Good afternoon, ladies and gentlemen, welcome to the Crombie REIT Q2 fiscal 2019 conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require assistance, please press star zero for the operator. This call is being recorded on Thursday, August 8, 2019. Now I'll turn the conference over to Clinton Keay. Please go ahead.
Thank you, Joanna. Good day, everyone, and welcome to Crombie REIT's second 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 Clow, President and Chief Executive Officer, Glenn Hynes, Executive Vice President and Chief Operating Officer, and myself, Clinton Keay, 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 our 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 a 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. I often say that Crombie has 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 three months. This quarter is no exception. Crombie continued to grow and evolve as we welcome new tenants to our properties, watched 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 a 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, work, shop, 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 their return to investment-grade status with DBRS 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. Now our sixth active major development, Pointe-Claire is an exciting opportunity for Sobeys and Crombie to work together to lead the way in grocery commerce in Canada. Pointe-Claire site will be an approximate 285,000 sq ft Customer Fulfillment Center powered by Ocado's world-leading online grocery engine and packing technology. The site will become Empire's Voilà, Metro and IGA e-commerce distribution hub, serving Quebec and the Ottawa area. Crombie's total cost of the project is approximately CAD 100 million, including land, and will produce a yield of 6%-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 six of the additional properties located in VECTOM markets. Our active development pipeline, which we anticipate will create significant value for our unit holders, remains on track and on budget, with roughly CAD 300 million invested to date. Yields on cost for our first six projects remain, on average, in the range of 5.4%-5.9%, which we expect will translate into CAD 1-CAD 2 of net asset value per unit within the next one to two 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 three projects moved to the pre-planning phase, two in Halifax and one in Langford near Victoria, BC.
Two of these projects are new to the pipeline. This increases the number of projects in pre-planning to seven. Park West is in Halifax and is in a prime location abutting adjacent retail and residential, where Crombie is currently exploring mixed-use development options. Westhill is a multi-unit residential addition to our existing Scotia Square commercial complex in Halifax's downtown core. Belmont Market phase two is currently contemplated as the final piece of the larger 160,000 square foot shopping center development, with the 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 facilities 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 second quarter, Crombie sold investment properties for total proceeds of CAD 186 million. Dispositions included an 89% partial interest portfolio comprised of 26 properties across the country, a 39,000 sq ft retail property located at Markham Road in Toronto, and a land sale in Langford, B.C. After June 30th, Crombie closed on an additional three assets for total proceeds of CAD 49 million. 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 CAD 193 million. Transaction is expected to close this fall, bringing total 2019 proceeds to approximately CAD 530 million.
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 and 2019, Crombie disposed of approximately CAD 800 million of assets and has reinvested approximately CAD 300 million 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 on 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. Good day, everyone. A significant milestone is fast approaching in Vancouver at Crombie's first major mixed-use project, Davie Street. On August 14th, we celebrate the structural completion at the topping off ceremony. Our experienced development team and partner Westbank are doing a wonderful job at developing this CAD 181 million, 306,000 sq ft property into the Vancouver skyline. We're confident in our forecasted yields on cost in the range of 5.2%-5.6%. Here, we own 100% of the retail and 50% of the residential rental. The new Safeway store, at approximately 44,000 sq ft, should open in late 2019, with early 2020 openings for CRU tenants and apartment occupancy commencing in Q3 of next year. The CAD 57.88 million redevelopment at Avalon Mall is progressing well as construction continues and leasing activity ramps up.
The Rec Room by Cineplex opened in April, and Winners HomeSense opened in their new and expanded location on August 6th, just two days ago. We have executed redevelopment leases for over 53,000 sq ft with H&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 sq ft in the redevelopment area has been executed to date, and we continue advanced discussions with other national anchor and CRU tenants. At our CAD 93 million 160,000 sq ft grocery anchored retail center, Belmont Market, 108,000 sq ft has been added to GLA to date, with committed occupancy of 92.9%. During the quarter, four 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 three retail buildings totaling approximately 23,000 sq ft.
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 in Old Montreal, construction at Le Duke progresses as the above-grade structure and base building work is now well underway. Upon completion in early 2021, this CAD 123.5 million 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 Bronte 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 622 underground parking spaces is expected to be completed in Q3 of 2021, with total project costs estimated at CAD 277.2 million.
Crombie is a 50% owner alongside our partner Prince Developments at both Duke and Bronte. Pointe-Claire, as Donnie mentioned, located 3 kilometers from Montréal-Pierre Elliott Trudeau International Airport , was acquired in the first quarter 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 sq ft ultra-modern customer fulfillment center will be home to the Voilà par 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 remain solid. An entrepreneurial approach to leasing has helped to attract and retain tenants in all markets.
We end the quarter with 126,000 sq ft of committed space, which will boost future NOI growth. 117,000 sq ft of renewals were completed in the quarter with a solid increase of 6.7% over expiry. Year-to-date, we renewed 299,000 sq ft at an increase of 2.1% over expiring rent. During the first six months, retail renewals were strong, with 127,000 sq ft 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. With that, I will turn it back to Clinton, who will highlight our second quarter financial results and discuss our capital and development program funding approach. Clinton.
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 CAD 0.0025 from CAD 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 CAD 0.29 per unit, and our FFO payout ratio was 75.7% versus 72.7% in Q2 2018.
The decrease to FFO and AFFO is due to the disposition of properties in the current and prior quarters and increases in G&A costs. G&A as a percentage of property revenue for Q2 was 6% or CAD 6 million, up from Q2 2018 at 4.4% or CAD 4.6 million. 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&A would be at approximately 5% of property revenue for Q2, FFO would be CAD 0.30 per unit, and AFFO would remain at CAD 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 and 51% at the end of Q4 2018.
We ended the quarter with a debt to trailing 12-month EBITDA at 8.21 times, an improvement compared to 8.56 at Q1. Our unencumbered asset pool decreased slightly to CAD 954 million from approximately CAD 1 billion at Q1, driven by dispositions. Our balance sheet remains flexible with approximately CAD 413 million in available liquidity and with continued access to the unsecured bond market and the long-term mortgage and bank markets. Crombie is executing as planned 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 are now happy to respond to your questions.
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 three-tone prompt acknowledging your request. If you're using speakerphone, please lift the handset before pressing any keys. Your first question is from Dean Wilkinson from CIBC. Please go ahead, Dean.
Thanks. Morning, everybody.
Good day.
Maybe start with Clinton. The gain on the air rights coming out of Davie Street, the CAD 7 million and change, how is that going to roll through the P&L, and will that come into an FFO calculation?
No, it will not.
How do you account for that?
No, that moves into the asset base.
Okay
impact to the P&L.
No impact on the P&L. Great. On the joint operations credit facility, did Crombie have to backstop any of that, or how's that guaranteed?
No, there's no backstop, Dean. Basically, when we did the transaction with Oak Street, there were certain properties that were unencumbered. We simply pledged together the property for that facility, till we have 11%, they have 89. There's no backstop.
It's just straight to the asset level. That's it. Okay.
Correct.
Just a bigger, broader thinking question maybe, Donnie. You look at development yields, and they're still hanging in maybe 150, 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 maybe comes a little bit too tight? 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 as their limit. I think for each situation for us, Dean, it's going to be unique. We have a very unique situation with Sobeys. That's something we believe is a sustainable competitive advantage. Part of that is we have flexibility within, call it the model that we work with with Sobeys to share some of the upside in the value, and/or we have very low historic costs, especially given the changes in land costs in Vancouver and Toronto.
Yeah.
I'd say the rule of thumb, somebody might say 100 basis points, 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. 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 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. It's a variety of factors. It's not just a simple development math, I guess, is the way I would answer it.
Dean, I would add to that the NOI yield on cost is year one NOI. You mentioned one of the two factors. You’re right. When you do development, 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. It’s not just the year one NOI that drives the initial yield relative to cap rate. If we can get 3%-5% NOI growth with some of these projects, which is possible, that’s another catalyst. Obviously we want to get a great spread between our development yield and cap rate, 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.
Yeah, 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.
Mark.
In regards to the renewal rates of just under 7% for the quarter, do you see that as a good range for the next little while? 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. Q1 was an anomaly. We had a couple of funny leases and a very small sample size. Q2 was 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. 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.
I wouldn't say it's material enough, Mark, that it would move our go-forward same asset NOI growth higher. 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.
Okay, great. Thanks. 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? Are you focused on keeping it under maybe CAD 300 million a year?
It's a central strategic question, Mark. We don't like giving guidance, but this year, let's call it CAD 150 million-CAD 200 million is the rough spend. Given our current project list, that's probably a reasonable estimate for next year as well. Development takes time. We're patient and want to do the right developments, and especially where we're working with our partner at Sobeys, it's got to be right for them and for us at the same time. 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.
For us, the way we look at it is we look at the amount of opportunities, then two, the amount of entitlements, then three, the amount we spend, then four, the amount of completions. All of those four things you'd like to see increasing nicely over time. We're still in our infancy as a development company. We've got great inventory. Certainly the entitlements, I think Glenn, with his new position as 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. As we evolve in the next five years, you'll see those numbers hopefully grow to be consistent and ideally growing over time.
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.
Congratulations, by the way.
Thank you. Just coming back to the Pointe-Claire DC, now that obviously it is fully disclosed, and it is 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?
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 would 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. Would those rent steps be annual or periodic within the 20-year term?
They're periodic. Likely every five years would be the reality of Pointe-Claire.
Okay. 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 three years ago. I'm just curious as to how the mechanics on the pricing 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. We think the project is coming along very well. The pricing was determined, as you say, a few years ago. 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. 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. We give full credit to our partner, Westbank, for that and our own team working very hard on it as well.
The land sale is a technicality and a timing issue. It's all it really is, Pammi.
Okay. No, 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. I'm just curious if you've given any thought to perhaps revisiting the reserve at all, and after you factor in some of the dispositions as well.
Sure. I would say we're a bit surprised because we thought the CAD 0.90 is really a reflection of the last three-year average, effectively this year and prior two years. 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 the same maintenance CapEx and TI. The trend seems to be for the last 12 months or so that we've been underspending against the CAD 0.90. We chose to leave it at CAD 0.90. Based on year-to-date, our AFFO would be over CAD 0.01 higher if it was based on actual. We may get a bit more spend. The spend tends to occur in the summer and is on a cash basis.
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. If it's certainly staying on the current trend, we'll be looking to reduce it. 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 from TD. Please go ahead.
Thank you, and good afternoon, everyone.
Sam.
I want to touch on the development pipeline, first of all. I noticed the Lynn Valley asset seems to be pushed back off the front burner. Was there a reason for that? Just wondering, as you look at the Vancouver market, do you feel confident enough to start another residential development in that market? If so, which site might that be?
Sam, Lynn Valley is something we are continuing to work on over time. In development, things get pushed up, they get pushed back, depending on circumstances. Some of it, in our case, as I said, alluded to a little earlier, depends on our partner situation. 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. 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. We could do condo and purpose-built rental. We are working importantly on East Broadway, and we are working on King George Highway, as well as Willow Oak at the same time. 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, rental numbers seem to be holding. Especially where we're working with numbers that are dated back a year or two in our pro formas, the numbers that are there today, even if they come off a little bit, are still exceeding our budget. 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. 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 in the market and try to predict what's going to happen when the project's completed a few years from now. Anyway, I don't know. A long-winded answer, but I hope that's been helpful.
That is helpful. Thank you. Just shifting it over to the fair value disclosures. With the Oak Street sale committed and set to close in the latter half of this year, that CAD 193 million pricing, is that reflected in your fair value disclosure at Q2?
Yes, it is.
It is. Could you just clarify as well, the extent to which, if any, the properties that are in 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's 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 six, 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, et cetera, to make sure that we're not too conservative. That's been our general methodology. We'll continue to evaluate that. We are mindful of what other REITs are doing, so we'll pay attention.
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.
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. We are certainly looking at it. I think I can safely give a range of values that would be in the hundreds of millions of CAD of air rights values that we currently own. It would be something that, as I said earlier, we're going to ask Glenn to really focus hard on entitling those projects. Given those level of entitlements, we're looking at how other people who are maybe a little more aggressive than we are in their interpretation and composition of fair value to say, what's apples to apples here, and whether we should be doing it as well. 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 it may be different than what we've done in the past.
Thank you. Just one last question. On the Ocado development in Montreal, it comes out to around CAD 350 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 Sobeys, 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. It's really that simple. It may be a higher amount per square foot. Obviously, with the height and depth and weight of this building, there's a lot of intensity around foundation conditions and site conditions. 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. That's essentially it, though. Everything inside the building, as you would expect from a landlord's point of view, would be the tenant's oversight.
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 flip it to you.
That's fine.
Pointe-Claire. I don't think I've got the civic address at the tip of my tongue.
Appreciate it. Thank you.
You're welcome.
Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star one. The next question is from Tal Woolley from National Bank. Please go ahead.
Hi, good afternoon.
Good afternoon.
Maybe just following up along Sam's line of questioning about the Voil à DC . Can you compare that sort of per square foot cost to maybe one of the other Sobeys automated DCs in Terrebonne or Vaughan?
I haven't actually thought about it in that context, Tal. We could have a look at it, fundamentally, they're different. What is unique about the Pointe-Claire facility is that it's for the Ocado engine. The other three DCs are actually very high-end and high-tech. As you know, they're powered by the Witron system from Europe. That is a very highly automated distribution center, not for the e-commerce side. They are different. They're both very high-tech and very ultra-modern. We have not done a comparison to look at it that way. Might be something interesting to do, but I'm not sure it's something that's all that powerful.
Okay. Any sense, too, yet on how many more of these are possible?
Yeah, 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. Importantly, in addition to these CFCs, there is potential for, call it spokes or a 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. So we're quite excited about working with Sobeys to be part of their more fulsome network. We think it could be a significant vehicle for us to invest. We think, given the nature of 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. Beyond Avalon, how many other enclosed malls do you guys own?
Technically, I was going to let Glenn answer. I'll jump in, and I'd basically say none. We have some listed on our MD&A, obviously. 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. It behaves differently. It just behaves like a super regional. The other enclosed shopping centers are really just, call it, technical classification more so than true enclosed centers.
Okay.
You don't have to take a glove off your hand to count them all. It's about five-
Yeah.
Actually four to five small malls.
Okay. I guess my question is this, I don't think you have a Hudson's Bay lease there either, right? Correct?
No.
No. Post these transformations, 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, is this a core holding long term for the company? 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.
We're super enthusiastic on Newfoundland and Avalon's position in the province. It's the only mall within three hours of air time, of flight. 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're going to be newer format stores in most of these situations. 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. We're really excited about it. 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. It's a unique property within our portfolio. We're excited about it.
Okay, That's great. Thanks very much.
Thanks, Tal.
Thank you. There are no further questions. You may proceed.
Thank you very much. We look forward to updating you on our next call in the Q3 call, and probably time's 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.