First Capital Real Estate Investment Trust

TSX:FCR.UN

Earnings Call Transcript 2019-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the First Capital Realty Q2 2019 Results Conference Call. [Operator Instructions] I would now like to turn the meeting over to Jodi. Jodi, please proceed with your presentation.

[Jodi M. Shpigel, Senior Vice President of Development]

Good afternoon, everyone. In discussing our financial and operating performance, and in responding to your questions during today's conference call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of those underlying assumptions, risks and uncertainties is contained in our various securities filings, including our MD&A, for the year ended December 31, 2018, and our AIF, which are available on SEDAR and on our website. These forward-looking statements are made as of today's date and except as required by securities law, we undertake no obligation to publicly update or revise any such statements.During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the company's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call.I will now turn the call over to Adam.

[Adam E. Paul, President, CEO & Non Independent Director]

Okay. Thank you very much, Jodi. Good afternoon, everyone, and thank you for joining us today. Q2 was another significant quarter for the advancement of FCR's strategic initiatives. We'll start today by providing an update on 4 key priorities. Firstly, our commitment to deleverage the balance sheet following the share repurchase, which was completed in the quarter by selling properties that are inconsistent with our Super Urban strategy is proceeding very well.Since the end of Q1, we have now closed on $218 million of property sales, taking our year-to-date total to today to just over $240 million. In addition to the $240 million that's closed, we have approximately $135 million under sale agreements where due diligence conditions have been weighed. We're also active on other properties, some of which are under agreement, but are still subject to due diligence conditions, several other properties are in the midst of negotiations and have not been classified as held-for-sale at the end of Q2. The majority of properties comprising the disposition amounts, I just mentioned, are being sold outright.Examples include Port Place on Vancouver Island, our portfolio in BC and our 12-year property in Quebec. The average population density within 5 kilometers of the properties we have sold is less than 150,000 people, well below FCR's current 5-kilometer density, which increased this quarter to 265,000 people. Similarly, the average Walk Score applicable to the properties sold is 67, again well below our average Walk Score of 78.Our real estate strategy extends beyond selling properties that no longer fit. We also selectively invest in Super Urban properties, where significant value add opportunities exist. One such opportunity is the development site at the northeast corner of Avenue Road in Yorkville in Toronto's Bloor-Yorkville neighborhood. We've been pursuing this site for a long time because of its highly strategic fit.We were recently successful in securing the acquisition of the property, and then sought partners in order to both maintain our commitment to delever and to enhance the project teams expertise. We were fortunate to have more suitable groups keen to partner with us than we could accommodate. Ultimately, we selected Greybrook as a co-development partner given their luxury residential expertise in both Canada and the U.S. We also brought in the Bank of Montréal as a capital partner via their private equity real estate fund. We each acquired a 1/3 interest in the site last month, and will develop it into a mixed-use property with true luxury residential, together with complementary retail having connectivity to our existing Yorkville portfolio. This 0.6-acre corner development site forms an important part of a 4.7-acre city block comprised of our Yorkville Village mall and the Hazelton Hotel.Having an ownership position in the adjacent properties provides the opportunity for First Capital to extract more value from this site in addition to our existing properties. I'll briefly explain. Given we own the neighboring property, we can reduce the setback of the proposed development, which will allow us to enlarge the floor plate of the podium and the tower. By doing so we can increase the density of the site without increasing the approved type. In addition, there are meaningful synergies with parking and other shared services that we can create. These synergies will also reduce development costs. Our partners on this new acquisition have agreed to compensate FCR for this density and these synergies as part of our deal. The value of our model also increased. As part of the master plan we've created for the block, we are now able to realize additional density on and above our current Yorkville entrance, improve the public realm and enhance connectivity and integration with our new site. The value enhancement to the mall will accrue entirely to First Capital.The bottom line is that our ownership of this new mixed-use site provides a conduit for us to create and extract more value, more value from the site directly and more value for First Capital's wholly-owned mall. This is a great example of our evolved strategy and action.Thirdly, surfacing unrecognized value in our substantial and growing incremental density pipeline is an important key to our future. We continue to believe that this density pipeline is the most mispriced element of our company. However, we have a plan that we will execute over the next couple of years and beyond that we believe will narrow this gap. As we've mentioned, part of that plan is to complete entitlement submissions on 7.5 million square feet of incremental density by the end of this year. As the majority of this density is located in Toronto, our submissions are planned to be back-end loaded towards the end of this year as we await proclamation of Bill 108. Included in the 7.5 million square feet is our Yonge and Roselawn Assembly, which is going in for a resubmission; 1071 King Street in Liberty Village; Staples Lougheed in Vancouver; and density for a tower connected to the new LRT station at our Gloucester property in Ottawa.It will take some time to fully secure entitlements on these sites. But once we do, we expect material value and NAV creation to occur on rezoning alone. From there, we may look to monetize some of this density through outright sales, and in some cases, where we plan to develop, potentially selling a partial interest to partners. And finally, the conversion to a REIT is also moving along very well as we outlined in the press release last month.So it's been a very busy summer. We are making meaningful progress across all fronts, and the business continues to perform well as we execute on these 4 initiatives. There will likely be some choppiness to some of our metrics, such as NOI and FFO, as we execute our plan. However, the fundamentals of our properties remain strong. NAV one of, if not, the most important metric is expected to continue its upward trend and will take more prominence for First Capital as we execute our strategy.Lastly, I would like to acknowledge the dedication, passion and exceptional effort of the First Capital team. They clearly understand our strategy and then execution is the key to the best of strategic plans.With that, I will now pass things over to Kay to discuss our quarter in more detail. Kay?

[Kay Brekken, Executive VP & CFO]

Thank you, Adam. Good afternoon, everyone, and thank you for joining us on our call today. As Adam mentioned, we've made significant progress against our strategic objectives in the first 6 months of the year, which we are very pleased with. I would like to provide an update on our REIT conversion and some changes in our MD&A disclosures, and then take you through the quarterly results in more detail.During the second quarter, we settled on the approach we will take to convert from a corporation to a REIT. On July 9th, the Board of Directors approved the proposed reorganization subject to receiving a fairness opinion from our independent financial adviser. The reorganization will also require shareholder approval at a special meeting expected to be held in early December. The conversion is intended to occur on or about December 30 of this year. The conversion will result in a taxable deemed disposition for all shareholders who receive REIT units in exchange for their FCR common shares. Additional details on the REIT conversion were disclosed in our press release last month.During the second quarter, we added more disclosure to our MD&A around our Super Urban strategy. This discussion can be found in our Business Overview and Strategy section of the MD&A. We have described how we define a Super Urban property and introduce the metrics that we will use to monitor our progress against our stated objectives. These metrics include: growth in the population density surrounding our properties; growth in NAV with a focus on servicing value in our density pipeline; achieving our disposition targets; returning our debt metrics to similar levels as at year-end 2018; and accelerating the growth in our rental rates.We define a Super Urban property based on its proximity to transit, its walkability score and its population density. Currently, over 90% of our portfolio is within a 5-minute walk to public transit. The portfolio has a walkability score of 78, which is considered very walkable, where most errands can be accomplished on foot. The portfolio's average population density is 265,000 people within a 5-kilometer radius of our properties, up 58,000 or 28% from December 2016, which makes FCR a leader among our North American peer group on this metric. We are targeting further growth in this metric to reach an average population density of 300,000 people in 2021.We also monitor our progress on servicing value end and growing our incremental density pipeline. As of June 30, we had identified approximately 23 million square feet of additional density within our portfolio. Less than 15% or 3.4 million of this total is included in the fair value of investment properties on our balance sheet. We have a goal to increase this percentage primarily by seeking entitlements for a portion of this density, as Adam previously mentioned, which will lead to future growth in our NAV.We also measure our progress against our previously announced disposition targets. Adam provided an update on the progress we have made to date. We will use the proceeds of the dispositions to reduce our debt levels, to achieve our goal to return to similar debt metrics as at year-end 2018 and to fund growth opportunities in targeted Super Urban neighborhood.As we continue to dispose the properties, we expect that there will be a negative impact to FFO, which will continue throughout the disposition period with a partial offset from growth in same property NOI and from development completions. As we further concentrate our investment capital in Canada's densest and fastest-growing neighborhoods, we expect the annual growth in our average rental rate to accelerate and to exceed its historical norm of 2.5%.Now turning to the quarterly results. On Slide 6 of our conference call deck, we show the factors driving the change in FFO. For the second quarter of 2019, FFO decreased by 3.4% or $0.01 on a per share basis. This decrease was primarily due to gains realized in the second quarter of 2018 that did not recur in 2019. These prior year gains included $2.7 million of residential condo profits from our joint venture interest in Main & Main, and $2.7 million of net gains on marketable securities. Excluding these gains, FFO per diluted share increased 3.3%.Moving to Slide 7. Our same property NOI increased by 1.9% for the quarter and 3.5% for the 6 months ended June 30, driven by rent escalations, higher occupancy levels and lease termination fee.On Slide 8, we present our lease renewal activity for the quarter. Our Q2 total portfolio lease renewal lift was quite strong at 11.9% on 590,000 square feet of renewals when comparing the rental rate in the last year of expiring terms to the first year of the renewal term and even stronger at 14.6% when comparing the rental rate in the last year of expiring term with average rental rate in the renewal term. For the 6 months ended June 30, our total portfolio lease renewal lift was also very strong at 11.3% on 1.2 million square feet of renewals and at 13.3% when comparing the rental rates in the last year's expiring term to the average rental rate in the renewal term.Moving to Slide 9. Our average net rental rate grew a healthy 3.1% or $0.62 over the prior year to $20.58 per square foot. This growth was primarily due to renewal lift, rent escalations, development completions and dispositions. During the first half of the year, we transferred 81,000 square feet of new GLA from development to income-producing properties. We are expecting more completions over the next 2 quarters primarily in our King High Line projects. On Slide 10, our total portfolio occupancy rate increased by 50 basis points over the same prior year period to 96.8%, which is the highest it has ever been due to significant leasing activity over the last 12 months.Slide 11 highlights our 5 largest developments that accounted for the majority of the $43 million in development and redevelopment spend in the quarter. These investments are all in Super Urban neighborhoods, including Liberty Village, Yorkville Village, Yonge and High Line in Toronto, The Brewery District in Edmonton and Wilderton in Montreal.Slide 12 shows the factors affecting FFO and the related movements over the prior year period, which I have already discussed. Slide 13 touches on our other gains, losses and expenses, which are included in FFO. For the second quarter, we recognized other losses of $500,000 primarily due to REIT conversion costs versus a $2.4 million other gain in the prior year primarily due to net gains on marketable securities.Slide 14 summarizes our ACFO metrics. Our year-to-date adjusted cash flow from operations was down slightly over the prior year period primarily due to lower realized gains on marketable securities. Slide 15 summarizes our financing activity. During the first half of the year, we completed $850 million of unsecured bank term loans that primarily funded the share repurchase. The majority of these loans were flat -- fixed-rate loans with a weighted average interest rate of 3.3% and a weighted average term to maturity of 6 years. The remaining loans are floating-rate loans, which can be repaid at any time with no prepayment penalty. We also completed $393 million of new mortgages with 10-year term at an effective interest rate of 3.4% and repaid $172 million of existing mortgages with an average effective interest rate of 4.3%.Lastly, post quarter end, we completed the issuance of $200 million of 7.5-year senior unsecured debentures with an effective interest rate of 3.5%. The proceeds were used to repay $150 million of maturing debentures with an effective interest rate of 5.6%.Slide 16 summarizes the size of our operating credit facility in our unencumbered asset pool as well as our key financial ratios. At quarter end, $7 billion of our assets were unencumbered. Our EBITDA interest coverage remained consistent with the prior quarter. Our net debt-to-total assets and net debt-to-EBITDA increased following the share repurchase that's less than initially expected due to our disposition activity.Slide 19 (sic) [ Slide 17 ] shows our term debt ladder. In Q2 2019, our weighted average interest rate decreased to 4% and our weighted average term to maturity increased to 5.4%.Lastly, I am pleased to report that we recently released our 2018 Corporate Responsibility and Sustainability report, which is our 9th annual report. This report can be found on our website under Community and then Sustainability. We also recently received a AAA ESG rating from MSCI, which is the highest possible rating to receive. MSCI is a leading provider of investment decision support tools, and a AAA rating identified FCR as a leader for its environmental, social and governance practices. We are very proud of this accomplishment, which demonstrates our continued leadership in ESG practices. Congratulations to all our team members across the country who made this achievement possible.At this time, we would be happy to answer any questions you have. Operator, can you please open the call for questions.

[Operator]

[Operator Instructions] Our first question is from Sam Damiani. We'll pass for the following question. The question is from Mark Rothschild.

[Mark Rothschild, MD & Real Estate Analyst]

In regard to asset sales, can you talk a little bit about the depth of demand you're seeing from buyers for the type of assets you're selling? And also is there a range of cap rate that you're seeing, are they moving at all for the types of assets that you're looking to sell? And how are you looking at it in a context where you had originally thought that you'd be able to sell the properties?

[Adam E. Paul, President, CEO & Non Independent Director]

Mark, thank you for the question. It's a very good question given the environment for property sales. We -- I think we're pretty clear initially with the fact that our view was that there was more retail properties that were available for sale than there was capital to buy retail properties. But we were also of the view that not all retail is created equal and retail is not a commodity, and we felt that the assets that we had identified for sale were kind of in that top-quality spectrum across the landscape. And so now that we've been in the market for a while that I could tell you it has proved to be to. We would describe the demand as adequate to execute on our objectives, and that's what we're seeing. Pricing, what we had expected is that pricing would be generally in line with our IFRS value. I think as you slide up into some of the Super Urban investments we have, the opposite is true in the sense that there is more capital that would like to own those properties than there are sellers of the property. And I think in those you probably have better likelihood to transact above IFRS, but those are not the properties we're selling. So generally they are in line with IFRS. We guided to around 6% cap rate on what we were trying to sell. It's coming in right around there, some were obviously a little below and some were a little above, but in line with IFRS. That's the ballpark cap rate. And the demand, I wouldn't say it's robust, but certainly deep enough for us to accomplish our objectives.

[Mark Rothschild, MD & Real Estate Analyst]

Okay. Great. And you spoke also about what you're doing at Yorkville and now with Greybrook, and this is an area where you've obviously invested quite a bit. To what extent are you open to increasing your exposure at Yorkville? And while this is a strong location, I was curious if you could expand on how you view it as compared to your more traditional grocery anchor properties as the size of your investment in Yorkville growth as well with the size of the company?

[Adam E. Paul, President, CEO & Non Independent Director]

I mean we've got about $750 million invested today in the Yorkville neighborhood, so call it for round number 7.5% of our balance sheet. This investment coupled with our planned redevelopment of 101 Yorkville will take our investment in the Yorkville neighborhood to north of $1 billion in our share. So call it 10% of our balance sheet. Given the quality of the neighborhood, the growth profile, the existing density, the fact that population of Yorkville neighborhood is going to come close to doubling over the next 7 to 10 years, we're very comfortable with the investment. On the surface, there are some nuances that are very different than other properties we own, but we do have a grocery -- we have 2 grocery anchors now in McEwan's and Whole Foods. We've got Equinox as a fitness use. We've got food and beverage and coffee shops as well as a lot of things that really do type act as a core strategy. But as the strategies evolve, it has become more about the neighborhood and a little bit less about the asset class, and I think this is a perfect example of how we view that and the type of investments that we're making.

[Operator]

The next question is from Dean Wilkinson.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Just going back on the sales process and where you are with that. Adam, just looking at what you did in the quarter versus the change in what's held-for-sale, would that suggest that you sold perhaps more assets that weren't specifically identified? Or did assets rollout and assets are rolling into that bucket, and we should think of that as maybe something that's going to be a declining balance?

[Adam E. Paul, President, CEO & Non Independent Director]

No. There is a lot of movement. And so one way to look at is, if you're looking at it on a quarterly basis, one way to look at it is, what is in held-for-sale plus what has been sold year-to-date. And if you look at that number at the end of Q1 versus today, it's somewhere between $1 million -- $100 million and $200 million higher. And what I tried to touch on in the remarks is that even since the end of Q2, there has been progress. It's a very dynamic program we're executing, so it is changing quite rapidly. And so if we were reporting today, the sum of what's been closed plus what's held-for-sale would be higher today than what it was at the end of Q2.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

All right. So where I'm going with that is it looks like that the sale process may happen perhaps a little quicker than we were originally thinking?

[Adam E. Paul, President, CEO & Non Independent Director]

That's a very realistic possibility, but a little premature for us to make a commitment on that. But we're not -- we're a motivated vendor to get our balance sheet closer to where we would like it, but we're not a desperate or force seller by any means. And so we're going to do what makes sense at the pace that makes sense, and initially we laid out a 24-month time line. That's the time line we're going to stick with. It's a general time line. But certainly at this stage, things have unfolded slightly better than we initially expected. And so there is a very good possibility that we'll be through the halfway point after 12 months. That's a very realistic possibility.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. And secondarily to that, have you looked or considered at, I'm assuming the answer is no, but I got to ask, selling those higher-quality lower cap rate assets and accelerating the debt pay down? Because I could imagine on some of that core stuff, you'd be well inside 6, probably with a 4 in front of it, which would afford you the ability to sort of accelerate the debt pay down and maybe not as have much disruption to the FFO.

[Adam E. Paul, President, CEO & Non Independent Director]

Yes. Yes. We have had unsolicited offers at sub 4. We are still involved in a long-term business. We plan on running this business for the long term, and we are making decisions that we believe maximizes the value of this company over the long term. And the reason those assets are priced the way they are is because they really do have really tremendous and compelling growth profiles. And our view is that, selling that -- those types of properties to pay down debt -- yes, perhaps it's the easy path in the short term, but it's selling part of our future and part of a value of the company, and we don't believe we would get full value in terms of what we believe we can do with these assets over the long term. So the answer is no. We are not contemplating selling there. Any asset that's consistent with our Super Urban strategy is something that we're committed to holding, unless as we look at it and we look at every asset on an asset-by-asset basis every year, if we believe for whatever reason that there isn't clear value creation vision, then that would change things, but generally that's not the case. So we're focused on properties that are inconsistent with the Super Urban strategy and all of the criteria and metrics that we've been talking about and that we started to include in our public disclosure.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. That was great. And just turning to the density pipeline, I guess, in the year waiting for Bill 108 for the comments, which I think you're due back the end of this month, would that suggest of that $7.5 million, the lion's share of that is directly going towards residential density?

[Adam E. Paul, President, CEO & Non Independent Director]

Yes. The lion's share of that is in residential density, and that's the natural evolution for a lot of these properties where densities are increasing by 6, 7, 8x, in some cases more. So obviously we did go on that back vertical. The most logical, most valuable use and the most in demand use is residential density.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

And was there anything -- I haven't had a chance to read Bill 108, not that it was high on my nighttime table reading list, was there anything in it that sort of suggested that what you were looking at in that 7.5 million square feet may have to conceptually change or was it generally in line with, okay, we don't have to change the plan, we just have to wait for this process to get through and then we start sort of at the LPAT level on these things?

[Adam E. Paul, President, CEO & Non Independent Director]

I'll let Jodi comment on why we're waiting. But what it did was, in many cases, it increased dramatically the probability of us achieving the zoning that we were seeking. And in some cases, it actually increased the amount of density that we believed could be achieved on this site. Jodi?

[Jodi M. Shpigel, Senior Vice President of Development]

Dean, and just to add to that, we are expecting proclamation. Actually September is the guidance that we've been receiving from a number of sources. And as Adam said, this really increases our probability to get the density and the higher density that we're looking for.

[Adam E. Paul, President, CEO & Non Independent Director]

I think putting the submissions in after the proclamation occurs, it takes away any ambiguity whether you just don't look under the former system or the new -- the evolved ones.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

And you wouldn't have a sense of timing on how quick they could then turn that and come back to you with sort of an initial view as to where those applications would land?

[Adam E. Paul, President, CEO & Non Independent Director]

Well, look, I think it's safe to say that when we're putting a density figure out in the public domain, we have a very high degree of conviction that that's what we will achieve because that certainly wouldn't serve our purpose well to put out a number and fall short. So we do have a high degree of conviction in the number. And like I said, the probability of achieving that has only increased as a result of Bill 108.

[Operator]

Our next question is from Jenny Ma.

[Jenny Ma, Analyst]

So that was good color on the post-submission process, but I wanted to get some color on the pre-submission process on the density. So just to be clear, the 7.5 million square feet, does that include some of the 3.4 million square feet that's already valued or is this incremental to that?

[Adam E. Paul, President, CEO & Non Independent Director]

No, this is -- the 7.5 million square feet is entirely incremental.

[Jenny Ma, Analyst]

Okay. So you'll be just under half recognized and when this all come to pass?

[Adam E. Paul, President, CEO & Non Independent Director]

Sorry. Just so I am clear on the question. Are you asking if there's a component of the 7.5 million square feet is included in our IFRS math?

[Jenny Ma, Analyst]

No, no. I know that the 3.4 million square feet is included. I'm wondering if the 7.5 million square feet is on the top of that 3.4 million square feet?

[Adam E. Paul, President, CEO & Non Independent Director]

Okay. It's roughly 10% is included in the 3.4 million square feet and about 90% is not included in the 3.4 million square feet.

[Jenny Ma, Analyst]

Okay. I am just trying to get a sense of what the number comes out to. So I guess it would be roughly, call it, 10 million square feet then that will be recognized when you get through this process, give or take?

[Adam E. Paul, President, CEO & Non Independent Director]

Yes. Generally, that's in line with the numbers that we've got.

[Jenny Ma, Analyst]

Okay. And then when you're doing these submissions, I just want to understand, are these applications -- I mean how much work goes into it? Like, are they ready to go, or it's really a matter of you handing it in or is there some work that needs to be done on your part before they are ready?

[Adam E. Paul, President, CEO & Non Independent Director]

I'll let Jodi speak. I can tell you it's a lot work. It's a lot of work to get the submission in and then it's a lot of work to carry it through post submission. Do you have anything to expand on that, Jodi?

[Jodi M. Shpigel, Senior Vice President of Development]

I'd just add Jenny that in terms of preparation, a lot of work goes into working with the municipality and communities since we do a lot of engagements and work with the city. So that also leads to the high probability factor. So we're fairly confident that our numbers are achievable. It does takes a long time and there is a lot of work, lot of detail that goes into a submission.

[Adam E. Paul, President, CEO & Non Independent Director]

We expect those entitlements to come through between 6 and 24 months depending on the property and the location. City Toronto, generally that's the most valuable component in the majority of that pipeline, about 60% is in Toronto proper, about 70% is in the GTA and Toronto proper, and that's where you're getting towards that 24-month time line. So it does take time. But factor the earlier points about running a long-term business, we want to get it right, we want to get the density right and there is a lot of money at stake for us to do that and there's a lot of money at stake that's not -- understand that we sold, but not currently recognize the value of the company. And if we execute this well, it will become -- easy may not be the right word, but it would become very feasible for that value to be recognized.It looks like we lost Jenny on our screen. So thank you for the question, Jenny. If we weren't done, please dial back in.

[Operator]

Our next question is from Pammi Bir.

[Pammi Bir, Analyst]

Just maybe continuing along the lines of this discussion. On the 7.5 million square feet, at what stage of the approval process would you start recognizing some of that value?

[Adam E. Paul, President, CEO & Non Independent Director]

Pammi, congratulations on the new role. So generally -- and this is general, generally we will recognize it at the point in time where the zoning is finalized. It's not an exact science. You can make your case, recognize it at an alternative point in time. But based on our internal views, our internal policies, the general guideline is that once we fully secure the zoning, that's when an adjustment, the IFRS math would take place.

[Pammi Bir, Analyst]

All right. Okay. And then you mentioned, I guess, a brief comment just in terms of this -- the entitlement represent significant cost in terms of the total, I guess, scope of these projects. Can you maybe provide some color there on that 7.5 million square feet, ballpark figures and what that investment could look like over time?

[Adam E. Paul, President, CEO & Non Independent Director]

So I believe what we said was it involves a lot of work, a lot of sweat equity, not necessarily a lot of cost to get it through that process. And one of the reasons we did ramp up the submissions is, number one, it's a pretty decent environment today and the provincial policies in Ontario are contributing to that to secure the zoning, which will stay with the properties. But the cost to do that is not that material. The material costs sort of come into play if and when we choose to develop that density. So as we progress through this -- because I can't tell you that our thoughts are that some of this density will be sold outright. We believe we'll create a lot of value on some of them, but we don't believe they necessarily have a strategic fit in the Super Urban strategy, even though some of them are in Super Urban locations, but the ability to grow our position in that neighborhood is something that we may not think is feasible. And the reality is, some of this is going to be a great source of capital recycling where we sell assets that have little or no yield or FFO contribution. And some of that, we believe would make sense to sell, monetize and redeploy the capital.

[Pammi Bir, Analyst]

Got it. Just in terms of the, again, this 7.5 million square feet, what would the rough mix between, say, rental and condos be on the residential?

[Adam E. Paul, President, CEO & Non Independent Director]

Right now, it's too early to tell from our perspective. There is no question, there will be a meaningful rental component. There's also no question that there will be condo component, we suspect smaller. But the truth is, we haven't fully decided, once we do get the zoning, what the next course of action is on every property. We have not decided that on every property. And the density is not -- the residential density isn't tied to condo or rental. And so we may have a view that it could be rental and we may end up deciding to sell a property and the new buyer does condo. So as we progress through this, we will provide more visibility into what our plans are with the density. That's where we'll start talking about rental and condo. That's when we'll start talking about capital requirements and sources of capital and potential partners.

[Pammi Bir, Analyst]

Got it. Maybe just one last one for me. Coming back to the disposition program, the $400 million that's held-for-sale, what's the rough timing on those transactions? Or I guess, contracts are -- some of them are firm, maybe some are still in progress. But how do you see that playing out over the course of the year? And if you can just maybe provide a range on what the cap rate looks like on those relative to, let's say, your overall portfolio cap rate?

[Adam E. Paul, President, CEO & Non Independent Director]

Okay. So the accounting rule suggests that we have an expectation to transact on held-for-sale assets within 12 months. We think it'll be more likely in the first half versus the second half for a lot of them. Of the $400 million, there is about $135 million that's under agreements of purchase and sale where due diligence conditions have been waived. Some of the balance is under conditional agreements, some of the balance is not under any agreement, and so it's a bit fluid. Timing, we certainly expect some of that to close throughout the balance of the year and potentially some will close into next year. And based on what we know today, there's a likelihood that, that balance grows the next time we report, but obviously that could change as well. Cap rate, as I said, earlier, it's generally around 6% for the assets that we are selling and have sold. Again, some are below, some are above, that's the general average.

[Operator]

Our next question is from Mario Saric.

[Mario Saric, Analyst]

Just maybe sticking to the intensification theme, in terms of value, relative price per billable square feet, it looks like the 3 million square feet that is being included in the IFRS now is being valued at just under 2 million square feet, just say roughly about $70 per billable square foot. How would you characterize the 7.5 million square feet identified looking for submission relative to the 3 million, I think, within your IFRS value today in terms of quality, location and so on?

[Adam E. Paul, President, CEO & Non Independent Director]

Thanks very much, Mario. It's a good question. There are a lot of similarities across the 2 buckets of properties.

[Mario Saric, Analyst]

Okay. And then secondly, I know you mentioned around the 7.5 million square feet, some of which you will sell outright when you get the zoning. How do you think about the platform, that that's the platform today in terms of achieving the 7.5 million square feet high-level? How do you think about how much to keep and how much to sell going forward?

[Adam E. Paul, President, CEO & Non Independent Director]

So I just want to clarify, we said we may, we may sell some of it outright. It's a very realistic possibility. I don't think we're going to sell the majority of it outright because a lot of the real estate is a great fit with our strategy and our platform. And then in terms of the platform and where we go from there, that's something we're continually monitoring across all of our departments, as we look at our business over both the short-term and the medium term, and we're going to continue to do that. This is a busy company. We're fortunate that we have a lot of very talented and passionate people that work here. So we're able to produce a lot. And we'll make adjustments like we did in 2015, where we had too many people, and not all the right people for where we were heading. And then since then, we've added staff. And so we'll continuously look at that. There is a ton of work ahead of us. We have a great group across the company and across the country to execute it. And when it needs tweaking, we'll make sure we have the human capital and the platform to execute the strategy. But at this stage, we don't foresee any meaningful changes over the foreseeable future from a platform perspective.

[Operator]

Our next question is from Sam Damiani.

[Sam Damiani, Analyst]

Just to stick on the incremental density theme. The table in the MD&A, including the density at the 3 buckets in the medium term, long-term and very long-term, this quarter there was a big shift into the medium term, which I think is commenced within 7 years and I apologize if this question was answered because I just skipped on the call 10 minutes ago. But what prompted the shift of all that GLA or that potential GLA that much sooner. It was the first question. I have follow-up as well.

[Adam E. Paul, President, CEO & Non Independent Director]

Well, thanks very much for the question, Sam, and the reason we had more meaningful shift is, based on the fact and -- and I probably should have said it this way in answering Mario's comment as well is, we are not under pressure to develop this density because the vast majority of it is situated on very productive retail properties, and so -- that are generating income. And so whether we terminate tenants under redevelopment clauses in a year, 3 years or 4 years is not that big a deal to us. And so some of the real estate and what we expected to do with it kind of fell into that longer-term category, but still near the line, that 7-year line. When we outlined our evolve strategy, one element of the Super Urban strategy in an effort to surface value and density pipeline was to really have a heightened focus on it and to accelerate the value that gets surfaced through that pipeline. And as a result of that, it does go back and revisit the time lines. And a lot of the time lines we're planning to accelerate in a meaningful way, and that's what pushed a lot of the density into that medium-term bucket from the long-term. So you're going to see some volatility around those categories, especially when you start getting out 7-plus years. But clearly, where we sit today versus prior quarters is there is a heightened focus on accelerating the value that we surface, and we have visibility on a lot of properties exactly how we're going to do that and that's what prompted the shift.

[Sam Damiani, Analyst]

That makes sense. One of the hindrances historically, of course, has been the burden of these long-term leases to anchor tenants that plays an inhibitor to redevelopment. Have you come to some sort of arrangements verbally or otherwise to break some of those restrictions?

[Adam E. Paul, President, CEO & Non Independent Director]

Yes, that's something that we are certainly continuing to work on, and that is something that is certainly resulting in some of these properties remaining in the long-term bucket because the viability, the economic viability of the redevelopment is there to date. And once zoning is secured there, the highest and best use is to intensify. But because of those encumbrances, we left a lot of properties in the longer-term bucket until we get to a stage where we're comfortable that we can deal with those. So we are in active discussions with a number of tenants. We also have time lines where what we did in Wilderton for many, many years we did not have redevelopment, right, and then contractually all of a sudden we did, so obviously we're monitoring that as well, and in some cases trying to accelerate that. So that's a big piece of work that several people in the company are working on, and obviously the leasing group is tied to the hip of the development group because how we lease space in those properties is very different than if they were -- we were planning to run them in their current state for the long-term and the types of commitments we make.

[Sam Damiani, Analyst]

Okay. That makes sense. Is there any update to shifting gears on the plans for the 2 properties where the Walmarts are vacating later this year?

[Carmine Francella, Senior Vice President of Leasing]

Yes, Sam, it's Carm. Thanks for the question. We have approached these situations opportunities from a wide lens. For example, we took some time to reposition our target boxes versus a knee-jerk lease-up. And we're glad we did because we created more value replacing the previous tenant with more complementary uses. It's a food store, hardware, gym improving the asset quality and the value. We expect to achieve something similar with the recent Walmart closures. As mentioned, we have 2 boxes coming back to us this year. We have several plans to manage this space in the short term. At Cedarbrae, we have finalized to backfill the entire box with 2 tenants. This provides us with an opportunity to pick up some revenue while we review the potential to unlock the redevelopment played on about 6.5 acres. At Fairview, the development plan is clear and the Walmart box will be transferred to underdevelopment later this year as we have plans to demolish and then redevelop the space. We are in active negotiations with several tenants. And we'll use this as an opportunity also to improve parking access and to unlock some additional development controls that Walmart had. So generally speaking, we're happy to get some of these boxes back, fare the rent and it allows us to add value.

[Sam Damiani, Analyst]

What are the dates of those 2 leases burning off, is it Q3, Q4?

[Carmine Francella, Senior Vice President of Leasing]

The Cedarbrae lease ended June 30, so the end of Q2. And the Fairview lease is, I believe, mid November.

[Sam Damiani, Analyst]

And Kay, just I noticed that your revenue sustaining CapEx is up year-over-year both in the first and the second quarter. Is that sustainable for, lack of a better word, going forward though?

[Kay Brekken, Executive VP & CFO]

Sam, yes, you're correct. Revenue sustaining CapEx is up a bit in the first half of the year. It's really timing. If I look at our forecast for the full year spend, last year we came in at about $15.5 million. We did similar to slightly higher in terms of the expected spend to the full year. So I would say it's just a bit of timing and more front end-loaded this year than last year.

[Operator]

Our next question is from Tal Woolley.

[Tal Woolley, Research Analyst]

Just wanted to ask about the same property NOI performance in the quarter. The stable portfolio was maybe a little bit lower than what we've seen in the past. Is there anything sort of unique going on in the quarter that maybe have caused that? And same thing too in the Eastern region too I guess some dispositions there played with caused some of the declines, but if maybe you could just give us some color there, it would be great?

[Kay Brekken, Executive VP & CFO]

Tal, certainly, just to context that, generally speaking, there are far more properties in same properties stable than there are same property with redevelopment. The same property with redevelopment bucket can be quite small, so a large increases category typically is not very meaningfully -- meaningful, especially when you have it happen over just 1 or 2 quarters or when it includes a large lease termination fee, which we did have in the second quarter of this year. Year-to-date, we would see our same property stable NOI at 2.7%, that is in line with 2018 and is better than both 2016 and 2017 as well. So we would say there is nothing in particular in the quarter that you should be concerned about that really makes us to look at these numbers over a longer-time horizon. And then I think you've also mentioned the drop in NOI in the Eastern region. The majority of the dispositions occurring in the quarter were in the Eastern region and that's the primary reason you see the change in NOI there.

[Tal Woolley, Research Analyst]

Okay. And then just looking ahead to the -- looking on the development pipeline, you've got an average cost of about $650 million, $90 million left to complete. Given where you want to be on your deleveraging goal, what's sort of the rightsize pipeline or average in all development spend you think is appropriate to hit those goals going forward?

[Adam E. Paul, President, CEO & Non Independent Director]

Well, the one thing to keep in mind is that the type of development we've been involved in for a long time is generally mixed-use development where the construction time frame spans over several years. And so when we started the projects that are now active, a transaction like the Gazit transaction, which I would view as an opportunistic exercise, was not on the horizon, but the train's left the station. So we're going to finish the developments. And fortunately we had and continue to have a balance sheet that's strong enough and flexible enough that allows us to take advantage of opportunities, like the Gazit transaction, without really hampering our ability to create long-term value. So notwithstanding we are in a deleveraging phase, that does not mean zero dollars get invested. So we are going to continue to invest, but the pace of investment will certainly lag the pace of dispositions. And so to complete the active projects, we've been running at, call it, $150 million to $200 million a year of investment in development, and we expect that to be the case this year and next year as well.

[Tal Woolley, Research Analyst]

Okay. That's great. And then just my last question, probably for Kay, if you think about the total cost of all the corporate work you've done this year with the Gazit deal and REIT conversion, do you have an idea what that total extra cost you probably have baked into this year that you won't have to pay next year?

[Kay Brekken, Executive VP & CFO]

So the costs related to the Gazit transaction were all recorded in the first quarter and it's around $3.4 million. In terms of the REIT conversion, we did have some costs last year, which were about $1.5 million. Overall, our total spend on the REIT conversion, we would expect to be similar to be in the range of the recent conversions, which we've seen out there, and that range was about $3.5 million to $9.3 million. We may guess that we would be in the mid part of that range in terms of the total spend expanding over 2 years.

[Tal Woolley, Research Analyst]

And most of that would probably come in the fourth quarter?

[Kay Brekken, Executive VP & CFO]

It will be a bit more weighted to the second half of this year, given the ultimate date for conversion is targeted at December.

[Operator]

[Operator Instructions] Our next question is from Jenny Ma.

[Jenny Ma, Analyst]

I just have one more question with regards to the intensification and the valuation. Just to be clear, when you're thinking about the leverage goal of getting back to 2018, that is going to be entirely driven by the disposition program, correct?

[Adam E. Paul, President, CEO & Non Independent Director]

Well, that's certainly the plan.

[Jenny Ma, Analyst]

I guess where I'm getting at is...

[Adam E. Paul, President, CEO & Non Independent Director]

Which way should we be getting at, Jenny? Our plan is that, we are going to delever through dispositions.

[Jenny Ma, Analyst]

I am just wondering how much flexibility there is and you're considering sort of the last end bucket of the dispositions. If the timing of some of the valuations come in such that you have some flexibility, would you sort of rethink about dispositions or is it really just a separate decision on the asset sales in and of itself?

[Adam E. Paul, President, CEO & Non Independent Director]

Well, that's actually a very good point because if you recall, we announced a much more aggressive disposition objective before we had a desire to delever, right. So we came out in February and we said that we were evolving our strategy. And as a result of that, we had about 10% of our portfolio that we felt didn't fit the evolve strategy and we were planning to sell those. And then it was subsequent to that the opportunity to do the transaction with Gazit materialized, which was totally separate and apart from the evolve strategy and the resulting disposition plans we had. Then as a result of the Gazit deal, we said, yes, we do want to delever from that. We'll lever up, but we do want to delever from that. And then we did more work on the portfolio. And as you can imagine, it's not an exact science. So when we said 10%, it's not like the properties that just fell inside the key bucket was like black and white, so we said, okay, we're going to expand that, and we said we're going to take it 10% to 15%. So the bottom line is, we have a strategic objective from a real estate strategy perspective to transition and evolve the portfolio in a manner that would involve that level of dispositions. The Gazit transaction provided motivation to accelerate the timing of exactly when we do that and the magnitude of that. But I want to be clear, absent the Gazit transaction and absent the additional leverage we took on, we would still, from a real estate strategy perspective, be pursuing these dispositions.

[Operator]

There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Paul Adam.

[Adam E. Paul, President, CEO & Non Independent Director]

Okay. That was close. But thank you, everyone, for your time this afternoon. Two First teams, I never get offended. But thank you for your time this afternoon, and your continued interest in our company. Enjoy the rest of your day. Thank you.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you all for your participation.