Q2 2025 H&R Real Estate Investment Trust Earnings Call
Speaker #3: Good morning and welcome to H&R REAL ESTATE INVESTMENT TRUST 2025 SECOND QUARTER EARNINGS CONFERENCE CALL. Before beginning the call, H&R would like to remind listeners that certain statements which may include predictions and conclusions forecast our projections in the remarks that follow may contain forward-looking information which reflects the current expectations of management regarding future events and performance and speak only as of today's date.
Operator: Good morning and welcome to H&R Real Estate Investment Trust 2025 Second Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, or projections, and the remarks that follow may contain forward-looking information which reflects the current expectations of management 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 is subject to inherent risks and uncertainties, and actual results could differ materially from the statements and the forward-looking information. 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 a meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.
Speaker #3: Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties and actual results could differ materially from the statements in the forward-looking information.
Speaker #3: 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 a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.
Speaker #3: Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability.
Operator: Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability. H&R's management uses these measures to aid in assessing the roots 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 in the forward-looking information 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 at www.cedarplus.com. I would now like to introduce Mr. Thomas J. Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter.
Speaker #3: H&R's management uses these measures to aid in assessing the roots underlying performance and provides these additional measures so that investors can do the same.
Speaker #3: Additional information about the material factors, assumptions, risks, and uncertainties that could cause actual results to differ materially from the statements in the forward-looking information, as well as 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.staterplus.com.
Speaker #3: I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter.
Speaker #4: Thank you and good morning, everybody. Thank you for joining us. Today, with me are Larry Froom, CFO for H&R REIT, and Emily Watson, the Grand Tower Residential.
Thomas J. Hofstedter: Thank you and good morning, everybody. Thank you for joining us today. With me are Larry Froom, Chief Financial Officer for H&R REIT, and Emily Watson with Ranter Residential. Larry, I guess we can start.
Speaker #4: Larry, I guess we can start.
Speaker #5: Thank you, Tom, and good morning, everyone. In my comments to follow, references to the growth and increases in operating results, unless stated otherwise, are in reference to the three-month period ended June 30, 2025, compared to the three-month period ended June 30, 2024.
Larry Froom: Thank you, Tom, and good morning, everyone. In my comments to follow, references to growth and increases in operating results, unless stated otherwise, are in reference to the three months ended June 30, 2025, compared to the three months ended June 30, 2024. We have sold $64.7 million of real estate assets in the first six months of 2025, and at June 30, 2025, we had a further $56.9 million of investment properties under contract to be sold. As at June 30, 2025, the value of our real estate assets broken down between our segments are as follows: Residential is our largest segment at 48%, Industrial 19%, Office 18%, and Retail 15%. By geography, 70% of our real estate assets by value are now located in the United States.
Speaker #5: We have sold 64.7 million of real estate assets in the first six months of 2025, and at June 30, 2025, we had a further 56.9 million of investment properties under contracts to be sold.
Speaker #5: As of June 30, 2025, the value of our real estate assets, broken down between our segments, are as follows: residential is our largest segment at 48%, industrial at 19%, office at 18%, and retail at 15%.
Speaker #5: By geography, 70% of our real estate assets by value are now located in the United States. Overall, given the headwinds we faced with multifamily supply concerns a weak office market, inflation, as well as a tariff war creating general market uncertainty, we are very pleased with our results, and in particular, the 3.4% growth in same property net operating income on a cash basis for the six months end of June 30, compared to the same period last year.
Larry Froom: Overall, given the headwinds we faced with multifamily supply concerns, a weak office market, inflation, as well as a tariff war creating general market uncertainty, we are very pleased with our results, and in particular, the 3.4% growth in same property net operating income on a cash basis for the six months ended June 30 compared to the same period last year. For the three months ended June 30, 2025, FFO was $0.314 per unit, a 2.6% increase from the same period last year. Breaking down the three months ended June 30, 2025 between our segments, the residential segment same property net operating income on a cash basis increased by 0.3% in U.S. dollars. Emily Watson will provide more details on Ranter Residential's results shortly. Our office segment same property net operating income on a cash basis increased 2%, primarily due to the strengthening of the U.S.
Speaker #5: For the three-month end of June 30, 2025, FFO was 31.4 cents per unit, a 2.6% increase from the same period last year. Breaking down the three-month end of June 30, 2025 between our segments, the residential segment same property net operating income on a cash basis increased by 0.3% in US dollars.
Speaker #5: Emily will provide more details on Land Tower's results shortly. Our office segment same property net operating income on a cash basis increased 2%, primarily due to the strengthening of the US dollar.
Larry Froom: dollar. There has been a slate of back-to-office policies from different companies, and it seems clear that more and more employees are heading back to the office, which is positive for the sector as a whole. 87.6% of our office revenue comes from investment-grade tenants, a testament to the quality and location of our office properties. Our office occupancy at June 30, 2025 was 96.8%, with an average remaining lease term of 5.5 years. Subsequent to the quarter, we sold 69 Yonge Street in Toronto for $20.2 million. At June 30, 2025, 69 Yonge Street was 81.4% occupied, with a weighted average term to maturity of 3.4 years. Our office portfolio now consists of 15 properties, which include three properties with residential rezoning opportunities. The retail segment same property net operating income on a cash basis increased by 8.2% due to occupancy gains at River Landing and foreign exchange differences.
Speaker #5: There's been a slate of back-to-office policies from different companies and it seems clear that more and more employees are heading back to the office, which is positive for the sector as a whole.
Speaker #5: 87.6% of our office revenue comes from investment-grade tenants, a testament to the quality and location of our office properties. Our office occupancy at June 30, 2025, was 96.8%, with an average remaining lease term of 5.5 years.
Speaker #5: Subsequent to the quarter, we sold 69 Yonge Street in Toronto, for 20.2 million dollars. At June 30, 2025, 69 Yonge Street was 81.4% occupied, with a weighted average term to maturity of 3.4 years.
Speaker #5: Our office portfolio now consists of 15 properties, which include three properties with residential rezoning opportunities. The retail segment same property net operating income on a cash basis increased by 8.2%, due to occupancy gains at River Landing and foreign exchange differences.
Speaker #5: The tenants in our retail portfolio are probably predominantly grocers. Our largest retail grocer at Giant Eagle sold their get-go leases to Max Convenience Stores LLC, a wholly-owned subsidiary of Elementation Kush Tard, Giant Eagle is still our largest retail grocer comprising 3.6% of our gross revenue and Max Convenience Stores now comprise 1.8% of our gross revenue.
Larry Froom: The tenants in our retail portfolio are predominantly grocers. Our largest retail grocer, Giant Eagle, sold their GetGo leases to Max Convenience Stores LLC, a wholly owned subsidiary of Alimentation Couche-Tard. Giant Eagle is still our largest retail grocer, comprising 3.6% of our gross revenue, and Max Convenience Stores now comprise 1.8% of our gross revenue. Industrial segment same property net operating income decreased 2.4%. Industrial occupancy decreased from 98.9% at December 31, 2024, to 89.9% at June 30, 2025, due to three properties totaling approximately 626,000 square feet at H&R REIT's ownership share becoming available for rent. The weighted average contractual rent on lease expiry at these three properties was $6.30 per square foot. This represents a significant opportunity to grow rents.
Speaker #5: The industrial segment's same property net operating income decreased 2.4%. Industrial occupancy decreased from 98.9% at December 31, 2024, to 89.9% at June 30, 2025, due to three properties totaling approximately 626,000 square feet at H&R's ownership share becoming available for rent.
Speaker #5: The weighted average contractual rent on lease expiry at these three properties was $6.30 per square foot, thus represents a significant opportunity to grow rents.
Speaker #5: In addition, the redevelopment of our former office property at 6900 Maritz Drive, Mississauga, into a 122,000 square foot industrial building was completed, and transferred from property under development to investment properties.
Larry Froom: In addition, the redevelopment of our former office property at 6900 Merritt's Drive, Mississauga, into a 122,000 square foot industrial building was completed and transferred from property under development to investment properties. This property is also currently available for lease. Industrial properties located in the GTA made up 69% of H&R REIT's industrial portfolio as at June 30, 2025. I would like to reiterate our headline FFOs per unit for the six months ended June 30, 2025, which was $0.61 per unit compared to $0.60 for the same period last year. We are pleased with these results as we have sold $470 million of revenue-producing properties in the 18 months since January 1, 2024. Our FFO payout ratio was a healthy 49.2% for the six months ended June 30, 2025, and our AFFO payout ratio was also healthy at 59.4%. Our balance sheet remains strong.
Speaker #5: This property is also currently available for lease. Industrial properties located in the GTA made up 69% of H&R's industrial portfolio as of June 30, 2025.
Speaker #5: I would like to reiterate our headline FFO for the per unit for the six months end of June 30, 2025, which was 61 cents per unit compared to 60 cents for the same period last year.
Speaker #5: We are pleased with these results, as we have sold $470 million of revenue-producing properties in the 18 months since January 1, 2024. Our FFO payout ratio was a healthy 49.2% for the six months ended June 30, 2025, and our AFFO payout ratio was also healthy at 59.4%.
Speaker #5: Our balance sheet remains strong. Debt to total assets at the REIT's proportion of shares as of June 30, 2025, was 45.5%, and debt to EBITDA was 9.2 times.
Larry Froom: Debt to total assets at the risk proportionate share June 30, 2025, was 45.5%, and debt to EBITDA was 9.2 times. Our unencumbered property pool totaled approximately $4.3 billion. Our unencumbered assets to unsecured debt coverage ratio was 2.2 times at June 30, 2025. Regarding the special committee process, the special committee of independent trustees, together with its financial and legal advisors, continues to evaluate value-maximizing alternatives and determine the best path forward for the REIT and its unitholders. The special committee was formed in February 2025 following receipt of an unsolicited expression of interest. Since that time, it has received additional interest and is currently engaged in discussions with multiple parties. The REIT continues to believe in the long-term strategy, including the strategic repositioning plan, and the board will only pursue a potential transaction that is in the best interests of the REIT and its unitholders.
Speaker #5: Our unencumbered property pool totaled approximately 4.3 billion dollars. Our unencumbered asset to unsecured debt coverage ratio was 2.2 times at June 30, 2025. Regarding the special committee process, the special committee of independent trustees together with its financial and legal advisors continues to evaluate value maximizing alternatives and determine the best four path forward for the REIT and its unit holders.
Speaker #5: The special committee was formed in February 2025 following receipt of an unsolicited expression of interest. Since that time, it has received additional interest and is currently engaged in discussions with multiple parties.
Speaker #5: The REIT continues to believe in the long-term strategy, including the strategic repositioning plan and the board will only pursue a potential transaction that is in the best interests of the REIT and its unit holders.
Larry Froom: At this time, there is no certainty that a transaction will result, nor is there a defined timeline for the process to conclude. During the three and six months ended June 30, 2025, H&R REIT incurred $8.7 million in transaction costs related to the potential transaction, which primarily consists of legal and advisor fees for the REIT and the special committee of independent trustees. With that, I will turn the call over to Emily Watson for an update on the Ranter Residential segment.
Speaker #5: At this time, there is no certainty that a transaction will result, nor is there a defined timeline for the process to conclude. During the three and six months end of June 30, 2025, H&R incurred 8.7 million in transaction costs related to the potential transaction which primarily consists of legal and advisor fees for the REIT and the special committee.
Speaker #5: With that, I will turn the call over to Emily for an update on the Land Tower residential segment.
Speaker #6: Thank you, Larry, and good morning, everyone. I'll begin with an overview of our second quarter performance and then highlight key operational trends across our multifamily platform.
Emily Watson: Thank you, Larry, and good morning, everyone. I will begin with an overview of our Q2 performance and then highlight key operational trends across our multifamily platform. Despite a continued backdrop of elevated supply in several Sunbelt markets, our portfolio has demonstrated resilience driven by strong resident retention, disciplined expense management, and steady occupancy across our core markets. Operating conditions across our portfolio are progressing as we expected. Our markets continue to experience strong demand for household formation driven by population, employment growth, apartment affordability, and positive demographic trends. Rent-to-income ratios remain stable around 20%, with renting averaging 60% less expensive than home ownership. Our high-earning securely employed renter base continues to drive strong housing performance. Same property net operating income on a cash basis from residential properties in U.S. dollars increased 30 basis points for the three months ending June 30, 2025, compared to the respective 2024 period.
Speaker #6: Despite a continued backdrop of elevated supply in several Sunbelt markets, our portfolio has demonstrated resilience driven by strong resident retention, disciplined expense management, and steady occupancy across our core markets.
Speaker #6: Operating conditions across our portfolio are progressing as we expected. Our markets continue to experience strong demand for household formation driven by population employment growth, apartment affordability, and positive demographic trends.
Speaker #6: Rent-to-income ratios remain stable around 20%, with renting averaging 60% less expensive than home ownership. Our high-earning securely employed renter base continues to drive strong housing performance.
Speaker #6: Same property net operating income on a cash basis from residential properties and US dollars increased 30 basis points for the three months ending June 30, 2025, compared to the respective 2024 period.
Speaker #6: Same asset occupancy ended the quarter at 93.7 points decrease over the first quarter and a 90 basis points decrease change from Q2 of 2024.
Emily Watson: Same asset occupancy ended the quarter at 93.7%, a 70 basis points decrease over the Q1 and a 90 basis points decrease change from Q2 of 2024. Same asset occupancy in the Sunbelt decreased 89 basis points in Q2 to 92.8% over the Q1. Jackson Park ended the quarter at 98.6% occupied with 73% retention. Our Sunbelt resident retention was 57% in Q2, and a blended lease tradeout for the Sunbelt markets were negative 1.4% in the Q2, an improvement of 70 basis points over the Q1. These results demonstrate continued increasing momentum as supply decreases. Moving to our fair market value, based on recent sales comparisons, our fair market value capitalization rate for the Sunbelt residential portfolio stayed at 4.96%, which was further supported by a third-party appraisal received in Q2. Institutional quality multifamily assets located in the Sunbelt are expected to continue trading at comparatively compressed cap rates.
Speaker #6: Same asset occupancy in the Sunbelt decreased 89 basis points in Q2 to 92.8% over the first quarter. Jackson Park ended the quarter at 98.6% occupied with 73% retention.
Speaker #6: Our Sunbelt resident retention was 57% in Q2, and the blended lease trade-out for the Sunbelt markets was negative 1.4% in the second quarter, showing an improvement of 70 basis points over the first quarter.
Speaker #6: These results demonstrate continued increasing momentum as supply decreases. Moving to our fair market value, based on recent sales comparisons, our fair market value capitalization rate for the Sunbelt residential portfolio stayed at 4.96%, which was further supported by a third-party appraisal received in Q2.
Speaker #6: Institutional quality multifamily assets located in the Sunbelt are expected to continue trading at comparatively compressed cap rates. This is largely due to sustained investor demand and a strong preference among capital allocators for long-term exposure to the Sunbelt, where population growth, job migration, and favorable business climates support a durable investment thesis.
Emily Watson: This is largely due to sustained investor demand and a strong preference among capital allocators for long-term exposure to the Sunbelt, where population growth, job migration, and favorable business climates support durable investment thesis. Turning to developments, both Dallas properties, Ranter West Love and Ranter Midtown, continue to outperform the competitor market absorption. Ranter West Love is currently 72% occupied and 77% leased. Ranter Midtown is currently 72% occupied and 76% leased. Both properties have averaged a monthly velocity of approximately 23 leases per month compared to industry reports of 14 per month over the same time period. On the residential front, construction is progressing well, and both projects remain on budget with completion expected in mid-2026. Ranter currently has an additional nine development projects in the Sunbelt pipeline totaling over 2,900 suites at H&R's ownership interest, with multiple sites ready and prepared for construction.
Speaker #6: Turning to developments, both Dallas properties Land Tower West Love and Land Tower Midtown continue to outperform the competitor market absorption. Land Tower West Love is currently 72% occupied and 77% leased, and Land Tower Midtown is currently 72% occupied and 76% leased.
Speaker #6: Both properties have averaged a monthly velocity of approximately 23 leases per month, compared to industry reports of 14 per month over the same time period.
Speaker #6: On the Reddit front, construction is progressing well, and both projects remain on budget, with completion expected in mid-2026. Land Tower currently has an additional nine development projects in the Sunbelt pipeline, totaling over 2,900 suites at H&R's ownership interest, with multiple sites ready and prepared for construction.
Speaker #6: In summary, we are encouraged by strong demand as demonstrated by our high retention levels and renewal increases as well as record high absorption through the first half of the year, and pronounced declining supply levels going into the second half of the year.
Emily Watson: In summary, we are encouraged by strong demand as demonstrated by our high retention levels and renewal increases, as well as record high absorption through the first half of the year and pronounced declining supply levels going into the second half of the year. These improving market conditions are coupled with an engaged and focused team. Ranter Residential was awarded Fortune's Best Workplaces in Texas for the second year in a row. This prestigious award is based entirely on anonymous feedback from our associates, and we are proud of their engagement and laser focus while navigating challenging market conditions. I want to thank the Ranter team for their continued commitment to excellence. With that, I will turn the conversation back to Thomas J. Hofstedter.
Speaker #6: These improving market conditions are coupled with an engaged and focused team. Land Tower Residential was awarded Fortune's Best Workplaces in Texas for the second year in a row.
Speaker #6: This prestigious award is based entirely on anonymous feedback from our associates, and we are proud of their engagement in laser-focused efforts while navigating challenging market conditions.
Speaker #6: I want to thank the Land Tower team for their continued commitment to excellence. And with that, I'll turn the conversation back to Tom.
Speaker #5: Thanks, Emily. After you can open up the call for questions, please.
Thomas J. Hofstedter: Thanks, Emily. Officer, you can open up the call for questions, please.
Speaker #3: 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 touchstone phone.
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. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Fred Londo at Green Street. Please go ahead.
Speaker #3: You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two.
Speaker #3: And if you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Fred Londo at Green Street.
Speaker #3: Please go ahead.
Speaker #7: Thank you. And good morning. Just going back to the July 4th press release you mentioned that you've been made aware of speculations, but at the same time, you formed a special committee in February.
Fred Londo: Thank you, and good morning. Going back to the July 4th press release, you mentioned that you have been made aware of speculations, but at the same time, you formed the special committee of independent trustees in February. Before it was leaked out, what was the board's views on the action plan, especially in terms of communication once the committee was created?
Speaker #7: So, before it was leaked out, what was the board's view on the action plan, especially in terms of communication once the committee was created?
Speaker #5: Good morning, Fred.
David Brown: Good morning.
Speaker #7: Okay, Larry, you take it.
Thomas J. Hofstedter: Okay, guys, let me take it.
Speaker #5: Yeah, Fred, we really can't give any more detail than what we said and laid out in our notes. The special committee was formed in February.
Larry Froom: Fred, we really cannot give any more detail than what we said and laid out in our notes. The special committee of independent trustees was formed in February. At that time, it was formed when we received the intention of interest. We followed all the securities and laws that we should be doing. There is nothing more that we can really say on the special committee process at this time.
Speaker #5: At that time, it was formed when we received the intention of interest and followed all the securities and laws that we should be doing.
Speaker #5: So there's nothing more that we can really say on the special committee process at this time.
Speaker #7: Oh, okay. And then maybe you won't be able to answer that one, but I was wondering if you could speak on the original unsolicited bid or bids and why you decided not to disclose them to unit holders.
Fred Londo: Okay. Then maybe you will not be able to answer that one, but I was wondering if you could speak on the original unsolicited bid or bids and why you decided not to disclose them to unitholders. Were those bids deemed uncompetitive at the time?
Speaker #7: So, were those bids deemed uncompetitive at the time?
Speaker #5: Again, Fred, we can't disclose anything more than we've already disclosed. It's a normal course to entertain dealing with the party once you receive a bid.
Larry Froom: Again, Fred, we cannot disclose anything more than we have already disclosed. It is a normal course to entertain dealing with the party once you receive a bid. The path that we followed is a normal course of action that any REIT and any other company will take.
Speaker #5: And the part that we followed is a normal course of action that any REIT and any other company would have taken.
Speaker #7: Okay, thank you. I'll turn it back.
Fred Londo: Okay. Thank you. I will turn it back.
Speaker #3: Thank you. The next question comes from Mario Saric at Scotia Bank. Please go ahead.
Operator: Thank you. The next question comes from Mario Saric at Scotiabank. Please go ahead.
Speaker #8: Great. Thank you for taking the questions. Maybe the first one for Tom. Broadly speaking, how would you characterize the transaction, the broader private transaction market today relative to three months ago?
Mario Saric: Great. Thank you for taking the questions. Maybe the first one for Thomas J. Hofstedter. Broadly speaking, how would you characterize the transaction, the broader private transaction market today relative to three months ago?
Speaker #5: The transaction market means not leasing with sales. It's improved. There's a little bit more liquidity. The United States has more activity. Offices are basically still at zero.
Thomas J. Hofstedter: The transaction market, being not leasing with sales, has improved. There is a little bit more liquidity. The United States has more activity. Office is basically still zero. Residential is picking up in the United States. As Emily Watson talked to the 5% over the caps, we have seen evidence of that. Industrial has slowed. Overall, the short timeframe we are talking about, I would say on balance, it is pretty much the same. The United States, I would say, has much more activity than Canada does. A lot of that is driven by their 1031, which we do not have over here. I would say over here, it is almost the same. The United States improved.
Speaker #5: Residential is picking up. In the United States, as Emily talked about, the 5% with caps, we have seen evidence of that. Industrial has slowed. Overall, in the short timeframe we're discussing, I would say, on balance, it's pretty much the same.
Speaker #5: There's, you know, the United States, I would say, has much more activity than Canada. A lot of that's driven by their 1031s, which we don't have over here.
Speaker #5: I would say, over here, it's almost the same. The United States improved.
Speaker #8: Got it. Okay. And then just on the back of that, can you maybe talk— I know you mentioned offices, a zero for the most part— but can you talk about the implications of the HES Chevron transaction approval on the prospect of selling HES Tower in Houston and similarly kind of the leasing progress that you're making there?
Mario Saric: Got it. Okay. On the back of that, can you maybe talk about the implications of the Hess Chevron transaction and approval on the prospect of selling Hess Tower in Houston? Similarly, can you talk about the leasing progress that you are making there?
Speaker #5: Okay, so HES, we have reached out to them; they reached out to us, actually, the HES/Chevrons team in charge of it. It was an informative conversation.
Thomas J. Hofstedter: Okay. Yes, we have reached out to the—they reached out to us, actually, the Hess/Chevron team in charge of it. It was an informative conversation. They have, as you probably well know, laid off around 500 people from Hess, but that is not directly from our office. They have told us by the end of this year they will conclude what, if any, square footage they are going to be keeping in the Hess Tower. My guesstimation is that between now and then, there will be an opportunity for us to discuss whether they want a lease buyout or whether they want to take space or how they want to handle it because we share conference facilities, we share restaurants and fitness facilities, which are much more important in the Houston market than they are in the Toronto market. That has to be dealt with.
Speaker #5: They have, as you probably well know, laid off around 500 people from HES, but that's not directly from our office. They have told us by the end of this year they'll conclude what the, if any squared keeping in the HES Tower.
Speaker #5: My guesstimation is that between now and then, there'll be an opportunity for us to discuss whether they want to lease buyout or whether they want to take space or how they want to handle it, because we share conference facilities, we share restaurants and fitness facilities, which are much more important in the Houston market than they are in the Toronto market.
Speaker #5: So, that has to be dealt with. I expect there has been a lot of interest on the acquisition front regarding the HES, and we are reluctant right now to sell the property only because, at the end of the day, people are going to be waiting for the answer.
Thomas J. Hofstedter: There has been a lot of interest on the acquisition of Fontana Hess. We are reluctant right now to sell the property only because people are going to—at the end of the day, we are going to be waiting for the answer of what is Chevron's final intentions. If there is a buyout, we would want to monetize on that. I would say that I do not have a lot of clarity. We have communication. The asset is an A asset in the market, which there is very little contiguous A space on the market. We are dealing with the subtenants to extend them, and I expect that our third will be substantially leased by expiry in June 2026. Long term, I would like a little more clarity from Chevron before we put it on the market.
Speaker #5: What does Chevron's final intentions and if there is a buyout, we'd want to monetize on that. So I would say that I don't have a lot of clarity.
Speaker #5: We have communicated that the asset is an A asset in the market, for which there's very little contiguous A space available. We are dealing with the subtenants to extend their leases, and I expect that our third will be substantially leased by the expiry in June 2026.
Speaker #5: But again, long-term, I would like a little more clarity from Chevron before we put it on the market.
Speaker #8: Got it. Okay. My last question: can you just maybe walk through the justification behind the fairly sizable 9% IFRS NAB drop, of which I estimate about 6% was office and land PUD?
Mario Saric: Got it. My last question, can you just maybe walk through the justification behind the fairly sizable 9% IFRS NAV drop, of which I assume about 6% was Office and land PUD?
Speaker #5: Sure. Hi, Mary. I can take that question. So, just comparing to last quarter, we had a $280 million fair value adjustment down, so that's $1 a share.
Larry Froom: Sure. Hi, Mario. I can take that question. If I am just comparing to last quarter, we had a $280 million fair value adjustment down. That is $1 a share. The balance of the differences also came from foreign exchange, our Canadian dollar getting weaker. When we are translating the U.S. dollar properties back into Canadian dollars, that dropped. That was a difference. There are two large differences in the NABs. As far as the further write-downs go in terms of the $280 million fair value adjustment that we took, the bulk of it was in our office properties. Most of it came from our office re-intensification or redevelopment opportunities into residential, where from last quarter, we were valuing the residential development opportunities at $140 a square foot, and we dropped that down to $120 a square foot. The bulk of the office came from there.
Speaker #5: And the balance of the difference also came from foreign exchange, with the Canadian dollar getting weaker. So when we translate the U.S. dollar properties back into Canadian dollars, that dropped.
Speaker #5: So that was a difference, the two large differences in the NAB. As far as the further write-downs go, in terms of the $280 million fair value adjustment that we took, the bulk of it was in our office properties, and most of it came from our office re-intensification or redevelopment opportunities into residential.
Speaker #5: From last quarter, we were valuing the residential development opportunities at $140 a square foot, and we dropped that down to $120 a square foot.
Speaker #5: The bulk of the office came from there. The other differences in the rest of the sectors were kind of smaller. Just maybe taking into account lower market rents in industrial dropping or longer vacancy periods for the three industrial properties that became available for lease during the quarter.
Larry Froom: The other differences in the rest of the sectors were smaller, just maybe taking into account lower market rents in industrial dropping or longer vacancies periods for the three industrial properties that became available for lease during the quarter.
Speaker #8: Got it. Okay. And the 140 to 120, that's simply a function of select trades, which I don't think there have been many, or is it simply reflecting lower kind of residential that's going forward?
Mario Saric: Got it. Okay. The $140 to $120, that is simply a function of select trades, which I do not think there have been many, or is it simply reflecting lower kind of residential that is going forward?
Speaker #5: It's reflecting lower residential values; there have been no trades that are at the size of square footage that we have. So we just took it down arbitrarily.
Thomas J. Hofstedter: Real Estate Development Trust. There has been no trades at the size of square footage that we have. So we just took it down arbitrarily. There have been trades at the 200,000 square foot price ranges. Prices have come down. They are structured deals. So we had to take it down by something. So we picked an amount that is not supported by trades, but an amount supported by market conditions.
Speaker #5: There have been trades at the 200,000 square foot price ranges, prices have come down. They're structured deals, so we had to take it down by something.
Speaker #5: So we picked an amount that's not supported by trades, but by the amount supported by market conditions.
Speaker #8: Got Got it. Okay. Thanks, guys.
Mario Saric: Got it. Okay. Thanks, guys.
Speaker #3: Thank you. The next question comes from Matt Kornak at National Bank Financial. Please go ahead.
Operator: Thank you. The next question comes from Matt Cornack at National Bank Financial. Please go ahead.
Speaker #9: Morning, guys. Just quickly on the line of credit or operating lines of credit, it seems like you've been drawing there. Is that just to maintain flexibility?
Mario Saric: Morning, guys. Just quickly on the line of credit or operating lines of credit that you have, it seems like you have been drawing there. Is that just to maintain flexibility? Spreads seem to have come in on an unsecured basis, and the underlying is relatively attractive. Is that just awaiting clarity out of this process and then maybe do longer-term financing thereafter?
Speaker #9: I mean, spreads seem to have come in on an unsecured basis. And the underlying is relatively attractive. So is that just a waiting clarity out of this process and then maybe you do longer-term financing thereafter?
Speaker #5: Morning, Matt. It's Larry. Yes, the liquidity has been drawn down. Our credit lines have been used. We used $400 million of them to pay off the debentures that came due in June.
Larry Froom: Morning, Matt. It's Larry Froom. Yes, the liquidity has been drawn down. Our credit lines have been used. We used $400 million of them to pay off the debentures that came due in June and another mortgage residential in the U.S. Yes, that is awaiting clarity on the process before we proceed with the longer-term financing.
Speaker #5: And another mortgage residential in the U.S. And yes, it is waiting clarity on the process before we proceed with a longer-term financing.
Speaker #9: Fair enough. And then can you give a sense as to how much natural hedge you have against kind of US assets in terms of UST-denominated debt, or is it mostly Canadian at this point?
Mario Saric: Fair enough. Can you give a sense as to how much natural hedge you have against USD assets in terms of USD denominated debt, or is it mostly Canadian at this point?
Speaker #5: No. No. Well, most of our secured mortgages are in the U.S., which has been the residential portfolio. So most of the residential properties have mortgages on them.
Larry Froom: Most of our secured mortgages are in the U.S., which would be in the residential portfolio. Most of the residential properties have mortgages on them. I think there are two or three properties that do not at this time, but the rest of them do have. They started out when we acquired them at a 65% loan-to-value. Both through principal amortization payments have been probably drawn down quite a bit. So they are probably 50% or lower in terms of the LTV today. The rest of our credit facilities and debentures are all in Canadian dollars on the Canadian side. So it is more corporate debt on the Canadian side, and most of the mortgages would be on the U.S. side.
Speaker #5: I think there are two or three properties that do not, at this time, but the rest of them do have. They started out when we required them at a 65% loan-to-value, go through principal amortization payments, and have probably drawn down quite a bit.
Speaker #5: So they're probably at 50% or lower in terms of LTV today. And then again, the rest of our credit facilities and dementias are all in Canadian dollars on the Canadian side.
Speaker #5: So it's more corporate debt on the Canadian side. And most of the mortgages would be on the US side.
Speaker #9: And then this quarter, it seemed like there was a sizable fee income item from the development fund. Is that one-time in nature, or should we expect kind of ongoing higher fees from that platform?
Mario Saric: This quarter, it seemed like there was a sizable fee income item from the development fund. Is that one-time in nature, or should we expect ongoing higher fees from that platform?
Speaker #5: Right. Our trust expenses were lower this quarter due to the third-party fees that we earned. Third-party fees earned, we earned property management fees, which are property pretty much consistent.
Larry Froom: Our trust expenses were lower this quarter due to the third-party fees that we earned. Third-party fees earned, we earned property management fees, which are probably pretty much consistent. The other kind of fees that we earned from all our joint venture partners are like leasing fees, development fees, which may be consistent, and financing fees. The leasing and financing fees could jump around quarter to quarter. This quarter, the H&R REIT did contribute an extra $2 million for a financing fee. That was unusual. There was one other unusual item in the rest of the third-party management fees totaling about $1 million. I would say in total, $3 million is variable, which was higher than last quarter, put it that way. They do jump around depending on when leasing is done and when financing is done.
Speaker #5: But the other kind of fees that we earned from all our joint venture partners, which are like leasing fees, development fees, which may be consistent, and financing fees.
Speaker #5: So the leasing and financing fees could jump around quarter to quarter. This quarter, the Reddit did contribute an extra $2 million for the financing fee.
Speaker #5: So, that was unusual. And there was one other unusual item in the rest of the third-party management fees, totaling about $1 million. So I would say, in total, $3 million is variable, which is higher than last quarter, put it that way.
Speaker #5: But they do jump around depending on when leasing is done and when financing is done.
Speaker #9: Perfect. That's helpful. And then maybe two quick last ones. One, there was no disclosure on lease termination income, so I'm assuming there wasn't any.
Mario Saric: Perfect. That is helpful. Maybe two quick last ones. There was no disclosure on lease termination income, so I am assuming there was not any. On the industrial portfolio, it seems like there is a big mark-to-market opportunity there. Obviously, the market is a little bit slower from a leasing standpoint. Can you give us a sense as to how you see the lease-up taking place, maybe a bridge or timing-wise in terms of how we should see occupancy in that segment improve over the next 12 months?
Speaker #9: And then maybe on the industrial portfolio, it seems like there's a big mark-to-market opportunity there. Obviously, the market's a little bit slower from a leasing standpoint.
Speaker #9: But can you give us a sense as to how you see the lease-up taking place? Maybe a bridge or timing-wise in terms of how we should see occupancy in that segment improve over the next, call it, 12 months?
Speaker #5: Sure, Matt. There was no significant termination fee income; I don't think there was any. For Q3, as far as the lease-up, nothing. Oh, sorry, for Q2, being contracted, yeah.
Larry Froom: Sure, Matt. There was no significant termination fee income. I do not think there was any for Q3. As far as the lease-up, doing nothing. Oh, sorry, for Q2. Getting contracted. Yeah, thank you, guys. No termination fee income for Q2. For the lease-up of industrial, I think it is an opportunity we have right now. We have a lot of interest in the three new builds that we have just completed that are on Slate Drive. We have about 500,000 square feet from the two properties there that we have interest in. We are hoping to be able to conclude a lease on that soon. We have our former office property that is now ready for lease in Merritt's that also has interest.
Speaker #5: Thank you, guys. No termination fee income for Q2. For the lease-up of the industrial, I think it's an opportunity we have right now. We have a lot of interest in the two or three new buildings that we've just completed.
Speaker #5: That is on Slate Drive. We have about 500,000 square feet from the two properties there that we have interest in. We're hoping to be able to conclude a lease on that soon.
Speaker #5: We have our former office property that is now ready for lease in Maritz, which has also garnered interest. The rest of the properties that were HBC properties may take more time, as they are larger and older, so we expect that it will take longer to lease up.
Larry Froom: The rest of the lease that, you know, the HBC property may take more time. It is larger and an older property, so we are expecting that will take longer to do to lease up. Overall, the new properties, the new developments all should start to, we should have a lease and start to be producing cash flow pretty soon.
Speaker #5: But overall, you know the new properties, the new developments will should start to we should have a lease and start to be producing cash flow pretty soon.
Speaker #9: Okay. Thanks for the color, guys.
Mario Saric: Okay. Thanks for the call, guys.
Speaker #3: Thank you. The next question comes from Jimmy Shen at RBC Capital Markets. Please go ahead.
Operator: Thank you. The next question comes from Jimmy Shen at RBC Capital Markets. Please go ahead.
Speaker #9: Thank you. Just a quick follow-up on the asset breakdown. Given the lack of transactions, I guess I'm wondering if your views on where the values are also informed by where the bids may have come in at?
Jimmy Shen: Thank you. Just a quick follow-up on the asset breakdown. Given the lack of transaction, I guess I am wondering if your views on where the values are also informed by where the bids may have come in at. In other words, you are using $120 a foot available for Office and what before you wind out $100 and wind out $110 and just how, what was the thinking there? The write-down, I think there was also, it was also relating to the Residential Land Bank. I just want to clarify that as well.
Speaker #9: In other words, like you know you're using 120 a foot available for office to 141 out of 100, and why not 110? And just sort of how you know, what was the thinking there?
Speaker #9: And then the write-down, I think there was also relating to the residential land bank. I'm just going to clarify that as well.
Speaker #5: Okay, I'll take that in reverse, Jimmy. Thank you. The residential land bank was not mentioned earlier. The residential land bank we did write down.
Larry Froom: I will take that in reverse, Jimmy. Thank you. The Residential Land Bank I did not mention earlier. The Residential Land Bank we did write down. It was not a substantial write-down, but there are numerous land parcels that we have. So each one may be taking a $3 million to $5 million write-down, added up to the $50 million write-down that we see. We valued it on average for the residential land came out to about $38,000 per door. So that is what we are currently carrying those at. As far as your first part of the question in terms of the $120 a square foot, I think Matt is on the line. Matt, do you want to give Jimmy some more color on that?
Speaker #5: It wasn't a substantial write-down, but the numerous land parcels that we have for each one may be taking a $3 million to $5 million write-down, which added up to the $50 million write-down that we see.
Speaker #5: We valued it on average for the residential land at about $38,000 per door. So, that's what we're currently carrying on the books at.
Speaker #5: As far as the first part of the question in terms of the $120 per square foot, I think Matt is on the line.
Speaker #5: Matt, do you want to give Jimmy some more color on that?
Speaker #7: Yeah, absolutely. Morning, Jimmy. As Tom was saying earlier, the trades that we're seeing are pretty few and far between. The only one that was around 260,000 square feet that transacted this year through call years was a private developer who sold to Cartera, a Queen Endowment.
Matt Cornack: Yeah, absolutely. Morning, Jimmy. We're, as Thomas J. Hofstedter was saying earlier, the trades that we're seeing are pretty few and far between. The only one that was around 260,000 square feet that transacted this year through Colliers was a private developer who sold to Cartera at Queen and Dublin. It was an approved site, fully baked, and that traded for $117 a foot. Total deal size was just around $27 million. We think, obviously, that's not as large as our properties, and it's also not as good a location as our properties. We're seeing very long terms on things. We have had people approach us. I think that that dollar per square foot, just talking to colleagues, talking to other people, that seems somewhat appropriate, but it would include long terms.
Speaker #7: It was an approved site, fully baked, and that traded for $117 a foot. The total deal size was just around $27 million. We think, obviously, that's not as large as our properties, and it's also not as good a location as our properties.
Speaker #7: But we're seeing very long terms on things. We have had people approach us, and I think that that dollar per square foot, just talking to colleagues, talking to other people, that seems somewhat appropriate, but it would include long terms.
Speaker #7: So, we think we have very well-located assets that carry a higher value than the Queen Endowment, but the size of them creates a discount.
Matt Cornack: We think we have very well located things that carry a higher value than the Queen and Dublin, but the size of them creates a discount. The likelihood of a transaction with no terms is 0% today. Somebody would want to see a large VTB.
Speaker #7: And then, you know, the likelihood of a transaction with no terms is 0% today. Somebody would want to see a large VTB.
Speaker #9: Okay. So, hearing all of that, I guess it's fair to say that your views on where the values are—where you've marked it at—were not informed by where the bids are.
Jimmy Shen: Okay. Hearing all of that, I guess it is fair to say that your views on where the values are, where you are marketed at, were not informed by where the bids are overall.
Speaker #9: Overall.
Speaker #5: Exactly. No, I think they are, Jimmy. I think we're being reasonable with what we're putting our values at. It's just difficult because people with projects as good as ours are not trading them today.
Matt Cornack: No, I think they are, Jimmy. I think we are being reasonable with what we are putting our values at. It is just difficult because people with projects as good as ours are not trading them today. Like us, we are not willing to take that larger discount.
Speaker #5: Like us, we're not willing to take that large a discount.
Speaker #9: Okay. Sorry. What I meant was just.
Jimmy Shen: What I meant was.
Speaker #5: No, the differential is, it's not condo, Jimmy. Our lands are primarily condo or mixed. What's trading is really residential rental. Residential rental is lower, of course.
Larry Froom: Jimmy, the differential is it is not condo, Jimmy. Our lands are primarily condo or mixed. What is trading is really residential rental. Residential rental is lower, of course. But for residential condo, you are going to have to wait for the condo market to come back somewhere.
Speaker #5: So, if residential condos, you're going to have to wait for the condo market to come back somewhat.
Speaker #9: Yeah. Yeah. What I meant was when I said bids is when in terms of the unsolicited bids and the different proposals that you're getting from different parties, as part of the special committee review, those values that have come in, whether it's the specific, you know, whether it's in the office in Toronto, or other parts, where you've ultimately marked those assets today, are not necessarily you haven't taken those proposals and bids into consideration.
Jimmy Shen: Yeah, yeah. What I meant was when I said bids is when in terms of the unsolicited bids and the different proposals that you're getting from different parties as part of the special committee review, those values that have come in, whether it's the specific, you know, whether it's in the office in Toronto or other parts, where you've ultimately marked those assets today, you haven't taken those proposals and bids into consideration.
Speaker #5: Correct.
Larry Froom: Correct.
Speaker #9: Okay. And then the 8.7 million dollars have been spent on legal and advisor fees. You know, it's not a small number. Is the special committee work, is it relating solely to the review of the proposals that have come in?
Jimmy Shen: Okay. The $8.7 million that has been spent on legal and advisor fees, it is not a small number. Is the special committee work relating solely to the review of the proposals that have come in, or is the work wider in scope, a change in strategy or anything like that?
Speaker #9: Or is the work wider in scope? A change in strategy or anything like that?
Speaker #5: Jimmy, I'll take that. Well, you know, I can't really answer much more. And like we said, the fees that we spent to date, 8.7 million, consist primarily of legal and advisor fees for the REIT and the special committee.
Larry Froom: Jimmy, I'll take that. I can't really answer much more than what we said. The fees that we spent to date, $8.7 million, consist primarily of legal and advisor fees for H&R REIT and the special committee. H&R REIT and the special committee will continue to seek value-maximizing alternatives and determine the best path forward for H&R REIT and its unitholders. Just as a comparison for the $8.7 million that we've spent to date, I looked up yesterday, I think Interent had $6.5 million spent to June 30th. They still probably have a way to go, and that's on a company with assets of $4 billion. If you look further back to Commoner, they spent $43 million on professional fees, and that is on a $6 billion company. So our $8.7 million, I think, is kind of in line.
Speaker #5: The REIT and the special committee will continue to seek value maximizing alternatives and determine the best path forward for the REIT and its unit holders.
Speaker #5: But just as a comparison, for the 8.7 million that we spent to date, I looked up yesterday, I think Interrent had 6.5 million spent to June 30th.
Speaker #5: And they still probably have a way to go, and that's on a 4 billion dollar company asset with assets of 4 billion dollars. If you look further back to Commonor, they spent 43 million on banker and professional on, sorry, on professional fees.
Speaker #5: And that is on a 6 billion dollar company. So our 8.7 million, I think, is kind of in line.
Speaker #9: Okay. Last question. The various asset sales we've been speaking about in the past, whether it's Brooklyn, Caledon, Echo, are those initiatives sort of on hold until you you know, you're waiting on the outcome of a strategic review or you know, or are they still ongoing?
Jimmy Shen: Last question. The various asset sales we have been speaking about in the past, whether it is Brooklyn, Caledon, Echo, are those initiatives on hold until you are waiting on the outcome of a strategic review, or are they still ongoing?
Speaker #5: They're—we slowed them down, let's put it that way. They're not on hold, but we have gone slow.
Larry Froom: We slowed them down, let us put it that way. They are not on hold, but we have gone slow.
Speaker #9: Okay. And sorry, last one. You mentioned there's no defined timeline on when the process will conclude. If and when it is concluded, I'm assuming there'll be a press release?
Jimmy Shen: Okay. Sorry, last one. You mentioned there's no defined timeline on when the process will conclude. If and when it is concluded, I am assuming there will be a press release to that effect.
Speaker #9: Does that affect?
Speaker #5: Of Of course.
Larry Froom: Of course. Yes, obviously.
Speaker #9: Yes, obviously.
Speaker #5: Yeah. 100%. You'll definitely be the last to know, Jimmy. Don't worry about it.
Jimmy Shen: Yeah.
Larry Froom: 100%. You will definitely be the last to know, Jimmy. Do not worry about it.
Speaker #9: I'll be the last to know. Thank you. Thanks.
Jimmy Shen: will be the last to know. Thank you.
Speaker #3: Thank you. The next question comes from Sam Damiani at TD Cowen. Please go ahead.
Operator: Thank you. The next question comes from Sam Damiani at TD Cowen. Please go ahead.
Speaker #7: Thanks. Good morning. First one for me, just to sort of expand on a little bit of the discussion with Jimmy there. You know, some of these transactions or files Echo, Galvanus, Cowen, whatever, they're not on hold, but Tom, you've slowed them down.
Sam Damiani: Thanks. Good morning. First one for me, just to sort of expand on a little bit of the discussion with Jimmy there. Some of these transactions or files, Echo, Galvanus, Cowan, and whatever, they are not on hold, but Thomas J. Hofstedter, you have slowed them down. How exactly do you slow these things down? Can you be a little more specific?
Speaker #7: How exactly do you slow these things down? Can you be a little more specific?
Speaker #5: Well, we have bankers for Echo that we've talked to. We have proposals from them. We have not contracted with them. And we have, on Caledon, as a good example again, we've slowed it down.
Thomas J. Hofstedter: We have bankers for Echo that we have talked to. We have proposals from them. We have not contracted with them. On Caledon, as a good example, again, we have slowed it down. We are not actively trying to negotiate the land values with the on the highway extension. Hess, we have parked it until, as I said, until the end of the year at least until we have clarity from Chevron. Those are the big plays. Basically, we hope that this process ends sooner rather than later. Otherwise, we will have to go on with the business as usual.
Speaker #5: We're not actively trying to go ahead and negotiate negotiate the land values with the on the higher extension. HES, we've parked it until, I said, to the end of the year at least, so we have clarity from Chevron.
Speaker #5: So those are the big plays. And basically, we hope that this process ends sooner rather than later. Otherwise, we will have to go on with business as usual.
Speaker #7: So, that's my next question. Absent any proposed transaction, whatever way you want to describe it, in what ways do you think, over the next year or so, the strategic plan would move forward most meaningfully?
Sam Damiani: So that's my next question. Absent any proposed transaction, whatever way you want to describe it, in what ways do you think over the next year or so the strategic plan would move forward most meaningfully?
Speaker #5: If we didn't sell, then we would hopefully engage to sell the properties we've been talking about for a while. We would enter into an agreement with an advisor to sell Echo.
Thomas J. Hofstedter: If we did not sell, then we would hopefully engage to sell the properties we have been talking about for a while. We would enter into an agreement with an advisor to sell Echo. We would consider selling Hess. We would consider ramping up to clarify the values on the 413 on the Caledon lands. Those are the big numbers. We would potentially expedite Gowanus.
Speaker #5: We would consider selling HES. We would consider ramping up to sell to clarify the values on the 413 on the Caledon lands. And those are the big numbers.
Speaker #5: And potentially expedite Walnus.
Speaker #7: And you didn't mention Walnus earlier. I mean, are you slowing that one down too? What's the status there, I guess?
Sam Damiani: You did not mention Gowanus earlier. Is that, are you slowing that one down too? What is the status there, I guess, if you are able to?
Speaker #5: We've been working on this we've been looking on the special committee's been working for quite a while right now. So hopefully, we're getting near the end of this.
Thomas J. Hofstedter: We've been working on this. We've been looking at the special committee of independent trustees have been working for quite a while right now. So hopefully, we're getting near the end of this. We don't have a timeline, as we said, but hopefully, we're getting close. I hope to be able to resume business as normal one way or another in short order.
Speaker #5: We don't have a timeline, as we said. But hopefully, we're getting close. So I'd hope to be able to resume business as normal, one way or another, in the short order.
Speaker #7: Okay. Just the last thing for me, just on the NOI in the quarter, was there anything unusual contributing to NOI? I know there's no lease termination fees, but just curious if there was anything unusual contributing.
Sam Damiani: Just the last thing for me is on the NOI in the quarter. Was there anything unusual contributing to NOI? I know there are no lease termination fees, but just curious if there was anything unusual contributing. Secondly, with those two or three new industrial vacancies that ceased paying rent sometime during the quarter, how much rent did you get in the quarter from 7 to 7 Union or the HBC warehouse? Do those rents cease at the end of the quarter or at the beginning of the quarter?
Speaker #7: And then secondly, with those two or three new industrial vacancies that ceased paying rent sometime during the quarter, you know, how much rent did you get in the quarter from, you know, seven to seven union or or the HBC warehouse you know to those rents ceased at the end of the quarter or at the beginning of the quarter?
Speaker #5: Morning, Sam. For the leasing on Union and Metropol, we received bookings in the quarter. We booked approximately $600,000 of net operating income in the quarter from those two leases.
Larry Froom: Morning, Sam. For the leasing on Union and Metropole was booked in the quarter. We booked approximately 600,000 of net operating income in the quarter from those two leases. Your first question I have already forgotten. I am sorry. Can you please repeat?
Speaker #5: And your first question, I've already forgotten. I'm sorry. Can you please repeat?
Speaker #7: Yeah, you've already addressed the absence of lease termination fee income contributing. But was there anything else unusual that contributed to NOI in Q2?
Sam Damiani: You have already addressed the absence of lease termination fee income contributing, but was there anything else unusual that contributed to NOI in Q2?
Speaker #5: No, there was nothing unusual that was a one-time item, if that's what you're asking.
Larry Froom: No, there was nothing unusual that was a one-time item, if that's what you're asking.
Speaker #7: Perfect. Okay. Thank you. And I'll turn it back.
Sam Damiani: Perfect. Okay. Thank you. I will turn it back.
Speaker #3: Thank you. The next question comes from Tal Woolley at CIBC Capital Markets. Please go ahead.
Operator: Thank you. The next question comes from Tal Woolley at CIBC Capital Markets. Please go ahead.
Speaker #8: Hi, good morning, everybody. I just wanted to ask about Land Tower. Maybe you can speak to market conditions in Texas and North Carolina and how you see occupancy evolving there over the next few quarters?
Mario Saric: Hi. Good morning, everybody. I just wanted to ask about Lantower Residential Real Estate Development Trust. Maybe you can just speak to market conditions in Texas and North Carolina and how you see occupancy evolving there over the next few quarters?
Speaker #6: Thank you. Good morning. Yeah, it's actually progressing exactly kind of how we anticipated it. Which really correlates nicely with the supply coming down in those markets.
Lantower Residential Real Estate Development Trust Representative: Thank you. Good morning. It is actually progressing exactly kind of how we anticipated it, which really correlates nicely with the supply coming down in those markets, in all of the Sunbelt markets actually specifically. If you remember, 2024 was the biggest delivery, about 130,000. In 2025, we have 90, but 55,000 have already delivered, and we only have 35 to go for the rest of the year. We see those, we see the effect of that. In fact, we started the year in a gain-to-lease position, and it has flipped to a loss-to-lease position in Q3. I think that we will continue on. I think we will end the year at a positive lease tradeouts and positive NOI for the year for the portfolio as a whole, just getting some of that absorption behind us. Fortunately, demand is strong in all of our markets.
Speaker #6: And all of the Sunbelt markets, actually, specifically. So, you know, if you remember 2024 had the biggest deliveries, about 130,000. In 2025, we had 90,000, but 55,000 have already delivered, and we only have 35,000 to go for the rest of the year.
Speaker #6: So we see those we see the effect of that. In fact, we started the year in a gain to lease position. And it's flipped to a loss to lease position in Q3.
Speaker #6: So I think that we will continue on. I think we'll end the year at a positive positive lease trade-off and positive NOI for the year for the portfolio as a whole.
Speaker #6: You know, just getting some of that absorption behind us. Unfortunately, demand is strong in all of our markets. We have positive migration, and even though wage growth is moderating to kind of what it used to be, it's still positive in all of our markets.
Lantower Residential Real Estate Development Trust Representative: We have positive migration, and even though wage growth is moderating to kind of what it used to be, it is still positive in all of our markets. I think we will just continue to get stronger under our feet underneath us. Then 2026, like I have kind of repeatedly said, is going to be a much better year for the multifamily markets in the Sunbelt.
Speaker #6: So I think we'll just continue to get stronger under our feet underneath us and then 2026 like I've kind of repeatedly said is going to be a much better year for the multifamily markets and the Sunbelt.
Speaker #8: Do you have a market occupancy number where you feel confident that, at a certain point, like we hit 92 or 93%, and then you feel very confident trade-outs improve?
Mario Saric: Do you have a market occupancy number where you feel confident that at that point, we hit 92% or 93%, and then you feel very confident tradeouts improve?
Speaker #6: Yeah, we've been kind of holding steady at 93. We're 93 today. So I think that that will actually grow in the third quarter and the fourth quarter to maybe 93.5 and then 94.
Lantower Residential Real Estate Development Trust Representative: Yeah, we have been kind of holding steady at 93%. We are 93% today. I think that that will actually grow in Q3 and Q4 to maybe 93.5% and then 94%. Then 2026, I think you get back into the 95% range without getting, I mean, we could be in the 95% range now if we wanted to lower our rates, but we want to keep our rent roll strong. I think we grow from the 93% where we have been to a little bit stronger by the end of this quarter and then get into the 94% and the 95% in 2026.
Speaker #6: And then 26, I think, you know, you get back into the 95 range. Without giving, I mean, we could be in the 95 range now if we wanted to, you know, lower our rates, but we want to keep our rent roll strong.
Speaker #6: So but yeah, I think I think we grow from the 93 where we've been. To a little bit stronger by the end of this quarter.
Speaker #6: And then get into the 94 and the 95 and 26.
Speaker #8: Okay. And then just on the industrial portfolio here in Canada, I apologize. I was on another call over at the start, but if this was addressed, but just any material capital needs you think in order to release some of those vacancies?
Mario Saric: Okay. Then just on the industrial portfolio here in Canada, I apologize, I was on another call right at the start, but if this was addressed, just any material capital needs you think in order to release some of those vacancies, or is it just a matter of finding the right tenant?
Speaker #8: Or is it just a matter of finding the right tenant?
Speaker #5: The The capital I don't think we have it depends. The capital would be we wanted to take, for example, 100 Metropolitan and divide it into multi-tenants.
Thomas J. Hofstedter: The capital, I do not think we have a defensive. The capital would be we wanted to take, for example, 100 Metropolitan and divide it into multi-tenant. That is not our first choice at this stage of the game. We do not expect to have to invest any real capital in any of the properties. It is just a typical releasing commissions.
Speaker #5: But that's not our first choice at this stage of the game, where you don't expect to have to invest any real capital in any of the properties.
Speaker #5: It's just a typical releasing and commissions.
Speaker #8: Okay. Perfect. Thanks very much, gentlemen.
Mario Saric: Okay. Perfect. Thanks very much, gentlemen.
Speaker #3: Thank you. We have no further questions. I'll turn the call back over to Tom Hofstedter for closing comments.
Operator: Thank you. We have no further questions. I will turn the call back over to Thomas J. Hofstedter for closing comments.
Speaker #5: Thank you, everybody. And enjoy the rest of your summer.
Thomas J. Hofstedter: Thank you, everybody, and enjoy the rest of your summer.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.