Good afternoon, ladies and gentlemen, and welcome to the Combi REIT Q2 Fiscal 2019 Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, August 8, 2019. And I would now like to turn the conference over to Quentin Kaye.
Please go ahead.
Thank you, Joanna. Good day, everyone, and welcome to Crombie REIT's 2nd quarter conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.crombiereit.com. Slides to accompany today's call are available on the Investors section of our website under Presentations and Events.
On the call today are Don Clough, President and Chief Executive Officer Glenn Hinds, Executive Vice President and Chief Operating Officer and myself, Clinton Kaye, Chief Financial Officer and Secretary. Today's discussion includes forward looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our annual information form for a discussion of these risk factors.
I will now turn the call over to Don, who will begin our discussion with comments on Crombie's overall strategy and outlook. Glenn will follow with the development update and review of Crombie's operating results, and I will conclude our prepared remarks with a discussion of our financial results, capital allocation and approach to funding.
Thank you, Clinton, and good day, everyone. As I often say that Crombie is a long term mindset, quarterly reporting serves as an opportunity for us to look back at the significant growth and changes that have taken place in the last 3 months. This quarter is no exception. We probably continue to grow and evolve as we welcome new tenants to our properties, watch several of our major developments rise out of the ground and expanded our development pipeline from 24 to 33 properties. Our team continues to execute on strategy, driving future growth and value creation through the sustainable competitive advantage of our relationship with Sobeys, strong fundamentals and our real estate team that is focused on creating value for our stakeholders.
Our needs based portfolio provides stable cash flow growth and provides the foundation needed to support strategic growth with Sobeys and our major mixed use developments. We continue to invest in high quality sustainable real estate where people live, workshop and play, unlocking value for both investors and tenants across our portfolio and funding these market leading investments with low cost capital from multiple innovative sources. Our relationship with Sobeys is powerful and unique in the Canadian REIT industry. We work closely together as preferred partners with both sides benefiting from our strong ties. Our shared history and the nature of our connection allows us to pursue strategic and mutually beneficial opportunities together.
Sobeys' strong year end results and the return to investment grade status with PBRS demonstrate that our largest tenant is positioned well to successfully compete and win into the future. This competitive advantage allows us to unlock value in several ways. Investments in banner conversions such as the recent FreshCo conversions, modernizations, expansions, renovations of our existing sites and major development opportunities. The Pointe Claire customer fulfillment center is a great example of this. Our 6 active now our 6 active nature development, Pointe Claire is an exciting opportunity for Sobeys and Crombie to work together to lead the way in grocery e commerce in Canada.
Pointe Claire site will be an approximate 285,000 square foot customer fulfillment center powered by Ocado's world leading online grocery engine packing technology. The site will become Empire's Voila Parro 5GA e Commerce Distribution Hub serving Quebec and the Ottawa area. Crombie's total cost of the project is approximately $100,000,000 including land and will produce a yield of 6% to 6.5%. I mentioned earlier that we expanded our development pipeline potential from 24 to 33 properties. Our new national structure and strong relationship with Sobeys has enabled our teams to work to identify these additional potential development opportunities.
Executing on this expanded pipeline will further urbanize our portfolio with 6 of the additional properties located in Bechtel Markets. Our active development pipeline, which we anticipate will create significant value for our unitholders, remains on track and on budget with roughly $300,000,000 invested to date. Yields on cost for our first six projects remain on average in the range of 5.4 percent to 5.9 percent, which we expect will translate into $1 to $2 of net asset value per unit within the next 1 to 2 years, assuming current market and cap rate conditions continue. Placemaking plays an integral role in our mixed use development planning as we strategically integrate grocery and residential into welcoming community spaces. During the quarter, we increased our focus on entitlements as an additional 3 projects moved to the preplanning phase, 2 in Halifax and 1 in Langford near Victoria, BC.
2 of these projects are new to the pipeline. This increases the number of projects in preplanning to 7. Park West is in Halifax and is in prime location abutting adjacent retail and residential where Crombie is currently exploring mixed use development options. West Hill is a multiunit addition to our existing Scotia Square commercial complex in Halifax's downtown core. Belmont Market Phase 2 is currently contemplated as a final piece of the larger 160,000 square foot shopping center development with a potential to add an additional 140,000 square feet of commercial space on the remaining 1.7 acres of land.
We executed some innovative capital recycling during the quarter, allowing us to redirect capital to our growth of Sobeys and the major mixed use development pipeline. These disposition transactions completed at or above IFRS fair value speak to the quality of our portfolio and our desirability as a partner as well as validating our NAV. In the Q2, Crombie sold investment properties for total proceeds of $186,000,000 Dispositions included an 89 percent partial interest portfolio comprised of 26 properties across the country, a 39,000 square foot retail property located at Markham Road in Toronto and a land sale in Langford, BC. After June 30, Crombie closed on an additional three assets for total proceeds of $49,000,000 We have entered into a second agreement of purchase and sale with Oak Street Real Estate Capital to sell an 89% non managing interest in 15 portfolio property for total proceeds of approximately $193,000,000 Transaction is expected to close this fall, bringing total 2019 proceeds to approximately $530,000,000 This transaction once again highlights our ability to creatively execute various types of partial interest property dispositions, expanding sources of capital and enabling pre funding of our major mixed use development commitments well into 2020, while aligning with our long term funding strategy.
Through 2018 2019, Crombie has disposed of approximately $800,000,000 of assets and has reinvested approximately $300,000,000 into a development pipeline, both of which are dilutive to short term earnings until our first major development projects come online. Our strong business foundation and fundamentals enable us to deliver solid results driven by strong same asset NOI with high occupancy and solid renewal spreads, all the while we position Crombie for a very exciting future. In closing, Crombie fundamentals remain strong. We're transforming our REIT by adding complementary and valuable mixed use residential investments and state of the art Sobeys related industrial in Canada's major markets. Revenue from our active major developments is beginning to ramp up in 2019 and will significantly increase further in 2020.
We're very pleased with the progress we've made in our development pipeline and our operational results. With a solid balance sheet, ample liquidity and one of the best teams in Canadian real estate, I have full confidence in our collective ability to continue to unlock value at Crombie for years to come. With that, I'll now turn the call over to Glenn, who will provide an update on our developments and our operational highlights. Glenn? Thank you, Donnie, and good day, everyone.
A significant milestone is fast approaching in Vancouver at Crombie's first major mixed use project, Davie Street. On August 14, we celebrated the structural completion at the topping off ceremony. Our experienced development team and partner Westbank are doing a wonderful job at developing this $181,000,000 306,000 Square Foot Property Into the Vancouver skyline. And we're confident in our forecasted yields on cost in the range of 5.2% to 5.6%. Here we own 100% of the retail and 50% of the residential rental.
The new Safeway store at approximately 44,000 square feet should open in late 2019 with early 2020 openings for CRU tenants and apartment occupancy commencing in Q3 of next year. The $57,880,000 redevelopment at Avalon Mall is progressing well as construction continues and leasing activity ramps up. The Rec Room by Cineplex opened in April and Winters HomeSense opened in their new and expanded location on August 6, just 2 days ago. We've executed redevelopment leases for over 53,000 square feet with H and M, Old Navy and Gap Banana Republic now fully executed. With current occupancy at 97.3% for the existing mall, 62.5% of the leasable square footage in the redevelopment area has been executed to date and we continue advanced discussions with other national anchor and CRU tenants.
At our $93,000,000 160,000 Square Foot Grocery Anchored Retail Center Belmont Market, 108,000 square feet has been added to GLA to date with committed occupancy of 92.9%. During the quarter, 4 tenants completed their fixturing and opened for business, with the Thrifty Foods office expected to open this month. The final portion of the project consists of 3 retail buildings totaling approximately 23,000 square feet. Construction is expected to start by year end on at least one of these buildings. Pre leasing is currently taking place with deals pending on approximately 11,000 square feet.
Along the Bonaventure Greenway and Old Montreal, construction at Leduc progresses as the above grade structure and base building work is now well underway. Upon completion in early 2021, this $123,500,000 development that comprises 277,000 square feet will consist of a 25,000 Square Foot Urban format IGA store, 390 residential rental units and 200 underground parking stalls. At Veronque Village in Oakville, cranes are now on-site as excavation and shoring work is complete and the below grade parking structure is well underway. The 520,000 Square Foot 480 Residential Rental Unit Development with 6 22 Underground parking spaces is expected to be completed in Q3 of 2021, with total projects costs estimated at 277,200,000 dollars Crombie is a 50% owner alongside our partner Prince Developments at both Duke and Bronte. Pointe Claire, as Donnie mentioned, located 3 kilometers from Montreal Pierre Elliott Trudeau International Airport was acquired in the Q1 of 2019.
Things are moving quickly as the site is currently zoned for its intended use, site plan approval was received and demolition of the existing structure is almost complete. This approximate 285,000 square foot ultra modern customer fulfillment center will be home to the Voila, our IGA, e commerce service for Quebec and the Ottawa area beginning in 2021. Don also noted our strong foundational operating fundamentals as total committed occupancy was 95.9% at the end of Q2, an improvement from 95.7% at Q1. Our team is dedicated to ensuring our underlying business fundamentals and core portfolio remains solid. An entrepreneurial approach to leasing has helped to attract and retain tenants in all markets.
We ended the quarter with 126,000 square feet of committed space, which will boost future NOI growth. 117,000 square feet of renewals were completed in the quarter with a solid increase of 6.7% over expiry. Year to date, we renewed 299,000 square feet at an increase of 2.1% over expiring rent. During the 1st 6 months, retail renewals were strong with 127,000 square feet renewed at rental increases of 6.8%. In closing, our core portfolio is performing well and is a wonderful foundation on which to build out our mixed use development pipeline.
And with that, I will turn it back to Quentin, who will highlight our Q2 financial results and discuss our capital and development program funding approach. Quentin?
Thank you, Glenn. On a cash basis, quarterly same asset NOI, including the impact of IFRS 16, increased by 3.2% and 3.7% for the year to date. Quarter to date and year to date same asset NOI, excluding the impact of IFRS 16, increased 2.7% and 3.2%, respectively. The increase is a result of rental rate increases on existing tenant leases, new leasing activity and revenues from land use intensification at certain properties. AFFO per unit decreased slightly to $0.25 from $0.26 for the same quarter last year.
Considering our disposition activity, reduction in leverage and our investment in our development pipeline, we are pleased with these results. Our Q2 AFFO payout ratio was 89.9% versus the same quarter last year at 85.3%. FFO for the quarter decreased to $0.29 per unit and our FFO payout ratio was 75.7% versus 72.7% in Q2 2018. The decrease in FFO and AFFO is due to the disposition of properties in the current and prior quarters and increases in G and A costs. G and A as a percentage of property revenue for Q2 was 6% or $6,000,000 up from Q2 'eighteen at 4.4 percent or 4,600,000 dollars This increase was primarily driven by salaries and benefit costs, the majority of which is related to our positive unit price increase of 25% year to date.
Excluding the impact of our unit price increase, G and A would be at approximately 5% of property revenue for Q2, FFO would be $0.30 per unit and AFFO would remain at $0.25 per unit. Our debt to gross book value on a fair value basis improved to 49.2% at the end of Q2 compared to 50.3% at Q1 51% at the end of Q4 2018. We ended the quarter with a debt to trailing 12 month EBITDA at 8.21x, an improvement compared to 8.56x at Q1. Our unencumbered asset pool decreased slightly to $954,000,000 from approximately $1,000,000,000 at Q1 driven by dispositions. Our balance sheet remains flexible with approximately $413,000,000 in available liquidity and with continued access to the unsecured bond market and the long term mortgage and bank markets.
Crombie is executing its plan on our strategy and capital allocation priorities. We are directing disposition proceeds into both Sobeys investments and higher returning developments. This smart capital allocation strategy will continue to improve the quality and urbanization of our portfolio and deliver higher cash flow growth over time. Given our multiple sources of capital, success with our current capital recycling program and free cash flow generation, we're confident we can fund our future investments and maintain a strong balance sheet.
As we look to
the future, we remain acutely focused on creating unitholder value through disciplined capital allocation, improving performance of our core property portfolio and our continued development and intensification programs. Thank you for listening. We're now happy to respond to your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. And your first question is from Dean Wilkinson from CIBC.
Maybe start with Clinton. The gain on the air rights coming out of Davy Street, the $7,000,000 and change, how is that going to roll through the P and L? And will that come into an FFO calculation or how do you think you're
going to be doing with that?
No, that moved into the asset base. So no, there's no impact on the P and L.
No impact on the P and L. Great. And on the joint operations credit facility, which you are call it 10%, did Crombie have to backstop any of that or how is that guaranteed?
No, there's no backstop, Dean. It's basically when we did the transaction with Oak Street, there were certain properties that were unencumbered. So we simply pledged together the property for that facility. So we have 11%, they have 89%, so there's no backstop.
So it's just straight to the asset level. That's it. Okay.
Correct.
And then just a bigger kind of broader thinking question maybe Donnie. I mean you look at the development yields and they're kind of still hanging in maybe 150 basis points, 200 basis points, I estimate, over where stabilized value would be, which affords a pickup. How tight would that spread have to come in before based on your experience developing that the decision to continue to develop may becomes a little bit too tight? Or could you just let development fall on top of acquisition cap rates to effectively say it's a newer asset, there's going to be no deferred maintenance, that sort of thing?
Some people look at 100 basis points at their limit. I think for each situation for us, Dean, it's going to be unique. We have a very unique situation with Sobeys and that's something we believe is a sustainable competitive advantage. And part of that is we have flexibility within, call it, the model that we work with Sobeys to share some of the upside and the value and or we have very low historic costs, especially given the changes in land costs in Vancouver and Toronto. So I'd say the rule of thumb, somebody might say 100 bps, but for us, there's a lot of uniqueness in the transaction that we can figure out a way to make certain things work, especially if it's strategic for both parties.
And I think for us, we're again, as I've said to a lot of people, we're interested in the long term cash flow. We do 30 year IRRs on these projects to look at cash flow growth that's whatever, 2%, 3% in Vancouver's case, some cases 4% or 5% over time. That for us is critically important to offset diversify away from retail to some degree, but also offset the lower rental growth that we get on some of our grocery anchored income streams. So it's a variety of factors. It's not just simple development math, I guess, is the way I would answer it.
And Dean, I would add to that, that the NOI yield on cost is your one NOI. And you mentioned one of the two factors. But you're right, when you do develop and you get a brand new asset, so you're going to have years of no maintenance CapEx. So that's a positive. The other thing and the other primary reason why we're into development is the cash flow growth that we get.
So it's not just the year 1 NOI that drives the initial yield relative to cap rate. But if we can get 3% to 5% NOI growth with some of these projects, which is possible, then that's another catalyst. So obviously, we want to get a great spread between our development yield and cap rates, but we also want to get the diversification that Donnie mentioned, but also the cash flow growth that's inherent in many of these projects.
Yes. No, that makes total sense.
That's it. I'll hand it back. Thanks a lot guys. Thank you.
Thank you. Your next question is from Mark Rothschild from Canaccord. Please go ahead.
Thanks and good afternoon guys. In regards to the renewal rates of just under 7% for the quarter, do you see that as a good kind of range for the next little while? And I'm curious also to what extent does this change and maybe your expectations for same store NOI following the large volume of asset sales? Good question. I think we're very comfortable with this 6%, 7% renewal rate uptick.
That's more than normal for us. We usually say mid to high single digits. So Q1 was an anomaly. We had a couple of funny leases and a very small sample size. So Q2 is much more normal.
I'd say same asset NOI as it relates to our disposition properties. I wouldn't say there's any particular reality. We're bullish that we're going to continue to have strong 2% to 3% growth in same asset NOI. I wouldn't say the sample of properties that have been disposed changes that reality. Some of the assets we sold were, call it, non core and or lower growth.
So it's possible, and I would say it is the case, that the properties that we've disposed of would have lower same asset NOI, all things equal. But I wouldn't say it's material enough, Mark, that it would move our go forward same asset NOI growth higher. But if there was a trend change after our dispositions is that our go forward same asset NOI would be higher than lower as a result of the properties we've sold. And in regards to your development pipeline, obviously, you've added quite a few projects. To what extent should we expect the development spend over the next couple of years to accelerate further?
Or are you focused on keeping it under maybe $300,000,000 a year? It's a central strategic question, Mark. So and we don't like giving guidance. But this year, let's call it $150,000,000 to $200,000,000 is the rough, call it, spend. And given our current project list, that's not probably a reasonable estimate for next year as well.
We are building a company that can torque up to a higher level of spending, but it's going to development takes time. So we're patient and want to do the right developments and especially where we're working with our partner at Sobeys, it's going to be right for them and for us at the same time. But I'd say the spending is going to be consistent, reasonably consistent. And ideally, we will torque it up because we're certainly anticipating the opportunities as we've outlined this quarter with an increase in the opportunities. And so for us, the way we look at it is we look at the amount of opportunities, then 2, the amount of entitlements and then 3, the amount we spend and then 4, the amount of completions.
And all of those four things you'd like to see increasing nicely over time. And we're still in our infancy as a development company. So we've got great inventory. Certainly, the entitlements, I think Glenn with his new position, the COO is going to focus more heavily on entitlements. Our spending is now developing a bit of consistency and we're just about to start on completions, which should drive our AFFO and NAV growth very, very nicely.
So as we evolve in the next 5 years, you'll see those numbers hopefully grow to be consistent and ideally growing over time. And that should that is the key to our strategy in driving AFFO and NAV growth. Okay, great. Thanks. Thank you.
Thank you. Your next question is from Pammi Bir from RBC. Please go ahead.
Thanks and good afternoon. Just on the
Congratulations, by the way.
Thank you. Thank you. Just coming back to the Pointe Claire DC, now that obviously, what we disclosed and it's in your materials. Can you just maybe shed some light or some additional light on terms there, the duration, the rent steps,
what those look like? Yes. It'd be a standard 20 year lease out of the gate. I can't disclose the rental steps. That's something that we're not disclosing currently.
But it will be in the ordinary norm of our leases with Sobeys. I think those are the major terms, 20 years triple net lease with, call it, market rental steps. Okay.
And would those rent steps be annual or periodic within the 20 year
term? They're periodic. Likely every 5 years would be the reality of Pointe Claire. Okay.
And not to get too granular on this, but just I'm curious about the transfer of the air rights that happened post quarter end. Can you just maybe shed some light on how the terms were structured? I guess this was going back 3 years ago. I'm just curious as to how the mechanics on the truck team worked.
We reached an agreement with our partner who's been an outstanding partner. I was on the site a couple of weeks ago and the construction is outstanding. And we think the project is coming along very well. But the pricing was determined, as you say, a few years ago. And so it was market at the time, and it's the agreement we made, and we're very pleased with, I think, at the end of the day, the result on the development will be probably double our investment.
So it's going to be a home run. I always hoped it would be a double or maybe a triple, but in baseball terms, I think it's going to be a triple or a home run right now. And we give full credit to our partner Westbank for that and our own team working very hard on it as well. So the sale is a technicality and a timing issue. It's all it really is, Tommy.
Okay. That's helpful and good progress on that one. Last one for me, just in terms of the CapEx and TIs, they seem to be running below 2018 levels from a maintenance standpoint. So I'm just curious if you've given any thought to perhaps revisiting the reserve at all after you factor in some of the dispositions as well?
Sure. I would say we're a bit surprised because we thought the $0.90 is really a reflection of last 3 year average, effectively this year and prior 2 years. And we may well look at it. I think part of the reality is, as you noted, some of the properties that we disposed perhaps were slightly more using of same maintenance CapEx and TI. And the trend seems to be for the last 12 months or so that we've been under spending against the $0.90 We chose to leave it at $0.90 But based on year to date, our AFFO would be over $0.01 higher if it was based on actual.
We make it a bit more spend. The spend tends to occur in the summer and is on a cash basis. So we may catch up some of that, but we'll be looking closely, Pammi, by the end of this year. We usually only change it in January. But if it's certainly staying on the current trend, then we'll be looking to reduce it.
And part of that will be motivated by the properties that we have recycled.
Okay. Thanks very much, Glenn.
That's helpful. Thanks.
Thank you. Your next question is from Sam Damiani, Santee. Please go ahead.
Thank you and good afternoon everyone. Good afternoon. I wanted to touch on the development pipeline first of all. I noticed the Lind Valley asset seems to be pushed back off the front burner. Was there a reason for that?
And also, I was just wondering, as you look at the Vancouver market, do you feel confident enough to start another residential development in that market? And if so, which site might that be?
Sam, we're I mean, Lynn Valley
is something we are continuing to work on over time. And in development, things get pushed up, they get pushed back depending on circumstances. So and some of it in our case, as I said alluded to a little earlier, it depends on our partner situation. So Lynn Valley, it may have been, call it, slowed down a bit, but it's certainly not off the radar. We are constantly working on it.
And development as a whole, remember, we're in Vancouver, we're generally looking at purpose built rental. We do look at condo on a micro market basis, what's demanded in that local market. So we could do condo and purpose built rental. And we are working importantly on East Broadway and we are working on King George Highway as well as Royal Oak at the same time. So our view on the market is it's still a solid market.
It may have come off 5% or 10% in terms of condo pricing, but rental numbers seem to be holding. And so and especially where we're working with numbers are dated back a year or 2 in our pro formas, we've we're generally the numbers that are there today, even if they come off a little bit are still exceeding our budget. So the numbers are very compelling when you've got large increases in the value of the land and the highest and best use is something that's a full development. So I don't think it really pulls us back too much. They're certainly very cautious and certainly very mindful of what's happening there and working very closely with our partner Westbank, who is working with us on East Broadway to understand those changes for market and try to predict what's going to happen when the project is completed a few years from now.
So anyway, I don't know a long winded answer, but I hope that's been helpful. That is helpful. Thank you. Just shifting over to the fair value disclosures. With the Oak Street sale committed and set to close in the latter half of this year, are those like that $193,000,000 pricing, is that reflected in your fair value disclosure at Q2?
Yes, it is. It is. And could you just clarify as well the extent to which, if any, the properties under development are included in the fair value at a premium above cost? No. We remain, I would say, very conservative in that respect.
Our fair value that we reflect in Note 3 to our financial statements is 100% based on trailing 12 month NOI and current market cap rate for the existing retail or operational use. There is nothing in our fair value for fair value of air rights. There's nothing in our fair value for any mark to market of projects that are in our top 6, for example. They will come into NAV based on our current methodology when those projects are completed. We continue to evaluate the accounting per launch, etcetera, to make sure that we're not too conservative, but that's been our general methodology.
We'll continue to evaluate that. We're mindful of what other REITs are doing, so we'll pay attention. But the current methodology, Sam, is as I've described it, and it's basically only based on income in place with no additional add on value. And Sam, there's a number of solid methodologies out there, as Glenn alluded to, where people do provide fair value once they've got a property entitled. So we are certainly looking at it.
I think I can safely give a range values that would be in the 100 of 1,000,000 of dollars of air rights values that are we currently own. And it would be something that, as I said earlier, we're going to ask Glenn to really focus hard on entitling those projects. And given those level of entitlements, we're looking at how other people who are maybe a little more aggressive than we are and their interpretation and composition of fair value to say what's apples to apples here and whether we should be doing it as well. So there's significant value, we know it. It's not recognized under IFRS.
And so over the next few quarters, we'll come to an opinion and maybe different than what we've done in the past. Thank you. Just one last question. On the Ocado development in Montreal, comes out to around $3.50 a square foot. I'm just wondering if you could help us understand what costs to the project are perhaps being borne by Ocado or Solvies, not by Crombie?
I wouldn't get in it terribly deeply, Sam. I think it's safe to say, our primary responsibility is to own the land and build the building to a very specific specification. Most of the technology and infrastructure inside the building would be the Ocado Sobeys contribution. And it's really that simple. It may be a higher amount per square foot.
There's obviously with the height and depth and weight of this building, there's a lot of intensity around foundation conditions and site conditions. So there's a lot of meticulous work in getting this site ready and then building the structure.
It's a tall structure, it's a
big structure, 285,000 square feet, a lot of parking lot and area for vehicles to come and go. So that's essentially it though. Everything inside the building would be, as you would expect from a landlord's point of view, would be the tenants' oversight. And hopefully that gives you some color. That's helpful.
Just what is the exact location of the site? The exact location? We'll get that for you offline, if that's okay, Sam. We'll put it to you, but point clear, but I don't think I've got specific address at the tip of my tongue.
Appreciate it. Thank you.
You're welcome.
Thank you. The next question is from Tal Woolley from National Bank. Please go ahead.
Hi, good afternoon. Good afternoon.
Maybe just following along Sam's line of questioning about the Wallach DC. Can you compare that sort of per square foot cost to maybe one of the others, so we've automated the season, Terrebonne or Avon?
I haven't actually thought about it in that context, Gal. We could have a look at it, but fundamentally, they're different. What is unique about the Point Claire facility is that it's for the Ocado engine. The other 3 DCs are actually very high end high-tech, as you know, they're powered by the VCON system from Europe that is a very highly automated distribution center, but not for the e commerce side. So they are different.
They're both very high-tech and very ultra modern. But we have not done a comparison to look at it that way. It might be something interesting to do, but I'm not sure it's something that's all that powerful.
Okay. And any sense too yet on how many more of these are possible?
Yes. We've said it, I think previously, where there may be a few more of these larger Ocado DCs in the country. We'll leave it to Sobeys to say how many there are and when. But importantly, in addition to these CFCs, there is potential for, call it, spokes or hub and spoke type system where there are smaller facilities in high traffic areas within the major centers in the country that are not insignificant for a company like Crombie potentially. And so we're quite excited about working with Sobeys to be part of their more fulsome network.
And we think it could be a significant vehicle for us to invest. And it's we think it's given the nature of it, it's state of the art, it's e commerce, it adds to our retail related industrial part of our portfolio and allows us to grow that in a very solid risk adjusted basis.
Okay. And then beyond Avalon, how many other enclosed malls do you guys
own? Technically, I'm going to let Glenn answer, but I'll jump in and I basically say none. We have some listed on our MD and A obviously, but they're so insignificant in my mind that it's really Avalon and it's a regional and it is, let's call it, the only regional in Newfoundland. So it behaves differently. It has behaved like a super regional.
And the other enclosed shopping centers are really just, call it, technical classification more so than true enclosed centers. Okay. But you don't have to take a glove off your hand to count them all. It's about 5, actually 4 to 5. Okay.
And so I guess my question is this. I don't think you have a Hudson's Bay lease there either, right, correct? No. No. So like you don't post these transformations like you don't really have much more anchor risk and it's sort of not a core asset class.
It's a great investment. I get it. But is this a core holding long term for the company? Because I could see where maybe you could look at this might be one of those properties that you could fetch a good price for now that it's been transformed?
Yes. We're super enthusiastic on Newfoundland and Avalon's position in the province. It's the only mall for within 3 hours of airtime of flight. So it's a very dominant shopping center. And we're very enthusiastic about the recent announcements of our tenants and how good they are and how well they they're going to be newer format stores in most of these situations.
So we think they'll fit perfectly with the Newfoundland market and for the customer base at Avalon and really draw, I think, terrific traffic for our CRU tenants. So we're really excited about it. And in terms of the future of the mall, we don't ever comment on that. We're very excited about the mall. We love being its owner.
So it's a unique property within our portfolio. So we're excited about it. Okay. That's great. Thanks very much.
Thanks, pal.
Thank you. There are no further questions. You may proceed.
Thank you very much. And we look forward to updating you on our next call in the Q3 call and probably time is up in November. Have a good day.
Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.