Ladies and gentlemen, thank you for standing by, and welcome to the RioCan Real Estate Investment Trust third quarter 2019 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Jennifer Suess, Senior Vice President and General Counsel. You may begin.
Thank you, and good morning, everyone. I'm Jennifer Suess, Senior Vice President, General Counsel, and Corporate Secretary for RioCan. Before we begin, I would like to draw your attention to the presentation materials that we will refer to in today's call, which were posted together with the MD&A and financials on RioCan's website earlier this morning. Before turning the call over to Jonathan, I am required to read the following cautionary statement. In talking about our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts.
These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. In discussing our financial and operating performance and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP, under IFRS. These measures do not have any standardized definition prescribed by IFRS 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 earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows, and profitability. RioCan's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same.
Additional information on the material risks that could impact our actual results and the estimates and assumptions we applied in making these forward-looking statements, together with details on our use of non-GAAP financial measures, can be found in the financial statements for the period ended September 30, 2019, and management's discussion and analysis related thereto as applicable, together with RioCan's most recent annual information form that are all available on our website and at www.sedar.com. I would now like to turn the call over to Jonathan Gitlin, our President and Chief Operating Officer.
Is that off the cuff? Thanks, Jennifer, and thanks to all of you who are listening in to our conference call today. I'll begin by focusing on RioCan's engine, namely its major market commercial portfolio. It would be easy and can admittedly be tempting to focus primarily on our growing development portfolio, including eCentral and Frontier rental residential projects, the success of which I will touch on momentarily. In emphasizing our development success, we forgo the opportunity to underscore the impact that our major market strategy has had and will continue to have on our core commercial operational results. I want to highlight the strength of our key operational metrics this quarter as they demonstrate the resilience of RioCan's portfolio and the quality, consistency, and inherent growth in its future income stream. In the third quarter, RioCan's FFO per unit was CAD 0.47.
As of the end of Q3, 88.7% of RioCan's rental revenue is derived from Canada's six major markets, and 49.5% is derived from the Greater Toronto Area. We are confident that by the end of this year, RioCan will meet or exceed the objective of 90% and 50% of its rental revenue derived from the six major markets and GTA, respectively. The major market strategy was conceived in recognition of the growth and consistency that our tenancy from these markets, and we now see that growth and consistency translating into strong outcomes for RioCan. Major market same-property NOI growth in the third quarter was 2.3%. Committed occupancy was 97.7%. RioCan's leasing team had another strong quarter, renewing more than 130 leases in the major markets with a robust rental rate increase of 7.7%.
71 new lease deals were completed at an average rent of CAD 28.63 per square foot, resulting in a major market leasing spread of 7%. It is important to discuss how these results were achieved and why we are confident that they are sustainable. Simply put, our commercial portfolio is stronger than it has ever been. The combined strength of our major market assets and the depth and experience of RioCan's team, not just the senior leadership, but through all levels of the organization, leaves RioCan well-positioned to sustain a robust growth profile. We are concentrated in the six major markets, but perhaps even more importantly, within these markets, we have strong, well-located assets. Our properties are generally focal points in transit-oriented, fast-growing, densely populated, and high-income areas.
The desirability and quality of our locations allows us to attract, retain, and evolve our tenant mix, which in turn drives operating results today and provides significant upside for future growth. We have successfully curated a tenant mix that sees nearly 75% of RioCan's rent derived from the healthy service and necessity-based sectors, which are more insulated from the impact of changing consumer spending habits and less easily disintermediated by the Internet. I should add that none of our tenants are relied upon for more than 5% of our revenue. We have deep and longstanding relationships with the desirable high-profile national tenants who serve as anchors for our centers, including Loblaws, Shoppers Drug Mart, The TJX Companies, and the restaurants under the Recipe Unlimited brand.
We pair this with a strong local presence and understanding to identify shifts in consumer behavior and include forward-looking tenancies in our centers to bolster our resilience and keep us ahead of the curve. Our portfolio strength and our team's ability to translate vacancy into growth is illustrated through a recent example. Payless Shoes exited the Canadian market in the second quarter of this year. RioCan has already backfilled two-thirds of the space previously occupied by them. Of the nine replacement tenants that we have signed, seven are food uses, one is a financial institution, and one is a desirable national shoe retailer. The covenants are strong, the new tenants will be significantly better draw to the centers than those who previously occupied them.
The story is almost identical for the former Bombay Bowring spaces, where two-thirds of the space has also been backfilled with tenants who will bring significantly more traffic and vibrancy to those centers. We expect to lease the remaining space in normal course. It is notable that we have already replaced 85% of the total lost annual rental revenue through the successful leasing of only 66% of the vacated Bombay, Bowring, and Payless space. As the replacement tenants commence rent and operations in the coming months, the impact of that higher rent and increased traffic will be recognized in our operating results. This single example is demonstrative of a consistent theme. RioCan's retail portfolio provides healthy, stable income and will continuously produce strong results. For the last few years, the word retail has been shorthand for challenged landscape.
RioCan is demonstrating that in the hands of a dynamic team with a proven track record and a strong, well-positioned major market portfolio, from the challenged landscape an opportunity can emerge for consistent and steady growth. Based on RioCan's year-to-date results and the trends we are seeing, we are confident RioCan's portfolio will continue to support strong operating results into 2020, including same-property NOI growth in excess of 3%, based on achieving our targets of major market and GTA exposures by the end of 2019. In addition to consistently driving growth from our existing portfolio, we are pleased that we can augment, complement, and accelerate our growth through the mixed-use intensification of our transit-oriented sites. This intensification includes the completion of our first 2 residential projects, namely eCentral at Yonge and Eglinton in Toronto and the first phase of Frontier in Ottawa.
Only 11 months since we started leasing, eCentral and Frontier are 77% and just under 90% leased respectively. Rents on the more than 560 leased units are satisfyingly at or above pro forma. As we are close to stabilization for these projects and now have a clear view on the resulting NOI, we can disclose that the yields on both are netting out in the range of 5% to 6%. Given the strength of the multi-unit residential market, the value creation on each of these assets is significant. Success stories such as these support our confidence that RioCan's unitholder value will continue to be bolstered as we come to market with the 4,100 additional residential units that are either currently under construction or will be by 2021.
As I mentioned earlier, it can be tempting to focus on the success of our current and future development projects, particularly when we consider that we have identified more than 27.4 million sq ft of major market density, of which approximately 13.3 million sq ft is already zoned for mixed-use development. It is important, however, to put these development projects in the context of our existing retail portfolio. Mixed-use development and the residential intensification of our existing properties benefits both retail and residential, and in turn, drives higher rent per sq ft. When the demonstrated strength of RioCan's portfolio is viewed in the context of our strategic intensification program, it becomes clear that RioCan is unlocking the significant value inherent in our existing assets, improving the profile of our portfolio, adding substantial net asset value, and diversifying our sources of cash flow.
RioCan has a long-standing history of operational success in delivering unitholder value. Our results continue to demonstrate that our major market focus and intensification strategy is sound. We have Canada's strongest, best-positioned major market portfolio and a team with unparalleled experience. The combination of the two facilitates our ability to continue to drive results in the near and long term as we put the right tenants in the right markets and intensify our existing sites to bring them to their highest and best use. I say with confidence that RioCan is financially strong, strategically structured, focused on operational excellence, and well-positioned to deliver growth and unitholder value. With that, I will turn the call over to Qi, who will provide an update on RioCan's financial results.
Thank you, Jonathan, good morning, everyone. RioCan reported FFO per unit of CAD 0.47 in the third quarter, stable from the same period last year. This was achieved despite CAD 14.7 million in lower realized marketable security gains, CAD 4.3 million in lower capitalized interest resulting from substantial development completions, lower lease cancellation fees, and higher condominium marketing costs, which added up to a hit to FFO per unit of approximately CAD 0.06 before taking the dilutive effect of our disposition program into account. The Trust's strong operational results, as reflected in same-property NOI growth, higher residential inventory gains, higher NOI from development completions, and strong leasing velocity on its residential rental business, lower G&A costs as well as its NCIB program, was a key positive driver of this quarter's FFO per unit result.
The Trust's FFO payout ratio held steady in the 77% range quarter to quarter and down from 78% a year ago. As of this quarter end, our IFRS book value per unit grew to CAD 26.01, a 4% increase when compared to Q3 2018. This growth is underpinned by the improving quality of our assets and our mixed-use development program. As of this quarter end, the Trust's average net rent per occupied square foot increased by 6.4% to CAD 19.49 over the comparable period in 2018. Since 2015, the Trust has achieved a compound annual growth rate of 3.5% in its net rent per occupied square foot, highlighting the significant improvements we've made to our portfolio as we're getting closer to our 90% and 50% major market and GTA exposure goals, respectively, and as we drive hard on organic growth.
The average net rent at our active urban intensification mixed-use projects was CAD 33.96 per sq ft based on 691,000 sq ft of committed or in-place leases as of the quarter end. The quality of our major market and transit-oriented mixed-use developments are expected to further drive increases in the Trust's average net rent over time. During the quarter, we expanded our existing partnerships with Boardwalk REIT and Killam Apartment REIT through a closed deal and a firm deal to sell discrete portion of the underlying shopping centers in Mississauga and Ottawa, Ontario, for mixed-use residential developments at CAD 80 and CAD 45 per billable sq ft, respectively. This further highlighted the inherent net value growth potential of our portfolio, giving our 27 million sq ft of development pipeline, with nearly half of the pipeline, or 30 million sq ft, already zoned.
As of this quarter end, the Trust has recognized approximately CAD 288 million of cumulative fair value gains pertaining to its development pipeline, of which 23.1 million sq ft are incremental density. These recognized fair values are mostly related to a small portion of the Trust's development pipeline that had just recently completed on year completion. We continue to progress well on our residential rental lease-up at eCentral and Frontier, with quarterly NOI growing to CAD 0.9 million during the quarter. Stabilization expected by the end of first quarter of 2020 for eCentral and by the end of 2019 for Frontier. We have secured CAD 60.6 million of CMHC financing for Frontier together with Killam REIT. Once eCentral reaches stabilization, the recent CAD 150 million property-level loan will become CMHC-insured with the interest rate lowering to 2.33%, which has been locked in, plus up to CAD 40 million of additional CMHC financing.
We will continue to utilize the lower cost of CMHC financing for our existing mixed-use residential properties, including the eligible commercial components, to further lower our average cost of debt and drive FFO per unit growth. We will ensure our overall leverage and debt to adjusted EBITDA will remain in our target ranges. As of this quarter end, our average contractual cost of debt for our entire debt portfolio is 3.36%. In addition to approximately CAD 36 million of inventory gains expected for the year from condominium and townhouse closings, we are progressing well on pre-sales at our Yorkville and Windfields Farm phase one condo projects in Toronto and Oshawa, Ontario, with about 73% and 62% pre-sold, respectively. These projects are estimated to generate profit margin or value creation between 15%-20% on IFRS cost basis, including capitalized interest.
During the quarter, the Trust incurred and expensed marketing costs of about CAD 1.3 million, mostly relating to these projects, which negatively impacted this quarter's FFO. We continue to prudently manage our development program and remain committed to keeping our total development as a percentage of total gross book value of assets at no more than 10%. As of Q3 2019, this number was 8.8%. With respect to our maintenance capital expenditures for our commercial operations, our expectation for the full year remains at CAD 40 million as guided. As of this quarter end, our debt to adjusted EBITDA was at 8.07 times on a proportionally share basis. This was accomplished despite the completion of nearly CAD 500 million strategic acquisitions during the quarter and the development cost balance of approximately CAD 1.3 billion. Our leverage as of quarter end increased to 43.6%, primarily due to these strategic acquisitions.
After our recent very successful CAD 230 million equity issuance, the proceeds of which were used to repay the indebtedness incurred for these strategic acquisitions, our leverage ratio is expected to end the year in the mid-42% range. With our CAD 500 million senior unsecured debenture issued in August, our debt composition ended the quarter at roughly 61% unsecured and 39% secured. The Trust's floating interest rate debt exposure was lowered by 460 basis points to 9.7% from the previous quarter end. Our weighted average term to maturity was increased from 3.3 years toAt the end of 2018 to a bit over four years as of this quarter. Our pooled unencumbered assets grew from CAD 8 billion as of the year-end 2018 to CAD 8.9 billion as of this quarter end, and now generating close to 59% of the RioCan's annualized NOI, thereby providing us with financial flexibility.
Overall, we are pleased with our operational and financial results for the third quarter, and we look forward to a strong fourth quarter. With that, I would like to turn the call over to our CEO, Ed, for his closing remarks.
Thank you, Jennifer. Thank you, Jonathan, and thank you, Qi. As you can tell, things are going okay. In fact, better than okay here at RioCan. As we hurtle, it seems to be the years go by, towards the end of 2019, and in fact, this decade, I can't help but reflect on the journey RioCan has been on, particularly over the last five years. Over that relatively short time frame, short in the context of the real estate world, where everything takes forever, we have sold about CAD 3.5 billion worth of assets, including our entire portfolio in the U.S. and the bulk of our assets in Canada's secondary markets.
We used the proceeds of those sales to significantly expand our presence in Canada's major markets while launching a large-scale development program aimed primarily at the repurposing of many of our shopping centers to mixed-use properties with a heavy emphasis on rental residential. That program is successfully well underway and is starting to hit some of the lofty targets RioCan set for itself almost five years ago. Our first multi-res properties are open and operating, and within a short few years, we shall have a large, growing, and uniquely all-new multi-use portfolio located only in Canada's major urban areas under the RioCan Living banner. Something we quite frankly could not have dreamed of five years ago. We have done all this without letting our balance sheet deteriorate.
To the contrary, our recent, very well-received equity issue was done solely for the purpose of ensuring that the wonderful acquisitions of the other 50% of Yonge Sheppard Centre and our continuing expansion in the Yonge-Eglinton corridor don't cause us to deviate from our own focus on the credit metrics that have allowed us to enjoy the lowest cost of funds in our sector. That equity issue of CAD 230 million was our first in five years, and we will continue to use equity issue sparingly, if at all, over the next few years.
Instead, we expect to be able to fund our significant development program internally through retained earnings and ongoing joint venture transactions, such as those recently announced with Killam and Boardwalk REITs, as well as continuing opportunistic sales of secondary market assets to the extent we have them, and some in primary markets where we see neither growth nor redeveloping potential. Where is this journey that I referenced earlier taking RioCan? Our destination is not having 90% of our revenue in the six major markets or 50% in the GTA or the building and lease up of thousands of apartments. Those are critically important milestones, they have been set to let everyone, including ourselves, measure our progress.
Simply put, we are striving to become a vehicle that will reward our unitholders with ever-increasing valuations based on strong FFO per unit growth, continuing value creation reflected in net asset value growth, and when we can do so without adversely impacting our various credit metrics, growing distributions. We will achieve this by moving our asset base to a more diversified mix, with the bulk of it being in the GTA. It will be anchored by mixed-use properties such as we already have here at Yonge and Eglinton, are in the process of completing at Yonge and Sheppard, and are constructing with our partner, Allied REIT, at The Well. These trophy assets will be joined by quite a few others over the next few years, and some of which are in fact already in the pipeline.
When taken together with growth in our now concentrated retail portfolio, I am confident that RioCan will achieve what we have set out to do. We, of course, know that this journey will never really end, nor will it be without the odd bump. The opportunities for future growth within our existing portfolio are, in fact, almost endless. As Canada continues to grow in population and urbanize, RioCan will equally continue to seize those growth opportunities as are presented by those trends. Thank you, and I will now open up the call for questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mark Rothschild with Canaccord. Your line is open.
Thanks, and good morning, everyone.
Good morning.
In regard to the guidance for 2020 of 3% same-property NOI growth, can you talk about if that's a recurring number that you think is achievable consistently over time? Maybe in that number, how much growth is coming from, whether it's the Bombay Bowring space or from the office assets, and what type of leasing spreads for retail would be assumed in there?
I'll answer part of that question. The answer is yes. It is very sustainable. We hope we'll go even higher. If you'll recall, Mark, when we announced our secondary market disposition program, the reason for it, besides the obvious one that I'd mentioned about raising capital without issuing equity, was actually to create a portfolio that will ultimately be able to achieve same-property growth in the area of 3% to 5%. We're getting there, and we're confident enough to say more than 3% next year. That's a number that we think will continue to grow. As far as its makeup is concerned, I'll turn that over to Jonathan and Qi.
Sure. Thanks, Mark. Thanks, Ed. There's a number of drivers to permit the sustainability of that number. There's obviously the strength in our portfolio, the continuing strength of the major market focus in our portfolio, the urban focus in our portfolio, the fact that we are through the Bombay Bowring leases, we're leasing them up at substantially higher rates. I'd also say that there's a general view from management that our overall leasing rates for our existing portfolio are below the market. Right now, I think our average rents are somewhere around CAD 19 a square foot, the new rents that we're writing are somewhere closer to CAD 26 a square foot. Thus, we feel we'll capitalize on that inherent spread over time.
There's also obviously the benefits of reducing expenses at our property, which over time translates into the ability of our tenants to pay higher net rents, things that we're very much focused on. It is a combination of factors, but those are the highlights.
Yeah. I would sum it up, Mark, by saying next year, we're going to be hitting on really all cylinders. We're going to be hitting the cylinders that we expect our occupancy rates to go up, and not just on Bowring and Bombay, but other spaces. Office rents in properties like Yonge Sheppard, like Yonge Eglinton Centre, even Lawrence Square, and others will continue to move up as leases are renewed. Our retail portfolio, now that I used the word concentrated in my presentation. We're very confident that we're going to be able to hit rent increases because the type of retailer that we're leasing to, they can afford it. They don't have a lot of alternatives. I hope that answers your question.
Yeah, for sure. Thanks. Just one more question.
Sure.
What type of target would you have for asset sales next year or maybe over the next couple of years? Do you think that you will continue to sell assets as you prune the portfolio? To what extent is that baked into when you talk about being self-funding for the development?
We will continue to sell assets. As I mentioned, we have several strategies to ensure that we have the capital that we require, and while at the same time keeping our credit metrics. I think you will see quite a few more joint venture situations. Those are actually quite wondrous for us because, as I know we've disclosed many times, we don't really recognize the value that was created through rezoning in any material way. Well, we don't put a per square foot CAD number on density that we have either already created or we're in the process of doing. When we do a joint venture transaction for a building that's getting close to being built, it helps us in two ways. It generates cash, and it recognizes the value creation and allows us not only to enjoy the cash and the profitability. Well, it's not profit.
It's not FFO. We also are then able to write up the value of our remaining 50% interest, assuming it's a 50/50 deal. That is probably going to be, Mark, our prime focus for capital raising, and we're talking some pretty material numbers. We will also continue to do, I use the word opportunistically, sales of properties. Have we got a number for that? No, but between the two, it's going to be in the many hundreds of millions of CAD in 2020.
Okay, great. Thank you so much.
Thank you.
Our next question comes from Sam Damiani with TD Securities. Your line is open.
Thanks, and good morning, everyone.
Good morning.
Just to follow up on one of Mark's questions. You had previously said a leverage goal of 38%-42%. Even with the equity raise in Q4, you'll be at or slightly above the top end of that range. Where do you expect to be in 2020? Do you still feel the need to stick to that same range?
Well, let me answer that. First of all, I'm disappointed you weren't first, Sam. Usually you are. Mark beat you out. I'm not sure that's telling us anything, but perhaps. That 38%-42% number is a range we're going to stick with. I understand we're slightly over that, but I also want to emphasize that is not our prime metric. Our prime metric are the other much more, in my view, objective metrics, i.e., net debt to EBITDA, interest rate coverage, and all the other coverage numbers that we use. I'm not going to belabor the point because I have in the past. There's a large element of, not the discretion, but not all IFRS calculations are made the same across the sector.
Those percentage numbers, while we understand it's important and we measure them, because they are a basis of comparison, we actually are much more focused on the other metrics, and we intend to keep doing exactly what we say we're going to do. In fact, I would hope by the end of 2020, our metric for leverage will be in better position than they will be at the end of 2019.
Okay. That's helpful. Just on that, why not just grow the balance sheet? Why the aversion to raising equity? Why not just grow the balance sheet?
It's expensive. Simply put, our goal is to achieve the best cost of funds that we can. Obviously, one aspect of that is debt, and I think we have actually achieved that goal, and we're focused on staying in that spot. The last lists I've seen from some of the banks, our spreads are actually the lowest of anyone in our sector, without exception. I'm not sure we've been able to say that ever before. The other side of the equation is, of course, equity. We try to target every expenditure of size, whether it's an acquisition or a major development program, and in fact, our overall portfolio, that 60% of the cost is going to be represented by equity of some sort.
When you look at our cost of equity at this price of our units, it's probably by our calculations, looking on, let's say, a 2020 FFO number, it's 7% plus. Now, if we can get that at a much lower cost through either sales, joint ventures, particularly joint ventures where they're effectively, like both Killam and Boardwalk, we're not giving up any income that translates into FFO because they're discrete portions of a shopping center. It seems to us that that's a far preferable way. Now, if the stock were trading at CAD 30, I might give you a different answer. It's not.
Okay. Maybe I'll just switch gears to enclosed malls. I know they're a very small portion of the portfolio today, but they do represent not an insignificant portion of your GTA portfolio, specifically. How are they performing? I know there's been some backfilling and probably above average performance of late, but how do you see the performance there going forward, and how does that factor into your same-property NOI growth guidance, not only for 2020, but longer term?
Yeah. Well, first I'm going to quibble with you. It's something I'm looking at our SVP of asset management. We have to do a better job or different kind of job of characterizing, because I don't consider Yonge Eglinton Centre a mall. I don't consider Lawrence Square a mall, even though they are enclosed properties. I could probably add Yonge Sheppard to that list and probably some others. We do have some enclosed malls, and over the last few years, they have been challenging. Including empty Sears and empty Targets in a couple of cases. Our leasing team has been superb in handling those challenges. I think the telling number is that our department store and apparel category is together, I think, in single digits as a percentage.
Eight %.
8%. Thank you, Qi. Of our total revenue sources. In other words, we're losing those kind of tenants, Sears and Target being great examples, even though Target was already a few years ago. We're replacing them with either necessity-based retailers or experiential retailers, including food and entertainment type retailers. We are getting growth through that process. It's a challenged sector. There's no question about that.
Thank you. I'll turn it back.
Thank you, Sam.
Our next question comes from Pammi Bir with RBC Capital Markets. Your line is open.
Thanks, and good morning.
Morning.
The portfolio has undergone pretty major realignment over the last two years. You've guided some pretty good same-property NOI growth for 2020. There's still a lot of development activity, some projects coming on and of course, some additional spending. When you layer all that together, how are you feeling about FFO growth for the year ahead?
Well, we don't like to really guide on that, I don't think, Qi. Right now we're sticking to same store. All I'll say is I don't think what we'll have in 2020 will be representative of what I see in the years following. Next year is still a bit of a transition year. We're finishing Sheppard Centre. By the end of next year, that residential will be there. You've got a ton of money. I think the number Qi used was about CAD 1.2 billion. From an FFO perspective, all we're doing is capitalizing interest at 3.3%. It will be a challenge to get to the growth rates in FFO that we would like next year. I think where that will really take off, quite frankly, is in 2021.
As I said, Pammi, a couple of years ago, or maybe longer, when we really started this transformational process, that sometimes we feel like jugglers around here. Basically, we haven't dropped any balls, notwithstanding some skeptics. We have continued FFO growth throughout this transformational program, and we expect to continue to do that.
Okay.
We think in a couple of years, it's going to get to a significant growth rate.
Right. I think if I recall a few years ago, that growth rate that you were targeting was over the long term, somewhere around 5%. That sort of still in that range? Right.
Absolutely.
Right. Okay. Just again, sticking to next year, and thinking about some of the condo projects, townhomes, and air right sales, I guess, at The Well, which it sounds like might be spread over 2020 and 2021. How should we think about the gains that could be surfacing next year?
Okay. Let me be clear. We're not involved in any of the condominiums at The Well. We sold those air rights to Tridel for the condominium side. Our exposure at The Well, which is huge, is going to be on the residential side. We're partners with Woodbourne in a 600-unit multi-res building that'll be almost at the corner of Front and Spadina, and that, I think will get started in 2020.
Yeah.
There won't be any condominium gains there. In fact, I think the condominium gains in 2020 will be relatively minimal.
Yeah
University City, which is the phase one of the Windfields Farm project in Oshawa, is just going to get started at the beginning of 2020. That's one that's going to come in more like the 2022. Yorkville, which we also expect to get started at the beginning of 2020. In fact, I'm pretty sure, and which is amazingly almost 75% pre-sold at some pretty good numbers, will be completed in 2024. That's one of the reasons I talk about next year. There's going to be nothing big that's unexpected next year, from the point of view of condominium sales.
Maybe just wanted to clarify your comments earlier in the call where you mentioned hundreds of millions of CAD, I guess, sales to JV partners. Can you just clarify, are those going to be on projects that are completed or projects that are starting, like bringing in new partners?
It could be both. Again, the timing of this is probably a little off for us. Monday, as a matter of fact, we have an offsite, where we sit down, and one of the things we do is focus in on exactly our budget for 2020. We all have a pretty good sense of what it is, obviously. Equally important, we look at a capital plan that extends out five years. When you see us entering into transactions next year, they're moving towards fulfilling the requirements of that capital plan. I know hundreds of millions sounds like a big number. If I may be bold with really big numbers, rough estimate, we're probably looking at a development spend over the next four to five years of CAD 2 billion.
If we keep to that 60/40 formula that we like to keep to, and we will keep to, that implies a requirement over a period of four years, of raising about CAD 1.2 billion in equity funds. Some of it's going to come from retained earnings. Some of it may come, we're talking over a period of years from equity issuances, although, hopefully at prices much better than we are today. The bulk of it will come from recycling capital, either from low to no growth properties. Some completed projects. Largely though from land positions, that we already own and hopefully won't be giving up income from. I wish I could give you numbers. I know you'd love them, but I don't have them.
Great. Thank you. Just last one. At The Well, it looks like costs stabilized this quarter. I think last quarter they did move up.
Finally.
Yeah. Right. Can you remind us again what your expected unlevered yield is or range on completion at this stage?
Excluding the residential component, which we're partners, as I said, with Woodbourne. That's a significant component because that's about 600 apartments. Looking at the office and retail components, I think we're in that five to six range. I don't think that's changed. Costs have gone up, but so have rents.
Got it. Thanks very much.
Thank you.
Our next question comes from Johann Rodrigues with Raymond James. Your line is open.
Good morning.
Good morning. First off, could you maybe tell us what the expected NOI contribution just from multifamily would be in 2020?
Actually, no. It'll be a lot more than it was this year, obviously, because this was our first year of getting anybody living in our apartments. The stabilized NOI from just the two buildings is probably in the CAD 15 million or CAD 16 million range. To give you an exact number on that, I just couldn't do because I could do it better after next Monday, if you want to speak to Qi then. She might have some exact numbers for you. It's still relatively small within the scheme of things, because it's going to really hit some growth, only as we get later into the 2020s, like 2021, 2022. For this year, we'll have two buildings, which is fantastic. The two buildings, one of which we own 100%, one of which we own 50%, actually have a total of over 700 units, 750.
That's just a start. In the context of total revenue that we have this year, I think about CAD 1.2 billion, it's pretty small.
Right.
Johann, we did disclose just for those two rental towers Ed talk about, we disclosed the stabilized income and yields there. You could calculate. Yeah.
Okay.
Okay, Johann?
Okay. Maybe just my second question.
Sure.
How would the rents at Pivot, and then I guess Strada, and then the other Toronto, I think it's Litho, compare to eCentral and the CAD 390 that you guys are getting there?
I think they'll be similar product types. I think there's certain locational attributes that are slightly different. I think generally we're trying to curate a similar product. I think, at a more boutique type of offering like Strada, which is down at College and Bathurst, there might be enhanced opportunities for rent. I think Sheppard and Litho are going to be very similar offerings, and we'd like to see them in and around that same level, hopefully higher. We'll see what the market is like.
Yeah. I agree with what Jonathan said to you, Johann. I would also tell you that. Target's the wrong word. Our sort of overriding goal when we started leasing up eCentral is to get it leased fast. We just started leasing in at the beginning of this year.
January.
We expect to be, like I say, stabilized a year later, effectively. 13 months. To do that, we probably left a few pennies on the table. That will just give us better growth, because the nice thing about rental, and the nice thing about our entire portfolio in Ontario that we're building is none of it's rent-controlled. Now, I'm not saying we're a public company that tries to act very responsibly, so we're not going to be looking for piggish increases or what some might call piggish increases. We think we're going to get pretty healthy increases from the rents we've got at eCentral. I suspect that even as we roll into later in 2020, including Frontier. I think we look at Pivot, which we'll start leasing, I guess, at the end of 2020.
Yes.
That we'll achieve probably similar to what we achieved, if not higher. I think Litho and Strada, and this is just me, we haven't set leasing budgets yet, will do even better.
Yeah.
Because of the boutique nature of their, and the location of their buildings.
Okay. Thanks. We'll turn it back.
Thank you.
Again, if you would like to ask any questions, please press star one on your telephone. Our next question comes from Tal Woolley with National Bank Financial. Your line is open.
Hi. Good morning, everybody.
Morning, Tal.
Just wanted to ask on the retail side, in terms of talking to your tenants, how do you see Christmas shaping up for this year?
I think it's probably the snow. I'll turn that over to Jonathan and maybe Jeff Ross.
Yeah. It's Jeff Ross speaking. Quite frankly, the tenants that we're speaking to seem quite encouraged by it. A lot of the rhetoric on the e-commerce side has calmed down a little bit as retailers are focusing on driving consumers through their own stores. Right now all I'm hearing anecdotally is that it's positive. The initial start to the season is looking quite good.
Okay. Would it be reasonable for us to expect after Christmas to sort of another similar kind of grind on tenancies like we've seen with Bombay and some other players over the last several years? Do you expect that sort of trend to continue?
Listen, I always hate to guess because often I'm not correct. The way it's looking right now, there's not a whole lot on the horizon that we're hearing, and you tend to hear the tribal drums way ahead of any falling out occurring. Right now it's all quiet. I'm not saying there won't be a few small guys, but in a large format, I just don't see anything for the beginning of 2020.
Okay.
You know what? The famous last words. I think everybody that could go broke has gone broke. There's always a new candidate that comes along that I didn't expect. The nice thing about retail, the train wrecks are slow motion train wrecks. The way we monitor through our operations group and asset management group, we tend to have a pretty good idea six months to a year ahead. We see some of the sales numbers, we see what their GROC ratios are. When they start getting too high, particularly across a chain, you got a problem. The retailer has a problem, which means you're going to have a problem.
While we always have a watch list, to my knowledge, and I'm looking at the guys running operations and asset management right now, there's nobody of any consequence on it. We're quite comfortable that 2020, maybe it'll be one of those years without any bankruptcies of consequence. Who knows?
Just, you mentioned GROC ratio. How have you seen over the last several years, what you guys see as an acceptable GROC ratio for the retailer change?
Well, again, I'm going to turn that over to Jonathan. It really varies on the type of retailer. Go ahead.
Yeah, I think that kind of hits the nail on the head, what Ed just said. It's such a varying calculation, it's so dependent on the use. There are certain uses like grocery where that groc ratio for a grocer to consider themselves successful has to be extremely low relative to an apparel user or a restaurant user where it can be much higher. I can't give you one answer on that. Generally, as Jeff alluded to before, and as Ed alluded to, the feedback we're getting, given the strength of our locations at this point, is that our tenants are seeing healthy and fairly low GROC ratios across the board relative to their categories.
Okay, that's good. Then just lastly, in terms of financing strategy, you were talking earlier just about financing the new residential projects. I'm just wondering, when we look at the public peers in the multi-family space who are engaging in development and building new product, they are carrying significantly more leverage than you are. Are you potentially handcuffing yourself a bit by trying to stay at 8x, or in the range that you're currently sort of setting? Or should we expect to see that debt-to-EBITDA ratio creep up modestly as the proportion of residential product in your portfolio increases?
That's actually a good question. I understand the higher leverage where you've got a much less volatile sector, i.e., multi-res. We're not there yet. Right now we're looking at staying sort of where we are because obviously the largest portion of our portfolio is, and will probably be for many, many years, retail/office, i.e., commercial, which by its nature is a little more volatile. There's an old story I always tell, that RioCan is like a car. It's built for safety, not for speed. Although we're trying to go pretty fast. When you look at times, and as good as times have been in the last 10 years almost, when it comes to real estate and interest rates, times change.
We live in a very uncertain world. We learned long ago, right from the foundations of RioCan 25 years ago, that you can't protect yourself from macro events except by protecting the entity in a number of ways. Diversification of revenue sources, as Jonathan said. We are continuing to work on that. I don't want to be one of those entities where 25% or more comes from one tenant, because things happen in this world. We're under 5%. Diversification of maturity dates on your debt. Diversification of lease maturities. Keeping your leverage as low as possible. Now, your question was a good one, because I think as you get a larger and larger percentage of residential, we may consider that, a change in policy. We're years away from that.
I think right now, what we like doing is we're going to, I won't say be aggressive in leverage, because we're not aggressive by nature when it comes to debt. We will do as much leverage as is prudent, with CMHC insurance, both through the existing program and maybe through some of their new programs where it's even cheaper, where you include an affordable component in your building. Simply use the, I'll call it excess of funds over what would be 40%, to pay down our commercial debt, which is obviously at a much higher cost. That's the short-term, i.e., one to three-year program.
More like a Volvo with a turbocharged engine, I guess.
We're trying our best to turbo it. Yes.
Okay, perfect. Thank you very much.
Thank you.
Should be running out.
There are no further questions at this time. I will turn the call back over to the presenters.
Okay. Well, again, thank you everybody. I know everybody's probably got an 11 o'clock conference call from somebody. Thank you for taking the time. We hope we added some color to what I think was a pretty good quarter. We expect to continue being able to do that. Thank you very much for your time and attention. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.