Okay, tell Lady.
Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the RioCan Real Estate Investment Trust first quarter 2019 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Jennifer Suess, Senior Vice President, General Counsel, you may begin your conference.
Thank you, Lindsay, and good morning, everyone. I am 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 Qi, 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 March 31st, 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.
Thank you, Jen, and good morning, everyone. Our first quarter results issued earlier this morning once again demonstrate the quality and strength of our portfolio. Our FFO per unit grew to CAD 0.47 compared to CAD 0.46 for the same period in 2018, despite a few one-time or special items, including CAD 1 million increase in G&A expenses as a result of mark-to-market adjustment on unit-based trustee compensation, CAD 900,000 IFRS debt modification cost as a result of a debt maturity extension, and half a million lease-up loss in connection with our first residential rental building, eCentral in Toronto, its first quarter of lease-up. As well as CAD 4.4 million in lower realized gains due to lower volume marketable securities sold.
Excluding these items, FFO per unit increased by approximately 5.4% over the same period in 2018, despite completing nearly CAD 1 billion of secondary market assets disposition since the end of Q1 2018. As of March 31st, 2019, our committed occupancy for our overall commercial portfolio improved by 30 basis points when compared to March 31st, 2018, ending the quarter at 96.9%. Committed occupancy for our retail space was up 20 basis point over the same period to 96.9% as of March 31st, 2019. Committed occupancy for our office space increased by 150 basis points from a year ago to 95.6% as of this quarter end. As Jonathan will discuss later on this call, we expect continuous growth in our office occupancy and office rents given the strong demand for our well-located office space, particularly here in Toronto.
We expect that rent growth to be substantial when our existing below-market rent office space leases come up for renewals. We continue to make great progress in driving overall rent growth. Our average net rent per occupied square foot grew by 6.9% to CAD 19.16 as of the quarter end, driven by both new and renewed leases. Our double-digit new leasing spread, combined with a strong 8.2% renewal leasing spread, pushed our overall leasing spread to 10.7% for the quarter. Jonathan will provide more color on the strong rent growth later on. In addition, we continue to strengthen our tenant mix. As of this quarter end, 73.6% of our annualized net rent comes from necessity-based and service-oriented tenants such as grocers, pharmaceutical pharmacies, and personal services, an increase of 80 basis points from the end of 2018.
The strong growth in average net rent and leasing spread. Higher percentage of revenues from necessity-based and service-oriented retailers speak to the continuous improvement in the overall quality and income of our commercial portfolio. In the quarter, our same property NOI grew by 1.7% and 1.4% for our major market assets and our overall portfolio respectively, when compared to the same period last year. Our same property NOI this quarter was impacted in the short term by some disclaimed leases. We introduced a new same property NOI concept this quarter, which includes completed developments, similar to how some of our peers disclose their results. Complete developments include properties like King Portland and Bathurst College Centre, which are generating cash rents and have been owned by the trust in both the current and comparable period.
Jonathan will speak to the effect of both the disclaimed leases and completed developments on same property NOI later on this call. Turning our attention to RioCan Living, our residential business, the start of 2019 marks a new milestone for RioCan, as we have begun to lease up our first two purpose-built residential rental buildings, eCentral at Yonge and Eglinton in Toronto and Frontier at Gloucester in Ottawa. As of yesterday, 203 of the 466 units eCentral have been leased, of which 78 units were occupied as of the quarter end. As expected with such lease up, we incurred half a million lease-up NOI loss in the first quarter of 2019. In the meantime, as condo owners continue to take possession of their units at E Condos adjacent to eCentral, we recognized CAD 5.2 million condo gains in the quarter.
Majority of the remaining condo gains at E Condos are expected to be recognized into income in Q2, while condo gains at Kingly, the condo component of our King Portland project with Allied in Toronto, are expected to be recognized into income in Q3 this year. Similarly, gains on our Windfields townhouse project will also be recognized into income over the remainder of the year. As Jonathan will highlight in his update, leasing is also progressing ahead of our expectations, both in terms of units pre-leased and rent achieved at our Frontier phase one building in Ottawa before the construction is even completed. Given the strong leasing performance to date, the construction for phase two, the 209 units residential rental building, has been moved up to Q2 this year.
It is worth noting that during the quarter in Q1, we incurred half a million marketing costs, mostly related to condo sales for the first phase of the two high-rise condo project at our Windfields development in Oshawa, Ontario, from which the sales proceeds and gains will now be recognized into income until the expected project completion in 2022. As of yesterday, 235 of the 479 condo units at the project have been pre-sold. With our development completions and progress on our disposition program, we're getting closer to achieving our two key strategic metrics, which are to have over 90% and 50% of our annualized rental revenue coming from Canada's six major markets and Greater Toronto Area respectively, to drive higher growth in same property NOI, FFO per unit, and NAV per unit.
As of yesterday, we have completed or entered into firm conditional or letter of intent agreements to sell CAD 1.5 billion or 75 secondary market assets at a weighted average capitalization rate of 6.69%, maturity in line with our IFRS values. The percentage of annualized rent revenue was 87.5% from the six major markets and 47.6% from GTA as of the quarter end, which represents an increase of 210 basis points and 80 basis points respectively from the 2018 year-end. Maintenance capital expenditures of CAD 4.2 million for the first quarter were CAD 5.8 million lower than the normalized capital expenditure for the quarter, primarily due to timing of projects. Our expectation for the full-year normalized maintenance capital expenditures remains at CAD 40 million. We continue to make significant progress in our development program with 92,000 sq ft of development project completions in the quarter.
We also submitted 2.1 million sq ft of new zoning applications, including application for our iconic property, RioCan Hall, in Toronto's Entertainment District. As of yesterday, 42.6% of our current 26.3 million sq ft development pipeline has zoning approvals and additional almost 29% has zoning applications submitted. The extent of our zoning density and our progress on the de-leasing progress for our development pipeline provides us with a significant advantage in today's development environment.
The average land rent for our active urban intensification project is CAD 32.26, reflecting the quality of our major market trend-oriented developments, which will further drive the portfolio's average rent per occupied sq ft over time. For the five projects that are complete or near completion, which are ePlace, Bathurst College Centre, King & Portland in Toronto, Frontier Ottawa, and Sage-Hill in Calgary, we have updated the estimated average yield to 5.8%, a 10 basis point increase from our 2018 year-end estimate based on latest leasing updates and adjustment to cap rates for certain projects. These five projects are estimated to increase, create a total incremental value creation of CAD 243 million, including condo gains, of which approximately CAD 173 million of value creation has been recognized through property fair value, applicable interim and fee income, and applicable condo gains.
Over the next two years, we expect annual development costs continue to be in the CAD 400 million-CAD 500 million range. Despite the maximum 15% limit permitted, we expect to keep our total properties under development and residential inventory as a percentage of total consolidated gross book value of assets at no more than 10%. As of this quarter end, this number was 8.4%. We remain committed to a strong balance sheet and to self-fund our development program through continuous asset recycling, condo or townhouse sales, air rights sales, the sale of remaining marketable securities, strategic development partnership, and excess operating cash flows. Turning our attention to our balance sheet, it's my pleasure to report that we continue to meet or exceed all our internal debt matrix targets.
As of the quarter end, our debt to adjusted EBITDA metric was at 7.94 times on a proportionally share basis, remaining below our target of 8 times. This was accomplished despite the substantial asset sales and the development cost balance of CAD 1.2 billion, excluding the CAD 1.2 billion development cost balance, our debt to adjusted EBITDA would have been close to 6 times. Our leverage as of the quarter end was largely unchanged from the year-end 2018 at 42.2%, in line with our target range. As of the quarter end, RioCan's debt composition was roughly 58% unsecured and 42% secured. Our pool of unencumbered assets held steady at approximately CAD 8 billion and generates close to 60% of our annualized NOI, well above our target 50%.
As a result of our strong balance sheet and quality and strength of our portfolio, we enjoy one of the lowest costs of debt in the industry. During Q1, we entered into several financing arrangements to reduce our refinancing and interest rate risk, as I have updated you in the last call. Lowering our overall floating interest rate debt exposure to under 10%. Subsequent to the quarter end, we extended the maturity date of our CAD 1 billion unsecured revolver for another year to May 2024, with all the other terms remaining the same. Overall, we are pleased with our operational and financial results for the quarter, and we look forward to building on this momentum to deliver strong results for the year. With that, I'd like to turn the call over to Jonathan for update on RioCan's operation.
Thanks, Qi, and thank you to all of you for joining us today to talk about what we view as another remarkable quarter for RioCan and our evolving portfolio of increasingly mixed use and necessity-based major market assets. From an operations perspective, we are diligent in our efforts to continue to improve the quality of RioCan's income through many evolutionary measures. These include both the evolution of our portfolio and the evolution of our culture. As has always been the case with RioCan, these steps are taken with a view to enhance unitholder return. First, let me address the evolving retail landscape and the resultant opportunities it presents for RioCan to further improve its tenant mix. As Qi mentioned earlier, same property NOI growth from our major market portfolio was 1.7% in the first quarter. This is not a result we deem illustrative of our high-quality portfolio.
Rather, it is a transitionary moment that will allow us to achieve future growth. Specifically, Bombay and Bowring wound up operations in late 2018 through a bankruptcy proceeding. At one point in RioCan's history, these were logical banners that added value to our sites, but they had long since lost their way, and RioCan was actively pursuing alternate uses for this valuable real estate. Their bankruptcy gives us this opportunity, and from a qualitative perspective, will enhance our shopping centers. Sorry. But from a quantitative and short-term perspective, it left us with 128,000 sq ft and a significant impact to our same property NOI numbers for this quarter. We're confident that, as we've done with Sears and Target before this, we will replace these banners with uses of greater relevance that will be viewed as exceptional co-tenants to retailers and destinations for our shoppers.
The removal of this type of tenant provides the opportunity to continue the transition toward an exceptionally resilient and relevant tenant mix, which includes best-in-class restaurant, fitness, and service commercial uses. Absent the Bombay Bowring factor, our major market same property NOI would be 2.4%. When we layer on to that NOI from completed properties under development, such as King & Portland Center and Bathurst College Centre, that number increases to 2.9%. Next, I'd like to focus on the evolution of our portfolio. A principal objective for RioCan is the continuous improvement of the quality of our portfolio. We are focused on major market concentration, operational excellence, and diversification of our income streams with the intent of driving organic growth. As a result of these efforts, our renewal growth in the quarter was exceptionally strong.
The best it has been in 8 quarters, with nearly 150 leases renewed in our major markets and with significant rent upside of 8.9%. I would also point out the tremendous upside embedded in our constantly improving commercial portfolio. Our major market portfolio rent average is CAD 19.87 per square foot. Average market rents on a trailing 12-month basis for the same space is just over CAD 27 per square foot, representing a 37% gap. Notable examples of this opportunity lie in some of RioCan's midtown Toronto office buildings, including Yonge Sheppard Centre, where the firm market rent gap is 38%. As space becomes available or up for renewal in our desirable major market assets, RioCan is realizing the potential inherent in these assets through significant rent per square foot increases. Our thriving mixed-use transit-oriented locations are driving interest from coveted operators who bring cachet, customer traffic, and strong covenants.
We signed 440,000 square feet in new leasing deals in the first quarter, including U.S.-based retailer L.L.Bean, who's opening their first Canadian brick-and-mortar location in Oakville Place in the fall of 2019. Also Cactus Club, who bought into the vision for Yonge Sheppard Centre and plans to open there in 2020. Cactus Club will join LA Fitness and Longo's in the fully renovated shopping center that has been rebranded and re-tenanted with retailers and service providers thoughtfully curated to suit the long-term needs of the community. Continuing with the theme of our evolving portfolio, I'll take a moment to focus on RioCan Living. The successful launch of our residential brand and product continues to demonstrate RioCan's ability to diversify its income streams and execute successfully.
As Qi discussed earlier, rental residential leasing of eCentral in Toronto and Frontier in Ottawa is progressing extremely well, with the velocity of lease-up and average rents exceeding even our lofty expectations. eCentral, at the busy intersection of Yonge and Eglinton in Toronto, is a 36-story rental tower with 466 units. We started leasing eCentral in earnest in late January and have already leased 203 units. We have only released lower floors for leasing, and the average rent for market units is just under CAD 4 per square foot. We expect the average rent to increase as we release the higher floors, which typically command higher rents, and we anticipate reaching stabilization by the second quarter of 2020. Frontier Phase 1 in Gloucester, a suburb of Ottawa, is a 23-story rental tower with 228 units on the new Blair LRT line.
We started leasing in late 2018 and have pre-leased 126 units, with first occupancy expected by the summer at an average rent of just below CAD 2.50 per square foot. When one considers that we have been leasing from an external sales office, as occupancy has not yet been granted, these results are remarkable and a testament to the demand for the offering we have presented. As we progress with leasing and occupancy on our rental residential projects, we are getting real-time feedback that provides even better visibility into what will make these and future residential projects thrive. This feedback will influence and inform our future projects in critical areas including amenitization, suite mix, tenant mix, and design. These are lessons that will influence the development of the 2,300 residential units currently under construction in our portfolio and the additional 2,000 that will be under construction by 2021.
We are pleased with the construction progress at our sites in Toronto, Ottawa and Calgary and are confident in their ability to drive FFO growth in the near and long term. These projects include Pivot at Yonge and Sheppard, The Well in Toronto's Downtown West, and Brio in Calgary, all of which are out of the ground. Construction commenced in 2018 at Litho at Dupont and Christie in Toronto and Strata at College and Manning, also in Toronto. Construction also commenced in the second quarter of this year at Frontier Phase 2 in Gloucester. In addition to the operational success I've already highlighted, RioCan was proud to release our inaugural sustainability report earlier this week. We consider the delivery of this report to be an important milestone in our journey to embed sustainability across all aspects of our business.
As a large Canadian REIT, we know that financial performance and sustainability are intrinsically linked, and we believe we have a responsibility to lead the industry in these conversations. We will issue the report annually to enable our unit holders, partners, and other stakeholders to monitor our progress on issues including water use, energy conservation, and community partnerships. RioCan is actively leveraging its competitive advantages, namely its major market assets and an experienced leadership team, to evolve the portfolio in a way that consistently drives the quality of our income, and we will continue to focus on operational excellence to deliver unit holder value long into the future. It's now my pleasure to turn it over to our Chief Executive Officer, Ed Sonshine. Ed?
Thank you, Jonathan, Qi, and Jennifer, for all those great contributions. For the last couple of years, I've been telling you how RioCan has been extremely busy transforming itself into a big city REIT focused on creating and owning mixed-use developments that are transit-related. As part of that process, also creating Canada's best rental apartment portfolio, all while constantly enhancing the quality of our revenue. Jonathan and Qi have taken you through the financial and operating results that give you a pretty good idea of the significant progress we have made in achieving the goals we set for ourselves. While everything eventually gets down to numbers. I would like to take you on a verbal tour of some of the properties we buy and or build that generate the numbers. Canada's largest and fastest-growing population center is the Greater Toronto Area, with the city at its center.
The 6, as Drake has labeled it, continues to be a strong magnet for both people and businesses. Toronto itself is built around its north-south spine, Yonge Street, where its first and busiest transit line was opened, believe it or not, in 1954. It's almost as old as I am. Continuously over the years, extended north to keep pace with the growth of the city. Currently, there are three east-west transit lines, either built or close to completion. Not surprisingly, the three intersections where they connect are arguably the three fastest-growing locations in Toronto. Starting at the most northerly such intersection, RioCan owns, together with its partner KingSett, the Yonge Sheppard Centre, a mixed-use development that we have been renovating and expanding for the last four years. The bulk of the 300,000 sq ft retail component is already open.
Anchored by a soon-to-open Longo's supermarket, this completely redone retail facility will be enhanced by a 361-unit apartment tower, which should be completed next year, as well as a 400,000 sq ft complex of renovated and reclad office space. Moving down the Yonge Street subway to the next transit intersection, RioCan owns both sides of the north side of Yonge and Eglinton. On the northwest corner, we own Yonge Eglinton Centre, which currently consists of about 325,000 sq ft of retail space and 750,000 sq ft of office space. While first built in the 1970s, we have invested in the neighborhood of CAD 100 million over the last 10 years to turn it into a modern facility to suit its prime location. On the northeast corner, the first phases of E Place have been substantially completed.
While the southerly tower of 625 units is a 58-story condominium building where the units are in the process of being closed, giving rise to some of the gains Qi referenced, RioCan will end up as the 100% owner of about 40,000 sq ft of commercial space on the corner, anchored by the largest TD Bank facility outside of its head office. We will also, of course, own 466 apartment units known as eCentral, which Jonathan has updated you on. I had the occasion to take a tour of eCentral last week, now that it's mostly completed except for the upper floors. I have to tell you, since I had nothing to do with it, the design, the amenitization, which is a new word I think Jonathan may have invented, and the co-working space that we've located in it, I was super impressed by it.
It's really aimed at the demographics. In each case, I think the excellent team that has been put together to run this process is directly targeting those amenities, design, and the unit count at the demographics that are in the market area of the new buildings that we're creating. A third phase of E Place, in which RioCan is a small partner, has just commenced construction and is substantially sold out for delivery in late 2021 or early 2022. By then, the Eglinton Crosstown subway and LRT might actually be open and operating, and people can once again drive and walk around Yonge and Eglinton. Continuing our tour south, we come to Yonge and Bloor. While we currently don't own anything at that intersection, if one goes north a couple of blocks, you come to Yorkville, arguably one of the highest profile neighborhoods in Toronto.
RioCan owns 50% of a new development at 11 Yorkville with Metropia and Capital Developments as partners. CREW, as it's being called, is scheduled to commence construction within the next 12 months. The 62-story tower to be erected there will contain 593 condominium units, 81 rental apartments, and 35,000 sq ft of rental space, the latter of which RioCan will end up owning totally. On the way to Yonge and Bloor, we pass by the Summerhill subway station. Just to the south of it, RioCan and its partner Tricon own the historic Five Thieves retail strip, also known as the Shops of Summerhill. Together with DiamondCorp, a new building will commence construction towards the end of this year or beginning of next year.
This 21-story building will consist of 141 residential units and 34,000 sq ft of new commercial space, and will create one of Toronto's most prestigious enclaves, while still connected underground to the subway system. Continuing south again and veering west towards the fastest-growing part of the city, King West. With our partner Allied REIT, we have just completed a quite beautiful mixed-use development where old and new have been artfully integrated at the corner of King and Portland. It consists of 285,000 sq ft of first-class, fully leased office space, 41,000 sq ft of fully leased street front retail, and a new residential tower containing 133 units. These condominium units are all sold with closings to commence within the next few months. Let's end our tour at The Well. Located a block south of Spadina and King, this development by RioCan and Allied will, I believe, become a landmark in Toronto.
Hailed by many as an outstanding example of the new urbanism, its 3.1 million sq ft of residential, retail, and office space will be part of the neighborhood rather than apart from it. Its entrances will be akin to a continuation of streets and parks rather than doors, and it is no longer just Canada's biggest hole. The main office tower at the corner of Spadina and Front is above grade, and we expect it to rise to podium level within the next year. Whatever further I would say about The Well would not do it justice. I will simply say that RioCan will be the very proud owner of 50% of the 1.25 million sq ft of office space, about 400,000 sq ft of retail space, and almost 600 rental residential units, the latter with our partner Woodbourne.
All at yields that will pleasantly surprise most of you listening to this call. Again, words alone cannot possibly describe any of the iconic buildings and developments I've mentioned. I encourage you to go look for yourselves and maybe even shop there. The properties I've talked about in the last few minutes consist only of the central Toronto highlights of what we have put together over the years. New mixed-use developments of equal quality are now or will soon be underway in other parts of Toronto, in Ottawa, in Calgary, Edmonton, and Vancouver, as well as Montreal, with completions happening continuously over the next many years. In fact, our portfolio of opportunities is so full that we can continue creating new product for many, many years, all while continuing to grow and improve the quality of our cash flow for you, our unitholders.
That's the end of my short presentation. I'd like to now open it up for questions.
At this time, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Our first question comes from the line of Pammi Bir with Scotia Capital. Your line is now open.
Thanks. Good morning.
With respect to the Ontario government's proposed changes to the housing development approval process, can you maybe just provide some color on the potential implications for your rental pipeline?
I think to the extent it all gets passed as it's now proposed, presumably it will, it should make a little more efficient in getting the various approvals. The current system has really slowed down the system. The system that was put in place by the previous government, just within the last two years, has really slowed down the pace of getting approvals, made it more expensive, more cumbersome. The new systems, the new proposals should make it more efficient and that should be a benefit to what we're doing. Obviously, the rent proposals that were put through the rent laws, rent control laws put through last fall are obviously a big assistance. Other than the odd replacement housing, all of the portfolio that we've already built and now creating in Ontario will be free of any rent control.
Yeah. That's helpful. I guess, is it possible to maybe, if you had to quantify the potential reduction in the timeline for development for a rental property. Any sense of what that could be?
Pammi, one of the problems in this world is you can't quantify everything, especially things in the future. I understand that's a difficulty. If I had to guess, it could be anywhere from six months and up. Right now, the process is one of extensive negotiation. I should add, by the way, in any of our projects, other than we have never had an OMB hearing.
Any of the projects we have obtained approval for, we typically go through a process of working first with the community and the local representatives of that community to get a pretty good idea of what they would like to see in a new development and what would enhance the overall community, rather than walking in with a plan that we slam down on the counter and say, "Please approve it." It's not going to change how we approach it, but I think it will change the dynamic of how quickly the municipalities have to deal with things, and it should streamline the cost of it. It's not just a time issue.
Right now, until you're at the end of that process, and pretty close to getting your building permit, you really don't know what the costs are going to be for parkland dedication, for Section 37 community benefits requirements, or even for development fee costs, which many of the municipalities are increasing as we speak. I think part of the legislation, besides timing, is to bring a certainty to all those additional costs, which will certainly enhance not just our projects, but everybody's projects, because it's pretty hard to go quickly when you don't know what it's going to cost. I think the legislation has addressed both those things, efficiency and certainty of cost, and it'll help.
Okay. No, that's really helpful. Just in terms of the remaining disposition program, where are you on that in terms of the process, and how much more could we see sold over the balance of the year?
I would say over the balance of this year, you're probably not looking more than CAD 200 million. As I mentioned in the previous conference call, we've chosen to slow it down, and really in response to just the surfeit of product that came on the market, and of course, the increase in interest rates that happened late last year. That increase in interest rates has reversed itself. We're starting to see a little more liveliness, and that's why we're proceeding. We're still quite optimistic, and we do intend to get to that roughly CAD 2 billion number, and nobody should take that as a magic number, over the course of this year and next. Dispositions, particularly in the secondary markets, will be something that we will just continuously move forward on.
As we're looking, as we've always talked about, to continuously improve the quality of our revenue by continuously improving the quality of our properties.
That's helpful. Just maybe last one from me. Some good overall color from, I guess, from a fundamental standpoint then. You did maintain your guidance for the year, for 2%-3% same property NOI. Can you provide maybe just a bit of an update on the mood among tenants? Which are expanding, versus those where you might be a bit more cautious?
Hi, Pammi, it's Jonathan. I think there's certain segments that are certainly challenged, there's certain segments that are in growth mode. There's no constant theme, I think. The fashion sector is definitely under pressure just from changing consumer habits as well as the pressure from online shopping. Those, they're definitely not in growth mode, we do see a lot of other segments that are significantly expanding, particularly in the major markets. Those are food and beverage uses, some service commercial uses, and certainly the gym and fitness areas. We're seeing a bit of growth from a number of segments a bit of pullback from a couple of others. Thankfully, we're seeing more growth than retraction in this environment, particularly, though, again, in the major markets and in urban contexts.
I think the secondary markets, as you can see from our results, are suffering a little more where tenants are not, no matter which segment they're in, they're not really looking to expand in some of those markets.
Thanks very much.
You're welcome.
Our next question comes from Matt Kornack with RBC Capital Markets. Your line is now open.
Thank you. Good morning.
Morning.
In your press release, you talked about 4,300 retail residential suites that are under development and set to begin over the next two or three years. Can you talk about how the portfolio will look when those are complete and what percentage RioCan Living might represent?
You know what? That's a tough number because, of course, some parts of the portfolio are diminishing, i.e., the retail, obviously, in the secondary markets and selected other ones, while the office component is expanding, with what we're building. My rough guess, and it's just a guess, Matt, would be that if you fast-forward about two years from now, retail will still constitute about 85% to 87%, 88% of our revenue, with the remainder probably split between office and residential.
That's great color. In terms of the management for RioCan Living, do you still plan to use partners, or are you considering doing any of those projects on your own?
Well, where we have partners that are already in the business, like Killam or Boardwalk, clearly, our deals with them are, I think quite easiest for us. They are managing the properties. We're developing them as developer and building them, and they are going to manage them. Right now we use, where we don't have a managing partner of that sort, or we own it 100% ourselves, we use a company called Rhapsody, which is itself a subsidiary of a very large American property management company called Pinnacle. We just didn't find anybody local that was good at marketing new developments and, they've been so far, so good. I don't think we have any intention right now of trying to duplicate that internally.
As we roll through the end of maybe 2021, we'll probably have more to say about that. As the portfolio grows, we'll have to address it a little more carefully.
Of course, maybe just changing gears in terms of the condo sales. How should we be thinking about the cadence of profits over the next few quarters?
Well, you know what? Privately, Qi will probably give you some better guidance on that, the next few quarters are pretty predictable. Basically, what we have tried to set up is a pipeline of condo profits. Obviously, timing is the one thing we can't 100% control, because it's subject not only to the permitting process, which we're happily helped by the new legislation, but also construction progress and strikes and weather and all those things. We're trying to create a pretty predictable pipeline that goes out quite a few years, quite frankly, because some of the high-rise projects do involve a three, four-year lead time. While Qi privately, I'm sure can give you some guidance as to the remainder of this year. You can be sure that they will continue over the next few years.
Appreciate the color. That's all. Sorry, Qi?
Thank you.
Yes. We can follow up, but I did mention it earlier in my remarks. We can further follow up. It's in the MD&A. Yeah.
Of course. Thank you.
Thank you, Matt.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Our next question comes from Sam Damiani with TD Securities. Your line is now open.
Thank you. Good morning. Just on the disposition side and the balance sheet funding and the remaining development program over the next few years. With the leverage at around 42%, what is the source of funds that you'll be relying on mostly to complete the development, through 2020, 2021?
Well, there's several sources of funds. I know you look at that 42%, we'd much rather look, the one we're laser-focused on is the net debt to EBITDA. In no particular order of importance, the sources of those funds will be continued dispositions of secondary market properties, completions and sales of condos. We talk about the profits from Yonge and Eglinton and Kingly and townhomes in Windfields that'll come in this year, there's also a significant return of capital as these projects are completed. Let's call it source number 2. It's basically recycling development capital. Source number 3, quite frankly, will be taking in partners, which you will continue to see us do selectively.
We're very happy to own 100% of projects. That is something we're going to probably focus on a little more, because quite frankly, I've gotten very comfortable with the expertise that Jonathan and his team have showed on what we've built to date. We've learned a lot from our partners. I'm sure we will continue to learn a lot. They're no longer necessary for us to have an operating partner in order to build what we believe will be very successful RioCan Living buildings. As capital requirements are, we'll take in partners as required. Those are essentially the three sources that we look at without any increase of our leverage numbers.
Okay. You're targeting a 42% leverage or an 8 times debt to EBITDA. Which one's kind of the priority?
Well, the priority is the net debt to EBITDA numbers. We intend to keep it at sub eight. We will be close to eight for the next few quarters. Probably get a little better, once The Well is completed, because we have got a lot of money tied up in that, of course, and as well as some of the others. We report the other leverage number just because everybody else does. We do intend to keep it in that 42 or lower range as well.
Okay. You mentioned The Well, just an update on the plans for commencing leasing on the retail side.
Well, as we said, we are starting to get serious about that leasing. Although our partner Allied says, "You are doing it too soon." If you listen to the description I gave of it, which was very inadequate, but we will give you some idea. Essentially, a lot of it is what we would refer to as street front retail. As opposed to your typical shopping center. It is atypical. It is more like street front retail. Allied has their program, and it has been quite successful, including at King and Portland, where we are partners with them. Is basically waiting till the building is finished. We do not have the patience to do that. We are going to probably start making some comments by the end of this year as to where we are going with it. Quite honestly, we are in no rush.
This building has to be seen to be believed and even understood, quite frankly. A lot of it, particularly in the food hall, will be done at the last minute. You are not talking about big national chains that require two years to get ready. These are guys who are going to move in, 90 to 180 days after you say, "Okay, here is the deal." It is a very atypical development that should not be measured or judged by the standards of pre-leasing in any other shopping center because it is not any other shopping center.
Yeah, exactly. Thank you.
Thank you.
Our next question comes from the line of Jenny Ma with BMO Capital Markets. Your line is now open.
Thanks. Good morning.
Good morning, welcome back again.
Thank you. Going back to RioCan Living for a minute. Wondering if you can give an update first on eCentral and how many units are occupied now.
Sure. The actual occupancy is about half of what we have leased.
That's about 100 units.
Yeah.
100 units. Okay.
Yeah. We're obviously loading people in as quickly as we can, there's always practical measures or limitations into how many people you can actually get into a building at any given time. It's moving pretty rapidly.
It's the elevators, isn't it?
It is. It is indeed.
I'm just curious, it's 44% leased. We're sort of in the peak moving quarters, if you will. Why mid-2020 for stabilization, just given how strong fundamentals are in Toronto?
Well, stabilization means that you've actually got it occupied to sort of above 90%. We feel we'll have it leased up well before then. Just again, the practical measures of moving people in, we thought we'd be conservative and say second quarter of next year. We'd like to beat that. We're confident that we might beat that, but we just thought it was prudent to stick with a Q2 prognostication because, again, of the practical implications of moving people in.
Yeah. Keep in mind, Jenny, although I do think we've been conservative with the second quarter, I'm quite confident that stabilization will be approached, certainly from the point of view of lease up, by the end of this year. Keep in mind, we're hitting new levels for rents at Yonge and Eglinton. While we're not as focused on getting the highest rent possible as we might've been before they changed the rent control legislation, because that's not something we have to worry about going forward, and we're just as happy to show pretty good growth as the one-year anniversary of these tenants comes up. We are very picky as to who moves in. They're doing two or three leases every couple of days, and that's a pace that's fine with us because we go through a pretty intensive process of screening these tenants.
Unlike, I'll call it the old buildings. In new buildings like this that aren't subject to rent control, you really don't want turnover. Turnover is just an expense. We are focused on getting people who we think are obviously going to have no problem with these rent levels. Also that, to the extent that you can predict anything, are more likely to stay for longer than jump around.
Right.
We're being a little bit patient.
Okay. Remind me, is there a time limit to the no-rent control?
Nope.
Not going forward. November of last year was sort of if you were outside of that November date, then you're free of the legislation. If you're signing leases before then, you are subject to it. We are free.
Luckily, RioCan Living, or its partners, did not sign any leases prior to the effective date. Going forward under the current legislation, it is totally without any rent control for the foreseeable future until some government in the future changes its mind again.
Right. It would require a legislative change.
That's correct.
to put in a time. Okay, that's fair. With regards to the same property NOI, I know you introduced some new measures. With the reiteration of that 2%-3% same store growth for 2019, is that including the development now, and is that kind of a little bit of a change?
No.
The numbers didn't change, but the methodology.
No.
-in terms of how you've guided?
No, there's no change. We're not sufficiently sneaky to do that. It's really just a little bit better disclosure to show the impact of the new developments coming on stream. The 2%-3% refers to existing previous comparables.
2%-3% excluding development?
Correct.
That's correct.
Okay. The 2%-3% would include the impact of the Bombay Bowring bankruptcy?
That's right.
Yep.
That's right.
Okay. It is to say that you're expecting a better pace of growth, I guess, for the next three quarters.
Well, sure. We've got the Bombay & Co. and Bowring stores to release at higher rents.
What do you expect the timeframe for that will be in terms of downtime?
It's property by property, Jenny. We are confident. I would say that the fair majority of those locations are coveted locations that we feel deals will be done in the next couple of quarters. There's some that are already in place, actually.
Yeah. We started late last year.
Yeah.
Okay.
Before the actual event.
Yeah.
Right.
Jenny, if I may add, because same property NOI is calculated on cash NOI basis.
Yep
Even though some tenants will take possession throughout the year, it will impact the next few quarters, couple of quarters, same property NOI, just because it's on cash basis.
Right. Okay. Going back to the Bombay Bowring space. I guess on average, how much below market do you think that rent is on that space? Because I presume they've been in those locations for a while.
I'd say CAD 5 a foot is a good estimate.
CAD 5 a foot below market?
Yeah.
Which is probably about 20%-25%.
Yeah.
Okay. Okay. That's helpful. Thank you very much.
Thank you.
You're welcome.
There are no further questions. Thank you. At this time, I'll turn the call back over to our presenters.
Okay. Well, thank you very much. It was always a pleasure. I do encourage you again to take the physical tour. I tried to somewhat take you through verbally, and we'll talk to you again in a few months. Bye-bye. Thank you.
Bye.
This concludes today's conference call. You may now disconnect.