RioCan Real Estate Investment Trust

TSX:REI.UN

Earnings Call Transcript 2019-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust's Fourth Quarter 2019 Conference Call. [Operator Instructions]I would now like to hand the conference call over to Jennifer Suess, Senior Vice President and General Counsel. You may begin.

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

Thank you, Jody, 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 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 December 31, 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]

Thank you, Jennifer, and thanks, everyone, for taking the time to hear about our operational highlights for 2019. Thankfully, there were many. 2019 was an important year for RioCan. We worked hard to shape Canada's preeminent major market portfolio. Our results reflect the benefits of 90% of our revenue coming from our strong properties in Canada's VECTOM markets. 52.4% of our revenue is now coming from the GTA. Now how did we get here? As most of you know, we achieved the bulk of the transformation through an intensive disposition process that included the sale of over $1.6 billion of largely secondary market properties. We complemented these dispositions with development completions and strategic acquisitions, all in the major markets. And to put it simply, we've repositioned our portfolio. And because of this, we set ourselves up for greater success now and into the future. Retailers, office tenants and residents appreciate the quality of our locations. And as a result, there's demand to be part of them. While there's no question, the retail landscape is evolving and is full of challenges, RioCan is ideally suited to succeed in this environment. We're confident that our combination of strong locations, sound operating principles and diversified revenue streams, along with the best team in Canada, will continue to generate growth. And to be more specific, we've evolved our inherently value rich portfolio. It consists primarily of necessity-based retail and urban mixed-use properties. These properties are positioned in the transit corridors in some of Canada's most desirable high-density locations. Mixed-use urban- and grocery-anchored centers account for more than 60% of our annual rent. These asset classes are attractive to our growing customer base. They are also compelling to the strongest tenants. Further, our tenant portfolio consists primarily of retailers from sectors that have demonstrated resilience and growth. 74.5% of our revenue is derived from necessity-based and service-oriented tenants. 50.2% of our tenants are in the grocery, pharmacy, liquor, restaurant or service sector. We've reduced our exposure to the more internet-sensitive tenants such as department stores and apparel to less than 8.5% of our total revenue. Our locations are desirable, and because of this, our major market properties deliver consistently strong results. We ended the year with 2.5% same-property NOI growth and 97.7% occupancy, plus an extremely healthy leasing spread of 9.7%. And I'm also thrilled to report on the success of the first two RioCan Living residential rental building, eCentral here in Toronto and Frontier in Ottawa. Frontier has now stabilized a year after opening, with rents that are higher than pro forma.We've leased 97% of that building. And eCentral is 86% leased and is expected to achieve stabilization in the next few months. In their first year of lease up, these two towers generated residential rental NOI of $2.4 million. The stabilized NOI between the two properties is expected to be approximately $13.3 million at RioCan's interest. The success we've achieved with our first foray into residential validates RioCan's instincts regarding the demand for quality, well-located rental residential within these mixed-use communities. We see these two residential properties as emblematic of our numerous residential developments that are nearly complete. We're going to implement the best practices learned from our first two residential projects and apply them to all our future RioCan living properties. We are also looking ahead to ensure continuous growth through our sustainable development pipeline. As we complete developments, we break ground on new ones, achieve zoning on others and initiate the zoning approval process on still more. It's a virtuous cycle. This cycle was well demonstrated by RioCan's development team through 2019.We completed approximately 530,000 square feet of new development GLA. We increased our development pipeline by 2.8 million square feet, and we ended the year with 29 million square feet of development potential. With this pipeline, our balance sheet and our great team, RioCan will continue to unlock the significant value that's inherent in our existing assets. And in so doing, we're going to continue to improve the profile of our portfolio. We're going to add substantial net asset value and as well diversify our sources of revenue.Moreover, we get to earn income from our properties while we wait to develop them. The transformation of our portfolio will take further strides forward in 2020. We're going to commence operations at 5th and Third, our mixed-use project in Calgary. We're going to start leasing units at Pivot, the 36-story, 361-unit residential rental tower, at Yonge and Sheppard in Toronto; and as well in Brio, the 12-story, 163-unit rental residential tower in Calgary. We're planning on breaking ground on 11 YV, our Yorkville condominium project here in Toronto, which I should add, recently won the multifamily community of the year award by the National Association of Home Builders. We'll also complete the first phase of construction of the commercial portion of Windfield Farms in Oshawa, and will commence construction on the condo tower, along with our partners at Tribute Communities. This condo tower has 503 units that are currently about 75% presold, and it's expected to generate value creation in the range of 17% to 20% at our interest. The construction of an additional 153 condo town houses in the same area will also start in 2020.Now before I hand the call over to Qi, I want to highlight the important progress we've made this year in delivering on our sustainability goals. We successfully executed key sustainability milestones, including publishing our first sustainability report. We improved our global real estate sustainability benchmark assessment score, well, that's a mouthful, by 77% over our 2017 score. From a development perspective, the Enwave deep lake water cooling system at The Well is becoming a reality. The big hole that will house 7.6 million liters of water is fully dug. The energy output from the water in that tank will be supplied to the entire Downtown West district and ease the load on the electricity grid. Meanwhile, Frontier rental residential is using a high-efficiency geothermal system that reduces carbon emissions and saves on water and electricity use. I would also like to mention the continuous improvement demonstrated by our operations team. With a renewed focus on utilizing our scale and national presence, we're seeing significant operating cost savings. In reducing these operating costs, we can maintain gross occupancy cost for our tenants and allow those savings to be allocated toward net rents. Ultimately, these savings are good for RioCan, they're good for our tenants, and they certainly contribute to sustainable growth.So to wrap up, the desirability of RioCan's locations, its tenant mix, its proven operational excellence, the diversity of the revenue sources and its extensive pipeline of value creation opportunities leave us well placed to drive unitholder value. On the back of these attributes, RioCan is well positioned to achieve our goal of strong unit holder returns through ever-increasing FFO quality and continuous growth.Qi, over to you.

[Qi Tang, Senior VP & CFO]

Thank you, Jonathan, and good morning, everyone. The fourth quarter was another successful quarter for RioCan. It contributed to a strong 2019 for the trust. RioCan reported FFO per unit of $1.87, a $0.02 increase over 2018. This increase was achieved despite the dilutive effect of $0.5 billion dispositions completed in 2019 and full year dilutive effect of nearly $1 billion dispositions completed in 2018, $35.6 million in lower realized marketable security gains, $5 million in lower capitalized interest as a result of substantial development completions, and $2.2 million in higher condominium marketing costs. These factors in aggregate, negatively impacted this year's FFO per unit by about $0.22. A number of key growth drivers, however, more than offset these dilutive factors and led to the FFO per unit growth year-over-year. Such positive factors included higher residential inventory gains and NOI from our residential rental business, same-property NOI growth, transaction gains from equity accounting investments and lower G&A costs. As a result of the growth in FFO per unit, our FFO payout ratio further improved from 78% in 2018 to 77% in 2019. As at the year-end, our IFRS book value per unit grew to $26.14, a 4% increase compared to 2018. There is significant NAV growth embedded in the trust development pipeline, which has yet to be reflected in our IFRS book value.Currently, the trust has the highest loaning entitlements among our peers based on available public information. Specifically, most of our 29 million square feet development pipeline, 50% or 14.6 million square feet is already zoned and another 23% or 6.5 million square feet have zoning application submitted, representing a total of 73% of our pipeline. The trust has $266 million of cumulative fair value or $0.84 per unit recognized on the balance sheet relating to 3.6 million square feet of incremental density for our [indiscernible] projects in detail cost estimates. This averages to about $44 per incremental billable square foot. To put things into perspective, the trust's current 29 million square feet development pipeline includes 24.7 million square feet of incremental density. This development pipeline relates to 61 projects, out of our 220 property portfolio. Our pipeline will continue to grow as we identify more intensification projects. As of this year-end, the trust's average net rent per occupied square feet was $19.75. This represents a compound annual growth rate of 3.7% since the end of 2015.It highlights the significant improvement we've made to our portfolio over this period as we surpassed our strategic milestones related to our major market and GTA focuses. The improvement in our portfolio has resulted in strong blended leasing spreads as well as a resilient and diversified property and tenant mix. Since 2016, the average population within a 5-kilometer radius of our portfolio has increased to about 198,000 as of the year-end, a 31% increase. While average household income within a 5-kilometer radius of our portfolio has increased to $115,000, a 17% increase over the same 3-year period.About 67% of the trust development pipeline is located in the GTA. Within a 5-kilometer radius of these development projects in GTA, the average population is about 322,000, and the average household income is about $129,000. These demographics demonstrates the quality of our urban transit-oriented mixed-use developments. We continue to prudently manage our development program and balance sheet. As at year-end, our development cost balance on the balance sheet amounted to 9% of our total assets. This is well below the 15% limit permitted under our revolver and other unsecured credit facilities. Our debt to adjusted EBITDA was at 8.06x on a proportionate share basis. This was accomplished despite the completion of nearly a bidding strategic acquisitions during the year and the development cost of balance of $1.4 billion. Excluding the $1.4 billion development cost balance, our debt to adjusted EBITDA would have been 6.3x. Our leverage as at year-end was 42.1%, unchanged from 2018. Our pool of unencumbered assets grew to $8.9 billion, a nearly $1 billion increase from the prior year-end. And our debt composition was about 60% unsecured and 40% secured.These unencumbered assets generated 58.5% of our annualized NOI and provide 227% coverage over our unsecured debt, well above our internal targets. As at year-end, the trust reduced its floating interest rate debt exposure to 6.4% from 16.4% last year. As a result of our strong balance sheet, the quality and strength of our portfolio, we continue to enjoy ample financial liquidity and one of the lowest cost of debt in our industry. Subsequent to year-end, the trust closed its first CMHC insured mortgage, a 10-year, about $29 million loan, and RioCan's interest for Frontier in Ottawa. It bears an annual interest of 2.63%. And the trust also expects that its existing 11-year $150 million, 2.58% mortgage, at eCentral in Toronto will become CMHC insurance upon the property stabilization in the spring this year. This will then reduce our interest rate for this loan to 2.33%. Maximizing CMHC insurance mortgages is an important component of our debt strategy. It provides access to a new source of financing and lowers our overall cost of debt. It will further help drive FFO per unit growth in the future. Overall, we are pleased with our operational and financial results for 2019, and we look forward to building on our positive momentum in 2020.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. You have gone over more numbers than even I can absorb. But they're all important and they really indicate where -- what we achieved in 2019 and some pretty good hints at what we've got coming up in 2020. I'll largely stay away from numbers, although they are necessary, of course, in dimensioning what RioCan has achieved over the last several years. We're now in a unique position, and I think that is pretty well unique amongst all our peers, of having over 50% of our revenue coming from the fastest-growing area in North America, namely the Greater Toronto Area, GTA, and that percentage will grow as well over 60% of our current and planned development activity is in that very GTA.But before I speak about what we are so furiously building, I will dwell a bit on where we are in the transformational journey on which RioCan embarked several years ago. First, it's worth noting that we have reduced our retail footprint by almost 10 million square feet in secondary markets over the last couple of years, and I'm sure that almost 10 million will become over 10 million fairly shortly. While dramatically increasing our major market assets simultaneously, our remaining secondary market exposure of less than 10%, a number that will continue to decline, is composed almost exclusively of dominant open-air centers in such strong markets as Kingston and Sudbury.At this juncture of RioCan's transformation, I believe we have already created a portfolio that will give us that 3% plus same-property growth that we have been striving to achieve. There will be bumps in the road caused by the continuing shake out in the retail industry, but the power of RioCan's portfolio and the strength and depth of its team, will enable us to turn every bump into an opportunity for growth. And so while these bumps may cause some quarter-to-quarter variability, we are in a place where 3% same-property growth on an annual basis will become our norm. And when we add in development growth, that number will be closer to 5%. But the portfolio owned by RioCan today and its platform for growth is only the current stage of our evolution. Yet it is a critical one as it provides the cash flow and financial strength to fund our ongoing significant development program and, of course, fund our ongoing obligations to our unitholders. In addition to what I've described above, RioCan today is an entity with almost endless opportunities of value and cash flow creation. Of our over 29 million square feet of identified density in our existing properties, as Qi has said, about half is already zoned. Our challenge over the upcoming years will be to pick out the most promising and profitable developments out of this cornucopia of opportunities while staying within our financial means and keeping our balance sheet ever strong. While media and analyst attention focuses on such mixed-use projects as The Well, Yonge and Eglinton and Yonge and Sheppard, and this is certainly understandable as the high-profile, and quite frankly, eye-popping value creation and cash flow at these very large-scale and intensely urban properties is remarkable. We have many other mixed-use developments underway. What we are creating on 120 acres of land at Simcoe and 407 in Oshawa, has been mentioned in the past and was mentioned as well by Jonathan today. But in addition to a completed first phase of townhomes, we are commencing this spring a high-rise condominium, which Jonathan mentioned, of over 500 units, which is 75% presold, something I never thought even 2 years ago, I'd be able to say to you about a property in Oshawa. And at the same time, this spring, we are commencing about 116,000 square foot supermarket-anchored retail facility, which is already above 2/3 pre-leased. And a second phase of about a further 150 townhomes, which in only 3 weeks of marketing has been presold at about 50% at the 50% level. This will truly be a mixed-use project in North Oshawa, where the retail feeds the residential and the residential feeds the retail all between 2 major institutions of higher learning, called Ontario Tech and Durham College, which again, I'm not sure anybody could have really contemplated several years ago. But here we are doing it. Similar projects will be commenced over the next 18 months in Brampton, Ajax, Ottawa and other places. And I'm pleased to note that we will soon be commencing our first rental building in Surrey, British Columbia. This one is particularly gratifying and symptomatic of RioCan's reach and abilities. A small pad on the edge of a very successful shopping center called Strawberry Hill in Surrey, which for some reason, could never be married to a suitable retailer. So it lay fallow and actually unpaid for well over a decade. And now sometime this year, we will be commencing a 120-unit apartment building on this very pad. Stories such as this are constantly being created at RioCan, both as a result of our superb property portfolio and our creative and extremely experienced team.The value creation and cash flow growth that is occurring at RioCan has not yet been recognized by the public markets. I believe they will be eventually, but at present, the private markets and deep institutional pockets are well ahead of the public markets in their recognition. The continuum transaction last year and the Yorkville REIT transaction announced this very morning are examples of private money value assets considerably higher than the public markets. And I suspect you will continue to see additional transactions of this nature, not necessarily always on an entity basis, but certainly on an individual and portfolio scale.That's it for me. And I think we're now happy to open it up for questions to anybody in this well [indiscernible] room that we're in here. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Tal Woolley of National Bank Financial.

[Tal Woolley, Research Analyst]

Let me start with a couple of questions. Just on the balance sheet, given where rates are right now, how are you thinking about potentially extending the term on your balance sheet as you start to refinance some issues going forward.

[Edward Sonshine, CEO & Trustee]

That's exactly what we're doing. I think in the MD&A, we mentioned, we just refinanced a fairly large, in excess of $100 million, mortgage on a property in -- also in Surrey actually, Grandview Corner shopping center, where I think we did $106 million at a 10-year term at 3.02%. So that's just an example of what we're doing. Essentially, where we're doing secured debt, which is probably now under 40% of our overall debt we're typically going for 10 years, unless there's a very good reason not to like imminent redevelopment or something like that. And our unsecured, we do intend to take advantage of the current very favorable interest rate climate to extend out the term of our overall debt profile.

[Tal Woolley, Research Analyst]

Is there a target that you're looking to hit on that front? Or you're just going to move along as you can?

[Edward Sonshine, CEO & Trustee]

Yes. I think -- I don't think we've set an actual target. I think we're probably, as of the current moment that a term of under 4 years, about 3.75, something like that. I'd like to get that closer to 5. Sure, but when you're dealing with above $6.5 billion of debt, it takes time. So we are just going to incrementally move that into a longer fixed rate environment without setting any specific target because it's so opportunistically driven.

[Tal Woolley, Research Analyst]

And then just on The Well, you're talking about the air rights sale will soon close. The net proceeds that you guys expect from that transaction will be approximately what?

[Edward Sonshine, CEO & Trustee]

I think between us and Allied and a little bit going to Diamond Corp., it was in that, makes about $180 million plus or minus $10 million. I hate to speak so expensively. But that should happen, I think, towards the end of this year and the beginning of next year. It will be phased in as we reach a platform level on the various buildings. And keep in mind, we've -- of the largest residential building, of course, RioCan retained 50%, actually, we retained 40% and we're buying 10% from our partner -- partners. And it's -- I think it's probably one of the most exciting developments in Canada. And I think within a year or 2, everyone will agree with me.

[Tal Woolley, Research Analyst]

Okay. And Qi, you had discussed the parts of your pipeline on which you had recognized density in your fair value. Can you just talk about -- and I apologize if I missed this earlier on the call, we double booked. But can you just talk to which specific projects those fair value gains were recognized on?

[Edward Sonshine, CEO & Trustee]

I'll let Qi sort of figure that one out, but I will tell you, our policy, which is a little bit different perhaps than everybody else. It is to -- from an IFRS and value recognition point of view, we don't recognize anything until there are detailed construction estimates and/or there's a transaction, i.e., by selling a 50% interest, that obviously triggers the recognition of that value. As we're continuing to zone, obviously, we keep track of it ourselves. It's a extremely significant number, but it is not reflected in our IFRS values or in the NAV numbers that Qi quoted before, and I'll turn it back to Qi.

[Qi Tang, Senior VP & CFO]

Thanks, Ed. Tal, just to answer your specific question, the $266 million fair value I mentioned earlier, that refers to the first category in our development pipeline. That is the project that's already under construction.

[Tal Woolley, Research Analyst]

And that -- but do you know like where those rates were? Is it predominantly GTA, I'm assuming?

[Qi Tang, Senior VP & CFO]

Predominantly Toronto area. For example, we include the fair value we've already recognized on eCentral, on Sheppard Centre so these projects that pivot under construction on these type of projects that's either near completion or one stage of construction.

[Tal Woolley, Research Analyst]

Okay. And then just my last question. I think, Jonathan, you had made a reference to this earlier, is that you're trying to work your cost structure and try and find some OpEx savings that you hopefully can pass on to your tenants and keep a little bit for yourself in net rent. Is there -- can you give some examples of just exactly what projects you're undertaking to do that? And then is there a target that you guys have in terms of margins or something like that to try and drive that process?

[Jonathan Gitlin, President & COO]

Sure. So some of the programs that we're focusing on are a thorough review of the way we manage parking lots, underground and otherwise, where we've tried to coordinate one single manager as opposed to having different managers across provinces, which is related to -- which has realized quite a significant savings in operating costs. But there are also things as mundane as snow removal contracts, heating and energy contracts, and just bulk buying that we are able to do with our large platform. But there are too many to list on this phone call, Tal, there's a broad initiative that we're doing in every line item of our budgets, quite honestly. And wherever there is the opportunity to centralize that procurement, we are taking advantage of it. And so it is a substantial cost savings.With respect to a target or a margin level, we haven't -- I mean what we're in now is, again, we're doing this thorough, thorough review, and we're implementing a number of changes. But until we've assessed exactly what opportunities are out there, we haven't pinpointed a budget number yet, it is substantial, but we will look to do that on an annual basis in the coming months, I would suggest, which is set of budget target for cost savings.

[Edward Sonshine, CEO & Trustee]

I might add to that, and certainly, no numbers either, that we're probably just at the very beginning of our progress in incorporating a lot more technology into our -- quite frankly, our entire operations, and we're particularly well suited for this. And -- I mean for example, here are Yonge and Eglinton, between what we already own at eCentral and the Yonge Eglinton Centre, we have, I don't know, 1.5 million square feet and -- or plus, and that's probably going to keep growing, with some of the announced acquisitions we've made, going up the Yonge Street corridor, Sheppard Center and, of course, obviously, The Well. But generally, there's so much technology out there that I know we spent a lot of time just sitting through presentations, just trying to figure out what actually will work for us, sometimes what actually will work. And I think technology use over the next few years will actually generate not just fantastic efficiency and better service to both our residential and commercial tenants, but also cost savings.

[Jonathan Gitlin, President & COO]

For sure. Agreed.

[Operator]

Our next question comes from the line of Pammi Bir of RBC Capital Markets.

[Pammi Bir, Analyst]

Ed, just going back to your comments on the public-private disconnect. What are your thoughts in terms of maybe means through which you could perhaps help narrow that gap?

[Edward Sonshine, CEO & Trustee]

Well, I think trying to get the analyst community to recognize more than just our last quarter's numbers, but to really take a hard look at what we're creating, both from a value and cash flow platform point of view. And the real value, I mean that we're creating. I told that little story about Surrey where we had a pad of land that obviously had 0 value. Didn't even have paving on it. I've been out to look at it probably a decade ago, and beat up on poor Jeff Ross, our Head of Leasing, say, "Why can't you find a tenant like this?" And then when I saw it, I realized why we couldn't find a tenant. It was really at the back edge of the shopping center. And yet, we're going to build a 120 unit plus or minus apartment building, I think, for us, relatively low-rise, about 11 stories?

[Jonathan Gitlin, President & COO]

Yes.

[Edward Sonshine, CEO & Trustee]

11 stories. So it will be relatively quick to build. And I wouldn't even hazard a guess as to what the cap rate would be on a brand-new apartment building in Surrey, British Columbia, where the housing is very expensive and very scarce. But its maturing, and it will be from nothing to a lot. And we have dozens of those that I'm not sure the public markets actually focus on, I think, even on our IFRS valuations, and I'm quite positive I think we are relatively conservative, I'm not saying we're overly conservative, but -- and even our auditors when they're asked by our audit committee, they say "On the sort of spectrum of aggressive on one side and very conservative on the other, where would you put RioCan's valuation?" Always a tense moment in an audit committee meeting, and our external auditors said, "Well, we'd actually put it right in the middle." And that made everybody very happy.But I'm not sure the public markets and the analyst community, take into account that IFRS values are actually largely have -- I shouldn't say largely, have a large dose of subjectivity in them. And that -- if you drill down into everybody's IFRS values, they're not all created equal. And I think ours, as compared to everybody else's, they're probably understated. So I think -- and I understand analysts have to look at numbers, and I understand all that. But I think when we get the analysts and the public markets, which are starting to look beyond those quarter-to-quarter numbers because this is not a quarter-to-quarter business. This is a long-term business. And what I'm quite proudest of in RioCan, is that we've taken -- made very long-term changes we've done in a few years, which is lightning speed for a entity of having properties in excess of $15 billion of value.So I think that's part of what we have to do, that's the educational part. And Qi and Jonathan and myself to a much lesser extent, we'll be out there pounding the pavement, meeting with whoever wants to meet us, both in Canada, the United States and even other places, to hear exactly what we think is going on here. So that's one part of it.Other part of it will be, quite simply, like we've done in the past, but we will continue to do it, to do actual transactions with third parties, which unlock that value and give us cash, like in Mississauga, what was a -- without being too demeaning to our own property, a value village-anchored shopping center at Sandalwood in here, Ontario. And we did a deal with our wonderful partner, Boardwalk REIT, where they bought a 50% interest, and I think the value is about $80? $80 per square foot on something that had, again, had no value. At that moment. And we sold half. Obviously, at that point, we could recognize our half as being worth $80. And we've done those with Killam REIT. And we've done them, quite frankly, in quite a few places. That will continue as one way of really unlocking that value and making people understand. I think we will do it probably more often with financial partners than just operating partners because over the last several years, I think we've understood, we've learned a lot from our partners and from our own experience. So I think we're ready to go more financial than operating, but we're certainly not going to abandon our wonderful partners that we already have, ranging -- I'll even give a shout-out to Woodbourne on that one, where we've done a lot of deals with and will continue, hopefully, to do some.So those are the two ways that I know of to try to narrow that gap between what we really think RioCan is worth and what the public markets are prepared to pay for it. And if you can think of any other ways, I'd be happy to hear about them privately or publicly if you wish.

[Pammi Bir, Analyst]

No, that's very good color. I guess, in short, educate and sell.

[Edward Sonshine, CEO & Trustee]

That's it.

[Pammi Bir, Analyst]

Okay. So just maybe one follow-up on that with respect to the density value. We've heard some discussion from maybe some of your peers as to perhaps altering or giving more credit to that value in their IFRS or for GAAP purposes. Have you considered that at all in terms of changing perhaps how you book that value other than just on sales or on actual projects?

[Edward Sonshine, CEO & Trustee]

We -- look, it's something we continuously talk about, and I'm not -- certainly not going to speak to how we account for things. I think the way I'd managed to stay where I am, one of the ways is to, at end of the day, bow to our very excellent CFO and finance team and external auditors. And when it comes to financial accounting and reporting, we're not going to be the guys that push the envelope.Having said that, I've thrown around some -- what some people might think is crazy numbers in the past. But I think as the years go by, you will see they are not crazy. And that number that I've thrown out in the past, which it's still there. Even though because, as Jonathan quite rightly pointed out, even as we realize and harvest some of what we've continued to do, we're creating new. So I've thrown around the number of $1 billion of value in the past, I firmly believe it's there in some of this density. And quite frankly, it's probably a number that's grown since I started throwing it around because the values of zone density, particularly in the GTA, where, as Qi has said, well over 60% of ours is, has, quite frankly, even astonished me in the last year or two. To throw around numbers of $100 a foot for zone density today is considered giving it away. And that may apply to locations like well outside of the 416 and the values that are in the downtown area. I don't even know what they are anymore, but they are in the multiple hundred dollars, $300 to $400, quite frankly, on occasion. And what is the value, which today, we don't even carry of -- where we're now zoned on at Eglinton and Laird, where we're pretty well through the process of close to 1.5 million square feet of a mixed-use development, of which about 1.3 million is residential, I think, well, maybe 1.250 million, a little bit of office and a little bit of retail, a tiny bit of retail in the scheme of things. What's the value of that today? I honestly couldn't tell you. It's material.I can't tell you or where we are well down the road, for example, at RioCan Hall, which is probably the last major, privately owned, undeveloped piece in the entire entertainment area. We're going to end up with about 850,000 square feet of density there. We got a lot of communities sign up, a lot of political sign up. We're not all the way there yet. That will take us some time still. What is that worth? Beats me right now. But I'll tell you, it's a lot -- worth a lot more than what we're carrying [ that ] property at for IFRS. So I could bore you with many, many examples. Those are just a couple of high-profile ones that people on this call may know them.

[Operator]

Our next question comes from the line of Sam Damiani of TD Securities.

[Sam Damiani, Analyst]

Just to follow on, similar question line there. How quickly do you expect to -- RioCan Hall [ to be ] signed, and also Eglinton East to achieve zoning status? Are any of these 2020?

[Edward Sonshine, CEO & Trustee]

No. There's -- as I think we've mentioned before, there's always two aspects to redeveloping these properties. One and a very important one is the zoning. The good news is once you get it, you get it and you keep it. And lease side, the Eglinton and Laird property we'll have that in what I'll call pretty final form this year. We've gone through all the major hoops. Now it's, dare I say it, and our development group will probably cringe when I say this, it's just paperwork now. The creativity is -- has actually already been accomplished. RioCan Hall, probably finish zoning sometime in early 2021, I'm going to guess.But then comes, quite frankly, the second part of the whole equation. It's called working with your tenants to actually make the property available for redevelopment, not always in our control. Certainly, it's eventually in our control because every lease does have an end date and a final [ renewal ] date but we have -- we are just about -- sometimes it's bad. But most times, it's good. We are just about everybody's largest landlord. And that gives us a very deep relationship with every single tenant that we have in those two properties, for example. So while I can't tell you today when either one of those will actually start, I can tell you that most likely the Eglinton cost down will actually be finished before we start, and lease side. But it really depends on when our remaining tenants there, which were essentially down to 1 or 2. When they -- and we're working with them constantly on this to find suitable relocation premises, not the easiest thing in a very busy city like Toronto, but once we have achieved that zoning, we can be remarkably patient. And keep in mind that even once you have your zoning, and that's how glacially this process works and why we're so proud that we started many years before everybody else and why we already have buildings in operation. From the time of actually getting your zoning to actually being able to put a shovel in the ground because of site plan agreements, Section 37 agreements, building permit applications and all the other hoops you have to jump through that I dismissed as mere paperwork, it's probably 1.5 years. It's certainly a minimum of a year. So I would hope that Laird can get started sometime in 2023. I don't think it'll be much before then, it might be a little bit later depending on our tenants. RioCan Hall would be later than that just because we're not zoned yet, and we've got quite a few more tenants to somehow accommodate. Does that give you some -- that was a very long answer, but I could talk for about an hour on this?

[Sam Damiani, Analyst]

Yes. No, that was very helpful. Maybe just switching gears to occupancy. Do you have some guidance for 2020, both for year-end and maybe Q1? And also how are the backfilling of Home Outfitters, Bombay and Payless going so far?

[Edward Sonshine, CEO & Trustee]

Two questions there.

[Jonathan Gitlin, President & COO]

Yes. In terms of our occupancy guidance, I mean I think it's going to be consistent with where we are now. I think that we have seen a couple of tenant bankruptcies at the beginning of 2020. But at the same time, we're doing quite well in the backfill of our Bombay, Payless and -- sorry, Bombay/Bowring and Payless. So I don't see any significant spike in occupancy, nor do I see any significant decline in occupancy going forward. With respect to the backfill of Bombay/Bowring and Payless, our leasing team is doing a great job, as we suspected they would. I mean a lot of these operations were paying below market rent. And in the backfill, we are achieving well above what they were paying. So far, we've leased, by area, about 67% of the Bombay/Bowring stores. They've been backfilled, and there's good progress on the remainder. And with respect to -- oh, sorry, and by minimum rent, we're already at about 87% of the prior income coming out of Bombay/Bowring. And then with respect to Payless, we're at 69% of the space and about 92% -- a little over 92% of the revenue. And again, great leads on the remaining space. So as you can see, the leasing team has made significant progress and continues to. And I think that story will be wrapped up by the middle to end of this year.

[Sam Damiani, Analyst]

That's great. And maybe one last question. How is it going with The Well in terms of the retail leasing?

[Jonathan Gitlin, President & COO]

It's going very well. No pun intended. I can't help but use that line way too often. I mean at this point, we're still a couple of years, at least a couple of years away from an opening. And so this really is the year, 2020, where we're going to see a lot of sort of finalized deals and a lot more traction on the back of some of those finalized deals. And so we're in deep discussions with many tenants, and we've already completed a few deals. But I think by the middle to end of this year, there will be some more thorough and very impressive updates in that regard.

[Operator]

And our next question comes from the line of Dean Wilkinson of CIBC.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Ed, just going back to your comment, which I think most people agree with on the balance sheet being understated. And then just looking at the capital structure, you've got sort of debt to adjusted EBITDA at 8x, but if you back out the development costs, 6, 6.5. So if you normalize the EBITDA that you would expect from those development costs, would we be looking at, perhaps, like a sub 6x? And then when you're looking at your debt to gross book value or debt to total assets, perhaps something in the low 30% range?

[Edward Sonshine, CEO & Trustee]

Well, that is a future that, quite frankly, we're striving to. Like [ a lot of people ] say, "Oh, hey, you got -- RioCan has got a great balance sheet." And my answer is always, "We want it to be a lot better." And we want to ultimately be able to compare ourselves to our American peers rather than our Canadian, which, at the risk of sounding really snotty, I don't think we actually have any in Canada. But -- so we have not done this tailed work that you suggested, it's actually an enormous task and we do, do 5-year projections. But as you can imagine, there's an awful lot of moving parts here in those things. And what everyone -- can't remember which famous British Prime Minister said it, but his comment was, things happen. And they do, things happen. So these long-term projections are very, very difficult to take a lot of comfort and meaning from. But having said that, the kind of numbers you're mentioning is what we are ultimately, and it will take a few years, striving to become.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

And then when you look at sort of that percentage of PUD on the balance sheet then, I guess, sort of where I'm getting to is it looks like there's a runway to materially increase that? And you actually won't be de facto taking on more leverage. In the absolute sense, you will, but on the stabilization of those developments, that -- we could see a material increase in the PUD without the requirement of any additional capital coming in a leverage.

[Edward Sonshine, CEO & Trustee]

I think that's correct in some parts. I don't think, at least in the short-term over the next couple of years, you will see a material increase in PUD because things are[Audio Gap]as we recognize the value of these completed developments will go down as a percentage of our assets. That's the plan.Are we out?

[Operator]

We do have one question left. Your next question comes from the line of Johann Rodrigues of Raymond James.

[Johann Rodrigues, Equity Research Analyst]

Most of my questions have been answered. Just a couple. One, in terms of zoning, are you -- is the expectation that you get 100% of what's submitted or are you grossing up and applying for a bit more with the expectation that you get 6.5%?

[Edward Sonshine, CEO & Trustee]

I don't know what you mean by the 6.5, but basically...

[Johann Rodrigues, Equity Research Analyst]

Sorry, the zoning -- the applications that have been submitted?

[Edward Sonshine, CEO & Trustee]

Oh. I think by and large, we are not sort of your typical private developer. We approach things where we have many community and political consultations before we ever put together a final zoning plan. So that by the time it is actually submitted we're pretty comfortable that what we are asking for within, I'll say, 5% at tops, will be what we get. And I think a pretty good example of that is Eglinton and Laird, which we've been in the process of community consultations, meeting with actually 2 successive councilors because with the change in writing boundaries that occurred in 2000 -- I guess, in '18, we inherited a different councilor. So there's been much, much consultation also very much at the staff level. And I think we've always talked about $1.4 million to $1.5 million. That's sort of what we ask for, and that's what we're ending up. So by and large, we expect to get what we ask for because of that factor that it's maybe a little different than the way other people do things.

[Johann Rodrigues, Equity Research Analyst]

Okay. And is there an expectation for asset sales this year?

[Edward Sonshine, CEO & Trustee]

I think you're always going to see some asset sales from RioCan. It's going to be much more opportunistic this year. We are under no self-imposed numbers anymore. We achieved the milestones that we set out to just over 2 years ago, 2.5 years ago, to achieve, i.e., over 90% of our revenue from the 6 major markets, and over 50% -- actually 52.4% we're at from the GTA. So we don't feel the necessity to do any particular asset sales. So having said that, I have no doubt that we will do some asset sales as the opportunity arises and people seek out what we own.

[Operator]

And there are no further questions at this time. I will turn the call back to Mr. Sonshine for closing remarks.

[Edward Sonshine, CEO & Trustee]

And thank you very much. And somehow, everything is working out perfectly like it seems to in our zoning programs. It's 11:00 am. Thank you very much for calling in. And if we don't talk to you sooner, we'll talk to you in 3 months. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.