H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust 2022 Third Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, or predictions, and the remarks that follow may contain forelooking information, which reflect the current expectations of management regarding future events and performance. and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risk and uncertainties, and actual results could differ materially from the statements in the forward-looking information. In discussing H&R's financial and operating performance and in responding to your questions, We may reference certain financial measures which do not have meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles 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 income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability. H&R's management uses these measures to assess the REIT's underlying performance and provides these additional measures so the investor can do the same. Additional information about the material factors assumptions, risks, and uncertainties that could cause actual results to differ materially from the statements in the informed looking information, and the material factors or assumptions that may have been applied in making such statements, together with details on H&R's use of non-GAAP financial measures are described in more detail in H&R's public filings, which can be found on H&R's website and at www.cedar.com. I would now like to introduce Mr. Tom Ofstetter, Chief Executive Officer of H&R Reef. Please go ahead, Mr. Ofstetter.

Good morning, everyone. And I'd like to thank you for joining us today to discuss our third quarter financial and operating results. With me on the call are Philippe Point, President, and Larry Frum, our Chief Financial Officer. Year-to-date, our teams have been executing against our repositioning plan, a plan that we laid out to the investing community just over a year ago today. Since October 27, 2021, we have made great progress and are moving towards our desired outcome of becoming a streamlined, growth-oriented REIT. Already, our company looks very different than it did over a year ago, as is evident by our asset composition, balance sheet, and same-property net operating income growth. In the last year and a half, we have moved over $5 billion of lower-growth office and retail properties and reallocated that capital into higher-growth Sunbelt and Gateway City Residential, alongside buying back our own units at a significant discount to NAV. Our year-to-date results and performance highlight the quality of our properties and the embedded growth that we are surfacing as a result of this transformation. We are continuing our progress with dispositions announced to date, furthering our portfolio simplification strategy. Capital allocation remains our top priority as we drive our plan forward and where our focus remains. Year to date, we have recycled capital out of $455 million of office, retail, and other non-core asset sales, reallocating that capital to the repurchase and cancellation of almost $300 million worth of our units, or to 22.9 million units at a 42 discount to our NAV. Our NCIB has been very accretive to the holders creating 72 cents in NAV per unit. In August, we completed the sale of four office properties and retail properties, totaling $167.8 million. And after quarter end, we sold an additional three properties, totaling $49 million, comprised of two automotive-tenanted retail properties in Arizona, at a weighted average cap rate of 5.8%, and a vacant single-tenanted office property in Burlington, Ontario, for $26 million. These sales are in line with our RFS values, providing further support to our net asset value and aligning to our positioning plan. And lastly, is the 9.1% distribution increase that we announced yesterday, supported by our very strong year-to-date performance and our positive outlook for the future. This increases the monthly distribution to $0.05 per unit, commencing in January 2023. With today's strong quarterly results, we are on our way to creating a simplified, growth-oriented company that will first surface significant value to our unit holders. And with that, I will turn it over to Philippe.

Thank you. Good morning, everyone. I'm happy to be on this call to discuss our Q3 updates and to go over our quarterly highlights. But before I do, I'd like to pause for a moment and highlight some of the recent enhancements that have been made at the H&R Board level and other ESG accomplishments. In accordance with H&R's policies governing board tenure, four new independent trustees were elected in 2021 upon the retirement of two members. Their collective expertise, combined with the existing trustees, has created a well-diversified, independent, and experienced board, which should enhance investor confidence and governance sentiment. Additionally, women currently represent 38% of our board, marking progress on the board's diversity commitments, and achieving the Canada club's aim for better gender balance. The majority independent board and H&R management team are fully committed to continuing to enhance corporate governance and to increase unit holder value. Another material ESG step we made this year was participating in a Gresby real estate assessment, which is an investor-driven global ESG benchmark and reporting framework that enables us to understand the performance against peers and to provide investors with the information they require to make thoughtful investment decisions. In addition to our earnings announcement last night, we also released our annual sustainability report that outlined some of our recent progress. We're also proud to report that 50% of our executives are women, and for the third consecutive year, H&R replaced on the Globe and Mail's Women Lead Year benchmark of executive gender diversity. We understand that health and safety, employment engagement, diversity, equity, and inclusion, And engaging with our tenants and communities are critical for our long-term success as an industry-leading real estate organization. And to that end, we look forward to updating our stakeholders of that progress. On to the LandTower portfolio. The U.S. Sunbelt and Gateway markets continue to experience strong supply and demand fundamentals for multifamily rentals. An additional tailwind that we expect to accelerate those fundamentals is the increase in mortgage rates. With a rate of over 7 percent for the most typical mortgage, the rent versus buy decision will likely push additional households into the renter space. For context, our same-store tenant move-outs due to buying a home decreased from approximately 20% in the second quarter to 12% in the third quarter, a trend that we anticipate will continue. Additionally, this year's same-store Q3 traffic and completed applications are actually higher than the third quarter of last year. Landtower's Sunbelt portfolio has continued to register double-digit renewals and new lease tradeouts as a blender rate for new leases and renewals equated over 15 percent in the third quarter. Therefore, while the rental rate growth acceleration may abate in the coming quarters, our top line growth is still substantially outpacing expense growth and also supporting existing fair market valuations despite potential future increases in cap rates. Moving on to Jackson Park, positive trends in the amount of traffic, renewal rates, and number of leases executed have continued through the third quarter. At the end of the third quarter, Jackson Park's occupancy was 99.5%, reflecting yet another quarter of tremendous operating results from the asset. On the development front, Land Tower West Love in Dallas, Texas is on schedule and on budget. The second level of concrete pours on our podium and parking garage are current this week. Also in Dallas, Texas, Land Tower Midtown is on schedule and on budget with site work completed and the tower crane being erected by next week. We expect limited, if any, variance in the overall budget based on how we are tracking. West Love's hard costs are 99% bought out by our general contractor, while Midtown is 90% bought out with our GMP contracts. While we have elected to postpone the construction starts of some of our development pipeline, we have continued progressing through the different phases of design, drawing, and permitting, as our intent is to be fully prepared to capitalize our development pipeline based on our conviction at the appropriate time. On the JV development front in Hercules, California, phase two called the Grand at Bayfront is 64 percent leased. In Shoreline Gateway, Long Beach's tallest residential tower, 35 stories, has seen stronger rent of demand, is now 80 percent leased, with rents that are matching pro forma. Lastly, before I hand it over to Larry, I want to acknowledge the Landtower Residentials won a National Marketing and Advertising Award presented by the Multifamily Executive Magazine, which is widely recognized as one of the most influential multifamily publications in the U.S. Congratulations are in order to the Landtower operations team for a notable achievement led by COO Emily Watson and President of Property Management Colleen Garan in notching yet another mark on her path to maintaining a best-in-class operating platform. And with that, I will pass along the conversation to Larry.

Thank you, Philippe, and good morning, everyone. As Tom mentioned, we are excited to report our results this quarter, which are reflecting our simplified portfolio strategy and alignment to higher growth. That growth is clear from our year-to-date results of same-property net operating income on a cash basis, which grew 16.6% compared with the first nine months of 2021. In addition to our capital allocation initiatives, our portfolio produced strong third quarter results with total same property net operating income on a cash basis increasing by 11.5% compared with the same quarter last year. Our residential division led the way with a 36.5% increase primarily driven by an increase in occupancy at Jackson Park in New York. Excluding Jackson Park, LandTower's growth in U.S. dollars was 11.2% for the quarter. As Philippe has already discussed, LandTower Residential continues to see significant demand for our Sunbelt residential properties, leading to substantial rent increases on new leases and renewals. Bain Property, NOI on a cash basis from office properties, increased 5.2% compared to Q3 2021. primarily due to a 2.3 million lease termination fee. Excluding the lease termination fee, same property NOI growth was 0.6%. Our office properties are located in strong urban centers with a weighted average lease term of 7.7 years and lease to strong creditworthy tenants. Only 5.3% of our total office square footage is expiring between now and the end of 2023. 14,000 square feet expired during the remainder of 2022, and 349,000 square feet expired in 2023. Retail same property net operating income on a cash basis increased by 4.2% compared to Q3 2021, primarily driven by the strengthening of the U.S. dollar. Industrial same property NOI on a cash basis increased by 6.9% compared to Q3 2021, driven by increased occupancy and contractual rental escalations. For Q3 2022, FFO was 30.2 cents per unit, and AFFO was 25.5 cents per unit. Excluding the lease termination fees of $2.3 million, FFO would have been 29.4 cents per unit, and AFFO would have been 24.7 cents per unit. Based on our distributions of 13.7 cents per unit for the quarter, our AFFO payout ratio was a very healthy 53.7%. Based on our announced distribution increase to 60 cents per annum set to begin in 2023, Our FFO payout ratio for the quarter would have been 50 percent if the distribution increase had already been in effect, and the AFFO payout ratio would have been 59 percent. I'd like to mention that during the quarter, we received 85.7 million U.S. dollars as repayments of a mortgage receivable. As a result, interest income in Q3 decreased by $650,000 from Q2 2022, and we were expecting a further decrease of $1.1 million in Q4. Dense of total assets at quarter end was 43.6% with total liquidity of $712 million. Our unencumbered asset pool continued to grow and is currently $5 billion, up from $4.6 billion at Q2. Notwithstanding our fair value adjustments, which resulted in our real estate assets decreasing by 307 million. Our net asset value per unit grew from $22.14 at June 30th, 2022 to $22.58 at September 30th, 2022, primarily due to the strengthening of the U.S. dollar and the purchase and cancellation of 22.9 million units under our normal cost issuer bid year-to-date. In summary, we are very pleased with our Q3 results. Our high-quality portfolio of properties are well-positioned to produce strong operating results going forward. And with that, I'd like to turn the call back to Salit.

Thank you, Larry. In closing, I want to thank our investors for their time, patience, and feedback. We've spent a lot of time with the investment community, communicating our strategy and plan, and listening to investor feedback. Despite the persistent volatility in the markets, our strategy is resonating. and investors are positive on our plan, our execution to date, and the direction in which we are heading. Recognizing that there is still significant important work ahead of us, we are well on our way to creating a simplified, growth-oriented company that will serve as significant value for our shareholders. We'd now be pleased to answer any questions from call participants. Operator, please open the line for questions.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Sam Demiani from TD Securities. Please go ahead.

Thank you and good morning, everyone. Congratulations on a good quarter in the distribution bump. Maybe just to clarify the background to the distribution increase and particularly the special actually, was that driven by the transaction activity in 2022 specifically, or is this something from a tax perspective the REIT will be facing pressure on in future years?

Good morning, Sam. The special distribution, yes, was a result of the capital dispositions that we've done during the year and the results of having to distribute it to shareholders. The increase for next year was more a result of our operating results to date and a low payout brochure which we're targeting of around 50% on an FFO basis.

Okay, good. That's good. And maybe another one for you, Larry, just on the debt refinancing activity today and what you see for the remainder of 22 and into next year, what sort of coupons are you seeing in the marketplace between commercial property and apartments as we go forward over the next several quarters?

So for commercial properties, we're seeing probably spreads of between 190 to 220 beats over a five-year mortgage renewal. So that kind of would give you guidelines of what we currently can finance at. On the apartments, we haven't had one come up for a while. I don't really know on the apartments in the U.S. Do you have any?

Sure, if we did, depending on LTV, it would be somewhere in the ballpark of 150 to 200 base points above whichever index was ultimately used.

And does the REIT have any capacity to source debt on your land tower assets over the next year or so? Or is most of the refinancing going to be happening at the corporate or commercial property level?

I think it has its capacity. Whether it has its willingness, I think we're going to be judicious in seeking the best cost of capital. But we certainly have the capacity to do so in the U.S.

Okay. Okay. And last one for me, if only if you could just comment on transaction activity in the marketplace supporting the change in valuations that you put through in the third quarter, generally and specifically on the industrial and residential side.

Well, I can speak on the multifamily. The problem that we're having, including our US peers, is the lack of visibility in transactions. And so, obviously, The Treasury has increased, as of late, decreased substantially, but still is elevated. I think it's anyone's guess. It's safe to say that cap rates have certainly expanded. We thought it would be prudent and conservative to expand the cap rate that we use for a fair market value in the U.S. So frankly, every one of us is in price discovery mode as it stands right there. Unless you have to sell or you have to buy, you're not transacting, which makes visibility tremendously difficult.

Is that generally or specific to the apartment side of the business?

No, that comment was for the U.S. multifamily, but I would suggest it's probably fair to say that it's a comment that is fair for just about any asset class right now.

Okay, thank you. I'll turn it back.

Your next question comes from Matt Karnak from National Bank Financial. Please go ahead.

Good morning, guys. Just a few for Larry to start with regards to the Caledon development properties. The leases don't commence until later this year, but can you tell us, is there any income in the current results? And presumably the capitalized interest has come off.

Good morning, Matt. Yes, for the properties that we moved into income-producing properties, they really came in at the end of the quarter. So there was no income, no NOI associated with them in the quarter. And the capitalization of interest had ceased in the quarter. I'm pretty sure that interest capitalized had just stopped for Q3.

OK. No, that's fair enough. And then on the Montreal transaction, With regards to that lease termination in four years, is that a property that you would see potentially developing yourself or is that something that you'll ultimately go through the process, look at the city and their master plan and then sell it when that termination comes to fruition or maybe sometime in advance?

I think we'll go through the process, which will take quite a number of years first. We'll get the rezoning and go through that process. We've got until 2026 before Bell leaves that property. So we've got quite a way off to decide.

Yeah, I think, Matt, the important part in that transaction is it provides us additional flexibility and optionality at some point in the future. And so at the time when we obtain the zoning, we'll make a risk assessment depending on where we stand, where the capital markets stand, where the potential for redevelopment is, and make a decision then.

Yeah, but more specifically, that was not really the accurate answers. The accurate answer is it's in zoning. It will be completed by the end of 2024. It's going to be rezoned for 850 townhouses and 1.1 million square feet of high-rise, six to eight stories. The question is, are we going to be building it? And that we probably will not, but we don't have to decide that until it's zoned. The combination of the lease termination and the value that we're expecting on the rezoning using a very conservative value of $25 a square foot will achieve a higher value than the asset is worth prior to doing that transaction. And that's why that transaction was done.

Fair enough. And presumably you can sell it before and the 70 million termination income in 2026 would accrue to the buyer at the time of the cancellation.

No, no, I wouldn't say that. I wouldn't say presumably, but we'll see.

Okay. And then with regards to the removal of Bayside and Tampa, and then maybe a broader comment with regards to your appetite to continue to develop U.S. multifamily in the current environment, can you give us a sense as to why that specific asset was removed? And then, yeah, just broader sense on... the prospects for continuing the development of U.S. Sunbelt multifamily assets?

Yeah, there's kind of a two-part answer. The first answer is, frankly, we don't have tremendous visibility as to what 2023 has in store for us. And so out of an abundance of precaution, we found it best to pause Bayside and get a better read on where the market is, more frankly, where the financing markets are, where cap rates are, and more importantly, where the development is. delta would be between the development yield and a stabilized product would be. And so we're still very bullish on the property. As a matter of fact, we're very bullish on our entire pipeline. But again, one must exercise some caution in the environment in which we find ourselves. The other, frankly, the reason why we pause it is we found and we firmly believe that there is no more compelling investment than buying our own shares. And at this point in time, moving forward, we've been, if not the most active, the second most, but I think we're the most active NCIB participant in Canada in the REIT space. And so for us, it really comes down to ultimately an allocation of capital. Sorry, Matt. Yeah, go ahead.

No, that's perfect. I guess just as a follow-up, I would presume you guys are not the only ones potentially putting new development on pause or reassessing the markets. Can you give us a sense as to how that may play out with regards to the fundamentals for your existing assets a few years out if development doesn't go ahead in the broader market?

It's a great question. This marks my 30th call at H&R REITs, and I would tell you that I've never been this bullish on our space, namely because I think supply is about to fall off a cliff. Not only us, but the publicly traded REITs, the private syndicates, or rather the private developers, the U.S., merchant developers, everyone has stopped any developments, or generally speaking, any developments that have not been ongoing. And so the 23 deliveries and 24 deliveries are somewhat baked because it takes two and a half years to kind of get going. But I would submit that on the second half of 24 and into 25, this persists and remains. We're going to see the U.S. market, specifically the U.S. multifamily market, which is already undersupplied, being that much more dramatically undersupplied, which leads us to believe that we are in for another healthy runway of increase in rental growth.

That makes sense. And a last one for me. I guess it's maybe for you as well as Larry. But on Jackson Park, I didn't parse the exact numbers, but I'm just looking at the equity accounted figures. It looks like there's a sequential increase in rent, but costs are up. Is there still some of that kind of higher transaction expense in this quarter with regards to NOI from Jackson Park? So should we expect kind of Q4 to get back to prior kind of peak levels or maybe a bit higher from an NOI standpoint?

Yeah, because of the large turnover in Q3, we had a large turnover at the property and large renewal. So there was higher commissions and... incentives for leasing. So yeah, we are expecting, or I'm expecting, Q4 to be higher than Q3 was in terms of NOI going forward.

Yeah, and certainly from a year-over-year basis, 2023 should prove to be a way healthier or significantly healthier NOI year than 2022. Just for additional context, the property is no longer offering any marketing incentives to tenants. So no rental inducements or concessions. which were a significant expense in 2022 as we were re-tenanting the property. Okay.

So Q4 onwards, it's kind of back to a normal asset from a sequential standpoint. Year over year, it'll still be – well, year over year, I think it'll actually be back to normal as well. That's right. Okay. Fair enough. Thanks, guys.

Your next question comes from Jenny Moff from BMO Capital Markets. Please go ahead.

Thank you. Good morning. I think earlier in the year you talked about development spend of about $200 million for 2023 or so. I'm wondering if you could provide an update on what the – sorry, 2020 – yeah, sorry, 2023. If you could provide an update on that outlook and maybe venture an estimate for 2024 as well. Okay.

Good morning, Jenny. Yeah, that $250 million that we had indicated in the past has decreased as we put on hold ASOD. I believe we have in our disclosure what we're expecting the balance to be, and I believe the balance for 2023 is about $117 million U.S.

Sorry, Jenny, you said 2024, but you meant 23, right?

Well, an update on 23 and 24 would be great, too.

So I can give you on 23, we're expecting $117 million spend on our U.S. developments for 2020. We're not sure yet what 24 is going to hold, but that is what we're expecting for 23.

Yeah, I think it would be too premature to give a figure for 24 at this point.

So based on the commentary, though, directionally, perhaps a little bit less than 23 might be a look at this point.

Now, but, Jenny, you have the industrial buildings, which we have two under construction. We have another property in Mississauga, which we may or may not commence in 23. What you're really looking at in your numbers is, therefore, the commitments that we've made that can take us to 23, and what you're speculating on and we're speculating on is what are the new commitments that we can't answer at this point in time. So we can only answer that contractually... We have the two industrials, we have the two residentials, and we probably have more than likely the Mississauga industrials going forward. Beyond that, we can't give you any numbers, any commitments, because it's too far into the future. We'll see where the world is at that point in time, where our stock is trading, what the best use of our funds are.

Okay, okay, that's fair. On the industrial leasing that you're doing, particularly on the Meadowvale, can you comment on what kind of annual rent steps you're achieving in the current market condition?

Right now, rental rates are $17.50 to $19 a square foot. Trying to achieve 4%, have achieved 4% on one, and the other was somewhere between 3% and 4% on an annual basis.

And these are 10-year deals?

These are all 10-year deals.

10-year deals. Okay, great. That's great to hear. And then, turning to dispositions, I'm just wondering if you could comment on what you're seeing in the marketplace in terms of transaction volume. Clearly there's been some slowing down, but maybe you can give us more color on what asset classes, what markets you're seeing activity in, and then what you're expecting for the next, let's say, 12, 24 months on the disposition volume front.

So we're, specific to H&R, as far as disposition goes, we're still attempting to increase stick to our plan of trading out of office and retail. It really depends on the market strength, and at this point in time, the market is very weak. All the office deals that are happening are structured deals with VTBs. Prices are all over the map, and a lot of the deals are not happening. The deals that are on the market right now, there's been an awful lot of drop. So going into 2023, we have no visibility as to the strength of the market. It's going to get better or not in the office class. Industrial has weakened as well. There are far less industrial trades happening. We don't plan to have any dispositions in the industrial front. Retail, again, has weakened, but not to the same extent as office. But retail, for the most part, has weakened. The REITs are not acquiring. The pension funds insurance companies are not acquiring retail and office funds. And the industrials, I think, are more specific, whether it's value-add or not. But the core industrials are also struggling to achieve the pricing they achieved around a year ago. So it's kind of sloppy out there, and a lot's going to be predicated on where interest rates lie. because right now interest rates stay at the current level, let's call it 6% in Canada, even higher in the United States. It's underwater as far as where cap rates are. So not a great lot of visibility of what the real pricing is going to look like next year. Again, predicated on if we're going to enter a recession and where interest rates are going to lie.

Yeah, Jenny, if I may, if I can answer the question differently, I would just say we absolutely remain committed to the plan. What will change due to the volatility and where we find ourselves in the capital markets is the sequencing and the dispositions may be a little bit choppier than we anticipated. However, there's absolutely no wavering away from the plan. It's just the sequencing may change as a result of that.

Okay, you're kind of half answered my next question. So you're committed to the plan. Is it fair to say that you would have more wiggle room on timing and push out some of the dispositions later on in your five-year plan versus compromising on pricing. Is that a fair comment?

Yeah, I think when we put the plan and we said five years, it could take less, certainly won't take more. What we want to impress upon everyone who's on this call is we're a large REIT. We're in unprecedented times, and we want to be mindful of unit holder value. Nothing is for sale. We're not pressed for sale. We're committed to simplifying this REIT, not at any cost. And so I believe our unit holders want us to be careful, mindful of their investment, but also to be opportunistic when the opportunity presents itself. And I think I speak for Tom, Larry, and I when I say right now, I don't think the opportunity is presenting itself, but we're very attentive to anything and everything. And we hope to have some news on upcoming dispositions at some point in the future.

Okay, great. Thank you very much. I'll turn it back.

Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Jeremy Chan from RBC Capital Markets. Please go ahead.

Thanks. Good morning. This is a question for Larry. Just on the debt refinancing, you have a debenture coming due in 2023, I believe. How are you thinking about that piece of paper?

Good morning, Jimmy. Yes, you're right, we have a debenture of $250 million coming June in 2023. We actually have talks with our bankers to give us term loans, so the unsecured term loans to replace that debenture. Interest rates will be around, all in around 5.5%, but that's still subject to fluctuations going forward between now and when we close.

Okay, got it. And then the interest income comment, you made a 1.1 million, that's for the quarter decline, not an annualized decline, right, from Q3?

Sorry, I didn't share that.

You said in Q4 the interest income will decline by 1.1 million?

Yes, I did. That is correct. It will decline further by 1.1 million. For the quarter. In the quarter. Okay, got it.

And then just lastly on Land Tower, so maybe two questions there. What does the loss to lease look like currently? And then in light of your comment about the cost of debt, as well as your bullishness on the development pipeline still, how are you thinking about the development hurdle rate today for you to push through on more developments here?

Hi, Jimmy. I'll answer the second part of your question first. I think the hurdle rate in development, it kind of ties into my earlier comment, which is if we, as an industry, have a lack of visibility of stabilized cap rates, it becomes very difficult to answer the question on hurdle rates for development yields. My bullishness stems on the fact that we have bought what I believe to be A-plus sites at below market pricing, which allows us to sit on this pipeline for a few years. Kudos to our team in Dallas. for those acquisitions. But in terms of what yield we would have to achieve for us to be developing those assets internally, I don't have the visibility, nor do I think anyone has currently, which is probably why there's been an almost complete arresting of all development activity that hasn't begun as an industry. As you're asking for the loss to lease or the earn in, Our earning is similar to our US peers in the ballpark of 5% to 7%. I anticipate, as it relates to us, we're in that ballpark as well.

Okay, thanks. And sorry, just one more. On the Canadian industrial portfolio, I think the in-place rent sits about $8. And I think I heard you're doing these deals in the high teens. Would it be fair to say that the $8 on the market rent equivalent would be in the mid to high teens?

As a generalization, but it's obviously specific to each individual asset.

On a blended basis, where would you put the market rent for the portfolio?

You're asking a question that goes across Canada, interprovincial with different markets. Let's be more specific. Most of our assets are located in Toronto, in GTA Toronto. There you are talking rents as high as $19.50, but let's say for the older, older properties, $15 to a max of $19, that's the range. You are seeing heavy, steady 3% to 4% annual growth. In Vancouver, BC, you're going to see even higher numbers, but we don't have a lot of product there. In Calgary, you're probably going to see, I would say, where we see 19 over here, they probably see 15. Where we see 15, they probably see 11. So probably $4 to $5 difference. In the Alberta market in eastern Canada, you have a whole bunch of older products. So it's really all over the map. Hard to give you an answer on a national basis, but really specific to where your properties are since ours are so heavily weighted. To Ontario, we're going to see a higher level of rental rates than you will see for the average across Canada.

Suffice it to say, Jimmy, that now you're seeing why we're so confident in our NAV and excited about our NCID activity and why we think that what we're trading now is a significant discount to where we think the property values are. Right.

Okay. Thank you.

Your next question comes from Sam Damiani from TD Securities. Please go ahead.

Thank you, just one additional follow-up. On the industrial development program, the REIT's been quite successful, quickly putting up buildings, leasing them at high rents and earning attractive development yields and clipping sizable gains. Going forward, how do you look at the pipeline on balance sheet for land that you could continue to develop in that regard? Are you happy with it or do you see the need to add the opportunity to see add more land to the balance sheet, and is it a good time to do that today?

That's a very good question, because the real answer is we're adjusting now in the industrial world for the recession, for the higher interest rates. So land values are coming off, have come off, and will continue to come off in 2023. And rental rates, if you look across the national average, including the United States, the expectation is that rental rates will start easing off there as well, especially with the big users such as Amazon, not only ceasing to absorb more space, but actually giving back more space into the market. It's not a good time to buy land at this point in time. I think your, let's call it $3.5 million an acre is probably going to trend down a bit. I think the pension funds are loaded up with land. H&R's balance sheet would allow us to buy the land, but buying land at today's market value probably is not the right thing to do. So 2023, same as residential, I think we basically build out what we have, and we take a pause to reanalyze where we'll be going forward with further commitments. I wouldn't buy land today for the 2024 launch.

Okay, that's helpful. And sorry, how much more GLA could you commence construction on your existing lands?

It's just bits and pieces on the, except for the Mayfield piece, which we haven't made a commitment to, whether we're going to be selling it to the province or not, which is 100 acres. We have just bits and pieces here. There are nothing of any huge consequence around half a million square feet. It's the Mississauga property that we'll expect to launch later on in 2023. Okay.

Thank you.

presenters. There are no further questions at this time. Please proceed.

Thank you everyone for joining us today. We look forward to continuing our update or to update you rather on our progress over the upcoming quarters. Thank you and goodbye.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.