Choice Properties Real Estate Investment Trust

TSX:CHP.UN

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust Q1 earnings announcements conference call. [Operator Instructions] Thank you. Mr. Adam Walsh, you may begin sir conference.

[Adam Walsh, VP, General Counsel & Secretary]

Thank you, Julie, and good morning, everyone. Welcome to the Choice Properties REIT First Quarter 2019 Conference Call. This call is also being webcast simultaneously on our website at choicereit.ca.Before we begin, we'd like to advise you that some of the statements made this morning may contain forward-looking information, including statements concerning Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook 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 a number of risks and uncertainties that could arise and could cause actual results to differ. We refer you to the cautionary statements in our financial reports, including the MD&A for the quarter ended March 31, 2018, and other disclosure documents for the full details. These forward-looking statements are made as of today's date, and Choice Properties assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law. On today's call, we have our Chief Executive Officer, Stephen Johnson; our Chief Operating Officer, Rael Diamond; and our Chief Financial Officer, Mario Barrafato. I'll now turn the call over to Stephen.

[Stephen E. Johnson, Advisor & Trustee]

Thank you, Adam, and good morning, everyone. Thank you for taking the time to attend our Q1 2019 conference call. We're very pleased to report a positive start to 2019. We had in line financial results for the first quarter and strong operational results. From an operational perspective, same-asset net operating income on a cash basis increased by 2.4% compared to Q1 2018. Period end portfolio occupancy remained very solid at 97.4%. Investment activity during the quarter included the transfer of approximately $148 million of properties under development to income-producing status. This represented approximately 808,000 square feet of new leasable area. Included in the PUD transfers was a 665,000 square foot industrial property, which we developed in the GTA West market. It is on 100% leased, and we own 85% of this asset.On acquisition activities, we acquired 2 high-quality grocery anchored retail properties in Ontario. And as well, we acquired a major residential development site in Toronto for a total investment in acquisitions of $54.3 million during the quarter. The residential development site was acquired from Infrastructure Ontario. It is located near the intersection of Yonge and College in Toronto, and it will be developed in a joint venture with Greenwin. This is our second joint venture with Greenwin, and Greenwin is a well-established rental residential developer in the GTA.We initially anticipated the development on this site would include approximately 700 residential units, and we determined our purchase price accordingly. We now see the potential of receiving approval for a higher number of units. And notably, our agreement with Infrastructure Ontario includes a commitment to deliver 30% of the units as affordable rental housing for a period of 40 years. Rael will provide you with more details on our development projects and new acquisitions in a few minutes.The combination of Choice Properties REIT and Canadian Real Estate Investment Trust, or CREIT, was completed just under a year ago. It will be one year next year. It is an appropriate time and an opportunity to provide you with a macro overview of our business today. Our business has grown substantially, but our primary goal remains the same, the ownership of a high-quality, income-producing real estate portfolio. And one of our key objectives is to build our real estate business to deliver both stability and growth for our investors over a long-term investment horizon. The stability factor is in the context of both the preservation of your capital investment and the reliability of your monthly distribution. The growth factor is in the context of distribution growth and net asset value growth, both over time. Our business for the most part has now evolved into 2 functional areas, our income-producing property or IPP portfolio; and our development business. Both of these functional areas will contribute to stability and growth. For our income-producing property portfolios, one of the key focus areas is the long-term ownership and management of necessity-based retail real estate. The term necessity base refers to retailers focused on the sale of everyday goods and services, such as food and personal care items. We believe that the ownership of this type of real estate is exceptionally well suited and positioned to deliver our goals of stability and growth over a long term. As well, this asset class of real estate is less sensitive to both economic cycles and the ever-changing retail environment. Currently, approximately 80% of our real estate portfolio is retail, which is primarily made up of grocery anchored retail properties. Based on the current environment, we expect our retail portfolio to consistently deliver same-asset net operating income growth and continue to be the foundation for generating reliable cash flow. Furthermore, given our relationship with Loblaw through our major shareholder, George Weston Limited, we expect to continue to find opportunities to acquire high-quality, necessity-based retail assets over the coming years. We have diversification in our existing IPP portfolio, diversifications both in terms of asset class and geographic location. Approximately 20% of our portfolio is comprised of industrial assets, office properties and our recently added rental residential asset class or apartment buildings. Canada is fragmented in terms of economic and real estate fundamentals, so this diversification contributes to income stability. For example, we are presently benefiting from a strong economy in the GTA. We are seeing very strong from financial performance in both our Toronto office and industrial assets. The strength is mitigating the pressures that the energy sector is placing on the Alberta economy and specifically on our Calgary office assets. This is diversification at work, providing stability. In addition to our income-producing property business, we have a significant development business. Our property development initiatives provide us with the best opportunity to add high-quality real estate to our portfolio at a reasonable cost. Our development business is divided into 5 categories, including retail intensification, redevelopment, greenfield, major mix use and residential projects. In our currently active development program, we anticipate investing approximately $1 billion, of which $400 million is already invested. The most significant current focus is the development area is growing our rental residential portfolio. And notably, we now have 5 major, high-quality rental residential development projects underway in the Greater Toronto area, each with a joint venture partner. Our investment in these projects specifically has been approximately $73 million to date. The current budget is approximately $372 million to complete, so the total planned investment is approximately $445 million in these 5 projects. And it's important to recognize that these 5 projects will be great additions to our portfolio. In addition to our current residential development program, one of the significant competitive advantage we have is the opportunity to add rental residential density to grocery anchored retail properties, which we already own in major markets such as Toronto. It is too early -- way too early to credibly quantify the total extent of this opportunity. However, we expect it to be meaningful over time. The important point is that we already own these sites for future development. For example, we now have 3 major sites for mixed-use development in the preliminary planning stages in the GTA and one major sites in Vancouver in the same category. Our development business is a very exciting part of our REIT that will add high-quality assets to our portfolio and we anticipate will contribute to growth in our net asset value.So to summarize, our first quarter results have built upon the positive momentum that we have had since the merger of CREIT and Choice Properties last May. Overall, the composition of the trusts income-producing property portfolio now provides a solid foundation for stability and growth. As well, we expect our development program will steadily add high-quality real estate assets, consistent with our goals over the coming years. We're very well positioned. Mario will now provide you with some detail on our financial performance for the quarter and Rael will then provide some operational investment highlights. Mario?

[Mario Barrafato, Chief Financial Officer]

Thank you, Stephen. Good morning, everyone. I'll begin with a brief overview of our financial results and then I'll comment on our balance sheet activity. Overall, our 2019 first quarter results were in line with our expectations and reflect the stability and consistency that is inherent in our portfolio. Our reported funds from operations for the fourth quarter was $169 million or $0.252 per unit diluted, and there were no material renewal items in the quarter. FFO for the first quarter of 2019 reflects the full quarter impact of the sale of Sun Life Plaza, which was sold in December of 2018. After adjusting for the disposition, plus Q4 2018 lease termination income, FFO for Q1 was fairly consistent with that of Q4 of 2018. On a year-over-year basis, FFO per unit was relatively flat compared to the first quarter of last year. However, Q1 2018 does reflect a $2.9 million nonrecurring charge related to a call premium for early repayment of senior unsecured debt. Included in our Q1 performance was stable year-over-year growth in same-asset cash NOI. For the quarter, same-asset cash NOI increased by 2.4% over the prior year. This reflects the annual step rents embedded within the Loblaw portion of our portfolio as well as incremental cash generated from leasing activity. And on the leasing font, portfolio occupancy increased on 64,000 square feet of positive absorption, primarily from leasing in our industrial portfolio. However, overall ending occupancy is down from Q4, primarily due to newly developed properties coming online at less than full occupancy. These properties do have lease commitments and will be fully leased during the year. Our overall quarter end occupancy remained strong at 97.4% with retail occupancy at 97.8%, industrial occupancy at 97.2% and office at 92.2%.Now on to our balance sheet. On the investment front, we closed on the acquisition of 2 retail properties from Loblaw, one in Mississauga and the other in Kingston, at a cost of $36 million. In addition, we closed on a 50% interest in a development parcel near the intersection of Yonge and College in Toronto at a cost of $18 million, and Rael will provide more color on these investments. We continue to be active on the development front with ongoing investments of $33 million in the quarter. As well, $148 million of development properties were transferred to income-producing status during the quarter, reflecting over 800,000 square feet of new income-producing GLA. The most significant property transferred was the 85% interest in a 665,000 square foot industrial building on Peddie Road in Milton, Ontario. As I referred to earlier, Peddie was transferred at 77% occupancy, with the remainder committed to be occupied later in the year. In addition, our development initiatives resulted in the issuance of $39 million of new -- net new mezzanine loans. These are short term in nature, and we expect them to be repaid within the year.Our net -- our book net asset value increased by $45 million quarter-over-quarter or $0.05 per unit, arising from net earnings and a positive adjustment to the fair value of our investment properties, partially offset by cash distributions. For the quarter, we had fair value gain of $6 million on a proportionate share basis, primarily due to the increase in valuations for GTA industrial, office and residential properties, offset by declines in select retail properties with fashion or discretionary retail tenancies.It was a quiet quarter from a financing perspective. Amounts fund in our facility increased by $160 million, primarily due to ongoing investment and the development pipeline as well as funding acquisitions and our mezzanine loan advances. Overall, our financial metrics remained solid. Using amounts from our proportionate balance sheet, our debt-to-gross book value is approximately 47.6%. And normalized leverage interest coverage ratios are 8.1x and 3.4x, respectively. These metrics are further backed by $1 billion of liquidity on our credit facility and a $12 billion pool of unencumbered assets. So overall, very solid operating results and another strong quarter for Choice. I'll now turn the call over to Rael.

[Rael Lee Diamond, President, CEO & COO]

Thank you, Mario, and good morning, everyone. As Stephen mentioned, I'll provide a brief overview of our income-producing portfolio and further details on our transaction activities. Our consolidated portfolio of income-producing assets include 735 properties, comprising 68 million square feet of GLA. This high-quality portfolio includes retail, industrial, office and residential properties, and is located across Canada with the concentration in Canada's largest markets.Our retail portfolio is primarily focused on necessity-based retail tenants and is anchored by long-term leases with Loblaw, Canada's largest retailer. We continue to successfully add to our retail portfolio through development, including a mix of greenfield developments and intensifications. In Q1, we completed and transferred a total of 130,000 square feet of retail development at a total cost of $52 million. Our development initiatives are key component of our business model, providing the opportunity to add high-quality real estate to the portfolio.As Mario mentioned, during the quarter, we also closed on the acquisition of 2 grocery anchored income-producing retail properties from Loblaw for a total cost of $36 million. This includes 115,000 square foot grocery store in Mississauga. On its face, this is an attractive asset to add to our portfolio, a grocery site on a long-term lease with Loblaw in a great location near the intersection of Eglinton and Winston Churchill Boulevard. This was not the only strategic myriad to the acquisition. The site includes both near-term retail intensification potential of approximately 20,000 square feet and nearly 4 acres of excess land. And most critically, the site is directly adjacent to Winston Churchill Power Center, an existing choice asset. When combined, these assets represent a 40-acre [indiscernible] with current cash flow and long-term residential intensification potential. While it's too soon to quantify what it may look like, we believe there's significant long-term upside in the asset. This transaction highlights the competitive advantage of our strategic relationship with Loblaw. We expect that this relationship will continue to be an excellent source of opportunities in the future.Our industrial portfolio includes 115 properties and approximately 17.1 million square feet of GLA. The portfolio is concentrated in Canada's largest distribution markets where demand for industrial space by both investors and tenants remain strong. Our industrial assets operate under healthy fundamentals with low vacancy rates and increasing rent. The acquisition environment for industrial properties continues to be extremely competitive, so development is a great means to add high-quality assets to our portfolio. In Q1, we completed and transferred a total of 626,000 square feet of industrial development at our ownership at a total cost of $78 million. This includes: Building E at our Great Plains Business Park in Calgary, Alberta. This is the fifth completed building at Great Plains, and it comprises 120,000 square feet or 60,000 square feet at our ownership. We also transferred 2994 Peddie Road, a large bay modern distribution facility in Milton for 666,000 square feet or 565,000 square feet at our ownership per share. We finalized a long-term lease for approximately 515,000 square feet with Kimberly-Clark, a multinational consumer products company. The remaining 150,000 square feet was leased to Loxcreen, a distributor of flooring products on a long-term lease. The rents achieved exceeded our original pro forma by more than 15%. This asset is a great addition to our industrial portfolio, as it is in the GTA West side market of Milton, one of the strongest industrial markets in the country.Our office portfolio is focused on large, well-located buildings in the downtown core of Canada's largest cities. Fundamentals in most large office markets in Canada, including Toronto, Vancouver and Montréal, are healthy due to strong economy and robust job growth. Office property fundamentals in Calgary continue to be challenging. That said, in Q4, we significantly reduced our exposure to this market with the sale of our 50% interest in Sun Life Plaza.Finally, our residential platform provides an opportunity to further diversify our portfolio. Our focus has been on developing new rental residential assets, primarily in the GTA. The rental market in the GTA is strong, as limited supply and demand have driven up rents. Our current platform includes 4 residential rental assets that are income-producing and another 7 rental residential assets in various stages of development. In total, when complete, these residential projects will represent approximately 1,500 units at Choice's share. This includes over 1,000 units located in the GTA, all of which are in close proximity to major transit. We're excited about these -- the prospects of our residential initiative. That concludes my comments. I'd now like to pass it back to the operator for questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Sumayya Hussain from CIBC.

[Sumayya Hussain, Associate]

Just firstly, can you give us a bit more background and just your vision for the Woodbine development and just in terms of density and timing, what we should be expecting there?

[Rael Lee Diamond, President, CEO & COO]

Yes, Sumayya. It's Rael speaking. Just a bit of color on the site. It's a 1.87 -- 1.7-acre site. It's adjacent to Woodbine TTC subway station. We've submitted our rezoning application to the City of Toronto, and we are in preliminary discussions with the city. Plan includes retail, mostly grocery upgrade with mid-rise residential buildings above. We believe it's a phenomenal size and opportunity. We're really early in the process, so exact densities are still to be determined. But as I mentioned, it would be a mid-rise project. And we expect further discussions with the TTC to determine how we can integrate the 2 sites together, and we'll provide further details as available.

[Sumayya Hussain, Associate]

Okay. And then at some other point, but just noticing some fair value changes in the quarter. Can you remind us what exactly is your power center footprint? And what drove the fair value decline, if it was just NOI expectations changing or just lining of cap rates to what's happening in the market?

[Rael Lee Diamond, President, CEO & COO]

Yes, I don't -- it's Rael again. I don't have the exact power center footprint. We can get back to you on that. But it was really a tweak in assumptions, primarily related to Payless Shoes given the bankruptcy. And then Home Outfitters has given their announcement that they're closing stores. So it's really just a tweak in our modeling assumptions. It wasn't significant.

[Stephen E. Johnson, Advisor & Trustee]

And I think the same thing, overall, the $6 million was probably net; $40 million, upside; $34 million, downside. All really select assets. We had about $800 million appraised in the quarter with no real change in any trends or global assumptions.

[Operator]

Your next question comes from of the line of Mike Markidis from Desjardins.

[Michael Markidis, Real Estate Analyst]

Mario, would you happen to have the -- I mean you guys had a pretty significant uptick in the development deliveries this quarter. Would you happen to have the IFRS NOI contribution from the developments for Q1?

[Mario Barrafato, Chief Financial Officer]

I don't have them globally, Mike. But the biggest one would have been, like, Peddie Road would have probably had about a $15 million change, so that will be the biggest one. And then probably, the second largest one would have been the [ 123 ], which has got stabilized. But yes, that's probably the -- they wouldn't -- some of the development fair value bump would have been realized earlier in the process as well.

[Michael Markidis, Real Estate Analyst]

Sorry. I was more getting to the -- an updated fair value change, Mario, the actual account, the NOI contribution.

[Mario Barrafato, Chief Financial Officer]

The NOI contributions in the quarter.

[Michael Markidis, Real Estate Analyst]

Yes, sorry.

[Rael Lee Diamond, President, CEO & COO]

On an annualized basis, it was just over $9 million.

[Mario Barrafato, Chief Financial Officer]

Yes, just on an annualized basis.

[Michael Markidis, Real Estate Analyst]

That was the actual contribution.

[Mario Barrafato, Chief Financial Officer]

No, that would be the annualized. So during the quarter, I mean, Peddie would have come in halfway through, so it wouldn't have been a significant contribution in the quarter.

[Michael Markidis, Real Estate Analyst]

Okay. So okay -- so there's a significant amount to be realized in the next several quarters then.

[Rael Lee Diamond, President, CEO & COO]

And when we say annualized, like remember Peddie only a portion of it is in occupancy, so it's going to take time to get all of that integration to get stabilized.

[Michael Markidis, Real Estate Analyst]

Yes, yes. Okay. All right. Just on the development side, your disclosures are great, so thank you for that. And it looks the -- well, a slight downtick this year. $200 million to $225 million is the expected investment over 2020 and 2021. Just longer term, maybe 3 to 5 years out, as you guys see all the moving parts, would it be reasonable to expect, like what would be the expected amount of annual investment sort of medium term, 3 to 5 years out? Would it be reasonable to think that it would double, stay around the same level? Just trying to get a sense with for the magnitude.

[Rael Lee Diamond, President, CEO & COO]

Yes, Mike. It's Rael again. The projects that are going to come online in the future was to commence development are going to be primarily residential. The timing, we haven't really exactly determined the timing. And the capital obviously is significant. We can obviously phase the timing a little bit, but we don't have a great answer for you on the exact magnitude, call it 3 to 5 years out.

[Stephen E. Johnson, Advisor & Trustee]

And certainly not by year, to give you a sense, as we did earlier of the aggregate dollars. But breaking it down by year is dependent on probably a lot of things.

[Michael Markidis, Real Estate Analyst]

Sure. That's fair. Okay. And last one for me before I turn it back. Mario, you mentioned that there was no material or unusual occurrences. We did just notice that the G&A had a pretty significant uptick sequentially from Q4. You guys used to have an offset to your reported G&A that was a reallocation of G&A to property management, I guess, OpEx and NOI and that disclosure is gone this quarter. Was there an accounting change that drove the -- or an allocation change that drove the sequential increase in G&A? Or was it just a normal ebb and flow?

[Mario Barrafato, Chief Financial Officer]

Mike, I gave the -- I think the disclosure is still there above the gross G&A, which has got -- there's 2 parts. One is capitalized, relates to development spending and one is the operating stuff that gets allocated. The G&A, it's a little bit higher. We're -- there's a few areas that we still have to expand upon in our company, so we're trying to expand our IT platform. Some of the administrative stuff that, as we now live this for a year or 2 -- year and a bit. So that's really the nature of it. But operational-wise, it has been pretty stable.

[Operator]

Your next question comes from the line of Pammi Bir of Scotia Capital.

[Pammi Bir, Analyst]

Stephen, just thanks for the macro update. As you mentioned, it's been a year since the CREIT acquisition, and the integration seems to be done. If you think about the next 12 months, what are the near-term strategic priorities from here?

[Stephen E. Johnson, Advisor & Trustee]

It's -- certainly, as I mentioned earlier, our focus -- we break it down between our IPP portfolio and our development business. And on the development business, just moving the projects that were committed to the 5 largest, basically, the ones in the GTA asset, with the total budget of about $445 million, just keeping those on track. Moving the other potential development projects basically along from a planning and, as I mentioned, there's 4 major mixed-use sites that are in the planning stages and we want to move those along. That's -- as Mario mentioned, we're improving internally, basically, IT. And we will go over to a new system -- or we move Choice over to basically a new system that was on the system that CREIT was on before. And that integration is done, but we continue the modernization there. So it's -- those are the main things.

[Pammi Bir, Analyst]

That's helpful. I guess if we maybe just look at the balance sheet for a minute, is there a near-term objective to get leverage maybe now close to where CREIT levels were, but if we think about the next year, get leveraged down a bit further, whether it's through dispositions or other means, just curious if you -- if that's part of the agenda?

[Mario Barrafato, Chief Financial Officer]

I guess I'll go first, Pammi. I think, right now, given the nature of our portfolio and the tenant profile, the balance sheet is fine. I think there's no immediate urgency to do anything. But obviously, if the opportunity comes up and if we have the chance to reduce leverage, we would do that. But right now, there's no sense of any really immediate urgency to get it down. I think where we are right now, we're pretty comfortable.

[Pammi Bir, Analyst]

Okay. Just on the $300 million of debentures coming up for maturity this year, what are the plans there in terms of refinancing? Is it sticking with the unsecured or moving to secured? And maybe just some color on duration.

[Mario Barrafato, Chief Financial Officer]

Sure. The beauty with our company right now is we have access, I think, to multiple source of capital. But obviously, unsecured debt is probably the most meaningful part of our balance sheet and one we'd like to continue in the markets open if available. So that's an option. But the beauty is again if we -- if it does kind of freeze up or the pricing gets out of the way, we have a big presence in the secured mortgage market and also on the corporate banking market as well. But unsecured will be our first choice if the market is open.

[Pammi Bir, Analyst]

Okay. And I guess in terms of term, are you thinking like 5 to 10 or something shorter?

[Mario Barrafato, Chief Financial Officer]

It really fits the latter. It's filling in the latter. So 7 to 10 is probably a spot that would be good, but we have a lot of flexibility.

[Pammi Bir, Analyst]

Okay. Just last one on the Yonge and College project there, the new one, what's the overall time line here? And then just given the affordable housing component to it, how does that impact the economic in terms of the funding or the -- I guess, the expected yield?

[Rael Lee Diamond, President, CEO & COO]

So as far as timing, Pammi, we're going through these zoning process. We do expect strong support, both from the province and the city, just given the nature of the project. So we don't have an exact time line on when we'd start construction. The second part to your question, the affordable component, we bought or purchased the land at a discounted value from the province. We also don't pay DCs on the affordable unit component. And we don't pay property taxes when the building is operational. The yield is slightly lower than you would see on, call it, the full market rental residential project. However, mitigating that is you would have a cheaper source of financing just given CMHC insurance. There's also programs with CMHC where you can get high LTV, so your equity requirements are a lot lower. And then as Stephen mentioned that we do expect some potential up-zoning in the size that would enhance our yield a little bit.

[Pammi Bir, Analyst]

Okay. That's very helpful. I guess on the 700 units, initial expectation is the thought that, that could be maybe 100 units or 200 units more or something in that range.

[Stephen E. Johnson, Advisor & Trustee]

Yes. It's Stephen. We just don't know at this stage. We're in the middle of the process of going through. We just -- we believe we will have an opportunity to increase it.

[Operator]

Your next question comes from the line of Tal Woolley from National Bank Financial.

[Tal Woolley, Research Analyst]

I just wanted to start by asking about the acquisition of the third-party Loblaw sites you made this quarter. Were these opportunistic? Or is there maybe a bit of a broader strategy to try and buy in some of the best of the Loblaw leased sites that are out there to -- some of the best third-party leased sites in the Loblaw footprint and bring those in-house to Choice?

[Rael Lee Diamond, President, CEO & COO]

So the assets were purchased from Loblaw. And Choice had a strategy of acquiring bended assets, historically. And the management team has historically disclosed that the acquisition -- the bulk of the acquisition, they're previously actually completed. They're solid assets, and we'll evaluate each potential opportunity on a go-forward basis based on its merits. But the one is strategic, it's adjacent to the site. And we expanded the other one. It's a very good performing store. We acquired it well below replacement class. And we think it's a great real estate investment long term.

[Operator]

Your next question comes from the line of Johann Rodrigues from Raymond James.

[Johann Rodrigues, Research Analyst]

So a year into the merger of the 2 companies, I was wondering if you had a sense as to what, on a stabilized basis here -- you'd expect for cash, same-property NOI growth, maybe excluding development just kind on a core portfolio here?

[Mario Barrafato, Chief Financial Officer]

Sure. Well, I think right now would -- when you deal with the same properties, primarily the legacy Choice portfolio. And so they've got -- that's about 1.5% and then you've got some recovery of capital income coming in. So between 1.5% and 2% is probably a good run rate for that portfolio. The CREIT side had probably -- as it becomes same asset, it probably has a growth profile that is maybe slightly below that. So again, 1.5% to 2% would probably be a good run rate on the -- on same-asset cash NOI.

[Johann Rodrigues, Research Analyst]

Okay, okay. Great. And then maybe also what would be expectation for '19, maybe even over the next 2 years, for divestitures, if any?

[Stephen E. Johnson, Advisor & Trustee]

Yes. It's Stephen. We don't have a set number for divestitures at this stage.

[Johann Rodrigues, Research Analyst]

Okay, okay. And then just 1 or 2 questions on the development side. In the MD&A part 4.6 at the top of the page, you mentioned the 19 greenfield development projects, 1.3 million square feet and then a planned investment to invest $31 million in the next 3 to 5 years. I was just wondering what does that refer to.

[Rael Lee Diamond, President, CEO & COO]

Sorry. We just have to pull up the table. Give us a second.

[Johann Rodrigues, Research Analyst]

Yes. Page 16.

[Mario Barrafato, Chief Financial Officer]

So what page, 16?

[Johann Rodrigues, Research Analyst]

Yes, part 4.6, greenfield development.

[Rael Lee Diamond, President, CEO & COO]

So what part 4.6 refers to, that is of the greenfield developments. Those are the departments that are under vertical construction because there are others that are -- we haven't yet commenced vertical construction on.

[Mario Barrafato, Chief Financial Officer]

Yes. So Johann, the opening of that section, $31 million is really our planned investments. Between the MD&A up the table below only focuses on one data that are actually under vertical construction. So that's the difference. But $31 million is really our planned spending on these projects.

[Rael Lee Diamond, President, CEO & COO]

Right. So -- and Johann, if you look at Page 15, $31 million is broken up into $26 million would relate to retail and the vertical construction and $6 million relating to industrial and the vertical construction. And that's just the incremental capital. And then, obviously, we have already incurred or obviously already spent a large portion of that.

[Johann Rodrigues, Research Analyst]

Okay. And so anything residential would be on top of that number.

[Rael Lee Diamond, President, CEO & COO]

So anything residential would be included in the residential and that would also -- there's a further table that breaks that out, which is on Page 17. So all the residential under construction is on Page 17 under Construction and Development.

[Johann Rodrigues, Research Analyst]

Okay, okay. That's helpful. And then just one last before I turn it back. Do you have a sense and maybe you said this, maybe you haven't, as to what kind of the proportion would be between rental residential and possible condo?

[Rael Lee Diamond, President, CEO & COO]

So of the projects that Stephen spoke about, the one -- the 5, for example, the 5 in the GTA that are under construction or various stages of development, those would all be rental residential. One of them has a very small condo component, and that one is Bovaird West in Brampton. I believe there's 207 units of rental, and I think there were 80 or so of condo, but in mid-rise condo building. But other than that, it's all rental residential. As far as the mixed use, we haven't yet determined the mix.

[Stephen E. Johnson, Advisor & Trustee]

And our focus is really the rental residential side of it.

[Operator]

[Operator Instructions] Your next question comes from the line of Sam Damiani from TD Securities.

[Sam Damiani, Analyst]

Just wanted to touch base on Woodbine again. Is the Loblaw store there going to be retained? And if so, how will the store be -- have you worked out a way to keep the store operating at the location during construction.

[Rael Lee Diamond, President, CEO & COO]

It will be retained long term and we'll work with Loblaw on how to get it accomplished.

[Sam Damiani, Analyst]

That's certainly key in many of these locations, is having the relationship with the tenant to be able to do that. And then also on the West Block, what's the status on the leasing there in terms of the remaining square footage that needs to be leased before it opens up, I think, next year?

[Rael Lee Diamond, President, CEO & COO]

Yes. So the portion that's opening up next year is all leased, and there is other retail that's under the [ gutter ] now. We've done a lease with -- we've done one lease with a complementary user to Loblaw. And the rest, we've really be holding back on the leasing because we think we would get higher rents once tenants can visualize the space. They would only come online, I think, '21 or '22, Sam. I don't know the exact timing.

[Sam Damiani, Analyst]

Okay. That's helpful. And just finally on the balance sheet. Mario, is there a plan to fix rate some of the variable rate debt that you have today?

[Mario Barrafato, Chief Financial Officer]

That's a good question, Sam. Right now, I mean, we like the variable rate debt. It gives us a lot of flexibility. Specifically, we can trim it out when we want and how we want, and that's pretty valuable also because it gives us time to get used to proceeds. But the reason [indiscernible] about 3 months ago, when interest rates were spiking up, there was a concern. But I think rates are flattening out. And right now, their variable rate debt has term, it's got a reasonable cost, so I think we like the optionality of keeping it the way it is right now.

[Operator]

And there are no further questions at this time. I will turn the call back over to the presenters.

[Stephen E. Johnson, Advisor & Trustee]

Thank you, everyone, for taking the time to attend our conference call, and just have a great weekend.

[Operator]

This concludes today's conference call. You may now disconnect.