Good morning, and welcome to the H and R Real Estate Investment Trust 2019 4th Quarter's Earnings Conference Call. Before beginning the call, H and R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections and the remarks that follow may contain forward looking information, which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward looking information may require management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward looking information. In discussing H and R's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRs, or Canadian General Accepted Accounting Principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non GAAP measures should not be considered as alternatives to net income or comparable measures determined in accordance with IFRS as indicators of H and R's performance, liquidity, cash flows and profitability.
H and R's management uses these measures to aid in assessing the rest underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties that could cause actual results to differ materially from the statements in the forward looking information and the material factors or assumptions that may have been applied in making such statements, together with details on H and R use of non GAAP financial measures are described in more detail in H and R's public filings, which can be found on our website at www.sedar.com. I would now like to introduce Mr. Tom Hofstadter, Chief Executive Officer of H&R Rent. Please go ahead, sir.
Good morning, everybody. Thanks for joining us today. I'd like to welcome everybody to the call. And joining me today are Larry Broom, our CFO Patrick Sullivan, COO of Primaris and Filip Lapointe, CEO of Lanterra. First, Larry will summarize our quarterly and annual financial results.
Pat will then provide an update to our retail portfolio, followed by Philippe, who will update us on our multi res portfolio. And finally, I'll conclude with some closing remarks. Please hold by your questions. Over to Larry.
Thanks, Tom. Good morning, everyone. I'll begin with some high level remarks, starting with FFO. Funds from operations FFO Q4 2019 basic, diluted and normalized FFO was $0.44 per unit compared to $0.43 per unit in Q4 2018. For the year, normalized FFO was $1.74 per unit compared to $1.73 per unit in 2018.
Although these are small increases, we view them as quite an achievement given that we completed approximately $1,800,000,000 of active sales over the past 24 months compared to $645,000,000 of property acquisitions during the same period. Part of these acquisitions was for newly constructed U. S. Residential properties that were in lease up during 2019. They are expected to generate approximately 4.8 $1,000,000 more in FFO in 2020 than they did in 2019.
Part of the proceeds from the asset dispositions were used to fund H and R's development pipeline. During the course of the year, we invested over CAD300 1,000,000 into developments that will provide future FFO growth as they are completed and stabilized. We have 3 U. S. Development projects scheduled to be completed in 2020: River Landing in Miami, Phase 1 of Hercules in San Francisco and The Pearl in Austin.
And in Canada and Ontario, we are pleased to announce we recently released the largest of the 3 industrial buildings we currently have under construction to date the post for 10 years. Occupancy is expected to commence in Q3 2020. Additionally, part of the asset disposition proceeds were invested in redeveloping the former Target and Sears stores in our portfolio. We're expecting growth in rental income of approximately CAD 4,300,000 from new tenants occupying this space. Our Closet development in Long Island City, New York, Jackson Park was completed during the year and generated US10 $1,000,000 of FFO at our 50% percentage share.
In September, interest only financing of $1,000,000,000 was secured by the property for 10 years at an annual interest rate of 3.25%. After repayment of the construction financing, HNO received US195 $1,000,000 distribution from the joint venture, which was used to repay other debts. The project's unlevered yield on budgeted cost is expected to be 6% and the levered yield on H and R's net cash contribution invested is expected to be approximately 50%. We have leased the majority of the vacancies in our Office and Industrial segments And in addition, committed retail occupancy at December was 94.1% versus the actual occupancy of 91.5%. Debt to total assets per the financial statements at year end was 44.4%.
But subsequent to year end, the $256,000,000 mortgage receivable that was secured by the Atrium was received. These funds were used to repay debt, which reduced the debt to total asset ratio to 43.4%. And with that, I will now turn the call over to Pat to give us some updates on our retail division.
Thank you, Larry, and good morning. Leasing activity during the past 2 years has been very strong with our leasing team completing more than 400 transactions during each year, including 250 new lease deals of which there were 35 new large format transactions. While our occupancy rate and net operating income have been negatively impacted by the closure of Sears and other tenant bankruptcies, we are starting to realize the positive momentum as tenants begin to open from their redeveloped boxes. During the last quarter of 2019, more than 220,000 square feet of box stores opened in the portfolio and approximately 280,000 square feet of new box stores will open in 2020. There continues to be tenant demand for space within our portfolio and we anticipate strong leasing activity once again in 2020.
Our at the at the end of the third quarter, while our occupied and committed rate rose to 94.1% from 93.8%. 12 months rolling same store sales within our enclosed mall portfolio are $545 per square foot, a decline from the end of 2018, but in line with the productivity figures posted in both 2016 and 2017. With respect to Allstar sales volumes, we have been reducing the amount of CRU area for the past few years, which is a result for the most part of expanding existing tenants or leasing space, in both cases, the large format tenants were not included in our sales reporting area. Many of these new large format tenants such as Winners, Marks, Urban Planet and Old Navy have been great additions to our properties and generate significant traffic. With our anchor development projects nearing completion, we are exploring opportunities to diversify our shopping center site to include office and residential uses.
By way of example, with the City of Ottawa planning for light rail transit to stop at flat door liens in Ottawa during the next few years, have relocated the food court to the main level of the mall with the goal of utilizing the 2nd floor for office uses. Recently, we completed 2 long term leases with Public Works, 1 for 53,000 square feet and the other for 9,500 square feet. In addition, we are in the preliminary planning stages for residential densification at Orchard Park in Kelowna, Stone Road in Guelph and Place Orleans in Ottawa. At Dufferin Mall, the approval process to add significant residential density is in progress, and we expect to start construction on that project in approximately 2 years. Thank you, and I'll now turn the discussion over to Philippe.
Thank you, Pat. Good morning, everyone. We've got some notable updates for this quarter and so I'm delighted to share the latest news from Lantyre Residential. As mentioned in the previous quarters, one of our strategic initiatives is to examine our existing portfolio to determine if any reallocations would be accretive to the overall portfolio. As we alluded in our last quarter's call, we were under contract to sell 2 legacy assets from Landstar's portfolio.
In January this year, we successfully disposed of Magnolia Grove, a 1984 vintage property in Houston, Texas and Tribeca, a 2008 vintage property in Dallas, Texas. Magnolia Grill purchased for $16,700,000 in 2014, sold on January 23 for $23,900,000 representing an IRR of 24.2 percent. Trabeka purchased for $52,300,000 in 20.15 sold on January 9 for $66,000,000 representing an IRR of 17.6%. In light of these dispositions, we expect to disclose the new acquisition next quarter. On the portfolio front, the Land Tower Residential portfolio consisted of 7,500 or 7,507 apartments across 23 properties at the end of the 4th quarter when excluding Jackson Park.
Following the recent dispositions in January, the Landhart portfolio excluding Jackson Park again has a weighted average vintage of 2014, representing 1 of the newest portfolios in the sector and underscoring our intent to maintain a quality portfolio supportive of long term growth potential. On the operations front, at the end of the Q4, Landstar portfolio was approximately 91% occupied and over 92% occupied when excluding our lease up properties. On the financial front, our same asset quarter end operating income increased in U. S. Dollars from $9,559,000 in the Q4 of 2018 to $11,165,000 in the Q4 of 2019.
This equates to the same asset quarter over quarter operating income growth of 16.8%. Our same asset operating income increased again in U. S. Dollars from CAD40456 1,000,000 during the year ended in 2018 to CAD42,912 1,000,000 during the year ended in 2,009, representing an annual operating income growth of 6.1%. The above average 16.8% quarter over quarter operating income growth is primarily due to rental growth, but most notably the stabilization of the few assets in our portfolio.
On the development front, our Phase 1 Sunrise project, the 321 Unit Class 8 Gardens filed multifamily project in Orlando, Florida is scheduled to break ground in the Q1 of this year. We look forward to expanding our Central Florida development pipeline and disclosing more exciting Class A development opportunities in 2020. And with that, I will pass along the conversation back to Sol.
Thanks, Ali. Before we begin the Q and A portion of the call, I'd like to highlight a few items. Firstly, leverage continues to trend lower. Debt to total assets, pro form a the receipt of the CAD256 1,000,000 of vendor take back mortgage on Atrium was 43.4 percent, down 120 basis points from 44.6% a year earlier. Prudent leverage has always been core to our strategy and the trend to lower leverage over the past few years allows the REIT to prudently invest more in developments and also provides us with significant strategic flexibility.
2nd, our development pipeline of value creating projects is large and exciting. In 2019, we delivered our flagship Jackson Park Selden, which reached 96% occupancy in Q4. We secured, as Larry has mentioned, a 10 year interest only mortgage, the return of all about US31 $1,000,000 of our original investment, resulting in a 50% levered return on our net equity investment in the project. River Landing is nearing completion. Public is scheduled to open in April of this year, being the 1st tenant followed by balance of the retail space with residential leasing commencing very shortly.
We're advancing our intensification plans at Dufferin Grove Village, 145 Wellington, 55 Young, 320 Front Street in Toronto and in Burnaby, BC. Phase 1 of our 2,700,000 square foot Caledon industrial development was complete this year. The Toronto industrial market has effectively zero vacancy and rents continue to rise. Augmenting Canada, we have a number of additional industrial development opportunities in the Toronto market, providing attractive opportunities to grow our exposure to the strong market with state of the art properties. In December 2019, we issued a mortgage receivable for US124.1 million dollars secured against 12.4 acres of land in Jersey City, New Jersey for a 2 year term.
The loan is expected to increase up to US160 $1,000,000 and bears interest of 10% rat up. The land is adjacent to the Liberty State Park with views of downtown Manhattan and the Hudson River. The project is zoned for 1,700,000 square feet of commercial space and 15 44 residential units with a full residential development option encompassing 2,835 units. The location is accessible to multiple modes of transportation including the Grove Street PATH station 0.7 miles away with direct access to Manhattan through Penn Station and Wall Street and an 11 Midferrier Transit ride to the Manhattan campus as well as access to Manhattan's Lower West Side. The REIT has an option to convert its loan to an 80% equity ownership interest in the project.
In the U. S, our pipeline of multi res and mixed use development projects will see deliveries this year with River Landing in Miami in Q2 this year Phase 1 of our Hercules project in San Francisco and also in Q2. And in Q3, the Pearl and Austin will be delivered in 2021. These completions will be followed by Shorelight in Los Angeles, Sunrise in Orlando, Phase 2 at Hercules and Astaire Park in Seattle. All these developments are expected to increase in after unit and FFO per unit as they reach completion over the next couple of years.
Lastly, we have fielded a number of questions over the past months regarding the Bone category. Our tenant at BoAventive recently redomiciled its business to the U. S. And we confirm that the lease obligation at BoA was assumed by the newly domiciled Bauxitev as required by the terms of lease. Should any further developments regarding the Bauxitev, we will provide more detail at the appropriate time.
Today, we don't have anything further to report on this front. We have made significant progress on our goals of enhancing our internal growth profile and reducing leverage. We expect investments we have made in these areas to contribute to growth in our financial performance in the year ahead. With that, I'll turn it over to the operator for your questions. Operator?
And your first question comes from Dean Wilkinson.
Thanks. Good morning, everybody.
Good morning, Dane.
I guess, Larry, the first one is probably for you. On River Landing, as that flips over from PUD to IPP, will we see the same kind of lack of capitalizing like what we saw at Jackson Park, so you have that a bit of dilution and then as you lease up you catch that back up over the course of the next year, year and a half?
Yes, it should be exactly like we disclosed for Jackson Park and I'll try to get the same kind of disclosure for River Landing as it happens.
Okay. And with the magnitude of that be about the same given what your full interest is that versus what it was in Jackson Park?
No. Jackson Park is bigger. The retail leasing will occur a lot quicker at one time as far as the residential leasing will be over the next 18 months to 24 months. So the residential part will be the same kind of lease up as Jackson Park or as the retail will be a lot quicker.
Okay, great. And how much is that the quarterly capitalization of interest right now?
The quarterly capitalization of interest on River Landing specifically? Yes. Give me a sec to look that up. I think we said it.
Maybe while you're
looking I think we're running at around $3,500,000 a quarter.
$2,500,000 a quarter? Okay.
$3,500,000 $3,500,000
$3,500,000 Great. And on the loan advanced at Jersey City, I'm just trying to triangulate that exact location. Would that be the lot which is currently being used for the Zeppelin Hall beer garden?
No. It's on Jersey Park because the marina is right there. It's right at the foot of the marina.
So it's right at the foot of the marina. Wow, that is a fantastic location.
Yes. And Bonnie, if you have the new road that's being built over this new highway, it's a bounce to highway, it bounces the marina, which we'll have the ferry boat right to Manhattan. You have the Jersey Park and you have your right near the path to downtown West, that's under Midtown Manhattan.
So you'd be able to come out of that residential development right into the ferry? Correct. Okay. Is there zoning in place right now? Is that something that's going through sort of an application and permitting process and then
Zoning is in place. It's as we as I mentioned it's a mixed use zoning where all residential is totally placed. Everything is good to go. We have no affordable housing component in it at all. We are just now doing our master planning and permitting.
So the first phase of the residential will be ready to go in around a year. And when we do all residential commercial, it's really a question of how we pre market. So we will not be building a commercial spec building at either end and life sciences is a potential there as well.
Good. Great location. Can you disclose who the partner is on that?
I think so. That's Argent Ventures from Manhattan.
Okay. And the last question for me is maybe for Philippe. As you sort of as you're rounding out the markets that you're in, in land tower, are there any other markets or perhaps markets outside of specifically the U. S. That you may be looking at?
And how big do you need to be in any given market for the scale to make sense?
So it's a very good question. I think as of right now, obviously, we have nothing to announce regarding anything outside of the U. S. As it relates to entering a new market in the U. S.
It's something that we're always kind of paying attention to. I would say though that we believe that the more attractive acquisition or development opportunities are in the markets that we are currently in.
And
so I'd love to expand our position in Tampa, in Orlando. I'd like for us to consolidate some of our markets in Texas and Raleigh and Charlotte just keep doing very, very well and opportunities there are few and far between, but we obviously wouldn't mind aggregating a more solid position in those markets. So I think our focus is more predicated on that than going to say to Atlanta or to Phoenix.
Okay, great. Well, we're looking forward to Alex hosting a property tour down in River Landing sometime in the near future. I will hand it back. Thanks, guys.
Your next question comes from Sam Damiani.
Thanks and good morning everyone. Just to start off on the Jersey City project to a couple of other questions I had there. What would be the budget on the first phase of residential that you're, Tom, you're saying you could start next year?
We don't have those numbers yet. We don't have them. Once we have the current one that was that, we're basically not even sure of the 1st phase size, because all the blocks within the 13 acre site have to be first allocated figured out. We also have a 2.5 acreage park that we have to, which is a water park that has to be considered. So we're not at that stage yet to announce the budget on the 1st phase or the size of the 1st phase.
Okay. And what would be, I guess, the next steps? You mentioned you're doing some planning and permitting and whatnot. But is there a sort of a next major step that we could look forward to in the next few months?
Yes, exercising our option would be smart. So right now it's the meds. We have 9 months to look at it. Towards the end of the year, we would actually pulling the trigger on it. We're going to go through the entire master planning process, dividing up the blocks with giving us optionality on the commercial.
So we're not we haven't pulled the trigger on it yet. It's still just a mess.
Okay. And finally, your partner, Argent Ventures, what sort of experience do they have in this type of development historically?
I've known them for going to make back my youth into Telco Hotels when we used to build across America and they were very active in that business as well. To answer your questions, they're currently building in Jersey, some lot of a lot of experience both within the residential and commercial New York area of markets.
Did you see the need to bring in other partners on this project given the size at all or not?
We did life sciences substantially. We went to life sciences on our own. There is strong New Jersey life science market. So that would involve a partner for sure. And then there's so right now we're also interviewing brokers to go ahead in the life sciences and assist us in case there's a campus potential for some of the big companies out there.
Okay. Just over to Miami River, I noticed the cost went up this quarter. Any color you can provide there as to the reason why?
Yes. Well, it sounds like it's a couple of reasons. One of the major reasons is that we are currently negotiating with a very, very large attractive, one of the largest 27,000 square foot restaurant space. The TIs on the restaurant space are substantially more contemplated. We also are negotiating on the office space with the user that again the TIs have gone up.
The rents could go up and not necessarily size the infrastructure for the development and just a few cost overruns, nothing too significant. It's really more that the overall quality of the outside of the retail has gone up and it has gone up and there's a cost factor to that.
And then I also noticed the budget went up a bit on the Sunrise development in Orlando. Any particular reason there?
No, Praveen. I think as of right now, we're doing our best to essentially engineer the cost down. But I think candidly, once we're all said and done, those differences will be negligible.
Okay. One more question. Just on the debt maturities, there's a good chunk of mortgages coming up in 2021. What sort of rate on refinancing that should we expect is reasonable? I'm not sure which properties and which locations those are secured by.
Sorry, asking what current what we'd expect to get currently on those mortgages?
Yes, if you were to finance them today.
That would be if we did a 10 year financing, it would probably be spread of 180 bps, call it, would be conservative together. And they may not be wrong.
Yes, we may be doing unsecured. It's just within unsecured markets, you know where we trade at.
Right. But are those mortgages in the U. S, Canada? Like would you do more U. S.
Mortgages, more Canadian mortgages?
Most of those coming up are in Canada.
Perfect. Okay. Thanks. I'll turn it back.
Thanks, Dan.
Your next question comes from Jenny Ma.
Thanks. Good morning. Just wanted to dig into your developments a little. There's been a number of new projects that you've identified. I'm just wondering if you've actually mined through the entire portfolio to look for densification or redevelopment opportunities or you're really going at this on a property by property basis?
I don't really understand the question. We're looking at the macro and going out on a property basis. Every property is under scrutiny to see where potential where the potential redevelopment
is. Well, I guess my question is, have you looked through the entire portfolio for all the potential projects down the road? So
we've announced that on Toronto, potential intensifications which we're on, which are real and Pat has announced some of the intensification of this mall. So I think the answer is today's day and age, every single property is being looked at for intensification potential. And between the announcement of our downtown portfolio, 145 Wellington, 55 Yonge Street, 310 Front Street 310 Front Street, Burnaby, which is substantial. The office portfolio has a lot of potential densification. Pat mentioned a few of the shopping malls intensification.
I think every the answer to your question is every single property is going to be looked at as far as potential re intensification.
I guess what I'm getting at is can we expect to see potential new developments being announced down the road? Or I mean this is a lot to chew on. So is there going to be more coming down the pipe or are you going to focus on Okay.
So specifically in the office property, that's kind of Burnaby, which we have potential to do something sooner rather than later because we bought some excess land there their partner. The rest of them are going to take a little bit of time because the rezoning process takes time. Right now, the markets were favorable, not Toronto, as you well know, for rezoning. So we've taken advantage of starting Front Street 55 Beyond, 125 Longing. Those take time.
They also have tendencies in them, but the potential to go ahead and replace the office and add the 58 Storey Tower existing all those properties. So there is great potential. And Burnaby, there's a potential to add it to the 1100 units. So again, those are all real, very real, very accessible to do. But when will we actually launch a redevelopment?
I think the answer is that's going to take some time to build out the tenancies. I would say the earliest you're going to see in 55, 145 or Front Street is 25 years away.
Okay. That's actually a good lead into my next question. So specific to the Downtown Toronto properties, I know at 145 Wellington, you're looking to replace the office space and add residential. Component and balance it with what you can do with residential? Or is it really just, component and balance it with what you can do with residential or is it really just trying to maximize the residential in these properties?
Well, the quandary of downtown Toronto is very simple. In round numbers, residential is worth 250 foot and offices worth 125 foot. So it's only the necessity for REITs, pension funds and insurance companies to incur cash flow, continuous cash flow that they'd actually pay more for the office component, the residential corner. Residential corner always was more worth more for the past number of years in Toronto than office. So it's a tough balancing act.
I think the simple answer is, since the world has now accepted, if you look at all of our peers, they're now gone from shopping centers to being shopping centeressential. The mixed use development, the diversification within the REIT world has now become the norm and therefore since it's acceptable to go and develop residential, I think that the recurring income can happen from residential just as much as it happens from office and the highest and best use is usually residential in today's day and age. We also have a whole slew of new office product coming to the market in downtown, which will relieve some of the pressure on the rents. And right now, the residential component is still returning to higher numbers. Residential land values are going up.
They've been interested in 325 and putting down Toronto for some of the better sites and office basically has really leveled off. So I think the answer to the question is, at this stage of the game, all of our developments are used are going to be mixed use that we're talking about, whereby the office one will be replaced and the office will be a residential
home. Okay. So I guess if you look at Front Street, for example, would it make sense to actually eliminate the office component and maximize res or is there a need to retain some of that office?
No need, but we wouldn't do that. I think that goes way down to the road, but there is the ability to go ahead and take the smallest of the towers and replace that with a large tower and we've actually had plans that we're going to be submitting to the city to do that and actually lease the balance of the complex intact and creates a residential component on top of the office.
Okay. And do you have a sense of what the remaining lease term on the Downtown Toronto assets is?
Well, they vary in every single building. But as I said, realistically speaking, 5 years now.
5 years. Okay. Well, I look forward to seeing the plans. I'll turn it back.
Your next question comes from Matt Karnak.
Good morning, guys.
Good morning, Met.
With regards to your U. S. Residential developments where you're a minority interest, have you at this point given that they're coming up in terms of completion of construction decided on which ones you'd like to keep versus sell or at what point do you think we'll know what that decision is?
We have partners in them, very friendly partners we've been partners on for many, many years. And we haven't made those decisions, which will be a collective decision. I think the philosophy of H and R is this gives us the opportunity to entry at a higher cap rate on our point that we own, but actually first right to go ahead and purchase our partners out should they wish to sell. But we really dictated by collective decision of all the 3 partners as to what the game plan is. It gives us access to markets which are much more expensive, more, more difficult to build in such as San Francisco, Los Angeles, a product which we would otherwise have and a better pricing and for some reason we need to purchase.
So we have not made those decisions. That's because it's pretty early on in the game. Long Beach, California is probably 2 years out. San Francisco is sooner rather than later for 1 first phase, but not necessarily that we want to pull the trigger on the 1st phase. So no decisions are made at this point in time.
Fair enough. But net net, it doesn't sound like it sounds like it may be a self funding program to some extent in terms of what you sell versus buy anyways because it doesn't sound like you'd necessarily keep everything.
That's correct.
Okay. On the industrial side, I mean, congrats on the leasing. It seems like that project is going ahead well. Does that sort of get you more keen to expedite the process on the rest of the phases? Or how are you thinking about that project going forward?
We have built on spec. We're very comfortable in Toronto. I think as everybody would be building on spec. So we're looking at 2 other projects in Toronto that would be built spec as well. So we're totally comfortable with the Toronto market.
Okay. On the CapEx side, it's been elevated for a while now. I guess it's probably largely related to the retail re tenanting of Target and Sears. But should we anticipate that come down in 2020 or will it continue through 2020 and then come down subsequently?
I think it will continue in 2020 and then hopefully 2021 we should see a decrease.
Okay. Last question with regards to same property NOI growth. Obviously, this year, you had a few things go against you, but you don't have many lease maturities in terms of percentage of the total portfolio. And also you've got some upside in terms of occupancy. It seems like with the trajectory coming out of this quarter, should we expect a pretty good year next year or is there anything in the existing lease profile that we should see as a net negative against those positive trends?
We're expecting positive trends from all our segments next year, quite frankly. Each one should be up.
Yes. There's no more smaller one as far as lease looming leases fires that are causing us any accident.
Okay. And no early sort of renewals and extensions similar to Bell that you'd anticipate this year?
I wouldn't say that. We're always looking to do that. Just like we did Bell, we look to do others, but it's also tenant driven as well. So nothing we're working on right now, but I never say no to that.
Fair enough. Okay. Thanks guys and congrats on the quarter.
Thanks, Matt.
Your next question comes from Mario Saric.
Hi, good morning. Just sticking to the mixed use intensification theme, which is ramping up over the next several years as you noted. Can you highlight how you think about recognizing some of this intensifiable land in your IFRS values over time? Like how because it varies across the street in terms of how companies are dealing with it. So how should we think about your recognition policy going forward?
At this stage of the game, we have not in any developments put anything into it. The question is when it's fully zoned and right. I don't know what we'll look at it then. I guess it will depend on what the industry does. But at this stage of the game, we don't have any densification values recognized in our IFRS.
Not going to be dependent on that so much. It will be dependent on what the rules of the game are, what everyone's doing, what the auditors basically say should be done. But nothing is in our numbers right now for densification optics.
Okay. And then maybe switching gears to the unitholder letter. You kind of highlighted the substantial progress that you've made in terms of improving portfolio quality, diversifying into U. S. Resi, balance sheet leverage has come down as you noted on the call.
You kind of highlighted pursuing further opportunities to simplify the investment profile of H and R. I'm just curious if you can elaborate on what you mean by that and what are some of the things you're thinking about?
I think it's just on the theme Mario that we go in and trying to always simplify the disclosures we've done, simplifying the buckets that we have with the 4th of segments and we're trying to simplify that make H and R a lot easier to understand to investors. Nothing more than that.
Okay. And then my last question just in terms of capital allocation. You kind of mentioned no update on the bow today. But with the balance sheet leverage having come down like it has, where are you seeing kind of the best opportunities from a risk adjusted return perspective to redeploy capital today should you see further liquidity coming into the system?
So we're growing our land tower division as you well know. We have the New Jersey opportunities. We have industrial opportunities in some of the industrial deals that we're looking at. We don't see any real opportunities in the office development and Primaris is basically going to go ahead and put its money into re intensifying its own properties and putting its capital upgrades into its properties. So I think the answer to the question is really the focus is on residential growth, industrial growth and capital densification where we need the money to support.
We're very happy to keep the debt low, not exactly that that's a pretty hole in our pocket.
All right. How do you like how do you think about the risk adjusted returns of buying back units today versus development and expanding your portfolio?
We have a lot of ideas and a lot of things on the go. And until we mature those ideas, we're not going to pull the trigger and necessarily buy back the stock. I think we have a we're very focused on the discount NASS and I don't think the solution is just sitting back and doing nothing. That being said, it's nice to have a good balance sheet to give us the flexibility afforded us the luxury of master planning our structure going forward with a strong balance sheet. So right now, the answer to your question is, we're going to keep the strong balance sheet to use it for implemented for our overall strategic initiatives going forward.
Okay. I concur with Dean's earlier commentary, the Jersey City project looks quite interesting.
Thank you.
Your next question comes from Sam Demiani.
Thanks. Just a couple of quick follow ups. Tom, you mentioned 2 other industrial projects in the GTA you're looking at. Are those is that land on the books today or land you're looking at acquiring and then whereabouts in the GTA are they?
Land we're looking to acquire, they're in the western part of the city. They're off market. They're not I don't think you can buy land today in Toronto and make the numbers worth the current market values for it to build a rental building. So we're looking at some relationships that we have to go ahead and build on spec. But again, if you're paying $2,000,000 $2,250,000 some numbers are somewhere.
Right. Great. Look forward
to that. And then second question is on Dufferin Grove. Pat, you mentioned construction potentially as soon as 2 years from now. What gives you the confidence on the zoning and I guess just the timing in general, especially with the project to the north also going ahead?
I think we've been in the preliminary planning stages. We've got with the community. It's moving to the process. Right now, it's an estimate, but I think we're I think we've got pretty good guidance on timing given where the projects to the north, how long it took to
get through the process for them. And they're just finished process, right? Yes.
Great. Thank
you. Thanks, Dan.
There are no further questions at this time.
Thank you, everybody. And have a nice happy family day next weekend. Cool. Thanks.
This concludes today's conference call. You may now disconnect.