Good morning, and welcome to H&R REIT's Q3 2023 conference call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, or projections in 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 requires 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&R's financial and operating performance and in responding to your questions, we may reference certain financial measures which do not have the meaning recognized or standardized under IFRS or Canadian generally 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 metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability. H&R's management uses these measures to aid in assessing the REIT's 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&R's use of non-GAAP financial measures, are described in more detail in H&R's public filings, which can be found on H&R's website and www.sedar.com. I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter.
Thank you, and good morning, everybody. I'd like to thank everyone for joining us this morning to discuss H&R's Q3 financial and operating results and strategy. With me on the call are Larry Froom, our Chief Financial Officer, and Emily Watson, Chief Operating Officer from our Lantower Residential Division. Year to date, our portfolio and team are producing strong financial and operating results across all our property classes. Residential continues to see rental rate growth. Our high quality, well-located office properties with long-weighted average lease terms remain attractive investments for potential buyers at 98% occupancy. Industrial properties located in key industrial markets remain in high demand as we realize continued rental rate growth, and our high-quality, grocery-anchored and single-tenant retail property portfolio are performing well, providing essential services to the respective communities.
Our capital structure remains very conservative, with low leverage and a low payout ratio with limited exposure to floating rate debt. During the quarter, we sold four Quebec retail properties for CAD 68 million, a small office property in Temple Terrace in Florida for $13.3 million, and an automotive tenant with a tenant- related property in Roswell, Georgia, for approximately $3.6 million. Net proceeds from these dispositions were used to repay debt and repurchase units under the NCIB. With these sales completed during the quarter, H&R's 2023 non-core property sales total CAD 431.7 million. Given the line of sight we have into our current disposition pipeline, we plan to sell or have under contract to sell an additional CAD 170 million in non-core assets by the end of the year.
During the 9 months of the year, they repurchased and canceled over 4 million units at a weighted average price of CAD 10.30 per unit, or CAD 42.7 million, representing an approximately 52.1% discount to NAV per unit. As a result of our disciplined capital allocation approach, we have augmented our growth profile meaningfully, achieving double-digit growth in same property NOI since the announcement of our repositioning strategy, increased our allocation to residential and industrial from 25% and 10%, respectively, in Q2 2021 to 42% and 18%, respectively, a total of 60% as of Q3 of this year. Over this time period, our office exposure, excluding a rezoning portfolio, has declined from 36% to 17%. Coinciding with this progress is improvement in liquidity position and balance sheet metrics.
With that, I'll turn it over to Larry.
Thank you, Tom, and good morning, everyone. I'll start on the operating results. In my comments to follow, references to growth and increases in operating results are in reference to the three months ended September 30, 2023, compared to the three months ended September 30, 2022. H&R same-property net operating income on a cash basis increased by 12.6%. Breaking the growth down between our segments, Lantower, our residential division, led the way with a 19.5% increase or a 15.2% increase in U.S. dollars. Emily will provide more details on this growth shortly. Industrial same-property net operating income on a cash basis increased by 11.1%, driven by rent increases for new and renewed tenants. Office same-property net operating income on a cash basis increased by 9.9%.
This increase was largely attributable to lease termination payments, bad debt recoveries, and the strengthening US dollar. For the nine months ended September 30, 2023, same property net operating income from our office portfolio increased by 6.3% compared to the same period in 2022. Our office properties are in strong urban centers. Occupancy at September 30, 2023, was 98%, and the weighted average lease term is approximately seven years. H&R received a termination payment of CAD 856,000 in Q1 2023 and received an additional CAD 2.5 million in Q3 2022 from a suburban office tenant occupying 105,000 sq ft, whose lease will now end on December 31, 2023.
In October, last month, H&R submitted a site plan application to the City of Mississauga for a new single-story, 122,400 sq ft industrial building to replace the 105,000 sq ft office building. Site plan approval is expected during Q1 2024. Lastly, retail same-property net operating income on a cash basis increased by 8.8%, primarily driven by increased occupancy at River Landing and the strengthening of the US dollar. Q3 2023's FFO, funds from operations, was CAD 0.42 per unit, compared to CAD 0.30 per unit in Q3 2022. Included in FFO for Q3 2023 is CAD 30.6 million of proceeds from the sale of an option to purchase land.
Excluding this item and other non-recurring items, such as lease termination fees, FFO would have been CAD 86 million for the three months ended September 30, 2023, or CAD 0.307 per unit. FFO for the nine months ended September 30, 2023, was CAD 1.03 per unit, and excluding the unusual items, would have been CAD 0.923 per unit, a 7% increase from the CAD 0.862 per unit for the respective 2022 period. We are proud of our FFO growth, despite the current headwinds of higher interest rates facing all real estate classes and the current headwinds facing the office sector.
Commencing in January 2023, H&R's monthly cash distributions increased to CAD 0.05 per unit, or CAD 0.60 per annum, an 11% increase over the 2022 distribution, excluding the special distributions in December. H&R's Q3 2023 payout ratios remained healthy at 35.7% of FFO and 41.6% of AFFO. Net asset value as at September 30, 2023, was CAD 21.49 per unit, an increase from CAD 21.04 at June 30, 2023. The following overall weighted average cap rates were used in deriving the fair values of our investment properties.
4.49% overall for the residential properties, which are split between Sunbelt properties at an average cap rate of 4.75% and Gateway Cities at 4.1%. 5.28% for industrial properties, 6.47% for retail properties, 7.65% for our U.S. office properties, and 6.25% for the Canadian office portfolio. The increase in cap rates used to value our properties resulted in a downward fair value adjustment of CAD 139.9 million for Q3 2023, at the REIT's proportionate share. The fair value adjustment for the nine months ended September 30, 2023, was CAD 328.9 million at the REIT's proportionate share.
As at September 30, our office portfolio of 22 properties comprised 24% of our total real estate assets. Debt to total assets at September 30, 2023, was 43.9%, compared to 44% at the end of 2022, and liquidity at September 30, 2023, was in excess of CAD 1 billion. Debt to adjusted EBITDA at September 30, 2023, based on the trailing 12 months, was 8.7 times. With that, I will now turn the call over to Emily.
Thanks, Larry, and good morning, everyone. Today, I will cover our Q3 same-store results from our multifamily platform, as well as discuss some operational updates. Same-store revenue growth for the quarter was in line with expectations. Demand fundamentals continue to be favorable. Positive migration trends and continued job and wage growth in our markets, combined with the relative affordability of our renting versus owning, are evidenced in our increasing resident retention and strong traffic trends. We believe Lantower's market diversification with Sunbelt, Gateway Cities, infill, and suburban exposure continues to serve us well. During the Q3 , we saw an increase in supply pressure in our Sunbelt region, which resulted in flat blended lease over lease pricing for Q3. As discussed on our last quarter's call, we are focused on increasing resident retention as the new supply is absorbed.
With our diversification strategy, innovative tools focused on increased efficiency and customer experience, and a deeply experienced operating team, we believe we are positioned well to outperform our markets. We continue to deliver solid operating results with same asset revenue growth in US dollars, increasing by 8.1% for the Q3 , and same asset net operating income from our portfolio in US dollars, increasing by 15.2% for the three months ending on September 30, 2023, compared to the respective 2022 period. Occupancy ended the quarter at 95.2, 21 basis points increase over the Q2 and 79 basis points over Q3 of 2022. Despite supply headwinds in the Sunbelt, occupancy remains stable as a result of our strong consumer base, with a 20% rent-to-income ratio and strong retention, underscoring the continued positive fundamentals for Sunbelt multifamily.
Lingering high interest rates continue to dampen the number of deals traded during the Q3 . Based on our recent internal third-party appraisals and a handful of recent Sun Belt sales comps, holding our FMV cap rates at 4.75 is appropriate and supported. We expect demand to remain healthy for institutional quality assets in the Sun Belt, given the substantial capital flows interested and focused on long-term, heavy Sun Belt multifamily allocation. On the development front, Lantower West Love in Dallas, Texas, remains on schedule and budget, with framing nearly complete. Towers one and two have painted and textured drywall installed, and the interior pool courtyard has fully installed facade materials, which will allow for the pool construction to start by the end of the year.
We expect to start pre-leasing Lantower West Love in early January of the upcoming year, with first TCOs and occupancy starting at the end of Q1 , 2024. Also in Dallas, Texas, Lantower Midtown has progressed considerably, with framing reaching floor five, the top floor, in most of towers one and two. We expect to start pre-leasing Lantower Midtown near the end of the Q1 , 2024. As mentioned in previous quarters, we are progressing through the different phases of design, drawing, and permitting on the remainder of our Sun Belt development pipeline. Lantower currently has four fully permitted developments that could be started at any time, with five more developments expected to be ready in 2024. On the operational front, we continue to focus on what we control versus managing to the headlines.
As part of our innovation strategy, we made large strides in launching our centralization platform in the Q3. Through enhanced technology, including a new CRM system and artificial intelligence, we are focused on increasing our bottom line while improving the customer experience. Our office associate-to-resident ratio started at 1 per 100 and ended the quarter at 1 per 115, with the target to increase to 1 per 120-130 range. Our technology enhancements are focused on improving efficiencies and expanding NOI margins. In summary, the Lantower platform continues to achieve positive results and performance relative to our multifamily counterparts. It all starts with our people, and it is a true testament to their commitment, especially as market conditions become more and more competitive. I'd like to say thank you to the Lantower team for their fortitude and success in delivering top-tier results.
With that, I will pass the conversation back to Tom.
Thanks, and we'll open up the call to questions. Operator?
Ladies and gentlemen, we will now begin the question-and-answer session. First question comes from Sam Damiani from TD Cowen. Please go ahead.
Thank you. Good morning, everyone. Emily, if, if you don't mind, the first question just for you. With the same property NOI growth, you know, quite strong in the residential portfolio, I didn't see the split out between Jackson Park and everything else in this quarter. But if you could provide that and give us a sense on as to how you see same property NOI in the Sun Belt portfolio migrating over the Q4 and into 2024. Thank you.
Sure. CNOI for Q3 was still pretty strong, actually, in the Sunbelt, given this, despite the headwinds, we still almost a 5% Sam, 4.9% for CNOI. We did have some tax true-ups and so forth that affected our NOI in Sunbelt, but not anything that's that we're concerned about ongoing, and quite frankly, was something that we weren't expecting. So it was in line with our expectations.
So the implication was Jackson Park was quite strong again this quarter. I'm wondering if you have some thoughts there and also, again, what you're thinking about for Q4 and into 2024.
Sure. Yeah, you know, I'm, again, I think that one of our strengths is the diversification of the location of our assets. So I think it makes sense, this little mutual fund effect, if you will, to have the Sun Belt, along with the gateway cities, to be able to, depending on what part of the market. So there'll always be an imbalance of supply and demand somewhere. So I think that diversification will help us now, but also ongoing. We have always projected kind of a low teens for NOI. We're on track to hit that for 2023. For 2024, Sam, we're in the middle of our budgets now, so I don't want to opine and kind of tell you where they are. In 2024, we'll have our California deals come into our same store universe as well.
So we'll need some time to get those budgets and kind of digest them and be able to come out in Q1 with a little better idea of what that looks like. But I think 2024 in the Sun Belt will continue to have supply headwinds. I think we'll peak probably in the second, Q3 for that. And then 2025, you know, I told you last quarter, I think that I never saw 2022, and probably will never again in my career. But I think 2025 is really poised to do extremely well, given the drop-off of the supply that we're seeing, you know, in the Sun Belt, so.
Thank you. That's helpful. And Tom, maybe for you, just on the disposition side, obviously you still feel confident you're going to ink another deal before year-end, so look forward to that. But how are you thinking about your disposition goal for next year? Still focusing on office? And I wonder if you've listed any rezoning properties for sale at this point?
We haven't listed any rezoning. They're not ready to be listed yet. They need another year, and we have, the market, as you well know, is very, very dead right now. If you're going to market something, it's kind of—I don't think that's the way to approach things. Off market is the way to go now. You've probably heard that, and many others say the same thing. Line of sight to off-market deals is not visible. You can't predict what your off-market deals are going to look like. I expect to be able to do sales. I don't expect to do sales on market, and therefore, it'll be choppy and very unpredictable.
Okay. Thank you. I'll turn it back.
Thank you. The next question comes from Mario Saric from Scotiabank. Please go ahead.
Hi, good morning. Maybe just sticking to the disposition theme, Tom, what do you think needs to happen in order for liquidity in the market to really pick up for the types of assets that you're looking to sell?
Well, obviously, the answer is lower interest rates, right? And we're not hitting the numbers we hit beforehand, but when you have lower interest rates, all of a sudden you can deal with positive leverage, which you're not dealing with right now, and availability and liquidity. So lower interest rates will bring liquidity. Liquidity will bring the ability for buyers to finance right now. Again, as you've probably heard from many others, a lot of the deals that are being structured right now are with VTBs, and that doesn't create much of a depth of a market. And that's not necessarily much of a disposition either, if it's really 80% on a VTB. So lower interest rates are going to be the answer to that.
My own personal prediction is you're going to see interest rates come down very rapidly, within another by Q3 2024. So the H1 of the year is going to be very difficult.
Got it. Okay. And then on the CAD 170 million of planned dispositions for 2023, can you give us a cap rate range on that?
Very healthy, and I can't give you a range. But it won't be indicative of the market, as we said beforehand. It's an off-market deal, and it's whether it's retail, whatever sector it is, you won't be able to use that transaction as a talking point to the strength of the sector or not.
Okay. Maybe, switching over to Lantower and, and Emily, I think you mentioned that the blended spread was flat in Q3. Was there a discernible difference between new lease spreads and renewal spreads during the quarter?
Yes. Q3, actually, we were still. If you remember, we give our offers for renewals at 70 days prior. So the renewal average that we hit in Q3 was 6%-7%, so that is. That was really strong. Some of our markets, often particularly, was a little weaker, so we had some negative trade outs in the in some of the markets, so we don't expect a 6%-7% renewal increase. In fact, again, the retention is where we're focused now. So Q4, we're already really strong and should hit a 60% retention with a 4% renewal ish. Kinda that range is what we're seeing so far in Q4. So we're seeing that kind of come down but remaining flat.
That's what I anticipate to happen not only in Q4, but really probably through 2024 as well.
Got it. So just to clarify, you're expecting kind of blended flat spreads in 2024-
Correct.
to focus on markets retention?
Ex-exactly.
Okay. And, it was nice to see the occupancy tick up sequentially quarter over quarter. Were there specific markets that drove the 20 basis point increase, or was it fairly uniform outside of Boston?
Yeah, across the Sunbelt states, it's fairly uniform. You know, the market in New York is really tight, so that in fact, right now, I think, Jackson Park is 99%. But they came through their Q3 kind of seasonality of the students transitioning really strong, with a 70% retention there, and maintained a 96%-97% occupancy. So that really gave the portfolio a boost. You know, kind of another nod to the diversification strength of the portfolio.
Got it. And, when you're on the tenant retention, what percentage of renewals or turnovers are you having to offer concessions in the portfolio today relative to three months ago?
Yeah, our concession levels are really small. In fact, less than 5% of the portfolio offered concessions, and really it's an average of two weeks. So we are a net effective shop, so we... And in fact, even Jackson Park, which is, you know, for the student portfolio last year, we didn't have to do that this year. So, you know, not very much, especially compared to some of our peers. People want to know what they need to write their check for every month. We just think that's the stronger way to go for our rent rolls, so very cool.
Got it. Okay, my last one for me. I think, Emily, you mentioned that there were some deals in your markets that supported the 4.75% cap rate this quarter. Can you share maybe the quantum of the sales volume that you're seeing out there that supports the valuations?
Sure. We did see a couple of trades actually in the month of October here in Dallas, that were at 4.75. But we also additionally to that, we tracked kind of everything that's on the market. Even though, you know, we're not actively pursuing anything, we still track it. So in the Q3, we tracked 20 properties that average, you know, 7,000 units-ish, with a vintage of 2019, and those were all in the mid- to high 4s. So, you know, depending on submarket and loan assumptions, you know, but, all of them kind of every talking to brokers and our own internal values, and then certainly the trades that came through in October were good to see. So lots of different data points that suggest we're right on target.
Okay, that's really helpful. Thanks for the info.
Pleasure.
Thank you. The next question comes from Jimmy Shan from RBC Capital Markets. Please go ahead.
Thanks. So just on, Lantower again, I know it sounds like, you know, you talked about 2025 potentially looking pretty strong as supply drops off quite dramatically and maybe alluding to perhaps even looking like 2022. Just kind of sure I understand kind of how you're thinking about it and whether that's part of the reason why we're seeing some of those trades at these, you know, seemingly still low cap rate.
Yeah, I think, I think that's exactly right. I think with the supply, at the end of the day, the glut of supply long-term will still not create, you know, we'll still have a shortage of housing. So... And that's not going to go away, and even if you put a shovel on the ground in 2025, you know, you're still 18 months out before you're being able to address that shortage. So there's laws of supply and demand that when that comes off, and we're already seeing kind of those supply starts drop 45%, I think was the last, real page number that I came, that I saw, kind of Q3 of last year to this Q3. And then certainly starts that just aren't penciling anymore. So I think 2025, we're still going to have people...
Just to give you a kind of frame of reference as well, Jimmy, the migration to the Sunbelt states for us is still over 10% of our leases are coming from other parts of the United States. So I don't see that going away, and they'll still need a place to live, and, you know, I think 2025 is going to be hopefully another double digits, but gosh, I'd take six, seven, or eight, and I think it's really kind of setting itself up to be a remarkable year.
Okay. And so how are you thinking about the business growth of Lantower? You know, there's people talking about potentially seeing opportunities to buy assets from developers who need to re-equitize. Is it? How are you thinking of allocating capital? Is it from those opportunities or still the development pipeline that you have currently?
I'll take that.
So, sorry. The simple answer is really a cash management right now. We're not in equity raise mode, obviously, and any sales that we do have to realize that the opportunity cost is really buying back your own stock and paying down your debt. So I don't think any division is really in strong growth mode. We will see growth mode in the residential, on the intensification property and on the Lantower side, structured on more of a JV basis, more fee-oriented with maybe some optionality buyback. But on a straight acquisition basis, to go ahead and take advantage of a weak market, I don't think we're going to allocate funds to that right now.
Okay. Okay, and then just last for me, you know, as in the news, Hess being acquired by, by Chevron, I know there's a lot of term left, but any sort of preliminary thoughts or discussion on what could happen there and how, whether that changes how you think about selling that asset going forward?
So it's early days. We reached out to them earlier last week, and I'd say it's around six months before we have visibility. I don't think there's any synergies between Chevron and Hess. I think they're in different businesses. Chevron does own buildings in the Houston markets. Two of them, one of them, they occupy fully. The other one, I think, is redundant. My guess is they'll move out of there, so they could consolidate within the Hess Tower. I don't think Hess is going to have themselves any need to... As I mentioned, with consolidation, merger of the two companies to have any less of a space requirement. So the question is, are they going to move everything back into Hess and have one tower, the Chevron Tower, which is only a few blocks away, and the Hess Tower to be renamed or not?
But again, it's early days. I think nothing really changed. I think we have a long term with the Hess, so they're there; they're not going anywhere. And on the balance of the building, we have to discuss with them as they get to the appropriate time to see if they want to consolidate further into the building. As far as sale of the building goes, I think it'll be on track to look at potential sales. I think this does cloud the issue to an extent, but I don't think it clouds it negatively. I think it clouds it positively, such as the question if there's a willing buyer out there.
Okay. Thank you.
Next question is a follow-up from Sam Damiani from TD Cowen. Please go ahead.
Thanks. I just wanted to talk about the lease expiries over the next couple of years. Within the Canadian office portfolio, you know, there's 300,000 sq ft in Q4, another 400,000 sq ft in each of the next two years, then 1,000,000 sq ft coming up, I think in the industrial portfolio next year. Any thoughts on retention or specific spaces that you know will or have renewed or will vacate?
So in the near term, it's more like a little bit further off than that. We don't really have any looming 2024 issues that we're aware of. We have the Telus Tower. They have the right to give back a third, which we did. That's a redevelopment play. Most of the deals that we're talking about are part of the redevelopment play, so I don't think there's any issues whether they, we, we're not-- we would not do long-term renewals anyhow. It's probably relatively short in either event. So there's no looming renewals that are bothering us in the short term. Short term, meaning the next couple of years.
I'll just add that there is 105,000 sq ft in the office that we spoke about, that I spoke about on my remarks, that's coming up in December 31st, this year, and that's on a building that's going to be rezoned into industrial. So that's part of it.
Well, it's a little further ahead than that. Go ahead, Matt.
I'm sorry, construction on that one is actually going to start in Q1 of next year.
Right. So that's why I said a little bit ahead of that. That one's irrelevant. There was a buyout over there, and it's the value of the land is higher than the value of the building. The value of the land for industrial is higher than the value of the building that we had on the books.
Right. Another one is Front Street, has quite a lot coming up in 2024, but that is also a redevelopment play. So that, that dovetails with our plans in terms of redevelopment and rezoning. Another one would be 55 Yonge. Again, we have consequently proceeded with redevelopment plans for that. So as Tom was mentioning, all of these files we have a strategy for. Another one would be 77 Union, which we purchased a little over a year ago, and with that one, the city has been delayed a bit by some friction with the province. And so in that case, we're actually seeking an extension with the vendor and the current tenant. So we're, we're strategizing around.
If we're able to extend them, we will, and otherwise, we're proceeding as rapidly as we can with redevelopment plans on them.
Appreciate that. Thank you, Matt. I guess just on these, some of these spaces, be it Telus, Front Street, or 55 Yonge, I mean, you've obviously got redevelopment plans for all, but I guess just in terms of a re-rental revenue and FFO perspective, there will be a drop-off on, on those spaces in those buildings that are, are expiring over the next couple of years?
Yes, right. I think one of the things just our team is thinking about as well is looking at the tax classifications on these. So we have had a lot of runway on this, and we've been planning ahead. So looking at reducing our operational costs, both in terms of, you know, heating and cooling the buildings, what the tax class is, how we get our operational costs down as quickly as possible. All that is part of the strategy. And we're not booking, you know, the new funds from things like Maritz and other files that we're working on the construction of.
Is it so, but it's, it's straight answer your question, obviously, there'll be fall off. Obviously, other than the case of 55 Yonge, which is single tenant, Telus, which is single tenant. Unless they're a single tenant, the redevelopment is going to have some deterioration as tenants slowly move out. So I think that is part of the given to create an overall higher value through the process of residential development.
Okay. I guess, Tom, how would you characterize the value for, you know, these types of buildings that are redevelopment plays right now in Canada?
So I think I'll use the same numbers as I did a quarter ago, because I don't have any data to suggest otherwise. At the height of the boom, let's call it, it was 325 available sq ft. Matt spoke to that today. I think you're going to see evidence of sales at CAD 200 a sq ft, so we'd be using the CAD 200 number. But we don't expect to sell at CAD 200, or we expect to build at CAD 200. We expect to get a higher price in the market for purpose.
How about the liquidity on that? How would you characterize that?
At the CAD 200 a sq ft level, it's fine. If you want to get higher than that, it's not. The challenge is going to be some of the size of these buildings, and the other challenge, of course, is if you have to replace the office, which is, I think, going to become extinct as far as a planning concept, then you have an issue. But if it's a pure play residential, I think you're fine.
Sam, I'll just add, the other piece of it is trying not to get over a certain size. So when we have a site like 77 Union, which could be, you know, 1.4-1.5 million sq ft, we want to make sure it can be taken down in smaller chunks than that. So we're, we're pre-planning so that you're not, trying to forward sell the entire site, but pieces of it. Because right now we're seeing larger sites that are multi-phase, are also really struggling to get value on the phase II, phase II, et cetera, parts of that site.
Yeah, we just clarify. 77 Union is not the CAD 200 asset. That's more of the CAD 100 asset.
Yeah, yeah.
Right?
Yeah.
That's bite-size. We take 500,000 sq ft at $100 a sq ft. That's affordable, that's buildable, and the metrics of that can work for residential, rental or condo, but of course, it's going to need someone's vision as to where they expect interest rates to lie three, four years down the road.
For sure. Thank you, all. That's very helpful. Thank you.
Thank you. The next question is a follow-up from Mario Saric from Scotiabank. Please go ahead.
Hi, sorry, one more for me, just on the back of Sam's question. Tom, when you talk about it taking about a year to sell some of these rezoning assets, is that a function of your expectation that the $200 sq ft is going to be higher a year from now, or is that-
No, no, no, no.
Structure.
No, it's not a year from now till we finish the zoning process. But let Matt speak to that. I'm not the expert.
Yeah. Hi, Mario. So I think it's a couple of things. The first is that we have approvals in place now for almost all of our assets or imminently will. So 55 Yonge is the final one that we're probably weeks away from being done. The issue is that our existing approvals have office components to them, because that was the rule at the time we applied two years ago. We are seeing a change with the City of Toronto. They are finally having some common sense and listening to us, and so we're going back in to find a compromise where we do not have to replace the office and we instead do something else. So some other quid pro quo, that like affordable housing or community benefits, instead of the office. And so that is hugely advantageous to the City and to us.
So it's a win-win, and as a result of that, we're going to be resubmitting on a number of files. We don't expect the process to take as long as traditional, because we've already haggled out how tall they are, how set back they are from things, et cetera, et cetera. We're really just talking office versus something else. So that's why we need time to finish a new approval on them. And just further to what Tom was saying earlier, our issue right now is there are deals that are out in the market, like Dream is marketing, King and Simcoe, as an example, the Elephant and Castle project. From our intelligence on it, there are maybe three or four bidders, maybe. A site like that two years ago would have garnered 20 bids. It's center ice-
Okay, but that's a little bit of footnote on that, too. That's a mixed-use project as well.
Yes.
It's not a pure play. If it's a pure play, 200, as you mentioned before, 200,000 sq ft of GFA and residential, that would sell at a premium. It has a hotel component on that, which is a hell of a lot better than an office component, of course. So now you have to find a player who's a hotel player and a condo. That's one, one of the reasons you don't have 10 buyers. Besides the market conditions, it's also a unique, a unique asset. In that case, the 55, 145, it's Front Street, et cetera, all including 69 Yonge. All of our projects, we expect to be totally residential.
In fairness to the King Street project that was referred to, he also, Michael also went in a while ago when there was office replacement, and he was wise enough to use hotel as a replacement for the office component.
Yep.
In all municipalities, including New York, you name it, right across the board, this concept of more housing, getting rid of the office component, which just as a year ago, everyone wanted to have office because of the high tax assessment that were achieved from office replacement, that's now being abandoned in lieu of a negotiation, and we are probably going to be the front runners to a great extent on that negotiation. John Love did at KingSett did achieve a negotiation on Bloor, and he sold them 1235 Bay, you recall from the old days. He did achieve somewhat of a milestone by taking the 1235 Bay, which was ours, and he had 1255 Bay. One is going to be a high-rise residential, the other one, he made a commitment to keep the office building as an office building.
Of course, down the road, who knows? But for right now, he created that milestone. It's a stepping stone. So we expect very much that mark, the city is going to be receptive for negotiation. In all cities, there's cash, there's either cash in lieu, or it's going to be some form of affordable housing. So all of them are better for both the city and for the developer.
So we basically want to do better on the approval we have, and we think the market is not great right now. So we're not in a rush to go to market. It really is a function of not only interest rates, but we're at 12,000 sales year-over-year, to go from October of last year to September of this year. That means we're down 47%. But as Tom pointed out to me yesterday, if you look just at the last three months, we only did 2,500 deals in the last quarter. So if you extrapolate that out over the next year, that means you're only doing 10,000 deals, so then you're down 60% year-over-year. So the challenge is that the market is not in a great state right now.
Builders are not doing fantastically well, so we're not going to get a great value. So we're waiting for the tides to turn, and we're also trying to do better on our approvals. That's why we're saying late next year.
But just remember one last point. Timing is not of the essence for the simple reason that unlike 55 Yonge or Union Street, where there's not a single tenant or Telus, we have an unusually high percentage of buildings that have a single tenant, that you do a deal with the tenant, he's gone, and now all of a sudden, you have your residential project. When it's multi-tenant, it's very difficult because you have to wait till the last tenant is there and have a buyout. So we have Bell, which in the case of Bouchard, we've done a deal with. We have Telus, which we've done a deal with. And you go through the list, 55 Yonge, we did a deal with CIBC. We have the ability to go ahead, 69 Yonge.
We have the ability to go ahead, put a timeline to it and say, hey, this is not going to be dragged out with, tenants having office to renew this, and open another 25 years. We have a site that basically says that within a certain two years to 10, eight, seven years at the latest, we have ability to go ahead and have a natural vacate, where the tenants naturally vacate. So timing is not of the essence, other than for 55 Yonge and for I would say 55 Yonge, 69 Yonge Street, Yonge Street, and, Telus and Bell are done already. So those are there because we have ability, ability to vacate, to do a deal with the tenant. Otherwise, time is not of the essence. As I said, it takes a little longer.
Okay, that is all, very clear and makes sense. Thank you.
Thanks.
Thank you. There are no further questions, I will turn the call back over for closing comments.
Thanks, everybody. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.