Choice Properties Real Estate Investment Trust

TSX:CHP.UN

Earnings Call Transcript 2021-Q4

[Operator]

Welcome to the Choice Properties Real Estate Investment Trust Fourth Quarter 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Doris Baughan, Senior Vice President, General Counsel and Secretary. Please go ahead.

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

Thank you. Good morning, and welcome to Choice Properties Q4 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 materially from the conclusions 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 Q4 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 fourth quarter conference call. We are pleased with our solid financial results for the quarter, demonstrating our business model, stable tenant base and disciplined approach to financial management to continue to position us well. Additionally, we continue to advance our development pipeline and executes on our capital recycling initiatives, which provides us with exceptional opportunities to add high-quality real estate and drive net asset value growth over time. Turning to the full year. 2021 was a year of resilience, and we are proud of our accomplishments. In addition to our strong performance, we reinforced our commitment to sustainability and made significant advancements in our environmental, social and governance program. To maximize our impact, we are focused our ESG strategy on 2 pillars: fighting climate change and addressing social equity. In addition, we committed to set emission targets that are in line with current climate science. In November, we integrated sustainable finance into our business with the release of our green financing framework and the completion of an overall green bond offering. Joining me on today's call is Ana Radic, who will provide an update on our strong operational results and then Mario Barrafato, who will provide an update on our solid financial results. I will then provide an update on our transaction activity and our development programs. Ana, over to you.

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

Thank you, Rael, and good morning, everyone. As Rael mentioned, we are pleased with our operational results for the quarter and continue to see positive signs across the portfolio. Although renewed operating restrictions were implemented in late 2021 due to the emergence of the Omicron variant, we are seeing positive leasing momentum, most notably in our retail and industrial segments. Our approximately 45 million square foot retail portfolio, which consists of open-air centers with necessity-based tenants, continues to deliver stable results. Canadian retail performance in 2021 as well as other macro factors indicate that we have turned the corner in the economic recovery. Retail sales for 2021 are up 8% compared to pre-COVID levels in 2019, leading to a positive outlook for 2022. Our retail occupancy increased slightly from the prior quarter as 115,000 square feet of new deals commenced in the quarter and 410,000 square feet of renewals were completed at rents, 3.9% above expiring rents, resulting in tenant retention of 89%. Our neighborhood centers continue to perform exceptionally well. At the height of the pandemic, we saw a few tenant closures and steady demand. What we are seeing now are a variety of tenants actively looking to open new locations with discount, quick-serve restaurants, off-price fashion, home furnishings, pharmacies, pet stores and fitness operators being the most active. We are also seeing strong demand at our power centers. In the quarter, we completed several new deals with home furnishing, fashion and discount retailers. Industrial fundamentals are strong, and this segment will provide growth going forward as the supply-demand imbalance in most markets for distribution and logistic warehouses continues to drive record high rental rates. The GTA market availability rate remained at 0.9%, unchanged from the third quarter, while national availability dropped to 1.8%, an all-time historic low. Our portfolio occupancy increased 40 basis points in the quarter, finishing at 98% occupied. We are seeing improved leasing conditions in Calgary and Halifax, having completed 75,000 square feet of new lease deals in these markets. Our Western Canadian portfolio is 95.6% leased outperforming the market. We anticipate that Calgary will continue to tighten as it is a key distribution hub and is benefiting from the growth in logistics tenants as well as improved economic certainty, fueling demand for spaces, 10,000 square feet and under. Our 6.6 million square foot Ontario office -- sorry, Ontario portfolio fits at full occupancy. While we had limited industrial maturities in the quarter, we are optimistic in our ability to capitalize on strong market fundamentals to continue to grow rents. We have several large blocks of distribution space expiring in 2022 that will give us the opportunity to do just that. Our industrial occupancy and NOI will decline in 2022 as we re-lease several large blocks to new tenants. These new lease deals will be completed at significantly higher rents, resulting in higher industrial NOI in 2023. For example, we have completed a new 113,000 square foot lease deal in the GTA with the incoming tenants lease rate exceeding that of the outgoing tenant by $7.25 per square foot, which is a 120% increase over the expiring tenants rent. Office leasing momentum improved in Q4 with more tour activity and a reduction in sublease spaces as tenants that delayed space planning decisions due to COVID began reentering the market. With office vacancy rates increasing across most markets in Q4 in Downtown Toronto, where our largest assets are located market vacancy dropped 20 basis points in the quarter to 9.7% and sublease availability dropped even further. Occupancy in our 3.6 million square foot office portfolio declined from 88.7% to 88.2% due to limited leasing activity taking effect in the quarter and 18,000 square feet of negative absorption in Halifax and Montreal. That said, we did see a lift in renewal spreads of approximately 4.5% on the deals that were completed in the quarter. Starting this fall, we have seen a marked increase in tour activity with more new tenants looking to transact and existing tenants expressing a desire to expand. Small and midsized tenants were most active as their space utilization did not change as compared to larger tenants. During the quarter, we completed expansions of 4 office tenants and 5 new deals in Calgary totaling 26,000 square feet at our own share, taking effect in future periods. Overall, our operating results in the fourth quarter and for the year were strong, reflecting the strength and resilience of our portfolio. We are confident that the operating decisions and investments we have made will continue to deliver strong results looking ahead. I'll now pass the call over to Mario to discuss our financial performance.

[Mario Barrafato, Chief Financial Officer]

Thank you, Ana, and good morning, everyone. The fourth quarter reflects our ongoing ability to deliver solid financial results. This is evident in our financial performance and by our right collections, which were over 99% for the year. While bad debt expense was $750,000 for the quarter, our lowest provision during the pandemic. Our reported expense from operations for the fourth quarter was $174.7 million, or $0.242 per unit. Included in FFO are certain nonrecurring items, which effectively net each other out, but they include a $1.5 million early redemption premium for our Series 1 unsecured debenture that would have matured in the first quarter of 2022 and $1.3 million of higher G&A costs, primarily driven by a head office lease termination payment. This was offset by income of $2.6 million related to lease termination and other revenue adjustments. Compared to prior year, our FFO for the quarter increased $3.3 million, primarily due to contractual rent steps in our retail portfolio, increased occupancy and rental rate lifts in our industrial portfolio and a decline in bad debt expense of $1.5 million. On a per unit diluted basis, our Q4 FFO was $0.242, up 1.3% compared to the fourth quarter of 2020. Our period end occupancy remained strong, increasing slightly to 97.1% compared to 97% last quarter with retail at a strong 97.5%, industrial at 98% and office at 88.2%. We had approximately 808,000 square feet of lease expiries in the quarter, of which we renewed 734,000 square feet for a retention ratio of 84% and leasing spreads of these renewals were 3.3%. We also completed a further 201,000 square feet of new leasing resulting in overall positive absorption of 56,000 square feet for the quarter. Same-asset cash NOI increased by 2.6% compared with the fourth quarter of 2020. By asset class, retail increased by 2.6% while industrial increased by 5.5%. These increases reflect the improvements in rent collections, contractual rent steps in the retail portfolio and positive fundamentals in the industrial portfolio. Office same-asset cash NOI decreased 3.7%, primarily due to vacancies in Ontario and Alberta, partially offset by a reduction in bad debt expense. When excluding bad net expense, total same asset cash NOI increased by 2%. We're pleased that we've been able to maintain stable occupancy and consistent same asset results for 5 consecutive quarters. Our business continues to be supported by our industry-leading balance sheet that provides us with flexibility in the face of broader market volatility. We reported a total increase to our net asset value of $153 million or 1.7%, marking the sixth consecutive quarter we've recognized NAP growth. Our growth was driven by fair value gains on our investment properties of $109 million, mainly attributed to strong demand fundamentals for industrial properties. We also continue to improve both our leverage ratios and our liquidity profile for the quarter. Our leverage was 40.1% at the end of the fourth quarter, an improvement of 2.6% compared to 2020. Our debt-to-EBITDA declined to 7.2x and compared to the reported 7.6x in the fourth quarter of 2020. Normalizing for excess cash from the timing of transactional activity in both years, debt-to-EBITDA declined to 7.1x compared to 7.3% in the fourth quarter of 2020. From a liquidity perspective, we have approximately $1.6 billion in available cash, comprised of $1.5 billion of available credit on our lines and $125 million in cash and cash equivalents. This is further supported by approximately $12.8 billion of unencumbered properties. As Rael mentioned, we successfully completed our green bond offering in the fourth quarter issuing $350 million of unsecured debentures for a 5-year term, bearing interest at 2.46% per annum. Proceeds from this offering were used to improve our debt maturity profile by early redeeming our $300 million March 2020 debenture and retain our credit facility. The pricing on this transaction is a testament to our strong credit with the spread representing the lowest Canadian REITs sped on record. Pricing also reflected a 7 basis point premium, relative to where our bonds were trading on the secondary part launch. In addition to strengthening our debt profile, we continue to improve real broad quality of our portfolio through capital recycling. Late in the quarter, we successfully and opportunistically sold $230 million of income-producing properties deemed not strategic to our core portfolio, while acquiring $40 million in properties. For the year, we divested $330 million of properties and reinvested the proceeds into $240 million for high-quality properties with either stronger fundamentals or development potential. Rael will provide more color on the Q4 transaction shortly. In addition to acquisitions, we continue to add high-quality properties our development program. We end the year with development spending totaling $135 million, completions for the year were roughly double this number at $255 million, adding 420,000 square feet of GLA to our portfolio and 324 residential units at the Brixton and Liberty House in Toronto. So overall, we are pleased with our quarterly and annual performance. We continue to deliver stable and resilient operating results while driving that asset value through development and capital recycling. All of this supported by a conservative and flexible balance sheet. I'll now turn the call over to Rael to address our development and investment activities.

[Rael Lee Diamond, President & CEO]

Thank you, Mario. Looking back to 2021, we made significant progress on both our development program and transaction activities. We completed approximately $570 million in total transactions and meaningfully advanced our industrial development pipeline and future residential pipelines. During the year, we completed and transferred 10 projects at a total investment cost of approximately $250 million, delivering 145,000 square feet of commercial space and 394 residential units. Turning to the quarter, we completed $46 million of acquisitions and $230 million of dispositions. On the acquisitions front, we completed the purchase of 550 Avenue from a third party. This high-performing Shoppers Drug Mart is located in a desirable Midtown node of Toronto, providing excellent long-term redevelopment potential adjacent to a future station on the Eglinton LRT line. We also closed on the from Loblaw of a standalone grocery store in Guelph, 1 of the fastest growing cities in Ontario. Finally, we continue to assemble land with a future industrial development potential at our Calvin side, adding approximately 16 acres to the 300 net acres acquired during Q1. This was completed at attractive pricing per acre, consistent with the original acquisition. Our development partner is currently working through the rezoning approval process with the town of Calvin to permit a total of approximately 5 million square feet of industrial space. As Mario mentioned, we remain active on the disposition front. And during the quarter, opportunistically sold approximately $230 million of noncore assets and underutilized land. These dispositions speak to the demand from investors for our assets, and we successfully transacted on the assets at pricing above our book value on each of them. On the industrial front, we capitalized on the market by selling a portfolio of 5 older generation assets for $45 million in Calgary with operational challenges. And on the retail side, we sold 6 assets across the country for total proceeds of approximately $172 million. On the development front, during the quarter, we transferred 2 residential projects to income-producing properties, including Liberty House and the third and final phase of the Brixton for a total development cost of approximately $108 million. Liberty House is at the entrance to Liberty Village. It is now 30% leased, and we expect stabilization by the second quarter of 2023. Brixton is located in Downtown Toronto at the Dufferin and Queen intersection and is approximately 75% leased, and we expect stabilization in the second half of this year. Subsequent to the quarter, we purchased a development partner share in each of these assets increasing our total ownership to 50%. We also recently received permits on our industrial development in South Surrey BC. New generation logistics facility will target LEED Silver certification and is up for tender with the contractor already mobilized on site. When complete, the center will add approximately 350,000 square feet to our growing industrial portfolio. Looking ahead, we have 11 projects representing over 10.5 million square feet in different stages of the rezoning and planning process. We believe we have 1 of the best long-term development pipelines in the REIT space that will drive significant long-term net asset value appreciation. With that, I would like to turn the call back to the operator for questions.

[Operator]

[Operator Instructions] Your first question is from Sam Damiani with TD Securities.

[Sam Damiani, Director, Institutional Equity Research]

Just wanted to start off on, I guess, what you sort of ended off on rail, which is the value of these significant sites that Choice has had for years, most of them near or adjacent to mass transit. How are you thinking about the fair valuing of those properties today versus a few years ago? And how you think -- we should think about how that might be booked over the next couple of years?

[Mario Barrafato, Chief Financial Officer]

Sure. I'll take that. I guess, there's 2 ways. I mean, right now, in our financials, their value just at their income-producing capability today. We tend to value our properties or increase their values based on milestones where we have visibility. And so right now, I think there's probably -- there's value there, but it's just not reflected in our financials. And I'd be advanced to pursue construction as we pursue zoning, as we prefer leasing, you'll see that pop. And I guess all in multi good example of where there's a store right now. And as we advance that and as we have more, I guess, consolidation of the value, then we'll see that come through our financial statements.

[Sam Damiani, Director, Institutional Equity Research]

Is that something, Mario, you think might occur within the next 1 to 2 years based on your framework and you're kind of got in mind right now?

[Mario Barrafato, Chief Financial Officer]

I think it will happen gradually, Sam, and there will be milestones and leave next year. But it's -- you don't get that pop anymore. You're -- it's going to be gradual for the life of the development.

[Sam Damiani, Director, Institutional Equity Research]

Rael, just on the disposition activity, I wonder if you could just, I guess, get into a little bit of detail on the rationale for a couple of the properties that were sold, including the retail and the industrial in the Calgary?

[Rael Lee Diamond, President & CEO]

Yes. So we'll start with the industrial. The industrial was older generation industrial, not typical industrial. And from our point of view, it had leasing challenges. They didn't have the right off doors, access, et cetera. And in some -- in fact, some of the tenants were typical industrial users. On the retail side, truly, we always look to clean up or sell weaker assets in our portfolio that we view as nonstrategic. As an example, we sold a large power center in Quebec City that had tenants that we view may be at longer-term risk. So we're able to recycle that capital into better long-term growth assets, such as the industrial we're working about this year.

[Sam Damiani, Director, Institutional Equity Research]

Okay. Last one for me would just be on the 2 residential properties that were completed last year and you increased your ownership stakes. Is there anything you could, I guess, share with us in terms of the pricing on those increased stakes relative to cost or how it was determined?

[Rael Lee Diamond, President & CEO]

Look, has done it -- It was a negotiated price. It's done at fair market value. It was purchased at between $900 and $1,000 a foot, which would translate to around a 3.5% cap rate. And I don't remember exact cost per foot, Sam, but I think our cost per foot was closer to between $600 and $700 all-in, but I don't remember the exact number of that. But remember, we started these projects about 3 years ago. So we did benefit, obviously, from locking in pricing earlier.

[Operator]

Your next question is from Sumayya Syed with CIBC.

[Sumayya Syed Hussain, Associate]

Just wanted to touch on the 2 residential assets that got moved to income produced in the quarter. And if there was any NOI contribution from those and if not, how do you see that stabilizing?

[Mario Barrafato, Chief Financial Officer]

There would have been some. It's very small, I think, in the quarter. But as Rael said, the will stabilize this year, Liberty House next year. So there will be NOI. But again, given that size of the projects relative to the portfolio, I think right now, we won't have that meaningful impact on to NOI.

[Sumayya Syed Hussain, Associate]

Okay. And then just moving on to rent collections, obviously, very strong, but just a portion that's been deferred and outstanding. When do you expect to recover that it's going to be within 2022? Or anything spilling over into '23?

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

The majority of our deferral agreements with tenants are with repayment over 2022, like that would be the vast majority, I would say, like 95% -- 90%. And then there are some with very large creditworthy tenants.

[Sumayya Syed Hussain, Associate]

And I know you mentioned that you're seeing an improvement on the office side in terms of activity. Can you to what you're seeing in terms of rents and lease terms that you have these dialogues with tenants?

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

Yes. I mean rents are holding up very well. We've recorded -- our spreads on office rents this quarter were 4%, and we are really seeing a marked drop in rents and there's still rental rate growth relative to deals that were entered into 5 years ago. So I think rents are holding up very well. And then in terms of activity, we're seeing but activity, as I said, from smaller and midsized tenants, particularly.

[Operator]

Your next question is from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, Analyst]

So in industrial portfolio, you're expecting some reduction in occupancy as some of the expiries come due in 2022 and then obviously, you see a recovery next year. So how should we think about the same-asset NOI growth in 2022 in this segment?

[Mario Barrafato, Chief Financial Officer]

So right now, again, I said, things are very positive. And absent the industrial vacancies, like we would -- we'd be expecting to see that an NOI growth of slightly over 2%. But because of those vacancies, it will be probably close to 1.5% overall, but we expect retail to be at around to the industrial because of those vacancies will be probably flat or slightly negative. But then I said, when those leases renew, they'll be renewing at rents that could be 80% to 100% higher. So the following year, I think the seeds are planted really for stronger NOI growth, again, close to that 2%, 2.5%, but next year we muted bit.

[Himanshu Gupta, Analyst]

So the big recovery in the investment will be 2023 and probably 2022 will be a bit muted. And then, Mario, you also mentioned retail at 2%. So if I look at the retail occupancy, it's still slightly below pre-pandemic levels. So are you baking in some occupancy gains as well in your 2% estimate?

[Mario Barrafato, Chief Financial Officer]

Slightly, yes. So we see -- so we were about 97.5%. Our retail is there right now, and we see a bit of occupancy gain. They may get back on the office side. But the most positive thing is that we're seeing some rental rate growth again. And then that's really -- that will be the driver of NOI growth.

[Himanshu Gupta, Analyst]

And then just sticking to the industrial side, I mean, if I look at the IFRS cap rate, industrial portfolio is now at like 5.3 cap rate. I mean do you think there is scope for the cap rate to come down, especially in the context of, I mean, the recent transactions we're seeing in the market?

[Mario Barrafato, Chief Financial Officer]

Yes, we do. I mean we've had -- we've been writing it up every quarter because, again, for the process internally, we try to be disciplined to have third-party data. And every quarter, there's new data. There's information on rents, and there's new information on transactions. And we do think there's value there, both in the stabilized industrial and especially in the development line.

[Himanshu Gupta, Analyst]

And then, again, in industrial, you sold those non-core old generation assets in Calgary like $45 million. Are there more of these? Do you think we will be eligible for capital recycling this year?

[Rael Lee Diamond, President & CEO]

I'm not sure this year, Himanshu, but there are a few assets, but nothing material that we view as noncore.

[Himanshu Gupta, Analyst]

And then you're sticking to capital recycling. I mean the is capital allocation. I mean, yes, I mean, are we likely to see more disposition in general to support the development and investment activity? And that's been the playbook so far. I mean are you prepared to keep the leverage at different levels and do capital recycling?

[Mario Barrafato, Chief Financial Officer]

Yes. I mean, Himanshu, we've sold, I would say, over the last 3 years, probably over about $1 billion, maybe north of $1 billion. So we really believe that this is just part of our business model is there's always opportunities to be able to take money out of certain properties and get into other properties. So I think it's going to be there. Right now, we've been really just reinvesting into assets, and we're setting our balance sheet up. So we act to get into the mixed uses. We're not going to put a stress on our balance sheet. So right now, our leverage adjusted for cash is 7.1x, and we think that will give us a lot of buffer to the next development program. So we will be selling assets. We're probably just upgrade quality and not necessarily pay down debt.

[Himanshu Gupta, Analyst]

And my last question is on the residential development. I'm looking at Mount Pleasant Village and Development yield is like mid-4, I think, a bit slightly lower than the Liberty House of like over 5%. So are you beginning to see any cost pressures or construction costs been escalating on you? Any color there?

[Rael Lee Diamond, President & CEO]

No, we're not expecting any real cost pressures on that development. And the reason it's slightly lower than the others, in fact, there is a condo component that is small. The condo sales outperformed our original pro forma. So just this quarter, we actually broke out the components of condo versus the income component. And then finally, what is bringing down the yield a little bit is we elected to do some affordable units. And just from a long-term perspective, we're very bullish on the property. It's right adjacent to a go station, and they still have a significant development spread.

[Himanshu Gupta, Analyst]

And is that a requirement from the city or from a permit perspective to include some affordable component? Or is it something you are doing on your voluntary basis?

[Rael Lee Diamond, President & CEO]

It's something that us and our partner, Daniels, chose to do.

[Operator]

Your next question is from Tal Woolley with National Bank Financial.

[Tal Woolley, Research Analyst]

We've heard on some of your peers' conference calls to the idea that now that things have opened up a little bit more, you're seeing more interest in touring retail space, more prospects out there. And I recognize it's kind of a difficult question to answer. But do you get a sense that this is a bit of a rush of activity just that people are out back getting sort of back into the scheme of things or do you think this is kind of a stable level of interest that you're going to see over the

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

Well, I think our interest has been quite strong throughout and that, I think, stems from the fact that our portfolio is predominantly grocery-anchored and service-based retail. And so I think more tenants are looking to locate with a strong grocery anchor. So that's definitely benefited us. And I would say that with the rest -- in terms of our tower centers and so forth, that's where we're really seeing sort of a renewed optimism and a fundamental belief that having a bricks-and-mortar location is really important from an overall retail strategy like that omnichannel approach is proving to be what tenants are really anchoring to. And you see that even with Amazon opening a bricks-and-mortar location. So I don't know if it's -- I think this is something that's sustained -- is going to be sustained.

[Tal Woolley, Research Analyst]

Okay. And then just on the office portfolio, we're thinking about -- let me ask the question a different way. What is sort of your base case for when you expect kind of the occupancy to stuff? Like when are you thinking that you were -- you're going to hit that one?

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

Sorry, our -- are the market or...

[Tal Woolley, Research Analyst]

You're -- within the office portfolio like what's your sort of time horizon for when you think? Because obviously, some of this is pandemic related and some of it maybe it's cyclical, I don't know, how you're thinking about it. But will -- when do you sort of see the occupancy bleed in office stop?

[Rael Lee Diamond, President & CEO]

Look, I think, Tal, the first thing is we have to separate our portfolio between Alberta and the rest of the country. And Alberta has really dragged us down significantly. That's been a very challenging market and the pickup that Ana spoke about, we are seeing in all other markets across the country. We have positioned on previous quarters that there was an upcoming vacancy that we knew about in our portfolio. And you are seeing that in Toronto, but there was -- that was vacancy that we knew about pre pandemic. And we're very bullish by the increase in activity that we've seen recently. When exactly it will stabilize like we obviously don't know exactly, but we are encouraged by the recent activity. Ana, if you want to add anything?

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

Yes. And in terms of -- for office, our rollover exposure is pretty limited. It's about 300,000 square feet next year and 32% of those expiries, we've completed and another 24 are government tenants that we know are going to renew. So there may be some further negative absorption through the year, but I think it will be less than we've seen through 2021. And it's just going to depend on how much the new leasing activity picks up, which I'm hopeful it will.

[Tal Woolley, Research Analyst]

And then just lastly, I'm wondering if you can give some color on what management's thinking is and what the Board is thinking has been around the distribution? Obviously, with inflation rising and the stocks have been held as a bond proxy you might some shareholders here may be looking for more going forward. What's the current thinking around that?

[Mario Barrafato, Chief Financial Officer]

Sure. I'll take that one. We really like where our business is today. The last couple of years, we've had growth that really reinvested into leverage reduction, improving the quality of the asset, buying some development land and investing in development spending. And so we felt that, that was kind of a priority. I think for 2022, you're going to see a lot of value initiatives come out. You may not see it in the cash flow right away because, as Rael said, we had -- we were in a net disposition. So we have to deploy some capital to kind of be leverage neutral, the industrial vacates. We've got some developments that need to stabilize. So -- but I think all the Caesar plants, and I think we've solved up tales that we may be in a position to start talking about it again because you're right. I think our investors have been patient. And I think with inflation, it's -- it will be expected and I think we'll be in a position once all the seats that we've talked about today, distribution, you'll see it in the cash flow and then we'll be able to fund it. So it's something I think we will be talking about now. We haven't talked about it for 3 years.

[Operator]

[Operator Instructions] Your next question is from Pammi Bir with RBC Capital Markets.

[Pammi Bir, Analyst]

Just I wanted to clarify maybe the comments on the value recognition of development. Is the intention to report additional gains as projects are zoned? And then secondly, any visibility you can share perhaps on the amount of square footage that could get approved over the next, call it, 1 to 2 years?

[Mario Barrafato, Chief Financial Officer]

Yes, I'll take the first one. So Pammi, it's really -- the development recognition is really a new area, and I think it's evolving and it's becoming more high profile as more companies are developing. We had our own framework where we -- given the rigor with auditors, audit committee and so we'd like to make sure that there's some third-party validation in what we do. And so we don't necessarily wait until that. There is a Zoning, but a high probability of it. And so we may be a bit laggard but the last thing we want to do is start accounting for this in the public space through our financial statements based on internal probabilities. So with that being said, I think what you're seeing now is you're seeing people carry projects on their books, but then they're transacting at higher rates. And I think that's what's leading maybe some other REITs and the industry to kind of go more to what is that market perspective or something as opposed to there being a third-party validation. And so right now, we tend to go with this milestone approach. And especially when you get larger scale projects, they're all unique, they're complex. It really gets complicated. So I think it's really -- there's a build of attitude. We've just taken a more conservative approach. But I think we are positive in a lot of developments that are undergoing, and we kind of hit certain milestones, but there's value there. So -- but I think it's going to evolve and it's going to be a little different than you saw in the last couple of releases, everybody is taking their own perspective as to how they value their developments.

[Rael Lee Diamond, President & CEO]

And I think just on visibility, we -- we're obviously hopeful that we can get some of the industrial zoned later this year. So obviously, the large parts of land in Calgary is significant. And then on the residential side, largely some of Golden Mile and potentially granule growth. Now we should be able to achieve zoning later this year.

[Pammi Bir, Analyst]

Just you mentioned some of the transitional vacancy this year and maybe still a bit too early. But when you look at the 2023 maturities, are there any larger ones that maybe give you some concern at all or in terms of renewals or perhaps -- or any perhaps might offset some of that organic to return to, call it, 2% plus organic growth in 2023?

[Rael Lee Diamond, President & CEO]

In 2023, we start having Loblaw renewals. It's very hard to get that 2% plus, as you know, in all The leases are capped at 2% the growth. But our side of Loblaw, there's nothing that concerns us. And on the industrial side, as Ana mentioned, we should get significantly higher than the 2%.

[Pammi Bir, Analyst]

Last one for me. Just again, nice to see some of these pretty strong spreads in industrial, particularly GTA on the receiving. When you look at the industrial portfolio as a whole, where do you estimate the in-place rents are relative to the market?

[Mario Barrafato, Chief Financial Officer]

We don't have that handy. Outside of -- probably Alberta is more similar to market whereas outside of Alberta significantly -- in-place rents are significantly below market. I don't think we have that exact number. I don't know, a bit more color.

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

Well, I would say in Ontario specifically, our in-place rent is at least 50% to 80% below market, it's under $7.50 a square foot. So that's significantly below where we're doing deals right now, which is always in the double digits and lately at kind of $12 a square foot typically. And yes, that's where we have our biggest opportunity.

[Operator]

And there are no more questions at this time.

[Rael Lee Diamond, President & CEO]

So thank you, everyone, for joining today's call. Please to all that you can't just stay healthy and safe. And for those celebrating Family Day on Monday, I hope you have a good long weekend.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.