RioCan Real Estate Investment Trust

TSX:REI.UN

Earnings Call Transcript 2019-Q2

[Operator]

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the RioCan Real Estate Investment Trust's Second Quarter 2019 Conference Call. [Operator Instructions] Jennifer Suess, Senior Vice President and General Counsel, you may begin the call.

[Jennifer Suess, Senior VP, General Counsel & Corporate Secretary]

Thank you, Chris, and good morning, everyone. I'm Jennifer Suess, Senior Vice President, General Counsel and Corporate Secretary for RioCan. Before we begin, I would like to draw your attention to the presentation materials that we will refer to in today's call which were posted together with the MD&A and financials on RioCan's website earlier this morning. Before turning the call over to Jonathan, I'm required to read the following cautionary statement. In talking about our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. In discussing our financial and operating performance and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP, under IFRS. These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows and profitability. RioCan's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we applied in making these forward-looking statements, together with details on our use of non-GAAP financial measures, can be found in the financial statements for the period ended June 30, 2019, and management's discussion and analysis related thereto, as applicable, together with RioCan's most recent annual information form that are all available on our website and at www.sedar.com.

[Jonathan Gitlin, President & COO]

Thanks so much, Jen, and a beautiful summer morning to everyone on the line. As you're aware, RioCan has been actively optimizing our portfolio, and our significant progress to date has resulted in our successful transition into a major-market, mixed-use-focused REIT. I am pleased to share today that RioCan's strong second quarter operational results are validating both the strength of our major market positioning and the strategies we deploy to maximize the value of our assets. I will highlight the results and key metrics that evidence the resilience and strength of RioCan's portfolio and the quality and consistency of its income stream, and we'll share how RioCan will continue to drive these results.The 3.4% FFO, or funds from operations, growth we generated in the second quarter was supported by RioCan's strong operational results and major markets same-property NOI growth. RioCan's major market portfolio saw an average rent increasing on leasing renewals of 12.4%, in addition to strong new leasing results, including 85 new leases completed at an average per square foot rent of $26.11, which is 35% higher than our portfolio weighted-average rent per square foot. These statistics are notable in that they were achieved in the face of 2 tenant failures, namely Bombay and Bowring and Payless Shoes. As with retailer closings in the past, RioCan has demonstrated we are well equipped to manage through these realities.The resiliency of our portfolio and the strength of our team allows us to replace these tenants with more relevant retailers or alternative uses which ultimately drives the value of our assets. It should be recognized that our FFO and SP NOI growth was achieved in spite of these retailer bankruptcies, and moreover, that we achieved these results while actively deleasing or clearing out certain tendencies to facilitate our redevelopment program, which I'll touch upon later.Our results signify that our prominent retail and office locations provide RioCan with a leverage to negotiate favorable terms with tenants who are looking to either penetrate into or protect their existing positions in Canada's major markets. And while we are more cognizant than ever before about curating the ideal tenant mix for each of our shopping centers, and thus, more discerning about the tenants' use, look and covenant, we have achieved a major market occupancy of 97.8%, which is the culmination of consistent quarter-over-quarter increases.I'll now provide you with some context on how we delivered these operational results. Our positioning has been achieved through a significant and successful disposition program, in addition to the completion of a number of strong urban mixed-use developments, and has resulted in a portfolio comprised of predominantly major-market location. 87.8% of our annualized net rent is derived from Canada's 6 major markets and 48.6% from within the Greater Toronto area. And within these markets, RioCan's assets are concentrated in fast-growing, densely populated areas with an attractive demographic base. Simply stated, our portfolio consists of desirable, established and convenient locations recognized for their growing appeal to both tenants and consumers alike. Within these well-established locations, we understand the importance of providing a broad mix of commercial tenants that contribute to long-term growth. The desirability and quality of our locations allows us to attract, retain and evolve our tenant mix to drive operating results and stay ahead of changing consumer trends. One of our primary focuses is resiliency, and as a result, we have a larger concentration than ever before of necessity-based, service-oriented tenants that are more insulated from the impact of changing consumer habits and less easily disintermediated by the Internet. Nearly 3/4 of RioCan's rental revenue is now derived from these types of tenants, another measure of the quality of our income that has been steadily increasing over time. While we are pleased with the performance of our portfolio, RioCan's strong and seasoned management team will continue to have a sharp focus on the factors that contribute to consistent organic growth.In addition to strong leasing velocity and strategic development, we are keenly focused on continuing to deliver operational efficiencies and drive ancillary revenue to maximize FFO growth. We are also constantly reviewing our portfolio to ensure our assets meet the immediate and long-term needs of the communities in which they exist. The recent redevelopment of Burlington Centre & Yonge Sheppard Centre are just 2 examples of successful repositioning that has attracted new and high-profile retail and office tenants that will drive foot traffic to the entire center. RioCan recognizes the importance of investing in our assets. We have prioritized the allocation of sufficient resources to update and improve our commercial environments and, in doing so, set them up for success in the near and long term.Our confidence in the long-term success of our revitalization and intensification of Yonge Sheppard Centre culminated in our pending acquisition of KingSett Capital's non-management 50% co-ownership interest of this center. This transaction will bring RioCan's ownership of this newly renovated urban mixed-used, transit-oriented property to 100%. With this acquisition, RioCan will fully own a number of desirable assets on the Yonge Street corridor, including Yonge Sheppard Centre & Yonge Eglinton Centre, both of which are located at intersecting subway lines. As part of the transaction, KingSett demonstrated their ongoing confidence in RioCan's long-term value by committing to invest $100 million in RioCan units with a 1-year lockup agreement. That transaction is anticipated to close later on this month.It is clear that RioCan's commercial portfolio is dominant and continuously strengthening. We are pleased to report that our commercial operating metrics are now complemented and supported by our recently established and growing RioCan Living residential portfolio. We've seen gratifying leasing velocity and rental rates at our first 2 purpose-built residential rental buildings, eCentral, which is at the corner of Yonge and Eglinton in Midtown Toronto, and Frontier, which is in Ottawa. Leasing started in December of 2018, and as of August 1, we have leased 59% of the 466 units at eCentral and 72% of the 228 units at Frontier, both at above pro forma rates. Occupants of these buildings are enjoying the benefits of professional management and the vast retail and service options at their doorstep. Retailers in the RioCan shopping centers adjacent to the RioCan Living buildings are benefiting from additional consumer traffic as residents move into their new homes.Our existing asset base provides strong and stable income. However, as always, RioCan strives to obtain the highest and best use for each of our assets. This has led us to actively pursue and deliver mixed-use intensification, particularly where an existing asset is transit-oriented. RioCan's intensification program is unlocking the significant value inherent in our existing assets, improving the profile of our portfolio, adding substantial net asset value and diversifying our sources of cash flow. In recognition of these outcomes, we continue to grow our pipeline of major market development sites. We currently have 27.2 million square feet of identified major-market density, of which over 13 million square feet is already zoned. In the second quarter alone, our zone net leasable area increased by 1.9 million square feet due to RioCan obtaining zoning approvals for multiple projects, including our Queensway, Dufferin Plaza and Yorkville projects here in Toronto. We have 2,700 residential units under construction and an additional 2,100 units expected to be under way by 2021. These significant achievements can be attributed to the strength of RioCan's development and construction team. With years of experience and a broad expanse of expertise across multiple disciplines, I am confident in saying we have amongst the strongest in-house development teams in Canada. In addition to their demonstrated ability to deliver complex projects on time and on budget, as with all RioCan departments, our in-house development team is committed to RioCan's vision to be a leader in embedding sustainability in our business. I'm proud to report that our growth and development activity is accompanied by a strong adherence to ESG principles, including the integration of sustainability from the start of the design process and commitment to responsible procurement. And we understand that financial performance and sustainability are intrinsically linked.I will close today by reiterating that RioCan is actively leveraging its competitive advantages, namely its major market assets and experienced leadership team to drive the quality of our income. Our Q2 results validate this approach. We will confidently continue in this direction while consistently focusing on operational excellence to deliver unitholder value long into the future. And with that, I will turn the call over to Qi Tang, who will provide an update on RioCan's financial results. Over to you, Qi.

[Qi Tang, Senior VP & CFO]

Thank you, Jonathan, and good morning, everyone. As Jonathan just highlighted, this second quarter has been a great quarter for RioCan as we build on the positive momentum from our previous quarters. FFO per unit grew to $0.48 per unit, a 3.4% increase over the same period in 2018. This is the highest quarterly FFO per unit in our history, excluding Q4 2015 when we received a substantial onetime settlement income. The trust has achieved these results despite a significant loss of NOI from over $700 million of secondary market asset disposition since Q2 2018, $14.6 million in lower realized gains from the sale of marketable securities, and $2.3 million in lower capitalized interest due to development completions. This FFO per unit growth was accomplished primarily through an increase of $3.3 million of same-property NOI, $7.8 million of residential inventory gains, $6.3 million of NOI from development completions and from strategic acquisitions, $4.8 million of higher property management and other fee income, $4.2 million of higher lease termination fees and $6.2 million of lower G&A costs as well as substantial unit buybacks since Q2 2018. As a result of our FFO per unit growth, the trust's FFO payout ratio has been further reduced to 77.2%.Jonathan has provided insight into our strong operating results earlier, particularly with respect to our increasing major market and GTA presence, continuous growth in necessity-based and service-oriented tenant base, double-digit renewal and blended leasing spreads, occupancy and same-property NOI growth. To provide a little more information on same-property NOI growth, I would like to point out that Bombay/Bowring and Payless Shoes disclaimed leases had a negative 90 to 100 basis point impact on our same-property NOI growth this quarter. If we remove this effect and layer onto this the NOI from completed developments, our same-property NOI increased by another 150 basis points to 5.4% of our major-market portfolio and another 140 basis points to 4.5% for our total portfolio. For the full year, we maintained our 2% to 3% same-property NOI growth guidance, which is prior to any adjustments for disclaimed leases or completed developments.As of this quarter end, the trust's average net rent per occupied square foot increased by 5.8% to $19.26 over the comparable period in 2018. Since 2015, the trust has achieved a compound annual growth rate of 3.4% in its net rent per occupied square foot, highlighting the growing strength of our portfolio. The average net rent after the trust's active Urban Intensification project, was $33.06 per square foot based on over 674,000 square feet of committed or in-place leases as of yesterday, which reflects the quality of the trust developments that are major-market focused and trend oriented and are expected to further drive increases in the trust's average net rent over time.During the 6 months ended June 30, 2018, the trust completed 7 acquisitions of income-producing properties for an aggregate purchase price of $324 million (sic) [ $320.4 million ] at a weighted average capital rate of 6.32%. The majority of the acquisitions were for the remaining non-managing interest in major market assets, thereby accelerating RioCan's major market presence and allowing RioCan to take 100% control of the assets which will allow for further operational efficiencies. The trust's pending strategic acquisition of KingSett's non-managing 50% interest in Yonge Sheppard Centre, as Jonathan highlighted earlier, will further allow us to achieve our strategic goals.Next, let's just take a closer look at our residential operations from a financial results perspective. As Jonathan noted earlier, after merely 6 months into the phased lease-up for eCentral at Yonge-Eglinton Northeast Corner in Toronto with higher-floor, higher-rent units only recently released for leasing, and with Frontier in Ottawa just recently substantially completed, we have leased 59% and 72% of the units as rent at or ahead of pro forma, respectively, based on leasing progress as of yesterday. As of the quarter-end, the 2 rental towers are approximately 45% and 36% occupied. As a result, the 2 residential rental buildings have started generating positive, albeit modest, net operating income of $0.2 million during the quarter.For the second quarter, we recognized residential inventory gain of $7.8 million from condominium unit sales at Yonge Eglinton Northeast Corner, or eCondos, in Toronto, and townhomes at the phase 1 of Windfield Farms in Oshawa, Ontario. Unit possessions at eCondos started last quarter and are expected to be complete by the end of Q3, while townhouse productions at Windfield Farms commenced the second quarter and are expected to continue throughout the remainder of the year. Unit possessions at Kingly in Toronto will start in Q3 and be complete by the end of the year. Overall, approximately $36 million of inventory gains are expected for the year, of which $12.9 million has been recognized into income for the first half of the year. In addition to our forementioned 3 projects, we currently have other condominium projects under way, such as the 2 phases of condominium projects at Windfield Farms and our Yorkville project in the prestige major -- prestigious neighborhood of Toronto, which just recently received the zoning approval subject to an appeal period which will expire soon. Such projects will lead to additional inventory gains in the foreseeable future. Phase 1 of the Windfield Farms condo project is about 54% presold, and sales at the Yorkville project is expected to start in Q3 of this year.It is worth noting that marketing costs associated with such condominium projects expensed as they are incurred during the presale process, thus negatively impacting FFO, even though sales revenues will be recognized into future periods into income as buyers take possession of their units. For the 3 and 6 months ended this quarter, we incurred approximately $0.4 million and $0.9 million of marketing costs relating to such projects. Marketing costs for the Yorkville project are expected to ramp up in Q3 as the sale process commences. A couple of quarters ago, I spoke to you about the potential negative impact to our financial performance as a result of potential loss of capitalized interest, depending on the timing of development completions and new development spend. Our results this quarter highlighted this point where our FFO was negatively impacted by $2.3 million of lower capitalized interest relative to same quarter last year mainly as a result of development completions, outpacing new development expenditures over the comparable period. This may occur in future quarters again, depending on the timing of development completions and our new development spend.We continue to make significant progress in our development program with another 269,000 square feet of project completed during the quarter, which increased our total square feet of development completions for the year to 361,000 square feet. As Jonathan noted earlier, the trust also made significant progress in obtaining zoning approvals and submitting new zoning applications all in the major markets with a strong GTA focus. Residential development account for 71% or 19.4 million square feet of the trust's current development pipeline. The trust has recognized roughly $247 million of cumulative fair value gains on its 3.6 million square feet of active projects with detailed cost estimates, which are what we refer as category A project in the MD&A and are substantially completed, near completion or under construction. This 3.6 million square feet largely represents the excess density on the underlying properties prior to development. For categories B and C projects on Page 41 of our MD&A, which include 16.5 million square feet of active projects with cost estimates in progress and 6.8 million square feet of future density projects, respectively, no insignificant fair value gains have been recognized for the excess density, even though 9.2 million square feet of excess density already have zoning approvals and another 7.3 million square feet of excess density already have zoning applications submitted.As we talked before, we believe our development program offers great prospects for future net asset value growth for our unitholders. As of this quarter-end, our IFRS book value per unit increased from $24.97 as of June 30, 2018, to $25.78, a 3.3% increase. Over the next 2 years, we expect annual development cost to continue to be in the $400 million to $500 million range. Despite the maximum 15% limit permitted, we remain committed to keeping our total properties under development and residential inventory as a percentage of total gross book value of assets at no more than 10%. As of this quarter-end, this number was 8%, a slight reduction from the previous quarter.With respect to our maintenance capital expenditure for commercial operations, our expectation for the full year remains at $40 million, as guided, even though our year-to-date actual expenditures were $4.7 million lower than normalized amounts due to the timing of the projects. With respect to our strategic dispositions, we continue to progress well, with $1.6 billion or 82 secondary market asset dispositions completed or under firm and conditional and letter of intent agreements as of yesterday. The weighted average capitalization rate for these deals is 6.82%, maturity in line with our IFRS values. We no longer focus on the specific dollar amount of the dispositions achieved, but on our major market- and GTA-focused targets, as Jonathan talked to earlier, which we're rather close to achieving.Turning our attention to our balance sheet. As of this quarter-end, our debt-to-adjusted EBITDA metric was at 7.92x on a proportionate share basis, remaining below our target of 8x and slightly decreased from the previous quarter-end. This was accomplished despite the completion of substantial asset sales and the development cost balance of $1.2 billion. Excluding the $1.2 billion development cost balance, our debt-to-adjusted EBITDA ratio would have been closer to 6x. Our leverage as of the quarter-end increased to 42.9% primarily due to the timing of acquisitions and dispositions. As of June 30, 2019, RioCan's debt composition was roughly 57% unsecured and 43% secured. Our pool of unencumbered assets increased modestly to $8.1 billion as at the quarter-end, generates roughly 59% of our annualized NOI and provides 225% coverage over our unsecured debt, well above our targets of 50% and 200%, respectively. As a result of our strong balance sheet and quality and strength of our portfolio, we continue to enjoy one of the lowest cost of debt in the industry.Overall, we are pleased with our operational and financial results for the second quarter, and we look forward to building on this momentum in the second half of the year.With that, I would like to turn the call over to our CEO, Ed, for his closing remarks.

[Edward Sonshine, CEO & Trustee]

Thank you, Jennifer, Jonathan and Qi. And I want to thank everybody on the line, considering it's a Friday morning before a long weekend. Speaking of that, usually, a press releases done on a day like this indicate results that one would like to pass unnoticed. Our results are the exact opposite of that. We would like to shout them from the rooftop. So I'm going to be doing a little of that. And at the risk of repeating a lot of the numbers that you already heard from Jonathan and, more so, from Qi, I think there's just a few important numbers I want to try to connect some dots because while we live in a world of brick, concrete and steel, here at RioCan, we know that everything we do is only being done to achieve results. And those are measured by numbers. Our major market portfolio now contributes 87.8% of our revenue and included in that 48.6% of our revenue from the GTA itself. Those numbers will exceed 90% and 50% during the course of this year. It is the successful execution of our strategic decision to accelerate our focus on the major markets in Canada, particularly the GTA, that has enabled us to deliver the numbers we released this morning. 3.4% is our year-over-year FFO per unit growth, leading to our best-ever per-unit result, other than the one in which we received a large target payment in 2015. 2.9% is our same-property NOI growth for the almost 88% of our portfolio that is in the 6 major markets. As we continue to shed the slower-growth secondary market properties we still own, this growth rate will continue to rise. In fact, it would have been 3.9% this past quarter had we not lost 25 Bombay and Bowring stores and 17 Payless Stores this year. And 90% of those were actually in the major markets, so they're right in those numbers. But now with the quality of those locations and our leasing team, those relatively small stores are simply an opportunity for further growth.At 12.5%, our increase in lease renewals was outstanding and is directly connected to a 97.8% occupancy rate in our major market properties. The negotiating strength and that the level of demand for our superbly located property is what drives that kind of performance. Also connected to the above numbers is our 94% retention ratio, which is amongst our highest ever. While this number will obviously fluctuate from quarter-to-quarter, when put together with our renewal growth rate, it is clear that in the major markets, the availability of suitable alternative space is constrained, all to our ongoing benefit.I fully expect all of the metrics I just reviewed today to stay elevated and, in fact, get better. Obviously, while the numbers will vary for many reasons, I believe that RioCan is now at the beginning of seeing the results of the major strategic decisions we made over the last several years. With the success of the secondary market disposition program and the advanced state of our move into redeveloping our existing properties into mixed-use, high-density urban hubs, I'm extremely optimistic about RioCan's future. So I will finish by speaking a bit about that future. One number that relates to that future is 6.1%. That is the percentage of our revenue currently coming from office space, almost all of which is in the GTA. With the completion of the Well office component of about 1.3 million square feet of office space, where our 50% partner, Allied, has succeeded in pre-leasing over 75% already and are taking 100% ownership of Sheppard Centre at the end of this month, that percentage will grow to above 10% by 2022 at the latest. Our first residential rental income, while tiny at the moment, will grow exponentially over the next several years. And while it is too early to predict a percentage number for it to grow to, our goal is to have it equal to or exceed our office revenue within a few years. Our future will also include a continuing focus on the strength of our balance sheet. Its current quality, as Qi said, gives us amongst the lowest cost of debt in our sector, and we are committed to not only maintaining that quality but to continuously improve it.Finally, just in case you think that we are going to be quietly resting on our achievements to date here at RioCan, we have another initiative we have been quietly pursuing. Over the last 10 years, we have acquired a fair-sized portfolio of urban single-tenant properties, most often off-market and from the tenants directly. Hopefully, just as quietly, we're then -- we then pursued a strategy of acquiring adjacent properties for eventual redevelopment of the entire assembly. For obvious competitive reasons, as we are still attempting to complete assemblies, I can't speak about specific locations. But when we start applying for rezonings, I think you'll be quite impressed by what we've been able to put together. Just by way of a completed example, this is the way the Northeast Corner of Yonge and Eglinton started.So with that short finish, I'm going to turn it over for anybody still on the phone for any questions you might have.

[Operator]

[Operator Instructions] Your first question comes from Tal Woolley with National Bank Financial.

[Tal Woolley, Research Analyst]

I wanted to ask a couple of questions on Hudson's Bay and some on the zoning, too. For -- excluding the JV, you've got about 0.3% of your rent coming from Hudson's Bay and Home Outfitters. Is there much at risk just with Home Outfitters winding down right now, just if we're thinking about future grind on tenancy?

[Jonathan Gitlin, President & COO]

Tal, it's Jonathan. No, there's not much risk at all with the Home Outfitters. We've actually been in a fortunate position where we've got backfill opportunities for the majority of square footage that they're going to be giving up upon expiry. They're -- remember, they're not going bankrupt. So there's still a bit of term left in their leases. But by the time they do give up those lease terms, we will have -- we're confident that we'll have solutions for each and every one of their spaces.

[Edward Sonshine, CEO & Trustee]

Yes, we have many of those solutions already under way. And because, as Jonathan said, they're not all happening in one day, it will be over a period of time, we expect the impact to -- the negative impact will be very short-lived, and probably, quite frankly, won't be noticed. But the positive impact of either breaking up those stores and releasing them -- we're simply releasing them as they are, I expect will be pretty good.

[Tal Woolley, Research Analyst]

Okay. And then on the JV itself, do you anticipate seeing an improved mark-to-market on the valuation of that portfolio, given that with all that's going at HBC right now, they're hiring outside real estate appraisers to go back and do a full appraisal of all the real estate assets? Do you think you could see an improved mark-to-market on that portfolio going forward?

[Edward Sonshine, CEO & Trustee]

We have been very cautious on taking any IFRS gains on those. And in fact, I think they've been relatively insignificant. Some of the properties in that joint venture are actually quite valuable. But I really like our position in that joint venture. It's been in our materials, so I'm not going to expound on it at this point, other than to say because of everything going on with HBC, we're pretty constrained with what we can say. There's obviously public markets involved, there's some controversy involved, so I don't want to say much about it. But I will leave you to the fact that I really think that RioCan is in a great spot in virtually any -- from virtually any perspective you want to look at it, with only gains, quite frankly, that are on the horizon. But we've taken very little, if any, to date.

[Tal Woolley, Research Analyst]

Okay. And then just lastly, on zoned versus unzoned density, I'm not exactly -- is there a bit of a carrying cost for you for having so much of it zoned but yet not having sort of transformed those properties? Like, I'm assuming that you're paying probably more in taxes and things like that.

[Edward Sonshine, CEO & Trustee]

Not really. The taxes are minimal, and we manage to pass most of those back to the tenants, in any event. Where the cost is really that we'll spend on any specific property anywhere from $1 million to $2 million, sometimes more, depending on the issue, in actually getting that zoning process completed. And obviously, there's a cost of funds involved. Never mind the overhead costs involved. So we eat those. And we've been eating them quite successfully to date and produce those numbers notwithstanding. Where you get into real cost, and I think from a finance point of view, where we've highlighted this a little bit in the MD&A, is more when you start the process of redevelopment. And when you start that process of redevelopment, you have to start, once you are zoned, with the tenants. And that -- I never thought we'd have a deleasing department, but we do. And even when you're keeping tenants in place, the rents you achieve on renewals are not what they could be because you can't promise term. You're generally insisting on demolition rights. The tenant isn't going to invest in his store, thus, won't have the same level of sales. So yes, there's a loss -- there's an opportunity cost -- lost opportunity cost for growth. That's one of the reasons I'm so proud of the growth numbers we have. And once we get to the point where we're actually moving tenants out and demolishing, obviously, the costs get pretty significant and what they're adjusted for. But in that preamble of time or that preemptive time, there are some costs, but we eat them, and they're okay.

[Operator]

Your next question is from Pammi Bir with RBC Capital Markets.

[Pammi Bir, Analyst]

Just with respect to the 9 million square feet of your excess density that you flagged, again, that already has zoning approvals, are you giving any thought to reconsider how that density should be valued going forward?

[Edward Sonshine, CEO & Trustee]

Well, we know others value the minute you apply. I mean we don't. For example, we've applied for almost 1 million square feet in the heart of downtown at what I call RioCan Hall, at Richmond and John, where I don't think we've applied any value to that. We tend to be very, very -- Qi used the word insignificant value ascribing to it. All we do is we might adjust the cap rate, in which it means by that, by a hair in valuing a property. We don't ascribe specific value to the density until the property is under way, until the redevelopment is underway. It's a bit of a -- we believe, by the way, there's great value there. But for accounting purposes and reporting purposes, we don't put any value to it. If we did, that value would be skyrocketing because of how density is going up. So I'm giving you a long answer to a short question. Anything you want to add to that, Qi?

[Qi Tang, Senior VP & CFO]

I think it's good. If I may just add is, Pammi, we particularly highlight that just so that the market is aware of our approach in this aspect so that you could compare more apples-to-apples relative to some of our peers. So that's the reason for that.

[Pammi Bir, Analyst]

And I think looking back a few years ago, Ed, I think you had sort of roughly gauged that value at maybe $1 billion in terms of zoned density that wasn't reflected...

[Edward Sonshine, CEO & Trustee]

Well, it's possible zoned, yes.

[Pammi Bir, Analyst]

Right. So where do you -- I mean, it's -- just given where land values have gone, I suspect that number has risen. But any thoughts or even do you want to take a stab at what you think that range could look like today?

[Edward Sonshine, CEO & Trustee]

$1 billion to $2 billion. I mean it's a huge range. Obviously, the value of a zoned or possible zoned piece of space depends very dramatically on where it is. But what we've seen, I mean, we just -- and, Qi, you'll have to help me here from not spilling the beans. We've recently completed a small deal in Mississauga. I think we mentioned it in the MD&A? Good, I can talk about it. I can't get into details about it. But basically, if you would ask me what's density worth in Mississauga, here at Ontario on Sandalwood in a Value Village-anchored shopping center, I would have said, "Gee, I don't know, but probably $40, $50 a foot," if you would ask me that number when I gave you that $1 billion number. Well, we just completed a deal for a portion of that density. And it's not zoned yet. We've applied for rezoning, but it's not finished. I do -- we're all fairly confident it's happening. The city is very supportive because, guess what, the new Ontario transit line will have a stop at Sandalwood. So they want the density. And we disposed of a 50% interest in what will be the first 400,000 square feet at $80 a foot. Plus, we have the opportunity to earn fees as we take the development through the final rezoning and development process. So from there, you go to something like Richmond and John that I mentioned. And I would tell you that conservatively that zoning will be worth today at today's market in the neighborhood of $300 a foot. And then you go over to Yorkville, where we have completed the rezoning, I know that density is worth in the neighborhood of $500 a foot. So it's very hard to come up with a number, but -- and that's why it's such a wide range when I say $1 billion to $2 billion. And of course, every -- I've just talked about Toronto. Every other city is -- there's Vancouver, and then there's Calgary. So the numbers vastly vary. But I think what we've been pleasantly surprised, and I just want to add this in closing, is Ottawa. The Frontier numbers are actually astonishing to many. And I think our success at Frontier, which was a bit of a bold experiment, and I was very happy to have Killam come in as a partner, who were one of the few, quite frankly, in the industry, particularly with Ottawa experience, that believed in our vision for that site. They're blowing the doors out at numbers and rents that most people in Ottawa would have told you 2 years ago, "No, no chance ever." And so the value of that density, right, where I think we did the deal with Killam at about $50 a foot, it is -- has increased dramatically. And keep in mind, Frontier is phase 1 of 4 buildings, so -- and we have a lot of sites in Ottawa. And I think we've proven that the Ottawa market has way more upside than anybody ever gave it credit for. So again, those values are starting to rise. So anyway, long answer. I'll go right back to that $1 billion to $2 billion.

[Pammi Bir, Analyst]

That's very good color. Last one for me, just on the disposition program. You've clearly moved away from that initial, call it, $2 billion target.

[Edward Sonshine, CEO & Trustee]

By the way, we haven't already moved away from it, we're just going to look at a longer period. We'll probably get to that number. I don't know when and, quite frankly, I don't really care. The important numbers is the 90% and 50, which I know we're at. After that, we're not selling to a target. We'll be selling -- we'll continue to sell, but opportunistically. So -- but go ahead. I cut you off. I apologize.

[Pammi Bir, Analyst]

No, I think you answered my question. I was just thinking just the outlook for the disposition program. But it sounds like you may get there, but really, the focus is again just on the major market exposure.

[Edward Sonshine, CEO & Trustee]

Exactly.

[Operator]

Your next question is from Sam Damiani with TD Securities.

[Sam Damiani, Analyst]

I just wanted to ask you about those little assemblies that you've been pursuing quietly for the past 10 years. How many would there be, and what percentage of them would be in the Toronto market and, more specifically, near a subway station?

[Edward Sonshine, CEO & Trustee]

I'm really not going to get specific because Mr. Gitlin, who amongst as many other jobs, is in charge of this program would -- he'd probably -- and he has the arms to reach across the table to throttle me. But I would tell you that the vast majority are in the GTA. And what was the second part of your question, sorry?

[Sam Damiani, Analyst]

How many might be near a subway station?

[Edward Sonshine, CEO & Trustee]

Again, most of them are near a subway station or would be, what we call, transit-oriented, sometimes an LRT. But the vast majority, quite frankly, that -- those are the ones we focus on, and they don't number in the single digits. They number in the double digits.

[Sam Damiani, Analyst]

Yes. Okay, that's very interesting. And clearly, you wouldn't pursue an assembly that would only result in 22 apartments you're pursuing?

[Edward Sonshine, CEO & Trustee]

No, no, no. These will all be significant opportunities. I mean quite frankly, to build 20 or 30 or 40 units -- mind you, we are building 60 on College Street, but that's a very special mixed-use location and we think will be a little jewel of a property. And we're probably going to be partners in about a 120 on -- in Rosedale. But again, those are very special. But ordinarily, there'll be much larger developments than that.

[Sam Damiani, Analyst]

Yes. I mean I don't think anybody is probably surprised to hear that this was going on. But over the years, there's been the odd kind of property here and there, even today, there's one on Blue Street. It disclosed. But the number is probably more [ significant ] than that we all thought.

[Edward Sonshine, CEO & Trustee]

I believe that's correct.

[Sam Damiani, Analyst]

Yes. So just curious why sort of bring it up on the call today for the first time.

[Edward Sonshine, CEO & Trustee]

Well, just to let you -- I was doing what I thought was a boring presentation called fun with numbers. And I don't want you to think -- because really, what's happened -- I'll tell you why I brought it on, Sam, honestly. We are really at the point where we're starting to see, as trite as this sounds, the fruits of the work we've been quietly digging -- it's like you've been digging trenches for the last 3 years, as we've been changing this RioCan ship's course. And we're starting to see the numbers reward our efforts over the last 3 years. And I think those numbers are just going to get better. I don't want anybody to think that, "Okay, they're achieving it, and now it's just going to get -- keep going the way it's going." There's always little, new initiatives here, and it's not that new. We've been working on it for a couple of years, a few years because these things take time and you have to be patient. And some guy doesn't want to sell, you have to pivot to another one. I think -- so that's reason #1. Reason #2 is, by next year, some of them will -- we'll be filing rezoning applications. Some of the assemblies will be complete. So I don't want them to come as a complete surprise.

[Sam Damiani, Analyst]

Right. Okay. And in aggregate would these assemblies be on average like 2/3 complete kind of thing?

[Edward Sonshine, CEO & Trustee]

I can't give you that information.

[Sam Damiani, Analyst]

Okay. The only other question I wanted to ask was, we've seen a lot of ownership consolidations by RioCan over the last few quarters. It seems to be accelerating this year, obviously, with the Yonge Sheppard Centre and a handful of other properties earlier this year. What's the rationale? And what does this -- how does this support sort of strategic thinking for these assets over the next few years?

[Edward Sonshine, CEO & Trustee]

Well, first of all, obviously, it's a lot easier buying a property you already know than a strange one. Secondly, by and large, and this is not the case in every one, we're responding to an opportunistic situation, where -- because our joint venturer/partner just may have a different structure than us, may have a different time horizon than us, may have different goals than us, that creates for us an opportunity to make what I think, in some cases, just a profitable acquisition, in other cases, an important strategic acquisition. And now having said that, Sam, we're running out of partners to buy from. But I think as the right opportunities avail themselves, we will continue. There is often -- not that we ever are in a position of not disclosing everything we know to our partners. Of course, our partners always know everything that we know. But sometimes, we just -- our beliefs are a little different than somebody else's belief.

[Operator]

[Operator Instructions] Your next question is from Dean Wilkinson with CIBC.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Ed, you've never done a boring presentation, so I'll start with that.

[Edward Sonshine, CEO & Trustee]

I tried my best today.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

I just have a question on the -- well, out for comment, no more -- or More Homes, More Choice Act. And we've talked in the past about affordable housing and things to that nature. Is there anything either in that proposal or perhaps changes to the Development Charges Act that might help with the economics for RioCan in development? Or is it too early to say?

[Jonathan Gitlin, President & COO]

Yes, Dean, it's Jonathan. Yes, so we have -- there are a few projects in our pipeline that we're keenly focused on blending into the affordable housing program. We feel it's critical that we do provide affordable housing. And so we're looking at not only individual projects, but spaces within existing projects that are under way where we can facilitate affordable housing. So the answer is, in short, yes. There is opportunity for us to provide that affordable housing. Whether economically it benefits us tremendously, I don't know that the economics necessarily are the driving force here. But in part, yes, it's got to be viable for our unitholders. So it's got to make sense from both a community and sort of social perspective, but also an economic one.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

And like, what is it that they're proposing? Is it like -- is it a deferral of development charges or stuff that would push out? Or like how are they...

[Edward Sonshine, CEO & Trustee]

A lot of it is really unclear. I've had a lot of memos from our development group, and usually, I'm pretty good at understanding their memos. But nothing is crystal clear yet. And of course, particularly in Toronto, which is -- which -- where the greatest need for affordable housing is, you've got quite frankly, 3 levels of government that are sort of tripping over each other. And I'm hopeful that for the benefit of all the citizens, they will sort it out. I mean you've got the federal government, who's got this much heralded CMHC program, where CMHC will actually use its own balance sheet to lend you the money, which is very untraditional for them. If you come into certain formats and income rules that they have, well, to my knowledge, I think they've been able to announce exactly one project, and I'm not sure that one's going ahead. So we need our governments, and of course, Ontario is really focused on that, as is the City of Toronto. But the City of Toronto, right now doesn't get along with the Ontario government. So they seem to be at odds. So right now, I've got to tell you, we would love to be -- to do some affordable housing. Some of our sites are in the right locations, where it's really needed. And because of our very low land cost, we can afford to do it.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

You can make it work, yes.

[Edward Sonshine, CEO & Trustee]

And -- but just -- there's not enough clarity yet between the 3 governments. I am hopeful by the fall, there will be.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Well, it looks like we're a step closer anyway, so...

[Edward Sonshine, CEO & Trustee]

Yes, yes. They all want to do the same thing, but there isn't agreement on how to do it yet.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Yes. All right, that's good. That's kind of what I expected to hear on that. Just one small question for Qi. In the quarter, there was about $4.1 million of financing arrangement fees. What was that pertaining to?

[Qi Tang, Senior VP & CFO]

Basically, we arranged financing for co-ownership assets for [ our co ]. That's the fee we earned, yes.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

All right. So there was -- it was just -- it was as lumpy in the quarter, I suppose, off of a specific deal.

[Qi Tang, Senior VP & CFO]

Yes. This time, yes. It's a bigger amount. Yes.

[Edward Sonshine, CEO & Trustee]

Well, they're lumpy, but there's good stuff that happens every quarter. We -- it's amazing how much we've got going on here sometimes.

[Qi Tang, Senior VP & CFO]

On an annual basis, Dean, as you know, our fee income is pretty steady year-over-year.

[Edward Sonshine, CEO & Trustee]

Exactly.

[Operator]

And ladies and gentlemen, that does conclude the Q&A period. I'll now turn the call back over to the presenters for any closing remarks.

[Edward Sonshine, CEO & Trustee]

Okay. I'm happy we've got as many questions as we did on such a day. I am -- I want to thank the analysts for working probably through the weekend, so thank you all for your hard work and ever-interesting questions. And I look forward to talking to you all again in 3 months. Bye-bye.

[Operator]

This concludes today's conference call. You may now disconnect.