H&R Real Estate Investment Trust

Good morning and welcome to H&R Real Estate Investment Trust 2022 Fourth Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, and projections in the remarks that follow may contain forward-looking 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 risks and uncertainty. An actual result could differ materially from the statements and 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 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 aid in assessing the REIT's underlining performance and provides the additional measures so that investors 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 forward-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 www.cedar.com. I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstetter.

Good morning, everyone. I'd like to thank you for joining us today to discuss H&R's fourth quarter financial and operating results. With me on the call are Philippe LaPointe, President, Larry Froome, our CFO, and Matt Kingston, Executive VP, Development and Construction. 2022 was a very important year for us. Despite the volatility in the public markets, our teams accomplished many substantial milestones aligned to our simplification strategy through capital recycling, stock buybacks, a 9.1% distribution increase, and a new focus on our investment communication program. Through these actions, we have enhanced our geographical exposure, asset mix, and tenant diversification, driving strong operating and financial results, while also strengthening relationships with the investment community. In 2022, we sold over $463 million in non-core properties, reallocating that capital to buyback stock through our NCIB. During the year, we bought back and canceled almost $300 million of our units, or 22.9 million units, at a 39% discount to our net asset value, creating 63% per unit in NAV increase. On the development front, our $370 million of industrial and U.S. Sunbelt residential properties are progressing well and embedded value and growth to be realized over the next two years. Given the current macroeconomic environment and keeping with our prudent capital location strategy, we've taken a conservative approach and have paused the majority of our development projects until we have more visibility into future stability. As a result of the heavy lifting our teams have completed during the year to streamline and simplify this company, our 2022 financial and operating results are very strong. In 2023, we plan to continue to recycle out of the non-core office and retail properties and offer a great start with anticipated $277 million sale of 160 Elgin Street in downtown Ottawa, which is expected to close in April of this year. The disposition program will continue to carefully synchronize property sales to match our capital funding requirements. With today's strong point of results, we are on our way to creating a simplified growth narrative company that will serve a significant value for our unit holders. And with that, I'll turn it over to Philippe.

Thank you, and good morning, everyone. I'm happy to be on this call to discuss our Q4 updates and to go over our quarterly highlights. But before I do, I'd like to take a moment to specifically highlight the progress to date of our strategic repositioning plan released in October of 2021. Since announcing our strategic plan, H&R has sold off or spun off over $4.2 billion worth of office and retail, including the primary spinoff, and over $1.8 billion excluding the spinoff, all figures in Canadian dollars. This includes 21 office and retail assets encompassing over 4.2 million square feet of space when excluding the primary spinoff. Our office portfolio garners a lot of attention as a legacy asset class at H&R Reads, and thus I'd like to take a moment to help unpack the remaining office portfolio. From our perspective, H&R's office portfolio consists of three segments totaling approximately $3 billion Canadian. The U.S. office segment almost exclusively consists of two high-rises in New York City and Houston, representing approximately $1.3 billion, or approximately 42% of the $3 billion office portfolio. The second office segment is Canadian Office, currently undergoing rezoning, representing $750 million using current office cap rates, which will be inapplicable once the rezoning is complete as the value created will push the entire property to be mostly valued on a developable square foot basis. And lastly, our Canadian Office segment not subject to rezoning represents the remaining $1 billion. Of this $1 billion, 160 Elegant represents 27% of that office segment's fair value and is the only office property located in Ottawa which is not considered a core market for H&R. On a square foot basis, 160 Elgin represents nearly 1 million square feet out of 3.2 million square feet. Or said differently, 160 Elgin represents approximately 30% on a square footage basis of our Canadian office not currently being rezoned. Furthermore, 160 Elgin's sale price of $277 million is in line with our IFRS value further underscoring our conviction in our office IFRS values. It is important to remind that this transaction has not closed and while we cannot share any more details about the transaction, we look forward to disclosing relevant details post-closing. However, we hope that this potential transaction further demonstrates to our unit holders of our tireless and steadfast commitment to simplifying our company despite the challenges and headwinds that the market is currently experiencing. Now moving on to Land Power Residential's results, when excluding Jackson Park's same-asset property operating income from our portfolio in U.S. dollars, increased by 11.8% and 13.6% respectively for the three months ending on December 31, 2022, and for the full year 2022 compared to the respective 21 periods. When including Jackson Park's same-asset property operating income from our portfolio in U.S. dollars, increased by 6.9%, and 25.7%, respectively, for the three months ending on December 31, 2022, and for the full year 22 compared to the respective 21 periods. In recent reports, we have read headlines describing the deceleration of rents in many of the U.S. Sunbelt markets. While we are no longer seeing 25% to 35% rental rate increases, we are still experiencing healthy and above historical rental rate trade-offs. For context, our trade-outs in rental rates in the fourth quarter was nearly 11% when excluding Jackson Park. We do expect this to revert to more sustainable and historical levels in 2023. However, it is important to remember how healthy historical rental rate growth has been in our Sunbelt markets. And secondly, the fact that our rent-to-income levels still have been increased by any meaningful measure since the beginning of COVID, allowing for future headroom and rental growth. Moving on to Jackson Park, at the end of the fourth quarter, Jackson Park's occupancy was nearly 99%. Occupied an experience of retention rate of over 50% for the fourth quarter, which reflects another quarter of continued strength in demand fundamentals for the Jackson Park sub-market. On the development front, Lantara West Love in Dallas, Texas is on schedule and on budget and started framing work this quarter. Also in Dallas, Texas, Lantara Midtown is on schedule and on budget, with the first building foundation floor expected at the end of this month. West Love's hard costs are 99% bought out, while Midtown's are approximately 90% bought out, and we have entered into guaranteed maximum price contracts with very reputable general contractors. Based on this, we expect limited variance in our hard cost budgets and timeline. Lastly, a comment on disclosures. As LandTower and the multifamily division of H&R continues on its path to becoming the majority asset class of the REIT, we wanted to provide more visibility into the platform. And to that end, we have expanded the level of disclosures, which can be found on our investor deck posted online as of yesterday. For 2022 year-end reporting, we are providing additional visibility into our operating fundamentals, such as occupancy, average monthly rent, lease trade-outs, and retention rates on an individual market basis and compared to the respective metrics in 2021. 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. Our strategy of increasing exposure to residential and industrial properties is bearing fruit. H&R's same property net operating income on a cash basis in 2022 grew by 14.9% compared with the year ended December 31st, 2021. Q4 2022's growth in the same quarter last year was 10.9%, breaking the growth down between our segments. Our residential division led the way with a 30.7% increase for the year and a 16% increase for the quarter compared to the respective periods in 2021, primarily driven by an increase in occupancy at Jackson Park in New York and boost growth in rents from our properties in the Sunbelt states. Industrial same property NOI on a cash basis increased by 7.2% for the year and 12.1% for the quarter compared to the respective period in 2021, driven by increased occupancy and rent increases for new and renewing tenants. Our first bank property net operating income on a cash basis increased by 13.3% for the year and 3.8% for the quarter compared to the second period in 2021. Our office properties are in strong urban centres with a weighted average lease term of 7.5 years and leased to strong credit worthy tenants. I would like to point out that only 346,000 square feet of our leases in our office properties expire during 2023, which is approximately 5% of the total square footage in our portfolio. And lastly, retail same-property NOI on a cash basis increased by 5.8% for the year and 18.7% for the quarter compared to the respective years in 2021, primarily driven by the lease-up of River Landing in Miami and the strengthening of the US dollar. For 2023, we are expecting same-property net operating income to grow in the range of 2% to 5%. Q4 2021's FFO was $0.35 per unit. Primaris had contributed $0.10 towards that. Excluding Primaris, FFO on Q4 2021 would have been $0.25 per unit compared to the $0.31 per unit for Q4 2022, a 24% increase. For 2021, FFO was $1.53 per unit. Primaris had contributed 39 cents toward that. Excluding Primaris, FFO in 2021 would have been $1.14 per unit compared to $1.17 per unit for the year end of 2022, a 2.6% increase. Our 2022 FFO payout ratio was a very healthy 50% and our AFFO payout ratio was 60%. For Q4 2022, FFO was 31 cents per unit and AFFO was 22 cents per unit. Our net asset value per unit decreased from $22.58 per unit in September 30th, 2022 to $21.80 at December 31st, 2022, primarily due to Q4 fair value adjustments to our properties, which resulted in our real estate assets decreasing by $187 million. Most of the decrease in value came from our office portfolio, which now has a weighted overall capitalization rate of 6.43%. Debt to total assets at December 31st, 2022 was 44% compared to 46.6% a year ago. At year end, liquidity was in excess of $1 billion. Last month, we borrowed $250 million in allowance of credit to repay the series O senior debentures. The only remaining debt maturing in 2023 are nine mortgages totaling $144.7 million. These nine incumbent assets have a weighted average loans of value of 25% at December 31st. In terms of development spending for 2023, we expect to spend approximately US$140 million on our US development projects and approximately US$65 million on our Canadian development projects. So in summary, we are pleased with our 2022 results and confident that our high quality properties and strong balance sheets will continue producing good results for 2023. And with that, I'll turn the call back to Philippe.

Operator, please move on to questions.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Sam Damiani with TD Securities. Please go ahead.

Thanks, and good morning, everyone. First of all, thanks for the guidance for 23. Just on that same property outlook of 2% to 5%, can you give a breakdown or a sense as to how it's going to look by quarter and by segment?

Good morning, Sam. I don't know if you want to get specific numbers per segment, but maybe I can just share some color that will help you. That growth is going to be driven by our residential division, which we're expecting, call it low teens growth in 2023, followed by our industrial division, which is probably expecting the same kind of growth as we saw in 2022. And then we're expecting our office and retail divisions to probably be pretty much flat. Hopefully that helps, but I don't want to give specific numbers to specific segments.

Okay. And then kind of the unusual things that were driving some tailwinds, frankly, in 2022 on the same property, are those going to be continuing at all into the early part of 23, or is all that pretty much in the past now?

I mean, the first one that comes to mind, Jackson Park, we anticipated that to be somewhat normalized by now. I don't understand. Are you thinking about any particular tailwinds?

Well, just with, I guess, river landing and obviously that free rent that you had too. So just, yeah, there's sort of the three factors that drove someone usually high on the same property last year.

So most of those factors are not going to be there. We're not going to have the same growth in Jackson Park as we had this year. We're not going to have the same, you know, 2021, we had that free rent period on Hess in Houston, so that led to growth in 2022. We're not going to have that. But all in all, we're also expecting good growth from residential, from industrial, and increasing rents on both those divisions that will lead us to that 2% to 5% overall growth that we are expecting in the same effort.

Okay. That's helpful. And just over to the dispositions, obviously great to see another significant office transaction on the block and ready to close. You know, most of the dispositions – thus far have been in the office sector. Just wondering how you see the retail portfolio potentially being a part of the disposition execution in the near term.

There's no urgency. As we said, we're going to be matching our dispositions where we require funds. So if we pull through on the office, we have a little bit of retail that we expect to sell, and then it will be slow and steady. There's no reason to sell preemptively at this point in time, and we'll do that as we acquire funds.

That makes sense. Last one for me is just on capital allocation. With this position expected to close in April, and you've got some development spending, but how do you view that versus hitting the leverage or even unit buybacks? How are you looking at 2023 capital allocation?

That's a good question, Sam. Our first course of action, we'd like to buy back our units, but we want to ensure we do that in a responsible manner. And when I say responsible manner, you know, that's ensuring our balance sheet stays strong and that we have enough liquidity for our needs going forward. So, for example, in 2022, as you know, we bought back almost $300 million of units, but we improved our debt to access to 44%, and we maintained our liquidity. So we'd like to do that, but again, in a responsible manner, and that's really going to depend largely on the amount of dispositions that we are able to achieve in 2023.

But again, our paranoia is, as you'll find, the sector is really on our balance sheet, protecting our balance sheet first and foremost. When we're comfortable, we've protected our balance sheet for 2024, and we'll be loosening up and going back to our NJFB. Very helpful. Thank you very much, and I'll turn it back.

Your next question comes from Mario Sarik with Scotiabank. Please go ahead.

Hi, thank you, and good morning. Just coming back to those two topics, the guidance and then the disposition outlook, what are the primary drivers that comprise the gap in the 2% to 5% range, like that 300 basis points? What are some of the uncertainties that can result, do you think, in that? The lower-end of the range, 2%, versus the higher-end of the range, up 5%.

The different property segments that consist of H&R REITs, I mean, they have four very different growth profiles. And as such, next year, they'll offer different NOI growth percentages. But to be honest, we're also, as you've noticed from previous calls, we're also very, very conservative. And so we've given a conservative range, you know, as best as the visibility has given us.

Yeah, but, Mario, just remember that contractually, the long-term leases in office, ironically, it's reversed. When you have office and industrial long-term leases, that's contractual, and historically it's always been 2%. On a lumpy basis, 10% every five. So that you can actually predict, and as you well know, we have very few lease rolls coming off in office industrials. That's not really the issue. The driver of the unknowns is where you get to month-to-month, which is more residential-oriented, and therefore you need to have some – you need to just know where the economy is going coming off of healthy growth over the past three years of residential, you need to put some type of range in there because you just don't know what 2023 is going to look like. So office is no lease rolls. Office is very steady. Growth is very tempered. That's your 2% level. And anything as is industrial and is retail. In our case, we have – and retail is very solid. So it's really just mostly residential that creates that fluctuation. And you need to have that gap. You just can't predict what the world is going to look like over the course of the next 12 months.

We've seen good strong growth right now in residential and we just hope that continues throughout the year, but we're not sure that's going to flow all the way throughout the whole year.

Got it. So to paraphrase, kind of the 2% to 5% range is really kind of predicated on the uncertainty associated with the U.S. economy in 23? I would say yes. Okay. And then just coming back to Larry, maybe your comment on the growth being good thus far. I appreciated the new disclosure on LandTower in the investor presentation. I think the lease trade-out data was for 22 in total. Can you provide what those numbers were? It doesn't have to be for each market, but can you give us a rough sense of what the new renewal and blended lease spreads were in Q4 for LandTower and how those are looking in January?

Hi, Mary. We want to stick to annual 22 over 21 metrics. This is the first time of us giving guidance for LandTower. Like I said in the speech, and I think I reiterated in some calls, we will look for additional opportunities to add quarter-by-quarter disclosures throughout the year. But as of right now, other than to say somewhat counterintuitively that the renewal rates have been by multiple higher than new leases, I think that's what we're going to limit ourselves to on this call today.

Got it. Okay. And then stepping back, more of a broader question. Heading into 2022, you announced this transformational plan. You've been steadily executing on that since. What would you identify as the key two to three tangible goals that you set for the organization for 2023?

I think, in summary, it's the continuation of our plan. I think we were very meticulous and careful in taking out the plan in October 21. I think today's results, or today's call and yesterday's results, are further evidence of our conviction in that plan. On a relative basis, we had a very strong year last year. We'd like to continue that momentum going into 23. All the while, despite the fact that we may be in turbulent times, still creating a tremendous amount of value both in Canada through our rezonings with Matt Kingston and our development pipeline, both on the two properties that we're developing now, but also the advancement of the, for lack of a better word, development readiness of our remaining pipeline.

Okay, great. Maybe one last one for me. I appreciate and provide additional disclosure or detail going forward, but can you give us a sense of what the disposition price was in relation to the Q3 22 IFRS fair value for the asset as opposed to Q4?

Morning, Mario. Yeah, we hear that we've not been able to give all the disclosures we would like to be able to give now. Yeah, I will answer your question. Just a bit of background. Fair value adjustment in offers was $194 million for the quarter. That was over 18 properties. 160 Elgin is one of those properties, and we wrote down 160 Elgin for $25 million in Q4.

Perfect. Okay. Thanks, Larry. That's great.

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

Hi, guys. With regards to appreciate the guidance for 2023, but looking past that to 2024, you have a fairly sizable amount of industrial lease maturities, and I think about a third of it may be 7,900 airport road. Can you give us a sense as to what you're expecting mark-to-market on that, and is there – a chance to get to market, or is there a fixed renewal there?

No, that's a complicated transaction. I can't give you too much details on it, but we are working on it, so we're not concerned about a vacancy. We're not concerned about the rental rate. The market is significantly higher than what we're currently leased at. Regrettably, since we are currently working on the transaction and talking, we can't give you too much color on that. That is our significant role. But again, it's no concern of ours. It's really one of the state-of-the-art buildings that we have in our portfolio.

Just generally, our market rents on industrial are way below the average rents that are currently in the market. So we would expect to get good growth coming forward from that division all the way out. And while that delta persists,

Outside of Airport Road, is it a few other assets in the GTA that would make up the remaining sort of 600,000 square feet or so?

Of no concern to us. We're not the agency.

Okay, fair enough. And then with regards to some of the, well, the Dallas High School transaction and the opportunity there on the adjacent land, Can you give a bit more color and maybe also with regards to the COVE, if there's been any progress on that project?

The COVE is in the final stages of completing drawings. We're going to go for permit application, but we're going to put pencils down after that. We're not allocating any funds into development at this point in time, as we mentioned in our speech, until we see better visibility into the economy. So it's zoned and it always was zoned. It's ready to go, but we're going to wait and see. So we're going to pause on that. And that will probably be the next 30 days that we shall complete all the drawings and do our submissions on the cove. Dallas High School, we purchased the land around Dallas High School for a high-rise residential. There is to be built sometime in the future. Not willing to pull the trigger right now on that development as we are not pulling the trigger really on any development. There's a park that's been newly completed across the street. It's a historical office building. There's historical tax credits involved. It is Landtower's head office. Perkins & Wills, a significant architecture firm, has a long-term lease on substantially most of the balance of the space. And the parking lot that is part of the office building is adjacent to the balance of the lands and should be integrated into the high-rise residential development in the future.

And I noticed the description of your sort of target markets in the U.S. now includes Sunbelt and Gateway markets. I guess you've always been in Gateway markets. But is that sort of, other than buying land in Miami, do you anticipate expanding kind of the residential investments in some of these Gateway markets?

No, I think there's more commentary on what we currently own and perhaps anticipated developing. But for all intents and purposes, the growth in the U.S. residential segment will be predominantly, if not exclusively, Sunbelt markets, other than what we currently own.

We do have relationships with Leadcore Qualcomm, our partners in Canada, and the Gateway Cities. We never actually went to the Gateway Cities without partners. And it's been opportunistic. So we're not turning down any opportunity that may come up into the future for long-term strategically, but we do have relationships and we do have land holdings with Letco Aqualica.

Okay. Thanks. And switching over to office, appreciate the disclosure on the fair value that you're holding some of the redevelopment assets at. On my math, that's about $700 per square foot, and you have the ability to grow the square footage from a million square feet to two and a half on the office front. I know there's a few retail slash industrial assets that I excluded from that. I mean, that seems like a pretty conservative price. Do you have any sense as to what per square foot for the existing square footage you think it may trade for in the market?

On the existing square footage, sorry, this is Matt. For the existing square footage on the existing office or what the potential rezoning value would be?

Yeah, just if someone's buying it, it's a million square feet today. $700 per square foot on that million seems cheap, but I guess do you have a sense as to what it would be per square footage? I understand someone's going to look at it as a development play, but a price per square foot maybe on the $2.5 million then? Yeah.

So three of the properties are downtown Toronto. One's in Burnaby. In Toronto, we have seen a big drop in terms of land trade. So there was sort of the high water mark on Pleasant Boulevard at Yonge and St. Clair between Kingsett and a private developer hitting the $350 a square foot mark for residential mixed use. There have been a few trades this year, one notably at Mount Pleasant in Eglinton through CDRE, which traded about $216 a foot. but the market has really just been quiet. So we're not seeing fire sales. KingFed had a property at Young & Wellesley as well as one at Symington & Bloor. They couldn't attract the price they wanted, so they pulled the deals from the market. So I would say prices are still quite high for what is trading. If people can't achieve the price they want, they are pulling it. In terms of our values, we are being relatively conservative at the moment, partially because 145 Wellington is the only property that has achieved rezoning. Of that million square feet, it's about 150,000. On the other properties, we are very close to approval, so we're not taking full upside yet. Does that answer your question?

At this point, essentially, you're not really giving the benefit for any of the redevelopment potential. Even with 145 Wellington, is there anything in fair value for that or no?

We've taken a partial upside, but not a full one at this time.

The simple answer mathematically is that you don't take an upside predicated on, call it $250 a square foot times the density you get. The market always uses just more of an aggressive cap rate on the commercial. So it looks at the commercial, says, hey, there's some residential potential over here, but it trades on the basis of a more aggressive cap rate on the commercial rather than an allocation to a price per square foot based on the residential. Because the residential is not here now, and think from an accounting perspective, the industry just doesn't do it.

Fair enough. Nope, that makes sense. Just two quick last accounting ones. Larry, sequentially for the joint venture, it was a pretty significant increase in revenues. FX played a part of that. But is that, I guess, is that a normalized figure for Jackson Park for Q4 that would have driven the sequential increase there? And then just quickly, the bad debt was elevated this quarter. It seems like it's non-recurring, but any color there.

So there were a few questions there. I think the first was on the management fee recovery that we do. Is that right, Matt?

Oh, no, just joint ventures. The sequential performance of the joint venture portfolio is pretty strong.

Jackson Park actually did have a bit of an increase in bear debts. Other than that, so we should have a bit of a lift from Jackson Park next quarter, not much, a little bit. And therefore, their assets should be back to regular growth of 2% to 3%. And that is all about our equity joint ventures. That was any difference this quarter.

Okay. So that's a clean figure. Okay. Thanks, Seth.

Your next question comes from Jimmy Shen with RBC. Please go ahead.

Thanks. Good morning. Larry, on the $250 million debenture that was redeemed, I assume the line was drawn to pay that down, and then subsequently the sale, the asset sale will pay down the line. Is that fair?

According to me, yes, that is correct.

Okay. And with the net proceeds, it looks like there's no debt on $160 million, so would the net proceeds be similar to what the asset health of sale amount is?

We will get more details on that when it closes, but yeah, pretty much the same.

Okay. All right. And what would the in-place rent be? Would they be largely in line with market rent at 160 elegant?

The answer is on average, yes, but it's made up of various tenants paying various different rental rates. So on average, the market rent is there. but I wouldn't say it's every tenant paying that rent.

But on a weighted average basis. Sorry? I'm sorry, I missed that.

It's very typical of any multi-tenant asset, which is leased at staggered periods of times, and some tenants are older rent and some tenants are newer rent. This would be reflective of that. Bell Canada being the largest tenant was there long before the other ones were, so it's going to have a different profile of rent than the other tenants.

Okay. And then on Land Tower, from Q3 to Q4, the NOI did increase by about $4 million, give or take. So was there any, other than just market conditions, that's a pretty big change. What would have caused that sequential change?

I think it was just, simply put, it was organic growth in the NOI. I'm using my numbers. I'm going back to Mary's question earlier. as it relates to the same store growth of the new leases and renewal leases. In the fourth quarter, I must have misunderstood it. Mary, if you're still on the line, I apologize for misunderstanding your question. I'll give you an example. Our new leases were 5.4% in Q4 and 15.6% on the renewal for a total blended rate of 10.5%. I would anticipate to have something in that ballpark for the remainder of 23, but if you take a look at those statistics, you'll quickly realize that our revenue is by far outstripping the expense growth, therefore leading to outsized NOI growth. And that NOI growth is what you're identifying.

Okay. Maybe just lastly, just on the asset sale, how would you characterize the level of interest or liquidity of the U.S. office assets? And do you see yourself selling either one of those two assets this year?

The United States market is on pause right now, so we actually don't expect to sell it this year. We do have long-term leases, but we still, with the interest rate environment, the office environment, not clear where people are working right now. We don't expect to put it on the market, and we don't expect to sell it. I think you're hearing that sentiment from all the office REIT players in the United States. All right.

Okay.

Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Dean Wilkinson with CIBC. Please go ahead.

Thanks. Morning, everyone. Just one question for Larry. When you're looking at the debt stack and what's coming up in 2023, How are you thinking about sort of term and maturity and sort of the balance between perhaps going longer at a higher rate or do you have a view around what rates ought to do over the next 12 months and how is that sort of impacting your views there?

Good morning, Ben. With the repayment of the January debentures of $250 million, we've taken care of just about all our maturities. On the mortgage side, on the secure side, We have around $144 million of mortgages maturing. We will be refinancing. My guess is refinancing. There's one property that's a multi-res that will be refinanced. That's $77 million. And we are looking to do a refinancing of some of our industrial portfolios. More about that to follow, hopefully, by the next reporting date. So where interest rates are going when we take a longer term view, whatever our long term view is, the economy will be, the interest rate will be where it is. So we think we have the dispositions coming in in order to repay off a lot of those mortgages maturing. So we're in a fortunate position to be able to decide to take out more financing or to just use our bank lines to repay them off. But overall, interest rates have gone up and our interest costs will go up likewise.

Where do you see that price income sort of as we sit today then?

So for secured debentures, I think we would look at a five-year pricing and a range of... Unsecured. Sorry, unsecured debentures. A quote we see around from all the banks as of yesterday is about 5.4% all in. And on a secured basis, we're probably looking at like a 5%.

Right. But the conservative yield curve, so you ask the question on term, and that we can't answer because five is cheaper, is in line with three, or cheaper than three.

Yeah, no, that's the weird part. Yeah, like, do you go shorter and hope that the yield curve normalizes by the front end going down, which, geez, I hope it does? Or do you just lock in the longer term and say, okay.

We call up our favorite analysts and we ask them what they think. How do we know?

Lower is better. Thanks, Bob.

Thanks, guys. We're trying to manage our balance sheet so we don't have any large exposures in any one year. So we want to go full short in one year. So we'll look at our maturity as they come up and we'll try and take a responsible approach of staggering them out.

Yeah. Thanks, guys.

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

Thank you for joining us on our Q4 call. We look forward to speaking to you following quarter. Thank you.

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