Crombie Real Estate Investment Trust

TSX:CRR.UN

Earnings Call Analysis

Crombie REIT Posts Strong Q3, Leveraging Stability and Growth

In Q3 2023, Crombie REIT maintained its commitment to both stability and growth amidst macroeconomic challenges, delivering strong operational performance and financial health. With an unwavering focus on operational excellence, committed occupancy remained over 96%, driving a 2.8% growth in same-asset property cash NOI and an 8% increase in AFFO per unit. Financial fortitude was showcased by a low leverage ratio of 42.4% and improved liquidity of $565 million. Development highlights include the lease-up of The Village at Bronte Harbour, with committed occupancy reaching 83%, and the disciplined progression of The Marlstone project, adhering to a prudent capital allocation strategy. Significant leasing activities bolstered these results, including new leases beating the portfolio average rate per square foot by 27%. AFFO per unit for the quarter rose to $0.28, with AFFO and FFO payout ratios at 80.2% and 70.9%, indicating sustainable distributions.

Overview and Forward-Looking Statements

During the Q3 Earnings Conference Call of Crombie REIT, the discussion involved future projections and expectations, known as forward-looking statements. These statements are speculative, relying on assumptions and beliefs of the management; actual results might differ due to uncertainties and risk factors detailed in the company's public filings.

Financial Health and Commitment to Growth

Crombie REIT reported a stable quarter with a focus on stability and growth, signaling their financial resilience amidst economic headwinds. The committed occupancy rate remained impressive at over 96%, and the same-asset property cash net operating income (NOI) grew by 2.8%. The quarter also saw an 8% increase in adjusted funds from operations (AFFO) per unit, with a low debt to gross fair value ratio of 42.4%, reflecting disciplined capital allocation and operational excellence.

Liquidity and Debt Metrics

The REIT has maintained strong debt metrics and liquidity, ending the quarter with $565 million available, and a debt maturity structure that's well-laddled over the next 4.7 years. Debt-to-EBITDA improved to 8.13x, from 8.5x in Q3 2022, and the unencumbered asset pool rose to a record $2.6 billion. These factors, among others, allow the REIT to continue driving unitholder value.

Strategic Transactions and Developments

Crombie REIT successfully completed the sale of land at Opal Ridge in Dartmouth, Nova Scotia, which enables an income boost from equity accounted investments by approximately $4.1 million. Their development program continues robustly with significant lease-up momentum at The Village at Bronte Harbour, and they expect tower and NOI stabilization by Q2 2024. The Marlstone development is projected to cost $134 million with completion expected by the first half of 2026, targeting an estimated yield on cost of 4.5% to 5.5%.

Entitlements and Expansions

Crombie is at various entitlement stages for 9 locations which could add around 4.8 million square feet of commercial and residential gross leasable area (GLA), equaling about 5,500 residential units. They also undertook small de-development projects that added 26,000 square feet of GLA, including a retail-related industrial asset and intensive land use (LUIs) projects in Atlantic Canada.

Partnerships and Monetization

The REIT continues to pursue value-creation opportunities, noting the entering into agreements that involve subleases of Shell fuel site in Western Canada and right to development agreements at strategic sites in Vancouver. These arrangements ensure continued rental income while providing redevelopment opportunities and a chance for Crombie to capitalize on its embedded value.

Occupancy and Leasing Success

Committed occupancy remained high at 96.4% with significant leasing activity, including 450,000 square feet in new leases and 238,000 square feet in renewals at higher than expiring rates, indicative of strong demand and positioning. The successful leasing strategy contributed to a 2.8% rise in same-asset cash NOI compared to the same quarter in 2022.

AFFO and FFO Performance

AFFO per unit for the quarter was $0.28, an increase from $0.26 in the previous year, and FFO per unit was at $0.31, up from $0.30. Both AFFO and FFO payout ratios stood at 80.2% and 70.9%, respectively, pointing to a balance between returning profits to investors and reinvesting in the business.

Advancement of ESG Initiatives

In line with environmental, social, and governance (ESG) commitments, Crombie REIT received a Green Star from GRESB for their standing investments and development assessments. This achievement reflects a 45% year-over-year improvement in their standing investment-assessment and a 25% improvement in the development assessment, showcasing the REIT's progression in ESG practices.

Prospective Financing and Project Developments

Crombie REIT looks forward to feedback from borrower reviews to facilitate project financing. They're actively working through rezoning processes and development details across various projects. Strategic changes, such as at the Broadway & Commercial site, where they've transitioned to 100% rental for three towers, have increased rental prospects. Additionally, they are making significant progress on construction contracts for The Marlstone project and seeking to secure CMHC financing, targeting an interest rate of approximately 115 basis points over the Government of Canada benchmark.

Development Management Revenues

Crombie REIT will begin earning development management fees on the Lynn Valley project starting this quarter, capitalizing on the ongoing development process. This is an example of the REIT's effort to effectively manage and monetize its assets while upholding income from its existing arrangements, differing from past projects like Davie Street, by having entitlement revenue streams.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, everyone, and welcome to the Crombie REIT's Q3 Earnings Conference Call. [Operator Instructions] This call is being recorded on November 9, 2023.

I would now like to turn the conference over to Ruth Martin. Please go ahead.

[Ruth Martin, executive]

Thank you. Good day, everyone, and welcome to Crombie REIT's Third Quarter 2023 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.crombie.ca. Slides to accompany today's call are available on the Investors section of our website under Presentations and Events. Mark Holly, President and Chief Executive Officer, is on the call today. Clinton Keay, Chief Financial Officer and Secretary, will not be joining us today as he tends to a personal matter.

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 management's discussion and analysis and annual information form for a discussion of these risk factors.

I will now turn the call over to Mark, who will begin with comments on Crombie's strategy and outlook, followed by an update on our operating fundamentals, financial results and discuss our capital allocation and approach to funding. Over to you, Mark.

[Mark Holly, executive]

Thank you, Ruth. Good day, everyone, and thanks for joining us on our third quarter call today. Before I get started, I want to acknowledge Clinton, who is unable to be with us today as he tends to a personal matter.

Crombie's strong financial condition, coupled with our disciplined allocation of capital and our focus on operating metrics once again aided in delivering another consistent quarter amidst ongoing macroeconomic headwinds. We continue to remain focused on stability and growth. It is our team's dedication to operational excellence and focus on financial health which resulted in committed occupancy holding steady at over 96%, same-asset property cash NOI growth of 2.8% and an 8% increase in AFFO per unit, with low leverage ratio of debt to gross fair value at 42.4%.

Today, I want to highlight 3 notable drivers that impacted the quarter and supports our long-term outlook of stability and growth. First, our financial strength which includes ample liquidity of $565 million, a strategically laddered debt maturities with a weighted average term of 4.7 years and debt-to-EBITDA of 8.13x, which is an improvement from 8.5x at Q3 2022. This financial strength and healthy balance sheet along with our commitment to prudent capital allocation provides the stability and foundation to enable us to advance key priorities, purposely and strategically.

In the quarter, we sold the final parcel of land at our joint venture, Opal Ridge in Dartmouth, Nova Scotia, selling it to a local developer monetizing the value at the site. The sale will increase income from equity accounted investments by approximately $4.1 million, of which $2.3 million was recognized in the quarter and approximately $1.8 million will be deferred and will be recognized in the coming months upon the completion of required site prep. This transaction is an example of how we stay agile with access to multiple sources of capital, ensuring our ability to pursue opportunities to grow responsibly.

As we previously stated, our annual capital spending range is $100 million to $250 million on our development program and Empire-related initiative. Historically, we have been on the higher end of the spending range, but expect to be close to the midpoint of this range by the end of 2023 as we maintain our discipline on capital allocation.

The second driver is our development program. I'm extremely pleased with the continued lease-up momentum at our mixed-use residential property, The Village at Bronte Harbour, which has committed occupancy of 83% as of September 30. This is an 18% increase in occupancy compared to the second quarter, with rents continuing to exceed pro forma. Tower 1 remains on track to be stabilized by the end of the year with Tower 2 and stabilization of NOI from the property expected in the second quarter of 2024.

With respect to active construction, it's important to note that we currently only have one major development project under construction, The Marlstone in Halifax. This is a sign of our disciplined approach to advancing major projects in the current economic environment.

As highlighted in our enhanced MD&A disclosure, which we had previously committed to providing, The Marlstone has a total estimated cost of $134 million and an expected yield on cost of 4.5% to 5.5%, with a completion expected in the first half of 2026.

Nonmajor developments, also referred to as small de-developments, are projects with shorter durations, typically 12 months or less. Small de-development projects include land use intensifications, repurposing of existing space and smaller new developments such as retail-related industrial assets. These developments carry a lower overall risk and capital requirements. Small de-development projects are a great way to strengthen our portfolio. And in the third quarter, we expanded our portfolio by adding 26,000 square feet of GLA through nonmajor developments, small de-developments which included a retail-related industrial asset in Burlington, Ontario, and 2 LUIs in Atlantic Canada.

We continue to be focused on advancing entitlements and are actively working with municipalities and governing approval authorities. In the third quarter, we submitted all necessary documentation to the Halifax Regional Planning Department to support a municipally led rezoning effort of a mixed-use residential development at our Park West lands in Halifax, Nova Scotia. We currently have 9 locations in various stages of entitlement with either zoning in place, rezoning applications submitted or to be submitted by the end of the year. These projects provide optionality and have the potential to contribute approximately 4.8 million square feet of commercial and residential GLA, comprising approximately 5,500 residential units.

Pursuing value-creation opportunities with our partner, Empire, is also a priority. As we mentioned on our last quarter call, we entered into an agreement with Empire assigning 24 subleases of Shell fuel site in Western Canada to Crombie, contributing positively to same-asset property cash NOI. This quarter and subsequent to the quarter, Crombie executed right to development agreements for our Lynn Valley and Kingsway and Tyne sites in Vancouver, investing approximately $34 million to unencumber these very strategic sites.

With these right to development agreements in place, we will continue to receive rental income at both location and will receive revenue for development services at Lynn Valley. These agreements provide Crombie with the necessary flexibility as we move through the entitlement process to secure the highest and best-use possible and can provide Crombie greater optionality for development, selecting development partnerships or from time to time, monetizing embedded value.

The third driver is an update on our ESG program. For the third consecutive year, Crombie submitted to GRESB, and I'm pleased to share that we have received a Green Star for excellence in both the standing investment and development assessments. We've made advancement on our ESG program, which led to a 45% increase in our standing investment-assessment compared to the previous year, driven by enhanced data coverage of energy, water and waste. Furthermore, our development assessment has improved by 25% over last year. Our annual ESG report will be released in the coming weeks, which will provide greater details on our ESG journey and our near-term priorities.

I will now cover Clinton's portion and highlight in greater detail our operating and financial metrics. Occupancy held steady in the third quarter with committed occupancy of 96.4% and economic occupancy of 96%. With respect to leasing, there are 3 streams in our leasing program, new leases, committed leases and lease renewals. First, new leases increased occupancy by 450,000 square feet year-to-date at an average first year rate of $22.24 per square foot, which is 27% greater than our in-place portfolio average rate per square foot.

With respect to committed leases, at the end of the quarter, 84,000 square feet was signed at an average first year rate of $27.24, significantly above our in-place portfolio average rate per square foot. This will boost future NOI growth as tenants take possession in the fourth quarter of 2023 and into 2024.

And finally, lease renewal activity. During the quarter, we renewed 238,000 square feet at a 6.5% increase for year 1 comparing to expiring rental rates or a 7.9% increase when comparing expiring rental rates to the average rental rate for the renewal term. Our solid operating fundamentals supported quarterly same-asset cash NOI increase of 2.8% compared to the same quarter in 2022, primarily driven by an increase in renewal and new leasing activity, higher supplemental rent for modernizations and capital improvement as well as lease termination income resulting from a tenant surrender.

For the quarter, AFFO per unit was $0.28, increasing from $0.26 for the same quarter last year, and FFO per unit was $0.31, increasing from $0.30 for the same quarter last year. AFFO and FFO payout ratios were 80.2% and 70.9%, respectively. The improvement in AFFO and FFO for the quarter was primarily due to an increase income from equity accounted investments from the Opal Ridge land sale, increased rental revenue from new developments, renewals and new leasing activity. This was partially offset by increased G&A expenses, reduced revenue related to dispositions and a decrease in percentage rent. Our operational and financial results were in line with our expectations and are underpinned by the strength of our well curated portfolio and healthy financial condition.

We continue to have strong debt metrics, maintaining ample liquidity with $565 million available at the end of the third quarter and a well-laddered debt maturity structure. We have submitted applications for CMHC financing at our completed mixed-use residential development, The Village at Bronte Harbour, and at our active residential development, The Marlstone.

Our unencumbered asset pool increased from $2.2 billion at the end of the year to a record high of $2.6 billion in the third quarter, predominantly from mortgage maturities. Our debt to gross fair value was 42.4% compared to 41.8% at Q4 2022. We ended the quarter with debt to trailing 12 months adjusted EBITDA at 8.13x.

Crombie's strong fundamentals, healthy financial condition and disciplined capital allocation strategy enables us to deliver stable, consistent results and this quarter was no different. I'm proud of our team and our ability to drive unitholder value.

We thank you for your time today. Kara Cameron, Crombie's Vice President, Accounting and Financial Reporting, will be joining me today for the Q&A portion of the call. We're happy to answer any questions you may have.

[Operator]

[Operator Instructions] Your first question comes from the line of Lorne Kalmar from Desjardins.

[Lorne Kalmar, analyst]

Maybe just firstly on the lease amendments. I was just sort of wondering, how is pricing determined on these types of transactions?

[Mark Holly, executive]

Lorne, it's Mark. On the lease amendments on the right to develop?

[Lorne Kalmar, analyst]

Yes, yes.

[Mark Holly, executive]

Yes. So the right to develop that we entered into with Empire was on 2 sites. It was our Lynn Valley site and Kingsway and Tyne. And what that offered to us is ultimately having it unencumbered. And so getting it unencumbered gives us that ultimate flexibility as to how we look at those assets and what we can do with those assets. Whether we want to advance it right through the entitlement phase and then develop it. Do we want to partner on a JV development, and then from time to time, do we want to look at monetizing underlying value? So the right to development has given us that flexibility of having it unencumbered.

The part of around the amendment to the lease or the modification of that lease, gave us that right, but it also provides us the rental income and -- that we were receiving historically, right through to the time that we want to look at moving forward with higher and better use of the mixed-use development. So the amending agreement was done so that we could unencumber it, while still collecting a rent when we want to move forward on the development.

The other part that comes with it is through development management services tied to the Lynn Valley application as we move it through entitlement. And those management services are being provided from Empire to Crombie so that we can lead the entitlement process to ensure that we are securing a mixed-use development with grocery at grade.

[Lorne Kalmar, analyst]

Okay. That's very helpful. And then just on -- I know you have a couple of projects, one's obviously done and one is yet to go on the ground with Westbank. There is a little bit of news around them I believe, quite recently. I was just wondering if you had any thoughts on the situation and how it relates to the 2 sites that you have with them?

[Mark Holly, executive]

Yes, of course. Yes, I think it's -- I'm happy you raised it. We're certainly aware of the articles in the news and we have 2 assets with Westbank. They're both 50-50 joint ventures. One is Davie Street, which is fully operational and is running at almost 100% occupancy, and the other one is Broadway & Commercial, which is just going through the entitlement phase, and so very little dollars have been spent on that, and there are no mortgage loans kind of going through that B&C project at this point.

We have been in communication with Westbank, as we do. We have meetings every month about project status and how things are evolving and changing. And recently, we're talking to them about these articles that's been in the paper. We're comfortable on a Crombie perspective on where we're at with those joint ventures. We're comfortable with the exposure we have around the financials. And so at this point, we're just continuing to forge ahead with those 2 projects as they're currently in their state of full operation and entitlement.

[Lorne Kalmar, analyst]

Okay. And then maybe just last one. On the remaining proceeds, the $1.8 million from Opal Ridge, is that expected to come in -- all in Q4?

[Mark Holly, executive]

That is the anticipation is that it all comes in Q4. We're just cleaning up a little bit of site work that we had to finalize as it was part of the requirements on the transfer. And the team is working on it. My expectation is it will happen in Q4. If it's not Q4, it may move into Q1, but it is something that we're just finalizing now.

[Operator]

And your next question comes from the line of Mario Saric from Scotia.

[Mario Saric, analyst]

I wanted to come back to the right to develop fees, the $34 million. I don't have as much experience in this. So just wondering, from a high-level perspective, how do you get to the quantum of the fee? Like is it based off of a value per potential future residential door, GLA, so on and so forth? So from that, why $34 million? Is it both to [ $45 million or $25 million? ]

[Mark Holly, executive]

Mario, so as we look at the right to develop, it is a business -- a standard mechanic approach in terms of how we look at it. So we run a full development pro forma. We have set parameters to which we're prepared to advance the project based on what we know the market looks like today and in the future. And then there is a mechanism that we have that we're prepared to pay above and beyond sort of what our minimum thresholds are. And there is a formula in that number.

And so when you look at the 2, they are 2 different numbers. And so that is reflective of what we think the optimum amount that we can pay to unencumber it as well as the amount of term that there's actually on the site with the tenant. So that also plays a factor. So if there's only 5 years left of term that -- you're not willing to probably pay for any of that. But if there's a long security of term on it, and then it's something that you will have to pay a higher proportion of share, too.

[Mario Saric, analyst]

Okay. That makes sense. And like are you able to -- I don't know see you have or you're able to share high level, like if there's a rendering of Lynn Valley in the presentation, but are you able to share like the amount of expected residential suites at the 2 sites?

[Mark Holly, executive]

No. We're still working through that right now. So I don't want to give out a number on how many doors we're there today as we're working through that in a timely phase and we're looking through in time. We're just finalizing some concept drawings and how that will come together and then getting organized to submit to the municipality of that one. So in the coming quarters, we'll be able to share a bit more detail around them and as it becomes more public.

[Mario Saric, analyst]

Right. Okay. And is this something that you expect it to happen every couple of quarters, every couple of years? Like in terms of the timing or magnitude going forward, how should we think about that?

[Mark Holly, executive]

So we have a development pipeline of 27 assets, and we've evaluated all those assets and looking at how to maximize the opportunities around them. It's not something that will happen every quarter. We're very strategic as we look at each asset and we'll evaluate the opportunity. So right to develop is not something that you want to initiate to all the time. You want to enter into them at the strategic right time. And so it is not something that you'll see every quarter. What we are, as highlighted earlier, in exchange for the right to develop, is we're going to act as the developer in terms of taking it through the municipal process at Lynn Valley and we'll be getting revenue management fees through that. And so that is some of the offsetting investments as well as getting unencumbered so that we can hopefully monetize the underlying value.

[Mario Saric, analyst]

Got it. Okay. That's helpful color. Just switching gears maybe on the residential development side or portfolio. Can you give us any updated timing on the expected CMHC financing you received at Bronte? And where the average interest capitalization rate may be of that project?

[Mark Holly, executive]

Yes. I'll hand that one over to Kara, who's got a bit of color on that area.

[Kara Cameron, executive]

Mario, so we are currently working on CMHC financing at Bronte. So once the financing is in place and leasing momentum continues, we do expect those results to improve and provide at Bronte. In terms of the rates we're looking at right now, we're not in position to communicate that at this time, but we will significantly know more.

[Mark Holly, executive]

The one thing that I will add, Mario, is where we are in the Bronte application is we've gone -- it's a very active file. We've gone through a bit borrower reviews and we're anticipating some feedback from them in the near future. And as Terry mentioned, the milestone is an active file. As we just have started working through that. I would expect in the next coming quarters, you'll see some advancements on Bronte.

[Mario Saric, analyst]

Got it. Okay. And then at Le Duke, the disclosed revenue, I think, was down $300,000 quarter-over-quarter sequentially, so versus Q2, even though occupancy was up a bit sequentially. Can you maybe share like, today, am I correct in saying that and be -- with the driver, there isn't and that's why your disclosed residential rent per square foot came down by $0.07 quarter-to-quarter?

[Mark Holly, executive]

Yes. So if you look at Le Duke, while we're exceptionally pleased with the assets, you're pointing out the change in occupancy, and that is just transitory in terms of in July, there's some terms typically in the Quebec market. And so we experienced some of those terms. We are seeing -- with those terms, we were able to do some mark-to-market changes. And so we do -- we are watching it very closely. The occupancy rates are fully stabilized. It's on the rise and so we're very pleased with it. And so you should not see much fluctuation in sort of the occupancy of that asset going forward.

[Mario Saric, analyst]

Okay. But -- and in terms of the transition in July, it looks like the disclosed rent per square foot came down. So are we to -- does that imply that the rents on turnover have been coming down?

[Mark Holly, executive]

No. No, the rents are not going down on the turnovers.

[Mario Saric, analyst]

Okay. Maybe it's something that we can just follow-up offline in terms of getting a better sense of what's happening there quarter-to-quarter.

[Mark Holly, executive]

Yes. Absolutely. We're happy to do that. It's probably likely to do much with the timing in terms of the turnovers and the gap between the one beginning and the one coming in. So -- but we can certainly talk about that further.

[Mario Saric, analyst]

Okay. My last question just on the operational side, where the implications of COVID was a pretty substantial decline in your parking revenue and a percentage of that revenue. On a combined basis, can you share with us where that revenue stream kind of stands today or in Q3 versus pre-COVID? I'm just trying to get a sense of if there's any remaining upside in that revenue stream going forward?

[Mark Holly, executive]

Yes. We're really pleased with where the parking numbers are and the ratios are. Certainly during COVID, they were impacted. We're happy with where it's going. We are seeing some changes a little bit in terms of the type of parking between monthly and daily, but what we are seeing kind of at the Scotia Square is the numbers are growing. And so the transition away from monthlies into dailies is people didn't know which days of the week they were coming down to the asset, but we're seeing that sort of coming back to a balance.

And this year, we've had, in Halifax, not our doing, but just by the Halifax community, there's been a lot more going on in terms of concerts and hockey and other events that have actually helped our parking ratio and the revenue associated to it. I would say at this point, we're pretty full in terms of that revenue. I wouldn't expect it to push much higher nor do I see it going down.

[Operator]

And your next question comes from the line of Sam Damiani from TD.

[Sam Damiani, analyst]

Thank you, I guess just to -- not to spend too much time on this, but again, that $34 million, I guess, just at a high, high level, can you give us a sense as to how that compares to the value that is being created as a result of the transaction or that you expect to realize in the near to medium term?

[Mark Holly, executive]

Sam, the way that I would look at it is last quarter, we talked about the Shell transaction, and we made an investment on Shell on doing the assignment of leases. And for that investment and the change in the rental structure there, we were able to get a yield on top, between 6% and 8%. And so if you kind of look at these investments, and I'll zero in on Lynn Valley, so if you look at the Lynn Valley right to develop and us then taking that through the entitlement phase, that yield on costs will generate somewhere in the same neighborhood as what we did on Shell. And so that's sort of how you can look at it in terms of the near-term value plus the long-term value that can be created as we now have it unencumbered and can hopefully monetize or develop a higher and better use.

[Sam Damiani, analyst]

Okay. And is there a reason -- if I heard you correctly, there's a development fee arrangement on Lynn Valley, but not on Kingsway and Tyne. Is there a reason there's not a development fees on both?

[Mark Holly, executive]

It's just that it's a timing thing, Sam. And so we're working through the details around Kingsway and Tyne. And in that particular instance, we haven't got to draw into a certain phase, that we're actually going to go into the municipality. And so costs associated with that one was very limited at this point, but we are going to work towards getting that one in the same state that we did with Lynn Valley and then take on some management fees around that.

[Sam Damiani, analyst]

I see. So it's just the timing. Okay. Okay. And then over to Broadway & Commercial. I did notice, if I'm not mistaken, the GLA that you're anticipating on the redevelopment there was reduced. If that is correct, if you could maybe just give some color as to the reason why.

[Mark Holly, executive]

So on the Broadway & Commercial, we're transitioning to 100% rental. And so we were able to list the municipality work on the rezoning and through that rezoning process, we were able to go -- our application is to go to 100% rental with 3 towers, which actually increases the number of doors that we are going to move forward on.

So the adjustment for me in terms of the GLA is not as meaningful as the adjustments on the amount of doors that we're able to garner on that site. And so we've been working quite closely with the municipality, trying to drive that higher and better value density creation. And so if you look at that disclosure in terms of the number of doors that are growing, we're really pleased that we're able to kind of push that number.

[Sam Damiani, analyst]

So I guess what you're saying is -- I mean you may not remember this correctly, but it was always 3 towers. One of them was the new condo and now all 3 are going to be rental.

[Mark Holly, executive]

That's correct. Yes. So we went from in Q1 of 2023, our disclosure was a GLA of 684,000 square feet with 890 units, and now we're at 731,000 in terms of GLA and 970 doors. And so you can see the change there, the meaningful step change from the beginning of the year to now in terms of the density that we're getting there. So there is an increase, I think, quarter-over-quarter. It's just -- it's the changes that we're making to the application as we go through the rezoning, but it's not material relative to what we said between Q1 and Q3. That was the big change.

[Sam Damiani, analyst]

I see. Okay. Lastly for me, just on the same-property NOI growth, which was obviously -- it is quite strong this quarter. How are you thinking about next year? Any reason trends would be different?

[Mark Holly, executive]

We're very much committed to consistency. And so that is the target and the goal for us. We haven't given any guidance on next year. But our track record over the years has been in that 2% to 3% range, and that's what we're trying to hold towards. And definitely, the environment is they're making it more challenging. But I think the team did an exceptional job in delivering this quarter at 2.8%, which is very consistent with what you've seen over the last several quarters and one that we continue to work towards.

[Operator]

And your next question comes from the line of Pammi Bir from RBC.

[Pammi Bir, analyst]

I just wanted to come back to the right to development arrangements. And just to clarify that -- or as a result of these, you'll earn the development income -- sorry, you'll earn income through the entitlement and the development period, meaning the rental income. And then secondly, any thoughts as to when the development management fees would start?

[Mark Holly, executive]

The development management fees on Lynn Valley will be kicking in starting this quarter, as we are very active on that development entitlement application.

[Pammi Bir, analyst]

Okay. And then, sorry, just the first part of the question, in terms of the rental income on those existing Empire assets, that does continue during usual development period?

[Mark Holly, executive]

Right. I didn't hear that first part. Yes, that does still continue until such time as we then decide to terminate the lease and actually start the development project.

[Pammi Bir, analyst]

Okay. If I recall correctly, maybe just correct me if I am wrong, but on the Davie Street project, if I remember correctly, the rental income, did it not continue even during the construction period? I'm just curious if this arrangement is different than how Davie Street was structured?

[Mark Holly, executive]

The Davie Street structure was paid consistently throughout the time, yes. So the rental rate was paid. The structure, in terms of the right to develop, is different in this instance. I wasn't around when the Davie Street deal was structured, but this deal does have the right to develop and it has the income that's coming in for the rental revenue as well as the income that we'll get in terms of taking it through the entitlement. So the Davie Street was not getting any revenues for the entitlement, but it was getting the length from -- during development.

[Pammi Bir, analyst]

Right. Right. Okay. All right. So there are some differences, but -- yes, different project and, I guess, different arrangement here. Maybe just lastly, on Marlstone and the disclosed yield, is there anything you can share with us just in terms of what sort of financing costs you're anticipating on the project? I think you mentioned you were working on some CMHC financing, but just curious if you can provide some additional color.

[Mark Holly, executive]

Yes, absolutely. I'll hand that to Kara who will give you some color on this.

[Kara Cameron, executive]

So right now, we are financing The Marlstone on the revolver, but we do have a CMHC construction line in application and are working through the process there, just hoping to secure CMHC financing for the construction phase of The Marlstone.

[Operator]

[Operator Instructions] And your next question comes from the line of Sumayya Syed from CIBC.

[Sumayya Hussain, analyst]

To follow up on The Marlstone at this point in time, just any early thoughts on value or NAV creation based on, I guess, your disclosed yields compared to where stabilized cap rates are for that market and that kind of product today?

[Kara Cameron, executive]

We're not disclosing that at this point in time in terms of what we're expecting our NAV creation. I will say that, that is a very positive assessment in the market right The Marlstone. So we own the land at that location previously, so the yields that you're seeing in the disclosure do not include land. So it's a very positive result for the organization overall.

[Sumayya Hussain, analyst]

Okay. And just maybe, Mark, any thoughts on the market in terms of deals and transactions and what you're seeing there, activity and pricing-wise for comparable assets.

[Mark Holly, executive]

Yes. We really like the Halifax market. So it is definitely undersupplied. We are seeing other projects that are coming to completion at yields that may not be as strong as this. And so we're really excited about the advancements that we've taken on this. We are 75%, almost 80% now confirmed on all construction contracts and the remaining ones are purposely intentionally not done. As they're further down the line in terms of having to lock those in.

In terms of rental rates, we seek rental rates based on all the research. We do continue to grow and rise as the vacancy rates in that market, specifically on the Peninsula is running at around less than 1%. So we're really comfortable with where we're at on that project. The deals that we're showcasing, what we're seeing from other projects that have just come online with maybe slightly less in terms of yields. So based on all the metrics that we've looked at, we're still very, very strong and bullish on this project and the other land holdings that we have in Halifax.

[Sumayya Hussain, analyst]

Okay. That's helpful. And any sort of recent trades on the grocery-anchored side that you've seen in the market and where pricing and cap rates are selling for those today?

[Mark Holly, executive]

Yes. As you know, there's been very few transactions in the market. And so I do think that grocery-anchored sites coast-to-coast are still very desirable as they are typically all necessity-based retailers. And so we're not seeing very many trades. In terms of cap rates, we do valuations every quarter with our valuation team, and we're comfortable with the cap rates that we have embedded as you would see in the MD&A. But there's very, very few trades in the grocery and necessity-based centers.

[Operator]

And we have a follow-up question from Pammi Bir from RBC.

[Pammi Bir, analyst]

Yes. Sorry, just coming back to the comment around the CMHC financing on The Marlstone. Can you just share maybe what you're anticipating in terms of either a rate or a spread on that?

[Kara Cameron, executive]

Sure. So [ 115 bps ] over GLC is really where we're aiming on that one.

[Operator]

There are no further questions at this time. Ms. Martin, please go ahead.

[Ruth Martin, executive]

Thank you for your time today, and we look forward to updating you on our fourth quarter call in February.

[Operator]

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.