Welcome to the Choice Properties Real Estate Investment Trust Fourth Quarter 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Doris Baughan, Senior Vice President, General Counsel and Secretary. Please go ahead.
Thank you. Good morning, and welcome to Choice Properties Q4 2021 conference call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer, Mario Barrafato, Chief Financial Officer, and Ana Radic, Executive Vice President, Leasing and Operations. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements.
Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying and making these statements can be found in the recently filed Q4 2021 financial statements and Management's Discussion and Analysis, which are available on our website and on SEDAR. I will now turn the call over to Rael.
Thank you, Doris, and good morning, everyone. Thank you for taking the time to join our fourth quarter conference call. We are pleased with our solid financial results for the quarter, demonstrating our business model, stable tenant base, and disciplined approach to financial management continue to position us well. Additionally, we continue to advance our development pipeline and execute on our capital recycling initiatives, which provides us with exceptional opportunities to add high-quality real estate and drive net asset value growth over time. Turning to the full year, 2021 was a year of resilience, and we are proud of our accomplishments. In addition to our strong performance, we reinforced our commitment to sustainability and made significant advancements in our environmental, social, and governance program. To maximize our impact, we have focused our ESG strategy on two pillars, fighting climate change and addressing social equity.
In addition, we committed to steady emission targets that are in line with current climate science. In November, we integrated sustainable finance into our business with the release of our green financing framework and the completion of an overall green bond offering. Joining me on today's call is Ana Radic, who will provide an update on our strong operational results, and then Mario Barrafato, who will provide an update on our solid financial results. I will then provide an update on our transaction activity and our development program. Ana, over to you.
Thank you, Rael, and good morning, everyone. As Rael mentioned, we are pleased with our operational results for the quarter and continue to see positive signs across the portfolio. Although renewed operating restrictions were implemented in late 2021 due to the emergence of the Omicron variant, we are seeing positive leasing momentum, most notably in our retail and industrial segments. Our approximately 45 million sq ft retail portfolio, which consists of open air centers with necessity-based tenants, continues to deliver stable results. Canadian retail performance in 2021, as well as other macro factors, indicate that we have turned the corner in the economic recovery. Retail sales for 2021 are up 8% compared to pre-COVID levels in 2019, leading to a positive outlook for 2022.
Our retail occupancy increased slightly from the prior quarter as 115,000 sq ft of new deals commenced in the quarter and 410,000 sq ft of renewals were completed at rents 3.9% above expiring rents, resulting in tenant retention of 89%. Our neighborhood centers continue to perform exceptionally well. At the height of the pandemic, we saw few tenant closures and steady demand. What we are seeing now are a variety of tenants actively looking to open new locations, with discount, quick serve restaurants, off-price fashion, home furnishings, pharmacies, pet stores, and fitness operators being the most active. We are also seeing strong demand at our power centers. In the quarter, we completed several new deals with home furnishing, fashion, and discount retailers.
Industrial fundamentals are strong, and this segment will provide growth going forward as the supply-demand imbalance in most markets for distribution and logistic warehouses continues to drive record high rental rates. The GTA market availability rate remained at 0.9%, unchanged from the third quarter, while national availability dropped to 1.8%, an all-time historic low. Our portfolio occupancy increased 40 basis points in the quarter, finishing at 98% occupied. We are seeing improved leasing conditions in Calgary and Halifax, having completed 75,000 sq ft of new lease deals in these markets. Our Western Canadian portfolio is 95.6% leased, outperforming the market.
We anticipate that Calgary will continue to tighten as it is a key distribution hub and is benefiting from the growth in logistics tenants as well as improved economic certainty, fueling demand for spaces 10,000 sq ft and under. Our 6.6 million sq ft Ontario portfolio sits at full occupancy. While we had limited industrial maturities in the quarter, we are optimistic in our ability to capitalize on strong market fundamentals to continue to grow rents. We have several large blocks of distribution space expiring in 2022 that will give us the opportunity to do just that. Our industrial occupancy and NOI will decline in 2022 as we re-lease several large blocks to new tenants. These new lease deals will be completed at significantly higher rents, resulting in higher industrial NOI in 2023.
For example, we have completed a new 113,000 sq ft lease deal in the GTA, with the incoming tenant's lease rate exceeding that of the outgoing tenant by CAD 7.25 per sq ft, which is a 120% increase over the expiring tenant's rent. Office leasing momentum improved in Q4 with more tour activity and a reduction in sublease spaces as tenants that delayed space planning decisions due to COVID began re-entering the market. With office vacancy rates increasing across most markets in Q4, in downtown Toronto, where our largest assets are located, market vacancy dropped 20 basis points in the quarter to 9.7%, and sublease availability dropped even further.
Occupancy in our 3.6 million sq ft office portfolio declined from 88.7%-88.2% due to limited leasing activity taking effect in the quarter and 18,000 sq ft of negative absorption in Halifax and Montreal. That said, we did see a lift in renewal spreads of approximately 4.5% on the deals that were completed in the quarter. Starting this fall, we have seen a marked increase in tour activity, with more new tenants looking to transact and existing tenants expressing a desire to expand. Small and mid-size tenants were most active as their space utilization did not change as compared to larger tenants. During the quarter, we completed expansions of four office tenants and five new deals in Calgary, totaling 26,000 sq ft at our own share, taking effect in future periods.
Overall, our operating results in the fourth quarter and for the year were strong, reflecting the strength and resilience of our portfolio. We are confident that the operating decisions and investments we have made will continue to deliver strong results looking ahead. I'll now pass the call over to Mario to discuss our financial performance.
Thank you, Ana, and good morning, everyone. The fourth quarter reflects our ongoing ability to deliver solid financial results. This is evident in our financial performance and via rent collections, which were over 99% for the year. While bad debt expense was CAD 750,000 for the quarter, our lowest provision during the pandemic. Our reported funds from operations for the fourth quarter was CAD 174.7 million, or CAD 0.242 per unit. Included in FFO are certain non-recurring items which effectively net each other out. They include a CAD 1.5 million early redemption premium for our Series I unsecured debenture that would have matured in the first quarter of 2022, and CAD 1.3 million of higher G&A costs, primarily driven by a head office lease termination payment.
This was offset by income of CAD 2.6 million related to lease termination and other revenue adjustments. Compared to prior year, our FFO for the quarter increased CAD 3.3 million, primarily due to contractual rent steps in our retail portfolio, increased occupancy and rental rate lists in our industrial portfolio, and a decline in bad debt expense of CAD 1.5 million. On a per unit diluted basis, our Q4 FFO was CAD 0.242, up 1.3% compared to the fourth quarter of 2020. Our period-end occupancy remains strong, increasing slightly to 97.1% compared to 97% last quarter, with retail at a strong 97.5%, industrial at 98%, and office at 88.2%.
We had approximately 808,000 sq ft of lease expires in the quarter, of which we renewed 734,000 sq ft for a retention ratio of 84%, and lease expense on these renewals were 3.3%. We also completed a further 201,000 sq ft of new leasing, resulting in overall positive absorption of 56,000 sq ft for the quarter. Same asset cash NOI increased by 2.6% compared with the fourth quarter of 2020. By asset class, retail increased by 2.6%, while industrial increased by 5.5%. These increases reflect the improvements in rent collections, contractual rent steps in the retail portfolio, and positive fundamentals in the industrial portfolio.
Office same asset cash NOI decreased 3.7%, primarily due to vacancies in Ontario and Alberta, partially offset by a reduction in bad debt expense. When excluding bad debt expense, total same asset cash NOI increased by 2%. We're pleased that we've been able to maintain stable occupancy and consistent same asset results for five consecutive quarters. Our business continues to be supported by our industry-leading balance sheet that provides us with flexibility in the face of broader market volatility. We reported a total increase to our net asset value of CAD 153 million, or 1.7%, marking the sixth consecutive quarter we've recognized NAV growth. Our growth was driven by fair value gains in our investment properties of CAD 109 million, mainly attributed to strong demand fundamentals for industrial properties.
We continued to improve both our leverage ratios and our liquidity profile through the quarter. Our leverage was 40.1% at the end of the fourth quarter, an improvement of 2.6% compared to 2020. Our debt-to-EBITDA declined to 7.2 x compared to the reported 7.6x in the fourth quarter of 2020. Normalizing for excess cash from the timing of transactional activity in both years, debt-to-EBITDA declined to 7.1 x compared to 7.3x in the fourth quarter of 2020. From a liquidity perspective, we have approximately CAD 1.6 billion in available cash, comprised of CAD 1.5 billion of available credit on our lines and CAD 125 million in cash and cash equivalents. This is further supported by approximately CAD 12.8 billion of unencumbered properties.
As Rael mentioned, we successfully completed our inaugural green bond offering in the fourth quarter, issuing CAD 350 million of unsecured debentures for a five-year term, bearing interest at 2.46% per annum. Proceeds from this offering were used to improve our debt maturity profile by early redeeming our CAD 300 million March 2020 debenture and repaying our credit facility. The pricing on this transaction is a testament to our strong credit, with the spread representing the lowest five-year Canadian REIT spread on record. Pricing also reflected a 7 basis point greenium relative to where our bonds were trading on the secondary prior to launch. In addition to strengthening our debt profile, we continued to improve the overall quality of our portfolio through capital recycling.
Late in the quarter, we successfully and opportunistically sold CAD 230 million of income-producing properties deemed non-strategic to our core portfolio, while acquiring CAD 40 million in properties. For the year, we divested CAD 330 million of properties and reinvested the proceeds into CAD 240 million of high-quality properties, with either stronger fundamentals or development potential. Rael will provide more color on the Q4 transaction shortly. In addition to acquisitions, we continue to add high-quality properties through our development program. We end the year with development spending totaling CAD 135 million. Completions for the year were roughly double this number at CAD 255 million, adding 428,000 sq ft of GLA to our portfolio and 324 residential units at The Brixton and Liberty House in Toronto.
Overall, we are pleased with our quarterly and annual performance. We continue to deliver stable and resilient operating results while driving net asset value through development and capital recycling. All of this supported by a conservative and flexible balance sheet. I'll now turn the call over to Rael to address our development and investment activities.
Thank you, Mario. Looking back at 2021, we made significant progress on both our development program and transaction activities. We completed approximately CAD 570 million in total transactions and meaningfully advanced industrial development pipeline and future residential pipelines. During the year, we completed and transferred 10 projects at a total investment cost of approximately CAD 250 million, delivering 145,000 sq ft of commercial space and 394 residential units. Turning to the quarter, we completed CAD 46 million of acquisitions and CAD 230 million of dispositions. On the acquisitions front, we completed the purchase of 550 Eglinton Avenue from a third party. This high-performing Shoppers Drug Mart is located in a desirable midtown node of Toronto, providing excellent long-term redevelopment potential adjacent to a future transit station on the Eglinton LRT line.
We also closed on the vend-in from Loblaw of a standalone grocery store in Guelph, one of the fastest-growing cities in Ontario. Finally, we continued to assemble land with a future industrial development potential at our Caledon site, adding approximately 16 acres to the 300 net acres acquired during Q1. This was completed at attractive pricing per acre, consistent with the original acquisition. Our development partner is currently working through the rezoning approval process with the Town of Caledon to permit a total of approximately 5 million sq ft of industrial space. As Mario mentioned, we remain active on the disposition front and during the quarter, opportunistically sold approximately CAD 230 million of non-core assets and underutilized land. These dispositions speak to the demand from investors for our assets, and we successfully transacted on the assets at pricing above our book value on each of them.
On the industrial front, we capitalized on the market by selling a portfolio of five older generation assets for CAD 45 million in Calgary with operational challenges. On the retail side, we sold six assets across the country for total proceeds of approximately CAD 172 million. On the development front, during the quarter, we transferred two residential projects to income-producing properties, including Liberty House and the third and final phase of The Brixton, for a total development cost of approximately CAD 108 million. Liberty House is at the entrance to Liberty Village. It is now 30% leased, and we expect stabilization by the second quarter of 2023. Brixton is located in downtown Toronto at the Dufferin and Queen intersection and is approximately 75% leased, and we expect stabilization in the second half of this year.
Subsequent to the quarter, we purchased our development partner's share in each of these assets, increasing our total ownership to 50%. We also recently received permits on our industrial development in South Surrey, B.C. This new generation logistics facility will target LEED Silver certification and is out for tender, with the contractor already mobilized on site. When complete, the center will add approximately 350,000 sq ft to our growing industrial portfolio. Looking ahead, we have 11 projects representing over 10.5 million sq ft in different stages of the rezoning and planning process. We believe we have one of the best long-term development pipelines in the REIT space that will drive significant long-term net asset value appreciation. With that, I would like to turn the call back to the operator for questions.
Your first question is from Sam Damiani with TD Securities.
Thanks, and good morning, everyone.
Morning, Sam.
Just wanted to start off on, I guess what you sort of ended off on, Rael, which is the value of these significant sites that Choice has had for years. Most of them are, you know, near or adjacent to mass transit. How are you thinking about the fair valuing of those properties today versus a few years ago? How are you thinking we should think about, you know, how that might be focused over the next couple of years?
Sure. I'll take that one. I guess, Sam, there's two ways. I mean, right now, in our financials, they're valued just at their income-producing capability today. We tend to value our properties or increase their values based on milestones where we have visibility. Right now, I think there's probably value there, but it's just not reflected in our financials. As we advance, you know, to pursue construction, as we pursue zoning, as we pre-lease, you'll see that pop. I guess Golden Mile is a good example of where there's a store right now. As we advance that, and as we have, you know, more validation of the value, then we will see that come through our financial statements.
Is that something, Mario, you think might occur within the next one to two years based on your framework that you're kind of got in mind right now?
I think it will happen gradually, Sam, and there will be milestones, I believe, next year. You don't get that pop anymore. It's gonna be gradual over the life of the development.
Okay. Rael, just on the disposition activity, I wonder if you could just, I guess, get into a little bit of detail on the rationale for a couple of the properties that were sold, including the retail and the industrial out in Calgary.
Yes. So we'll start with the industrial. The industrial was older generation industrial, not typical industrial. From our point of view, it had leasing challenges, didn't have the right dock doors, access, et cetera. In fact, some of the tenants weren't typical industrial users. On the retail side, truthfully, we always look to clean up or sell, you know, weaker assets in our portfolio that we view as non-strategic. As an example, we sold a large power center in Quebec City that had tenants that we view maybe at longer term risk. We're able to recycle that capital into better long-term growth assets such as the industrial we've spoken about this year.
Okay. Last one from me would just be on the two residential properties that were completed last year, and you increased your ownership stakes. Is there anything you could, I guess, share with us in terms of the pricing on those increased stakes, relative to cost or how it was determined?
Look, you know, it was a negotiated price. It was done at fair market value. You know, it was purchased at between CAD 900 and CAD 1,000 a foot, which would translate to, you know, around a 3.5 cap rate. And I don't remember exact cost per foot, Sam, but I think our cost per foot was closer to between CAD 600 and CAD 700 all in. But I don't remember the exact number offhand. Remember, we started these projects about three years ago, so we did benefit obviously from locking in pricing earlier.
Great. Thank you. That's it from me. I'll turn it back.
Your next question is from Sumayya Syed with CIBC.
Thanks. Good morning. Just wanted to touch on the two residential assets that got moved to income produced in the quarter. If there was any NOI contribution from those, and if not, how do you see that stabilizing?
There would've been some. It was very small, I think, you know, in the quarter. As Rael said, you know, The Brixton will stabilize, you know, this year, Liberty House next year. There will be NOI, but again, given the size of the projects relative to portfolio, I think right now it won't have that meaningful impact on total NOI.
Okay. Just moving on to rent collections, obviously very strong, but just the portion that's been deferred and outstanding, when do you expect to recover that? If it's going to be within 2022 or anything, spilling over into 2023?
Hi, Sumayya. The majority of our deferral agreements with tenants are with repayment over 2022. Like, that would be the vast majority. I would say, like 95%, 90%. There are some with very large creditworthy tenants that we did agree to extend the deferral into 2023. Again, those would only be with our very large tenants.
Okay. Thanks. I know you mentioned that you're seeing an improvement on the office side in terms of activity. Can you touch on what you're seeing in terms of rents and lease terms as you have these dialogues with tenants?
Yeah. I mean, rents are holding up very well. We've recorded, you know, our spreads on office rents this quarter were 4.5%, and we aren't really seeing, you know, a marked drop in rents. There's still rental rate growth relative to, you know, deals that were entered into five years ago. I think rents are holding up very, very well. In terms of activity, we're seeing, you know, good activity, as I said, from smaller and mid-sized tenants particularly. Yeah.
Okay, thanks. That's it for me. Thank you.
Your next question is from Himanshu Gupta with Scotiabank.
Thank you, and good morning. In industrial portfolio, you're expecting some reduction in occupancy as some of the expiries come due in 2022, and then obviously seeing early next year. How should we think about the same asset NOI growth in 2022 in this segment?
Hey, Himanshu. Right now, again, as said, you know, things are very positive. Absent the industrial vacancies, like, we'd be expecting same asset NOI growth of slightly over 2%. Because of those vacancies, it'll be probably close to 1.5% overall, but we expect retail to be at around 2%. The industrial, because of those vacancies, will be probably flat or slightly negative. As Ana said, when those leases renew, they'll be renewing at rents that, you know, could be 80%-100% higher. The following year, I think the seeds are planted really for strong, you know, stronger NOI growth, again, close to that 2%-2.5%. Next year it'll be muted a bit.
Got it. The big recovery in the industrial will be 2023, and probably in 2022 will be a bit muted. Mario, you also mentioned retail at 2%. If I look at the retail occupancy, it's still slightly below pre-pandemic levels. Are you baking in some occupancy gains as well, in your 2% estimate?
Just slightly, yeah. We were about 97.5%. Our retail's there right now. We see a bit of occupancy gain, and they get back on the office side. The most positive thing is that we're seeing some rental rate growth again, and then that's really, that'll be the driver of NOI growth.
Got it. Okay. That's helpful. Thank you. You know, just sticking to the industrial side, I mean, if I look at the IFRS cap rate, industrial portfolio is marked at, like, 5.33% cap rate. I mean, do you think there is scope for the cap rate to come down, especially in the context of, I mean, the recent transactions we're seeing in the market?
Yeah. Yeah, we do. I mean, we've been writing it up every quarter because, again, for the process internally, we try to be disciplined, have third-party data. Every quarter there's new data, there's new information on rents, and there's new information on transactions. We do think there's value there both in the stabilized industrial and especially in the development land we've acquired.
Okay. You know, again, your industrial, you sold those non-core older generation assets in Calgary, like, CAD 45 million. Are there more of these do you think, will be eligible for capital recycling this year?
I'm not sure this year, Himanshu, but there are a few assets, but nothing material that we view as non-core.
Okay. You know, you know, sticking to capital recycling, I mean, the question is capital allocation. I mean, yes, I mean, are we likely to see more disposition in general to support the development and investment activity? I mean, that's been the playbook so far. I mean, are you prepared to keep the leverage at different levels and do capital recycling?
Yeah. I mean, you know, Himanshu, we've sold. I would say the last three years, probably over, like, CAD 1 billion, maybe, or north of CAD 1 billion. We really believe that this is just part of our business model. There's always opportunities, you know, to be able to take money out of certain properties and get into other properties. I think it's gonna be there. Right now we've been really just reinvesting into assets. We're setting our balance sheet up so that when we act to get into the mixed uses, we're not gonna put stress on our balance sheet.
Right now our leverage adjusted for cash is 7.1 x, and we think that will give us a lot of buffer to the next eight-part development program. We will be selling assets, but probably just to upgrade quality and not necessarily paying down debt.
Got it. Okay. Thank you. My last question is on the residential development. I'm looking at Mount Pleasant Village in Brampton. Development yield is like mid-4%, I think. A bit slightly lower than the Liberty House of, like, over 5%. Are you beginning to see any, you know, cost pressures or construction costs being escalating on you? Any color there?
No, we're not expecting any real cost pressures on that development. The reason it's slightly lower than the others, in fact, there is a condo component that is small. The condo sales outperformed our original pro forma. Just this quarter, we actually broke out the components of condo versus the income component. Then finally, what is bringing down the yield a little bit is we've elected to do some affordable units. Just from a long-term perspective, we're very bullish on the property. It's right adjacent to a GO station, and there's still a significant development spread.
Is that a requirement, from the city or, you know, from a public perspective to include some affordable component, or is it something you are doing on your voluntary basis?
It's something that us and our partner, Daniels, chose to do.
Okay, thank you, guys. That's all from my side. Thank you all. I turn it back to you.
Your next question is from Tal Woolley, with National Bank Financial.
Hi, good morning, everybody.
Morning.
You know, we've heard on some of your peers' conference calls, too, you know, the idea that, you know, now that things have opened up a little bit more, you're seeing more interest, you know, in touring retail space, you know, some more prospects out there. I recognize it's kind of a difficult question to answer, but do you get a sense that this is a bit of a rush of activity, just that, you know, people are out and about getting sort of back into the swing of things? Or do you think this is kind of a stable level of interest that you're gonna see over the longer haul?
Well, I think our interest has been, you know, quite strong throughout. That, I think, stems from the fact that our portfolio is predominantly grocery-anchored and service-based retail. I think more tenants are looking to locate with a strong grocery anchor. That's definitely benefited us. I would say that, you know, with the rest, you know, in terms of our power centers and so forth, that's where we're really seeing sort of a renewed optimism and, you know, a fundamental belief that having a brick-and-mortar location is really important from an overall retail strategy. Like, that omni-channel approach is proving to be, you know, what tenants are really anchoring to. You see that even with Amazon opening a brick-and-mortar location.
I think this is something that's sustained. It's gonna be sustained.
Okay. Just on the office portfolio, you know, if we're thinking about. Let me ask the question a different way. What is sort of your base case for when you expect kind of the occupancy bleed to stop? Like, when are you thinking that you're gonna hit that point?
Sorry, Tal. Our or the market or?
Within the office portfolio, like, what's your sort of, you know, time horizon for when you think? Because obviously, some of this is pandemic related, and some of it, maybe it's cyclical. I don't know how you're thinking about it. When do you sort of see the occupancy bleed in office stop?
Okay, got it.
Look, I think, Tal, the first thing is, you have to separate our portfolio between Alberta and the rest of the country. Alberta has really dragged us down significantly. It's been a very challenging market. The pickup that Ana spoke about, we are seeing in all other markets across the country. We have positioned on previous quarters that there was upcoming vacancy that we knew about in our portfolio.
Yeah.
You are seeing that in Toronto. That was vacancy that we knew about pre-pandemic. We are, you know, we're very bullish by the increase in activity that we've seen recently. When exactly it will stabilize, like, we obviously don't know exactly, but we are encouraged by the recent activity. Ana, if you wanna add anything.
Yeah. In terms of for office, you know, our rollover exposure is pretty limited. It's about 300,000 sq ft next year. Thirty-two percent of those expiries, you know, we've completed, and another 24 are government tenants that we know are gonna renew. There may be some further negative absorption through the year. But I think it will be less than we've seen through 2021, and it's just gonna depend on how much the new leasing activity picks up, which I'm hopeful it will.
Okay. Just lastly, I'm wondering if you can give some color on what management's thinking is and what the board's thinking has been around the distribution. Obviously, I think with, you know, inflation rising and these stocks often held as a bond proxy, you might have some shareholders who are maybe looking for more going forward. What's the current thinking around that?
Sure. I'll take that one. We really like where our business is today. The last couple of years, we've had growth that really reinvested it into leverage reduction, improving the quality of the asset, buying some development lands, and investing in development spending. We felt that was kind of a rarity. I think for 2022, you're gonna see a lot of value initiatives come out. You may not see it in the cash flow right away because, as Rael said, we're in a net disposition position, so we have to deploy some capital to kind of be leverage neutral. The industrial vacancies. We've got some developments that need to stabilize.
I think all the seeds are planted, and I think we've solved a lot of trail areas that we may be in a position to start talking about it again because you're right. I think our investors have been patient. I think with inflation, it'll be expected, and I think we'll be in a position, you know, once all the seeds that we've talked about today, the fruition you'll see it in the cash flow, and then we'll be able to fund it. It's something I think we will be talking about now. We haven't talked about it for three years.
Okay. That's great. Thanks, everybody. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Your next question is from Pammi Bir with RBC Capital Markets.
Thanks and good morning. Just I wanted to clarify maybe the comments on the value recognition of development. Is the intention to record additional gains as projects are zoned? Secondly, any visibility you can share perhaps on the amount of square footage that could get approved over the next, call it one to two years?
Yeah. I'll take the first one. Pammy, it's really development recognition is really a new area, and I think it's evolving, and it's becoming more high profile as more companies are developing. We had our own framework where Given the rigor, you know, with auditors, audit committee, and so we like to make sure that there's some third-party validation in what we do. We don't necessarily wait till then. There is a zoning, but a high probability of it. We may be a bit laggard, but the last thing we wanna do is start accounting for this in the public space through our financial statements based on internal probabilities.
With that being said, I think what you're seeing now is you're seeing people carry projects on their books, but then they're transacting at higher rates. I think that's what's leading maybe some other REITs and the industry to kind of go more to what is that market perspective of something as opposed to there being third-party validation. Right now, like we tend to go with this milestone approach. Especially when you get larger scale projects, they're all unique, they're complex. It really gets complicated. I think, you know, it's really a matter of attitude. We've just taken a more conservative approach.
I think, you know, we are positive in a lot of developments that are undergoing, and we just haven't hit certain milestones, but there is value there. I think it's gonna evolve, and it's gonna be a little different. You saw, you know, in the last couple of releases, everybody's taken their own perspective as to how they value their developments.
I think just on visibility, we're obviously hopeful that we can get some of the industrial zoned, you know, later this year. Obviously, the large parts of land in Caledon is significant. Then on the residential side, likely some of Golden Mile and potentially Granville Grove now, we should be able to achieve zoning later this year.
Got it. Okay. Just, you know, you mentioned some of the transitional vacancy this year. Maybe it's still a bit too early, but when you look at the 2023 matured properties, are there any larger ones that maybe give you some concern at all or, in terms of renewals, or perhaps or any that perhaps might offset some of that, you know, or get the return to call it 2%+ organic growth in 2023?
In 2023, we start having Loblaw renewals. It's very hard to get that 2%+ . As you know, in all likelihood, you know, the leases are capped at 2%, the growth. But outside of Loblaw, there's nothing that concerns us. On the industrial side, as Ana mentioned, we should get significantly higher than the 2%.
Got it. Okay, last one for me. Just, you know, again, nice to see some of these pretty strong spreads in industrial, particularly in GTA on the REIT thing. When you look at the industrial portfolio as a whole, where do you estimate the in-place rents are relative to the market?
You know, probably we don't have that stat handy. You know, probably Alberta is more similar to market. Whereas outside of Alberta, significantly our in-place rents are significantly below market, but I don't think we have that exact number. I don't know if Ana has a bit more color.
Well, I would say in Ontario specifically, our in-place rent is, you know, at least, you know, 50%-80% below market. It's like under CAD 7.50 a sq ft. That's significantly below where we're doing deals right now, which is always in the double digits and lately at kind of CAD 12 a sq ft, typically. That's where we have our biggest opportunity.
Great. I'll turn it back. Thanks.
There are no more questions at this time.
Thank you, everyone, for joining today's call. Please do all that you can to stay healthy and safe. For those celebrating Family Day on Monday, hope you have a good long weekend.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.