Ladies and gentlemen, thank you for standing by. Welcome to the First Capital Realty Q2 2019 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star one on your telephone keypad. I would now like to turn the meeting over to Jodi. Jodi, please proceed with your presentation.
Good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's conference call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of those underlying assumptions, risks, and uncertainties is contained in our various security filings, including our MD&A for the year ended December 31st, 2018, and our AIF, which are available on SEDAR and on our website. These forward-looking statements are made out of today's date. Except as required by securities law, we undertake no obligation to publicly update or revise any such statements. During today's call, we will also be referencing certain financial measures that are non-IFRS measures.
These may not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the Company's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call. I will now turn the call over to Adam.
Okay. Thank you very much, Jodi. Good afternoon, everyone, and thank you for joining us today. Q2 was another significant quarter for the advancement of FCR's strategic initiatives. We'll start today by providing an update on four key priorities. Firstly, our commitment to deleverage the balance sheet following the share repurchase, which was completed in the quarter by selling properties that are inconsistent with our super urban strategy, is proceeding very well. Since the end of Q1, we have now closed on CAD 218 million of property sales, taking our year-to-date total to today to just over CAD 240 million. In addition to the CAD 240 million that's closed, we have approximately CAD 135 million under sale agreements where due diligence conditions have been waived. We're also active on other properties, some of which are under agreement but are still subject to due diligence conditions.
Several other properties are in the midst of negotiations and have not been classified as held for sale at the end of Q2. The majority of properties comprising the disposition amounts I just mentioned are being sold outright. Examples include Port Place on Vancouver Island, our portfolio in Langford, B.C., and our Trois-Rivières property in Quebec. The average population density within 5 km of the properties we have sold is less than 150,000 people, well below FCR's current 5-km density, which increased this quarter to 265,000 people. Similarly, the average Walk Score applicable to the property sold is 67, again, well below our average Walk Score of 78. Our real estate strategy extends beyond selling properties that no longer fit. We also selectively invest in super urban properties where significant value add opportunities exist.
One such opportunity is the development site at the northeast corner of Avenue Road and Yorkville in Toronto's Bloor-Yorkville neighborhood. We've been pursuing this site for a long time because of its highly strategic fit. We were recently successful in securing the acquisition of the property and then sought partners in order to both maintain our commitment to delever and to enhance the project team's expertise. We were fortunate to have more suitable groups keen to partner with us than we could accommodate. Ultimately, we selected Greybrook as a co-development partner, given their luxury residential expertise in both Canada and the U.S. We also brought in the Bank of Montreal as a capital partner via their private equity real estate fund.
We each acquired a 1/3 interest in the site last month and will develop it into a mixed-use property with true luxury residential, together with complementary retail, having connectivity to our existing Yorkville portfolio. This 0.6 acre corner development site forms an important part of a 4.7 acre city block comprised of our Yorkville Village and The Hazelton Hotel. Having an ownership position in the adjacent properties provides the opportunity for First Capital to extract more value from this site in addition to our existing properties. I'll briefly explain. Given we own the neighboring property, we can reduce the setback of the proposed development, which will allow us to enlarge the floor plate of the podium and the tower. By doing so, we can increase the density of the site without increasing the approved height.
In addition, there are meaningful synergies with parking and other shared services that we can create. These synergies will also reduce development costs. Partners on this new acquisition have agreed to compensate FCR for this density and these synergies as part of our deal. The value of our mall will also increase. As part of the master plan we have created for the block, we are now able to realize additional density on and above our current Yorkville entrance, improve the public realm, and enhance connectivity and integration with our new site. The value enhancement to the mall will accrue entirely to First Capital. The bottom line is that our ownership of this new mixed-use site provides a conduit for us to create and extract more value. More value from the site directly, and more value for First Capital's wholly owned mall.
This is a great example of our evolved strategy in action. Thirdly, surfacing unrecognized value in our substantial and growing incremental density pipeline is an important key to our future. We continue to believe that this density pipeline is the most mispriced element of our company. We have a plan that we will execute over the next couple of years and beyond that we believe will narrow this gap. As we've mentioned, part of that plan is to complete entitlement submissions on 7.5 million square feet of incremental density by the end of this year. As a majority of this density is located in Toronto, our submissions are planned to be back-end loaded towards the end of this year, as we await proclamation of Bill 108.
Included in the 7.5 million sq uare feet is our Yonge and Roselawn assembly, which is going in for resubmission, 1071 King Street in Liberty Village, Staples Lougheed in Vancouver, and density for a tower connected to the new LRT station at our Gloucester property in Ottawa. It will take some time to fully secure entitlements on these sites. Once we do, we expect material value and NAV creation to occur on rezoning alone. From there, we may look to monetize some of this density through outright sales, and in some cases where we plan to develop, potentially selling a partial interest to partners. Finally, the conversion to a REIT is also moving along very well, as we outlined in a press release last month. It's been a very busy summer.
We are making meaningful progress across all fronts, and the business continues to perform well as we execute on these four initiatives. There will likely be some choppiness to some of our metrics, such as NOI and FFO, as we execute our plan. However, the fundamentals of our properties remain strong. NAV, one of, if not the most important metric, is expected to continue its upward trend and will take more prominence for First Capital as we execute our strategy. Lastly, I would like to acknowledge the dedication, passion, and exceptional effort of the First Capital team. They clearly understand our strategy and that execution is the key to the best of strategic plans. With that, I will now pass things over to Kay to discuss our quarter in more detail. Kay?
Thank you, Adam. Good afternoon, everyone, and thank you for joining us on our call today. As Adam mentioned, we've made significant progress against our strategic objectives in the first six months of the year, which we are very pleased with. I would like to provide an update on our REIT conversion and some changes in our MD&A disclosures, and then take you through the quarterly results in more detail. During the second quarter, we settled on the approach we will take to convert from a corporation to a REIT. On July 9th, the Board of Directors approved the proposed reorganization, subject to receiving a fairness opinion from our independent financial advisor. The reorganization will also require shareholder approval at a special meeting expected to be held in early December. The conversion is intended to occur on or about December 30th of this year.
The conversion will result in a taxable deemed disposition for all shareholders who receive REIT units in exchange for their FCR common shares. Additional details on the REIT conversion were disclosed in our press release last month. During the second quarter, we added more disclosure to our MD&A around our super urban strategy. This discussion can be found in our Business Overview and Strategy section of the MD&A. We have described how we define a super urban property and introduced the metrics that we will use to monitor our progress against our stated objectives. These metrics include growth in the population density surrounding our properties, growth in NAV with a focus on surfacing value in our density pipeline, achieving our disposition targets, returning our debt metrics to similar levels as at year-end 2018, and accelerating the growth in our rental rates.
We define a super urban property based on its proximity to transit, its walkability score, and its population density. Currently, over 90% of our portfolio is within a five-minute walk to public transit. The portfolio has a walkability score of 78, which is considered very walkable, where most errands can be accomplished on foot. The portfolio's average population density is 265,000 people within a 5-km radius of our properties. Up 58,000 or 28% from December 2016, which makes FCR a leader among our North American peer group on this metric. We are targeting further growth in this metric to reach an average population density of 300,000 people in 2021. We also monitor our progress on servicing value in and growing our incremental density pipeline. As of June 30th, we had identified approximately 23 million square fee t of additional density within our portfolio.
Less than 15%, or 3.4 million of this total, is included in the fair value of investment properties on our balance sheet. We have a goal to increase this percentage primarily by seeking entitlements for a portion of this density, as Adam previously mentioned, which will lead to future growth in our NAV. We also measure our progress against our previously announced disposition targets. Adam provided an update on the progress we have made to date. We will use the proceeds of the dispositions to reduce our debt levels, to achieve our goal to return to similar debt metrics as at year-end 2018, and to fund growth opportunities in targeted super urban neighborhoods.
As we continue to dispose of properties, we expect that there will be a negative impact at the FFO, which will continue throughout the disposition period with a partial offset from growth in same property NOI and from development completion. As we further concentrate our investment capital in Canada's densest and fastest-growing neighborhoods, we expect the annual growth in our average rental rate to accelerate and to exceed its historical norm of 2.5%. Turning to the quarterly results. On slide six of our conference call deck, we show the factors driving the change in FFO. For the second quarter of 2019, FFO decreased by 3.4%, or CAD 0.01 on a per-share basis. This decrease was primarily due to gains realized in the second quarter of 2018, that did not recur in 2019.
These prior year gains included CAD 2.7 million of residential condo profits from our joint venture interest in Main + Main, and CAD 2.7 million of net gains on marketable securities. Excluding these gains, FFO per diluted share increased 3.3%. Moving to slide seven. Our same property NOI increased by 1.9% for the quarter and 3.5% for the six months ended June 30th, driven by rent escalations, higher occupancy levels, and lease termination fees.
On slide eight, we present our lease renewal activities for the quarter. Our Q2 total portfolio lease renewal lift was quite strong at 11.9% on 590,000 sq ft of renewals when comparing the rental rate in the last year of the expiring term to the first year of the renewal term. Even stronger at 14.6% when comparing the rental rate in the last year of the expiring term to the average rental rate in the renewal term.
For the six months ended June 30th, our total portfolio lease renewal lift was also very strong at 11.3% on 1.2 million square feet of renewals, and at 13.3% when comparing the rental rate in the last year of the expiring term to the average rental rate in the renewal term. Moving to slide nine. Our average net rental rate grew a healthy 3.1%, or CAD 0.62 over the prior year to CAD 20.58 per sq ft . This growth was primarily due to renewal lifts, rent escalations, development completions, and dispositions. During the first half of the year, we transferred 81,000 sq ft of new GLA from development to income-producing properties. We are expecting more completions over the next two quarters, primarily in our King High Line projects.
On slide 10, our total portfolio occupancy rate increased by 50 basis points over the same prior year period to 96.8%, which is the highest it has ever been due to significant leasing activity over the last 12 months. Slide 11 highlights our five largest developments that accounted for the majority of the CAD 43 million in development and redevelopment spend in the quarter. These investments are all in super urban neighborhoods, including Liberty Village, Yorkville Village, Yonge and Lawrence in Toronto, the Brewery District in Edmonton, and Wilderton in Montreal. Slide 12 shows the factors impacting FFO and the related movements over the prior year period, which I have already discussed. Slide 13 touches on our other gains, losses, and expenses, which are included in FFO.
For the second quarter, we recognized other losses of CAD 500,000, primarily due to REIT conversion costs versus a CAD 2.4 million other gain in the prior year, primarily due to net gains on marketable securities. Slide 14 summarizes our ACFO metric. Our year-to-date adjusted cash flow from operations was down slightly over the prior year period, primarily due to lower realized gains in marketable securities. Slide 15 summarizes our financing activities. During the first half of the year, we completed CAD 850 million of unsecured bank term loans that primarily funded the share repurchase. The majority of these loans were swapped to fixed-rate loans with a weighted average interest rate of 3.3% and a weighted average term to maturity of six years. The remaining loans are floating rate loans, which can be repaid at any time with no prepayment penalty.
We also completed CAD 393 million of new mortgages with 10-year terms at an effective interest rate of 3.4% and repaid CAD 172 million of existing mortgages with an average effective interest rate of 4.3%. Lastly, post quarter end, we completed the issuance of CAD 200 million of 7.5 year senior unsecured debentures with an effective interest rate of 3.5%. The proceeds were used to repay CAD 150 million of maturing debentures with an effective interest rate of 5.6%. Slide 16 summarizes the size of our operating credit facility and our unencumbered asset pool, as well as our key financial ratios. At quarter end, CAD 7 billion of our assets were unencumbered.
Our EBITDA interest coverage remained consistent with the prior quarter. Our net debt to total assets and net debt to EBITDA increased following the share repurchase, but less than initially expected due to our disposition activity.
Slide 19 shows our term debt ladder. In Q2 2019, our weighted average interest rate decreased to 4%. Our weighted average term to maturity increased to 5.4%. Lastly, I'm pleased to report that we've recently released our 2018 Corporate Responsibility and Sustainability Report, which is our ninth annual report. This report can be found on our website under Community, and then Sustainability. We also recently received a AAA ESG rating from MSCI, which is the highest possible rating to receive. MSCI is a leading provider of investment decision support tools, and a triple A rating identifies FCR as a leader for its environmental, social, and governance practices. We are very proud of this accomplishment, which demonstrates our continued leadership in ESG practices. Congratulations to all of our team members across the country who made this achievement possible.
At this time, we would be happy to answer any questions you have. Operator, can you please open the call for questions?
Thank you. Our first question is from Sam Damiani. Your line is now open. Please go ahead. Mr. Damiani, your line is now open. Please go ahead. We'll pass to the following question. The question is from Mark Rothschild. Your line is now open. Please go ahead.
Thanks, good afternoon, everyone. In regard to asset sales, can you talk a little bit about the depth of demand you're seeing from buyers for the types of assets you're selling? Also, is there a range of cap rates that you're seeing? Are they moving at all for all types of assets that you're looking to sell? How are you looking at it in the context of where you had originally thought that you'd be able to sell the property?
Hi, Mark. Thank you for the question. It's a very good question given the environment for property sales. I think we were pretty clear initially with the fact that our view was that there was more retail properties that were available for sale than there was capital to buy retail properties. We were also of the view that not all retail is created equal, and retail is not a commodity. We felt that the assets that we had identified for sale were kind of in that top quality spectrum across the landscape. Now that we've been in the market for a while, that I could tell you has proved to be true. We would describe the demand as adequate to execute on our objectives, and that's what we're seeing. What we had expected is that pricing would be generally in line with our IFRS value.
I think as you slide up into some of the suburban investments we have, the opposite is true in the sense that there is more capital that would like to own those properties than there are sellers of the property. I think in those, you probably have a better likelihood to transact above IFRS, but those are not the properties we're selling. Generally, they're in line with IFRS. We guided to around a 6% cap rate on what we were trying to sell. It's coming in right around there. Some are obviously a little below and some are a little above. In line with IFRS, that's the ballpark cap rate. The demand, I wouldn't say it's robust, but certainly deep enough for us to accomplish our objectives.
Okay, great. Thanks. You spoke also about what you're doing in Yorkville now with Greybrook, and this is an area where you've obviously invested quite a bit. To what extent are you open to increasing your exposure to Yorkville? While it is a strong location, just curious if you expand on how you view it as compared to more traditional grocery anchor properties as the size of your investment in Yorkville grows relative to the size of the company.
We've got about CAD 750 million invested today in the Yorkville neighborhood. Call it for round number 7.5% of our balance sheet. This investment, coupled with our planned redevelopment of 101 Yorkville, will take our investment in the Yorkville neighborhood to north of CAD 1 billion at our share. Call it 10% of our balance sheet. Given the quality of the neighborhood, the growth profile, the existing density, the fact the population of the Yorkville neighborhood is going to come close to doubling over the next seven to 10 years, we're very comfortable with the investment. On the surface, there are some nuances that are very different than other properties we own. We do have a grocery. We have two grocery anchors now in McEwan's and Whole Foods. We've got Equinox as a fitness use. We've got food and beverage and coffee shops.
There's a lot of things that really do tie back to the core strategy. As the strategy's evolved, it has become more about the neighborhood and a little bit less about the asset class. I think this is a perfect example of how we view that and the type of investments that we're making.
Okay, great. Thanks so much.
Thank you very much, Mark.
Thank you. The next question is from Dean Wilkinson. Your line is now open. Please go ahead.
Thanks. Afternoon, everyone.
Hi, Dean.
Just going back on the sales process and where you are with that. Adam, just looking at what you did in the quarter versus the change in what's held for sale, would that suggest that you sold perhaps more assets that weren't specifically identified, or did assets roll out and assets are rolling into that bucket, and we should think of that as maybe something that's going to be a declining balance?
No. There is a lot of movement. If you're looking at it on a quarterly basis, one way to look at it is what is in held for sale plus what has been sold year- to- date. If you look at that number again at Q1 versus today, it's somewhere between CAD 100 million and CAD 200 million higher.
Yeah.
What I tried to touch on in the prepared remarks is that even since the end of Q2, there's been progress. It's a very dynamic program we're executing, so it is changing quite rapidly. If we were reporting today, the sum of what's been closed plus what's held for sale would be higher today than what it was at the end of Q2.
Right. Where I'm going with that is it looks like that the sale process may happen perhaps a little quicker than we were originally thinking.
That's a very realistic possibility, but a little premature for us to make a commitment on that.
Sure. Gotcha.
We're a motivated vendor to get our balance sheet closer to where we would like it, but we're not a desperate or forced seller by any means. We're going to do what makes sense at the pace that makes sense. Initially, we laid out a 24-month timeline. That's the timeline we're going to stick with. It's a general timeline. Certainly, at this stage, things have unfolded slightly better than we initially expected. There's a very good possibility that we'll be through the halfway point after 12 months. That's a very realistic possibility.
Right. Okay. Secondarily to that, have you looked or considered at, and I'm assuming the answer's no, but I got to ask, selling some of those higher quality, lower cap rate assets and accelerating the debt pay down? Because I could imagine on some of that core stuff, you'd be well inside six, probably with a four in front of it, which would afford you the ability to sort of accelerate the debt pay down and maybe not as have much disruption to the FFO.
Yeah. Look, we've had unsolicited offers at sub four. We are still involved in a long-term business. We plan on running this business for the long term, and we are making decisions that we believe maximizes the value of this company over the long term. The reason those assets are priced the way they are is because they really do have really tremendous and compelling growth profiles. Our view is that selling those types of properties to pay down debt, yes, perhaps it's the easy path in the short term, but it's selling part of our future and part of the value of the company, and we don't believe we would get full value, in terms of what we believe we can do with these assets over the long term. The answer is no. We are not contemplating selling there.
Any asset that's consistent with our super urban strategy is something that we're committed to holding, unless, as we look at it, and we look at every asset on an asset-by-asset basis every year. If we believe, for whatever reason, that there isn't a clear value creation vision, then we change things. Generally, that's not the case. We're focused on properties that are inconsistent with the super urban strategy and all of the criteria and metrics that we've been talking about and that we've started to include in our public disclosure.
Okay. Yeah, that's great. Just turning to the density pipeline. I guess, in that you're waiting for Bill 108 for the comments, which I think are due back at the end of this month, would that suggest that of that 7.5 million, the lion's share of that is strictly going towards residential density?
Yes, the lion's share of that is in residential density. That's the natural evolution for a lot of these properties where densities are increasing by six, seven, eight times, in some cases more. Obviously, when you're going that vertical, the most logical, most valuable use, and the most in-demand use, is residential density.
Was there anything-- I haven't had a chance to read Bill 108, not that it's high on my nighttime table reading list, was there anything in it that sort of suggested that what you were looking at in that 7.5 million square feet may have to conceptually change, or was it generally in line with, okay, we don't have to change the plan, we just have to wait for this process to get through, and then we start sort of at the LPAT level on these things?
Maybe or Jodi comment on why we're waiting, but what it did was, in many cases, it increased dramatically the probability of us achieving the zoning that we were seeking. In some cases, it actually increased the amount of density that we believed could be achieved on the site. Jodi?
Yeah. Hi, Dean. Just to add to that, we are expecting proclamation. Actually, September is the guidance that we've been receiving from a number of sources. As Adam said, it just really increases our probability to get the density and the higher densities that we're looking for.
I think putting the submissions in after the proclamation occurs takes away any ambiguity whether it gets dealt with under the former system or the evolved one.
You wouldn't have a sense of timing on how quick they could then turn that and come back to you with sort of an initial view as to where those applications would land?
Look, I think it's safe to say that when we're putting a density figure out in the public domain, we have a very high degree of conviction that that's what we will achieve. Because it certainly wouldn't serve our purpose well to put out a number and fall short. We do have a high degree of conviction in the number. Like I said, the probability of achieving that has only increased as a result of Bill 108.
Okay, that's good. I will hand it back. Thanks, everyone.
Thank you very much, Dean.
Thank you. Our next question is from Jenny Ma. Your line is now open. Please go ahead.
Thanks. Good afternoon.
Hi, Jenny.
That was good color on the post-submission process, but I wanted to get some color on the pre-submission process on the density. Just to be clear, the 7.5 million square feet, does that include some of the CAD 3.4 million that's already valued, or is this incremental to that?
No, the 7.5 is entirely incremental.
Okay. You'll be just under half recognized then when this all comes to pass.
Sorry, just so I'm clear on the question. Are you asking if there's a component of the 7.5 million square feet is included in our IFRS now?
No, no. I know that the CAD 3.4 million is included. I'm wondering if the 7.5 million Is on top of the CAD 3.4 million.
Okay. It's roughly 10% is included in the CAD 3.4 million, and about 90% is not included in the CAD 3.4 million.
Okay. I'm just trying to get a sense of what the number comes out to. I guess it would be roughly, call it, 10 million square feet then that will be recognized when you get through this process? Give or take?
Yeah. Generally, that's in line with the numbers that we've done.
Okay. When you're doing the submissions, I just want to understand, how much work goes into it? Are they ready to go and it's really a matter of you handing it in, or is there some work that needs to be done on your part before they are ready?
Well, I'll let Jodi speak. I can tell you it's a lot of work to get the submission in, and then it's a lot of work to carry it through post-submission. Do you have anything to expand on that, Jodi?
Yeah. I'd just add, Jenny, that in terms of the preparation, a lot of work goes into working with the municipality and communities. We do a lot of engagement and work with the city. That also leads to that high probability factor. We're fairly confident that our numbers are achievable. It does take a long time, and there's a lot of work, a lot of detail that goes into a submission.
We expect those entitlements to come through between 6-24 months, depending on the property and the location. The City of Toronto, generally, that's the most valuable component in the majority of that pipeline. About 60% is in Toronto proper. About 70% is in the GTA and Toronto proper. That's where you're getting towards that 24-month timeline. It does take time, but back to the earlier point that we're running a long-term business. We want to get it right. We want to get the density right. There's a lot of money at stake for us to do that, and there's a lot of money at stake that's not, understand that we sold, but not currently recognized in the value of the company.
If we execute this well, it will become easy may not be the right word, but it'll become very feasible for that value to be recognized. It looks like we lost Jenny on our screen. Thank you for the question, Jenny. If we weren't done, please dial back in.
Thank you. Our next question is from Pammi Bir. Your line is now open. Please go ahead.
Thanks. Good afternoon. Just maybe continuing along the lines of this discussion. On the 7.5 million square feet , at what stage of the approval process would you start recognizing some of that value?
Thanks, Pammi, and congratulations on the new role.
Thank you.
Generally, and this is general, generally, we will recognize it at the point in time where the zoning is finalized.
So again-
It's not an exact science. You can make a case to recognize it at an alternative point in time. Based on our internal views, our internal policies, the general guideline is that once we fully secure the zoning, that's when an adjustment to the IFRS NAV would take place.
Right. Okay. You mentioned, I guess, a brief comment just in terms of the entitlements represent significant costs in terms of the total scope of these projects. Can you maybe provide some color there on that 7.5 million square feet, ballpark figures of what that investment could look like over time?
I believe what we said was, it involved a lot of work, a lot of sweat equity, not necessarily a lot of cost to get it through that process. One of the reasons we did ramp up the submissions is number one, it's a pretty decent environment to date. The provincial policies in Ontario are contributing to that to secure the zoning, which will stay with the properties. The cost to do that is not that material. The material costs start to come into play if and when we choose to develop that density. As we progress through this, because I can tell you that our thoughts are that some of this density will be sold outright.
Right.
We believe we create a lot of value on some of them, but we don't believe they necessarily have a strategic fit in the super urban strategy, even though some of them are in super urban locations. The ability to grow our position in that neighborhood is something that we may not think is feasible. The reality is, some of this is going to be a great source of capital recycling, where we sell assets that have little or no yield or FFO contribution. Some of that, we believe what would make sense to sell, monetize, and redeploy the capital.
Got it. Just in terms of the, again, this 7.5 million sq uare feet, what would the rough mix between, say, rental and condos be on the residential?
Right now it's too early to tell from our perspective. There's no question there'll be a meaningful rental component. There's also no question that there will be a condo component, we suspect smaller. The truth is we haven't fully decided, once we do get the zoning, what the next course of action is on every property. We have not decided that on every property. The residential density isn't tied to condo or rental. We may have a view that it could be rental, and we may end up deciding to sell a property and the new buyer does condo. As we progress through this, we will provide more visibility into what our plans are with the density. That's where we'll start talking about rental and condo. That's when we'll start talking about capital requirements and sources of capital and potential partners.
Got it. Maybe just one last one for me. In coming back to the disposition program, the CAD 400 million that's held for sale. What's the rough timing on those transactions or, I guess, contracts or some of them are firm, maybe some are still in progress, but how do you see that playing out over the course of the year? If you can just maybe provide a range of what the cap rate looks like on those relative to, let's say, your overall portfolio cap rate.
Okay. The accounting rules suggest that we have an expectation to transact on held-for-sale assets within 12 months. We think it'll be more likely in the first half versus the second half for a lot of them. Of the CAD 400 million, there's about CAD 135 million that's under agreements of purchase and sale where due diligence conditions have been waived. Some of the balance is under conditional agreements, some of the balance is not under any agreement. It's a bit fluid. Timing, we certainly expect some of that to close throughout the balance of the year. Potentially some will close into next year. Based on what we know today, there's a likelihood that balance grows the next time we report, but obviously that could change as well.
Cap rate, as I said earlier, it's generally around 6% for the assets that we are selling and have sold. Some are below, some are above. That's the general average.
That's great. Thanks very much.
Okay, Pammi. Thank you.
Thank you. Our next question is from Mario Saric. Your line is now open. Please go ahead.
Hi. Thank you. Good afternoon. Just maybe sticking to the intensification theme. In terms of values, let's say price per buildable square foot, it looks like the 3 million square feet that is being included in the IFRS NAV is being valued at just under CAD 10 million. Let's say roughly about CAD 70 per buildable square foot. How would you characterize the 7.5 million identified looking for submission relative to the 3 million I think included in your IFRS value today in terms of quality, location, and so on?
Thanks very much, Mario. It's a good question. There are a lot of similarities across the two buckets of properties.
Okay. Secondly, Adam, I think you mentioned on the 7.5 million square feet, some of it you'll sell outright when you get the zoning. How do you think about the depth of the platform today in terms of achieving the 7.5 million square feet, and high level, how do you think about how much to keep and how much to sell going forward?
I just want to clarify, we said we may sell some of it outright. It's a very realistic possibility. I don't think we're going to sell the majority of it outright because a lot of the real estate is a great fit with our strategy and our platform. Then in terms of the platform, and where we go from there, that's something we're continually monitoring across all of our departments as we look at our business over both the short term and the medium term. We're going to continue to do that. This is a busy company. We're fortunate that we have a lot of very talented and passionate people that work here, so we're able to produce a lot. We'll make adjustments like we did in 2015 where we had too many people, and not all of the right people for where we were heading.
Since then we've added staff. We'll continuously look at that. There's a ton of work ahead of us. We have a great group across the company and across the country to execute it, and when it needs tweaking, we'll make sure we have the human capital and the platform to execute the strategy. At this stage, we don't foresee any meaningful changes over the foreseeable future from a platform perspective.
Got it. Okay. That's it from me. Thanks.
Okay. Thank you very much.
Thank you. Our next question is from Sam Damiani. Please go ahead. Your line is now open.
Good afternoon. Thank you. Just to stick on the incremental density theme. The table in the MD&A, putting the density into three different buckets, being medium term, long term, and very long term. This quarter, there was a big shift into the medium term, which I think is commenced within seven years. I apologize if this question was answered because I just jumped on the call some 10 minutes ago. What prompted the shift of all of that GLA or that potential GLA that much sooner? Was the first question. I have a follow-up as well.
Yeah. Well, thanks very much for the question, Sam. The reason we had a more meaningful shift is based on the fact And I probably should have said this in answering Mario's comment as well, is we are not under pressure to develop this density because the vast majority of it is situated on very productive retail properties that are generating income. Whether we terminate tenants under redevelopment clauses in one year or three years or four years is not that big a deal to us. Some of the real estate, and what we expected to do with it, kind of fell into that longer term category, but still near the line, that seven-year line.
When we outlined our Evolve Strategy, one element of the super urban strategy, in an effort to surface value in the density pipeline, was to really have a heightened focus on it and to accelerate the value that gets surfaced through that pipeline. As a result of that is go back and revisit the timelines, and a lot of the timelines we're planning to accelerate in a meaningful way, and that's what pushed a lot of the density into that medium term bucket from the long term. You're going to see some volatility around those categories, especially when you start getting out seven-plus years. Clearly, where we sit today versus prior quarters is there's a heightened focus on accelerating the value that we surface, and we have visibility on a lot of properties and exactly how we're going to do that, and that's what prompted the shift.
That makes sense. One of the hindrances historically, of course, has been the burden of these long-term leases to anchor tenants that basically prohibit a redevelopment. Have you come to some sort of arrangements, verbally or otherwise, to break some of those restrictions?
Yeah, that's something that we are certainly continuing to work on, and that is something that is certainly resulting in some of these properties remaining in the long-term bucket because the economic viability of the redevelopment is there today. Once zoning is secured there, the highest and best use is to intensify. Because of those encumbrances, we left a lot of properties in the longer-term bucket until we get to a stage where we're comfortable that we can deal with those. We are in active discussions with a number of tenants. We also have timelines where, like we did in Wilderton, where for many years we did not have a redevelopment right, and then contractually, all of a sudden, we did. Obviously we're monitoring that as well. In some cases, trying to accelerate that.
That's a big piece of work that several people in the company are working on. Obviously the leasing group is tied to the hip of the development group because how we lease space in those properties is very different than if we were planning to run them in their current state for the long term, and the types of commitments we make.
That makes sense. Is there any update, just shifting gears, on the plans for the two properties where the Walmarts are vacating later this year?
Yeah, Sam. Hi, it's Carm. Thanks for the question. We approach these situations, opportunities from a wide lens. For example, we took some time to reposition our target boxes versus a net lease out. We're glad we did, because we created more value replacing the previous tenant with more complementary uses such as a food store, hardware, gym, improving the asset quality and the value. We expect to achieve something similar with the recent Walmart closures. As mentioned, we have two boxes coming back to us this year. We have solid plans to manage the space in the short term. At Cedarbrae , we have finalized to backfill the entire box with two temp tenants. This provides us with an opportunity to pick up some revenue while we review the potential en bloc or redevelopment play on about 6.5 acres.
At Fairview, the development plan is clear, the Walmart box will be transferred to under development later this year, as we have plans to demolish and then redevelop the space. We are in active negotiations with several tenants, we'll use this as an opportunity also to improve parking access and to unblock some additional development controls that Walmart had. Generally speaking, we're happy to get some of these boxes back. It's very low rent and allows us to add value.
All right. Thank you. That's very helpful. What are the dates of those two leases burning off? Is it Q3, Q4?
The Cedarbrae lease ended June the 30th, so the end of Q2.
Right.
The Fairview lease is, I believe, mid-November.
Kay, I noticed the revenue-sustaining CapEx is up year-over-year both in the first and second quarter. Is that sustainable, for lack of a better word, going forward?
Hi, Sam. Yeah, you are correct. The revenue-sustaining CapEx is up a bit in the first half of the year. It's really timing. If I look at our forecast for the full-year spend, last year, we came in at about CAD 15.5 million. We'd be similar to slightly higher in terms of the expected spend for the full-year. I would say it's just a bit of timing and more front-end loaded this year than last year.
Okay. Thank you very much. I'll turn it back.
Thanks, Sam.
Thank you. Our next question is from Tal Woolley. Your line is now open. Please go ahead.
Hey, good afternoon.
Hi, Tal.
Just wanted to ask about the same property NOI performance in the quarter. The stable portfolio is maybe a little bit lower than what we've seen in the past. Is there anything sort of unique going on in the quarter that maybe had caused that? Same thing, too, in the eastern region, too. I guess some dispositions there probably caused it to decline. If maybe you could just offer some color there, that'd be great.
Hi, Tal. Certainly. Just to context that, generally speaking, there are far more properties in the same property stable than there are in same property with redevelopment.
Yes.
The same property with redevelopment bucket can be quite small. A large increase in this category typically is not very meaningful, especially when you have it happen over just one or two quarters, or when it includes a large lease termination fee, which we did have in the second quarter of this year. Year- to- date, we would see our same property stable NOI at 2.7%. That is in line with 2018. It's better than both 2016 and 2017 as well. We would say there's nothing in particular in the quarter that you should be concerned about. It really makes sense to look at these numbers over a longer time horizon. I think you also mentioned the drop in NOI in the eastern region.
Yes.
The majority of the dispositions occurring in the quarter were in the eastern region, and that's the primary reason you see the change in NOI there.
Okay. Just looking on the development pipeline, you've got an average cost of about CAD 650 million, CAD 90 million left to complete. Given where you want to be on your deleveraging goal, what's sort of the right size pipeline or average annual development spend you think is appropriate to hit those goals going forward?
Well, the one thing to keep in mind is that the type of development we've been involved in for a long time is generally mixed-use development, where the construction timeframe spans over several years. When we started these projects that are now active, a transaction like the Gazit transaction, which I would view as an opportunistic exercise, was not on the horizon. The train's left the station, so we're going to finish the developments. Fortunately, we had and continue to have a balance sheet that's strong enough and flexible enough that allows us to take advantage of opportunities like the Gazit transaction without really hampering our ability to create long-term value. Notwithstanding, we are in a de-leveraging phase. That does not mean CAD 0 get invested. We are going to continue to invest, but the pace of investment will certainly lag the pace of dispositions.
To complete the active projects, we've been running at, call it CAD 150 million-CAD 200 million a year of investment in development, and we expect that to be the case this year and next year as well.
Okay, that's great. Just my last question, probably for Kay. If you think about the total cost of all the corporate work you've done this year with the Gazit deal and the REIT conversion, do you have an idea of what the total extra cost you'll probably have baked into this year that you won't have to pay next year?
The costs related to the Gazit transaction were all recorded in the first quarter, and it's around CAD 3.4 million. In terms of the REIT conversion, we did have some costs last year, which were about CAD 1.5 million. Overall, our total spend on the REIT conversion, we would expect to be similar to be in the range of the recent conversions which we've seen out there. That range was about CAD 3.5 million-CAD 9.3 million. We would guess that we would be in the mid part of that range in terms of the total spend expanding over two years.
Most of that would probably come in the fourth quarter?
It will be a bit more weighted to the second half of this year, given the ultimate date for conversion is targeted at December.
Okay, that's perfect. Thanks very much, guys.
Thank you, Tal.
Once again, please press star one on your telephone keypad if you have a question. Our next question is from Jenny Ma. Your line is now open. Please go ahead.
Thanks. I just have one more question with regards to the intensification and devaluation. Just to be clear, when you're thinking about the leverage goal of getting back to 2018, that is going to be entirely driven by the disposition program, correct?
Well, that's certainly the plan.
I guess what I'm getting at is-
What do you think you're getting at, Jenny?
What I'm getting at-
Our plan is that we are going to delever through dispositions.
I'm just wondering how much flexibility there is, and you're considering sort of the last end bucket of the dispositions. If the timing of some of the valuations come in such that you have some flexibility, would you sort of rethink some of the dispositions, or is it really just a separate decision on the asset sales in and of themselves?
Well, that's actually a very good point, because if you recall, we announced a much more aggressive disposition objective before we had a desire to delever, right? We came out in February, and we said that we're evolving our strategy. As a result of that, we had about 10% of our portfolio that we felt didn't fit the evolved strategy, and we were planning to sell those. It was subsequent to that the opportunity to do the transaction with Gazit materialized, which was totally separate and apart from the evolved strategy and the resulting disposition plans we had. As a result of the Gazit deal, we said, yes, we do want to delever from that. We'll lever up, but we do want to delever from that.
We did more work on the portfolio, and as you can imagine, it's not an exact science. When we said 10%, it's not like properties that just fell inside the keep bucket was black and white. We said, okay, we're going to expand that, and we said we're going to take it 10% to 15%. The bottom line is, we have a strategic objective from a real estate strategy perspective to transition and evolve the portfolio in a manner that would involve that level of dispositions. The Gazit transaction provided motivation to accelerate the timing of exactly when we do that and the magnitude of that. I want to be clear, absent the Gazit transaction and absent the additional leverage we took on, we would still, from a real estate strategy perspective, be pursuing these dispositions.
Okay. That's clear. Thank you very much.
Okay, Jenny. Thank you.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Adam Paul .
Okay. That was close, but thank you, everyone, for your time this afternoon. Two first names I never get offended. Thank you for your time this afternoon, your continued interest in our company. Enjoy the rest of your day. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you all for your participation.