Choice Properties Real Estate Investment Trust

TSX:CHP.UN

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Choice Properties Real Estate Investment Trust Q1 earnings announcement. [Operator Instructions] I would now like to hand the conference over to your speaker today, Doris Baughan, Senior Vice President, General Counsel and Secretary. Thank you. Please go ahead.

[Doris L. Baughan, Senior VP, General Counsel & Secretary]

Thank you. Good morning, and welcome to Choice Properties Q1 2021 Conference Call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer; Mario Barrafato, Chief Financial Officer; and Ana Radic, Executive Vice President, Leasing and Operations. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding 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 exceptions 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 actual results to differ material from the conclusion in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying and making these statements can be found in the recently filed Q1 2021 financial statements and management discussion and analysis, which are available on our website and on SEDAR.I will now turn the call over to Rael.

[Rael Lee Diamond, President & CEO]

Thank you, Doris, and good morning, everyone. Thank you for taking the time to join our Q1 conference call. We are pleased to report a strong start to the year. Our high-quality portfolio continues to produce strong earnings and stable rent collections. Although there is still some uncertainty with the third wave of lockdowns, we remain confident that the composition of our portfolio, coupled with our active approach to asset management and our disciplined approach to financial management positions us well to weather this period of uncertainty. Overall, we reported solid financial results for the first quarter. We continued to execute on our development program and our capital recycling initiatives. I'll provide an update on both shortly. But first, Mario will provide you an update on our financial results for the first quarter. Mario?

[Mario Barrafato, Chief Financial Officer]

Thank you, Rael. Good morning, everyone. As Rael mentioned, we're pleased with our strong start to 2021 and our results for the first quarter. I'd like to begin with a brief overview of our rent collections and then speak to our financial results and balance sheet activity. Rent collections for the first quarter were stable at 98%. This was consistent with the second half of 2020 and reflects the combination of our stable portfolio and the overall health of our tenant base. Our rent release measures last year have provided effective support for our tenants through these unprecedented times, the tenants that have been most impacted by the lockdowns, including fitness users, sit-down restaurants, fashion retailers, represent the majority of the uncollected rent. Continuing with rent collections. For the quarter, we reported a bad debt expense of $1.9 million. As outlined in our additional disclosures in our MD&A, you can see that almost all of our AR for the first quarter has either been collected, deferred, pursuant to deferral arrangements or provided against, leading only $5 million of exposure, which we expect to recover over time.Our reported funds from operations for the first quarter was $170.6 million, which is consistent with the first quarter of 2020. This was a relatively clean quarter with the exception of the $1.9 million bad debt I referred to, being offset by approximately $1.1 million of nonrecurring revenue related to lease surrender income. It's important to note that while FFO was flat in the quarter, it reflects over $1 billion in capital recycling executed in the second half of 2020. Recycling mostly secondary and tertiary market retail properties with higher in-place yields into more strategic urban assets and hard to acquire industrial properties with better long-term growth profiles.On a per unit diluted basis, our Q1 FFO was $0.236 compared to $0.244 in the first quarter of 2020. The decrease in FFO per unit for the current period was primarily due to the higher number of units outstanding as a result of the units issued last year to acquire the West Block development and our head office at 22 St. Clair from Wittington and from units issued to acquire the Weston Foods Industrial portfolio from George Weston Ltd.Despite the challenging operating environment, occupancy has held up well, declining by only 10 basis points in Q4 to a strong 97% as a result of some absorption -- negative absorption of 77,000 square feet.Retail occupancy is still steady at 97.4%. Industrial occupancy declined marginally to 97%, driven by an increase in vacancy in our small bay portfolio in Alberta. And office occupancy declined 100 basis points to 91.1% due to increased vacancy in our Calgary office buildings and a tenant default by a fitness operator in our West Georgia office tower in Vancouver.The decrease in total occupancy was partially offset by the acquisition and completed development of fully occupied assets. Same asset cash NOI was relatively flat in the quarter, decreasing by 0.3% year-over-year when excluding bad debt expense. The decline reflects a marginal decrease in occupancy across portfolio and lower parking revenues, offset by the annual step rents embedded within the Loblaw portion of our portfolio.Maintaining stable occupancy and consistent same asset performance just demonstrates the stability inherent in our portfolio.Turning to the balance sheet for the quarter, we reported an increase in our net asset value of $85 million, including an increase of the fair value of our investment properties of $61 million. The changes in fair value for this quarter are less reflective of macro trends and more so on transactional activity. The increase this quarter was primarily related to fair value gains, including the advancement of certain development projects, including Golden Mile and our new partnership with Daniels, which Rael will expand upon.A re-evaluation of our office at 110 Young Street, which was revalued following our [ corner ] sale of their interest to a third-party for pricing in excess of our IFRS fair value and certain industrial leasing transactions completed well above in-place rents.We had very little financing activity in the quarter as the early redemption in the second quarter of last year of our 2 debentures maturing in '21 have left us with no significant debt maturities until September of 2021.We continue to maintain a strong balance sheet with an improved risk profile and significant financial flexibility, and this includes ample liquidity with $1.5 billion available on our credit facility and approximately $200 million in cash on our balance sheet.We also have approximately $12 billion of unencumbered assets that we can finance or prune to raise capital, and we have a well-staggered debt maturity ladder with multiple sources of available capital.Overall, with our stable portfolio, our low debt level, our high liquidity level, we believe we're well positioned.I'd now turn the call back to Rael to address our development and investment activities.

[Rael Lee Diamond, President & CEO]

Thank you, Mario. On the development front, we continue to deliver exceptional assets to our portfolio and are making steady progress on the rezoning of our longer term pipeline. For the quarter, we completed and transferred 4 development projects for approximately 35,000 square feet of GLA at our share. This represents a total development cost of $26 million and includes a land lease for Costco Business Center at our Sunwapta retail assets in Northwest Edmonton. This is the first Costco Business Center to open in Alberta. This is a great addition to the node and represents a great anchor to our existing retail sites. We've also been very busy with our residential developments. Construction is wrapping up at the Brixton in the Queen West neighborhood of Toronto. The first tenants took occupancy this month in Building A, and we will be transferring it to income-producing next quarter. The remaining 2 buildings are finishing up construction, and we expect that they will begin taking occupancy towards the end of this year.Construction is also well underway at Liberty House in Liberty Village, with tenants also taking occupancy later this year. As these projects transfer to income producing, we are keeping our pipeline full and have recently kicked off construction at Mount Pleasant Village in Brampton and at Kirkwood Avenue in Ottawa. Looking forward, we are busy working through the final planning work at both our Sheppard Avenue West and Grenville, Grosvenor sites. We expect to break ground on both these sites over the next 12 months. All told, these 6 residential projects will deliver over 1,100 rental residential units and represents a meaningful addition to our residential asset class.This quarter, we included enhanced disclosure on both our residential and mixed-use development projects. Our team has been working on the rezoning of many existing shopping centers, including Golden Mile. During the quarter, we announced a new partnership with the Daniels Corporation for the first phase of our plan to revitalize and redevelop our 19 acre Golden Mile Shopping Center in the East End of Toronto. The site is adjacent to the Eglinton Crosstown LRT, which is scheduled for completion in 2022.We're excited to partner once again with Daniels to transform the 67 year old shopping center into a mixed use, mixed income, multi-generational and transit-oriented community. Our focus is on building a complete community, and we are thrilled to partner with Daniels, who shares our view of the importance in taking a community-based approach to development. The partnership structure with Daniels is for Phase 1 and will be located on the corner of Victoria Park and Eglinton Avenue and will include 2 condo towers, a purpose-built rental building, ground floor retail, institutional uses and office space that will create a vibrant new gateway to the neighborhood. We will be selling 100% of the condo component being 2 towers and approximately 600,000 square feet of density. We will enter into a 50-50 joint venture on the purposeful rental building being 1 tower and approximately 400,000 square feet. As part of the rental component, Choice will maintain ownership of the land, and we will enter into a 99-year ground lease with Daniels for its 50% share. The partnership is still conditional on achieving final zoning approvals. We continue to work with the city to finalize these approvals, and we expect to break ground on the first phase in 2023.In addition to our development program, we continue to drive value and upgrade our portfolio through capital recycling. After a very active 2020, with over $1 billion of transactions, we executed on several new deals in the first quarter of 2021, including $163 million of new acquisitions and $96 million of dispositions. The most significant transaction this quarter was our acquisition of an 85% interest in approximately 300 net acres of future industrial development land. The land is located in Caledon and our interest was acquired for $138 million, being an initial cash payment of $100 million and future contingent payments of $38 million due on certain milestones being met over the development. We believe this represents a very attractive cost per acre for industrial land in the GTA. We acquired the site in partnership with the Rice Commercial Group, who is a long-standing development partner of Choice. Rice will act as the development manager on the project for Choice, acting as leasing manager and property manager for the joint venture on completion of the development. We are currently working with our development partner to rezone the land to industrial.The land is strategically located at the border of Caledon and Brampton with excellent access to major highways, intermodals and a significant labor pool. The current development plan envisions a multiphase industrial park with a potential for 5 million square feet of new generation logistics space. A contiguous land parcel of this size in the GTA is exceptionally rare. This acquisition is transformational -- is a transformational opportunity for Choice to grow its industrial platform and has the potential to nearly double our current industrial footprint in the GTA.In addition to the land acquisition I just spoke about, over the past year, we have been fortunate to grow our industrial platform by acquiring and developing $215 million of high-quality assets. I would like to take a moment to summarize our industrial platform. We believe that Choice has one of the best industrial portfolios in the Canadian REIT landscape. We own 122 assets comprising over 17 million square feet of GLA with an IFRS carrying value of approximately $2.5 billion. The assets we own are generic distribution, warehousing and logistical assets. We also own purpose-built distribution assets for Loblaw that serve a critical role to their operations.We believe the industrial assets will continue to benefit from strong market fundamentals, driven by the growth in e-commerce and continued investment in supply chain, and we will continue to look for opportunities to further grow our platform, both through new development or acquisitions.I would now like to turn the call back to the operator for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Mark Rothschild with Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

Rael, maybe continuing with what you were just speaking about the industrial portfolio. Can you talk about your preference for large-sized properties versus the small bay? And clearly, there was some softness in some of the small bay in Alberta. Maybe you can give us some more color on what we should expect there as leases roll over the next year?

[Rael Lee Diamond, President & CEO]

Yes. So I'll start and then Ana can chime in. But just generally on industrial, we're seeing very, very good rent growth. Even in Alberta, Mark, just on the mid bay and the large bay space, as you pointed out, we are having some softness on the small bay space. Our small bay space in Toronto is full. We're getting great rent growth. Maybe Ana can just comment on Alberta for a moment.

[Ana Radic, Executive Vice President of Leasing & Operations]

Hi, Mark. In Alberta, we have had softness. But what we're seeing this quarter is actually an increase in our small bay occupancy. The drop in our occupancy was actually a larger just well -- functional distribution space that is now vacant, but we anticipate being able to lease quite easily. So we're optimistic to see the small bay activity pick up, and we're also seeing that our rents are holding pretty steady in our small bay Alberta portfolio.

[Mark Rothschild, MD & Real Estate Analyst]

And maybe on this development, is it possible to give some information on the timing and the return you're expecting on this project? It's obviously quite sizable.

[Rael Lee Diamond, President & CEO]

Yes. Mark, we're working through the zoning to [indiscernible]. The timing is difficult to predict, but we think -- I'll call it the zoning process will take us around 2 years. We just think that we have such an attractive land cost basis. Nothing has traded in the GTA for this price in a while. And services are right at our site. So we actually think we have a unique position to drive above-average returns from this development. The other thing I'd just add quickly, Mark, is a development like this allows for phasing over time. So unlike, call it, a purpose built rental asset, we're investing all the capital at once, we're able to phase this over time as the demand is there.

[Mark Rothschild, MD & Real Estate Analyst]

And maybe just one last question, continuing on the development. You gave some more information on your MD&A on the different development projects. Is there any significant capital that will be spent on the Golden Mile or maybe some of your other major projects such as Dundas Street over the next year or 2?

[Rael Lee Diamond, President & CEO]

The bulk of the capital on those projects will be rezoning. So there's nothing really significant until 2023.

[Operator]

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

[Tal Woolley, Research Analyst]

Just on the leasing of Brixton, can you talk a little bit just about where you're seeing net rents on the initial leases and how far through the lease-up process you are? I gave -- I understand it's -- you're just starting out, but just interested in demand right now?

[Rael Lee Diamond, President & CEO]

Yes, we're marketing the space at around $380 a foot. We've just started leasing up. I think we've done like 20 leases. The rents we've received -- the net rents we're achieving, I say net because we've been offering some incentives are in the mid-3s right now. But we do expect demand to pick up as things open up.

[Tal Woolley, Research Analyst]

And just in terms of on the office side, like can you just talk a little bit more about where you've kind of seen your occupancy losses and how you're thinking about recovering that over time?

[Ana Radic, Executive Vice President of Leasing & Operations]

Well, we're seeing the occupancy losses right now in Alberta. It's really been driven by a few bankruptcies that we've had tenants whose businesses were actually -- weren't really office. We had a conference facility and a fitness tenant. And we're working on sort of repurposing that space. And that sort of drove our decline this quarter. But we expect that we will -- we do have some additional vacancy that we know about. This is going to be reflected in -- a little bit in Q2 and then into Q3, a tenant in Toronto that we've known well pre COVID is relocating and consolidating their operations in downtown Toronto. It's a good space, and we were pleased to see tour activity and office pick up in the first 2 months of the year, but we're seeing it quite down again as lockdowns were reinstituted in Toronto. So we anticipate things are going to be slow until we return to a more sort of normalized operating platform. But we are bullish on the long-term because we're starting to see -- we know our tenants are coming back, and we haven't really seen any of our tenants indicate that they're going to be utilizing less space than -- or come to us looking to downsize as of yet.

[Tal Woolley, Research Analyst]

And then just going back to the Caledon land purchase. Is it expected over time that Loblaw would absorb a fair amount of that space?

[Rael Lee Diamond, President & CEO]

We obviously will speak to Loblaw. But at the moment, there's no discussions on that.

[Tal Woolley, Research Analyst]

And then just lastly, given all the changes sort of at Weston in terms of capital allocation strategy, there's been some management changes too. In your conversations with them, do you expect any -- some of the changes that they're making there's -- will have any impact sort of on how you guys need to think about capital allocation at Choice?

[Rael Lee Diamond, President & CEO]

Look, we have a great relationship with both George Weston and Loblaw. From a George Weston point of view, they've been very supportive for -- of our business plans and our growth, and we don't expect any changes.

[Operator]

Our next question comes from the line of Sumayya Syed with CIBC.

[Sumayya Syed Hussain, Associate]

Just firstly on the active residential developments. I see there's some new disclosure around stabilized yields. Have these stayed consistent from your, I guess, initial expectations? Have you seen any expansion, I guess, over the course of the last year?

[Rael Lee Diamond, President & CEO]

So Sumayya, if you asked us 12 months ago, we would have expected slightly better yields. But our view right now, we're taking current rents given COVID. So I'd say yields have compressed a little bit. But long term, we're very bullish on the asset class.

[Sumayya Syed Hussain, Associate]

And then just moving on to the industrial side. Can you kind of speak to the magnitude of rent spreads you're seeing, especially in the GTA?

[Ana Radic, Executive Vice President of Leasing & Operations]

Yes, we're seeing pretty strong rental lift in the GTA. When we look -- our spreads this quarter were north of 15% in terms of the -- sorry, overall, they were north of 15%. But in the GTA, we saw a lift of over 60% relative to expiring rents. And that's -- and I would say, looking ahead, we expect to see rents of between 30% and 60% across the GTA portfolio.

[Sumayya Syed Hussain, Associate]

And just lastly, on industrial. Can you just remind me what proportion of that portfolio is Ontario versus Alberta?

[Rael Lee Diamond, President & CEO]

So I don't have the exact stats right now. We'll get back to you on that. I think about 1/3 is Alberta, and about -- and I believe about -- I think it's around equal, but we'll come back to you exactly.

[Operator]

Our next question comes from the line of Himanshu Gupta with Scotiabank.

[Himanshu Gupta, Analyst]

So staying on the industrial segment. So if I look at same asset cash NOI was flat on a year-over-year basis. How should we think about same-property NOI growth for the full year 2021?

[Mario Barrafato, Chief Financial Officer]

Yes. Really, right now, with industrial, it's just a function of timing. Right now, the stuff that's rolling is mostly Alberta based. So there, you've got tighter rent spreads and a little more potential for vacancy. So we do expect it sequentially as we go. You're not going to see -- you'll see more like probably averaging low single digits. But really, the pop comes when we get more Ontario rollover compared to Alberta.

[Himanshu Gupta, Analyst]

And Mario, what's the occupancy in Alberta and industrial right now, let's say, compared to the last year?

[Ana Radic, Executive Vice President of Leasing & Operations]

It's about 94% right now.

[Himanshu Gupta, Analyst]

It's about 94%. Okay. And then on the Caledon property, obviously, a very sizable acquisition, 300 acres there. So just a couple of clarifications. So you mentioned the zoning might take around 2 years. And eventually, there will be 5 million square feet of GLA. Is that correct?

[Rael Lee Diamond, President & CEO]

That is correct. And Himanshu, just on the zoning, we are working through it. I'll try to give you some outside date, but it's obviously reliant on the municipality and the province.

[Himanshu Gupta, Analyst]

And this development will be done on step related basis, right? I mean this -- not -- I mean, the property has not been bought keeping Loblaws in mind. Is that correct?

[Rael Lee Diamond, President & CEO]

Correct. We hope we can accommodate Loblaw if they want to look at the property, but no, we -- it's going to be generic industrial space.

[Himanshu Gupta, Analyst]

And any -- or is it too early? I mean, is this going to be big box format is it going to be small bay? Any thoughts there in terms of what the format will look like?

[Rael Lee Diamond, President & CEO]

It's primarily going to be big box and mid box space.

[Himanshu Gupta, Analyst]

And I guess, development yield is still far away, but any thoughts there in terms of -- I mean, what are you looking for in terms of development yields?

[Rael Lee Diamond, President & CEO]

Look, we -- I think we'll disclose it as we start construction. But I think we have to ground you, you just have to go back to what we looked -- what we purchased the land for. And we have an exceptional land cost base versus what land is trading at in the GTA for development.

[Himanshu Gupta, Analyst]

And then just switching over to Golden Mile, obviously, a very exciting project for Choice. What was the fair value gains regarded on the Golden Mile redevelopment in Q1?

[Rael Lee Diamond, President & CEO]

So within our -- I think we said we had $61 million of gains on fair values. I think probably around -- in total, about $35 million were related to development, and the bulk of that would have been Golden Mile.

[Himanshu Gupta, Analyst]

And just with your zoning application has been submitted on Golden Mile but not approved. So can we say this will trigger another fair value gain once the application is approved?

[Rael Lee Diamond, President & CEO]

A smaller one. So the way the accounting works for development fair value is as you hit certain milestones, you have to report gains over time. And that's the policy of the auditors who do that. So from our point of view, with Golden Mile, we got to the point where, after our deal with Daniels, with the media release, with the participation of the mayor, deputy mayor and the community. We just felt that it was de-risked a bit more. So there was still process, but we felt that the risk profile changed, and it's just time. So what you'll see is fair value increases related to as the time goes away as opposed to the zoning itself. So there will be some but it will be smaller.

[Himanshu Gupta, Analyst]

And then on the Daniels project. So 2 condo towers will be built by Daniels, right? And the purpose will be 50% Choice and 50% Daniels, correct?

[Rael Lee Diamond, President & CEO]

Correct.

[Himanshu Gupta, Analyst]

So the 2 condo towers, which will be built by Daniels, have you recorded any fair value gains on that transaction? I mean this is technically a sale to Daniels for the condo towers?

[Rael Lee Diamond, President & CEO]

Yes. Technically, it's all in a net amount, Himanshu. So the gain you saw this quarter related to both the contingent sale of air rights and as well as the building.

[Himanshu Gupta, Analyst]

And maybe last question on -- from my side on capital recycling. Obviously, that's been the focus. You have been very active last year as well. Do you think the theme is going to be exactly same in 2021? I mean selling some second retail [indiscernible] retail and buying more industrial? I mean is that the general view for full year as well?

[Rael Lee Diamond, President & CEO]

It's hard to say at this point. The opportunity based, but given the size of our retail platform, it's likely that we may recycle out of some of those stable assets and into higher growth assets. But it's hard to say right now, given we have so much liquidity on the balance sheet and so much cash, we probably -- the dispositions will probably be towards the end of the year.

[Himanshu Gupta, Analyst]

And maybe just one final one on the rent collection. We are again in the lockdown now. Any impact on April rent collections because of that?

[Mario Barrafato, Chief Financial Officer]

So right now, Himanshu, with the last few quarters, it's kind of been the same. We've been at 98% plus collections. And so right now, I think we're watching. But right now, we're just supporting it the same group of tenants really that are still being victim of the lockdown. And everybody else is kind of performing well. So we don't anticipate this lockdown having a different macro trend. There might be some isolated tenancies. But overall, we're kind of expecting to be at the same collection point or hopefully better.

[Operator]

Our next question comes from the line of Mike Markidis with Desjardins.

[Michael Markidis, Real Estate Analyst]

3 sort of mini questions just on that interesting development parcel that you bought in Caledon. #1, was it off-market, more marketed? #2, is there anything unique associated with the 300 acres that you see as being presenting a challenge associated with the zoning process? I know you've said 2 years. And then #3, just focusing on that exceptional cost basis you have, I just wonder if you'd be able to hazard a guess as to what a fully zoned parcel of that nature would trade at a price per acre in the market today?

[Rael Lee Diamond, President & CEO]

So Mike, we've had long-standing development partners and Ross Commercial Group has been a very good partner of ours. So this was off market. They got the land under contract through, again, through an existing relationship with them. We're actually acquiring 400 acres, and there is some space that we believe will be included in the Green Belt. So that's why we're saying it's 300 net. But we don't think there's anything unique. We just think it's the whole area is going through a rezoning process. So it's just time. We would think that zoned land ready to go is probably trading at around, call it, $1.5 million to $2 million an acre.

[Operator]

Your next question comes from the line of Sam Damiani with TD Securities.

[Sam Damiani, Director, Institutional Equity Research]

First off, just congratulations on the industrial acquisition, great to see. My questions are more on the retail side. I wonder if you could just give us a bit of an update on the third-party leasing trends, both in the grocery-anchored and in the power center properties, how that's evolved year-to-date?

[Ana Radic, Executive Vice President of Leasing & Operations]

Hi, Sam. Occupancy is holding very strong, and we're really pleased to see that. And we're really actually pleased to see that there are many retailers that are looking to grow their retail footprint, and we're seeing that across the country. We're in active negotiations to expand existing tenants and bring new ones. The segments that are growing are sort of off-price department stores, the sort of home furnishing, discount banners, fixture restaurants. Our banks seem to be renewing, and we're talking to them about a few more locations. So I'm really pleased to see the activity. And we're also pleased to see some new fashion retailers entering Canada, L.L. Bean, just they're opening in our center in Dartmouth Crossing, and we're talking to them about other locations. Forever 21 is reopening in Canada. We're talking to them about our location in Quebec. So I don't think I would -- might have been saying this like 12 months ago, but I'm really, really optimistic.

[Sam Damiani, Director, Institutional Equity Research]

And what about the investment market for retail, I guess, specifically grocery anchored? Can you speak to any activity you're seeing in the market? And anything you're expecting to come to light in the near term?

[Rael Lee Diamond, President & CEO]

Yes. Look, it's the same theme as last quarter. There's really lots of liquidity looking for stable grocery anchored retail. And we really think it separated itself from other types of retail. And it's all types of investors, institutional, foreign, private, et cetera. So our lack of transactions is a function, as I said earlier, of the fact that we're pushing our dispositions towards the end of the year. It's not a lack of capital.

[Sam Damiani, Director, Institutional Equity Research]

And just finally, the additional disclosure on the developments is very much appreciated. I wonder if you could just give a little bit of insight on the Eglinton Golden Mile disclosure. It looks like the investment to date is about $7 million. Just for clarification, that is just in respect of the redevelopment. So the existing shopping center would be -- would have a cost above that. Is that correct? Or is that the whole cost for the entire existing property?

[Rael Lee Diamond, President & CEO]

No, you're correct. The existing shopping center has a cost above that. It's included in income producing, and we're carrying it with no density attributed to it other than the fair value gain that Mario spoke about earlier. So it would be included in our existing assets.

[Operator]

Your next question comes from the line of Jenny Ma with BMO Capital Markets.

[Jenny Ma, Analyst]

Most of my questions have been answered, but I was wondering at Golden Mile, you mentioned that there was a 99-year ground lease with Daniels. I'm just wondering if you could expand on that because I know you have a longer-term investment horizon and a different perspective on sort of development and its role in your portfolio. So is that something that was unique to Daniels or this specific property? Or is that just a different way of thinking about how you partner on future developments?

[Rael Lee Diamond, President & CEO]

Yes, Jenny, thanks. We actually think it's a different way of thinking. It's actually the second ground lease structure we did. Our Kirkwood asset in Ottawa has a similar structure. As a long-term owner of real estate, we like the income. We like the steady income. So we actually think it's a unique way of looking at it. As well, our balance sheet is in such great shape. It's not like we need the capital. So we are able to essentially reinvest that capital back into essentially the development.

[Jenny Ma, Analyst]

So with the way that it's structured, then I presume you don't book any sort of fair value change as a result of that versus just doing an outright sale of half the property?

[Mario Barrafato, Chief Financial Officer]

It would -- I think it all depends, but there would be, Jenny, because what you would do is you have to present value. Now you have a land lease, you have a cash flow. And so depending on what the item was carried on before, the delta between the carrying value of the land and the present value of the cash flow would be your fair value gain.

[Jenny Ma, Analyst]

And maybe I missed it, but was that disclosed for this particular property?

[Rael Lee Diamond, President & CEO]

So this particular property. So on Golden Mile, -- on Golden Mile it's still conditional. So all our disclosure discloses the conditional nature of the transaction, it's conditional zoning. Kirkwood, it was disclosed, and I believe it was disclosed last year.

[Jenny Ma, Analyst]

And then turning over to the multifamily leasing. So you had mentioned that there were some incentives being offered. And I know it's still a little bit early days on leasing -- on multifamily demand coming back in Canada. But could you speak to what kind of tenant profile you're seeing? Who's coming back to the market for multifamily properties, particularly the higher cost downtown properties?

[Rael Lee Diamond, President & CEO]

It's generally professionals looking to either upgrade their -- or upgrade their units or just moving into the market. But as I say, we've only done sub-20 leases, so we can give you more color as the time goes by.

[Jenny Ma, Analyst]

And then lastly, can you just remind me on these brand-new properties, the rent control or whether or not there's any rent control on these new multifamilies?

[Rael Lee Diamond, President & CEO]

These 2 are excluded from rent control.

[Operator]

[Operator Instructions] Your next question comes from the line of Pammi Bir with RBC Capital Markets.

[Pammi Bir, Analyst]

I realize, again, it might still be early, but for the Golden Mile project, what can you share perhaps in terms of the estimated costs for Phase 1 or at least maybe even just the first portion of Phase I as it kicks off in 2023?

[Rael Lee Diamond, President & CEO]

Yes. So Pammi, so, I don't have those numbers with me, but you can pretty easily work it out with, call it, there's 1 million feet of density at, call it, $700 a foot. So call it, $700 million of investment.

[Pammi Bir, Analyst]

And Rael you mentioned growth rate, the appetite for grocery-anchored properties is still quite strong from an investment standpoint and understandably so. So I'm curious, your thoughts on pricing with respect to perhaps some larger power center space. We did see an interesting Wal-Mart anchored property trade in Brighton so I am curious if you have any thoughts there as well.

[Rael Lee Diamond, President & CEO]

Yes, truthfully, I haven't followed it as closely, but it is -- it's definitely a bit softer than the grocery anchored. But look, I think for a well-located power center with good tenants, there'll still be lots of liquidity.

[Pammi Bir, Analyst]

Just maybe just one last one, perhaps a bit more high level. The industrial program is obviously -- it sounds like it's -- the focus is definitely expanding it up then, I guess, for a little bit of time now. But if you think maybe longer term, is there sort of an ideal mix that you perhaps think that the portfolio could move towards over time?

[Rael Lee Diamond, President & CEO]

We do think of ourselves as a diversified REIT, but others think of us as, call it, a grocery-anchored REIT still or a retail REIT. So we think in order to get thought of as a diversified REIT, call it, retail has to represent sub 70% of your NOI. So we would like the other asset classes to make up the balance. Right now, it's, call it, 20%. So we've got a way to go. And the mix will be industrial and residential will be up. Office will be up primarily through office components on mixed-use development, but it is unlikely us to purchase a stand-alone office asset.

[Operator]

Well and at this time, there are no further questions. I would now turn the call back to Rael Diamond for any closing remarks.

[Rael Lee Diamond, President & CEO]

Thank you, Phyllis. So I want to thank everyone for joining us on the call today. Please do all you can to stay healthy and be safe, and have a good weekend. Thank you.

[Operator]

Thank you. That does conclude today's conference. We thank you for participating. You may now disconnect.