Please welcome to the stage Mr. Don Clow.
Well, good morning, everybody. And welcome, everyone, and thank you for joining us for what is Crombie REIT's first ever Investor Day. We're very excited. I'm very excited to be here today and showcase our outstanding partners in Empire, our industry leading team at Crombie, our strong grocery anchored portfolio and our world class opportunities to grow the retail part of our business, our retail related industrial and our mixed use properties in Canada's largest cities. We're pleased to be joined here today by the Chair of our Board, Trustees, Michael Knowlton and the CEO and CFO of our major shareholder Empire Company, Michael Medline and Mike Vels, from whom we will hear in a few minutes.
Our legal counsel has advised me that I need to read the following. This presentation is being recorded in live audio and is available on our website at www.crombiereit.com. Slides to accompany today's presentation are available on the Investors section of our site under Presentations and Events. Today's discussions include 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. That's a mouthful. Our teams have worked very hard to put together a series of presentations for today on a variety of topics, as you can see behind me. That will be presented by Empire and our senior leadership team to hopefully show you a clearer picture of both Empire and Crombie's strategies and the sustainable competitive advantage of creating value in the real estate industry via the strategic relationship between the 2nd largest grocer in Canada and a strong retail related REIT.
Our format is to hear from Empire and to do a Q and A with them. Then you'll hear from the Crombie team. We'll take a little break and then hear from the remainder of the Crombie team when we'll do one Q and A at the end of the Crombie presentations. And so it's my distinct pleasure to introduce Michael Medline, CEO of Empire Company and Mike Bells, Empire's CFO, who have been extraordinary partners for me and for as supporters of our entire Crombie team. Under Michael's leadership, we are working more closely with Mike Mark Holly, the Senior VP of Real Estate and the entire Sobeys Empire team to align our strategies than ever before.
And we're creating synergies that ultimately create significant value in both the Real Estate and the Grocery Industries. Gentlemen?
Thank you for the senior team, Donnie and Glen and Clinton team for having us here today. Donnie called me, I don't know, about 6 months ago and said we're going to have an Investor Day. And I said, That's nice. But I didn't know that we were going to be served up as the appetizer on the Investor Day. So but we're very pleased to be here today at your and to speak to so many of the investors here.
It seems like a great turnout. Appreciate it. This room holds a lot of memories for me. This is where I was interviewed for my job by the Board to get the job as Empire CEO, which was a good day. And this is also where we decided to make the acquisition of Farm Boy.
So this room means a little bit to me. Here's what I would Mike and I thought we'd go at it today. We're just going to have a few slides, so don't worry. This isn't going to be long. It's not going to be like the other presentations.
It's going to be very few slides. And we're going to then open it up for questions. So like as we're talking, like think of some questions because most of this should be Q and A. And but I just want to say, 1st of all, that it shows the kind of relationship that is now going on between Empire and Crombie, which if as a shareholder, you should feel good because there's always that friction. It's not always perfect.
There's negotiations that go on. Crombie looks after their business. We look after our business. We're not a controlling shareholder. We hold a lot of shares in it.
So we have a lot of the same concerns and see the same opportunities that you do. But we're also a partner, and we're a partner on so many different sites, as you'll hear about all day today. And I would say, Donnie, that over the last 3 years, every month, every quarter, our relationship gets better in terms of making the pie bigger for both our companies. And I appreciate the relationship with Donnie. To the extent that he would even invite us here today, I really appreciate that.
So the first slide, yes, so I'll do it that way. And this is I've only got 2 slides. This is the most self serving slide I'm going to be presenting today, which is that over the last few years, Empire, and you should care about that because we're major partners with Crombie, has improved quite a bit. And you can see here that over the last few years, our stock in fewer than 3 years has pretty well more than doubled. And we've seen and that's because of a lot of things that we've done.
This is not just luck or the economy. It's hard work by the team and a lot of tough decisions, which I'll speak about in a minute. I think what we're proudest of are the gains we're making in terms of taking costs out, improving our cost of goods sold, our margin and growing sales while we're doing that. And you can see in almost well, every single metric that we've had over the last few years, every year, we've been improving. And so but it's a team effort.
And in fact, if you track it, Clinton's done pretty well because he did all this while he was working with us over at Empire. And now since he's joined Crombie, it's gone again. So he's sort of the lucky charm. So if we have a bad quarter, I might be calling Clinton back to help us out. But you can see here and so this is it's both self serving, but to give you some faith that the Empire Company, the parent of Sobeys and all of our other banners, is in a healthier situation, as Mike will talk to you about in a few minutes, than we have been in, well, ever, ever in our history.
And it's been quite a comeback for the team as we've done that. The next slide is really what I wanted to talk to you about today, and that is I wanted to just tell you how we're doing this and what we really concentrate on. And the key portion of this was resetting the foundation. Empire Company was a regional company. It had 4 regions that were autonomous with a national umbrella over it that had no power over the regions.
And everyone said that we couldn't change that. We couldn't change that. And but there was no way to be successful while having this regional structure. So what we had to do was we had to make some very tough decisions. And we took out almost 1,000 people from our business.
We took out layers of the company, and we really made things a lot smaller, a lot leaner. Because of the regional setup, we had 14 people buying pets. We now have 3 people buying pet in across the country. And that was the kind of rationalization we had to go through. And we called most of this Project Sunrise.
And Project Sunrise was the umbrella we put everything So it was to reset our structure, take out costs, unfortunately, take out some good people, but also get going after cost of goods sold, where because of our regional structure and the way we've been led, we were leaving 100 of 1,000,000 of dollars on the table. And so Sunrise, which is going coming to an end this spring in May, has been pretty well an unmitigated success. On any given day, it never felt like that. But when you look at it quarter over quarter, year over year, we said we're going to take out over $500,000,000 We now say we're going to take out $550,000,000 worth of costs in our business, including margin and SG and A. And it has really allowed us to double our EBITDA margin, and every single metric in the company has come along.
What also happened while we were doing that is sales started going up. Sales started going up because we were running the company better. And so you can see here that and that shows up in a few places, bolster our brand and win in our stores. And bolster our brand is really important to me. And this week, we announced a big partnership with the Canadian Olympic team.
And people say, Why do you do these things? Why are you doing sponsorships? Why do you market? Why do you and key to success is to bolster your brand, really. And so we could take out $500,000,000 $550,000,000 of cost and so what if you're not growing market share, if you're not growing sales.
And so we decided to try to do a few things at the same time, which was dangerous and which worried us at the time, which was we were going to reset our foundation. We're going to build our brands and grow our market share at the same time, and we're going to set ourselves up for strategic success afterward. And so while we're taking out the $500,000,000 we invested a lot in understanding each of our banners across the country and their brands. Safeway, IGA and Sobeast, the 3 biggest, concentrated mostly on those but also on the Thrifty's and the Foodlands across the country and a lot of our other banners. And we had a we now have brand promises in place for each of the banners, how to market to people what they stand for.
And we're seeing the early returns from that in terms of gaining market share and having 9 consecutive quarters of same store sales growth. So very happy about that. And winning in our stores, we now have a culture of accountability, one where we look at operational reports every single week and question how we're doing across the country throughout every store. And that sort of culture of accountability and a new pride and morale in the stores across the country is paying off. So very, very happy with how we've reset our foundation, bolstering our brand and winning in our stores.
But as I said, this wasn't enough. This wasn't enough for us because we could come out of this and still not be set up to win against the competitors, the major the L and the M competitors, the Walmarts, the Amazons. And so we had to do more. And one thing that we had to decide very quickly was, would we expand FreshCo outside of Ontario? And we did decide to do that.
We are now expanding. We're going to have 65 FreshCo stores in Western Canada, and we're going to have about 19 by the end of this fiscal year. And the idea behind that was that we had many, mostly Safeway stores that were not in the right market for a full service store, and we had the opportunity to convert them to FreshCo, throw the customers and make more money. And but this was very early on in the turnaround with Project Sunrise. It was a very tough decision.
Glad now we made it, and we were able to segregate the work so it didn't throw us off. And early returns from the FreshCo stores, we're extremely pleased with. Customers like the store for a new banner in a new market, doing great. Competitors don't like it, which is good. They're fighting us.
And but we're committed to putting up 65 stores out there. And along with this, we also noticed that we had an issue in urban areas. And urban areas represent 70% to 80% of growth in grocery retail the last couple of years and as we forecasted going forward. And we had to do better in big urban markets, especially here in the GTA. And so people always say, well, you went out and you did you bought this partnership with e Commerce with Ocado, then you did Farm Boy.
It's not like that. We had a strategic plan, and we said to ourselves, we have to be better in discounted, and we have an opportunity in the West, and we have to be better in urban markets. And we and part of winning in the urban markets is e commerce. And we had this great opportunity, the only business initiative in my entire career that I said we had to have once I saw it because plan B is horrible. Plan B in e commerce, peaking in stores or trying to do it without an integrated system is horrible.
You never make money. You can't get to scale. You wreck your stores. Not good. So everything else I've ever seen in my career, you could figure out a way.
You could have a plan B. Plan B without Ocado was not pretty. And so we went to work, and especially Mike, our CFO, in terms of securing the rights to have exclusive rights to avocado in Canada. It is a killer concept. Can't wait to get it open in the spring in the GTA and then in Montreal and because it was a real hole.
So that filled 2 holes. 1, we did not have a good answer for e commerce that would ever be scalable. We would have had one where we would have gotten through it. We would have been able to deliver to homes of our customers, but it would not have been pretty. It would not have made us money.
It would not have been scalable. But what it so we had the e commerce answer, and we had an answer for the GTA, Montreal. And there's probably at least 2 urban centers you can guess at that we'd like to put CFCs and dominate the e commerce market. So that was the e commerce solution. Then we also and this one more fell in our lap, which was we had a burgeoning relationship with Farm Boy and the 2 owners and with the private equity group that owned them.
We were talking to them for a long, long period of time. And then suddenly, when they decided they wanted to sell themselves, we were in a position where we were able to make a proactive bid to buy the strongest not I was going to say grocery strongest retail brand right now in the country in Farm Boy, the most loyal customers, fantastic financials, the ability to grow because they only had 26 stores when we bought them. And so now we went from a position 1.5 years ago, Mike, where we did not have an answer in urban markets because I think we do have a good answer in rural and mostly suburban, to where I think we can grow market share faster than anyone else in urban markets and really thrill the customer. And then we've now we're starting to invest in innovation. And if you look at this, it really does go from left to right.
It's where my time and Mike's time and the team's time were spent. We first had to get the foundation right before you can do other things. Certain cases, we had to cheat and go after things like Farm Bureau Ocado with our voila e commerce effort a little earlier because we saw an opportunity, but we didn't think it would slow us down on Sunrise. And now there's 2 things we got to do. We've got to execute, and we can execute even better than we're executing on a daily day to day basis.
We can do better by investing in our stores because the stores, bricks and mortar stores, for all my talk about e commerce, are going to provide over 100% of our cash flow going forward for the next 5 to 7 to 10 years. Bricks and mortar stores are going to fund all that. Suddenly, even though we're going to have a great e commerce solution, we're going to dominate. It's going to be a small portion of the market. And so we're going to renovate in our stores.
We're going to look to see if there are any additional greenfield sites that make sense to us, and we're going to innovate. And those don't necessarily they actually go together because when you're executing really well, you can innovate. And when I think about the things we can do in terms of innovation, maybe some of you think about apps and all that sort of thing. I do think about that. But there's so much we can do behind the scenes to make ourselves far more productive.
There's no reason we should trade at a discount on EBITDA margin to our competitors in the food industry, and we do still. We can close that through better execution, especially through innovation, And we can have more customer facing. So the Ocado deal that we did for Voila, that's innovation. You're going to see more and more money. So that's how we thought about our progression on our strategic focus as we went through this.
Right now, we are finalizing the work to go this fall and winter to our Board, about another 3 year plan to take us to the next level to and it's no secret that what we want to do is really increase our cost improve our cost of goods sold and to grow our sales so that we're more productive in the store. We still have that gap on EBITDA margin that we will close with our competitors. And we also think that we can grow faster. Just at a vendor meeting this week, we promised them 3 years ago we'd grow faster than any other food retailer in the country. We have.
And we need another 3 year plan and a 3 year plan after that to grow faster even than that. So everything's in place to be successful, and it comes down now to leadership, execution, innovation. And we're very, very optimistic about that. Think one of the strengths we have is we have a great REIT that we can work with. A lot of what we're doing is based on our bricks and mortar, but it's also based on the CFCs we're going to be putting up.
So there's lots of opportunities to do things that make sense for Crombie and for us. But we're very optimistic and but we're not stopping. I like to tell our investors, and maybe some of your firms own us as well as Crombie, we're not going to take a holiday after finishing Project Sunrise. We're going to just go right from Project Sunrise into a new strategic plan that is at least as exciting as that one. So that's what I want to talk to you about today.
And but I hope you got some questions because I enjoy answering the questions. And if you want to poke away at anything I said, I'd appreciate that. But before we do that, Mike, why don't you come up and talk a little bit about our relationship with Crombie?
So I thought I'd just spend a couple of minutes giving some color on how the two companies work together. We're of course 2 public companies. We're just like you. We're a shareholder in Crombie and very, very interested in ensuring that our investment performs. But we do treat the companies like 2 separate public companies with appropriate governance.
Our appointees on the Board understand Sobeys' perspective and Empire's perspective towards any item that comes before the Crombie Board. But our members on the Board look after the Crombie interest. And it's about maximizing the value of Crombie above all else. But on a day to day basis and at a strategic level, the fact that we are significant shareholders drives us to figure out how we can be most synergistic. We've since I started in the company and hired a very talented real estate professional, Mark Holly, he has been the driver and the leader to make sure that the relationship between Crombie and Empire is the best that it can be, that it truly is a win win.
And the way we look at it, the first thing we did was be very clear about what our respective responsibilities are. So, Empire, we are laser focused 20 fourseven on managing our great portfolio of grocery stores and making sure that we continue to find even better and more ways to inspire our customers and use our real estate portfolio to be the best grocers we can be and be the fastest growing grocer in Canada. Where there's opportunities for mixed use development or we can take maybe the control or the position we have in a particular piece of real estate and translate that into more significant value, we're allowing Crombie to do that. And if Crombie is willing and able and it fits into their pipeline, then we've had some great transactions that we've completed recently where we may share in some of the upside, but at the end of the day, it's a Crombie transaction. And we do what's good for us, but at the same time ensure that Crombie can get as much value out of those decisions as possible.
What's good for us is good for Crombie. On a day to day basis, Crombie is our largest landlord. There are all kinds of opportunities as we make decisions on a day to day basis. So we're very much aware of the Crombie pipeline. It's our responsibility and Mark's mandate to make sure that everybody at Crombie understands what our short- and long term plans are for our portfolio and so that they can plan ahead and make sure that whether it's just a small tenant improvement or something that's a little larger and involves a major change in our network that Crombie knows what's going on.
So it just makes sense to operate that way and make sure that every decision that we make between the two companies adds value to our respective shareholders. And we always get questions from shareholders here and there when Michael and I are doing Investor Relations is, so how do you feel about your percentage holding in Crombie? And the answer is and it's exactly the same answer every single time. We're very happy with it. We have no plans to change it.
We're super happy with the relationship. It's a relationship that makes sense for both companies. And it is all about the people and it is about the relationship. We do not control Crombie, but we have a great relationship between the two teams that we believe will add value to both companies. And so with that, Michael and I would be delighted to take questions either on Empire or anything that we can answer on our relationship with Crombie.
Or the way that goods are delivered in or out of the store?
Yes. I mean just trends that we're thinking about as we work on our strategy going forward for the 3 to 6 years. One is we're happy with the population growth in the country. We think that, that's going to be a bit of a tailwind as long as the country can figure out housing and that Canadians have enough money in their pocket to spend more in retail. I think that the it's inevitable over time that you will not be building mammoth grocery stores or mammoth retail stores.
I think fortunately, for us, most of our portfolio is right sized when we look at it from a strategic point of view that the anything from 30,000 to 50000 square feet is probably where a grocery store should be. There's some areas where you might want a slightly larger, slightly smaller, as you can imagine. But I think that you're going to see, over a long period of time, that consumers are going to that the middle of the store is might get a little bit smaller and the we call it the middle of the store. And the outer ring of the store, which is fresh and HMR, which is prepared food, is going to get larger and larger. Nice thing is that's larger margin, by the way, product.
The middle of the store doesn't make you a lot of money, but it can drive some business. I think that you're going to see more and more people, especially when it come with Voila, which is the Ocado e commerce solution. They're going to be we're going to turn on the e Commerce engine in grocery in this country, which has already been turned on in hard goods and soft goods to some extent. And we'll be ready when Amazon turns it on. But I think this will be so slow and that the bricks and mortar, as long as you stay relevant and you renovate your stores, you're going to be in good shape.
I do think that we are going to have to look at our capital expenditures over the next 5 to 10 years and ensure that we're keeping our stores in great shape because what I'm seeing in hard goods and soft goods, people are spending so much money on e commerce and digital and technology that they're letting their stores become dinosaurs. And we're not going to allow that to happen. And you can't renovate every store in 1 year or 2 years or 3 years. It's got to be a long, long process. And so Mike and my colleague and the team in consultation where it makes sense with Crombie are looking to see where we can make sure that we're keeping our stores up to speed.
So we're big believers that bricks and mortar are going to drive most of the business over the next decade and further. At the same time, we think if you ignore innovations like e commerce and aren't the best at it, that's not a good answer too. So we're going to try to play in both spaces, and we're going to have to invest that way. Mike and I are extremely cheap when it comes to capital allocations, as you if you look at our CapEx over the last number of years. The good thing now is that, when we're investing, our returns are much higher.
We have we're very prudent and that we have constraints and rules in place for capital expenditures. So if we see something that's interesting, we'll invest in it. But I think those are the kind of that's kind of the macro you were looking for, I would assume, right? Yes. I wouldn't if people come to us someone some investor we've met I hope they're not in the room met with Mike a little bit ago and ago.
And this was a year ago. In the next 2 years, Amazon is going to have 100% of the grocery market. But someone said that to you, right?
Yes, it's
a true story. And that's insane. I mean, that's crazy. One thing we're lucky to have going in this country is that we get to see about 4 years earlier what Amazon is doing in the United States. It's about I used to say 2 to 3 years.
Now I say 3 to 4 and even closer to 4, They're just not as strong as they are in the U. K. And the U. S. As they are in Canada.
So we get to see where everything is going and make our decisions. That's how we made the Ocado decision. And even in the United States, as strong as Amazon are, and they're the best competitor we'll ever face, there is a real place to do very, very well in this country. So we're always worried about competition and everything else, but I'd say we're pretty well as optimistic as we've ever been in the 3 years I've been at this company. Is there anything any follow-up to that in the area that you want?
Okay, good. Good. There's a question over here.
For the benefit of our webcast viewers, we'll use the microphone for any spoken questions. Perfect. Right here, sir.
Michael, how has your view changed of Crombie, say from when you joined to where it is today in terms of what this relationship could mean over the next few years?
Yes. I'm going to answer it quickly and then Mike will answer it because we might maybe there's something a little different. And Mike came in a different time. Obviously, I take the new job, and I'm pretty focused on turning around the food business. So but at the same time, I know and I come from a background where there's a good relationship between a company and a REIT.
So I'm pretty good with that. But I do take a look to say, when we're doing our 1st strategic plan, is this the right ownership? Is this structured well? And very, very quickly came to the determination that I really liked Crombie REIT and how we could work with it. I liked the investment.
Like, I thought they had ways to grow. I thought they could help us grow. And I liked where we stood. We didn't need control, and we didn't need to own less and which was I came to the conclusion that it was pretty well set up, which was great. I'd say that I was frankly thought that Empire could do more and work with Crombie in a better way to maximize the shareholder value for both companies.
Made some changes structurally, team wise, the way we work, process that we put in. So I'd say, was always happy, a lot happier today. And most of that was on the Empire side. I think that the Crombie side was doing a great job. I think it's a great team there and that we weren't taking as much advantage as we could have.
What do you think?
I think I think you said it all. The from my perspective, I'm a process person, 1st and foremost. And I felt that the relationship was probably not as well defined as it should have been. So we did spend a lot of time with Don and his team just to sit down and say, well, okay, where are the pinch points here? What really isn't making sense?
Where is the sandpaper maybe creating too much abrasion? And what can we do about that? And so we just worked through, I think, a long list of better processes. And part of that was getting a deeper knowledge through the teams of each business' strategic focus. And if you really think about it at the time, Empire was a completely different company.
And so we were shaking the company up materially. And if you're sitting there in the Crombie seats, you're probably thinking, wow, what does that mean because new faces, new people, new teams, new approaches. And so we did spend a lot of time staking out how we wanted to work together at the very boring day to day level. But my experience is that that boring day to day level is where you make all your money. And so we got that right.
And now it's a pretty standard day to day boring money making relationship.
I do remember the first time I met Dottie, though, we had coffee in the cafeteria. And he really wanted us to improve the business because he said we were dragging down his stock price. And he's a pretty big guy, so I was intimidated. So that's part of why we've worked so hard to do so well. So Donnie will be happier.
And we should notice, too, that Mark Holly, who, along with Mike and a lot of other people maybe stand up, is our Head of Real Estate. And I think that Crombie guys will agree with us that Mark's made a mammoth difference in terms of making money for us and also working with Crombie. So if you have any questions, please hear.
You mentioned having an emphasis on reinvesting in the stores, capital in the stores over time. You've got Ocado coming. Is there a relationship between the urban versus non urban and also the brand, whether you're discount or full banner in terms of where the emphasis on that capital will be? It's a
great question. Mike, do you want
to? Sure. So we have to look at that on a number just a number of factors. So unfortunately, there's no one answer to that. Our network is vast.
It's literally Victoria to Newfoundland. And whether I'm looking at our Foodland banner, which mostly services rural communities in Ontario and Newfoundland and other places, or our downtown New Farm Boy stores or Safeway Out West, every one of those networks is super important to us. But having said that, it's a vast network. And so finding the right way to allocate the capital and prioritize properly is just super important. But from a trend perspective, over 80% of grocery growth is in urban areas.
And so that's one of the reasons that up on the chart there, you saw we have to win the urban fight. And we were particularly worried about Ontario, as Michael said. And between Voila and Fanboy, we're very comfortable with the urban market in Ontario. But we have to do the same things in the other key areas. And certainly, IGA and Voila and Montreal is going to be a winning combination.
We have to work through our strategy in British Columbia and figure out where we're going to put down new stores and what are those going to look like. Should they be ethnic? Should they be discount? Right now, most of our new store network development is really discount in the West. We're super excited about our ethnic formats.
They've done very, very well, particularly in Manitoba and also the Cello stores we're opening in British Columbia. So I wouldn't point out any particular trend except to say that almost every major renovation we do we will do now in our more conventional stores is going to have some level of innovation and investment in it that improves the customer experience. So we're looking hard at and at times some fairly expensive investments in our new stores and our newly renovated stores to figure out what we can get into those stores that are innovative and step change the customer experience. So I think from our perspective, if you look at where we're putting our money, it's outside of the day to day, the discount expansion, PhoneBoy. It's how do we drive more innovation into the stores that's very visible and makes a material difference to customers.
And if you ask what that is, the answer is we're still working on it. It's a significant challenge and difficult to scale up across an entire network as well. So we're looking at what pockets of the network and mostly in urban areas can we invest that type of innovation. How likely do you see either Aldi or Lidl coming into Canada
in the next few years? Well, I always we get that question. Or we haven't had it in a while actually, but we get quite a bit when I first started. And the way I answer it is that I mean, Aldi and Lytle are very good competitors, and they do well wherever they go. It doesn't make logical sense that they would come to Canada in any time in medium, even the long term.
They have so much growth they could do in the United States. Companies don't always act logically. So that's what I say. I said it doesn't make any sense for them to come. Could they come?
I guess. This is a different landscape. This is a far more discount landscape in Canada than they would have faced when they went to the United States. And they really had Walmart, and that was it. It would be and that the there's no they distinguish between hard and soft discount.
Our soft discount is pretty hard discount. And so could they come? A guess. Do I expect it? No.
Would they have a tough time? For sure. So that's the way we look at it. It really hasn't impacted because there's so much discount competition and things going on in Canada. It didn't really impact our strategic decision making much.
And I always assume everyone's going to come to Canada, and we're going to it'll be like that. But we had enough discount here that we had to amend our strategy a little bit as we went without even them coming. But I don't think they'll come, but you never know.
So with regards to the Ocado system, when you think about Phase IIIII, what is the geographically, what is the outer limit of what Ocado can address when you think about a country the size of Canada?
Yes. First, we thought that Ocado, which I shouldn't call, I should call it voila now because that's what we're calling our own banner. But the Ocado platform, which will be voila here, we've said that 76% of Canadians can be served through about 4 CFCs. CFC is a fancy name for distribution center with robots. And so that's what we're predicating all our decision making on.
My belief is that as we go forward, we'll see more opportunities to as the costs come down on the platform and there's more opportunities to do different things, that maybe we could go beyond 4. But 4 does will serve most of the country. Canada is a very difficult place, as you know, for supply e commerce. But it's not that difficult because of where the population is for the Ocado platform because you can plant a centralized DC, 1 in Toronto, 1 in Montreal, 2 in different spots, And you can cover the country. But I think we can even expand that 76% by doing a few things later on, but we're not too worried about that right now.
Our first goal is to win Toronto and then Montreal, which we will. 2 different issues. 1, in Toronto, we're not as strong. So we have to market a different way. In Montreal, IGA is 1 and with a great brand perception in Montreal and has an existing e commerce business already.
So it's a different issue when we go to Montreal. In fact, a little easier when we go to Montreal. I'm getting this. What does that mean? Stop.
Can you just talk about where you see e commerce penetration going? Because you mentioned that it's not going to be a big part of your store sales going forward. And then the second part is just curious about margins. When you take into account what you need to spend on the e commerce versus in store sales, are you do you see similar margins? Or are you going to be able to offer lower pricing at the e commerce levels?
Great question.
So a few questions there. So what we assumed when we invested in the solution is that the penetration will follow the U. K. And U. S.
Norms. And the pushback on that has been well, but it's not. It's been slower in Canada. And why is that in grocery, which doesn't make a lot of sense if you think about it, because Canadians have generally been very fast adopters of online technology. And the experience in the U.
K. Really was that they were in the same situation until the consumer was afforded a high quality solution. And so the supplier almost created the demand and then created the penetration. So and that was the experience with Ocado in the U. K.
So our expectation is that us providing a high quality solution to the market is actually going to accelerate the penetration. We're thrilled to see our peers encouraging consumers to sign on to other services because the more shoppers that are prepared to think about ordering online and we think we will then be very pleasantly surprised by the type of quality of service that we're going to provide is just good for us. It just helps us when we finally go live in the spring. And then the other question was?
Just around margin.
Right.
The one thing we really like about the Ocado solution and the way we've set it up, while it takes some years to get to scale, it is a consistently profitable outcome for us. So if you look at STORE PICK and we do STORE PICK in Montreal, it doesn't make money. At the margin, it makes money. But if you had to allocate all of your costs and everything that's truly involved in delighting that customer through a store pick, it's in the long term, firstly, not scalable and secondly, not very profitable. The Ocado solution and with some relatively modest assumptions on our part is it returns a reasonable return.
We just need to get to scale. And your last question was on pricing. And that is a pricing that's consistent with a Sobeys or a Safeway or a Foodland store. We don't see any necessity to upcharge 15%, 20% similar to what you're seeing from say, Instacart or other offerings. And our delivery fees will be very competitive.
So I'm sorry? At scale. Yes. Different structure to the balance sheet sorry, to the income statement just because of the high fixed costs that are inherent in the Ocado solution. But from an EBITDA margin perspective, very decent.
It's not that different. I mean, if you think about it, it's and what people don't really realize is, in the U. K, Ocado skews more fresh percentage than it does even grocery percentage. Fresh is a higher margin. So that and we don't expect that to happen day 1, but that will happen.
And the other thing, if you think about it, yes, there's some yes, you've got that high fixed cost, but it's but you also are delivering from a centralized location rather than all costs you have from running a store. When I when you look at e commerce versus the store, very, very similar once you fully load both. There may be a bit of difference in the 1st few years as we roll it out, but it shouldn't be that big a difference, as Mike said. It's very, very attractive, the way we're doing it. But that's because we're doing it centrally, and we're doing it with the best integrated algorithms and robots in the world.
So that should work pretty well. I think we're out of time. Thanks for your time, and thank you, Donnie, again for joining us today. We really appreciate it.
Well, thank you, Michael, and thank you, Mike. That was fantastic. It's great insight for people, especially our investors, don't normally have a chance to hear from you. And I think it's really exciting times. We've clearly benefited Empire shareholders, but also Crombie, I believe, has benefited from the strong performance that you and your team are delivering.
And as we know from our workings with Mark and Mike and your whole team, we think the best is yet to come. So we really, really appreciate it. The opportunities are immense and world class, and we think we can play them out well together. So thank you. Thank you again.
So I will just as I said, we're going to do a number of presentations about Crombie today. And importantly, we're going to utilize our whole team. A lot of you have heard from both Gwen and I for most of the last decade, and so you're used to hearing from us. But importantly, we want to put our full team on display today. So what I'm going to do firstly is just give a quick introduction to our team that's going to actually present today.
We've got 6 different presentations and hopefully it shows you the depth and the quality of what I think is the best team ever at Crombie, which is what we think we can then utilize to actually make this relationship with Empire so I think compelling. And so 1st and foremost, Clinton Kaye, who's our CFO and Secretary, brand new as of May. As Michael said, our lucky charm. So welcome, Clinton, and Clinton will probably speak towards the end of our presentation. Glenn Hynes, our Chief Operating Officer and EVP, as you know, will speak first.
And Cheryl Fraser, our Chief Talent Officer and VP Communications, speak about our talent John Barnosky, who's our EVP, Corporate Development, I call our deal guy, one of the sharpest minds in the real estate industry, I think, and really the guy who's been leading some of our innovative deal making over the last couple of years will speak about the relationship with Sobeys. And then Trevor Lee, who's our SVP of Development and Construction, who's leading the team and executing with our partners on our major developments. We'll speak, I think, give you some pretty exciting stuff to think about, a little more detail on our development. And then we've got a very cool video if you're willing to stick around to the end of the presentation, that will show you some stuff, especially the views from the top of the buildings that we're building in some of the biggest cities in the country. So I can figure this out.
So 1st and foremost, I'm just going to say a few words and then I'll turn it over to the team. Number 1 is, this is a long term business. So Crombie and its predecessors have been around for 65 years. Sobeys been around for 113 years. And I think that that long term nature of the business is a critical thing because we have major shareholders in Empire and ultimately Empire has the Sobe family who think long term.
And in this day and age, many of you investors we know have a lot of short term responsibilities. And so for Crombie, we think short, medium and long term. And then we also, I think, critically have family values, the Sobe family values, people that are of high integrity, really think about what's the right thing to do for the business and not just about short term returns. And so it's a critical difference. We believe that it really, I think, sets the tone for all the things that we do.
The Crombie business from the 1960s onward, the growth has been organic. It's been quite interesting. As I look back, they've gone went from groceries to real estate in the 60s to residential in the 70s to shopping malls in the 70s 80s, and then ultimately got rid of the residential and now getting rid of we've gotten rid of most of the shopping centers. And we're back to looking at primarily grocery anchored real estate, industrial, retail related industrial and importantly, moving forward residential at scale in some of the best markets in the country. It's been organic, but I just want people to understand that we have been here before and it's a long term game plan.
And many of the family shareholders clearly get what we're doing and where we're going. So it's with purpose. We've had consistent growth. I think consistency is the number one word I'd like to think how people think about today. The opportunity with Sobeys is to drive consistency, and it's consistency for us and for them.
We believe that people don't understand development if we can do it consistently. We think people will get it and pay for it, quite honestly. And they don't understand the relationship with the retailer. And so how it can drive value. Again, if we can do it consistently, it will actually pay off for them and pay off for Crombie.
So that consistency and at scale is, I think, for me, the number one message that we not only communicate to you, but I will tell you I communicated it to Empire's Board 2.5 weeks ago and everybody is supportive there. So how we do that is what I'd ask you to hold us accountable to over the next number of years. We are a full real estate business. We have ops, asset management, development. We've done everything before.
We have teams you'll see today that have done all of this before. So it's not all new. And we're conservatively financed. We have multiple sources of capital. As you've seen, we've been innovative over the last year, especially with some of our private equity funding, but we have multiple sources, great deep relationships with banks and the capital markets, and we appreciate that.
And importantly, I will show you and this will be the most self serving Shard Eye Show as well today, our long term performance has outperformed. And if you look at this graph for 3 years or you look at it for the last year, it says the same thing. And little old Crombie from the East Coast has actually done pretty well, and we're very thankful for that. And but we think that that trend will continue. I will tell you what the way we're going to do this is, 1st of all, Glenn is going to speak on the fundamentals of our business.
As he'll show you, a lot of people overlook the fundamentals. We think people pay for fundamentals, cash flow growth, NAV growth. That is driven by, as Michael said, in his business, it's bricks and mortars. In our business, it's our retail portfolio right now. And it is outperforming and doing very well.
So we're going to let Glenn spend a bit of time on that. And I don't think it will bore you because I think it is a differentiating factor. And John Barnosky is going to speak after Glenn about the Crombie Empire relationship, how we align strategies. It creates again, it's a deep relationship, more valuable, diversified, stronger portfolio, which ultimately drives the AFFO and NAV growth, in our view, to 3% to 5% over time. It's a critical thing.
There's a long list of opportunities. We're focused right now on 5, 6 key strategies. John will take you through some of those. But for me, it's about we believe we're playing that retailer related REIT strategy better than anybody right now. I'll be boastful, but I think we are.
And I think we're going to start seeing real value out of that over the next few years. Major developments, everybody wants to talk about it. I appreciate it. It's fantastic. For me, I try to I've rounded it up basically, but it's $5,000,000,000 of enterprise value effectively today that's all retail and or industrial.
But importantly, we've got a $5,000,000,000 pipeline. And importantly, we're spending right now $600,000,000 which will be completed next year and the year after. So it's real. The completions are about to start. And that is creating real NAV and about to create real long term AFFO growth.
The opportunities are world class. Let's make no bones about it. This is Vancouver. This is Toronto. These are great cities.
I think on the world scale, those cities will outperform. And I believe they'll outperform because we have decency of law, we have a great country, we have strong population growth, as Michael indicated. We have a lot of good factors that are contributing. So these sites, which are grocery stores and parking lots in the middle of big cities, are not going down in value and the opportunities to densify are not going away. People need housing.
Importantly, like Michael discussed, we do do balanced capital allocation. Looking forward for Crombie, and I think this is the number one job of the CEO, is really how you allocate capital. And in our world, we're allocating about $350,000,000 maybe even $400,000,000 a year. Of that, Empire and 3rd party related $100,000,000 to $150,000,000 of targeted annual spend. Major Development, dollars 150,000,000 to $200,000,000 of targeted annual spend.
In addition to that, we'll see some on land use intensification, which for us is very juicy in terms of things. As an example, unlocking no builds on parking lots with Sobeys where it's appropriate. And those things are very profitable and really impossible if you weren't a retailer related REIT. And so for us, it's very strong capital allocation, but it's very balanced in especially the Empire and third party related gives us a lot of short term juice and the development is a drag in the short term, but very profitable once you've completed it and especially over the long term with AFFO and NAV growth. So I think a very nice combination, but done in a very balanced way.
I talk long term a lot, so our team asked me to talk about what's the next 2 years look like. You can see in the upper right hand part of the page, today we're a little under $5,000,000,000 but we think we can get to being a little under $6,000,000,000 in enterprise value. But importantly, as you can see there, we're going to increase our concentration in VECTOM in the major markets, really going from about 63% to about 67% of our portfolio. Importantly, I will point out, and I'm a little defensive about this, the rest of Canada is not bad. We think it's good, right?
And the reason it's good is because we have a strong understanding of the retailer, right? We have the intelligence. We understand the store network. So the ones if you look at our portfolio over the last 10 years, we have trimmed our non core assets, which has included a number of Sobeys stores. And we've actually we're very comfortable with what we have left.
We think today we have the strongest portfolio, including those rest of Canada assets, because they are good stores. In some cases, they are bond like. It may be an only store in a market that has 5,000 people or 3,000 people. They have large market share. So we are very cognizant of that rest of Canada, but I think the message today is that the overall portfolio of Crombie today is our strongest portfolio ever.
We have done a lot of work, a lot of asset management to cull the portfolio, improve the portfolio. Today, it's the strongest ever, and we're very proud of that. Importantly, over the next 2 years, this is not 5% to 10% like we started, we will see a transition in our portfolio. Importantly, retail is actually going to grow, but not grow as a percentage. It's going down from 87% to 78% as we see the residential and importantly, increase in the retail related industrial.
Residential in 2 years should be 8% of our portfolio, okay? On a long term basis, we can be quite comfortable given the nature of it, seeing this thing grow into the 15% to 20% of our portfolio range. We think this is very exciting and very complementary to what we have today. The residential will all be built on the side of a grocery store. It will be strategic for the retail assets and it will be very urban.
So in closing, Sobeys is back. I don't know if you got a sense of that. We're quite comfortable and proud of what Empire has achieved over the last 3 years. It's been a short time and a lot of work has been done by Michael and his team. And they are one of the best retailers in the country.
Let's make no bones about it. Whatever they've gone through, they're back. And so for us, that's a big difference in terms of Crombie's 55% of our revenue comes from that source, and we're quite pleased with that. But now it actually allows them I say when you're strong, you can look up. When you're weak, you have to look at short term.
Today, they're looking up. They're looking up importantly also with us. We're quite pleased with that. So now we can figure out playing out both short, medium and long term opportunities for them and for us. I think it's a big difference.
It's a visionary plan. We have solid fundamentals. They're strong. They're improving the portfolio. Glenn is going to talk on that, I think, at length.
Sobeys, it's our sustainable competitive advantage, Empire. It's uniquely aligned. I'm not sure that the others are as aligned from what I understand. And for us, that's up to them. For us, we're really figuring out ways to do things that we've never done before.
It's really quite interesting, things I never anticipated 3 years ago. The quality of the teams, putting their heads together, how to make the pie bigger, it's a big deal. Development is world class. We have world class opportunities. I'm convinced of that.
Trevor will take you through the detail. There's a really cool video. So I'm very, very excited about that part of our portfolio. Conservative financial condition, Clinton is going to take us through maintaining a strong balance sheet and multiple sources of capital with ample liquidity. It's a pretty simple formula, but there will be a recession someday and I know that we'll be ready for it.
And then our industry leading talent, Sheryl Fraser will show you. I hired a Chief Talent Officer 7 years ago, and I'm very proud of that That's a differentiating factor in our organization, how we run our teams, how we build our teams, our diversity and inclusion, our leadership development, a lot of great programs are actually building what is now a much younger team. And I think for us, that's very exciting. We have some of the best people in the industry coming to us. If you have a look at the number of hires we've had over the last few years, we're very excited about that and now starting to see real strong results and we're gaining momentum.
And I think at the end of the day, it's about short, medium and long term performance, which I won't flash that slide again. So we're going to have the format is that we're going to go through our presentations and then we're going to have a little coffee break after 3, then we're going to come back, have 2 more, I believe, and then we're going to take Q and A at the end, if that's okay. So with that, I'm going to turn it over to Glenn.
Good morning, everyone. I'm delighted to be here today to talk about fundamentals. So why do you ask, are fundamentals important? In our view, fundamentals are critical to the foundation of our business. So you're going to hear a lot today, and you've already saw Michael and Mike talk about the key relationship that we have, the strategic relationship that we have with Sobeys Empire.
That's critical. You're also going to hear today about our significant opportunity with mixed use development, And that's very exciting and hopefully you'll be as excited as us after you see today. But even after all of that, if mixed use development becomes 15% to 20% of our business over time, 80% to 85% of our business is still the current foundation that we have in place today. So therefore, it's very critical that that remains intact. Our goal is to have 3% to 5% annual growth in FFO and NAV per unit.
And we believe the catalyst of the Sobeys relationship and the mixed use development opportunity on top of our core solid foundation will enable us to deliver that to our unitholders. These strong fundamentals are enabled by our presence in high growth, urban and suburban markets where higher cash flow and NAV growth potential are available. We've materially increased our presence in Western Canada, as you can see, and also in Vancouver, where we have 38 acres of very precious land. Our geographic balance is solid across the country and our future plan should see relative growth increase in Central Canada from where it is today and we should see Atlantic Canada become a smaller piece of our pie over time. I should also note we have 20 acres of very precious land here in Toronto.
Nothing improves financial performance more than leasing vacant space. Our consistent and improving financial metrics that anchor our foundation and fundamentals are driven by achieving record occupancy, which we did in 2018. This includes new leasing, which has been particularly impressive in Atlantic Canada, along with strong renewal activity at historical positive leasing spreads in the high mid to single digit range. We are bullish on our occupancy going forward as the types of tenants frequenting our properties are growing and opening new stores, not shrinking. I know you appreciate this, but not all retail is created equal.
Our needs based retail segment is Internet resilient and or omnichannel focused and poised for future growth. We're building on a strong foundation. Our geographic occupancy highlights how strong and stable our grocery anchored portfolio continues to be. Our Western and Central business is comprised primarily of retail freestanding and Plaza properties that enjoy very high occupancy. With the grocery store traffic enabling the very solid same NOI growth as ancillary tenants do very well leveraging this grocery traffic and can pay higher rents.
Same thing in Atlantic Canada. While our grocery business is strong, very strong, our entire office portfolio is in Atlantic Canada and it realizes slightly lower occupancy and Atlantic Canada includes all of the vast majority of our target Zellers impact. Our strong and improving Atlantic fundamentals reflect entrepreneurially leasing much of this space with more targeted progress and upside still to come. I should mention some examples of entrepreneurial leasing. In the Glasgow, Nova Scotia, for example, we took a vacated Zellers and leased that up with Giant Tiger and Value Village.
We've done a number of deals with Giant Tiger across the country, and we'll show you a slide a little later that demonstrates that they're in that category of growth. Another great example is at Avalon Mall, not a mall where we need to be entrepreneurially leasing, but we're full. Cineplex wanted to put a rec room in Avalon Mall, and we were able to actually create new space by building a new level to bring a 25,000 foot rec room to Avalon Mall, one of the most successful rec rooms Cineplex has in the country. By asset type, our retail related industrial properties are 100% occupied. Our core retail and commercial properties are at 95.9 percent or at 98.5% if you look only at grocery anchored plazas and freestanding stores.
Office, which is only at 90.5% occupancy, but we're on a roll. As in 2019, we've completed over 400,000 square feet of office renewals at Halifax's Scotia Square Complex at very high net effective rents. This the consistency, stability and growth of Crombie shines through with our same asset NOI. Over the past 5 years, we have averaged same asset NOI in the 2% to 3% range, and our goal is to continue that 2% to 3% annual growth going forward. Our typical grocery rental growth is approximately 1.25%, so we rely on higher growth from ancillary tenants.
We also rely on a modest but important contribution, and Donnie mentioned it, land use intensifications. These are minor densifications to existing properties that generate 7% to 10% investment returns, which are highly accretive and grow our AFFO and contribute to same asset NOI growth. Recent examples include a number of Starbucks drive thrus that we put in place across the country and one in New Glasgow, Nova Scotia opening early in 2020. Our AFFO growth and improving AFFO payout ratio the last 5 years has been solid. And our goal is to do even better going forward.
Our motivation in transitioning our strategy to mixed use development is driven by the opportunity to achieve 3% to 5% annual growth in AFFO and NAV per unit. There are those numbers again. And as that level of growth separates the top tier REITs, we are pivoting our business in this direction at a time and position of strength as evidenced by our solid operating fundamentals. We're super pleased with our development progress to date and Trevor will share exciting details shortly. Our development program is gaining a regular rhythm with major development spending of $150,000,000 to $200,000,000 annually.
Over the past 2 years, we've invested about $300,000,000 and have done so with no immediate financial return, while still growing or largely maintaining our AFFO per unit. This is impressive as we funded this investment by selling income producing properties. To have AFFO per unit grow by 3% in 2018 and hang in nicely in 2019 is proof positive that our migration to mixed use development is supported and enabled by a rock solid foundation. And as Clinton will show you later, we've also reduced leverage in recent years. So this solid AFFO progress was accomplished while improving our balance sheet.
A few words about capital recycling, if I can. We have sold close to $800,000,000 of properties via both full and partial interest dispositions. We've done so at or above IFRS fair values and we've improved portfolio quality at the same time. We've sold primarily non core and lower growth properties and properties in secondary and tertiary markets. With a negative retail narrative these past few years, we're demonstrating that these assets are in demand and can transact at solid pricing.
We have proven that not all retail is created equal. Importantly, we've not raised traditional equity in over 3 years. And we retain many tens of 1,000,000 of dollars of NAV by recycling capital instead of raising equity when we were trading materially below NAV. I've talked about our current state, but let's be clear that we're very bullish on our path forward. Let's talk about some of our tenants, Sobeys.
Michael and Michael are here today. Instead of just buying properties at market cap rates like the old days, we're investing today in FreshCo conversions, the modernization and rejuvenation of stores, the Montreal CFC, all its very strong returns relative to buying properties at market cap rates. Province of Nova Scotia. Sam Damiani is in the audience. He always asked the question, what's this 1 to 2 year waltz on the province of Nova Scotia?
It's 8 years today, Sam. And that's because we renewed 225,000 square feet, 5 to 10 year province of Nova Scotia leases in the last few months. We are poised for significant growth and opportunity on office with those big tenants anchored at Scotia Square. Dollarama, investment grade tenant, we've got more than a half dozen deals currently underway with them. You'll see them in a moment in another slide.
So very strong base, low turnover risk. If you look at that roster of tenants, you shouldn't be worrying about who's going to die next. That's not the reality of our tenant base. That's not the reality of our business. This is an eye chart.
So I'm going to take you just to a blow up a piece of it, if I could. This is a chart that shows the tenants that are doing well and growing in Canada. In terms of there's a lot of convenience, discount type tenants, but these are the ones that are proposed to have the most new store growth. Here's a blow up of part of it, the right hand side. Dollarama, A and W, Giant Tiger, Mary Brown's, Farm Boy, Marshalls Winners, these are all tenants that we're doing multiple deals with.
These are the tenants that frequent our properties. However, this is a list of tenants that are leaving the marketplace. And as you can see, they're not tenants that are at Crombie. Payless Shoes, Gymboree, Forever 21, etcetera. So we're very pleased that our tenants are not in that category, but unfortunately these are tenants that are leading the marketplace.
Our strong fundamentals are poised to continue and improve as our major development projects come online. We've stated our goal to become a best in class REIT and target 2% to 3% annual same asset NOI growth, 3% to 5% annual growth in AFFO and NAV per unit, which in Crombie's case with a 5.5% distribution yield implies targeted potential investor returns of 8.5% to 10.5% per year, which we believe is compelling given the defensive and stable characteristics of our business. In 2020, we bring $331,000,000 of major development completions online as Avalon Mall, Belmont and Davie Street commence recognizing revenue with Duke, Bronte and Montreal CFC coming online in 2021, representing close to $500,000,000 of completions, Crombie's share at $300,000,000 While 2020 will be a transition year for AFFO, as we feel the full effect of disposing of close to 800,000,000 dollars of properties and 2, continuing investment on our first six projects, we will have projects emerging from our pipeline contributing to both NAV and AFFO growth. We believe we're on the doorstep of moving from good to great. Our focus in advancing residential rental versus condo projects wherever possible is our belief that cash flow growth will be stronger than our current retail growth profile.
Mixed use can be hugely compelling from a NAV perspective, which Trevor will share shortly. To enable all this, in 2018, we strengthened our platform by reorganizing our business like Sobeys did to a national functional structure from a previous Regional 1. This allowed us to attract specialized talent in leasing, operations, construction and development to deliver their skills countrywide. That team is with you today. This year, we introduced a new ERP management information system that affords us the opportunity to materially increase business reporting and our analytical capabilities.
In closing, Crombie is poised to be a best in class REIT. From our strong foundation, we believe we can deliver greater growth, while maintaining the same consistent, steady Eddie, needs based characteristics that you have come to expect. Grocery anchored retail proudly remains our core, but supported by higher growth mixed use developments. Thank you. I think we'll go to a coffee break now.
And after coffee, John Bernofsky, our EVP of Corporate Development, will
speak
Donnie and Mike and Michael, this will be a bit of a hard act to follow or multiple hard acts to follow. But we're going to take it away anyways. My name is John Barnosky. I'm the Executive Vice President of Corporate Development here at Crombie REIT. And I'm very pleased to be part of the team where all the fun happens.
Crombie's corporate development team, we're focused really on we're focused on 2 pieces. We're focused on shaping corporate strategy and maximizing value creation. And we do this via development deals and partnerships, like our development deal with Prinsdev, creating our Duke and Bronte properties, Empire funding opportunities, the funding opportunities for modernizations and discount, which really drive immediate NAV and AFFO growth and improve our portfolio quality. Private equity partnerships, like our recent deal with Oak Street, acquisitions of urban and value add real estate, capital recycling in its many forms and for many respective purposes and all of this driving our capital allocation decisions. Strategy.
We take strategy very seriously at Crombie and we take strategic insights and market insights very seriously at Crombie. We spend a lot of time with the teams looking at our strategy and I'm very pleased to say that we have bar none the best team and the best people in the industry led by our VP of Corporate Strategy, Jelena Plakas, a retail and real estate veteran. So this is Vancouver that you see in the background. And we look at the traditional pieces from a strategic insight standpoint, population growth, economic factors and conditions and demographics. But then we overlay these using our strategic competitive advantages with strategic insights from our partners.
One partner in particular is has been willing to share different strategic insights with us, which really get help us understand all of these markets, because we invest in markets that we understand, because we want to capitalize and grow AFFO and NAV and improve our portfolio quality. But we don't stop there. We overlay this again with consumer insights through emerging technologies such as mobile data. And what that allows us to do is it enables the prioritization of our value creating opportunities And we always, always seek to capitalize on our number one competitive advantage, our preferred partnership with Empire. Strategy and strategic insights are one thing.
Strategic execution is what it's all about. And we're executing and we're going to continue to execute. Capital is allocated to our priority to our priorities, optimizing capital recycling when and where prudent. Some of our recent capital allocation priorities, capital allocated to Voila, Par IGA, Empire's Montreal customer fulfillment center. This state of the art site is going to provide Empire with a great e com solution, but it's also providing Crombie with great dirt and diversifying our portfolio.
Major developments, obviously, we've been recycling quite a lot of capital and we've been putting them back in to our major mixed use projects as well as other projects, Davyduc and Bronte. Modernization funding for urban empire locations and the conversions of Safeway and others to discount banners. So this is very important to us and has been a significant and will continue to be a significant driver or capital that we'll be allocating. Funded by, as you all know, we haven't raised equity in a while. This capital we've sourced from primarily partial interest sales of lower NOI growth property, often Empire Anchored and private equity capital from home and abroad.
So our recent deals with FIRM, our recent private equity deals with Northam, fifty-fifty Partnership, mostly European based investors. And we're really excited about our new partnerships with Oak Street, just shy of a few 100,000,000 that closed in our 2nd tranche on Monday. And the reason that we're really excited with them is we were able to take with this partner, we were able to take a deal structure where we retain 11%, yes, of the interest of lower growth, but solid Empire Branded properties. We were able to take this deal structure and structure in such a way that Crombie has significant control, even though we're only 11% over the real estate. Every value add component that is possible, whether it be future modernization or discount funding, whether it be LUI opportunities, new pads, a new liquor store pad at Sobeys Liquor Store, a new Sobeys Gas Bar, an expansion to the property, all of that value upside is captured solely toward Bikrombie under this innovative deal structure.
So we're very pleased about that and we're pleased with where we're putting that capital back in. A bit of a theme here. Crombie's number one competitive advantage, it's Empire, bar none. And it will remain Empire because we're using this competitive advantage to really maximize value. Sobeys Brands, 78 percent of our retail properties, they generate 55% of our AMR and Empire's equity interest in Crombie, 41.5%.
Collaboration and strategic alignment with Empire, that's our plan. And that's how we're unlocking synergistic value creation, our 1 +1 equals 3 formula here at Crombie. So how do we do this? We're aligning our strategies. I mean, it's as simple as that.
Michael and Mike took you through Empire's strategic priorities, resetting the foundation, bolstering the brand, winning in stores, enhancing discount, the urban gap and investing in innovation. That then translates into Empire's retail real estate priorities, which Crombie is then able to capitalize on in a way that's beneficial for Crombie shareholders, but also works for Empire. And that's the 1 +1 equals 3 solution that the companies together provide. So the funding opportunities that we talked about, the increase in NOI, NAV and WALT. So when we create when we are able to work with Sobeys to modernize a store or to convert it to discount, we are also usually increasing our lease terms in these newly reinvigorated stores.
Thank you, Mark, for nodding in the back. Unlocking major development opportunities. It's a critical part of our journey, as we've talked about previously. And working with Empire, we're unlocking this in a way that works for both parties and a way that benefits Crombie shareholders. This is the magic again of that 1 +1 equals 3 formula.
We're increasing our presence in urban markets and Vetcom, as Donnie said, diversifying our portfolio. So when you look at the voila per RGA or voila in English Canada, this is a hub and spoke strategy. And this is a strategy where not just the 4 potential hubs that Michael talked about, but they will eventually flow into certain spokes, as you can see throughout the Okada network where it exists. And that provides even further opportunity for Crombie to be part of the story with Empire. Creating additional CRU, that's done.
We're working with our partner, Empire, in aligning our strategies where we open up opportunities for pads, where we open up opportunities for LUI in a way that works for both parties, which enables our strategic and accretive acquisitions of those urban locations, so new urban locations. If you look at the Sobeys anchored site at Macauan and Ellesmere, where we're going to put over 1,000,000 square feet of density in, that is a site that we were able to acquire. It's a future mixed use property on transit, will be the new subway. It's great now. It's the Scarborough RT, will be the new subway stop.
And with Empire, we're unlocking the value potential that can be created there in a way that works for both parties. That is our competitive advantage. That is what we are playing and focusing on, all of which is improving our portfolio quality. And we feel all of these pieces together will collectively drive unitholder value. With that, I'm going to turn it over to Trevor Lee, who is our Senior Vice President of Design and Construction and Development to tell you about some exciting things.
Take it away, Trevor.
All right. Thank you, John. Good morning, everyone. John's introduced me. I'm Trevor Lee, Senior Vice President of Development and Construction at Crombie REIT.
And one thing I'll take exception to, I think we have the most fun in my department, and you're going to see why as I run through this slide deck. So I'm going to be talking to you today about Crombie's extensive major development pipeline and specifically the projects that we have active and in planning. So Crombie has 33 major development sites across Canada with an estimated cost of $4,000,000,000 to $5,800,000,000 And we have the incredible potential to create over 11,000 residential units, 9,800,000 square feet of residential GLA and an additional 1,300,000 square feet of commercial. This slide color codes Crombie's major development sites by status, and you can see the active projects are shown outlined in green, in planning in light blue and future by dark blue. We have 8 major projects that were added to the development pipeline in Q2 2019.
I'm sure you noticed these projects are shown in the chart on this diagram. And we have 5 projects which were added to BC, 1 in Alberta, 1 in Ontario and 1 in Halifax. And noteworthy is that we've added 4 new properties to very solid locations in Vancouver, so increasing that up to 13 properties in the Vancouver market, which is really incredible. This next slide shows the major development opportunities by Vectom or major markets. And you can see we have 15.
They're mainly in Vancouver, 7 in Toronto, Montreal, 6 in Halifax and St. John's and 5 in the Calgary, Edmonton market. Next slide shows the same thing but estimated capital cost here. Importantly, we've got 55% of our estimated capital spend in the Vancouver area, 19% in Toronto and Montreal, 16% in Calgary and Edmonton and 10% in Halifax and St. John's.
A significant number of Crombie's major developments are at transit nodes or stations, and these can be categorized as transit oriented developments. In total, we have 16 of 33 potential sites being transit oriented developments. Total capital spend for these would be in the $3,200,000,000 range or 56% of our total pipeline. So currently, we have 6 active major development sites. Total capital cost of these 6 is estimated at $553,000,000 with NAV creation potential between $210,000,000 $270,000,000 dollars And the first and most advanced of these is Davie Street in Vancouver.
This is a 1 acre site in the west end of Vancouver in the English based Stanley Park area. We have high very high density neighborhood. Population in this area is about 16,000 within just 0.5 kilometer, so very dense. And the real important points of this are that we have high rental demand and a very low vacancy rate in this market. Average rental rates here are above $4 a square foot for new product, so an incredible market.
And we have a really old rental stock as well, so we're building into a market that has high demand. So there will be great demand for this product when we're done. So looking at the vision for this site in our next slides, we have a joint venture with Westbank on the residential, with Crombie owning 100 percent of the commercial. Our vision at Davie is 2 towers of 19 21 stories, commercial GLA of 54,000 square feet. This will have a new state of the art Safeway store in 45,000 square feet.
Safeway will be open in Q1 of 2020, project completion in Q3 of 2020. And our total development costs here are $181,000,000 The project is 100 percent tendered, so great cost certainty there. So taking a look at recent construction image, you can see both towers here well under construction. We finished the structure right up to the top. We're installing the glazing system here up to floor 8, I believe we're at right now.
And looking at the financials here, we've got an investment of $105,000,000 stabilized value up in the range of $170,000,000 to $186,000,000 So our NAV creation is quite strong at $65,000,000 to 81,000,000 dollars And we've got really what we could term a superb development return of 62% to 77%, all with 100% cost standard. So nice project to start off talking to you about. Looking at our next active major development, we've got Belmont Market in the Victoria Regional District. And this market sit now this is situated on a 20 acre site in the heart of Lankford. This is the commercial district of the Lankford area.
Around 35,000 people live in 3 kilometer radius of this site. Fast growing municipality here at 2%, fastest in the Victoria area. 50% of total housing starts in the Victoria area were in the Langford market, and we have very healthy household incomes here of $100,000 per annum. Our development vision is 160,000 square foot shopping center, with a that's Thrifty's anchored. We have 137,000 of that complete today.
It's home to the newest Thrifty store and the Thrifty's regional office. Anticipated completion Q4 of 2020, and the project is 80% tendered right now. This is a recent visual of the sites. You can see we got 100,000 square feet of tenants open for business. Leasing is going very well.
We've got about 130,000 square feet of executed leases as well. Total investment here, dollars 93,000,000 stabilized value, dollars 110,000 to $116,000,000 And NAV Creation is a healthy $17,000,000 to $23,000,000 at this project. Moving on to Bronte Village in the Oakville area of Greater Toronto. Crombie's redevelopment project here is on the 3 acre site of the former Bronte Mall. It's an optimal location, very close to the lakefront.
Exceptional service and everyday convenience are in this area. The outflow population is about 211,000 with growth up to 255,000 by 2,031, so strong growth there. Most importantly about this market, we've got a very affluent market. Household income is at $150,000 plus, among the lowest vacancy rates in the GTA area. So there's great demand for this product and a prime market for bringing forward purpose built rental.
This is a JV with Prince Dev Development. And our development vision for the site is 2 new mixed use towers of 10 and 14 stories, got 4 18 purpose built rental products coming to the market in terms of rental units, 15,000 square feet of new retail, which is complementary to our existing Sobeys store right next to the site as well as a new Rexall. Total project costs here are $277,000,000 We will be complete Q3 of 2021. Recent construction photo of the site that you'll see more of in our video later. Pretty exciting.
We're actually at grade now, up 3 stories on the residential on the west side of the site. Total investments at Crombie Share is $139,000,000 Our stabilized value between $190,000,000 $203,000,000 And we got NAV creation of $51,000,000 to $64,000,000 and a very strong development return here of 37% to 46%, with about 85% of our cost tendered at this point, so another solid project. Next active development site we'll focus on is Leduc out in Montreal, Quebec. And this site is about 3 quarters of an acre in the old Montreal area of Quebec or of Montreal. Booming nearby AI Tech community.
The area is right in the middle of the Cite de Multimedia. Population, about 15,000 and 1 kilometer. We've got very strong household incomes here of $115,000 a year and importantly, strong rental demand with current vacancy rates very low. So we have another, excellent market here to deliver purpose built rental. We're excited about doing that quite shortly.
Looking at the development vision for the site, we have another JV with Prince Dev here. Our development vision is a 25 story mixed use development, which is anchored by IGA. 25 story mixed use site, as I've said, is 390 residential units, 24,000 square feet of retail area. Our total project cost is $118,000,000 and completion Q1 of 2021. This is a recent photo of the site.
We're looking at the corner of William and Duke. We show the IGA frontage, and the site is complete up to, I think, Level 4 here. Total Crombie costs are $59,000,000 stabilized value of $80,000,000 to $85,000,000 and NAV creation of $21,000,000 to $26,000,000 So we've got overall a new IGA, anchored site that's purpose built rental of 3 90 units in a fast growing area of Old Montreal. So very exciting project for us. Solid return here of 36% to 44%.
Avalon Mall Avalon Mall is the sole regional shopping center in the Newfoundland market, has an overall site area of 40 acres, population of 220,000 in the St. John's metro area. And we have a strong GDP forecast for this year of 4.5%, fastest of any major Canadian metro market. And strong center as well, we've had 10 year growth here of 4%, same asset NOI per year. So it continues to perform well.
As we look at the redevelopment plan, it really involves 2 phases. I'm going to focus on the one phase, which is outlined in red there, for this presentation. This involved the rightsizing and backfilling in the former Sears box, which is obviously a challenge. We created a new retail racetrack configuration to improve the mall. We improved the merchandise mix and the flow of the shopping center.
And we're obviously focusing right now on the pre leasing program to make sure that goes well upon opening. Upon completion, we will add about 40,000 square feet, reaching up to about 590,000 for this center. So if we take a look at the leasing program and how it's coming along, kudos to the leasing group. We have completed deals shown in green, 121,000 square feet leased and firm, 63% of this expansion area and another 51,000 or 27 percent in active negotiations. This slide shows a rendering of the exterior of the expansion area, estimated completion in Q3 of 2020, so just over a year, and the project is now 90% tendered.
This image shows the new mall expansion in motion with the new Winners HomeSense open for business. Total Crombie investment of about $57,000,000 stabilized value of $90,000,000 to $102,000,000 So our NAV creation is $33,000,000 to $44,000,000 and our development return potential here is extremely strong at 56% to 75%. And the last active major development I'd like to talk about is the Montreal Voila customer fulfillment center. Earlier this year, Crombie acquired the 20 acre site in the Point Claire Transportation Hub, and this was for the purpose of constructing a new CFC for Sobeys. This is ideally situated, on Highway 1, 15 kilometers northeast of the downtown Montreal area.
It's adjacent to the Trudeau International Airport. The site is within a 2 hour drive of 5,500,000 urban and suburban residents. And so that makes it an extremely strong distribution hub to service Quebec and the Ottawa area. Development vision here is to build 300,000 square feet, state of the art CFC featuring world leading Ocado e commerce technology that you heard a lot about from the Empire and Crombie team. Our target of completion is in 2021 here.
Looking at the progress of the sites, it's a lot of dirt. Basically, you can see here we got dump trucks lined up as far as it can go and excavators working full steam. And this project is coming on really nicely. What we will have is the building under construction in very early 2020. We have a good project schedule and a good team focused on this site.
Total Crombie investment here is $100,000,000 value at completion, dollars 119,000,000 to $132,000,000 and our NAV creation, $19,000,000 to $32,000,000 So we have a solid return here of 19% to 32%. And to recap the 6 active sites that I just talked about, capital cost in about $553,000,000 NAV creation of $210,000,000 to $270,000,000 and just highlighting the fact that we will also have the completion of 1200 rental units in the Vancouver, Toronto and Montreal markets by the end of 2021. So what I'm going to do now is take a break from talking, and we're going to have a look at the great sites that you've just seen in video. And I think you're going to see how much activity we have going on across the country. So I'll leave it to the video.
There now. Doesn't that look like fun? All right. So I think the question, once we've been through a video like that, is what's next? So we're going to talk a little bit about in planning.
And so we have basically 6 more projects that are in planning right now. And I've been told in the interest of time, I can only cover 3. So that's what I'm going to do. We're going to start with, firstly, that we've got about $1,000,000,000 in these first six, and the NAV creation potential is $200,000,000 to $300,000,000 And moving over to the first site, it's Broadway and Commercial, so East Broadway. The site's located, as mentioned, the Broadway and Commercial corridor.
It's a 2.4 acre site in the Grandville Woodlands area of that community. Population is about 184,000 within a 3 kilometer radius. Household income is around 90,000. A key feature of this property is its location. It's at the junction of 2 major SkyTrain station nodes, the Expo Line and the Millennium Line as well as the Bee Line Broadway bus line.
And it's really the busiest transit node in Western Canada with a passenger count of over 150,000 people a day moving between the stations. So East Broadway really is one of the most desirable high profile TOD sites in Western Canada. Looking at our vision for the site, we have 3 mixed use towers of between 24 30 stories, approximately 550,000 square feet of residential, 68,000 square feet of retail and 60,000 square feet of office. The total project costs on this site are around $570,000,000 with Crombie share at about half of that. Rezoning has been submitted, and that was submitted in May.
And if we move over to the renderings, we'll be able to show you exciting stuff. There we go. So a number of great images are part of that package. This is a rendering that looks east to west toward the downtown of Vancouver. You can see in the background.
And just as a quick note, the current submission envisions about 680 residential units in this development. Next perspective is looking east across Broadway toward a new 50,000 square foot Safeway store. Above that, a fitness facility and the office component of this center. The Public Plaza and SkyTrain Station are just to the right hand side. Last image, really focuses on the SkyTrain line to the left hand side and a brand new 20,000 square foot Public Plaza linking 10th Avenue to Broadway and reinvigorating that community.
Next project in planning is Scotia Square in Downtown Halifax. This is a project that Crombie intends to develop, construct and manage using its own resources. And it's located on about 1.1 acres on the backside of an existing parcel of land that we own, the Scotia Square complex in particular. The site offers strong direct connection to the Scotia Square and Downtown Ped system and basically all areas of Halifax through the Pedway system. Existing population, about 70,000 within 3 kilometers.
Vacancy rates among newer buildings is pretty low at 1.5%. And we'll note as well, this is a main transit hub in the Halifax area, so an important node to link to. Looking at our vision for the site. We have a 17 story building housing 300 rental units and about 270,000 square feet. Our total project cost are roughly around $95,000,000 for this project.
Final site I'd like to touch on is King George in Surrey. King George site is a 5 acre site located in Surrey's city center. This is right next to City Hall, right next to where you will see cranes and towers going up right and left. Right across the street is a new 50 storey mixed use hotel development. It's currently home to a 54,000 square foot Safeway store.
Population is about 100,000 within 3 kilometers. Strong growth at 14.5% over the past 5 years. And the key to this site is really the location right next to SkyTrain station. It's the King George station. Busiest SkyTrain stop in Surrey, and it's going to continue to increase in importance as this line is going to be extended out to the Fleetwood area of Surrey and then further on to Langley.
So a very important node. Our vision for the site is quite large, and it is that way due to the official community plan allowing 7.5 FSR on the site. So we can develop up to 1,400,000 square feet here. Likely envisions a joint venture due to its size and scale and very likely to be a phased development as well. Total project cost on this development, roughly around $840,000,000 with Crombie share being about half of that as well.
So that brings me to the end of my presentation. I'm going to turn things over now to Clinton Kaye.
So hopefully by now and first of all, I should start by introducing myself. I'm the rookie on the team here, so hopefully, I can live up the expectation of what you're seeing as a very deep and experienced team. I'm very excited to be working here at Crombie. And I get the opportunity now to really focus on where we are from a financial position. And I want to take some time now to discuss Crombie's strong financial position.
We believe strongly that Crombie is unique. We have embarked upon our development journey from a strong financial strength position. This has been a cornerstone of Crombie's financial strategy to effectively allocate capital to support both NAV and AFFO unit growth. To finance this development and other growth priorities, Crombie has access to multiple sources of potential equity financing through capital recycling, capital markets and joint ventures. Our recent focus has been on strategic partial dispositions and disposals of non core assets.
Our disposition to Oak Street, for example, in May of 2019, John and the team, I think rightly pointed out, that was something very innovative in the retail space, something first for Crombie, something first for grocery retailers. In Irish respect, we did that in May. We finished just this Monday a second closing of the Oaktree transaction for approximately $193,000,000 Both transactions were in line with IFRS values. In addition to these transactions with Oak Street, Crombie executed 50% interest dispositions with FIRM Capital in Northern. And in future, profits in the disposition of condos will be another source of equity financing with Crombie.
In total, since the start of 2018, Crombie has successfully disposed of assets of approximately $800,000,000 In addition to this innovative equity sourcing, Crombie has entered into joint venture partnerships to further diversify sources of financing and share costs for our Davie Street, Bronte Village and Leduc Residential developments. In fact, our partnership at Bronte Village led to Crombie's 50% participation in Leduc's residential development. Both Westbank and Prince Development are proving to be strong partners with impressive management track records in their respective markets. Crombie's highly successful asset recycling program has removed the need to raise traditional equity and effectively prefunds development committed costs well into 2020. And as Glenn noted in his presentation, we have not raised traditional equity in over 3 years.
Historically, Crombie has had access to multiple sources of cost effective debt through bank credit facilities, conventional mortgages, CMHC insured mortgages, traditional construction loan financing and senior unsecured notes. More recently, Crombie had accessed CMHC insured financing at the Davis Street development for $160,000,000 in proceeds at very favorable interest rates of 3.22% for a 10 year term. For the Bronte and Leduc developments, Crombie initially accessed traditional construction financing, and we're currently in the process of assessing CMHC insured financing for these locations. And in August, Crombie successfully executed a 7 year $200,000,000 senior unsecured note at a desirable 3.86 percent interest rate. Crombie's debt management guiding principles are to reduce our total leverage over the medium to long term, while maintaining a minimum $250,000,000 of dry powder liquidity and bank credit facilities.
As of today, Crombie has bank credit facilities of 500,000,000 dollars which are largely unutilized. We plan to increase our weighted average term to maturity while taking advantage of current low interest rate environments. We have long average lease terms and believe in matching such leases with longer duration debt. We also aspire to increase our unencumbered asset pool, which is enabled by issuing unsecured notes utilizing our investment grade credit rating. At the end of June 2019, Crombie had approximately $950,000,000 of unencumbered investment properties at fair value.
As I mentioned at the beginning of my presentation, Crombie is pleased that we're executing our development pipeline from a condition of financial strength. Our core debt metrics remain strong, which supports a strong occupancy, same asset NOI and AFFO metrics you saw in Glenn's presentation. Our debt to gross book value on a fair value basis has declined to 49.2% at the end of June 2019, largely due to debt pay down from our asset recycling program. Debt to gross book value leverage has declined steadily over the past 4 years. With the recent $200,000,000 7 year unsecured note completed in August, Crombie maintains a well laddered debt maturity profile.
In addition to the strong debt ladder profile, if the current interest rate environment continues, Crombie will be in a position to refinance expiring mortgages at lower effective rates. In fact, over the next 15 months, Crombie has approximately $300,000,000 of mortgages maturing with an weighted average maturity interest rate of 4.77%. A great example is our mortgage on Scotia Square in Halifax. This $150,000,000 mortgage expires in February and carries an interest rate of 5.6%. The interest savings potential of this mortgage alone is in the range of $0.01 to $0.02 of AFFO improvement.
So clearly, we have the opportunity to harvest savings. And at this point, we believe Crombie is successfully executing on our strategy to utilize multiple sources of low cost capital, while prioritizing our investments to drive growth in both NAV and AFFO. We are targeting future total annual spending in the range of $300,000,000 to 400,000,000 dollars As capital is precious, we are equally focused on efficiently sourcing our funding and then putting that funding to work to generate strong returns. We have proven over the past few years to be highly resourceful in sourcing the best cost effective equity and debt options. Optionality is key.
Our strong fundamentals will enable us to generate growing free cash flow, which will reinvest to fund our growth. From a risk management standpoint, Crombie continuously monitors risk and executes mitigation plans to effectively support our strategy. We will focus on driving our growth in a responsible risk effective manner. In closing, I want to reemphasize, Crombie is executing on the strategy from a position of financial strength, and we will continue to utilize multiple sources of cost effective capital to support our strategy. Thank you.
And I'm now going to turn it over to Cheryl Fraser.
Good morning. As you can see, there's a lot of exciting things happening at Crombie, and we wouldn't be achieving these without our great people. So I'm very pleased I can take a few minutes to talk to you about our people and our platform. There we go. So, to talk about our people and our platform for a moment.
Our people, our platform and our business would not be successful without our people. So our people are key to success in driving at our AFFO and NAV growth, the continuation of our strong operating fundamentals and our key to successfully executing on our major mixed use developments. So as Chief Talent Officer and VP Communications, I'm going to take a few minutes just to highlight what we've been doing over the past year and a bit to strengthen our programs for our future. So first off, to remind us, Crombie is a national organization with teams on the ground in Toronto, Calgary, Montreal, Halifax and New Glasgow, Nova Scotia. And for those of you who may not be familiar with the New Glasgow Nova Scotia geography, New Glasgow is the town that's next door to Stellerton, and Stellerton is the town where Sobeys had its start 113 years ago.
So we also enjoy that closeness of partnership in the local community. Our organizational structure has also been developing at the same time as our strategy, and we have recently modified it, as Glenn mentioned earlier in his remarks. In 2018, in recognition of our continued focus on strong fundamentals and our expanded opportunities in our major mixed use developments, we restructured our organizational foundation from 3 regionally managed structures to 1 national structure with standardized national processes. We renewed our brand and focused on more specialized teams. We also conducted extensive recruitment to build our team for tomorrow and that recruitment was not only at the executive level, but we identified jobs through OTO Organization that we believe will require that talent for the next 5 to 8 years.
As you saw from Glenn's presentation, our solid results and fundamentals reflect the capability of our organization from coast to coast. And as you know, we're just getting started. I know I'm biased, but I am going to say our talent programs are, in my view, some of the best in our industry, and I would actually say some of the best in the country. I'll speak more to this in a few minutes. As Glenn mentioned as well, in 2019, we adopted new technologies to better support and enable our growth and development.
Included was a new enterprise reporting system, which was developed and successfully delivered on time and on budget. And this system moved us to better a world of better analytics and insights across the leasing operations, construction, development and finance areas as well as enabled us to potentially have a bolt on solution when we move forward eventually with the management of our residential developments. We also implemented Oracle to better manage our talent platform. And we thought about and implemented new technologies in the areas of aimed at more efficient on the ground management of our properties and improved things like energy efficiency. Moving on to the leadership team.
We have a very strong leadership bench strength with many years of experience across the industry, both from a retail and tenant retail landlord and tenant perspective as well as in the mixed use development space. We've been able to attract and retain some of the best talent I believe in Canada's real estate industry. And I just want to highlight a few here for you. First of all, John Bernowski, 25 years plus experience. John joined us a few years ago from Shoppers Drug Mart where he was their VP of Real Estate.
Trevor Lee, 25 years plus experience in the industry. Trevor was with Safeway, where he has an integral part to the management of their mixed use development, such as the Safeway property that was redeveloped on Granville Street in Vancouver. Harry Vuitton, our Senior Vice President of Leasing and Ops, has 15 years plus experience in the landlord and tenant space and joined Crombie early in 2019 from Shoppers Drug Mart, where he too was the VP of Real Estate. I think there's a pattern here. Ari is in the room with us today.
I will also take this opportunity to perhaps introduce myself. I joined Crombie in 2012, as Donnie mentioned earlier, after spending 25 years plus as an executive in midsize and large public sector organizations. So it was a very different move for me to come into the retail space. We've also carefully planned the next two layers of our organization to ensure we have a strong succession base and a talent plan that in place for the next 5 to 8 years of our strategy. And the 5 to 8 year piece is really important because as you know with our major developments it often takes 5 years to get them started.
So planning that 5 to 8 years out ensures that we have the team that's necessary, the team that's skilled, the team that's on the ground to make it happen. We've created therefore a runway for our future. We've attracted young, highly experienced talent to our team both at the executive, VP and directors level. And I just want to give some examples of what we've done. 6% of our VPs currently, all with top notch long term experience are under the age of 40.
I spoke about Ari earlier. Cara Dort, Brady Landry, who serve as VPs in our finance area are also part of this younger talent group and are in the room with us today. We're also planning for the future and putting a focus on increasing diversity. As you all know, diversity in the real estate space, especially for gender diversity, has not been as strong as in other industries. And we at Crombie believe it is necessary.
So we've put a fairly major focus on improving our diversity and inclusion. For example, in Planning for our Future, we have over 55% of our leadership development program participants as women. And these leadership development program participants, we hope, will become those directors, VPs and executives of the future. And although I've spoken of gender diversity, we also place a priority on other forms of diversity and inclusion, including our diversity of thought. The other thing I'll mention is Crombie is longstanding, and as Donnie mentioned, has a long term focus, and we're very proud of our culture of tenure of our employees.
Our annual turnover rate is actually less than 10%, which allows us to retain and grow the team from within that we need for the future. I'm going to draw your attention now to our development and construction team for a moment. And just to say, we have an experienced team in place to enable our world class major development agenda with 21 development professionals situated throughout Canada. The team has proven they're ready to seize upon our substantial development opportunity, having successfully led our current major developments and the planning of upcoming ones. Trevor leads our construction and development team, and that team includes VPs and directors on the ground in Calgary, Toronto and New Glasgow.
I should also mention that for many of our development professionals, they have between 5 30 years experience in mixed use residential construction and development. So it's not a new game for us. The team is supported by professional talent in the areas internal design, engineering, internal quantity surveying, leasing, construction, financing, of course, our legal team, environmental and analytics. So in closing, I just want to give a very quick glimpse of our overall talent program. I'm really proud to say we've created and implemented a forward looking people management program and built a team which I believe is 1st class.
We've enabled the traction and development of key talent for the next 5 to 8 years. And as someone mentioned earlier, we continually have a long list of people seeking opportunities with Crombie. I can tell you when I started 7 years ago, that was not the case. We had to go ahead and sell who Crombie was 7 years ago. Today, the applications come very quickly.
For example, we had a recent job opening for a manager of investment. We had over 280 qualified applicants. So it's critical to have a team ready for the opportunities and challenges of tomorrow, not just for today. I can constantly advise that Crombie is extremely well poised for the journey ahead. As I mentioned, we place a high value on diversity and inclusion.
In 2018, with the support of our Board, we implemented aggressive goals for our organization and for our Board, and we're meeting or exceeding all of those goals. Engaging with our employees to create a winning environment is also key. Our engagement survey results indicate that we have a highly engaged workforce at all levels of our organization. Our recent results place us in the top quartile of national companies according to Gallup, who's our surveyor. And accountability for performance is a key part of our culture.
Just as Michael Medline mentioned, it was a key part of Sobeys culture and Empire's culture, and it enables the business results we have demonstrated today. We also value and prioritize continuous learning and leadership development. We encourage and provide learning and development opportunities to every one of our employees so they can be a strong contributor to our long term strategy. Earlier, I spoke about our technology platform. We will continually continue to look proactively for opportunities to enhance our technology platform, bringing new and innovative technologies into our business operations as well as providing opportunities for improved analytics and better outcomes.
We are very proud of our organization, as you can see, and we believe we're prepared to seize upon the significant opportunities in front of us. And I thank you for letting me share the talent story. However, in closing, I want to leave you with 2 very key messages. We have that world class team and an exceptional platform. And 2, we have proven we're ready to execute on Crombie's major development pipeline and add these completed projects to our rock solid fundamentals.
So thank you very much.
Well, thank you to the entire team. I'm just going to finish with a few notes. As you've seen on the screen, you've heard it all before. I know we're almost approaching the end of our time, but I think it's important just to, if I can, summarize a little bit. Number 1, Sobeys is back.
I think you would have seen, for me, it was a very impressive showing of both Michael and Mike and their confidence level for what they are doing. And importantly, as John acknowledged, Mark Holly, the Head of the Real Estate team, I think gets it, importantly gets it how it relates to Empire and also importantly how it relates to Crombie. And really, the ability to work together to drive value is really dependent on having high quality people leading the ideas. And so we're very thankful to Mark and to the entire real estate team to enable this, I think which I think ultimately pays long term dividends and gets us to our targeted growth targets. Importantly, as Glenn said, we have solid fundamentals.
We have a stronger portfolio than we've ever had. That is real. We have done a lot of culling, a lot of growth, and we just continue on those trajectories as we have over the last number of years, and it just continues get stronger. There is a bifurcated retail market. We are in the right side of that bifurcation in the grocery anchored space.
Sobeys, it's a sustainable competitive advantage empire. Importantly, we think we're uniquely aligned. We do believe we're leading at this stage in terms of how to create value in the, call it, retailer related retailer space, and we're executing well, as John indicated. Our development pipeline is world class. This is not a second rate pipeline.
This is 1st class. It's amazing. And the question is, can we execute? And so far, we are, right? We have our first six, as Trevor, I think, so articulately spoke to.
They're going very well. We will continuously plan going forward to continuously do more. It's an opportunity that we all realize is special. The financial condition, as Clinton pointed out, is strong. You can compare us to others, have lots of different opinions, but we believe it is strong.
In the middle of a recession, if it ever comes, it'll be all about liquidity and talent. But in the meantime, if things stay stable, we think that both in that circumstance and the ability today to discontinue in these kind of conditions, we're well positioned to move things forward and fund the opportunities that are in front of us. And talent, Cheryl, I think has really truly been a leading force for Crombie, actually having a team that can execute the way we are today. And we've she showed a slide of roughly 3 25 people. We were 350, 7 years ago.
We went down 100 and up 75. The 75 that we've added are much more skilled than the 100 that are no longer with this team. So it's really very purposeful, very focused on the talents we need. People are the differentiating force and we're gaining momentum as a result. I won't put up that chart that I still love to show it and I showed at the beginning, but we believe we can continue to outperform.
We have over the last 10 years or the last 3 years or the last 1 year. There's any of you can put those charts up, but we think we can now go forward, continue to outperform. So that's my summary. What I'm going to do is turn it over to questioning, and I'm going to direct the questions as we can. I think one of the things I'll leave you with is I'm proud that we have a team.
It's not just about and historically, Donnie sorry, Glenn and I have been the ones out in the marketplace who you've talked to, and we feel very still very comfortable, and we'll continue to be out in the marketplace. But we now, I think, have given you a display of the broader team and the quality of that team. So as if you have any questions, we're happy to answer them, but some cases, we'll turn them over to our team to help them get to know them a little better. So any questions?
I'll preface that by reminding anybody that was speaking at the podium to turn their battery packs back on for the interest of the webcast guests and all questions through the mic, please, so that the webcast guests can hear the questions.
Michael?
Thank you. Donnie,
my question is on the modernizations and the renovations in specific. I think everybody is well aware of the mixed use opportunities and all the exciting stuff that's going on. It's a 3 part question. So I guess the first would be what sort of the runway in terms of what that investment could look like on an annual basis over the next 3 to 5 years would be the first one. The second would be, how should people think about the incremental return on that capital?
And then the third would be, if an investor was to ask you, what's the impact on your in place rent versus market, what would your response be?
So first of all, we're we developed a 3 year plan. I think at the outset, I'll take this one, John, if you don't mind. The word I said for people is consistency, right, and preplanned. So we, I think, for the first time now, have a 3 year plan together with Empire, which is important for us. In the past, honestly, we've had haphazard transactions from time to time, various needs for various parties.
But today, we're building long term plans for both modernizations, acquisitions, expansions, store conversions, etcetera. And also now we're working honestly on a 3 year plan for major development, which is not quite done yet. So the first issue is consistency. Can we drive the consistency? That's to me what I think people will pay for at the end of the day.
The shape of those things, we think we've got probably a I'll call it I'll use a range just because I don't want to disclose too much, but $50,000,000 to $100,000,000 over a 3 year period, somewhere in that range, we think is the opportunity and is our, call it, our target. So on an annual spend, you can do the math, call it $15,000,000 to $30,000,000 depending on where how things lay out for both parties. But for us, that's material, and we're doing those at a reasonable price that's accretive for Crombie and ultimately on stores that are good stores in the network, right? They're doing good things to them to make them even better. And for Empire, I believe it actually accelerates their performance improvement, which is making those stores again better and more relative to the market.
In terms of I can't remember your last question. We've always when we purchased assets, we've always purchased them in market range and generally at the low end of market. So when we're actually doing something like a modernization, we're still staying within market. That's the bottom line. And so we have the benefit of really a decade, 13 years of buying assets at the low end of market.
It was just what we always did. We were always cognizant of the retailer needed reasonable rents to succeed and that was just a pattern. So when we're stepping in now today to do modernizations or expansions, expansions are easy because it's additional space, additional sales, but modernizations, we still have the benefit of being at the low end of the market range. We'll stay within the market range. We'll never go above the market.
Derek?
You've kind of answered this already. I just want to understand the conversions, the Fresh Co conversions, how the economics work out for Crombie when you are revamping a Safeway into a fresh I'm
going to turn it over to John.
It's very similar to the modernization. So we're taking stores that are below market rent, sometimes 15, 20 years of fixed rate options and bringing them up to market rent and basically converting them from conventional to discount. So it's really akin to same financials as modernization.
And always extending the lease, right? We're generally working with them. That's part of the deal. So if you had 5 or 8 year, 10 years left, you'd be taken back out to 20, extending the options.
Of the $210,000,000 to $270,000,000 of value creation potential on the 6 developments, active developments, how much would be in your fair values today? And can you walk us through the criteria for recognition of those gains over time?
Who wants to take it? Glenn, do you want to try?
Short answer is 0. We have nothing reflected in our current fair value model other than the in place value, which is pretty conservative. We're using a trailing 12 month NOI, and we're using a cap rate for the current existing grocery anchored use. So in our IFRS fair value calculations internally, it's basically an as is current asset. We're not including anything in fair value for the value of air rights or increasing the value of the land.
We have some of these properties. There's properties in Vancouver that we bought for $25,000,000 where the Realty tax assessment today is $150,000,000 And that's a reality basically across Vancouver because there's a lot of highest and best use assessment in place there. But the aggregate of how much of that is in our fair value today is nothing. And we are conservative compared to some, and we're researching what others are doing. So we understand whether we should be gradually bringing some of that value into IFRS fair value as entitlements are achieved or development progresses, but we haven't made a determination yet on what the right approach is.
But today, we're basically doing it the old fashioned way, NOI, trailing 12 months NOI. Some REITs are using forward budgeted NOI. So we're probably even 2% to 3% conservative because we're using trailing 12%, but we're using in place cap rates, in place NOI.
If we make any change in that, we'll let everybody know. But we're old school, so didn't fall the older way.
Thanks. Just on the maybe as an extension of that question, at East Broadway on the rezoning there, what's the timeline of when that can when that, I guess, could get approval? And how much from a value creation standpoint would just the rezoning on that site roughly generate?
Trevor, do you want to talk to that?
Speaking in Vancouver, based on our
experience, it's a 2- to
3 year process. We would hope we can get it down below 2. But in general, it's probably a 20 to 36 month process to get through full rezoning and approvals.
And on the second part, we're not able to do that today. We're talking about an investment of $580,000,000 by ourselves and our partner Westbank, of which half of that is roughly ours. It's significant. That's what I can tell you, but we're not going to go there. Some of it interesting part of that project is some of it is condominiums.
There's 2 of the 3 towers or condos. 1 is rental. There's office as well, affordable housing and retail. So it's a mixed use, but it hasn't been approved, right? And so it's still we wanted to give you a glimpse.
It's really interesting. I think that Westbank and our teams have done a terrific job of planning something that works in a very, I think, important area of Vancouver, but it's not without controversy. And so obviously, we still have work to do to have it approved. And until we can really be comfortable if that's done, you really can't talk too much of value creation at this time, but it's not insignificant. It's Vancouver.
No other questions? Wow. Okay. Well, I guess all I'd like to say is thank you so much for coming. It's our inaugural Investor Day.
We're really pleased and that you could join us. We're seeing a lot of very familiar faces that we as we always like to say, we really appreciate the work that you do for us and help make us a great company and tell the world hopefully a little bit about what we're doing. And so if you have any questions, we are very approachable. Obviously, both here and afterwards, it's easy to reach us, and we'd love to give you more detail or color as we can. So anyway, thanks everybody.
Really appreciate it, and we'll talk to you soon. Thank you.