Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the RioCan Real Estate Investment Trust Second Quarter 2019 Conference Call. And answer session. Thank you.
Jennifer Sous, Senior Vice President and General Counsel, you may begin the call.
Thank you, Chris, and good morning, everyone. I'm Jennifer Sous, 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 and A and financials on RioCan's website earlier this morning. Before turning the call over to Jonathan, I'm 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 strategy 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 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 apply 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 June 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.
Thanks so much, Jen, and a beautiful summer morning to everyone on the line. As you're aware, RioCan has been actively optimizing our portfolio and our significant progress to date has resulted in our successful transition into a major market mixed use focused REIT. I'm pleased to share today that RioCan's strong second quarter operational results are validating both the strength of our major market positioning and the strategies we deploy to maximize the value of our assets. I will highlight the results and key metrics that evidence the resilience and strength of RioCan's portfolio and the quality and consistency of its income stream and we'll share how RioCan will continue to drive these results. The 3.4% FFO or funds from operations growth we generated in the Q2 was supported by RioCan's strong operational results and major market same property NOI growth.
RioCan's major market portfolio saw an average rent increasing on leasing renewals of 12.4 percent in addition to strong new leasing results including 85 new leases completed at an average per square foot rent of $26.11 which is 35% higher than our portfolio weighted average rent per square foot. These statistics are notable in that they were achieved in the face of 2 tenant failures, namely Bombay Bowering and Payless Shoes. As with retailer closings in the past, RioCan has demonstrated we are well equipped to manage through these realities. The resiliency of our portfolio and the strength of our team allows us to replace these tenants with more relevant retailers or alternative uses, which ultimately drives the value of our assets. It should be recognized that our FFO and SPNOI growth was achieved in spite of these retailer bankruptcies and moreover that we achieved these results while actively de leasing or clearing out certain tendencies to facilitate our redevelopment program, which I'll touch upon later.
Our results signify that our prominent retail and office locations provide RioCan with a leverage to negotiate favorable terms with tenants who are looking to either penetrate into or protect their existing position in Canada's major markets. And while we are more cognizant than ever before about curating the ideal tenant mix for each of our shopping centers and thus more discerning about attendance use look and covenant, we have achieved a major market occupancy of 97.8%, which is the culmination of consistent quarter over quarter increases. I'll now provide you with some context on how we delivered these operational results. Our positioning has been achieved through a significant and successful disposition program in addition to the completion of a number of strong urban mixed use developments and has resulted in a portfolio comprised of predominantly major market locations. 87.8%
of our
annualized net rent is derived from Canada's 6 major markets and 48.6% from within the Greater Toronto Area. And within these markets RioCan's assets are concentrated in fast growing densely populated areas with an attractive demographic base. Simply stated, our portfolio consists of desirable, established and convenient locations recognized for their growing appeal to both tenants and consumers alike. Within these well established locations, we understand the importance of providing a broad mix of commercial tenants that contribute to long term growth. The desirability and quality of our locations allows us to attract, retain and evolve our tenant mix to drive operating results and stay ahead of changing consumer trends.
One of our primary focuses is resiliency. And as a result, we have a larger concentration than ever before of necessity based service oriented tenants that are more insulated from the impact of changing consumer habits and less easily disintermediated by the Internet. Nearly 3 quarters of RioCan's rental revenue is now derived from these types of tenants, another measure of the quality of our income that has been steadily increasing over time. While we are pleased with the performance of our portfolio, RioCan's strong and seasoned management team will continue to have a sharp focus on the factors that contribute to consistent organic growth. In addition to strong leasing velocity and strategic development, we are keenly focused on continuing to deliver operational efficiencies and drive ancillary revenue to maximize FFO growth.
We are also constantly reviewing our portfolio to ensure our assets meet the immediate and long term needs of the communities in which they exist. The recent redevelopment of Burlington Center and Yonge Sheppard Center are just two examples of successful repositioning that has attracted new and high profile retail and office tenants that will drive foot traffic to the entire center. RioCan recognizes the importance of investing in our assets. We have prioritized the allocation of sufficient resources to update and improve our commercial environment and in doing so set them up for success in the near and long term. Our confidence in the long term success of our revitalization and intensification of Yonge Sheppard Center culminated in our pending acquisition of Kingsec Capital's non managing 50% co ownership interest of the center.
This transaction will bring RioCan's ownership of this newly renovated urban mixed use transit oriented property to 100%. With this acquisition, RioCan will fully own a number of desirable assets on the Yonge Street corridor, including Yonge Sheppard Center and Yonge Atkinson Center, both of which are located at intersecting subway lines. As part of the transaction, KingSett demonstrated their ongoing confidence in RioCan's long term value by committing to invest $100,000,000 in RioCan units with a 1 year lockup agreement. That transaction is anticipated to close later on this month. It is clear that RioCan's commercial portfolio is dominant and continuously strengthening.
We are pleased to report that our commercial operating metrics are now complemented and supported by our recently established and growing RioCan Living residential portfolio. We've seen gratifying leasing velocity and rental rates at our first two purpose built residential rental buildings, eCentral, which is at the corner of Yonge and Eglinton in Midtown Toronto and Frontier, which is in Ottawa. Leasing started in December of 2018 and as of August 1, we have leased 59% of the 4 66 units at East Central and 72% of the 228 units at Frontier, both at above pro form a rates. Occupants of these buildings are enjoying the benefits of professional management and the vast retail and service options at the doorstep. Retailers in the RioCan shopping centers adjacent to the RioCan living buildings are benefiting from additional consumer traffic as residents move into their new homes.
Our existing asset base provides strong and stable income. However, as always RioCan strives to obtain the highest and best use for each of our assets. This has led us to actively pursue and deliver mixed use intensification, particularly where an existing asset is transit oriented. RioCan's intensification program 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. In recognition of these outcomes, we continue to grow our pipeline of major market development sites.
We currently have 27,200,000 square feet of identified major market density, of which over 13,000,000 square feet is already zoned. In the Q2 alone, our zone net leasable area increased by 1,900,000 square feet due to RioCan obtaining zoning approvals for multiple projects, including our Queensway, Dufferin Plaza and Yorkville projects here in Toronto. We have 2,700 residential units under construction and an additional 2,100 units expected to be underway by 2021. These significant achievements can be attributed to the strength of RioCan's development and construction team. With years of experience in a broad expanse of expertise across multiple disciplines, I am confident in saying we have amongst the strongest in house development teams in Canada.
In addition to their demonstrated ability to deliver complex projects on time and on budget as with all RioCan departments, our in house development team is committed to RioCan's vision to be a leader in embedding sustainability in our business. I'm proud to report that our growth and development activity is accompanied by a strong adherence to ESG principles, including the integration of sustainability from the start of the design process and commitment to responsible procurement. We understand that financial performance and sustainability are intrinsically linked. I will close today by reiterating that RioCan is actively leveraging its competitive advantages, namely its major market assets and experienced leadership team to drive the quality of our income. Our Q2 results validate this approach.
We will confidently continue in this while consistently focusing on operational excellence to deliver unitholder value long into the future. And with that, I will turn the call over to Qi Tang, who will provide an update on RioCan's financial results. Over to you, Qi.
Thank you, Jonathan, and good morning, everyone. As Jonathan just highlighted, this 2nd quarter has been a great quarter for RioCan as we built on the positive momentum from our previous quarters. FFO per unit grew to $0.48 per unit, 3.4% increase over the same period in 2018. This is the highest quarterly FFO per unit in our history, excluding Q4 2015 when we received a substantial one time settlement income. The trust has achieved these results despite a significant loss of NOI from over $700,000,000 of secondary market asset disposition since Q2 2018, dollars 14,600,000 in lower realized gains from the sale of marketable securities and $2,300,000 in lower capitalized interest due to development completions.
This FFO per unit growth was accomplished primarily through an increase of $3,300,000 of same property NOI, dollars 7,800,000 of residential inventory gains, $6,300,000 of NOI from development completions and from strategic acquisitions, dollars 4,800,000 of higher property management and other fee income, dollars 4,200,000 of higher lease termination fees and $6,200,000 of lower G and A costs as well as substantial unit buyback since Q2 2018. As a result of our FFO per unit growth, the Trust FFO payout ratio has been further reduced to 77.2%. Jonathan has provided insights into our strong operating results earlier, particularly with respect to our increasing major market and GTA presence, continuous growth in necessity based and service oriented tenant base, double digit renewal and blended leasing spreads, occupancy and same property NOI growth. To provide a little more information on same property NOI growth, I would like to point out that Bombay, Boring and Payless Shoe disclaimed leases had a negative 90 basis points to 100 basis points impact on our same property NOI growth this quarter. If we remove this effect and layer onto this, the NOI from completed development, our same property NOI increased by another 150 basis points to 5.4% for our major market portfolio and another 140 basis points to 4.5% for our total portfolio.
For the full year, we maintain our 2% to 3% same property NOI growth guidance, which is prior to any adjustments for disclaimed leases or completed developments. As of this quarter end, the Trust average net rent per occupied square foot increased by 5.8% to $19.26 over the comparable period in 2018. Since 2015, the Trust has achieved a compound annual growth rate of 3.4% in its net rent per occupied square foot, highlighting the growing strength of our portfolio. The average net rent at the tribe's active urban intensification project was $33.06 per square foot based on over 674,000 square feet of committed or in place leases as of yesterday, which reflects the quality of the trust developments that are major market focused and transit oriented and are expected to further drive increases in the Trust's average net rent over time. During the 6 months ended June 30, 2018, the Trust completed 7 acquisition of income producing properties for an aggregate purchase price of $324,000,000 at a weighted average capital rate of 6.32%.
The majority of the acquisitions were for the remaining non managing interest in major market assets, thereby accelerating RioCan's major market presence and allowing RioCan to take 100% control of the assets, which will allow for further operational efficiencies. The Trust's pending strategic acquisition of Kinsat's non managing 50% interest in Young Shepherd Center, as Jonathan highlighted earlier, will further allow us to achieve our strategic goals. Next, let us take a closer look at our residential operations from a financial results perspective. As Jonathan noted earlier, after merely 6 months into the phased lease up of eCentral at Yonge Eglinton Northeast Corner in Toronto with higher floor, higher rent units only recently released for leasing and with Frontier in Ottawa just recently substantially completed, we have leased 59% and 72% of the units had rents at or ahead of pro form a respectively based on leasing progress as of yesterday. As of the quarter end, the 2 rental towers are approximately 45% 36% occupied.
As a result, the 2 residential rental buildings have started generating positive albeit modest net operating income of $200,000 during the quarter. For the 2nd quarter, we recognized residential inventory gain of $7,800,000 from condominium unit sales at Yonge Agnewton Northeast corner or eCondos in Toronto and Townhomes as a Phase 1 of Winfield Farms in Oshawa, Ontario. Unit possessions at e Condos started last quarter and are expected to be completed by the end of Q3, while townhouse possessions at Winfield Farms commenced in the Q2 and are expected to continue throughout the remainder of the year. Unit possessions at Kingly in Toronto will start in Q3 and be complete by the end of the year. Overall, approximately $36,000,000 of inventory gains are expected for the year, of which $12,900,000 has been recognized into income for the first half of the year.
In addition to our aforementioned three projects, we currently have other condominium projects underway such as the 2 phases of condominium projects at Winso Farms and our Yorkville project in the prestigious neighborhood of Toronto, which just recently received zoning approval subject to an appeal period, which will expire soon. Such project will lead to additional inventory gains in the foreseeable future. Phase 1 of the Winsel Farm condo project is about 54% pre sold and sales at the Yorkville project is expected to start in Q3 of this year. It is worth noting that marketing costs associated with such condominium projects extends as they are incurred during the pre sale process, thus negatively impacting FFO even though sales revenues will be recognized into future periods into income as buyers take possession of their units. For the 3 6 months ended this quarter, we incurred approximately $400,000 $900,000 of marketing costs relating to such projects.
Marketing costs for the Yorkville project are expected to ramp up in Q3 as the sale process commences. A couple of quarters ago, I spoke to you about the potential negative impact to our financial performance as a result of potential loss of capitalized interest depending on the timing of development completions and new development spend. Our results this quarter highlighted this point where our FFO was negatively impacted by $2,300,000 of lower capitalized interest relative to same quarter last year, mainly as a result of development completions outpacing new development expenditures over the comparable period. This may occur in future quarters, again, depending on the timing of development completion and our new development spend. We continue to make significant progress in our development program where another 269,000 square feet of project completed during the quarter, which increased our total square feet of development completions for the year to 361,000 square feet.
As Jonathan noted earlier, the Trust also made significant progress in obtaining loan approvals and submitting new zoning application, all in the major markets with a strong GTA focus. Residential development account for 71% or 19,400,000 square feet of the Trust's current development pipeline. The Trust has recognized roughly $247,000,000 of cumulative fair value gains on its 3,600,000 square feet of active project with detailed cost estimates, which are what we refer as Category A project in the MD and A and are substantially completed, near completion or under construction. This 3,600,000 square feet largely represent the excess density on the underlying properties prior to demand. For categories B and C project on Page 41 of our MD and A, which include 16,500,000 square feet of active project with cost estimates in progress and 6,800,000 square feet of future density projects, respectively, no insignificant fair value gains have been recognized for the excess density, even though 9,200,000 square feet of excess density already has zoning approvals and another 7,300,000 square feet of excess density already have zoning applications submitted.
As we talked before, we believe our development program offers great prospects for future net asset value growth for our unitholders. As of this quarter end, our IFRS book value per unit increased from $24.97 as of June 30, 2018 to $25.78 a 3.3 percent increase. Over the next 2 years, we expect annual development costs to continue to be in the $400,000,000 to $500,000,000 range. Despite the maximum 15% limit permitted, we remain committed to keeping our total properties under development and residential inventory as a percentage of total gross book value of assets and no more than 10%. As of this quarter end, this number was 8%, a slight reduction from the previous quarter.
With respect to our maintenance capital expenditure for commercial operations, our expectation for the full year remains at $40,000,000 as guided, even though our year to date actual expenditures were $4,700,000 lower than normalized amount due to timing of this project. With respect to our strategic disposition, we continue progress well with $1,600,000,000 or 82 second during market asset dispositions completed or under firm conditional or letter of intent agreement as of yesterday. The weighted average capitalization rate for these deals is 6.82%, materially in line with our IFRS values. We no longer focus on the specific dollar amount of the dispositions achieved, but on our major market and JTA focused targets, as Jonathan talked earlier, which we are rather close to achieving. Turning our attention to our balance sheet.
As of this quarter end, our debt to adjusted EBITDA metric was at 7.92x on a proportionate share basis, remaining below our target of 8x and slightly decreased from the previous quarter end. This was accomplished despite the completion of substantial asset sales and the development cost balance of $1,200,000,000 Excluding the $1,200,000,000 development cost balance, our debt to adjusted EBITDA ratio would have been closer to 6 times. Our leverage as of the quarter end increased to 42.9 primarily due to the timing of acquisitions and dispositions. As of June 30, 2019, RioCan's debt compensation was roughly 57% unsecured and 43% secured. Our pool of unencumbered assets increased modestly to $8,100,000,000 as at the quarter end, generates roughly 59% of our annualized NOI and provides 2 25 percent coverage over our unsecured debt, well above our targets of 50% and 200%, respectively.
As a result of our strong balance sheet and quality and strength of our portfolio, we continue to enjoy one off lowest cost of debt in the industry. Overall, we are pleased with our operational and financial results for the Q2 and we look forward to building on this momentum in the second half of the year. With that, I would like to turn the call over to our CEO, Ed, for his closing remarks.
Thank you, Jennifer, Jonathan and Qi. And I want to thank everybody on the line considering it's a Friday morning before a long weekend. Speaking of that, usually press releases done on a day like this indicate results that one would like to pass a notice. Our results are the exact opposite of that. We would like to shout them from the rooftops.
So I'm going to be doing a little of that. And at the risk of repeating a lot of the numbers that you already heard from Jonathan and more so from Qi, I think there's just a few important numbers I want to try to connect some dots because while we live in a world of brick, concrete and steel here at RioCan, we know that everything we do is only being done to achieve results and those are measured by numbers. Our major market portfolio now contributes 87.8 percent of our revenue and included in that 48.6 percent of our revenue from the GTA itself. Those numbers will exceed 90% 50% during the course of this year. It is the successful execution of our strategic decision to accelerate our focus on the major markets in Canada, particularly the GTA that has enabled us to deliver the numbers we released this morning.
3.4% is our year over year FFO per unit growth, leading to our best ever per unit result other than the one in which we received a large target payment in 2015. 2.9% is our same property NOI growth for the almost 88% of our portfolio that is in the 6 major markets. As we continue to shed the slower growth secondary market properties we still own, this growth rate will continue to rise. In fact, it would have been 3.9% this past quarter had we not lost 25 Bombay and Bowring stores and 17 Payless Stores this year and 90% of those were actually in the major markets. So they're right in those numbers.
But now with the quality of those locations and our leasing team, those relatively small stores are simply an opportunity for further growth. At 12.5%, our increase in lease renewals was outstanding and is directly connected to our 97.8 percent occupancy rate in our major market properties. The negotiating strength and that the level of demand for our superbly located property is what drives that kind of performance. Also connected to the above numbers is our 94% retention ratio, which is amongst our highest ever. While this number will obviously fluctuate from quarter to quarter, when put together with our renewal growth rate, it is clear that in the major markets, the availability of suitable alternative space is constrained all to our ongoing benefit.
I fully expect all of the metrics I just reviewed today to stay elevated and in fact get better. Obviously, while the numbers will vary for many reasons, I believe that RioCan is now at the beginning of seeing the results of the major strategic decisions we made over the last several years. With the success of the secondary market disposition program and the advanced state of our move into redeveloping our existing properties into mixed use high density urban hubs, I am extremely optimistic about RioCan's future. So I will finish by speaking a bit about that future. One number that relates to that future is 6.1%.
That is the percentage of our revenue currently coming from office space, almost all of which is in the GTA. With the completion of the well office component of about 1,300,000 square feet of office space, where our 50% partner Allied has succeeded in pre leasing over 75% already and are taking 100 percent ownership of Shepherd Center at the end of this month. That percentage will grow to about 10% by 2022 at the latest. Our first residential rental income, while tiny at the moment, will grow exponentially over the next several years. And while it is too early to predict a percentage number for it to grow to, our goal is to have it equal to or exceed our office revenue within a few years.
Our future will also include a continuing focus on the strength of our balance sheet. Its current quality, as Qi said, gives us amongst the lowest cost of debt in our sector and we are committed to not only maintaining that quality, but to continuously improve it. Finally, just in case you think that we are going to be quietly resting on our achievements to date here at RioCan, we have another initiative we've been quietly pursuing. Over the last 10 years, we have acquired a fair sized portfolio of urban single tenant properties, most often off market and from the tenants directly. Hopefully just as quietly, we then pursued a strategy of acquiring adjacent properties for eventual redevelopment of the entire assembly.
For obvious competitive reasons, as we are still attempting to complete assemblies, I can't speak about specific locations. But when we start applying for rezonings, I think you will be quite impressed by what we've been able to put together. Just by way of a completed example, this is the way the Northeast corner of Yonge and Eglinton started. So with that short finish, I'm going to turn it over for anybody still on the phone for any questions you might have.
Your first question comes from Tal Woolley with National Bank Financial. Your line is open.
Hi, good morning.
Good morning.
I wanted to ask a couple of questions on Hudson's Bay and some on the zoning too. For excluding the JV, you've got about 0.2% of your rent coming from Hudson's Bay and Home Outfitters. Is there much at risk just with Home Outfitters winding down right now, just if we're thinking about future grind on tenancy? Hi,
Tal, it's Jonathan. No, there's not much risk at all with the home outfit as we've actually been in a fortunate position where we've got backfill opportunities for the majority of square footage that they're going to be giving up upon expiry there. Remember, they're not going bankrupt. So there's still a bit of term left in their leases. But by the time they do give up those lease terms, we will have we're confident that we'll have solutions for each and every one of their spaces.
Yes, we have many of those solutions already underway. And because as Jonathan said, they're not all happening in one day, it will be over a period of time. We expect the impact to the negative impact will be very short lived and probably quite frankly once we noticed, but the positive impact of either breaking up those stores and releasing them or simply releasing them as they are, I expect will be pretty good.
Okay. And then on the JV itself, do you anticipate seeing an improved mark to market on the valuation of that portfolio, given that with all that's going on at HPC right now, they're hiring outside real estate appraisers to go back and do full appraisal of all the real estate assets. Do you think you could see an improved mark to market on that portfolio going forward?
We have been very cautious on taking any IFRS gains on those. And in fact, I think they've been relatively insignificant. Some of the properties in that joint venture are actually quite valuable. But I really like our position in that joint venture. It's been in our material.
So I'm not going to expound on it at this point other than to say there because of everything going on with HBC. We're pretty constrained with what we can say. There's obviously public markets involved, there's some controversy involved. So I don't want to say much about it, but I will leave you with the fact that I really think that RioCan is in a great spot in virtually any from virtually any perspective you want to look at it. With only gains, quite frankly that are on the horizon, but we've taken very little if any to date.
Okay. And then just lastly on zoned versus unzoned density. I'm not exactly is there a bit of a carrying cost for you for having so much of it zoned, but yet not having sort of transformed those properties? Like I'm assuming that you're paying probably more in taxes and things like that?
Not really. The taxes are minimal and we managed to pass most of those back to the tenants in any event. Where the cost is really that we'll spend on any specific property anywhere from $1,000,000 to $2,000,000 sometimes more depending on the issue in actually getting that zoning process completed. And obviously, there's a cost of funds involved, nevermind the overhead costs involved. So we eat those and we've been eating them quite successfully to date and produce those numbers notwithstanding.
Where you get into real costs and I think from a finance point of view, we've highlighted this a little bit in the MD and A is more when you start the process of redevelopment. And when you start that process of redevelopment, you have to start once you're zoned with the tenants. And that I never thought we'd have a de leasing department, but we do. And even when you're keeping tenants in place, the rents you achieve on renewals are not what they could be because you can't promise term. You're generally insisting on demolition rights.
The tenant isn't going to invest in his store, thus won't have the same level of sales. So yes, there's a lost, there's an opportunity cost, lost opportunity cost for growth. That's one of the reasons I'm so proud of the growth numbers we have. And once we get to the point where we're actually moving tenants out and demolishing, obviously the costs get pretty significant and what they're adjusting for. But in that preamble time or that preemptive time, there are some costs, but we eat them and they're okay.
Okay. That's great. Thank you very much.
Thank you.
Your next question is from Pam Haber with RBC Capital Markets. Your line is open.
Thanks, Pammi. Good morning. And thank you. Just with respect to the 9,000,000 square feet of your excess density that you flagged, again, that already has zoning approvals. Are you giving any thought to reconsider how that density should be valued going forward?
Well, you know what, we know others value the minute you apply. I mean, we don't. For example, we've applied for almost a 1000000 square feet in the heart of downtown at what I call RioCan Hall at Richmond and John, where I don't think we've applied any value to that. We tend to be very, very, chi used the word insignificant value ascribing to it. All we do is we might adjust the cap rate and what she means by that by a hair in valuing the property.
We don't ascribe specific value to the density until the property is underway, until the redevelopment is underway. It's a bit of a we believe by the way there's great value there, but for accounting purposes and reporting purposes, we don't put any value to it. If we did, that value would be skyrocketing because of how density is going up. So, I've given you a long answer to a short question. Anything you want to add to that,
I think it's good. If I may just add is, Pammi, we particularly highlight that just so that the market is aware of our approach in this aspect so that you could compare more apples to apples relative to some of our peers. So waiting for that purpose.
Thanks. And I think looking back a few years ago, Ed, I think you had sort of roughly gauge that value at maybe $1,000,000,000 in terms of zone density that wasn't reflected.
Well, possible zone, yes.
Right. So where do you I mean, it's just given where land values have gone, I suspect that number has risen, but any thoughts or even do you want to take a stab at what you think that range could look like today?
$1,000,000,000 to $2,000,000,000 I mean it's a huge range. Obviously, the value of a zoned or possible zoned piece of space depends very dramatically on where it is. But what we've seen, I mean, we just and Chi will have to help me here from not spilling the beans. We've recently completed a small deal in Mississauga. I think we mentioned it in the MD and A.
Good, I can talk about it. I can't get into details about it, but basically, if you would ask me what's density worth in Mississauga at Huron, Ontario and Sandalwood in a value village anchored shopping center, I would have said, gee, I don't know, but probably $40, dollars 50 a foot if you would ask me that number when I gave you that $1,000,000,000 number. Well, we just completed a deal for a portion of that density and it's not zoned yet. We've applied for rezoning, but it's not finished. I do it.
We're all fairly confident it's happening. The city is very supportive because guess what? The Huron, Ontario transit line will have a stop right at Sandalwood. So they want the density. And we disposed of a 50% interest in what will be the first 400,000 square feet at $80 a foot.
Plus, we get the opportunity to earn fees as we take the development through the final rezoning and development process. So, from there you go to something like Richmond and John that I mentioned. And I would tell you that conservatively, that zoning will be worth today at today's market in the neighborhood of $300 a foot. And then you go over to Yorkville, where we have completed the rezoning. I know that density is worth in the neighborhood of $500 a foot.
So it's very hard to come up with a number, but that's why it's such a wide range when I say $1,000,000,000 to $2,000,000,000 And of course, I've just talked about Toronto and every other city is, there's Vancouver and then there's Calgary. So the numbers vastly vary, but I think what we've been pleasantly surprised and I just want to add this in closing is Ottawa. The Frontier numbers are actually astonishing to many. And I think our success at Frontier, which was a bit of a bold experiment, and I was very happy to have Killam come in as a partner, who were one of the few quite frankly in the industry, particularly with Ottawa experience that believed in our vision for that site. They're blowing the doors out at numbers and rents that most people in Ottawa would have told you 2 years ago, not, no chance ever.
And so the value of that density, right, I think we did the deal with Killam at about $50 a foot has increased dramatically. And keep in mind, Frontier is Phase 1 of 4 buildings. And we have a lot of sites in Ottawa and I think we've proven that the Ottawa market has way more upside than anybody ever gave a credit for. So, again, those values are starting to rise. So anyway, long answer, I'll go right back to that $1,000,000,000 to 2,000,000,000
dollars That's very good color. Last one for me. Just on the disposition program, you've clearly moved away from that initial call it $2,000,000,000 target.
By the way, we haven't really moved away from it. We're just going to look at a longer period. We'll probably get to that number. I don't know when and quite frankly, I don't really care. The important numbers that is the 90% and 50%, which I know we're at.
After that, we're not selling to a target. We'll be selling. We'll continue to sell, but opportunistically. So, but go ahead. I cut you off.
I apologize.
No, I think you answered my question. I was just thinking, just the outlook for the disposition program, but it sounds like you may get there, but really the focus is again just on the major market exposure.
Exactly.
I will turn it back. Thanks very much.
Thank you.
Your next question is from Sam Damiani with TD Securities. Your line is open.
Thanks and good morning.
Good morning, Sam.
Just wanted to ask you about those little assemblies that you've been pursuing quietly for the past 10 years. How many would there be? And what percentage of them would be in the Toronto market and more specifically near a subway station?
I'm really not going to get specific because Mr. Gitlin, who amongst his many other jobs is in charge of this program would he probably and he has the arms to reach across the table to throttle me. But I would tell you that the vast majority are in the GTA. And what was the second part of your question, Sorry.
How many might be near a subway station?
Again, most of them are near a subway station or would be what we call transit oriented, sometimes it's not RT, but the vast majority, quite frankly, that those are the ones we focus on and they don't number in the single digits. They number in the double digits.
Okay. That's very interesting. And clearly, you wouldn't pursue an assembly that would only result in 22 apartments you're pursuing?
No, no, no. These will all be significant opportunities. I mean, quite frankly, to build 20 or 30 or 40 units. Mind you, we are building 60 on College Street, but that's a very special mixed use location and we think will be a little jewel of a property and we're probably going to be partners in about 120 on in Rosedale. But again, those are very special.
But ordinarily, there'll be much larger developments than that.
Yes. I mean, I don't think anybody's probably surprised to hear that this was going on. Over the years, there's been the odd property here and there. Even today, there's one on Bloor Street disclosed. But the number is probably more significant than we all thought.
I believe that's correct.
Yes. And so just curious why sort of bring it up on the call today for the first time?
Well, just to let you I was doing what I thought was a boring presentation called fun with numbers and I don't want you to think because really what's happened, I'll tell you why I brought it up, Sam, honestly. We are really at the point where we're starting to see as trite as this sounds, the fruits of the work we've been quietly digging that it's like you've been digging trenches for the last 3 years as we've been changing this RioCan ships course. And we're starting to see the numbers reward our efforts over the last 3 years. And I think those numbers are just going to get better. I don't want anybody to think that, okay, they're achieving it and now it's just going to get keep going the way it's going.
There's always little new initiatives here And it's not that new. We've been working on it for a couple of years, a few years because these things take time and you have to be patient and some guy doesn't want to sell, you have to pivot to another one. I think so that's reason number 1. Reason number 2 is by next year, some of them will we'll be filing rezoning applications. Some of the assemblies will be complete.
So I don't want them to come as a complete surprise.
Right. Okay. And in aggregate with these assemblies be on average like 2 thirds complete kind of thing?
I can't give you that information.
Okay. The only other question I wanted to ask was we've seen a lot of ownership consolidations by RioCanon over the last few quarters. It seems to be accelerating this year, obviously, with the Young Shepherd Center and a handful of other properties earlier this year. What's the rationale? And what is this how does it support sort of strategic thinking for these assets over the next few
years? Well, first of all, obviously, it's a lot easier buying a property you already know than a strange one. Secondly, by and large and this is not the case in everyone, we're responding to an opportunistic situation where because our joint venturepartner just may have a different structure than us, may have a different time horizon than us, may have different goals than us, that creates for us an opportunity to make what I think in some cases just a profitable acquisition, in other cases an important strategic acquisition. And now having said that, Sam, we're running out of partners to buy from. But I think if the right opportunities avail themselves, we will continue.
There is often not that we ever are in a position of not disclosing everything we know to our partners. Of course, our partners always know everything that we know, but sometimes we just our beliefs are a little different than somebody else's belief.
All right. Thank you very much.
Thank you.
Your next question is from Dean Wilkinson with CIBC. Your line is open.
Thank you. Good morning, everyone.
Good morning, Dean.
Ed, you've never done a boring presentation. So we'll start with that.
I tried my best today.
I just have a question on the out for comment, no more or more homes, more choice act. And we've talked in the past about affordable housing and things to that nature.
Is there
anything either in that proposal or perhaps changes to the Development Charges Act that might help with the economics for RioCanon development? Or is it too early to say?
Yes. Dean, it's Jonathan. Yes. So we have there are a few projects in our pipeline that we're keenly focused on blending into the affordable housing program. We feel it's critical that we do provide affordable housing.
And so we're looking at not only individual projects, but spaces within existing projects that are underway where we can facilitate affordable housing. So the answer is in short, yes, there is opportunity for us to provide that affordable housing, Whether economically, it benefits us tremendously. I don't know that the economics necessarily are the driving force here, but in part, yes, it's got to be viable for our unitholders. So it's got to make sense from both a community and sort of social perspective, but also an economic one.
And like what is it that they're proposing? Is it like is it a deferral of development charges or stuff that would push out or how
are they coming? A lot of it is really unclear. I've had a lot of memos from our development group and usually I'm pretty good at understanding their memos. But nothing is crystal clear yet and of course particularly in Toronto, which is where the greatest need for affordable housing is, you've got quite frankly, three levels of government that are sort of tripping over each other. And I'm hopeful that for the benefit of all the citizens, they will sort it out.
I mean, you've got the federal government who's got this much heralded CMHC program where CMHC will actually use its own balance sheet to lend you the money, which is very untraditional for them. If you come into certain formats and income rules that they have. Well, to my knowledge, I think they've been able to announce exactly one project and I'm not sure that one's going ahead. So, we need our governments and of course, Ontario is really focused on that as is the City of Toronto, but City of Toronto right now doesn't get along with the Ontario government. So they seem to be at odds.
So right now I got to tell you, we would love to do some affordable housing. Some of our sites are in the white locations, where it's really needed. And because of our very low land costs, we can afford to do it.
We can make it work. Yes.
And but I just there's not enough clarity yet between the three governments. I'm hopeful by the fall there will be.
It looks like we're a step closer anyway.
Yes, yes, yes. They all want to do the same thing. But there is an agreement on how to do it yet.
Yes. All right. That's good. That's kind of what I expected to hear on that. Just one small question for Qi.
In the quarter, there was about $4,100,000 of financing arrangement fees. What was that pertaining to?
Basically, we arranged financing for co ownership assets for our core that's a fee we earn. Yes.
All right. So there was it
was just lumpy in the quarter, I suppose,
of the specific deal. Yes, it's a bigger amount. Great.
You know they're lumpy, but there's good stuff that happens every quarter. It's amazing how much we've got going on here sometimes.
On annual basis, Dean, as you know, our fee income is pretty steady year over year.
Yes.
Okay, Dean. Thank you.
Okay. Thanks, guys.
And ladies and gentlemen, this does conclude the Q and A period. I'll now turn the call back over to the presenters for any closing remarks.
Okay. You know what, I'm happy we got as many questions as we did on such a day. I am I want to thank the analysts for working probably through the weekend. So thank you all for your hard work and ever interesting questions. And I look forward to talking to you all again in 3 months.
Bye bye.