Q3 2024 H&R Real Estate Investment Trust Earnings Call
Good morning, and welcome to H, No real estate investment Trust 2024 third quarter earnings Conference call.
Before beginning the call 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 management regarding future events and performance and speak only as of today's date.
Always 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 then responding to your questions. We may reference certain financial measures, which do not have a meaning recognized or standardized under ifr S. A Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting issue.
non-GAAP measures should not be considered as alternatives to net income are comparable metrics determined in accordance with forest as indicators of H&R performance liquidity cash flows and profitability.
Management uses these measures to aid in assessing debates underlying performance and provide us additional measures. So that investors can do the same.
Additional information about the material factors or assumptions risks and uncertainties that could cause actual results to differ materially from the statements and the forward looking information and the material factors or assumptions that it may have been applied in making such statements together with details on H and I was the use of non-GAAP financial measures are described and what.
E tail in <unk> public filings, which can be found on <unk> website at www Dot SEDAR plus dot com.
I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H and I read. Please go ahead Mr. Hofstetter.
Tom Hofstetter: Thank you operator, and good morning, everyone. Thanks for joining US today with me are Larry from Emily Watson I hand, it over to Larry to give his recap of the quarter.
Larry: Thank you Tom and good morning, everyone and my comments to follow references to growth and increases in operating results are in reference to the three months ended September 32024, compared to the three months ended September 32023.
Larry: Headline <unk> per unit for Q3, 2024 was $29.04 compared to 42 cents in Q3 2023.
Larry: As a reminder, <unk> in Q3 2023 included a $36 million gain on disposal of a purchase option held via a mortgage receivable.
Larry: Excluding this gain <unk> would have been $87 1 million or 31 cents per share in Q3 2023.
Larry: Overall, given the headwinds we faced at the end of last year with multifamily supply concerns are weak office market inflation rising interest rates, we are pleased with our results.
Larry: We continue to execute on our strategic repositioning plan in 2023, we sold $432 $9 million of income producing properties and this year to September 32024, we've sold $344 8 million of income producing properties, we expect to air.
Larry: And the year with approximately $440 million of real estate sales this year.
Larry: Okay.
Larry: I would like I would now like to spend a few minutes, providing commentary on each of our segments.
Parting with offers.
Larry: We are hearing of more back to the office policies from different companies and it seems clear that more and more employees are hitting back to the office, which is positive for the sector as a whole.
Speaker Change: Our office portfolio of 16 properties, which includes four properties of the residential rezoning opportunities now only COVID-19% of <unk> total portfolio.
Speaker Change: 87, 6% of our office revenue comes from investment grade tenants, a testament to the quality and location of our office properties.
Speaker Change: Our office occupancy at September 30 was 96, 8% with an average remaining lease term of six one years.
Speaker Change: Lease expiry is between September 32024, and December 31 2025.
Approximate 400000 square feet. So the portfolio will continue to provide solid cash flow.
Speaker Change: Our downtown Toronto office properties of the residential rezoning opportunities are valued at 101 hundred $40 per square foot, which is less than half the value. They were at the peak of the market and the rest of the portfolio has a weighted average cap rate of 886%.
Speaker Change: Now office properties are valued at approximately $1 $9 billion and there are only two mortgages totaling $140 million.
Speaker Change: The net of which equate to $6.24 per unit.
Speaker Change: Excluding our office portfolio in its entirety niv per unit would be $13.42, which is significantly higher than our current share price.
Speaker Change: Sales of office properties to date of $2 $3 billion since the announcement of the strategic plan demonstrates that there is a value to our office portfolio.
Speaker Change: Yeah.
Speaker Change: On the residential segment.
Speaker Change: While there has been a lot of new supply added in our residential markets. The positive immigration trends have continued and our tenants are also staying longer.
Speaker Change: Since the announcement of H&R strategic plan H&R, the average U S residential rents increased from $21 16 per square foot as of June 32021 to $26 97 per square foot as at September 32024 in U S dollars.
Speaker Change: Our residential portfolio at September 32024 comprised 47% of <unk> overall portfolio and is continuing to grow.
Speaker Change: Land Telewest love in Dallas.
Substantial completion and it was transferred from a property under development to an investment property.
Speaker Change: <unk> has become the 21st residential income producing property in our portfolio.
Speaker Change: And Kevin Midtown also in Dallas is not far behind and will be come out 26 investment property very soon and.
Speaker Change: In addition, we have another two residential developments currently under construction and expected to be completed in 2026 <unk> ownership interest in these two new developments is 29, 1%.
Our retail portfolio at September 32024 comprises 15% of <unk> overall real estate assets.
Speaker Change: The tenants in our retail portfolio are mostly grocers in the portfolio has been very stable with growth in rents and net operating income incurring from the lease up at river landing in Miami.
Speaker Change: Okay.
Speaker Change: Our largest retail tenants as John Eagle, who have close to 200 locations in our portfolio.
Speaker Change: John Diego recently announced that they are selling the GETCO convenience stores and leases to Couche tard.
Speaker Change: It will further diversify our tenant mix with Couche tard, comprising about one 7% of our revenue.
Speaker Change: John can you go well then compromise comprise about three 9% of our revenue.
Speaker Change: Our industrial portfolio 66 properties at September 32024 COVID-19% of H&R total real estate assets and continues to perform well.
Speaker Change: Since the announcement of H&R strategic plan <unk> average Canadian industrial rents increased from $7 17 per square foot.
Speaker Change: At June 30 of 2021 to $9 42.
Speaker Change: <unk> per square foot as at September 32024.
Speaker Change: In addition, industrial property located in the GTA made up 35% of H&R is industrial portfolio as of June 32021, compared to 50% of <unk> industrial portfolio as at September 32024, we continue to grow our industrial portfolio and added two newly constructed properties at the <unk>.
Speaker Change: Beginning of this year.
Speaker Change: We currently have one industrial property and a 50% interest in two industrial properties under construction scheduled to be completed in 2025.
Speaker Change: Our balance sheet remained strong debt to total assets at the reach proportionate share at September 32024 was 44, 9% and debt to EBITDA was a healthy nine one times liquidity at September 32024 was in excess of $900 million with an unencumbered property pool.
Speaker Change: Of approximately $4 1 billion.
Speaker Change: Our unencumbered asset to unsecured debt coverage ratio was two two times at September 32024.
Speaker Change: In summary, we are well positioned to continue executing the strategic plan to sell office and retail properties as and when the market allows and management remains committed to doing so.
Speaker Change: On the ESG front, we are pleased to report that our project at 6900 merits in the GTA was shortlisted for the world's demolition award in recycling and environmental category.
Speaker Change: The previous 104000 square foot steel structure office property had a total weight of 8758 tons.
Speaker Change: The waste diversion program recycled 8113 tonnes of steel and concrete or 93% of the total material weight.
Speaker Change: In addition, our land tower West loved development in London, and <unk> reached substantial completion and received the national Green buildings Silver certification.
Speaker Change: And with that I would like to turn the call over to Emily Emily.
Speaker Change: Yeah.
Emily Watson: Thanks, Larry and good morning, everyone I'm happy to be on this call to discuss our third quarter same store results from our multifamily platform and discuss some operational achievements and market insight.
Emily Watson: Our year to date results continue to align with our expectations as the new supply deliveries officially peaked at a 50 year high in the third quarter. Additionally, ending Q3 trailing 12 month absorption with 85% above the long term average further demonstrating the strengthening drivers for our industry.
Emily Watson: We remain focused on fundamentals of our business and creating NOI expansion through our repositioning opportunities development pipeline and other innovative value add strategies that add to our bottom line.
Emily Watson: Given the declining levels of new supply ahead, and growing demand in our markets combined with the strength of our operating platform, we are well positioned for substantial growth and value creation in the coming years.
Emily Watson: Same at that revenue growth in U S dollars increased 50 basis points for the third quarter and same asset net operating income for our portfolio in U S dollars decreased by one 4% for the three months ending September 32024, when compared to the respective 2023 period.
Primarily due to higher property operating costs, including taxes and insurance and a decrease in average rental rates for the sunbelt property, which is partially offset by rental growth at Jackson Park in Long Island City, New York and River landing residential in Miami, Florida.
Emily Watson: Same asset occupancy ended the quarter at $94. One at 50 basis point decrease over the second quarter and an 80 basis point decrease from Q3 of 2023.
Emily Watson: St Mass at occupancy in the Sunbelt for Q3 was $93 four with 51% retention and Jackson parts was $99 to occupy and 64% retention.
Emily Watson: The Sunbelt continues to show strong demand metrics moving into fourth quarter with resident retention at 58% for October and 60% for November.
Emily Watson: Sunbelt blended trade outs in Q3 were negative two 5% in the third quarter ranging from approximately negative 8% in Austin to slightly positive in North Carolina in Orlando, which coincides with levels of supply expansion.
Emily Watson: Based on recent third party appraisal and a handful of Sun belt sales comp we have maintained our fair market value sunbelt cap rate at $4 nine 8% and believe the rate is appropriate and supported <unk>.
Emily Watson: GAAP rates are expected to remain low relatively speaking for the institutional quality assets in the Sun belt with capital flows interested and focused on long term heavy sunbelt multifamily allocation.
Emily Watson: On the development land tower, West La and Dallas, Texas received final TCE Oh at the end of September and is currently 40% occupied and 43% leased.
Emily Watson: We are excited to celebrate lane tower West lab, the achievement of the National Green building standards Silver certification.
Emily Watson: We will share final development budget economics for West lab on the fourth quarter call. After we close out the project.
Emily Watson: Also in Dallas, Texas Land tower in Midtown has received its final <unk> on October 31, and is currently 15% occupied and 25% leased.
Emily Watson: Both properties are leasing well with an average monthly velocity of 25 leases per month, which is above industry reports for our market. Another testament to the superior product and unparalleled amenities of our development team has delivered.
Emily Watson: We will also share a final development budget economics for the Midtown project on next quarter's call.
Emily Watson: Read it one properties are progressing well and remain on budget with completion expected in mid 2026.
Emily Watson: <unk> currently has an additional nine development projects in the sunbelt pipeline totaling over 2900 suites at H&R ownership interest with multiple sites ready and prepared for construction.
Emily Watson: We are progressing through the different phases of design, drawing and permitting on the remainder of our Sunbelt development pipeline and currently have an additional two projects shovel ready.
Emily Watson: In summary, the land higher residential platform continues to achieve encouraging results and strong performance relative to our multifamily counterpart I.
Emily Watson: I would like to recognize our Florida and Central services team members for their preparation for back to back Hurricanes, Helane and Milton by following the Hurricane protocol and communication to our residents we sustained only minor damage in a few areas.
Emily Watson: Dairy Milton over the course of three days or central Central team members managed over 1100 incoming and outgoing emails calls and text messages with our residents with an impressive 98% response rate under four minutes around the clock.
Emily Watson: The unity of our land tower team is one of the many reasons we were certified as a great places to work in the third quarter and best places to work in Florida by the best companies Group.
Speaker Change: And with that I'll pass it back to Tom.
Tom Hofstetter: Thanks, Emily operator, you can open up the call for questions.
Tom Hofstetter: Thank you.
Speaker Change: 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.
Speaker Change: You'll hear a prompt that you've had has been raised.
Speaker Change: You are using a speaker phone please lift the handset before pressing any keys.
Speaker Change: Yes.
Speaker Change: Your first question comes from Sam Damiani TD Cowen. Please go ahead.
Speaker Change: Thanks, and good morning, everyone.
Speaker Change: Maybe Tom just for you just like to get your sense on the outlook for dispositions today versus maybe versus last quarter.
Speaker Change: Considering everything that's unfolded over the last three months, just wondering with the with the outlook and pipeline looks for for activity into 2025.
Speaker Change: Thanks, Dan and good morning, it's basically cloudy last quarter, there was more optimism on the interest rate reduction and therefore, there's more of a is fueling the buy side is also fueling the debt side the debt side as dormant and without that youre not going to have acquisitions. So nothing is on the market has been a little but we have nothing on the market is available in the market than anybody has it's really off market deals.
Speaker Change: Opportunistically driven you can't you can't forecast those in general terms I would tell you that the brokers are dry right now and it's part and parcel of the uncertainty over interest rates I have no visibility into when that is going to change I don't think it's the office market deteriorating further I think that is what it is in the residential market is also pretty static industrial markets a little.
Speaker Change: Download is more interested in industrial than in any other sector right now just because the institutional funds have skipped the money somewhere in there is because of all the uncertainty there is nowhere else for them to put it. So I don't really have a vision of what we'll be selling over the next 12 months, it's really as I said, opportunistically, driven and we get better visibility after Trump comes in with interest rates and where the Canadian dollar life.
Speaker Change: Will significantly alter and give us the ability to forecast our dispositions going forward.
And I guess the cap rate on the U S office portfolio was up close to 30 basis points from not mistaken was there a reason for that something that required that.
Speaker Change: Well as the time marches on and you keep on with.
Speaker Change: Heading into year end.
Speaker Change: <unk> speaking unless there's a change of sentiment as the office market. The labs of office will go down.
Speaker Change: Okay.
Speaker Change: And then maybe just one last one for Emily just on looking at the organic NOI.
Speaker Change: Same property NOI.
Speaker Change: Friends Atlanta Tower.
Speaker Change: What's your expectation for things to turn more meaningfully positive.
Speaker Change: Good morning, Sam Great question.
Speaker Change: I definitely think that we'll see some overhang in 2025.
Speaker Change: And every year, we meet with our with Costar and real patients some market economists and really mid 2025, I think for most of our pockets I think Austin, where they havent bigger expansion that might go to the end of 2025 before.
Speaker Change: Go into 2026, which we anticipate to be a really robust year. So I think we still have 75000 units that will deliver in 2012.
Speaker Change: 100, plus that delivered.
Speaker Change: Right.
Speaker Change: Sorry that was 75000 units in the Sunbelt, yes, just in the sunbelt in our market.
Speaker Change: To come over the next year Okay.
Speaker Change: Thank you and I'll turn it back.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Speaker Change: The next question comes from Mario Sorry catch Scotiabank. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Maybe just sticking.
Speaker Change: Sticking to land tower Emily in terms of.
Speaker Change: Your kind of expectations for you.
Speaker Change: Renewal spreads in 'twenty five.
Speaker Change: Is there any thoughts in terms of where that may trend.
Speaker Change: And good morning Mario.
Speaker Change: Yeah, I definitely think that we will continue in Q4 kind of where we thought in Q3 and Q1, we usually get a little bit of an uptick people kind of hunker down for Q4 and start making any moves and I think it will continue all the same.
Speaker Change: Seasonality that we see every year with Q2, our strength and about the time that our peak is kind of behind us.
Speaker Change: Picking up some speed in Q3, and Q4 are probably even better. So I think we will end the year next year, probably flat on lease trade out in the Sun belt again diverse diversification as our friend next year, because New York will continue to post a 3% lift in Miami is set up for a really great year.
Speaker Change: Here as well, so but the sunbelt the flat overall with kind of a slow start Q1, and Q2, a little bit of a hockey stick in Q3 and Q4.
Speaker Change: Got it and given the relatively low rent to income ratios in your portfolio.
Speaker Change: Your thoughts in terms of renewal spreads.
Speaker Change: Renewal spreads I expect to be in the three four range next year Mario.
Speaker Change: We don't see a lot of even before when interest rates were low we didn't see a lot of how we move out.
Speaker Change: Single family homes, and so forth. So I think our renter base with over 100000.
Speaker Change: Salary range I think they are not really looking to move to single family homes, regardless of what happens there. So I think the three to four maybe five in the second part of the year will be a healthy range for renewals in 2025.
Speaker Change: Got it okay and just from a.
Speaker Change: From an accounting standpoint.
Speaker Change: Transitioning from Dallas West alone that the IPP this quarter, what was the overall ethical impact.
Speaker Change: While our results this quarter.
Speaker Change: And it kicked back to Larry.
Speaker Change: Good morning Mario.
Speaker Change: The west it was pretty flat, so 40% occupied thats not producing.
Speaker Change: Flat and NOI from producing much NOI.
Speaker Change: This quarter.
Speaker Change: Okay.
Speaker Change: NOI, but perhaps slightly negative on that vessel.
Speaker Change: Yes, I mean, we also had a bit of a decrease in capitalized interest to the projects that are not.
Speaker Change: No longer being capitalized and that will continue to decrease going forward into next quarter.
Speaker Change: But offsetting that fob be NOI growing this quarter, we didn't have any positive NOI growth from.
Speaker Change: From West Love.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Maybe switching gears to.
Speaker Change: The disposition environment kind of talk about the broader.
Speaker Change: Overall environment.
Speaker Change: Can you talk specifically about how tower in Houston, and kind of the progress Youre, making there.
Speaker Change: On the lease up of the space expected to be given back any of the implications of that progress to be linear.
Speaker Change: That would be awesome.
Speaker Change: So we have around one third of that but we have exactly one third of the building coming up in mid 2026 out of that this week. We shall have signed approximately 110000 square feet of that on a new 10 year deal expected 2026, and we're currently negotiating on another.
Speaker Change: <unk> will be 46000 square feet of space in that building I expect by 2026 that the space should be all done.
Speaker Change: Okay, and then in terms of.
Speaker Change: Echo has tower for example is a very kind of unique.
Speaker Change: Assets are situations, Paul would it be fair to say that your broader commentary.
Paul: The market in terms of Athene.
Speaker Change: Claudia and slow with it.
Speaker Change: Pertain to those offices as well or is there something specific with those offers.
<unk>.
Speaker Change: Yes.
That's a very good question because it specifically does not.
Speaker Change: Referred to those properties, there's a lot of interest today in echo simply because its grocer and its defensive it's very very conservative.
Speaker Change: My guess is by the end of next year, if not sooner we will have something done on echo and has paragon is opportunistic.
Speaker Change: I think it will be something done at <unk> as it is in a building in an a location.
Speaker Change: Just waiting right now for there's no large transactions in the office market period, but really nothing to speak of a Houston, So I'm more optimistic on Hess and Echo just due to the reasons I just mentioned and they don't fall into the general category.
Speaker Change: A low market.
Speaker Change: Got it and would would have power or essentially the leasing do you think it would have to be completed in order for the property itself.
Speaker Change: No I don't think so at all.
Speaker Change: Again, it's waiting for there is no finance ability of office in North America today.
Speaker Change: And I think theres long nature duration of that lease under the Hess.
Speaker Change: I think it could get financing I think part of the cloud around Hesse's, who is Hess is at Chevron and Exxon or as it has and if it has any one of the three what's their what's their plans for his tower, which we don't know yet because of that we can speak to that creates a cloud around trying to sell the asset or are you having interest in the asset because they just don't know what the future.
Speaker Change: Occupancy is going to look like from a.
From a cash flow perspective, it's solid, but again that puts a little bit of a cloud.
Speaker Change: One year's time, we will have the answer to those questions and I'm sure there'll be interest at that point in time, if not sooner.
Speaker Change: Got it Okay and last question is just on the <unk>.
Speaker Change: The BTB mortgage receivables there was a bit of a write down this quarter.
I have missed it but could you remind us what the remaining BTB mortgage receivable balances the average term to maturity and kind of conviction level collection.
Speaker Change: Okay.
Speaker Change: Hi.
Speaker Change: Are you asking about the remaining mortgage receivable balance we have on the property. We just sold Burnham B Thats, how big is mortgage receivable remaining I think it's about $55 million.
Speaker Change: We have 160 <unk>.
Speaker Change: On the balance sheet at September 30th $20 million, which we got repaid on October one we had our first tower in Calgary about another $20 million.
We had two or three other mortgage receivables on land in the U S for the remaining balance of a mortgage receivable.
Speaker Change: Average term for us.
Speaker Change: I'll have to get back to you on the average term I don't have that in front of me.
Speaker Change: Okay, it's around four to five years.
Speaker Change: Okay, and presumably you feel pretty comfortable with.
Speaker Change: The disclosed balance right.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thanks, guys.
Speaker Change: Thank you. The next question comes from Matt <unk> at National Bank Financial. Please go ahead.
Speaker Change: Good morning, guys.
Speaker Change: Just quickly on the office the leasing program can you can you give a sense as to how much NOI is may be generated by the development oriented assets and and how you see that NOI coming off another 53, and 55 young it sounds like youre going to demolish the building and leave it as land for a period of time, but.
Speaker Change: Just wanted to get a sense as to the earnings impact of that before you ultimately monetize it.
Speaker Change: So 53, if you could kind of scheduled for demolition I think it was around four weeks or so.
Speaker Change: We've done a deal with the tenant.
Speaker Change: It's around 145000 square feet, including 53, Oncall at 150000 square feet and was leased around $12 a square foot that was past tense.
Speaker Change: Again, we did a buyout so its slated for demolition and Melissa will take around one year.
Speaker Change: Hi, Matt and just to add on to what Tom saying for your first part of the question. We don't really breakout the office NOI between the redevelopment properties or not but we do break out the fair value of familiar can maybe you could I guess from it but the fair value of those redevelopment properties.
Speaker Change: Is around $450 million or around that for the four properties, we have downtown Toronto.
Speaker Change: And overall, we haven't broken down the NOI, but for 55 young it went it went vacant in August so for Q3, we would've had already two months or two months two months of occupancy and one month of vacancy. So there's still some to come off of Q.
Speaker Change: For that we already had part of that vacant in Q3.
Speaker Change: Okay.
Tom Hofstetter: That's very helpful and then Tom maybe in terms of the process there.
Tom Hofstetter: It sounds like Youre still going back to get rid of office replacement on a number of these properties.
Tom Hofstetter: No.
Speaker Change: What's the thought around kind of monetizing it through a sale or.
Speaker Change: Waiting until you get the approvals et cetera.
Speaker Change: So in all cases, we're going to wait for approvals with approvals I would say are going to be done by no later than the end of next year for all of these properties.
Speaker Change: 355, there'll be slated we will be demolishing it will be done within a year from now at that point in time, it will wait for the market to recover it is a phenomenal residential site, but the residential market is horrible right. Now this is going to have to wait for that there is no timing is not in the essence, we have patients for that 145, Wellington will stay the course, we adjusted in Reno.
Speaker Change: <unk> is one of the tenants to renew.
Speaker Change: Rental income will be fine over there, it's probably I would say five to 10 years, probably closer to 10 years away before we launched and we're just going through the rezoning process to put that asset to that as far as its ultimate value again, its across really Thomson Hall Ritz Carlton. It's a fantastic location. We are beautiful building the markets Theyre not there right now, but the office market for that asset is still <unk>.
Speaker Change: That won't be a problem front street is the more interesting project three towers. She will be residential one only one will probably be between storage or office or something I don't know.
Speaker Change: It's also a year away from resigning.
Speaker Change: And probably what we'll have to wait and see what the residential market looks like but ultimately that the highest and best use will be residential.
Okay, perfect and then just quickly.
Speaker Change: I'm not as familiar with the.
Speaker Change: New York City market, but can you give us a sense as to.
Speaker Change: The land and condo market.
Speaker Change: As it relates to maybe Jersey City and your recent Brooklyn purchase is it better their tone wise than what we're seeing in Toronto at the moment or are similar well pretty well safe to say that anything is better than Toronto.
Speaker Change: How's that for a starting point.
Speaker Change: One is very very very very strong there's a lot of institutional and large big money managers looking for sites that can build 1000 units.
Speaker Change: I'm locations. So one is our plan is to sell it probably in 2025, we are just waiting for some zoning issues and more environmental issues to finish off over there.
Speaker Change: That will be in high demand and we will sell for a significant dollar amount there won't be any issue with that at all Jersey is a very strong residential market again, not like Toronto Jersey, There is some development.
Speaker Change: But jersey is going to way to have to wait a little bit for interest rates to come down. It's a large project. We haven't made a decision to pull the trigger on the first phase of Jersey, which will be finished as far as planning goes within around four to five months.
That point in time, we will decide how we want to launch it I don't think we will be building. It at the market strong enough, it's waiting for interest rates to come down and Thats. The only problem in the United States market, Unlike Canada, which has a host of other affordable issues that the United States does not have the Cove and want US I think long term are good assets. One is it will be sold in 2025 and generate a lot of cash.
Speaker Change: Overweight for interest rates to come down and Toronto is wait and see.
Speaker Change: Okay perfect I appreciate the color.
Speaker Change: Okay.
Speaker Change: Thank you. The next question comes from Jimmy Chen at RBC Capital markets. Please go ahead.
Yeah, just a couple of quick follow ups on the asset sale. There's also a lot of optimism in the New York office leasing market. So.
Speaker Change: What is your confidence in your ability to transact to Boston and then Christa GETCO transaction does that have anything any implication on the sale of that car.
Speaker Change: Good questions in both regards.
Speaker Change: New York City market is it box market is much stronger than Trump again, I hate to say this is on the Canadian born and bred here, but Toronto is really really lagging North America as is Canada lagging United.
Speaker Change: United States is a big Big way, the New York Office market is getting stronger there is more importantly than that there'll be a host of probably 30% of the office product that will be weakened.
Speaker Change: We converted under the <unk> program in New York to residential and that will happen sooner rather than later I don't make the buildings that are not viable as office, which are quite frankly, a host of buildings because of the age of the buildings convertibles residential I expect the United States market to pick up dramatically to got.
Speaker Change: It is not as affected scalability, it's a 10.
Speaker Change: <unk> using isn't building completely.
Speaker Change: Perfect location for them I think it will have to wait for visibility as to our plan would be to wait and have patients is as the market recovers. We expect the tenant to stay there is just a question of what the rental rate would be so we're in no hurry to dispose of two is awesome.
Speaker Change: Wait, let's wait and see on that market, So Toronto way behind in Uruguay ahead.
Speaker Change: <unk> I'm, not losing sleep over and trying to have to wait for the residential market to improve.
Speaker Change: Echo is an interesting story to start is a game changer not only do we get covenants under get goes we also.
Speaker Change: Giant Eagle disposes of an asset class within their portfolio that was not a laggard in earnings, but what's hurting the ability to sell giant eagle as a company because the supermarket chains don't want to take on environmental responsibility, nor do they want to get into the gas business oil and gas business. So it now cleans up giant eagle it pays off all the <unk>.
Speaker Change: <unk>, John Engel becomes debt free our covenant and becomes a very high investment grade tenant, although it has no debt to shadow rating.
Speaker Change: And we started now goes to will trade like a wawa.
And the market, probably five ish cap as opposed to covering six and a half which it was under the gift though banner.
Speaker Change: Banner, so it improves all of the metrics.
Speaker Change: The ability for giant eagle to be sold and therefore the <unk>.
Speaker Change: <unk> is a lot better our value of our asset is a lot better to the covenant of our tenants better and as I said previously I do expect something to occur by the end of the no later than end of next year.
Okay, great. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you that concludes today's question and answer session I will turn the call back over for closing comments.
Speaker Change: Thanks, everybody have a good quarter.
Speaker Change: Ladies and gentlemen. This concludes your conference for today, we thank you for participating and we ask that you. Please disconnect your lines.
Speaker Change: Yes.