RioCan Real Estate Investment Trust

TSX:REI.UN

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the RioCan Real Estate Investment Trust Third Quarter 2019 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Suess, Senior Vice President and General Counsel, you may begin.

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

Thank you 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 September 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.I would now like to turn the call over to Jonathan Gitlin, our President and Chief Operating Officer.

[Jonathan Gitlin, President & COO]

With that off the cuff. Thanks, Jennifer, and thanks all of you who are listening in into our conference call today. I'll begin by focusing on RioCan's engine, namely its major market commercial portfolio and will be easy and because admittedly be tempting to focus primarily on our growing development portfolio including eCentral and Frontier rental residential projects. The success of which I will touch on momentarily. However, in emphasizing our development success we forgo the opportunity to underscore the impact that our major market strategy has had and will continue to have on our core commercial operational results. I want to highlight the strength of our key operational metrics this quarter as they demonstrate the resilience of RioCan's portfolio and the quality, consistency, inherent growth in the future income stream. In the third quarter, RioCan's FFO per unit was $0.47. As of the end of Q3, 88.7% of RioCan's rental revenue is derived from Canada at 6 major markets and 49.5% is derived from the Greater Toronto Area. We are confident that by the end of this year, RioCan will meet or exceed the objective of 90% and 50% of its rental revenue derived from the 6 major markets and GTA respectively. The major market strategy was conceived in recognition of the growth and consistency that our tenancy from these markets and we now see that growth and consistency translating into strong outcomes for RioCan. Major markets same property NOI growth in the third quarter was 2.3%. Committed occupancy was 97.7%. RioCan's leasing team had another strong quarter for renewing more than 132 leases in the major markets, with a robust rental rate increase of 7.7%. 71 new lease deals were completed at an average rent of $20.63 per square foot resulting in a major market leasing spread of 7%. It is important to discuss how these results were achieved and why we are confident that they are sustainable. Simply put, our commercial portfolio is stronger than it has ever been. The combined strength of our major market assets in the depth and experience of RioCan's team, not just the senior leadership but through all levels of the organization leaves RioCan well positioned to sustain a robust growth profile.We concentrated in the 6 major markets, but perhaps even more importantly within these markets, we have strong well-located assets. Our properties are generally focal points in transit-oriented, fast-growing, densely populated and high-income areas. The desirability and quality of our locations allows us to attract, retain and evolve our tenant mix, which in turn drives operating results today and provide significant upside for future growth. We have successfully curated a tenant mix that sees nearly 75% of RioCan's rent derived from the healthy service in necessity based sectors, which are more insulated from the impact of change in consumer spending habits and less easily disintermediated by the Internet. I should add that none of our tenants are relied upon for more than 5% of our revenue. We have deep and long-standing relationships with a desirable high profile national tenants who serve as anchors for our centers including Loblaws, Shoppers Drug Mart, TJX Companies and the restaurants under the Recipe Unlimited brand. We pair this with a strong local presence and understanding to identify shifts in consumer behavior and include forward-looking tenancies in our centers to bolster our resilience and keep us ahead of the curve. Our portfolio strength in our team's ability to translate vacancy into growth is illustrated through a recent example. Payless Shoes exited the Canadian market in the second quarter of this year. RioCan has already backfilled 2/3 of the space previously occupied by them. Of the 9 replacement tenants that we have signed, 7 are food users, one is a financial institution and one is a desirable national shoe retailer.The covenants are strong and the new tenants will be significantly better drive of the centers, than those who previously occupied them.The story is almost identical for the former Bombay Bowring spaces where 2/3 of the space has also been backfilled with tenants who will bring significantly more traffic and vibrancy to those centers. We expect to lease the remaining space in normal course. However, it is notable that we have already replaced 85% of the total lost annual rental revenue through the successful leasing of only 66% of the vacated Bombay Bowring and Payless space. As the replacement tenants commence rent and operations in the coming months, the impact of that higher rent and increased traffic will be recognized in our operating results. This single example is demonstrative of a consistent theme. RioCan's retail portfolio provides a healthy, stable income and will continuously produce strong results. For the last few years, the word retail has been shorthand for challenge landscape. RioCan is demonstrating that in the hands of a dynamic team with a proven track record and a strong well-positioned major market portfolio from the challenge landscape, an opportunity can emerge for consistent and steady growth. Based on RioCan's year-to-date results and the trends we are seeing, we are confident RioCan's portfolio will continue to support strong operating results into 2020 including same property NOI growth and excess of 3% based on achieving our targets of major market and GTA exposures by the end of 2019. In addition to consistently driving growth from our existing portfolio, we are pleased that we can augment, complement and accelerate our growth through the mixed-use intensification of our transit-oriented sites. This intensification includes the completion of our first 2 residential projects namely, eCentral and Yonge-Eglinton in Toronto and the first phase of Frontier in Ottawa. Only a 11 months since we started leasing, eCentral and Frontier are 77% and just under 90% leased respectively. The rents on the more than 560 leased units are satisfying [indiscernible] above performer. As we are close to stabilization for these projects and now have a clear view on the resulting NOI, we can disclose off the yields are -- on both are netting out in the range of 5% to 6%.Given the strength of the multi-unit residential market, the value creation on each of these assets is significant. Success stories such as the support our confidence that RioCan's unit holder value will continue to be bolstered as we come to market with the 4,100 additional residential units that are either currently under construction or will be by 202. As I mentioned earlier, it can be tempting to focus on the success of our current and future development projects, particularly when we consider that we have identified more than 27.4 million square feet of major market density, of which approximately 13.3 million square feet is already zoned for mixed use development. It is important, however, to put these development projects in the context of our existing retail portfolio. Mixed use development of the residential intensification of our existing properties benefits both retail and residential and in turn drives higher rent per square foot. When the demonstrated strength of RioCan's portfolio is viewed in the context of our strategic intensification program, it becomes clear the RioCan 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.RioCan has a longstanding history of operational success and delivering unitholder value. Our results continue to demonstrate that our major market focus and intensification strategy is sound. We have Canada strongest best position major market portfolio and a team with unparalleled experience. The combination of the 2 facilitates our ability to continue to drive results in the near and long-term as we put the right tenants in the right markets and intensify our existing sites to bring them to their highest and best use.I see it was a confidence the RioCan is financially strong, strategic restructured, focused on operational excellence and well positioned to deliver growth and unit holder value.With that, I will turn the call over to Chief who will provide an update on RioCan's financial results.

[Qi Tang, Senior VP & CFO]

Thank you, Jonathan, and good morning everyone. RioCan reported FFO unit of $0.47 in the third quarter, stable from the same period last year. This was achieved despite 14.7 million in lower realized marketable securities, [4.3] million in lower capitalized interest resulting from substantial development completions, lower lease cancellation fees and higher condominium marketing costs, which added up to a hit to FFO per unit of approximately $0.06 before taking the dilutive effect of our disposition program into account.The Trust's strong operational results, as reflected in same property NOI growth, higher residential inventory gains, higher NOI from development completions and strong leasing velocity on its residential rental business. Lower G&A costs as well as its NCIB program was a key positive driver of this quarter's FFO per unit result.The Trust's FFO payout ratio held steady in the 77% range quarter-to-quarter and down from 78% a year ago. As of this quarter end, our IFRS book value per unit grew to $26.01, a 4% increase when compared to Q3 2018. This growth is underpinned by the improving quality of our assets and our mixed use development program. As of this quarter end, the Trust's average net rent per occupied square foot increased by 6.4% to $19.49 over the comparable period in 2018.Since 2015, the Trust has achieved a compound annual growth rate of 3.5% in its net rent per occupied square foot highlighting the significant improvements we've made to our portfolio, as we're getting closer to our 90% and [50%] major market and GTA exposure growth respectively and as we drive hard on organic growth.The average net rent at our active urban intensification mixed-use projects was $33.96 per square foot based on 691,000 square feet of committed or in-place leases as of the quarter end. The quality of our major market and transit-oriented mixed use developments are expected to further drive increases in the Trust average net rent over time.During the quarter, we extended our existing partnership with Boardwalk REIT and Killam Apartment REIT through a close deal and a firm deal to sell discrete portion of the underlying shopping centers in Mississauga and Ottawa, Ontario for mixed-use residential developments at $80 and $45 per billable square foot respectively. This further highlighted the inherent net value growth potential of our portfolio giving our 27 million square feet of development pipeline with nearly half of the pipeline or 30 million square feet already zoned.As of this quarter end, the Trust has recognized approximately [288 million] of cumulative fair value gains pertaining to its development pipeline of which 23.1 million square feet of incremental density. These recognized fair values are mostly related to a small portion of the Trust development pipeline that has just recently completed on year completion.We continue to [indiscernible] our residential rental lease up eCentral and Frontier with quarterly NOI growing to 0.9 million during the quarter. Stabilization expected by the end of the first quarter of 2020 for eCentral and by the end of 2019 for Frontier. We have secured 60.6 million of CMHC Financing for Frontier together with Killam REIT. Once the eCentral reaches stabilization, the recent 150 million property level loan will become CMHC-insured with the interest rate lowering to 2.33%, which has been locked in plus up to 40 million of additional CMHC Financing.We will continue to utilize the lower cost of CMHC Financing for our existing mixed use residential properties including the eligible commercial components to further our -- lower our average cost of debt and drive FFO per unit growth. But we will ensure our overall leverage and debt to adjusted EBITDA will remain in our targeted ranges.As of this quarter end, our average contractual cost of debt for our entire debt portfolio is 3.36%. In addition to approximately [36 million] of inventory gains expected for the year condominium townhouse closing, we are progressing well on pre-sales at our Yorkville and Windfield Farms Phase 1 condo projects in Toronto and Oshawa, Ontario with about 73% and 62% pre-sold respectively. These projects are estimated to generate profit margin of value equation between 15% to 20% on IFRS cost basis, including capitalized interest.During the quarter, the trust incurred and expand marketing costs of about 1.3 million mostly relating to these projects which [indiscernible] to be impacted this quarter's FFO. We continue to prudently manage our development program and remain committed to keeping our total development as a percentage of total gross book value of the assets and no more than 10%. As of Q3 2019, this number was 8.8%. With respect to our maintenance capital expenditures for our commercial operations, our expectation for the full year remains at 40 million as guided.As of this quarter end, our debt to adjusted EBITDA was at 8.07 time on proportionate share basis. This was accomplished despite the completion of nearly 500 million strategic acquisitions during the quarter and the development cost balance of approximately 1.3 billion. Our leverage as of quarter end increased to 43.6% primarily due to these strategic acquisitions. After our recent very successful 230 million equity issuance, the proceeds of which were used to repay the indebtedness incurred for these strategic acquisitions. Our leverage ratio is expected to end the year in the mid 42% range. There are 500 million senior unsecured debenture issued in August, our debt composition and in the quarter, a roughly 61% unsecured and 39% secured. The Trust floating interest rate debt exposure was lowered by 460 basis points to 9.7% from the previous quarter end.Our weighted average term to maturity was increased from 3.3 years at the end of 2018 to a bit over 4 years as of this quarter end. Our pooled unencumbered assets grew from 8 billion as of the year-end 2018 to 8.9 billion as of this quarter end and now generating close to [59%] of the RioCan's annualized NOI, there but providing us with financial flexibility. Overall, we are pleased with our operational and financial results for the third quarter and we look forward to a strong fourth quarter.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. Thank you, Jonathan, and thank you, C-Qi. As you can tell, things are going okay. In fact better than okay here at RioCan. But as we heard of, it seems to be going the years go by towards the end of 2019 and in fact this decade, I can't help but reflect on the journey, RioCan has been on, particularly over the last 5 years. Over that relatively short time-frame, short in the context of the real estate world where everything takes forever, we have sold about $3.5 billion worth of assets, including our entire portfolio in the United States and the bulk of our assets in Canada secondary markets. We then used the proceeds of those sales to significantly expand our presence in Canada's major markets while launching a large-scale development program and primarily at the re-purposing of many of our shopping centers to mixed use properties with a heavy emphasis on rental residential. That program is successfully well underway and it's starting to hit some of the lofty targets RioCan set for itself almost 5 years ago. Our first multi-res properties are open and operating. And within a short few years, we shall have a large growing and uniquely all-new multi-use portfolio located only in Canada's major urban areas under the RioCan Living banner, something we quite frankly could not have dreamed of 5 years ago. And we have done all this without letting our balance sheet deteriorate.To the contrary, a recent very well received equity issue was done solely for the purpose of ensuring that the wonderful acquisitions of the other 50% of Yonge Sheppard Centre, and our continuing expansion in the [indiscernible] corridor don't cause us to deviate from our own focus on the credit metrics that have allowed us to enjoy the lowest cost of funds in our sector. That equity issue of $230 million was our first in 5 years. And we will continue to use equity issue sparingly if at all over the next few years. Instead, we expect to be able to fund our significant development program internally through retained earnings on an ongoing joint venture transactions such as those recently announced with Killam and Boardwalk REITs, as well as continuing opportunistic sales of secondary market assets [that we simply] we have them and some in primary markets where we've seen neither growth nor redevelopment potential.So where is this journey that I referenced earlier taking RioCan. Our destination is not having 90% of our revenue effect on markets, or 50% in the GTA or the building and lease up of thousands of apartments. Those are critically important milestones, but they have been set to let everyone including ourselves measure our progress. Simply put, we are striving to become a vehicle that will award our unit holders with ever-increasing valuations based on strong FFO per unit growth continuing value reflection, a creation reflected in net asset value growth and when we can do so without adversely impacting our various credit metrics growing distributions. We will achieve this by moving our asset base to a more diversified mix with the bulk of it being in the GTA. It will be anchored by mixed use properties such as we already have here Yonge-Eglinton are in the process of completing a Yonge Sheppard and are constructing with our partner Allied REIT at The Well. These trophy assets will be joined by quite a few others over the next few years and some of which are in fact already in the pipeline. When taken together with growth in our now concentrated retail portfolio, I am confident that RioCan will achieve what we have set out to do. We, of course, note this journey will never the end nor will it be without the odd bump. As the opportunity -- but the opportunities for future growth within our existing portfolio are in fact almost endless. As Canada continues to grow and population urbanize, RioCan will equally continue to seize those growth opportunities as I presented by those trends.Thank you, and I'll now open up the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Mark Rothschild with Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

In regards to the guidance for 2020 of 3% same-store NOI growth, can you talk about if that's like a recurring number that you think is achievable consistently over time? And maybe in that number, how much growth is coming from, whether it's the Bombay Payless space or from the office assets and what type of leasing spreads for retail would be assumed in there?

[Edward Sonshine, CEO & Trustee]

I'll answer part of that question. The answer is yes, it is very sustainable and we hope we'll go even higher. If you recall Mark, when we announced our secondary market disposition program, the reason for it. Besides the obvious one that I have mentioned about raising capital with addition issuing equity was actually to create a portfolio that will ultimately be able to achieve same property growth in the area of 3% to 5%. We're getting there and we're confident enough to say more than 3% next year and that's a number that we think will continue to grow. As far as its makeup is concerned, I'll turn that over to Jonathan and Qi.

[Jonathan Gitlin, President & COO]

Sure. Thanks, Mark. Thanks, Ed. There is a number of drivers to permit the sustainability of that number. There is obviously the strengthening our portfolio, the continuing strength of the major market focus on our portfolio, the urban focus in our portfolio, the fact that we are through the Bombay/Bowring leases and we're leasing them up at substantially higher rate. And I'd also say that there is a general view from management that our overall leasing rates for our existing portfolio are below the market. Right now, I think our average rents are somewhere around $19 a square foot, and the new rents that we're writing are somewhere closer to $26 a square foot. And we feel we'll capitalize on that inherent spread over time. So -- and then there's also obviously the benefits of reducing expenses at our property, which over time translates into the ability of our tenants to pay our net rents. Things that we're very much focused on. So it is a combination of factors, but those are the highlights.

[Edward Sonshine, CEO & Trustee]

I would sum it up, Mark by saying next year, we're hitting on really all cylinders. We're going to be hitting selling is that we expect our occupancy rates to go up and not just on Bowring/Bombay, but other spaces. Office rents in properties like Yonge Sheppard, like Yonge-Eglinton center, even Lawrence Square and others will continue to move up as leases are renewed and our retail portfolio, now that I use the word concentrated in my presentation, we're very confident that we're going to able to hit rent increases because the type of retailer that we're leasing to, they can afford it and they don't have a lot of alternatives. I hope that answers your question.

[Mark Rothschild, MD & Real Estate Analyst]

Yeah, for sure. Thanks. Just one more question. What type of target would you have for asset sales next year or maybe over the next couple of years? And do you think that you will continue to sell assets as you [put in] the portfolio and to what extent is that baked into when you talk about being self funding for the development?

[Unknown Executive]

We will continue to sell assets. We, as I mentioned, we have several strategies to ensure that we have the capital that we require and whilst at the same time keeping our credit metrics. I think you will see quite a few more joint venture situations. Those are actually quite [wondrous] for us because as I know we've disclosed many times. We don't really recognize the value that we've created through rezoning in any material way [indiscernible] we don't put a per square foot dollar number on density that we are -- have either already created or we are in the process of doing. And when we do a joint venture transaction for a building that's getting close to be built, it helps us in 2 weeks. It generates cash and recognizes the value creation and allows us not only to enjoy the cash in the profitability. Well, it's not profit, it's not FFO. But we also are then able to write up the value of our remaining 50% interest assuming it's a 50-50 deal.

[Edward Sonshine, CEO & Trustee]

So that is probably going to be, Mark, our prime focus for capital raising and we're talking some pretty material numbers, but we will also continue to use the word opportunistically sales of properties, have we got a number for that? No, but between the two, it's going to be in the many hundreds of millions of dollars in 2020.

[Operator]

Our next question comes from Sam Damiani with TD Securities.

[Sam Damiani, Analyst]

Just a follow-up on the Mark's -- one of Mark's questions. You had previously said a leverage goal of 38% to 42%. So even with the equity raise in Q4, you'll be at or slightly above the top end of that range. Where do you expect to be in 2020? And do you still feel the need to stick to that same range?

[Edward Sonshine, CEO & Trustee]

Well let me answer that. First of all, I'm disappointed, you aren't first, Sam and usually you are. Mark beat you out. I'm not sure that's telling us anything but perhaps, but the -- that 38% to 42% number is a range we're going to stick with. I understand we're slightly over that but I also want to emphasize that that is not our prime metric, our prime metric are much more in my sense, my view objective metrics, ie, net debt to EBITDA, interest rate coverage and all the other coverage numbers that we use. I'm not going to belabor the point, because I have in the past, but there is a large element of not the discretion, but not all IFRS calculations are made the same across the sector. And so those percentage numbers, while we understand it's important and we measure them because they are a basis of comparison. We actually are much more focused on the other metrics, and we intend to keep doing exactly what we say we're going to do. In fact, I would hope by the end of 2020, our number, our metric for leverage will be in better position than they will be at the end of 2019.

[Sam Damiani, Analyst]

Okay, that's helpful. And just on that, why not just grow the balance sheet? Why the aversion to raising equity? Why not just grow the balance sheet?

[Edward Sonshine, CEO & Trustee]

It's expensive. I mean, simply put, our goal is to achieve the best cost of funds that we can. Obviously, one aspect of that is debt and I think we have actually achieved that goal and we're focused on staying in that spot. [indiscernible] I've seen from some of the banks. Our spreads are actually the lowest of anyone in our sector without exception and I'm not sure, we may have been able to say that ever before. But the other side of the equation is, of course, equity and we try to target every expenditure of size, whether it's an acquisition or a major development program and in fact that overall portfolio that 60% of the cost is going to be represented by equity of some sort.When you look at our cost of equity, at this price of our units, it's probably by our calculations looking on a, let's say a 2020 FFO number, it's 7% plus. Now, if we can get that at a much lower cost through either sales, joint ventures, particularly joint ventures where they're effectively like both Killam and Boardwalk, we're not giving up any income that translates into FFO because they're discrete proportions of shopping center and it seems to us, but that's a far preferable way. Now, if the stock were trading at $30, I might give you a different answer. But it's not.

[Sam Damiani, Analyst]

Okay. Maybe I'll just switch gears to enclosed malls. I know there are very small portion of the portfolio today, but they do represent, not an insignificant portion of your GTA portfolio specifically. How are they performing? I know there's been some backfilling and probably above-average performance of late, but how do you see the performance there going forward? And how does that factor into your same property NOI growth guidance not only for 2020 but longer term?

[Edward Sonshine, CEO & Trustee]

Well, first [indiscernible] with you. It's not something I'm looking at our SVP of Asset Management. We have to do a better job or different kind of job of characterizing because I don't consider Yonge-Eglinton Center a mall, I don't consider Lawrence Square a mall, even though they are enclosed properties and that's probably add Yonge Sheppard to that list and probably some others, but we do have some enclosed malls and over the last few years, they have been challenging. Happily, our leasing team has been including [MT shares] and MT targets in a couple of cases. Our leasing team has been superb in handling those challenges and I think the telling number is that our department store and apparel category is together, I think in single digits as a percentage of 8% of our total revenue sources. So in other words, we're losing those kind of tenants Sears and Target have been great examples and even [indiscernible] was also a few years ago and we were placing them with either necessity-based retailers or experiential retailers including food and entertainment-type retailers, and we are getting growth through that process, but it's a challenge sector, there is no question about that.

[Operator]

Our next question comes from Pammi Bir with RBC Capital Markets.

[Pammi Bir, Analyst]

Just on the portfolio is undergoing a pretty major realignment over the last 2 years. You've guided some pretty good same property NOI growth for 2020. There is still a lot of development activity, some projects coming on and some -- of course, some additional spending. So when you layer all that together, how are you feeling about FFO growth for the year ahead?

[Edward Sonshine, CEO & Trustee]

Well, we don't like to really guide on that. I don't think, C-Qi and right now we're sticking to same store. All I'll say is I don't think what we'll have in 2020 will be representative of what I see in the years following. Next year is still a bit of a transition year. We're finishing Sheppard Centre by the end of next year that REIT -- that residential will be there. So you've got a ton of money. I think the number C-Qi used was about $1.2 billion that from an FFO perspective, all we're doing is capitalizing interest at 3.3%. So it will be a challenge to get to the growth rates in FFO that we would like next year. I think that will really take off quite frankly is in 2021. But as I said, Pammi, a couple of years ago or maybe longer, when we really started this transformational process that sometimes we feel like jugglers around here, but basically we haven't dropped any [indiscernible] notwithstanding some skeptics, we have continued FFO growth throughout this transformational program and we expect to continue to do that. We think, in a couple of years, it's going to get to a significant growth rate.

[Pammi Bir, Analyst]

All right. And I think if I recall a few years ago, that growth rate that you were targeting was over the long-term, somewhere around 5% that sort of still in that range?

[Edward Sonshine, CEO & Trustee]

Absolutely.

[Pammi Bir, Analyst]

Right, okay. Just again sticking to next year and thinking about some of the condo projects, townhomes in air right sales, I guess at The Well, which it sounds like might be spread over 2020 and '21. How should we think about the gains that could be servicing next year?

[Edward Sonshine, CEO & Trustee]

Okay. Let me be clear. We're not involved in any of the condominiums at The Well, we sold those air rights to Tridel for the condominium side. Our exposure at The Well, which is huge is going to be on the residential side, we're partners with Woodbourne in a 600-unit multi-res building that will be almost of the corner fronts. [indiscernible] and that I think will get started in 2020. But, so there won't be any condominium gains there. In fact, I think the condominium gains in 2020 will be relatively minimal because University City, which is the Phase 1 of the Windfield Farms project in Oshawa is just going to get started at the beginning of 2020. So that's one that's going to come in more likely in 2022.Yorkville, which we also expect to get started at the beginning of 2020. In fact, I'm pretty sure in which is amazingly almost 75% pre-sold at some pretty good numbers. We will be completed in 2024, and that's one of the reasons I talked about next year, there is going to be nothing big that is unexpected next year from the point of view of condominium sales.

[Pammi Bir, Analyst]

Okay. Maybe just, I just wanted to clarify your comments earlier in the call, where you mentioned hundreds of millions of, I guess sales to JV partners. Could you just clarify, are those going to be on projects that are completed or projects that are starting, like bringing in...

[Edward Sonshine, CEO & Trustee]

It could be both. I mean, again, the timing of this is probably a little off for us. Monday, as a matter of fact, we have an off-site where we sit down and one of the things we do is focus in on exactly our budget for 2020. I mean, we all have a pretty good sense of what it is obviously, but equally important, we look at a capital plan that extends over 5 years and so when you see us entering into transactions next year, they're moving towards fulfilling the requirements of that capital plan and I know hundreds of millions sounds like a big number, but if I may be bold with really big numbers, rough estimate, we're probably looking at a development spend over the next 4 to 5 years of $2 billion. If we keep to that 60-40 formula that we like to keep to, we will keep to, that implies a requirement over a period of 4 years. of raising above $1.2 billion in equity funds. Now some of this going to come from retained earnings. Some of it may come, I mean we're talking over a period of years from equity issuances, although, hopefully at prices much better than we are today and the bulk of it will come from recycling capital either from low to no growth properties, some completed projects and largely though from land positions that we already own and hopefully won't be giving up income front. So I wish I could give you numbers, I know you'd love them, but I don't have them.

[Pammi Bir, Analyst]

Great, thank you. Just last one. At The Well, it looks like costs stabilized this quarter. I think last quarter, they did move out.

[Edward Sonshine, CEO & Trustee]

Finally.

[Pammi Bir, Analyst]

Yeah. Right. Just can you remind us again what your expected unlevered yield is or range on completion at this stage?

[Edward Sonshine, CEO & Trustee]

I think no, excluding the residential component, which we're partners, as I said with Woodbourne and that's a significant [indiscernible] because it's booked 600 apartments. But looking at the office and retail components, I think we're in that 5 to 6 range. I don't think that's changed. Costs have gone up, but so have rents.

[Operator]

Our next question comes from Johann Rodrigues with Raymond James.

[Johann Rodrigues, Equity Research Analyst]

First off, could you maybe tell us what the expected NOI contribution just from multifamily would be in 2020?

[Edward Sonshine, CEO & Trustee]

Actually, no. And it'll be a lot more than it was this year obviously because this is our first year of getting anybody living in our apartments. The stabilized NOI from just the 2 buildings is probably in the $15 million or $16 million range but to give you an exact number on that, I just couldn't do because I could do a better after next Monday, if you want speak to Qi then. She might have some exact numbers for you, but it's still relatively small within the scheme of things because it's going to really hit some growth but only as we get in layer into the 2020, so like 2021 [indiscernible]. For this year, we'll just -- we'll have 2 buildings, which is fantastic. And the 2 buildings, one of which we own 100%, one of which we own 50%, actually have a total of over 700 units, some 50, but that's just a start and in the context of total revenue that we have this year, I think about 1.2 billion. It's pretty small.

[Johann Rodrigues, Equity Research Analyst]

Great.

[Qi Tang, Senior VP & CFO]

Johann, we did disclose just for those 2 rental towers I talk about, we disclosed a stabilized income and yield, there you could calculate. Yeah.

[Edward Sonshine, CEO & Trustee]

Okay. Johann.

[Johann Rodrigues, Equity Research Analyst]

Okay. And then maybe just my second question, how would the rents at Pivot and then I guess, Strada and then the other Toronto. I think it's Lithos, how would those compare to eCentral and [the 390] that you guys are getting there?

[Edward Sonshine, CEO & Trustee]

Yeah, I think they'll be similar product types, I think [there is sort of] locational attributes that are slightly different, but I think generally we're trying to curate a similar product. I think a more boutique type of offering like Strada, which is down a college in Bathurst, there might be enhanced opportunities for rent. I think Sheppard and Litho are going to be very similar offerings and we'd like to see them in and around that same level, hopefully higher, but we'll see what the market is like.Yeah, I agree with what Jonathan said to Johann. And I would also tell you that our target when we -- our target [indiscernible] our sort of overriding goal when we started leasing up eCentral is to get the lease fast. I mean we just started leasing in, at the beginning of this year and we expect to be, like I say, stabilized a year later, effectively. 13 months and to do that, we probably left a few pennies on the table, but that will just give us better growth because the nice thing about rental and the nice thing about our entire portfolio in Ontario that we're building is none of us were in control. Now, I'm not saying we're going to -- we're a public company that tries to act very responsibly. So we're not going to be looking for piggish increases or what some might call piggish increases, but we think we're going to get pretty healthy increases from the rents. We've got eCentral and I suspect they even as we roll into later in 2020 including Frontier. So I think we look at Pivot, which will start leasing I guess at the end of 2020, that will achieve probably similar to what we achieved if not higher. I think, Lithos and Strada and there's just maybe we haven't set leasing budgets yet, we'll do even better because of the boutique nature out there and the location of their buildings.

[Operator]

[Operator Instructions] Our next question comes from Tal Woolley with National Bank Financial.

[Tal Woolley, Research Analyst]

Just wanted to ask on the retail side, in terms of talking to your tenants, how do you see Christmas shaping up for this year?

[Edward Sonshine, CEO & Trustee]

I'll turn that over to Jonathan and maybe Jeff Ross.

[Jeff Ross]

Yeah, it's Jeff Ross speaking. I mean, quite frankly the tenants that we are speaking to seem quite encouraged by it, a lot of the rhetoric on the eCommerce side has calmed down a little bit as the retailers are focusing on driving consumers through their own stores. And right now, all I am hearing anecdotally is that it's positive. The initial start to the season is looking quite good.

[Tal Woolley, Research Analyst]

Okay. And would it be reasonable for us to expect like, after Christmas to serve another similar kind of grind on tenancies like we've seen with Bombay and some other players over the last several years, do you expect that sort of trend to continue?

[Jeff Ross]

I always hate to guess because often, I'm not correct. But the way it's looking right now, there's not a whole lot on the horizon that we're hearing and you tend to hear the tribal drummed way ahead of any falling or occurring and right now, it's all quite not saying it won't be a few small guys. But in a large format, I just don't see anything for at the beginning of 2020.

[Tal Woolley, Research Analyst]

Okay.

[Jonathan Gitlin, President & COO]

Yeah, you know what, I'm never going to say the famous last words. I think everybody that could go broke, has gone broke because then there is always a new candidate that comes along that didn't expect, but all of the nice thing about retail, the train wrecks are slow-motion train wrecks, and the way we monitor through our operations group and asset management group, we tend to have a pretty good idea 6 months to a year ahead, that because we see some of the sales numbers, we see what their GROC ratios are and when they start getting too high, particularly across the chain, you got a problem or the retailer has a problem, since you're going to have a problem.And while we always have a watch list, to my knowledge, I'm looking at the guys running operations and asset management right now, there is nobody of any consequence on it. So, we're quite comfortable that 2020, maybe it will be one of those years without any bankruptcies of consequence. Who knows.

[Tal Woolley, Research Analyst]

Just you mentioned GROC ratios, how have you seen like over the last several years, like what you guys see as an acceptable GROC ratio for the retailer change?

[Edward Sonshine, CEO & Trustee]

Well, again, I'm going to going to turn that over to Jonathan, but it really varies on the type of retailer, but...

[Jonathan Gitlin, President & COO]

Yeah, I think that kind of hits the nail on the head. What I just said, it's such a varying calculation and it's so dependent on the use. I mean there are certain uses like grocery where I mean that GROC ratio for a grocer to consider themselves successful has to be extremely low relative to an apparel user or a restaurant user where it can be much higher. So I can't give you one answer on that. But generally, as Jeff alluded to before and as Ed alluded to, the feedback we're getting, given the strength of our locations at this point is that our tenants are seeing healthy and fairly low GROC ratios across the Board relative to their category.

[Tal Woolley, Research Analyst]

Okay, that's good. And then just lastly, in terms of financing strategy, you were talking earlier, just about financing the new residential projects and I'm just wondering, when we look at like the public peers in the multifamily space who are engaging in development, building new product, they are carrying significantly more leverage than you are. And are you potentially handcuffing yourself a bit by trying to stay at 8 times or in the range that you're currently sort of setting? Would it or should we expect to see that debt-to-EBITDA ratio creep up modestly as the proportion of residential product in your portfolio increases?

[Edward Sonshine, CEO & Trustee]

That's actually a good question and I understand the higher leverage where you've got a much less volatile sector, i.e, multi-rents. We're not there yet. Right now, we're looking at staying sort of where we are, because obviously the largest portion of our portfolio is and will probably be for many, many years retail/office, i.e, commercial, which by its nature is a little more volatile and there is an old story I always tell that RioCan is like a car, it is built for safety, not for speed although we're trying to go pretty fast, but when you look at the times and is good at times have been in the last 10 years almost, when it comes to real estate and interest rates, times change. We live in a very uncertain world and we learned a long ago right from the foundations of RioCan 25 years ago that you can't protect yourself from macro events except by protecting the density in a number of ways. Diversification of revenue, sources as Jonathan said, and we are continuing to work on that. I don't want to be one of those entities, where 25% or more comes from one tenant because things happen in this world. We're under 5%, diversification of maturity dates on your debt and diversification of lease maturities and keeping our leverage as low as possible. Now, your question is a good one, because I think as you get a larger and larger percentage of residential, we may consider that change in policy, but we are years away from that. I think right now what we like doing is we're going to, I won't say be aggressive in leverage, because we're not aggressive by nature when it comes to debt, but we will do as much leverage as is prudent with CMHC insurance both through the existing program and maybe through some of their new programs where it's even cheaper, were you included affordable component in your building and at simply use, I'll call it excess of funds over what would be 40% to pay down our commercial debt, which is obviously in a much higher cost. That's the short-term, i.e. 1, 2, 3-year program.

[Tal Woolley, Research Analyst]

Like a Volvo with the turbocharge and...

[Edward Sonshine, CEO & Trustee]

We're trying our best with turbo. Yes.

[Operator]

There are no further questions at this time. I will turn the call back over to the presenters.

[Edward Sonshine, CEO & Trustee]

Okay. Well, again, thank you, everybody. I know everybody is probably got 11 o'clock conference call from somebody. So thank you for taking the time. We hopefully added some color to what I think was pretty good quarter and we expect to continue to being able to do that. Thank you very much for your time and attention. Bye-bye.

[Operator]

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