Crombie Real Estate Investment Trust

TSX:CRR.UN

Earnings Call Transcript 2019-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Crombie REIT Q2 Fiscal 2019 Conference Call.[Operator Instructions] This call is being recorded on Thursday, August 8, 2019, and I would now like to turn the conference over to Clinton Keay. Please go ahead.

[Clinton David Keay, CFO & Secretary]

Thank you, Joanna. Good day, everyone, and welcome to Crombie REITs Second Quarter Conference Call and Webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.crombiereit.com. Slides to accompany today's call are available on the Investors section of our website under Presentations and Events. On the call today are Don Clow, President and Chief Executive Officer; Glenn Hynes, Executive Vice President and Chief Operating Officer; and myself, Clinton Keay, Chief Financial Officer and Secretary. Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our annual information form for a discussion of these risk factors. I will now turn the call over to Don, who will begin our discussion with comments on Crombie's overall strategy and outlook. Glenn will follow with a development update and a review of Crombie's operating results, and I will conclude our prepared remarks for the discussion of our financial results, capital allocation and approach to funding.

[Donald E. Clow, President, CEO & Trustee]

Thank you, Clinton, and good day, everyone. So we often say that Crombie has a long-term mindset quarterly reporting, certainly an opportunity for us to look back at the significant growth and changes that have taken place in the last 3 months. This quarter is no exception. Crombie continued to grow and evolve as we welcomed new tenants to our properties, watched several of our major developments rise out of the ground and expanded our development pipeline from 24 to 33 properties. Our team continues to execute our strategy, driving future growth and value creation through the sustainable competitive advantage of our relationship with Sobeys, strong fundamentals and our real estate payment is focused on creating value for our stakeholders. Our needs-based portfolio provides stable cash flow growth and provides the foundation needed to support strategic growth with Sobeys and our major mixed-use developments. We continue to invest in high-quality sustainable real estate where people live, work, shop and play, unlocking value for both investors and tenants across our portfolio. And funding these market-leading investments with low-cost capital from multiple innovative sources. Our relationship with Sobeys is powerful and unique in the Canadian REIT industry. We work closely together as preferred partners, with both sides benefiting from our strong ties. Our shared history and the nature of our connection allows us to pursue strategic and mutually beneficial opportunities together. Sobeys' strong year-end results and the return to investment-grade status with DBRS demonstrate that our largest tenant is positioned well to successfully compete and win into the future. This competitive advantage allows us to unlock value in several ways: Investments in banner conversions, such as the recent FreshCo conversions, modernizations, expansions, renovations of our existing sites and major development opportunities. The Pointe-Claire customer fulfillment center is a great example of this. Our 6 active -- now our 6 active major development, Pointe-Claire is an exciting opportunity for Sobeys and Crombie to work together to lead the way in grocery e-commerce in Canada. Pointe-Claire site will be an approximate 285,000 square foot customer fulfillment center, powered by Ocado's world-leading online grocery engine and packing technology. The site will become Empire's Voilà par IGA e-commerce distribution hub, serving Quebec and the Ottawa area. Crombie's total cost of the project is approximately $100 million, including land, and will produce a yield of 6% to 6.5%. I mentioned earlier that we expanded our development pipeline potential from 24 of 33 properties. Our new national structure and strong relationship with Sobeys has enabled our teams to work to identify these additional potential development opportunities. Executing on this extent pipeline will further urbanize our portfolio at 6 of the additional properties located in VECTOM markets. Our active development pipeline, which we anticipate will create significant value to our unitholders, remains on track and on budget, with roughly $300 million invested to date. Yields on cost for our first 6 projects remain, on average, in the range of 5.4% to 5.9%, which we expect will translate into $1 to $2 of net asset value per unit within the next 1 to 2 years, assuming current market and cap rate conditions continue. Plate-making plays an integral role in our mixed-use development planning as we strategically integrate grocery and residential into welcoming community spaces. During the quarter, we increased our focus on entitlements as an additional 3 projects moved to the pre-planning Phase, 2 in Halifax and 1 in Langford near Victoria BC. Two of these projects are new to the pipeline. This increase in the number of projects in preplanning to sell. Park West is in Halifax and is in a prime location, a budding adjacent retail and residential where Crombie is currently exploring mixed-use development options. Westhill is a multiunit residential addition to our existing Scotia Square commercial complex in Halifax's downtown core. Belmont Market Phase II is currently contemplated as the final piece of the larger 160,000 square foot shopping center development, with the potential to add an additional 140,000 square feet of commercial space on the remaining 1.7 acres of land. We executed some innovative capital recycling during the quarter, allowing us to redirect capital to our growth at Sobeys and the major mix-use development pipeline. These disposition transactions, completed at or above IFRS fair value, speak to the quality of our portfolio and our desirability as a partner as well as validating our NAV. In the second quarter, Crombie sold investment properties for total proceeds of $186 million. Dispositions included an 89% partial interest portfolio comprised of 26 properties across the country. A 39,000 square foot retail property located in Markham Road in Toronto and a land sale in Langford DC. After June 30, Crombie closed on an additional 3 assets for total proceeds of $49 million. We have entered into a second agreement of purchasing sale with Oak Street Real Estate capital to sell an 89% nonmanaging interest in 15 portfolio properties, for total proceeds of approximately $193 million. Transaction is expected to close this fall, bringing total 2019 proceeds to approximately $530 million. This transaction, once again, highlights our ability to creatively execute various types of partial interest properties and dispositions, expanding sources of capital and enabling prefunding of our major mixed-use development commitments well into 2020 while aligning with our long-term funding strategy. Through 2018 and 2019, Crombie has disposed of approximately $800 million of assets and has reinvested approximately $300 million into a development pipeline, both of which are dilutive to short-term earnings until our first major development projects come online. Our strong business foundation and fundamentals enable us to deliver solid results driven by strong same-asset NOI with high occupancy and solid renewal spreads, all the while, reposition Crombie for a very exciting future. In closing, Crombie's fundamentals remain strong. We're transforming our REIT by adding complementary and valuable mixed-use residential investments and state-of-the-art Sobeys-related industrial in Canada's major markets. Revenue from our active major developments is beginning to ramp up in 2019 and will significantly increase further in 2020. We're very pleased with the progress we've made on our development pipeline and our operational results. With a solid balance sheet, ample liquidity and one of the best teams in Canadian real estate, I have full confidence in our collective ability to continue to unlock value at Crombie for years to come. With that, I will now turn the call over to Glenn, who will provide an update on our developments and our operational highlights. Glenn?

[Glenn R. Hynes, COO & Executive VP]

Thank you, Donnie, and good day, everyone. A significant milestone is fast approaching in Vancouver at Crombie's first major mixed-use project, Davie Street. On August 14, we celebrate the structural completion at the topping-off ceremony. Our experienced development team and partner, Westbank, are doing a wonderful job at developing this $181 million, 306,000 square-foot property into the Vancouver skyline. And we're confident in our forecasted yields on cost in the range of 5.2% to 5.6%. Here we own 100% of the retail and 50% of the residential rental. The new Safeway store, at approximately 44,000 square feet, should open in late 2019, with early 2020 openings for CRU tenants and apartment occupancy commencing in Q3 of next year. The $57.88 million redevelopment at Avalon Mall is progressing well as construction continues and leasing activity ramps up. The rec room by Cineplex opens in April and Winners HomeSense opened in our new and expanded location on August 6, just 2 days ago. We've executed redevelopment leases for over 53,000 square feet with H&M, Old Navy and Gap Banana Republic now fully executed. With current occupancy at 97.3% for the existing mall, 62.5% of leasable square footage in the redevelopment area has been executed to date, and we continue to advance discussions with other national anchor and CRU tenants. Out of $93 million or 160,000 square-foot grocery-anchored retail center Belmont Market, 108,000 square feet has been added to GLA to date, with committed occupancy of 92.9%. During the quarter, 4 tenants completed their fixturing and opened for business, with the Thrifty Foods office expected to open this month. The final portion of the project consists of 3 retail buildings, totaling approximately 23,000 square feet. Construction is expected to start by year-end on at least one of these buildings. Pre-leasing is currently taking place with deals pending on approximately on 11,000 square feet. Along the Bonaventure Greenway in Old Montreal, construction at Le Duke progresses as the above-grade structure and base building work is now well underway. Upon completion in early 2021, this $123.5 million development that comprises 277,000 square feet, will consist of a 25,000 square-foot urban format IGA store, 390 residential rental units and 200 underground parking stalls. At Bronte Village in Oakville, cranes are now on site as excavation and shoring work is complete and a below-grade parking structure is well underway. The 520,000 square-foot, 480 residential rental unit development, with 622 underground parking spaces is expected to be completed in Q3 of 2021, with total projects cost estimated at $277.2 million. Crombie is a 50% owner, alongside our partner Prince Developments, at both Duke and Bronte. Pointe-Claire, as Donnie mentioned, located 3 kilometers from Montréal-Pierre Elliott Trudeau International Airport was acquired in the first quarter of 2019. Things are moving quickly as the site is currently zoned for its intended use. Site plan approval was received and demolition of the existing structure is almost complete. This approximate 285,000 square-foot ultramodern customer fulfillment center will be home to the Voilà par IGA e-commerce service for Quebec, in the Ottawa area beginning in 2021. Don also noted our strong foundational operating fundamentals. Its total committed occupancy was 95.9% at the end of Q2, an improvement from 95.7% at Q1. Our team is dedicated to ensuring our underlying business fundamentals and core portfolio remains solid. An entrepreneurial approach to leasing has helped to attract and retain tenants in our markets. We ended the quarter with 126,000 square feet of committed space, which will boost future NOI growth. 117,000 square feet of renewals were completed in the quarter, with a solid increase of 6.7% over expiry. Year-to-date, we renewed 299,000 square feet at an increase of 2.1% over-expiring rent. During the first 6 months, retail renewals were strong with 127,000 square feet renewed at rental increases of 6.8%. In closing, our core portfolio is performing well and is a wonderful foundation on which to build out our mixed-use development pipeline. And with that, I will turn it back to Clinton, who will highlight our second quarter financial results and discuss our capital and development program funding approach. Clinton?

[Clinton David Keay, CFO & Secretary]

Thank you, Glenn. On a cash basis, quarterly same-asset NOI, including the impact of IFRS 16, increased by 3.2% and 3.7% for the year-to-date. Quarter-to-date and year-to-date same-asset NOI, excluding the impact of IFRS 16, increased 2.7% and 3.2%, respectively. The increase is a result of rental rate increases on existing tenant leases, new leasing activity and revenues from land-use intensification at certain properties. AFFO per unit decreased slightly to $0.25 from $0.26 for the same quarter last year. Considering our disposition activity, reduction in leverage and our investment in our development pipeline, we are pleased with these results. Our Q2 AFFO payout ratio was 89.9% versus the same quarter last year at 85.3%. FFO for the quarter decreased to $0.29 per unit and our FFO payout ratio was 75.7% versus 72.7% in Q2 2018. The decrease to FFO and AFFO is due to the disposition of properties and the current and prior quarters and increases in G&A cost. G&A, as a percentage of property revenue for Q2, was 6% or $6 million, up from Q2 '18 at 4.4% or $4.6 million. This increase was primarily driven by salaries and benefit costs, the majority of which is related to our positive unit price increase of 25% year-to-date. Excluding the impact of our unit price increase, G&A would be at approximately 5% of property revenues for Q2, FFO would be $0.30 per unit and AFFO would remain at $0.25 per unit. Our debt-to-gross book value on a fair value basis improved to 49.2% at the end of Q2 compared to 50.3% at Q1 and 51% at the end of Q4 2018. We ended the quarter with a debt-to-trailing-12-month EBITDA at 8.21x, an improvement compared to 8.56x at Q1. Our unencumbered asset pool decreased slightly to $954 million from approximately $1 billion at Q1, driven by dispositions. Our balance sheet remains flexible with approximately $413 million in available liquidity, and with continued access to the unsecured bond market and the long-term margins in bank markets. Crombie is executing its plan on our strategy and capital allocation priorities. We are directing disposition proceeds into both Sobeys investments and higher-returning developments. This smart capital allocation strategy will continue to improve the quality and urbanization of our portfolio and deliver higher cash flow growth over time. Given our multiple sources of capital, success for the current capital recycling program and free cash flow generation, we're confident we can fund our future investments and maintain a strong balance sheet. As we look to the future, we remain acutely focused on creating unitholder value through disciplined capital allocation, improving performance of our core property portfolio and our continued development and intensification programs. Thank you for listening. We are now happy to respond to your questions.

[Operator]

[Operator Instructions] And your first question is from Dean Wilkinson from CIBC.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

I'll maybe start with Clinton. The gain on the air rights coming out of Davie Street, the $7 million in change, how is that going to roll through the P&L? And will that come into an FFO calculation? Or how should we [indiscernible] on with that?

[Clinton David Keay, CFO & Secretary]

No. It will not. That was into the asset base. So no. There is no impact to the P&L.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. No impact on the P&L. Great. And then on the joint operations credit facility, which you are, call it, 10%, did Crombie have to backstop any of that? Or how is that guaranteed?

[Donald E. Clow, President, CEO & Trustee]

No. There's no backstop, Dean. It's basically when we did the transaction with Oak Street, there were certain properties that were unencumbered, so we simply pledged together the properties for that facility so we have 11%, they have 89%, so there's no backstop.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

So it's just -- it's straight to the asset levels. That's it. Okay.

[Clinton David Keay, CFO & Secretary]

Correct.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

And then just a bigger kind of broader-thinking question maybe, Donnie. I mean if you look at the development yields and they're kind of still hanging in, maybe 150, 200 basis points, I estimate, over where stabilized value would be, which affords a pick-up. How tight would that spread have to come in before, based on your experience developing, that the decision to continue to develop may become a little bit too tight? Or could you just let developments follow on top of acquisition cap rates to effectively say, it's a newer asset, there's going to be no deferred maintenance, that sort of thing.

[Donald E. Clow, President, CEO & Trustee]

Some people look at 100 basis points as their limit. I think for each situation for us, Dean, it's going to be unique. We have a very unique situation with Sobeys and that's something we believe is a sustainable competitive advantage, and part of that is we have flexibility within, call it, the model that we work with, with Sobeys to share some of the upside in the value and/or we have very low historic cost, especially given the changes in land cost in Vancouver and Toronto. So I'd say, the rule of thumb, somebody might say 100 bps, but for us, there's a lot of uniqueness in the transaction that we can figure out a way to make certain things work, especially if it's strategic for both parties. And I think for us, we're, again, as I've said to a lot of people, we're interested in the long-term cash flow. We do, do 30-year IRRs on these projects to look at cash flow growth that's, whatever 2%, 3%, and in Vancouver's case, some cases 4% or 5% over time. That, for us, is critically important to offset -- diversify away from retail to some degree, but also offset to lower rental growth that we get on some of our grocery-anchored income streams. So it's a variety of factors. It's not just a simple development path. I guess, the way I would answer.

[Glenn R. Hynes, COO & Executive VP]

And, Dean, I would add to that, that NOI yield on cost is your 1 NOI. You've mentioned 1 of the 2 factors, but you're right. You do development to get a brand new asset so you're going to have years of no maintenance Capex. So that's a positive. The other thing, and the other primary reason why we're into development, is the cash flow growth that we get. So it's not just the year 1 NOI that drives the initial yield relative to cap rate, but if we can get 3% to 5% NOI growth for some of these projects, which is possible, then that's another catalyst. So obviously, we want to get a great spread between our development yield and cap rates, but we also want to get the diversification that Donnie mentioned, but also the cash flow growth that's inherent in many of these projects.

[Operator]

Your next question is from Mark Rothschild from Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

In rest of the renewal rate of just under 7% for the quarter, do you see that as a good kind of range for the next a little while? And I'm curious also to what extent does this change and maybe your expectations for same-store NOI following the large volume of asset sale.

[Donald E. Clow, President, CEO & Trustee]

Good question. I think we're very comfortable with this 6%, 7% renewal rate uptick. That's more than normal for us. We usually stay in the mid- to high-single digits. So Q1 was an anomaly. We had a couple of funny leases and a very small sample size. So Q2 was much more normal. I'd say same-asset NOI, as it relates to our disposition property, so I wouldn't say there's any particular reality. We're bullish that we're going to continue to have strong 2% to 3% growth in same-asset NOI. I wouldn't say the sample of properties that have been disposed changes that reality. Some of the assets we've sold were, call it, noncore and/or lower growth. So it's possible, and I would say this is the case, but the properties that we've disposed of would have lower same-asset NOI, all things equal. But I wouldn't say it's material enough, Mark, that it would move our go-forward same-asset NOI growth higher. But if there was a trend change after our dispositions, is that our go-forward same-asset NOI would be higher than lower as a result of the properties we've sold.

[Mark Rothschild, MD & Real Estate Analyst]

Okay. Great. And regards to your development pipeline, obviously, that has quite a few projects. To what extent should we expect the development spend over the next couple of years to accelerate further? Or are you focused on keeping it under, maybe $300 million a year?

[Clinton David Keay, CFO & Secretary]

It's the central strategic question, Mark. So -- and we don't like giving guidance, but this year, let's call, it $150 million to $200 million is the rough, call it, spend. And given our current project list that's not -- probably a reasonable estimate for next year as well. We are building a company that can torque up to a higher level of spending, but it's going to -- development takes time. So we're patient and want to do the right developments and especially where we're working with our partner at Sobeys, it's got to be right for them and for us at the same time. But I'd say the spending is going to be consistent, reasonably consistent. And ideally, we will torque it up because we're certainly anticipating the opportunities, as we've outlined this quarter, with an increase in the opportunities. And so for us, I'll -- with the way we look at it, as we look at the amount of opportunities, and then two, the amount of entitlements; and then three, the amount we spend; and then four, the amount of completions. And all of those 4 things, we'd like to see increasing nicely over time. And we're still in our infancy as a development company. So we've got great inventory. Certainly the entitlements, I think Glenn with his new position as COO, is going to focus more heavily on entitlements. Our spending is now developing a bit of consistency. And we're just about to start on completions, which should drive our AFFO and NAV growth very, very nicely. So as we evolve in the next 5 years, you'll see those numbers, hopefully grow to be consistent and ideally growing over time. And that should -- that is the key to our strategy in driving AFFO and NAV growth.

[Operator]

Your next question is Pammi Bir From RBC.

[Pammi Bir, Analyst]

Just on the -- just coming back to the Pointe-Claire DC, now that you have obviously it's fully disclosed in -- it's in your materials, can you just maybe shed some light or some additional light on lease terms there, the duration, the rent steps, what those look like?

[Donald E. Clow, President, CEO & Trustee]

Yes. The standard 20-year lease out of the gates. I can't disclose the rental steps. That's something that we're not disclosing currently. But it would be in the ordinary norm of our leases with Sobeys. I think those are the major terms, 20 years, triple net lease with, call it, market rental steps.

[Pammi Bir, Analyst]

Okay. And would those rent steps be annual or periodic within the 20-year term?

[Glenn R. Hynes, COO & Executive VP]

They are periodic, likely every 5 years would be the reality of the Pointe-Claire.

[Pammi Bir, Analyst]

Okay. And not to get too granular on this, but just I'm curious about the transfer of the air rights that happened close quarter end. Can you just maybe shed some light on how the terms were structured? I guess, this was going back 3 years ago. I'm just curious as to how the mechanics on the [ part team ] worked.

[Donald E. Clow, President, CEO & Trustee]

We reached an agreement with our partners. It's been an outstanding partner. I was on the site a couple of weeks ago and the construction is outstanding. And we think the project is coming along very well. But the pricing was determined, as you say, a few years ago. And so it was marketed at the time and it's the agreement we made and we're very pleased with, I think at the end of the day, the result on the development will be probably double our investment. So it's going to be a home run. I always hoped it would be a double or maybe a triple, but in baseball terms, I think it's going to be a triple or a home run right now. And we give full credit to our partner, Westbank, for that and our own team working very hard on it as well. So the land sale is a technicality and a timing issue. It's all it really is, Pammi.

[Pammi Bir, Analyst]

Okay. No, That's helpful. And good progress on that one. Last one for me. Just in terms of the CapEx and TIs, they seem to be running below 2018 levels from a maintenance standpoint. So I'm just curious if you'd given any thought to perhaps revisiting the reserve at all and after you factor in some of the dispositions as well.

[Glenn R. Hynes, COO & Executive VP]

Sure. I would say we were a bit surprised because we thought the $0.90 is really a reflection of last 3 year average, effectively this year and prior 2 years. And we may well look at it. I think part of the reality is as you noted, some of the properties that we disposed perhaps were slightly more using of the same -- of maintenance CapEx and TI. And the trend has -- seems to be for the last 12 months or so that we've been underspending against the $0.90. We chose to leave it at $0.90. But based on year-to-date, our AFFO would be over $0.01 higher if it was based on actual. We make it a bit more spend. The spend tends to occur in the summer and it is on a cash basis. So we may catch up some of that. But we'll be looking closely, Pammi, by the end of this year. We usually only change it in January. But if it's certainly staying on the current trend, then we'll be looking to reduce it, and part of that will be motivated by the properties that we have recycled.

[Operator]

Your next question is from Sam Damiani from TD.

[Sam Damiani, Analyst]

I wanted to touch on the development pipeline first of all. I noticed the Lynn Valley asset seems to be pushed back off the front burner. Was there a reason for that? And also just wondering as we look at the Vancouver market, do you feel confident enough to start another residential development in that market? And if so, which site might that be?

[Clinton David Keay, CFO & Secretary]

Sam, we're -- I mean Lynn Valley is something we are continuing to work on over time. In development, things get pushed up, they get pushed back depending on circumstances. So -- and some of it, in our case, as I said or alluded to a little earlier, it depends on our partners' situation. So Lynn Valley, it may have been, call it, slowed down a bit, but it's certainly not off the radar. We are constantly working on it. And development as a whole, remember, we're in Vancouver. We're generally looking at purpose-built rental. We do look at condo on a micro-market basis, what's demanded in that local market. So we could do condo and purpose-built rental, and we are working importantly on East Broadway and we are working on King George Highway as well as [ Willow Oak ] at the same times. So our view on the market is it's still a solid market. It may have come off 5% or 10% in terms of condo pricing, but rental numbers seem to be holding. And so -- and especially where we're working with numbers that are dated back a year or 2, in our performance, we've -- we generally -- the numbers that are there today, even if they come off a little better, are still exceeding our budget. So the numbers are very compelling when you've got large increases in the value of a land and the highest and best use is something that's a full development. So I don't think it really pulls us back too much. We're certainly very cautious and certainly very mindful of what's happening there and working very closely with our partner, Westbank, who is working with us on East Broadway to understand those changes in the market and try to predict what's going to happen when the project is completed a few years from now. So anyway, I don't know. A long-winded answer, but I hope that's been helpful.

[Sam Damiani, Analyst]

Yes. It is helpful. And just shifting over to the fair-value disclosures. With the Oak Street sale committed and is set to close in the latter half of this year, are those -- like that $193 million pricing, is that reflected in your fair-value disclosure of Q2?

[Clinton David Keay, CFO & Secretary]

Yes, it is.

[Sam Damiani, Analyst]

It is. And could you just clarify as well the extent to which, if any, the properties under development are included in the fair value at a premium above cost?

[Glenn R. Hynes, COO & Executive VP]

No. We remain, I would say, very conservative in that respect. Our fair value that we reflect in the 3-year financial statements is 100% based on trailing 12-month NOI and current market cap rate for the existing retail or operational use. There's nothing in our fair value for fair value of air rights. There's nothing in our fair value for any mark-to-market of projects that are in our top 6, for example. They will commence in that based on our current methodology when those projects arecompleted.We continue to evaluate the accounting per lot, et cetera, to make sure that we're not too conservative, but that's been our general methodology. We'll continue to evaluate that. We are mindful of what other REITs are doing. So we pay attention. But the current methodology, Sam, is, as I've described it, and it's basically only based on income in place with no additional add-on value.

[Clinton David Keay, CFO & Secretary]

And Sam, there's a number of solid methodologies out there, as Glenn alluded to, where people do provide fair value once they've got a property entitled. So we are certainly looking at it. I think I can safely give a range of values that would be in the hundreds of millions of dollars of air rates values that are -- we currently own, and it would be something that, as I said earlier, we're going to ask Glenn to really focus hard on entitling those projects. And given those level of entitlements, we're looking at how other people, who are maybe a little more aggressive than we are in their interpretation and composition of fair value to say, what's apples-to-apples here and whether we should be doing it as well. So there's significant value, we know it. It's not recognized under IFRS. And so over the next few quarters, we'll come to an opinion and it may be different than what we've done in the past.

[Sam Damiani, Analyst]

And just one last question. On the Ocado development in Montréal. It comes out to around $350 a square foot. I'm just wondering if you could help us understand what costs to the project are perhaps being borne by Ocado or Sobeys, not by Crombie.

[Glenn R. Hynes, COO & Executive VP]

It wouldn't be within a [ terribly deeply ], Sam. I think it's safe to say our primary responsibilities is own the land and build the building to a very specific specification. Most of the technology and infrastructure inside the building would be the Ocado-Sobeys contribution. And it's really that simple. It may be a higher amount per square foot. There's obviously, with the height and depth and waste of this building, there's a lot of intensity around foundation conditions and safe conditions. So there's a lot of meticulous work in getting the site ready and then building the structure. It's a tall structure. It's a big structure at 285,000 square feet. A lot of parking lot and area for vehicles to come and go. So that's essentially, as though everything inside the building would be as you would expect from a land lord's point of view would be the tenants' oversight. And hopefully that gives you some color.

[Sam Damiani, Analyst]

That's helpful. Just what is the exact location of the site?

[Glenn R. Hynes, COO & Executive VP]

The exact location? We'll get that for you off-line if that's okay, Sam. We'll [indiscernible] with you. But -- Pointe-Claire, but I don't think I've got the specific address at the tip of my thumb.

[Operator]

[Operator Instructions] The next question is from Tal Woolley from National Bank.

[Tal Woolley, Research Analyst]

Maybe just following up along on Sam's line of questioning about the [indiscernible] DC. Can you compare that sort of per-square-foot cost to maybe one of the other Sobeys' automated DCs in Terrebonne or Vaughan?

[Donald E. Clow, President, CEO & Trustee]

I haven't actually thought about it in that context, Tal. We could have a look at it, but fundamentally, they're different. The -- what is unique about the Pointe-Claire facility is that it's for the Ocado engine. The other 3 DCs are actually very high end, high tech. As you know, they're powered by the WITRON system from Europe that is a very highly automated distribution center, but not for the e-commerce site. So they are different. They're both very high tech and very ultramodern. But we have not done a comparison to look at it that way. It might be something interesting to do, but I'm not sure it's something that's all that powerful.

[Tal Woolley, Research Analyst]

Okay. And any sense to yet on how many more of these are possible?

[Clinton David Keay, CFO & Secretary]

Yes. We've said it, I think, previously, where there may be a few more of these larger Ocado DCs in the country. We'll leave it to Sobeys to say how many there are and when. But importantly, in addition to these CFCs, the potential -- there is potential for, call it spokes or hub-and-spoke type system, where there are smaller facilities in high-traffic areas within the major centers in the country that are not insignificant for a company like Crombie, potentially. And so we're quite excited about working with Sobeys to be part of their more wholesome network, and we think it could be a significant vehicle for us to invest. And it's, we think, it's given the nature of it, it's state-of-the-art, it's e-commerce, it's -- adds to our retail-related industrial part of our portfolio and it allows us to grow that in a very solid risk-adjusted basis.

[Tal Woolley, Research Analyst]

All right. And then beyond Avalon, how many other enclosed malls do you guys own?

[Donald E. Clow, President, CEO & Trustee]

Technically, I was going to let Glenn answer, but I'll jump in, and I'm basically saying none. We have some listed on our MD&A, obviously, but they're so insignificant in my mind that it's really Avalon and it's a regional and may -- and it is, let's call it, the only regional in Newfoundland. So it behaves differently and it's behaved like a super regional. And the other enclosed shopping centers are really just, I'll call it, technical classification more so than true enclosed centers.

[Tal Woolley, Research Analyst]

Okay.

[Glenn R. Hynes, COO & Executive VP]

But you don't have to take a glove off your hand to count them all. It's about 5 -- 4 to 5. Very small.

[Tal Woolley, Research Analyst]

Okay. And so I guess my question is this. I don't think you have a Hudson's Bay lease there either, right? Correct?

[Donald E. Clow, President, CEO & Trustee]

No.

[Tal Woolley, Research Analyst]

No. So if you don't, post this -- these transformations, like you don't really have much more anchor risk and it's certainly not a core asset class. It's a great investment, I get it. But is this a core holding long term? Or -- for the company? Because I could see where maybe you could look at this might be one of those properties that you could fetch a good price for now that has been transformed.

[Donald E. Clow, President, CEO & Trustee]

We're super enthusiastic on Newfoundland and Avalon's position in the province. It's the only mall for -- within 3 hours of airtime of flight. So it's a very dominant shopping center, and we're very enthusiastic about the recent announcements of our tenants. And how good they are and how well they -- there are going to be newer format stores in most of these situations. So we think they'll fit perfectly with the Newfoundland market. And for the customer base at Avalon and really draw, I think, terrific traffic for our CRU tenants. So we're really excited about it. And in terms of the future of the mall, we don't have a comment on that. We're very excited about the mall. We love being its owners. So it's a unique property within our portfolio. So we're excited about it.

[Operator]

Thank you. There are no further questions. You may proceed.

[Donald E. Clow, President, CEO & Trustee]

Thank you very much, and we look forward to updating you on our next call in the Q3 call, and probably at a [ time ] in November. Have a good day.

[Operator]

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.