Good morning, ladies and gentlemen, and welcome to the Crombie REIT's second quarter earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on August eleventh, twenty twenty-two. I would now like to turn the conference call over to Ms. Ruth Martin. Please go ahead.
Thank you. Good day, everyone, and welcome to Crombie REIT's second quarter conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.crombie.ca. Slides to accompany today's call are available on the investor section of our website under presentations and events. On the call today are Don Clow, President and Chief Executive Officer, Clinton Keay, Chief Financial Officer and Secretary, and Glenn Hynes, Executive Vice President and Chief Operating Officer. Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our MD&A and annual information form, for a discussion of these risk factors.
I will now turn the call over to Don, who will begin our discussion with comments on Crombie's overall strategy and outlook. Glenn will follow with a development update and a review of Crombie's operating fundamentals and highlights. Clinton will then discuss our financial results, capital allocation, and approach to funding, and Don will conclude with a few final remarks. Over to you, Don.
Thank you, Ruth, and good day, everyone. Thanks for joining us. I feel tremendous gratitude to be in the position we're in at Crombie. The last two years have been challenging for everyone, as the strain of the pandemic and a host of other economic, geopolitical, and societal issues have, not surprisingly, had a big impact on Crombie and our stakeholders. We are unsure globally of what will happen over the next few years, which further stresses an already weary society. I'm grateful for the resilience of our portfolio, our strong relationship with our strategic partner, Empire, and most importantly, our team. Both Crombie and Empire are built to withstand economic challenges, and our focus is on creating best-in-class results by executing on our sustainable long-term strategies. With that in mind, our team has curated a portfolio that is defensive at its core, yet poised for growth.
We have de-leveraged considerably over the past year, and we have maintained very strong fundamentals and operating performance, a feat that is not easy to accomplish in this volatile environment. Our strong balance sheet, ample liquidity, record unencumbered asset pool, and access to multiple sources of capital are the foundation that enable us to survive a crisis well and generate significant value-creating opportunities. It is the execution of these world-class value-creating opportunities that have delivered significant fair value growth for Crombie over the last few years, and we hope will continue to do so in the years to come. We're proud of our resilient grocery-anchored industrial and apartment portfolio. These properties are the most desirable types of real estate in the Canadian market today.
As part of the curation of our portfolio, we've worked with Empire to meet evolving consumer trends, and our grocery-anchored properties comprise footprints that resonate well with consumer demands. We've recognized the elegance and strength that comes from owning a defensive portfolio with significant opportunities for future growth. We've embarked on a successful major development program, maintained a focus on Empire-related development initiatives, and taken advantage of the land value that exists in our locations across Canada. As we navigate a turbulent economic period, we remain committed to our major development program, which is a large part of our long-term strategy. In the short term, however, we'll be purposeful in our spending due to elevated risks, and our team will focus their efforts on continuing to advance multiple projects through the entitlement process.
Additionally, we're deliberately focusing greater investment on non-major developments in the near term with retail development, store conversions, modernizations, land use intensifications, and investment in the Voilà grocery e-commerce hub-and-spoke network. This work isn't as flashy as major developments, but it added approximately 100,000 sq ft of GLA year to date and is accretive and important to the future strength of our portfolio. As a result of turmoil in the markets, Crombie has recognized expansion in our cap rates for certain retail properties. However, this has been more than offset by our development completions, strong NOI growth, healthy demand for grocery-anchored assets, and capital recycling, which all helped increase our fair value over the past year. Clinton will provide more details on this shortly. When considering the long term, we pay careful attention to the role we play on environmental, social, and governance issues.
In the second quarter, we published our annual sustainability report, submitted to GRESB, and continued to advance initiatives on environmental stewardship. We are proud of the work we do to enhance the sustainability of our portfolio and our planet. Recently, Avalon Mall achieved BOMA BEST Gold certification for outstanding work on waste, energy, and water reduction. This latest accomplishment is added to an already long list of accolades, including the 2022 BOMA Newfoundland Earth Award and Certificate of Excellence in Retail. These awards highlight the hard work and focus of our operations team that have dedicated themselves to sustainability. We're also excited about a new rooftop beehive program implemented at Scotia Square in Halifax and Bronte Village in Oakville.
These Crombees, as we call them, are doing their part to pollinate urban greenery in these two cities and represent one of the everyday small challenges we can implement to make a difference. With that, I'll turn the call over to Glenn, who'll provide an update on our developments and operational highlights.
Thank you, Don, and good day everyone. Bronte Village, our luxury mixed-use residential development situated in one of Oakville's most desirable lakefront neighborhoods, which reached substantial completion last quarter, continues leasing momentum as 41% or 195 units have been leased as of July twenty-ninth, 2022, at rents approximately 10% above pro forma. Stabilization of NOI is expected to be reached in Q4 of 2023. We are pleased with our lease-up of Leduc, located between the Griffintown neighborhood and the Old Port in Montreal. Leduc reached substantial completion in Q3 2021 and continues to demonstrate solid leasing results with 78% or 302 units leased as of July twenty-ninth, at rents approximately 5% above pro forma. Stabilization of NOI is expected in Q2 of 2023.
Construction continues at our approximately 300,000 sq ft Voilà grocery e-commerce customer fulfillment center in Calgary. The base building work is nearing completion and full handover to Empire is scheduled for the end of September when Ocado will commence their build-out of the internal grid and robotics. Development remains a strategic priority for Crombie as these projects drive NAV and AFFO growth while increasing our presence in the country's top markets. Our team continues to work hard to entitle multiple properties in our development pipeline for their highest and best use. We're also excited with the development potential we're creating along with partner Clayton Developments at our 26-acre mixed-use development, Opal Ridge. Opal Ridge is welcoming, inclusive, and accessible multi-residential community located in Dartmouth, Nova Scotia.
The site is on an active transportation network with easy access to a major highway and is neighboring Crombie's 145,000 sq ft Sobeys anchored plaza. The entitlement and development agreements for over 900 new residential units were approved this quarter, allowing select land parcels to be sold with initial closing scheduled for later this year and third-party developers commencing residential buildings in 2023. We have the option to participate with Clayton in developing certain of these parcels. Strong occupancy continues in the second quarter with committed occupancy at 96.3% and economic occupancy at 95.9%. New leases increased occupancy by 256,000 sq ft at an average first-year rent of CAD 20.72 per sq ft. We experienced 160,000 sq ft of net lease expiries, vacancies, terminations, and space adjustments.
During the second quarter, four new Dollarama locations opened within our portfolio, making Dollarama our third largest tenant. Additionally, Halifax Regional Municipality, Pet Valu and TD Bank moved into our top 20 tenants, demonstrating the strength within our portfolio. At the end of the quarter, 78,000 sq ft was committed at an average first-year rate of CAD 23.55 per sq ft, which will contribute to future NOI growth. Over 75% of committed space is in VECTOM and major markets. Lease renewal activity during the quarter consisted of 275,000 sq ft of renewals at a 6.4% increase over expiring rental rates. Driving this growth was 154,000 sq ft of renewals at retail plazas with an increase of 7.6% over expiring rental rates.
When comparing expiring rental rates to the average rental rate for the renewal term, Crombie achieved a 7.5% increase during the quarter. Year to date, approximately 50% of the renewal activity occurred in the VECTOM in major markets at an increase of 5.5% over expiring rates. With that, I will now turn the call over to Clinton, who will highlight our second quarter financial results and discuss our capital and development funding approach.
Thank you, Glenn, and good day, everyone. On a cash basis, quarterly same asset NOI increased by 1.9% compared to the same quarter in 2021. Primary drivers of this increase are strong occupancy, partially offset by a decrease in lease termination income, primarily in our office portfolio. Adjusting for the removal of lease termination income in 2021, same asset NOI increased by 3%. For the quarter, AFFO per unit was CAD 0.25, increasing from CAD 0.23 for the same quarter last year, while FFO per unit was CAD 0.28, increasing from CAD 0.27 for the same quarter last year. AFFO and FFO payout ratios in the quarter were 90.5% and 79%, respectively.
The increase in AFFO and FFO for the quarter was primarily due to lower finance costs from operations, driven by significant deleveraging efforts and a decrease in G&A due to a reduction in unit-based compensation costs resulting from a decrease in Crombie's unit price from June 30, 2021. AFFO and FFO growth is in part offset by a reduction in lease termination income. This position, since the second quarter of 2021, an increase in losses from joint ventures as they reach stabilization. G&A, as a percentage of property revenue for the second quarter, was 4.8% or CAD 4.9 million. Excluding the impact of unit-based compensation and a one-time payment in respect of an executive retirement arrangement, G&A was 3.7% of property revenue.
Despite pressure from rising interest rates and increased inflation, Crombie continues to reduce risk and maintain financial strength by improving our balance sheet and overall financial condition to allow for future growth activities. In June, DBRS confirmed our triple B low rating with a stable outlook. Our unencumbered asset pool increased its fair value from CAD 1.8 billion at Q4 2021 to a record high CAD 2.2 billion this quarter. We continue to maintain ample liquidity with CAD 444 million available at the end of the second quarter. Unencumbered assets as a percentage of unsecured debt are 179%, an increase from 129% at December 31st, 2021, providing Crombie with additional financing options and flexibility.
Debt to gross fair value, including Crombie's portion of debt and assets held in equity accounted joint ventures, was 42.6% at the end of Q2, improving from 45.2% at Q4 2021. The primary driver of the improvement in our leverage ratio was the increase in total gross fair value of investment properties of CAD 306 million in the first half of 2022 from acquisition activity, investment in developments, and the substantial completion of Bronte Village in the first quarter of 2022. We ended the quarter with debt to trailing 12-months adjusted EBITDA at 8.73x, down from 8.96x at December 31st , 2021.
The improvement was primarily due to lower debt outstanding and higher adjusted EBITDA, driven by increased property revenue, mainly from acquisitions, strong occupancy, and continued lease up of joint ventures, residential developments, and lower G&A. As of June 30th, 2022, Crombie had three investment properties, including King George, with executed purchase and sale agreements, which all have been classified as held for resale. We expect to realize net proceeds of approximately CAD 110 million from these transactions, which will provide funding opportunity for value-added initiatives, including Empire-related investments, our development program, and upcoming debt repayments. Crombie has a robust and well-established process to support our cap rate. We are conservative in our methodology by utilizing a trailing twelve-month NOI. Our valuation committee meets regularly, and we receive external appraisals quarterly, as well as external cap rate surveys.
For the second quarter, Crombie had a weighted average cap rate of 5.47% inclusive of joint ventures. Crombie recognized cap rate expansion averaging 20 basis points on 150 retail assets, amounting to a CAD 30 million reduction in fair value. This was more than offset by the fair value markup on the three investment properties classified as held for sale. Acquisitions, non-major development completions, and major development spending in the quarter also contributed positively to our fair value. With that, I will now turn the call over to Don for a few closing comments.
Thank you, Clinton. This quarter, we've yet again experienced the strength that comes from carefully curating a resilient grocery-anchored industrial and multi-residential portfolio, an attractive development program, and a strong balance sheet, combined with a best-in-class platform. By maintaining a steadfast commitment to our strategy, Crombie is able to withstand uncertainty and volatility, while at the same time driving growth through value creation. While we cannot control the economy, geopolitics, pandemics, interest rates, inflation, and the like, we can control our resolute determination and commitment to do what's right for the long-term value of our business, our unit holders, our tenants, our communities, and our team. On that note, we'll be saying farewell to our teammate, Glenn Hynes, at the end of October. Glenn, you will be deeply missed, both as a colleague and a mentor to so many in the Crombie organization, including me.
We've certainly come a long way together since our days in high school some 40 years ago. Everyone listening to these calls over the last 12 years have come to rely on your kind and sage responses to their sometimes hard-hitting questions, and I know they join me in wishing you all the best in your retirement. Lastly, Glenn, thank you for the impact you've made on Crombie. You played a powerful partner in building our strategy, executing the strategy, and simply doing what we said we would do to enrich the long-term performance and sustainability of this organization. That concludes our prepared remarks. We are now happy to answer your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touch tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Mario Saric with Scotiabank. Please go ahead.
Hi, good afternoon.
Hi, Mario.
I just want to come back to Clinton's comment on the cap rate change, the IFRS cap rate change, of 20 basis points on 150 retail assets. Did I hear correctly that that was essentially offset by the markup on just the three assets held for sale? The result is like roughly flat cap rate quarter-over-quarter.
Well, it would be that plus the, you know, we're spending on the fair value side. Yes. You're right. It's. I would say that's a fair comment, just offset by that.
For the most part, Mario.
All right.
Sorry, it's Donny. It's a combination of that, those assets held for sale, but also NOI bumps, obviously in the various other parts of the portfolio.
Yeah.
It's a lot goes into the fair value.
Yeah.
of the organization, not just simply a capital change.
When we think about the NOI bump this quarter versus last quarter, can you give us a sense of what that looked like on a stabilized basis? Overall.
I would just say improving overall, Mario, and steady improvement.
Leave it at that.
Without providing kind of specific numbers, can you give us a range in terms of the disposition price on the three assets held for sale in relation to IFRS? It seems like it's a fairly sizable uptick than what it was about the three assets in particular that you were able to realize such a good valuation on them.
Yeah. I mean, they're all at or above IFRS. Then, I mean, obviously King George is the majority of those assets held for sale. King George is, you know, it's a big asset. It's 5 acres in Surrey at Main and Main in that community. It's a large project for us. You know, would have been over CAD 1 billion to develop it, and we're selling it at a sub-2% cap rate. So for us it's, you know, it's a terrific source of capital. We have, I think signaled to the market in many occasions, many different conversations with investors that, you know, we have 29 development opportunities. From time to time, we may sell one. We're working very hard on our entitled land program.
I think we've indicated at times that we have CAD 500 million-CAD 1 billion of land value once it's fully entitled, and this is an example, it's a proof of concept. It's a great source of capital. We have, you know, plenty of other opportunities, and we have other opportunities to replenish our pipeline. For us, it was, you know, that. Then the other opportunities, I don't really wanna get into why. They're just opportunities that come along, and we are, you know, from time to time, we'll take some chips off the table and that's, you know, other times we'll continue to own or we'll develop. It's, I'll leave it at that, Mario, if I can.
Okay. In terms of the redeployment, Clinton, you mentioned debt repayment, development, and then potentially some Empire-related acquisitions.
Yeah.
How should we think about the breakdown of those three uses of capital?
I think in the short term, Mario, is mainly towards debt repayment. As we get into the spends for the latter part of this year and next year, that's really where the proceeds will be used for.
Mario, our capital allocation, we've been generally pretty clear with the markets that we spend CAD 100-200 million on Sobeys initiatives and CAD 150-250 million a year on development. But I would say, you know, today, given a lot of elevated risk and volatility that we've moderated to some degree on the development spend a little bit. You know, it's our ability there to invest in not only major mixed-use projects, but also invest in Sobeys initiatives. We call some of them small D development, like we've talked about before, the hub and spokes modernizations. We just actually built three plazas, like I commented in the script, that add about 100,000 sq ft at very strong yields.
Again, the privilege of working with a related retailer in a strategic way gives us the ability to allocate capital. At times, it just is very sensible. We're still within those broad ranges that we've given you and still expect to be there, you know, each and every year going forward. I hope that's helpful.
Great. Thank you. Then just maybe my last question pertaining to Bronte, the stabilization, which pushed out a couple of quarters. I think, Glenn, you mentioned that the achieved rent so far is 10% above pro forma. What's driving kind of the two-quarter delay in stabilization?
You know, being a suburban development, it's just gonna take time. It's a two-bedroom. There's a lot of two-bedroom units in the Bronte development. There's a significant market there for people that are downsizing, empty nesters. I think there's been a little bit of a slowdown in the real estate market here in GTA, and I think that's a factor that's caused us to see our velocity. It's still on pace, but to be conservative, we think that Q4 2023 is when we'll be stabilized. We're seeing great sort of economics on this project. As you know, Mario, we're on time, on budget, and the 10% above pro forma on rents is certainly holding, and there's just great value for money there relative to condo and relative to the older stock in the marketplace.
We're still very bullish. That extra 10% will add another CAD 40 million of NAV on that project. We're excited about that, and we're very confident that we can keep or even increase that 10% favorable rental adjustment over pro forma as we go forward. We're really focused on keeping the velocity going and getting it to stabilization.
You know, Mario, I think we've been spoiled because with Davie Street, we leased it up in record time for the west side of Vancouver. Leduc, we're leasing it up, it feels like almost record time for that area as well. Bronte is really like Glenn said, it's basically on track, and we're pleased with it. The other, I think, important thing to note is our view is that this type of property, and I don't wanna call it a suburban market, but this type of property and given the nature of the people who are leasing, we expect they'll be very sticky, if I can call it that. In other words, you know, you shouldn't have as much turnover as you might otherwise in an inner-city-type property. We're patient, we're ahead of on some and we're pleased.
This one' s on track, so we're still net net overall with the first three projects, extremely pleased with the pace.
Okay. Thanks, guys.
Great. Thanks.
Mario.
Ladies and gentlemen, as a reminder, if you do have any questions, please press Star One. Your next question comes from Jenny Ma with BMO. Please go ahead.
Hi. Good afternoon.
Hi, Jenny. How are you doing?
On the 100-200 million dollars of Sobeys initiatives that you typically do, I'm just wondering if you could let us know if there's been any noticeable increase in development costs, and remind us that when you negotiate with Sobeys on the rents, that you are able to preserve that 6%-6.5% yield, which presumably would be able to absorb some cost increases if that is the case.
Maybe I'll just start and turn it over to Glenn. There's no question there is inflation in the market, and, you know, it's, it varies by location. We are seeing it ebb and flow. Been a lot of ups and downs over the last year and a half. Starting to see things come off and some availability of, you know, subcontractors that's, you know, wasn't there a number of months ago, so in different markets. I think net-net there is certainly inflation, and certainly it impacts how we pro forma developments and even the small D ones. It does impact returns. Generally the margins have been solid for us, especially with, you know, with Sobeys and in our LUI.
We have certainly some room to move, to still achieve, you know, a hurdle rate, Jenny, but I'll turn it over to Glenn.
Yeah, Jenny, it's a great question. I would say this, if you look at the current data set of development we're doing for Sobeys, we've been very fortunate. At CFC three, for example, because we just built CFC two, we were able to pre-order a lot of the inputs well in advance. Steel, for example, which not only saved us probably 20-25% cost increase avoidance, but also just supply chain issues with steel. We're on time, on budget, in fact, maybe even under budget on CFC three in Calgary, and that's obviously a CAD 100+ million project, 300,000 sq ft. Another example was in Grande Prairie, where we completed a retail plaza development. Donny spoke of the three plaza developments. Well, Grande Prairie was a new FreshCo store, plus about 15,000 sq ft of CRU space.
We contemplated waiting there until we had more lease up on the CRU. We decided to proceed last year. We avoided significant inflation, and we're now leased up on the CRU actually at about CAD seven ahead of pro forma. We've had some examples with Spokes that we completed in Ottawa, Quebec City. Those are smaller capital investments, but we were fortunate there to be able to stay on budget. As Donny mentioned, we've been able to maintain the yields in that 6%-6.5%+ range. And we've been very fortunate at this point with a number of these projects. In fact, there's no project that I can think of that's had any significant cost creep on the Sobeys side. We're very fortunate there. Some good timing and good luck and good management, I would suggest.
Going forward, do you have a good portion of these costs locked up or just flexibility in negotiating with Sobeys? I'm just trying to think of is this gonna be a growing pressure point going forward?
No. See the big advantage of the small D development, if you will, is that the timeline is so much more efficient than a big mixed-use development. If we're sitting talking to Sobeys about a retail development today, when we're ready to go and we set those costs in place and we establish the rents, we are in position to lock it. This is not a three-year mixed-use development where, you know, you're really exposed for that risk of what the future may unfold. On all these retail developments, including the CFCs and the Spokes, the timeline for development is very precise, very efficient, and we're able to set the costs and set the rents. That basically mitigates any risk to Crombie of losing that yield that you referenced.
This type of development, as Don Clow mentioned, is super efficient, much quicker from beginning to end, but still with very compelling returns.
Great. That's helpful. Wanted to ask about the Series D coming up in November. It's a relatively small piece at CAD 150 million, but I'm wondering what your thoughts are there, if the unsecured market continues to be unfavorable in terms of rolling that over and if you might, I guess, possibly use some of the sales proceeds to pay that down and lean on some liquidity, or would you look to maybe tap your unencumbered asset pool to pay off that Series D?
Yeah, I think the answer is multiple options available to us. Clearly, you know, we're watching the unsecured markets. It has been volatile. We've seen some encouraging signs in the last month in terms of the trends on the all-in yields from unsecured notes. We're keeping our options open. As you said, our unencumbered asset pool has grown. We have multiple options there on the secured front to look at locking in longer duration debt as well. We're also very fortunate, plenty of liquidity. If in the short term we think it's the right thing to do, we'll also look at utilizing our unutilized lines of credit with the banks to help us.
Okay.
Make a decision later. I'd say just very fortunate, and be in a great position to have that flexibility.
What are some of the indicated all-in costs you're seeing on the unsecured and secured side for, let's say, a five-year piece?
I don't like to be specific 'cause it is actually quite volatile.
Yeah.
I think at this point, I'd rather leave that open. Honestly, it's something that'll, when we get to it in November, we'll monitor the markets. You get lots of quotes, but they vary. I don't wanna pin myself to a specific number.
And, and both-
What about on the spread side? Like, could you comment on spreads?
Yeah. That's what I was gonna jump in on.
Yeah.
Is that the spreads have moved. You know, we've all seen the bond yields go up with 10-year bond up over 3.6% and.
Mm-hmm.
Now back down 2.6-ish range. Spreads have moved too, right?
Yeah.
Spreads have moved too. People's risk tolerance changes. Anyway, we're patient. We have a lot of options. You know, one thing I will say is that we've always been very conservative in our approach. We have long, you know, term to maturity on our debt ladder. We're in a great place. We have a lot of different flexibility in terms of trying to find spots in our debt ladder to keep our risk low. I think with that's paying off now when times are volatile. We'll see, Jenny.
Okay. I'll wait till we get close to that. Congrats, Glenn, on your retirement. I hope you enjoy it, and I'll turn it back.
Thanks, Jenny.
Your next question comes from Tal Woolley with National Bank Financial. Please go ahead.
Hey, good afternoon, everyone.
Hi, Tal.
Just wanted to dive into the same property numbers a little bit. In your breakdown in the MD&A, it was just interesting, you were showing like, you know, your VECTOM same property and performance was roughly flat, whereas your major markets in the rest of Canada were slightly higher. Is that largely a function of the term fee from last year?
I'd say it's a combination of things. I think part of the reason why major markets is so strong is that we picked up a lot on parking in Halifax, which helped us in that sort of major market space. Also, probably lease term, like, there's really no trends that would describe the same asset NOI dispersion per se. The biggest sort of thing that's impacting our numbers here in the short term is just how the parking income is coming back. We're still probably CAD 0.01 a unit below steady state in terms of where parking will be, but we're making really solid progress, as you saw, and we're certainly seeing that in the major market. Beyond that, Tal, there's no other trends per se in terms of same asset.
Okay. I apologize, I had to jump on late. With respect to sort of like your, I guess we'll call it maybe, shifting priorities a little bit in the short run on development, should we be rethinking the quantum of CapEx and where it's being spent, when we're thinking about modeling for the next couple of years? How long do you sort of see this phase here lasting? Is it a year, or is it a couple of years? What's your sort of planning that you're doing right now around that?
You know, if you have the answer to that question, Tal, you'd be a very wealthy person. I mean, who knows how long the volatility and I'll call it elevated risk lasts. You know, we're in an unprecedented time with three existential risks at play being, you know, climate, a pandemic, and nuclear kind of all facing the globe, let alone inflation, interest rates, and others that come home to roost with real estate. I did say it earlier that our spending ranges haven't really changed. We're still CAD 100 million-CAD 200 million on Sobeys and CAD 150 million-CAD 250 million on development. We may end up moderating on the development side just temporarily, and it's moderating sort of low end there, but it likely is up to the higher end more on Sobeys.
Again, it's just because we have ample opportunity to spend money that on a risk-adjusted basis is a terrific investment. In the development, it may be some what we call small D development. It's not all major mixed use. We've got one major development in CFC three, but we have a number of others. As we said in our script, you know, we've just built some plazas, where we you know, had Sobeys in hand prior to doing the development. So you're starting effectively on second base. The spokes, modernizations, conversions, et cetera, are really solid returns on a risk-adjusted basis. So we're very comfortable there. How long it lasts, we don't know. We still have a number of projects that are, you know, or one that's ready to go, a major project in West Hill.
You know, I won't say we've paused for very long on it, but we're basically ready to go, and we're looking very hard at it in a great market in Halifax. Broadway and Commercial got delayed not due to our doing. It was really a situation with the city, and so we're actually revisiting the density there to look at potentially increasing it to increase the amount of affordable housing in that project too. Development's not an easy game, and especially the large projects are hard and take a long time to get through the approval process. We're working. The other thing we're doing in this time is working on accelerating our entitlement project or projects, where we're entitling land.
You can just see, I think from the sale of King George, the potential. It's proof of concept on, you know, Glenn and the team have worked very hard and they're working on 10 projects now where, you know, the value of the land underlying the stores is significant. In King George, it's, you know, multiples of what we would have paid for the project. You know, it's proof that that concept's real. Just able to work on a lot of fronts, but generally staying within those ranges and just being a little more cautious temporarily. I won't give you a timeline. I'd say we're monitoring, you know, the situations and I think everybody's anxious to grow. That's really the key, I think, in our business, is growing our cash flow.
It's also important to preserve your balance sheet and be responsible with it. We're doing both at the same time, like we've always done.
Okay. Just on the new developments at Bronte, Leduc, and Davie. Looking at the commercial pieces of those redevelopments, specifically the Farm Boy, the IGA, the Safeway, what's sort of the sense that you're getting from Empire about the performance of those stores now that they're starting to ramp up? Like, are they seeing, like, the kind of productivity improvement and things like that they would wanna see? 'Cause obviously like, you know, redeveloping these properties aren't just a benefit to you, but they're also a benefit to them if, you know, the stores draw more traffic afterwards. Are they, you know? Do you sense that, you know, that's what they're seeing?
Yeah. I can't give you detailed, call it increase in performance, but I would say they're very pleased. You know, Western Canada, I mean, all of their conversions, you know, they do a lot of homework. Their data analytics is really strong in analyzing the micro markets, and so the conversions are done with a lot of thought and effort by their real estate team and ours. But the proof of the pudding's in the eating and the sales performance is certainly better, much better, as a whole. I mean, I can't get into specific sites and that type of thing, but our conversations with them is that they're very pleased.
The program is continuing, you know, through Project Horizon, that was one of the major parts of that plan was to improve their store network and importantly, utilizing Crombie's balance sheet and our team and our real estate, you know, development expertise to make it happen. We're pleased to be part of it, and it's a key part going forward. Glenn, why don't you-
Okay. Just a quick one, Tal. I think your point is correct. I think there's mutual alignment. You think of Davie Street in Vancouver, they had a very tired, non-prototypical store, and they replaced it with a, you know, a 40,000 sq ft brand new store. I think that was just very symbiotic for both parties. Bronte, prior to the development, they had an older Sobeys store there that was in a, you know, a tougher state of condition. With the rejuvenation through the 480 units we built there, they converted to Farm Boy. Beautiful store. Extremely beneficial for us in our leasing efforts at Bronte. Farm Boy's been a successful banner for them. In Montreal, the IGA's a brand new store for them in the ground floor of our building, 387 neighbors above.
I think the storyline is slightly different for each, but it's clearly, as you point out, a very symbiotic relationship that's so far working great for, I think, both entities, but we're obviously not here to speak for them. Okay. Then my last question, just on the development side. You know, we've seen as more of the retail REITs have gotten into, mixed-use development and have gained some experience and, you know, had some successes delivering properties. You know, they're looking maybe to keep more of the ownership economics for themselves.
Some of them are also even maybe broadening the investor base and looking to do stuff more on a kind of GP-LP kind of structure where they have less capital invested in a project and are more interested in collecting fees and retaining a piece of the equity. You guys have been, you know, going very market to market with local partners. Is there gonna be an evolution, you think, in your partnership strategy over time?
Oh, yeah. No, that's something you actually have to do, Tal. In my mind, the REIT structure is not built perfectly for doing development. All of us have to be careful in terms of how we allocate capital and how we stretch our balance sheet. Then importantly, I think we've become real estate teams over the last decade. I know when REITs were first started, they were basically triple net type vehicles. Crombie prides itself today in being a triple net REIT plus growth, right? The growth is driven from this type of activity. For us, we'll be doing. You know, I think I've said for years that our plan would be to do one out of three or one out of four on our own.
When we do that, importantly, some of them we'll just do on our own, use our own balance sheet. In addition, we are working hard like many of our peers in terms of alternate structures, is what we call them, and that's having capital partners where we can do the development, charge fees, et cetera. We've got a lengthy list of people that have inquired and, you know, we're working hard with a number of them to see whether we can put a deal together we like, where we lead the development process and, you know, ultimately operate them. It's a combination. There's no developer in Canada that does it in every market. No REIT is in every market and doing development. It's a very local game.
I think you have to have a combination where you feel comfortable doing it yourself together with obviously, like we've done, you know, partnering with great, developers like Westbank or Prince Developments, who know the markets, know the local politicians, et cetera, and can do things we can't. It'll continue to be a combination of all of the above.
Sorry, just one last one. You had, you know, you guys have focused very much on these initial stages with, you know, purpose-built rental. Given the shifting in the markets, do you think there's maybe some thought to doing condos too as well?
You know, we've said it for years, is that it's a micro-market decision. Crombie, we have a very strong predisposition to purpose-built rental. You know, it's a family-owned business. Crombie and our predecessors been around for 65 years, 70 years. As a family-owned business, families are interested in long-term cash flow growth. A condo development generally is a one-time, you know, nice profit, generally. It's not our primary interest. In some areas, as an example, Broadway and Commercial, we're doing 3 towers. One of them is condominium and two are purpose-built rental. Part of the rationale is you just don't wanna have too many units on the market at any one time. Plus, there's a good market for the condos, and it can, you know, possibly act as a way to self-fund the project.
It's a nice combination. Been done by developers for decades, do you know, multiple buildings with one or two as condos and one or two as purpose-built rental. It's not really ideal for REITs to do condos, quite frankly, but where the micro-market is strong for condos, we will look at it and consider it and in some cases do it. Our predisposition is to stay with the purpose-built rental for the long-term cash flow growth.
All right. That's it for me. Congratulations, Glenn. Best of luck.
Thank you, Tal.
Your next question comes from Sam Damiani with TD Securities. Please go ahead. Sam, you might have us on mute.
Second time today. You'd figure I'd get used to that by now. Good morning, everyone. Glenn, congrats again on your pending retirement or whatever you choose to do to have some fun for the next few years. Just wanted to maybe get back into the residential mixed-use projects and the outlook there. Don Clow, you had mentioned the Broadway and Commercial, so that's still very much a focus project for the REIT, it appears. You know, but there is gonna be a little bit of downtime between completions with the ones just completed and when the next one is. Is there like a lesser sort of appetite for the complexity and long duration nature of projects like this going forward?
No. I'd say no. I mean, right now, obviously, with external factors being at an extreme level in terms of volatility and risk, I think everybody, you know, many of our peers just put pens down or pushed pause. There's no question that's happened in our industry. For companies like Crombie and many of our peers, we have programs that are ongoing and multi-year. For us, we're continuing to work hard on, like I said earlier, on entitlements. We're continuing to get projects ready to go. We have West Hill ready to go now. You know, we just want to have a little more visibility into a number of factors and then we're hopeful that we'll, you know, get the go-ahead from our board and proceed.
It's clearly an appetite to build that, I call it complementary cash flow. Residential right now, there's a shortage of housing in Canada. It's a big deal. It's, in my mind, the golden goose is population growth and under supply. You see people able to raise rents in the residential business, and people generally can build developments even with inflation factors. In certain markets, they're able to build them profitably and then establish that cash flow for, you know, higher cash flow growth, right? We've seen higher cash flow growth in resi for some time, and I expect that'll continue given the market supply-demand. I think we're very enthusiastic about it. You know, there's maybe a short pause, but it's not a long pause, Sam.
It's a great part of our business, especially where it's strategic, right? I think the most strategic thing you can do for a rent multi-res building is put a grocery store at the base, and the most strategic thing you can do for a grocery store is put, you know, 1,000 people above it, right? They wanna shop there every day and buy high-margin prepared foods, et cetera. It's a great program. I think it's an elegant strategy for Crombie and Sobeys and Empire. It's no question we're fine and we'll keep going. There's a lot of risk right now. I don't think it's unfair for people to be thinking pause. For us, again, we're still within the ranges we've always articulated. That's the key message, and that's our plan and our target.
That's a great answer. Just on Broadway and Commercial, you know, how should we think about the city's deferral of the entitlement process there in terms of the, I guess, expectation and time, I guess, timeline and ultimately getting that across the finish line?
Yeah. It's always complicated when you're dealing with municipalities, and Vancouver is no exception. Great city, amazing city, even arguably the best market in Canada, if not North America. We're quite enthusiastic about Broadway and Commercial. We have a great partner. I think we have a great vision for that property. It's, you know, the number one transit node in Western Canada. It's, I think, in the top five in Canada. It honestly, in my view, should have significant density on the site. That is a very green use of the land. What we're doing there, I think, is a very sustainable approach to housing, much needed housing, and including a significant chunk that's affordable housing. The process is, you know, it's complicated. It's difficult.
I won't get into why it was deferred, but we do have a little bit of time. Then part of what I said, I think publicly at the time was that we'll take the time, have a look. We may be able to add a number of floors of density. You know, we've seen the Broadway Plan approved nearby with towers with significantly more density or height than what we have on this site, even though it's got that superior transit location. We're gonna explore that and explore it with the city as our partner, and looking at, you know, and our partner, Westbank, importantly, and you know, their team has a great relationship with the city to see whether it makes sense, right?
If we can add more density and a good chunk of that being affordable, we'd be pleased to do it, I think, in a city that really needs housing. I can't tell you timelines. That's the other thing, right? It's a process. The city is in control of that. We're hopeful it'll be. Obviously, the election is in October, so we're hopeful it'll be, you know, probably January into the, you know, into the winter. We don't think it's a long-term delay. It's more of a short-term delay, I believe. Hopefully, that'll come to bear.
Excellent. Just finally, I apologize. I got on the call a little late, so if you've addressed this already. Just curious if you're able to share the rationale for monetizing the King George site.
Yeah, I did say it earlier. I mean, it's. We have a lot of sites. We've told, I think people over the years that we will sell one from time to time, one of our development sites. We realize it's precious land, but that it's hard to come by. We do have opportunities through working with Sobeys to replenish our pipeline. We're selling one of 29. It was a large project. It, you know, would have been over CAD 1 billion for us to develop. We're selling it at a sub-2% cap rate. It's a great source of capital, especially where we're trading at such a big discount to NAV currently. I think it proves concept, Sam.
I think it's good to show the market that what we're saying, where we have CAD 500 million-CAD 1 billion worth of land once it was fully entitled, that it's real. I believe that number, those numbers. This is just one component of that. We're going to, you know, from time to time, keep doing it. It's not the majority. Obviously, we're gonna develop the majority. Yeah.
Excellent. Thank you. I'll turn it back.
Okay. Thanks.
There are no further questions at this time. Please proceed.
Thank you for your time today, and we look forward to updating you on our third quarter call in November.
Thank you, everybody.
Thanks, everybody.
Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.