Good afternoon, ladies and gentlemen. My name is Leonie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Artis REIT's third 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'd like to withdraw your question, please press star followed by two. Thank you. Today's discussion may include forward-looking statements, which include statements that are not statements of historical fact and statements regarding Artis REIT's future financial performance and its execution of initiatives to deliver unitholder value. Such statements are based on management's assumptions and beliefs.
These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see Artis REIT's public filings for a discussion of these risk factors, which are included in their annual and quarterly filings, which can be found on Artis REIT's website and on SEDAR. Thank you. I would now like to turn the meeting over to Mr. Armin Martens. Mr. Martens, please go ahead.
Thank you, moderator. Good day, everyone, and welcome to our Q3 2019 conference call. My name is Armin Martens. I'm the President and CEO of Artis REIT. With me on this call is James Green, our CFO, Kim Riley, EVP of Investments, Jaclyn Koenig, SVP of Accounting, and Heather Nikkel, VP of Investor Relations. Thanks for joining us. As in the past, I'll now ask James Green to review our financial highlights, I'll wrap up with some market commentary, we'll open the lines for questions. Go ahead, Jim.
Thanks, Armin, good afternoon, everyone. Just a little reminder, Artis is a diversified commercial REIT. We invest in office, retail, and industrial properties. We have assets in five Canadian properties and six U.S. states. Based on the Q3 net operating income for the REIT, we had a 54.8% weighting in Canada and 45.2% weighted in the United States. As the majority of future asset sales will likely be in Canada, we expect this ratio to move such that greater than 50% of our assets will be in the U.S. On an asset class basis, at the present time, we're 49.0% weighted in office, 20.2% weighted in retail, and 30.8% weighted in industrial.
As I expect everyone on the call is aware, our third quarter earnings press release from November 1st of 2018 announced a series of new initiatives for the REIT, which we anticipated being implemented over a three-year time horizon. We're now one year into that plan, and we've been busy executing on the strategy. The impact of executing the strategy continues to impact our metrics and will for a few quarters still to come. However, we're looking forward to the continuation of the strategy in future quarters as the next steps consist mainly of further asset sales with the proceeds used for debt reduction, and that should demonstrate continued improvement in our balance sheet metrics. Artis continues to be active in both new developments and redevelopment of our existing properties, and we currently have approximately CAD 130 million invested to date in properties currently under development.
During the quarter, we invested roughly CAD 47 million into the development projects and transferred CAD 62 million of properties from considered under development to completed properties. As detailed in the MD&A, there are several new development projects that remain underway, including a new residential tower at 300 Main in Winnipeg, a new industrial space in Houston, Phoenix, and Denver. Also, as detailed in our MD&A, we have several development projects in the planning stages where construction has not yet actively started, and they are all progressing nicely through the various development stages. I was going to touch on this one, but we do still have a continued presence in the Calgary office market, although it is becoming a very small component of our operations. For Q3, Calgary office contributed 6.4% of our NOI.
However, we have relatively small exposure to the Calgary office tenant maturities in the near future, with only 57,000 square feet of space left to mature in 2019 and only 35,000 feet renewing in all of 2020. We've been able to maintain our balance sheet metrics in general terms with GBV is up slightly to 52.6% from 51.9% last quarter. It was 50.6 at December of last year. The main driver of the increases in GBV has been timing of the unit purchases planned under our new initiatives to buy back our units versus the timing of asset sales, which will happen in future quarters. In the current quarter, we also redeemed the balance outstanding on the Series G preferred equity in addition to the amount of activity under our NCIB.
That unit purchase combined, being slightly in excess of the net proceeds from asset sales, is what contributed to the slight increase in debt to GBV. We anticipate bringing debt to GBV back under 50% in the near future as further asset sales are completed. We're targeting a range of 45%-48% over time. Our EBITDA coverage ratios remain healthy despite carrying a little bit higher debt level at the current time. Despite the dilutive effect of asset sales, the unit buyback program combined with good same-property growth and completion of some of our developments, has had a positive effect on our metrics. FFO came in this quarter at CAD 0.34, up from CAD 0.33 in the comparative quarter last year. AFFO came in at CAD 0.25, also up CAD 0.01 from Q3 of 2018.
Our payout ratios are very conservative at 41.2% of FFO and 56.0% of AFFO. Coming back to the initiatives, just a quick update on the status. As I mentioned, on November 1st of 2018, we announced the new initiatives with the goal of increasing cash flow, increasing unit values by increasing NAV, and improving focus and quality of the portfolio. The distribution was reset at that time to CAD 0.54 annually, resulting in a much more conservative payout ratio and freeing up cash to fund our development pipeline. The plan also included non-core asset sales of between CAD 800 million to CAD 1 billion of assets, and this process is well underway. We've completed CAD 482 million of sales through September 30th and have closed a further CAD 13 million subsequent to the quarter end. We have a further unconditional acquisition of CAD 39 million, sorry, disposition, set to close in November.
The basket of properties classified as held for sale at September 30th was CAD 327 million, including the 2 properties just mentioned, and those are in various stages of sale with most under conditional contract. We anticipate most of these will sell over the next 2 to 3 quarters. Initiatives also included using a portion of the sales proceeds to buy back our units using our NCIB, and we started this immediately after the announcement last November in advance of the asset sales. From last November to September 30th, we have repurchased almost 16 million units at a cost of just over CAD 173 million. We used our line of credit to fund these purchases with the plan to repay the line as the assets are sold.
In addition to the NCIB purchases, as I mentioned, we also redeemed a maturing series of our preferred equity at a cost of CAD 78.4 million. Including the redemption of the preferred equity, we've basically met our target for equity redemption. We've reached the maximum trust unit purchases permitted under the current NCIB, and we will be renewing it in December, although future unit purchases under that plan will be dependent on the trading value of our units at that time and the amount of debt reduction we have achieved. In our opinion, it's more important to get our balance sheet metrics under control first. Touch on just a couple more operational highlights and then pass it back to Armin. Touch briefly on fair value of investment properties. They are valued on our balance sheet at fair value.
This quarter, the net adjustment, including joint ventures, is relatively nominal at roughly CAD 800,000 positive. There was a very nice gain this quarter on the sale of 415 Yonge in Toronto. However, it was offset by reductions in some other properties. Debt-to-GBV, we remain comfortable with the ratio. As I mentioned, we are up very slightly. We anticipate that coming down in the near future. Trust still has an unencumbered asset pool valued at roughly CAD 1.9 billion, and that permits us the unsecured debt that's currently on our balance sheet. We have roughly a CAD 700 million unsecured revolving credit facility with a syndicate of lenders and two non-revolving unsecured credit facilities for a further CAD 300 million. Both of the non-revolving facilities have been drawn in full, and we've placed swaps to fix the interest rates on those facilities as we expect they will be outstanding for their full term.
Touching briefly on the operations. Same property results were a positive 2% this quarter, which really is 1.3% in functional currency and the 2% is in Canadian dollars once the foreign exchange is factored in. We also presented a stabilized same-property calculation, eliminating properties planned for disposition or repurposing, as well as the Calgary office sector. On this basis, same-property growth is 3.2% in functional currency and 3.8% once foreign exchange is factored in. Industrial segment continues to show the strongest performance in both countries, with 7.3% growth in Canada and 10.9% growth in the United States. This quarter, we disclosed our net asset value, so it's simply taking the equity on our balance sheet less the equity held by the preferred unit holders, divided by the number of common units outstanding at the end of the quarter.
The net asset value per trust unit was CAD 15.72 at the end of this quarter compared to CAD 15.37 last quarter. A CAD 0.35 lift this quarter. A gain this quarter driven by foreign exchange of a CAD 0.10 gain, a gain of roughly CAD 0.07 related to the unit buybacks, and the rest is the fact that our income exceeded our distributions. That's the advantage to the low payout ratio, I guess. Subsequent events. We ended the quarter with roughly CAD 59 million cash on hand and CAD 96 million undrawn on our line of credit. In our opinion, adequate liquidity for the REIT. We have several events detailed in the subsequent events note, which we believe continue to reflect our strategy of intelligent recycling of capital. We plan to continue the focus on a strong balance sheet and the overall quality of our portfolio.
As I mentioned, we will be renewing our NCIB plan in December. However, our near-term goal is debt reduction. That completes the financial review. We feel the initiatives announced last November will make Artis a better and stronger REIT, and we look forward to demonstrating our results in future quarters. I'll now pass it back over to Armin for a bit more discussion.
Thanks, Jim and folks. On balance, we feel we're on track to have a much better year this year than last year. We're making good progress on all fronts and delivering strong performance metrics for our unit holders. Our weighted average rental increase, our same property NOI growth, our FFO and AFFO per unit growth are all solid numbers. Looking ahead, given our very conservative payout ratio and the progress we've made on our strategic initiatives, as Jim said, debt reduction will be a top priority for us. The progress in our debt reduction should be very noticeable in Q4 of this year and Q1 of next year. Again, looking back at what we promised in terms of our promises made, promises kept. Our distribution has been reset. It's very conservative.
It's the lowest of all the commercial REITs, and we feel is quite bulletproof and safe. Our unit buyback program is basically 70% complete. When one considers the CAD 85 million of preferred equity we also bought back, we've invested CAD 260 million in equity buyback in the past 12 months. Of course, as mentioned, our disposition program is going very well and about CAD 600 million sold or unconditional, with another CAD 200 million under conditional contract and more visibility. The key to all this, of course, is that we're selling at price that correspond to our NAV of CAD 15.72, and we've been selling some challenging properties. We feel we're doing very well there and demonstrating excellent value for our unitholders and our investors.
It's important to note, of course, that as our financial metrics improve and as we continue with our disposition program, our portfolio of properties is also improving. We're reducing our office and retail weighting in general. We're increasing our ownership of industrial properties. We're reducing the number of secondary markets we're in as well. Our Calgary office exposure is in the 6% range now, but given the properties we have under contract for sale, we feel that by the end of Q1, we'll be down to the 3% level, or just 3% of NOI. Our remaining retail investments, as we close out our U.S. retail dispositions and our last enclosed mall, remaining retail investments will only be open-air service sector properties, if you will, and in Western Canada only, which we feel is a good focus for us.
All of this, for retail and office, all this will improve the growth profile of our portfolio. Needless to say, our industrial is already outperforming, doing very well. Meanwhile, our overall portfolio is performing well. The office markets, as discussed, are somewhat inconsistent. Our retail and industrial properties have a very good track record and continue to deliver solid organic growth. Of course, our industrial development pipeline is also on track to deliver excellent results as well. We invite you again to look at our MD&A and investor presentations for more color here. Looking ahead, we will continue to work hard to keep our buildings full whilst bringing the rents up to market and consistently streamlining and improving our real estate portfolio and our growth profile.
To be clear, the integrity of our balance sheet, our credit rating, and implementing our new strategic initiatives continue to be of utmost importance to us. Given the progress we've made year to date, we really feel at this juncture with the properties we disposed of and at the prices and the unit buyback, we're no longer a wait-and-see story, but very much a look at what we've done story and look at where we are going. As mentioned, the portfolio is improving. We're shrinking our retail from 20%-15% of our total portfolio. Open-air service sector, Western Canada only properties. We'll be shrinking our office from 50%-45%, possibly lower. We're growing our industrial from 30%-40%. All of this will again improve the overall growth profile, earnings growth profile of the REIT and make us a better REIT.
That's all from us for now, folks. I'll turn the floor over to the moderator now, and we'll be happy to host any questions you have.
Thank you. Ladies and gentlemen, should you have a question, please press star followed by one on your touchtone phone. If you're using a speakerphone, please lift your handset before pressing any keys. One moment please for your first question. Your first question is from Mark Rothschild from Canaccord. Mark, please go ahead.
Thanks, good afternoon, guys.
Good afternoon.
Starting with the same-store portfolio, the growth in industrial was quite good. One thing that wasn't clear to me from the wording in the MD&A, does that include income from development? If yes or if not, maybe just talk about what drove that strong growth?
Generally not, because the developments would not have been in the prior year. We don't have a prior year comparison. We would not include a development property until we have a prior year to compare it against. What drove the strong store growth was a combination of improved occupancy and higher rents.
Would that have been Yeah.
On the south side of the border, we're basically 99% occupied on both sides of the border, especially in the U.S. side, that's a very good number. It doesn't matter which industrial properties you look at, the big box distribution or the multi-tenant flex or showcase industrial, light manufacturing, infill, older generation, it's all performing well on both sides of the border and a little bit more in the U.S. right now.
If you're at such a high occupancy rate, would it be reasonable to assume that that pace of growth will slow down going forward just because there isn't much to lease up?
Possibly. Needless to say, we're pushing rents now as well as we can, and we're making a point to ourselves, well, maybe we've got a lot of the elasticity here, and maybe we've got to charge more rent and live with a little less occupancy. Yeah. I wouldn't say there's any low-hanging fruit out there at this point, but there's a lot of runway ahead of us, we feel, in the industrial sector in raising rents in the years ahead on both sides of the border.
Understood. In regards to asset sales, you've done quite a bit this year, and it seems like there'll be quite a bit more closing over the next little while. Do you expect to continue? Will this program be extended to sell more assets that you might view as either lower growth or markets you don't want to be in? Is the plan still to stop at a certain number?
We'll say stop and dial it back a notch or level, so to speak. We'll dial it back and we'll continue. As you might recall, we used to recycle between CAD 200 million-CAD 300 million of properties, but we definitely see more properties that we would like to sell out of and then reposition our portfolio and more aggressively grow the industrial portfolio, for example.
Okay, great. Lastly, just in regard to reducing leverage, it sounds like that's going to be a focus over the next little while. How far down would you want to take it, and how do you look at it? Do you look at it on a debt-to-EBITDA basis or on debt-to-book value? What is the preferred measuring, and what is the target that you're setting?
We're looking at both. The target that I referenced was a debt-to-book value or to Gross Book Value basis, but we're also very cognizant of maintaining a debt-to-EBITDA metric. We're really looking at both, Mark. I think they kind of are going to move in tandem as we get debt to GBV lower, the debt-to-EBITDA should go up as well.
Okay, great. Thank you.
Thank you. Your next question is from Dean Wilkinson from CIBC. Dean, please go ahead.
Thank you, Leonie. Afternoon, everyone.
Hello.
Armin, just on the Calgary office, and Alberta as well. Seems to be up a little from Q2, like 6.4% versus 6.1%. Not a big move and about 100 basis points. Is that more a function of selling things like 415 Yonge so that the portfolio is lifting, or are you seeing a little strength out of the market that perhaps we're missing?
More a function of selling.
When you look at the remaining sort of 326 and perhaps more, would that suggest maybe that that weighting to both Calgary office and Alberta then maybe ticks up a little as we look forward the next couple of quarters?
We'll be signing down a lot of Calgary probably. We have 4 more Calgary office under contract for sale. We're very optimistic that they'll close by Q4, as a matter of fact. Excuse me. For sure, be unconditional, if not before we report the Q4 results. We see the weighting going down by default, so to speak, just as we sell down these properties. We expect in the 3% range when we announce our Q4 results.
Fair to say that remaining sort of CAD 326 it's classified as for sale is probably going to be at a substantially higher cap rate than the sort of CAD 500 or so, CAD 490 that you've already sold?
Kim can answer that.
Yeah. It'll be slightly higher, but not substantially. We expect it to be kind of in the low seven cap range.
The low sevens. Okay. Just when we look at the gain on 415 Yonge, I kind of noticed that the cap rate was based upon CAD 4.6 million of NOI, which included some leasing. Was that forward look on the leasing included in the IFRS value, or was the IFRS mark based upon sort of what was historically in place, like what would, say, be in the rest of that table?
The leasing would be included in the IFRS value because we're generally modeling a 10-year time horizon on the valuation of the property. We would be looking forward, including the new leasing.
Okay, that's good. Just a clarification on how you got the assets classified in the presentation. Non-core assets to be sold, that was CAD 800 million to CAD 1 billion. Is that on top of what has already been done? How are you getting? Because I'm looking at CAD 4.2 plus CAD 1 billion plus CAD 200 million of development assets. That kind of gets me to your Gross Book Value there. Is it CAD 1 billion of non-core assets to be sold, or is it CAD 1 billion less what you've already done?
CAD 1 billion less.
CAD 1 billion less. Okay, CAD 500.
Yeah.
Okay.
Almost there.
What was that?
We're almost done.
You're almost done.
Yeah.
The last part's the hardest. That's it for me. Thanks, guys. I'll hand it back to the queue.
Thank you. Your next question is from Jonathan Kelcher from TD Securities. Jonathan, please go ahead.
Thanks. Good afternoon.
Hi there.
Just turning to the developments. Just on the Tower Business Center, what's your yield expectation on that, and when should we expect that to come online?
It'll be in the low seven. Yeah.
Yeah. It'll be roughly between We're not finished yet, but between 6.8 to 7.2 in that range. It won't be lower than 6.8.
Okay. That'll come on when?
Construction completion is almost finished, and the leasing of the first building is complete, and that lease commences, I'm going to say it's in Q2 of next year. It might even be Q1.
Yeah. The larger of the two buildings, two-thirds of the project, if you will, the revenues will kick in in Q2 next year.
Okay. Then the rest sort of by the end of next year?
Yeah, for sure.
Okay. The property you're buying in Minnesota, the new development there, where does that stand in terms of occupancy?
Is that the Primrose?
That was 100% occupied, 15-year lease with 2% annual bumps in it. Nice property. It was called a forward purchase, it's been in our MD&A for almost two years now.
Okay. Fair enough. Lastly, on the special committee, you put through CAD 400,000 or so of charges this quarter. Was that in your G&A and then you're adding back to FFO?
That's correct.
Okay. How long is the mandate for the special committee? Is that sort of CAD 400 kind of how we could think about it on a quarterly basis until they're done, or was there any one-time things in there?
Well, that's a good question. I don't know if they've got a term on the mandate.
They have an expiry date of their mandate. I guess they're still working through it. Probably, I'm going to say it's a little bit cheaper going forward because the bulk of that was legal costs as they were getting going, probably the next quarter or so will be a little less than that.
Yeah. We're not on the committee, and we are not official spokespeople, but I would expect between now and next June AGM, we'll get a lot of visibility from them, and even a report from them. Things will either ramp up or wind down.
Okay. Thanks. I'll turn it back.
Thank you. Your next question is from Matt Logan from RBC Capital Markets. Matt, please go ahead.
Thank you, and good afternoon.
Yes.
Just wondering if you could talk a little bit about your same property NOI growth outlook? Last quarter, you mentioned it was about 2%-3%. Would that include some of the drag from the Calgary office portfolio that we've seen here this quarter?
Yes. I mean, the two this quarter was including the drag from the Calgary office portfolio. Yeah, the estimate from us of two to hopefully three is inclusive of any drag from Calgary office.
Going forward, it seems like the organic growth from the business pretty much everywhere except for Calgary is doing quite well. When we look at the industrial growth, that's obviously quite great, but how should we think about the tenant inducements and some of the CapEx for the portfolio? I mean, will that trend down as you sell more of your Calgary office business?
It should, for sure. Our organic growth, it's not just Calgary office. As we sell that down, our Minneapolis retail and our enclosed malls. This is where there might've been a drag in same property NOI growth. As you heard me mention, as we streamline our portfolio and to finish up with our disposition plan, we will have a better portfolio with a better earnings profile. We're optimistic about that. Back to CapEx, yeah, the Calgary office always requires a lot of CapEx. The less of that we have, the better off our AFFO will be.
When we look at kind of the business at the end of the strategic review, the maintenance CapEx that we see in the AFFO deduction should really converge to the actual CapEx as we look out to 2020 and 2021?
Yes.
Okay. Just in terms of the future asset sales, can you give us a sense for what else you plan to sell in Canada outside of the Calgary office segment?
We will. We even have them listed here, I think.
We have one left in Ottawa, we plan to sell that one, an enclosed retail center in Saskatchewan. Those are on the list. The rest is really a lot of Calgary office.
Yeah. It's Calgary office, and I think, did we mention Minneapolis retail, of course?
Yeah, it's already unconditional. Yeah.
Yeah.
I'm-
Just unconventional. That's why.
Yeah
kind of was in there, but it just-
Yeah
just barely made the list on Friday.
We've got four Calgary office properties. We're looking at some other office properties, that again, to your point about CapEx and outlook, if we think we've maximized the value, we'll let them go too. You might recall we own a building in Hartford, Connecticut. The tenant is The Hartford. We just renewed their lease, but they had the right to give us back one floor, so they take two of the three floors. We've been able to re-lease that top floor, with this new leasing status, we're going to sell that property as well. There's certain non-core buildings we're looking at. There's a smaller office building in suburban Minneapolis called the DSI Building that's on our list as well.
I think we've got a good focus on what we want to sell and how we're going to streamline the portfolio.
As you downsize the business, what sort of impact does this have for the staff or the leasing folks who are doing the day-to-day leasing and the planning? Does this simplify their life in terms of the operations? Maybe just some color on how it impacts the rest of the business from an operational perspective.
Yeah, good question. It's funny how often we might ask one of our property managers and leasing people about a building that we're thinking about selling, and they'll say, "Yes, please sell that one." They don't mind at all. On the other hand, Canada Point in Calgary, for example, it's been tough. Morale is not good anywhere in Alberta, in almost any sector right now. We find ourselves spending more time doing our best to cheer our people up than even talk about leasing. Keeping the morale up there. Everybody's there working really hard, and it's a thankless job in many respects, being a leasing agent in Calgary. At a certain point when we sell properties in Calgary, we do our best if it's property managers, but for them to transfer with the property to the new owner.
The leasing, make no mistake about it, somebody's also involved sometimes, and that's not a good thing, but that's the situation we're in right now.
Maybe just last question from me. In terms of a quick housekeeping item, can you tell us the IFRS values for Centre 15 and the Minnesota retail portfolio?
I don't have the total off the top of my head, but I can tell you.
Centre 15?
Yeah. I don't know the retail. It'll be, that's Canadian, CAD 65.
In total?
Yeah. In total.
Yeah. Does that help you?
That would be Okay.
Welcome.
Yeah.
The split between the two, was that 15 for Centre 15?
It's 13 for Centre 15.
13 for Centre 15, and the balance from the Minnesota portfolio.
Yeah.
Excellent.
Slight gain on Centre 15.
Appreciate the color. That's all from me. I'll turn it back. Thank you, guys.
Thank you.
Thank you. Your next question is from Jenny Ma from BMO Capital Markets. Jenny, please go ahead.
Thanks. Good afternoon.
Hey, Jenny.
Hi.
You talked about reducing the overall debt, but I'm just wondering what your thoughts are on the debt strategy over the near to medium term, given that you still have a pretty big proportion of floating rate debt. The weighted average term on your mortgages is quite low. Presumably you're paying off the credit facilities first, but how do you expect that to shake out in the next 1 to 3 years, call it?
We're still seeing today that we can refinance much of the maturing debt at interest rate savings, expect that there will be some savings to come. You're correct, a bunch of it is still floating rate debt. LIBOR and BAs in Canada really have not moved as much as you would expect, given where the underlying bond rates have gone. The floating rate debt really isn't as cheap compared to fixed debt as it used to be. That's the reason we've been placing a few more swaps on some of the floating rate debt, just to lock them in.
Sorry, you said the floating rate debt is not as cheap as it used to be?
It's-
No.
No.
So-
The LIBOR is still running 190 basis points. If your spread is 160 or 170 over LIBOR, you're still running 3.5% on floating rate debt.
So-
which is about where you can get five-year fixed debt at today.
In that case, would you be more inclined to, over time, convert that into fixed rate secured debt?
Some we've done with swaps, right?
Yes. Some of that we've been doing with swaps. Yes. I'm going to say over time, we would be more inclined to be fixing more debt today.
How are you thinking about the secured versus unsecured balance?
Our secured debt today is less than 30% of GBV, which is probably where we would roughly want it to be. Expect that the secured debt will stay about where it is today, and then the unsecured will layer on top of that.
Okay. That's fair. Just wondering, the Madison office portfolio, it looks like the occupancy's crept up a bit, and it's been fairly stable. When you look at that, do you view it as a core component of your long-term portfolio?
Good question. As a REIT, long-term owners and managers and holders of real estate, right now, we do consider it as core. It's a good, stable, predictable, reliable source of income. Our NERs are relatively high there compared to the face rates. We're really pleased with that. It's a market that doesn't get disrupted by large players coming in and overbuilding and then poaching tenants. We like all of that. It adds some good ballast to our portfolio. That doesn't mean that someday we wouldn't dispose of it. Not everybody agrees with us that we should be in Madison, but it is a state capital, and it's a university capital. In terms of mid-market, those are two key features to real estate valuations and drivers of rent. Right now, we like it.
That's not on the top half of our list of properties to sell, that's for sure.
Would you be able to comment on the cap rate on this portfolio versus when you bought it? Has it changed much?
Well, the NOI has gone up a fair amount, right, Kim?
Yeah.
We feel the cap rates dropped at least 50 basis points from our cap rate. We were over 8% when we bought it.
Right.
It was 86% occupied. We brought it up to 90, and we raised the rents across the board. We've been able to make some additions on surplus land, with long-term leases in place for existing tenants. We've been able to add value to that portfolio as well.
Okay.
We really feel it's worth more than we paid.
That's interesting. Okay. On the held-for-sale portfolio, could you comment on sort of the NOI associated with that in aggregate?
I'm looking to somebody else in the room. Kim or Jackie or Jim?
Well, I'm asking because.
Yeah
When you look at some of the more recent transactions, the cap rates on them are quite high. I'm just wondering if that's indicative of what's left in the held-for-sale bucket.
It all depends. There were some anomalies there. Obviously, in the office retail, there's an anomaly. I think Calgary, which was another one. We had a couple of anomalies there. We had the retail property.
Yeah. I don't have the exact calculation off the top of my head, but I would say in the held-for-sale bucket, again, it would be closer to that low 7 cap range is kind of where we're expecting it to be.
Okay. That's helpful. Thanks. I'll turn it back.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. Your next question is from Mike Markides from Desjardins. Please go ahead.
Hi. Two quick ones from me, thanks. On Concorde Corporate Centre and Poco Place, just curious if you could give us some color as to where you guys might be with respect to getting rezoning or upzoning on those two assets.
They're still progressing. It's a work in progress, going from meeting to meeting, so to speak, booking more meetings with the planners and with members of the community. I'd say Concorde is definitely further ahead, and we really are optimistic by Q1, Q2 at the latest next year, we'll get at least a positive report, a support report, if you will, from the planning department. After that, it should be downhill to get the final density approved, the final entitlements at the level of council. Poco Place, we've had several meetings as well, that include the mayor there in Port Coquitlam. We're progressing, I'd say at a slower rate. However, by the end of next year, also, we have a very good chance of getting our entitlements at least confirmed in principle.
That's not to say that we wouldn't achieve a lot of value if we dispose of the properties now. However, we feel they're not at the top of our list. We've got other properties we want to sell first, and we'll keep working hard at getting this density approved before we go to market with them.
Okay. When you say preliminary plans, have you made an initial application? Is it just sort of you're having discussions before you make your initial application?
Oh, no. We've got a lot of plans done. We've paid a lot of consultants a lot of fees. I hope they've done something for us. I've seen the plans too. At Concord, for example, we're looking at density for about 550 suites in one large building there. That's moving forward. We've gone back and forth with the planners on making changes to the plans so that they could support them. At Port Coquitlam, it's a bigger densification. It's about 1.5 million sq ft. We're looking at either three or four towers of multi-family, and that requires a lot more thought and indigestion, if you will, to go through the process with the planners there.
So far, in principle, they're very supportive of giving us more density there because we're within less than a kilometer of a SkyTrain station there, which makes it a TOD, so to speak.
Okay. Last one here from me. Just with respect to how you guys carry those assets, is there any carve-out for the land that you're building on the excess density, or is it just capped as a normal property without any regard to what?
No. Just treat it as a normal operating property. No potential lift recorded for the future density.
Okay. That's helpful. Thank you.
Thank you. Your next question is from Johan Rodriguez from Raymond James. Please go ahead.
All my questions have been answered. I'm good. Thanks.
Thank you. Best caller.
There are no more questions at this time. Please proceed.
Well, thank you again, moderator, and everyone for joining us on this call on short notice. For Q4, we'll give everyone more time. It'll be year-end, and we'll have the call the next day after the release of the results. In the meantime, we're looking forward to working hard for our investors. We hope to see a lot of you at the next Real Estate Forum in Toronto, and hopefully when we do some marketing as well. We're looking forward to delivering more good results in Q4 as well. Thanks again. Have a good evening.
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