanding NOI margins.
In summary, the land how our platform continues to achieve positive result, and performance relative to our multifamily counterpart.
I'll start with our people and it is a true testament to their commitment, especially as market conditions that come more and more competitive I'd like to say, thank you to the land tower team for their fortitude and success in delivering top tier results and with that I'll pass the conversation back to Tom.
Next I will walk.
Put up the call to questions operator.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
We'll hear with Vitol prompt acknowledging your request if you are using a speaker phone. Please lift the handset before pressing any keith.
Yes.
First question comes from Sam Damiani from TD Cowen. Please go ahead.
Thank you and good morning, everyone.
Emily if you remind your first question just for you with the same property NOI growth.
<unk>.
In the residential portfolio I didn't see the split up between Jackson Park and everything else in this quarter, but if you could provide that and give us a sense on so.
How you see same property NOI in the sunbelt portfolio migrating over the Q4 and into 2024. Thank you.
Sure.
For Q3 was still pretty strong actually in the sunbelt.
Despite the headwinds we see almost a 5% Sam.
9% NOI, we did have.
Tax true ups, and so forth that affected our NOI and sunbelt, but not anything that we're concerned about.
Selling and quite frankly, one thing that we werent expecting so it was in line with our expectation.
Okay.
So the implication was Jackson Park was quite strong again this quarter.
If you have some thoughts there and also again, what youre, what youre thinking about for Q4 and into 2024.
Sure Yes.
Again, I think that one of our strengths is the diversification of our location of our assets. So I think it makes sense on the mutual fund effect. If you will to have the sunbelt along with the Gateway City.
To be able to.
Depending on what part of the market. So there will always be an imbalance of supply and demand somewhere so I think that diversification will help us now but also ongoing.
We are we have always projected kind of a low teens for NOI and we're on track to hit that for 2023 for 2020 for Sam we're in the middle of our budget is now so I don't want to opine and kind of tell you where they are in 2024, we'll have our <unk>.
California deals come into our same store universe as well so we'll take time to get there.
As budgets and kind of digest on them and be able to come out in Q1 with a little better idea of what that.
It looks like but I think 2024 in the Sunbelt will continue at supply headwinds I think we will.
Probably in the second third quarter for that and then 2025.
I told you last quarter I think that I never saw 'twenty, two probably will never again and my point in my career, but I think 2025 is really poised to do extremely well given the drop off of the supply that we're seeing.
In the Sun belt.
Thank you that's helpful.
And Tom maybe for you just on the disposition side.
Obviously, you're still confident you are going to incur another deal before year end. So look forward to that but how are you thinking about your disposition goal for next year still focusing on office.
And I Wonder if you've listed any rezoning properties for sale at this point.
We havent listened to you said youre not ready to be listed yet they need another year and we have the market as you well know is very very bad right now.
Something thats kind of I don't think Thats the way it approached things off market is the way to go now you've probably heard that from many other say the same thing.
Line of sight to off market deals does not visible you can't predict what your off market deals you can look like I expect to be able to do sales I don't expect to sales on market and therefore, it will be choppy and very unpredictable.
Okay. Thank you I'll turn it back.
Thank you. The next question comes from Mario <unk> from Scotiabank. Please go ahead.
Hi, good morning.
Maybe just sticking to the distribution team Tom what do you think needs to happen in order for liquidity in the market to really pick up.
So the types of assets.
Well, obviously the answer is lower interest rates right now.
You'll have to hit the numbers, we hit beforehand, but when you have lower interest rates all of a sudden you can deal with positive leverage which do not deal with right now and available and liquidity. So lower interest rates will bring liquidity liquidity will be the ability for buyers to finance right now again as you've probably heard from many others loves deals that are being structured right now are with <unk> and that doesn't create them.
Much of the depth of the market.
And thats not necessarily much of a disposition either if it's really 80% on a V.
So lower interest rates are going to be the answer that my own personal prediction is youre going to see interest rates come down very rapidly.
And then another.
Q3, $2000 for the first half in past years would be very difficult.
Got it Okay, and then on the $170 million of planned dispositions for 'twenty three can you give us the cap rate range on that.
Very healthy and I can't give you a range.
But it won't be indicative of the market as we said beforehand, it's off market deal and.
It's whether it's retail whatever sector is we won't be able to use that transaction.
The talking points, there will be strength in the sector.
Okay.
Maybe switching over to land tower, and Emily I think you mentioned that the blended spread was flat in Q3.
Was there a discernible difference between new lease spreads on renewal spreads during the quarter.
Yes, Q3 actually we were still if you remember we give our offers for renewal 70 days prior so.
The renewal.
Average that we hit in Q3 with six 6% to 7% so that that was really strong.
Some of our markets.
Often particularly was a little weaker so we had.
Some negative trade outs and <unk> and <unk>.
Some of the market. So we don't expect a 6% to 7% renewal increase in fact.
The retention is where were focused now that we are.
Q4.
Already really strong and should hit a 60% retention with a 4% renewal.
<unk>.
That range is what we're seeing so far in Q4 that were seeing that kind of come down and that remaining flat. That's what I anticipate to happen not only in Q4, but really probably through 2024 as well.
Got it so just to clarify.
We're expecting kind of a blended slot.
Spreads in 'twenty four.
Correct.
Exactly.
It was nice to see the occupancy tick up sequentially quarter over quarter or were there specific markets that drove the 20 basis point increase or was it purely performance out of Boston.
Across the Sunbelt states, so it's fairly uniform.
The market in New York is really tight so that in fact right now I think.
Jackson Park, 99% that they came through their Q3 kind of seasonality of the students transitioning really strong with a 70% retention.
There and maintain the 90, 697% occupancy so that that really gave them portfolio.
Kind of another non to the diversification strength of the portfolio.
Got it.
When you're on the tenant retention.
What percentage.
Renewals, our turnover or are you having to offer concessions in the portfolio today relative to three months ago.
Yes R. R concession levels are really small sat fi at less than 5% of the portfolio offered concessions.
And really it's the average of two weeks, though.
Our net effective shop, so we in fact, even Jackson Park, which.
For the students portfolio last year, we didn't have to do that this year. So.
Not very much, especially compared to some of our peers, we would we and people want to know what they want me to write that check for every month and we just think that the stronger way to go for our our rent roll.
Very little.
Okay last one from me the Gimbal you mentioned that there were some deals in your markets supported the four and three quarter.
This quarter can you share maybe the quantum of the sales volume that youre seeing out there that supports the valuation.
Sure we did see a couple of trades actually in the month of October here in Dallas that were at $4 75 that we also additionally to that we track everything thats on the market, even though we're.
We're not actively pursuing anything we still track it so.
And the Q3, we tracked 20 properties that that average.
7000 unit.
With the vintage of 2019 and those were all in the mid to high fours, so dependent on sub market and loan assumptions.
But all of them kind of every talking to brokers in our own internal values and then certainly the trades that came through in October.
Good to see lots.
Lots of different data points that suggests we're right on target.
Okay. That's really helpful. Thanks for the info.
Okay.
Thank you. The next question comes from Jamie Shen from RBC capital markets. Please go ahead.
Thanks, So just on the.
Atlanta, Oregon, I know it sounds like.
You talked about 2025, potentially looking pretty strong as supply drops off quite dramatically and maybe you're alluding to perhaps even looking like 2022.
Sure I understand kind of how you're thinking about it and whether that's part of the reason why we're seeing some of those trades at these.
I mean, we still low cap rate.
Yes, I think that I think thats exactly right I think with the supply at the end of the day the glut of supply long term will still not create.
We will still have a shortage of housing.
And that's not going to go away and even if you put a shovel in the ground and 25, Youre still 18 months out before you're being able to address that shortage. So.
The laws of supply and demand that when that comes off and we're already seeing kind of the supply starts dropped 45% I think was the last.
Real page number then I came that I saw kind of Q3 of last year to this Q3, and then certainly starts that just arent pinpoint anymore. So.
25, we're still going to have people and just to give you a kind of a frame of reference as well Jamie the the migration to the Sunbelt States for IV is still over 10% of our leases are coming from other other parts of the United States. So I don't see that going away.
They'll still need a place to live.
And I think 2025 is going to be.
Hopefully another double digit, but gosh and takes seven or eight.
I think it's really kind of setting itself up to be a remarkable year.
Okay.
How are you thinking about business growth of land tower, there's people talking about potentially seeing opportunities to buy assets from developers who need to reload <unk> is it how you how you're thinking of allocating capital as it those opportunities or or still you are at the development.
That's on the job.
Currently.
Okay.
So sorry, if this is will answer it's really a cash management right now we're not in an equity raise mode up mode, obviously and any sales that we have to.
Realized the opportunity cost is really buying back your own stock and paying down your debt. So I don't think any division is really a strong growth mode.
We'll see growth mode in the residential.
Densification property, Dan on the land parasite structured on more of a JV basis.
The award fee oriented with maybe some optionality buyback, but as I say, it's straight acquisition basis to go ahead and take advantage of a weak market I don't think we're going to allocate funds to that right now.
Okay.
Okay, and then just last for me.
As in the news has being acquired by Chevron I know Theres a lot of term left.
But any sort of preliminary thoughts of discussion on what could happen there and whether.
Whether that changes, how you think about selling that asset.
Going forward. So it's early days, we reached out to them.
Earlier last week, and I would say Tom six months before we have visibility.
Don't think theres any synergies between Chevron and it has very different businesses.
Chevron does own buildings in Houston markets two of them one of them may amplify fully the other one I think is redundant my guess is they'll move out of there. So they could consolidate within the Hearst tower I don't think Hess is going to have themselves have any need to as I mentioned with consolidation merger of the two companies have any less of the space requirements of the <unk>.
<unk> are they going to move everything back into hasn't have one tower, the Chevron tower, which only a few blocks away and at Hearst tower to rename or not but again. It's early days I think nothing really changes that we have a long term with this so.
So they're there they're not going anywhere and on the balance of the building we have to discuss.
<unk> discussed with them that they get to the appropriate time to see what they want to consolidate further into that building as far as sale of the building goes I think it will be an eye on.
On track too.
Look at look at the potential sales.
This does cloud the issue to an extent, but I don't think it clouds the negatively I think it clouds the positively such as a question is there is a willing buyer out there.
Okay. Thank.
Thank you.
Ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question is a follow up from Sam Damiani from TD Cowen. Please go ahead.
Thanks, I just wanted to talk about the lease expiries over the next couple of years within the Canadian office portfolio. There's 300000 feet in Q4, another 400000 square feet in each of the next two years than a 1 million feet coming up.
I think in the industrial portfolio next year.
Any thoughts on retention or specific spaces that you know will or have renewed or will vacate.
So in the near term.
It's more like a little further off than that.
We don't really have any.
Really 2024 issues that we're aware of that we have the <unk>, which we had the right to give back a third which we did as a redevelopment play most of the deals that we're talking about are part of the redevelopment play. So I don't think theres any issues, whether they were not we wouldn't have to do long term renewals anyhow <unk> relatively short neither.
Looming renewals that are bothering us in the short term short term, meaning for the next several years.
Hi.
I'll just add that there is a 105000 square feet in the office that we spoke about that I spoke about online from offsets coming up in December 31st this year and Epsilon.
<unk>, that's going to be resumed in two industrial so thats part of it.
Further ahead in that assortment and construction on that one is actually going to start in Q1 of next year right. So that's why I say a little bit ahead of that now one of the irrelevant. There was a buyout over there and its value of the land is higher than the value of ability to value. The land for industrial is higher than the value of the building that we have.
<unk>.
Great.
Another one is.
Its front street has quite a lot coming up in 'twenty four but that is also a redevelopment play.
So that dovetails with our plans in terms of redevelopment and re zoning and another one would be 55 young again, we have consequentially proceeded with redevelopment plans for that so as Tom was mentioning all of these files, we have a strategy for another one would be 77 Union, which we purchased.
A little over a year ago and with that one the city has been delayed a bit by some fun with the province.
And so in that case, we're actually seeking an extension with the vendor.
And the current tenant so we're strategizing around if we were able to extend them, we will and otherwise we're proceeding as rapidly as we can with redevelopment platform.
I appreciate that thank you, Matt and I guess just on the some of these spaces B tell us front street or 55 young I mean, you've obviously got redevelopment plans for all but I guess just in terms of a rental revenue and <unk> perspective, there will be a drop off on those spaces in those buildings that are expiring over the next couple of years.
Yes.
Yes, right I think one of the things just our team is thinking about as well is looking at the tax classifications, Amit So where we have had a lot of runway on this that we've been planning ahead, so looking at reducing our operational costs. Both in terms of heating and cooling the buildings, what the tax classes, how we get our operational.
It's down as quickly as possible.
All of that is part of our strategy.
And we are not booking.
The new funds from things like <unk> and other files that we're working on the construction loan.
So whether it's a straight answer to your questions. Obviously there'll be follow obviously other than the case of 50 caveat, which is single tenant tell us which is single tenant unless you're a single tenant the redevelopment is going to have some deterioration as tenants move out. So I think that is part of the given to create an overall higher value to the process of residential development.
Okay, and I guess, Tom how would you characterize the value for <unk>.
These types of buildings that are redevelopment place right now in Canada.
So.
Thank you.
At the same numbers as I did a quarter ago, because I don't have any.
I don't have any data to suggest otherwise.
Hydrogen room, let's call it that.
On Toronto was 325 available square foot.
Spoke to that.
You can see evidence of <unk>.
With $200 a square foot so we will be using the 200 Oliver.
But we don't expect to sell 200, or we expect to build that 200, we expect to get a higher prices in the market.
Sure.
Yes.
And how about the liquidity on that.
How would you characterize the 200 to 200.
<unk> thousand square foot level is fine and you wanted to get higher than that is not the challenge is going to be some of the size of these buildings and they have a challenge of course is if you have to replace the office, which is I think is going to become extinct as far as the plant.
Planning concept then you have an issue whether it's a pure play residential I think youre fine.
Sam I'll just add the other piece of it is trying not to get over a certain size. So when we have a site like 77 Union, which could be 141 5 million square feet, we want to make sure. It can be taken down to smaller chunks of that so we're pre planning so that youre not trying to forward sell into.
Higher site, but pieces of it because right now we're seeing larger sites that are multi phase are also really struggling to get value on the phase II phase III et cetera parts of that site and I would just clarify citizen knee is not the $200 asset that's more than last yes, yes. That's by size, we take 500000 square feet.
I'd like to square foot, that's affordable that's available and the metrics are that can work for residential rental or condo, but of course, it's going to need.
<unk> vision as to where they expect im sorry for like three or four years down the road.
For sure. Thank you all it was very helpful. Thank you.
Okay.
Thank you. The next question is a follow up from Mario <unk> from Scotiabank. Please go ahead.
Hi, sorry, one more for me just on the back of Sam's question, Tom When you talk about you're taking about a year.
So some of these resigning assets is that a function of your expectation that the $200 a square foot is going to be higher a year from now or is that no no no no.
It's not a year from now that we finished the zoning process, but let me, let Matt speak to that I'm not the expert, yes, hi, <unk>. So I think it's a couple of things. The first is that we have approvals in place now for almost all of our assets or immediately well so 55%.
Final one that we're probably weeks away from being done the <unk>.
Issue is that our existing approvals have office components to them because that was the rule at the time, we applied two years ago, we are seeing a change with the city of Toronto. They are finally, having some common sense and listening to us and so we're going back in to find a compromise where we do not have to replace the office and we instead do sir.
Something else.
So some other quid pro quo.
Like affordable housing or community benefits instead of the office and so that is hugely advantageous to the city and to US. So it's a win win and as a result of that we're going to be resubmitting on a number of files. We don't expect the process to take as long as traditional because we've already handled out.
How tall. They are how setback they are from things et cetera, et cetera, We're really just talking office versus something else. So that's why we need time to finish a new approval on those.
And just further to what Tom was saying earlier our issue right. Now is there are deals that are out in the market like dream is marketing King in Simcoe as an example, the elephant and castle project from our intelligence on it there are maybe three or four bidders maybe.
Site like that two years ago would have garnered 20 bps. It center I feel good but a little bit of a footnote on that too. That's a mixed use project as well, yes, it's not a pure play and a superior placing orders as I mentioned 400000 square footage TSA on residential that would sell at a premium it has a hotel component on that which is a hell of a lot better than last of all of course. So now you have to find a player here.
Hotel player Anaconda.
One of the reasons you don't have 10 buyers the size and market conditions. It's also a unique a unique asset in that case, a 55 145 front street et cetera, our inquiries extend young all of our projects, we expect to be totally residential and fairness to the street project that was referred to he also Michael also went into.
While ago when there was office replacement that he was wise enough to use hotel as a replacement for the office component.
In all municipalities, including New York, you've named right across the board. This concept of more housing getting rid of the ops, which just as a year ago. We wanted to wanted to have office because of the high tax assessments that were achieved from office replacement, that's now being abandoned and Luke over negotiation and we are probably going be the front runners to a great extent on that negotiation.
John loved it thinks it did achieve a negotiation on lower as we sold 12 35, maybe across the whole base.
You did achieve somewhat.
Milestone by taking the $12 five Bay, which is ours and 12 55 day, one is that the high rise residential and the other one.
Yeah.
To keep the office building is in hospital quarters down the road, who knows but right now he created that milestone so stepping stone. So we expect very much Seth.
Is gonna be receptive for negotiation and also these as cash theres, either cash and reward is going to be some form of affordable housing. So all of them are better for both the city and for the development.
We basically we wanted to do better on the approval, we have and we think the market is not great right. Now so we're not in a rush to go to market. It really is a function of not only interest rates, but we're at 12000 sales year over year to go from October of last year to September of this year that means we're down 47%.
As Tom pointed out to me yesterday, if you look just at the last three months, we only did 2500 deals in the last quarter. So if you extrapolate that out over the next year that means really to reach 10000.
Deals. So then you're down 60% year over year. So the challenges that the market is not in a great state by now builders are not doing fantastically well. So we're not going to get a great value. So we are waiting for the tide to turn and we're also trying to do better on our approvals. That's why we're saying late next year, but just remember one last point timing is not as.
For the simple reason that unlike 55 younger Union Street.
There's not a single tenant or tell us we have an unusually high percentage of billings that okay that helps.
Single tenant that you do a deal with the tenant is gone and now all of sudden you have for your residential project. When it's multi tenant it's very difficult because you have to wait to the last tenant is there and we have a bias. So we have Dell, which in the case of Bouchard. We've done a deal with we are tell us, which we've done a deal with.
When you go through the three five yes, we did the deal with CIBC. We have the ability go ahead <unk> young we have the ability to go ahead and put a timeline to it and say hey, this is not going to be dragged out with tenants having up two new vessels open. Another 25 years, we have a site that basically said that within a.
Two years to obtain eight seven years at the latest we have ability to go ahead and have an actual vacate with tencent actually vacate so timing is not of the aneth for 55 gallon.
And for this I would say $55 6 million downstream <unk> and Telus and Bell are done already so those are there because we have ability to vacated due to deal with the tenant otherwise time, there's nobody has as I said it takes a little longer.
Okay that is all very clear that makes sense. Thank you.
Thanks, Jamie.
Thank you there are no further questions I will turn the call back over for closing comments.
Thanks, everybody and have a great day.
Yes.
Yes.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that.
Please disconnect your lines.