Artis Real Estate Investment Trust

TSX:AX.UN

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen. My name is Leone, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Artis REIT's Third Quarter 2019 Conference Call.[Operator Instructions] Thank you.Today's discussion may include forward-looking statements, which include statements that are not statements of historical fact and statements regarding Artis REIT's future financial performance and its execution of initiatives to deliver unitholder value. Such statements are based on management's assumptions and belief. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see Artis REIT's public filings for a discussion of these risk factors, which are included in their annual and quarterly filings which can be found on Artis REIT's website and on SEDAR. Thank you.I would now like to turn the meeting over to Mr. Armin Martens. Mr. Martens, please go ahead.

[Armin Martens, President, CEO & Trustee]

Okay. Thank you, moderator. Good day, everyone, and welcome to our Q3 2019 conference call.Again, my name is Armin Martens. I'm the President and CEO of Artis REIT. And with me on this call is Jim Green, our CFO; Kim Riley, EVP of Investments; Jackie Koenig, SVP of Accounting; and Heather Nikkel, VP of Investor Relations.So again thanks for joining us. And as in the past, I'll ask Jim Green to review our financial highlights, and then I'll wrap up with some market commentary. And then we'll open the lines for questions.So go ahead, Jim.

[James Green, Chief Financial Officer]

Thanks, Armin, and good afternoon, everyone.So just a little reminder. Artis is a diversified commercial REIT. We invest in office, retail and industrial properties. We have assets in 5 Canadian properties and 6 U.S. states. Based on the Q3 net operating income for the REIT, we had a 54.8% weighting in Canada and 45.2% weighted in the United States. As the majority of future asset sales will likely be in Canada, we expect this ratio to move such that greater than 50% of our assets will be in the U.S. On an asset class basis, at the present time, we're 49.0% weighted in office, 20.2% weighted in retail and 30.8% weighted in industrial.As I expect everyone on the call is aware, our third quarter earnings press release from November 1, 2018, so -- announced a series of new initiatives for the REIT which we anticipated being implemented over a 3-year time horizon. We're now 1 year into that plan and we've been busy executing on the strategy. The impact of executing the strategy continues to impact our metrics and will for a few quarters still to come, although we're looking forward to the continuation of the strategy in future quarters, as the next steps consist mainly of further asset sales, with the proceeds used for debt reduction. And that should demonstrate continued improvement in our balance sheet metrics.Artis continues to be active in both new developments and redevelopment of our existing properties, and we currently have approximately $130 million invested to date in properties currently under development. During the quarter, we invested roughly $47 million into the development projects and transferred $62 million of properties from considered under development to completed properties. As detailed in the MD&A, there are several new development projects that remain underway, including a new residential tower; a 300 Main in Winnipeg; and new industrial space in Houston, Phoenix and Denver. Also, as detailed in our MD&A, we have several development projects in the planning stages where construction has not yet actively started, and they are all progressing nicely through the various development stages.So to touch on this one, but we do still have a continued presence in the Calgary office market, although it is becoming a very small component of our operations. Per Q3, Calgary office contributed 6.4% of our NOI. However, we have relatively small exposure to the Calgary office tenant maturities in the near future with only 57,000 square feet of space left to mature in 2019 and only 35,000 feet renewing in all of 2020.We've been able to maintain our balance sheet metrics in general terms, with GBV up. It's up slightly to 52.6% from 51.9% last quarter, and it was 50.6% at December of last year. The main driver of the increases in GBV has been timing of the unit purchases planned under our new initiatives to buy back our units and versus the timing of asset sales which will happen in future quarters. In the current quarter, we also redeemed the balance outstanding on the Series G preferred equity in addition to the amount of activity under our NCIB. So that unit purchase combined being slightly in excess of the net proceeds from asset sales is what contributed to the slight reduction -- increase in debt-to-GBV. We anticipate bringing debt-to-GBV back under 50% in the near future as further asset sales are completed, and we're targeting a range of 45% to 48% over time.Our EBITDA coverage ratios remain healthy despite carrying a little bit higher debt level at the current time. And despite the dilutive effect of asset sales, the unit buyback program, combined with good same-property growth and completion of some of our developments, has had a positive effect on our metrics. And FFO came in this quarter at $0.34, up from $0.33 in the comparative quarter last year. And AFFO came in at $0.25, also up $0.01 from Q3 of 18. Our payout ratios are very conservative at 41.2% of FFO and 56.0% of AFFO.Coming back to the initiatives, just a quick update on the status. As I mentioned, on November 1, 2018, we announced the new initiatives with the goal of increasing cash flow, increasing unit values by increasing NAV and improving focus and quality of the portfolio. The distribution was reset at that time to $0.54 annually, resulting in a much more conservative payout ratio and freeing up cash to fund our development pipeline. The plan also included noncore asset sales of between $800 million to $1 billion of assets, and this process is well underway. We've completed $482 million of sales to September 30 and have closed a further $13 million subsequent to the quarter end. We have a further unconditional acquisition of $39 million -- sorry, disposition, set to close in November. The basket of properties held -- classified as held for sale at September 30 was $327 million, including the 2 properties just mentioned. And those are in various stages of sale, with most under conditional contract. We anticipate most of these will sell over the next 2 to 3 quarters.Initiatives also included using a portion of the sales proceeds to buy back our units using our NCIB, and we started this immediately after the announcement last November in advance of the asset sales. From last November to September 30, we have repurchased almost 16 million units at a cost of just over $173 million. And we used our line of credit to fund these purchases, with a plan to repay the line as the assets are sold. In addition to the NCIB purchases, as I mentioned, we also redeemed a maturing series of our preferred equity at a cost of $78.4 million. Including the redemption of the preferred equity, we've basically met our target for equity redemption. We've reached the maximum trust unit purchases permitted under the current NCIB, and we will be renewing it in December, although future unit purchases under that plan will be dependent on the trading value of our units at that time and the amount of debt reduction we have achieved. And we -- in our opinion, it's more important to get our balance sheet metrics under control first.[indiscernible] touch on just a couple more operational highlights and then pass it back to Armin. And I'll touch briefly on fair value of investment properties. So they are valued on our balance sheet at fair value. This quarter, the net adjustment including joint ventures is relatively nominal at roughly 800,000 positive. There was a very nice gain in this quarter on the sale of 415 Yonge in Toronto. However, it was offset by reductions in some other properties. Debt-to-GBV, we remain comfortable with the ratio. As I mentioned, we are up very slightly and we anticipate that coming down in the near future.[Audio Gap]still has an unencumbered asset pool valued at roughly $1.9 billion, and that permits us the unsecured debt that's currently on our balance sheet. We have roughly a $700 million unsecured revolving credit facility with a syndicate of lenders and 2 nonrevolving unsecured credit facilities for a further $300 million. Both of the nonrevolving facilities have been drawn in full. And we placed swaps to fix the interest rates on those facilities, as we expect they will be outstanding for their full term.Touching briefly on operations. So same-property and property results were a positive 2% this quarter, which really is 1.3% in functional currency. And the 2% is in Canadian dollars once foreign exchange is factored in. And we also presented a stabilized same-property calculation eliminating properties planned for disposition or repurposing as well as the Calgary office sector. And on this basis, same-property growth is 3.2% in functional currency and 3.8% once foreign exchange is factored in. Industrial segment continues to show the strongest performance in both countries with 7.3% growth in Canada and 10.9% growth in the United States.Now this quarter, we had a -- we disclosed our net asset value. So it's simply taking the equity on our balance sheet less the equity held by the preferred unitholders, divided by the number of common units outstanding at the end of the quarter. And the net asset value per trust unit was $15.72 at the end of this quarter compared to $15.37 last quarter, a $0.35 lift this quarter driven by foreign exchange of a $0.10 gain, a gain of roughly $0.07 related to the unit buybacks. And the rest is the fact that our income exceeded our distributions[Audio Gap]so that's the advantage to the low payout ratio, I guess.Subsequent events. We ended the quarter with roughly $59 million cash on hand and $96 million undrawn on our line of credit, in our opinion, adequate liquidity for the REIT, with several events detailed in the subsequent events note which we believe continue to reflect our strategy of intelligent recycling of capital. We plan to continue to focus on a strong balance sheet and the overall quality of our portfolio. As I mentioned, we will be renewing our NCIB plan in December. However, our near-term goal is debt reduction.And that completes the financial review. We feel the initiatives announced last November will make Artis a better and stronger REIT, and we look forward to demonstrating our results in future quarters.I'll now pass it back over to Armin for a bit more discussion.

[Armin Martens, President, CEO & Trustee]

Okay. Thanks, Jim.And folks. So on balance, we feel we're on track to have a much better year this year than last year. We're making good progress in all fronts and delivering strong performance metrics for our unitholders. So our weighted average rental increase, same-property NOI growth, our FFO and AFFO per unit growth are all solid numbers. And looking ahead, we're -- given our very conservative payout ratio and the progress we've made on our strategic initiatives, debt reduction. As Jim said, debt reduction will be a top priority for us, and the progress on our debt reduction shall be very noticeable in Q4 of this year and Q1 of next year.So again looking back at what we promised. In terms of our promises or made promises, kept. Our distribution has been restated. It's very conservative. It's among -- it's the lowest of all the commercial REITs and we feel it's quite bulletproof and safe. Our unit buyback program is basically 70% complete. And if -- when one considers the $85 million of preferred we -- equity we also bought back, we've invested $260 million in equity buyback in the past 12 months. And of course, as mentioned, our disposition program is going very well. And about $600 million sold are unconditional, with another $200 million under conditional contract; and more visibility. And the key to all of this, of course, is that we're selling at prices that correspond to our NAV of $15.72. And we've been selling some challenging properties. So we feel we're doing very well there and demonstrating excellent value for our unitholders and our investors.It's important to note, of course, that as our financial metrics improve and as we continue with the disposition program, our portfolio of properties is also improving. Now we're reducing our office and retail weighting in general. We're increasing our ownership of industrial properties. We're reducing the number of secondary markets we're in as well. Our Calgary office exposure is in the 6% range now, but given the properties we have under contract for sale, we feel that, by end of Q1, we'll be down to the 3% level or just 3% of NOI. And our remaining retail investments, as we close out our U.S. retail dispositions and our last enclosed mall, remaining retail investments will only be open-air service sector properties, if you will, and in Western Canada only, which we feel is a good focus for us. And all of this -- for the retail and office, all this will improve the growth profile of our portfolio. And needless to say, our industrial is already outperforming and doing very well.So meanwhile, our overall portfolio is performing well. And the office market, as discussed, is somewhat inconsistent, but our retail and industrial properties have a very good track record and continue to deliver solid organic growth. And of course, our industrial development pipeline is also on track to deliver excellent results as well. And we invite you again to look at our MD&A and investor presentations for more color here.So looking ahead, we will continue to work hard to keep our buildings full whilst bringing the rents up to market and consistently streamlining and improving our real estate portfolio and our growth profile. To be clear: The integrity of our balance sheet, our credit rating and implementing our new strategic initiatives continue to be of utmost importance to us. Given the progress we've made year-to-date, we feel at this juncture, with the properties we disposed of and the prices and the unit buyback, we're no longer a wait-and-see story but very much a "look at what we've done" story and "look at where we are going." As mentioned, the portfolio is improving. We're strengthening our retail from 20% to 50% of our total portfolio, open-air service sector, Western Canada-only properties. We'll be shrinking office from 50% to 45%, possibly lower. And we're growing our industrial from 30% to 40%. All of this will, again, improve the overall growth profile, earnings growth profile, of the REIT and make us a better REIT.So that's all from us for now, folks. I'll turn the floor over to the moderator now, and we'll be happy to host any questions you have.

[Operator]

[Operator Instructions] Your first question is from Mark Rothschild from Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

Starting with the same-store portfolio. The growth in industrial was quite good. One thing that wasn't clear to me from the wording in the MD&A: Does that include income from developments? And if yes or if not, maybe just talk about what drove that strong growth.

[James Green, Chief Financial Officer]

Generally not because the developments would not have been in the prior year so we don't have a prior year comparison. So we would not include a development property until we have a prior year to compare it against. So the -- what drove the strong growth was a combination of improved occupancy and higher rents.

[Armin Martens, President, CEO & Trustee]

Yes. Mark, on the south side of the border -- we're basically 99% occupied in both sides of the border and especially U.S. That's a very good number. And it doesn't matter which industrial properties you look at, the big box distribution or the multi-tenant flex, showcase industrial, light manufacturing, infill, older generation, it's all performing well on both sides of the border and a little bit more in the U.S. right now.

[Mark Rothschild, MD & Real Estate Analyst]

So if you're at such a high occupancy rate, would it be reasonable to assume that, that pace of growth will slow down going forward just because there isn't much to lease up?

[Armin Martens, President, CEO & Trustee]

Possibly. Needless to say we're pushing rents now as well as we can. And we're making a point to ourselves, well, maybe we've got to love watching the elasticity here. And maybe we've got to charge more rent and maybe with little less occupancy, but yes. I wouldn't say there's any low-hanging fruit out there at this point, but there's a lot of runway ahead of us, we feel, in the industrial sector and raising rents in the years ahead on both sides of the border.

[Mark Rothschild, MD & Real Estate Analyst]

Understood. And in regards to asset sales, you've done quite a bit this year, and it seems like there'll be quite a bit more closing over the next little while. Do you expect to continue -- can this program -- will this program be extended to sell more assets that you might view as either lower growth or marketed [ on the bin ]? Or is the plan still to stop at a certain number?

[Armin Martens, President, CEO & Trustee]

We'll see, stop and dial it back a notch, a level, so to speak. We'll dial it back and we'll continue. And you might recall we used to recycle between $200 million to $300 million of properties, but we definitely see more properties we would like to sell out of; and reposition our portfolio and more aggressively grow the industrial portfolio, for example.

[Mark Rothschild, MD & Real Estate Analyst]

Okay. Great. Then -- and lastly, just in regard to reducing leverage. It sounds like that's going to be a focus over the next little while. How far down would you want to take it? And how do you look at it? Do you look at it on a debt-to-EBITDA basis or on debt-to-book value? What is the preferred metric? And what is the target that you're setting?

[James Green, Chief Financial Officer]

We're looking at both. The target that I referenced was a debt-to-book value or to gross book value basis, but we're also very cognizant of maintaining a debt-to-EBITDA metric. So we're looking at both, Mark. I think they kind of are going to move in tandem. As we get debt-to-GBV lower, the debt-to-EBITDA should go up as well.

[Operator]

Your next question is from Dean Wilkinson from CIBC.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Armin, just on the Calgary office, it -- and Alberta as well. Seems to be up a little from Q2, like 6.4% versus 6.1%, not a big move and about 100 basis points. Is that more a function of selling things like 415 Yonge so that the portfolio is lifting? Or are you seeing a little strength out of the market that perhaps we're missing?

[Armin Martens, President, CEO & Trustee]

More a function of selling.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. So when you look at the remaining sort of $326 million and perhaps more, would that suggest maybe that, that weighting to both Calgary office and Alberta then maybe ticks up a little as we look forward the next couple of quarters?

[Armin Martens, President, CEO & Trustee]

Well, we'll be selling down a lot of Calgary, but we have a portfolio of former Calgary office under contract for sale. And we're very optimistic that they'll close by Q4, as a matter of fact, and for sure, be unconditional if not before we report the Q4 results. So we see the weighting going down by default, so to speak, just as we sell down these properties. And we expect to be in a 3% range when we announce our Q4 results.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. Fair then to say that, that remaining sort of $326 million that's classified as for sale is probably going to be at a substantially higher cap rate than the sort of $500 million or so, $490 million that you've already sold.

[Armin Martens, President, CEO & Trustee]

I mean I've got -- thinking how -- Kim can answer that.

[Kim Riley]

Yes. So it will be slightly higher but not substantially. We expect it to be kind of in the low-7 cap range.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Low 7s. Okay. And then just when we look at the gain of 415 Yonge, I kind of noticed that the cap rate was based upon $4.6 million of NOI which included some leasing. Was that forward look on the leasing included in the IFRS value? Or was the IFRS mark based upon sort of what was historically in place like what would, say, be in the rest of that table?

[James Green, Chief Financial Officer]

The leasing would be included in the IFRS value because we're generally modeling a 10-year time horizon on the valuation of the property. So we would be looking forward including the new leasing.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. That's good. And then just a clarification on how you've got the assets classified in the presentation. Noncore assets to be sold, that was $800 million to $1 billion. Is that on top of what has already been done? Or how are you getting -- because I'm looking at 4.2, plus $1 billion, plus $200 million of development assets. That kind of gets me to your gross book value there. So is it $1 billion of noncore assets to be sold, or is it $1 billion less what you've already done?

[Armin Martens, President, CEO & Trustee]

$1 billion less.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

$1 billion less. Okay. So fine, fine. Okay...

[Armin Martens, President, CEO & Trustee]

Yes. We're almost done.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

What was that?

[Armin Martens, President, CEO & Trustee]

We're almost done.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

You're almost done.

[Armin Martens, President, CEO & Trustee]

Yes.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

The last part is the hardest. But that's it for me.

[Operator]

Your next question is from Jonathan Kelcher from TD Securities.

[Jonathan Kelcher, Analyst]

Just turning to the developments. Just on the Tower Business Center, what's your yield expectation on that? And when should we expect that to come online?

[Armin Martens, President, CEO & Trustee]

[ Do you have it handy, Kim ]?

[Kim Riley]

I don't have -- it'll be in the low 7s, yes...

[Armin Martens, President, CEO & Trustee]

It'll be roughly between -- it's not finished yet but between 6.8 and 7.2, in that range. And it won't be lower than 6.8.

[Jonathan Kelcher, Analyst]

Okay. And that will come out when?

[James Green, Chief Financial Officer]

Search and completion is almost finished, and the leasing of the first building is complete. And that lease commences, I'm going to say it's, in Q2 of next year, might even be Q1.

[Armin Martens, President, CEO & Trustee]

Yes. So the larger of the 2 buildings, 2/3 of the project, if you will, will -- the revenues will kick in, in Q2 next year.

[Jonathan Kelcher, Analyst]

Okay. And the rest, sort of by the end of next year.

[James Green, Chief Financial Officer]

Yes, for sure.

[Armin Martens, President, CEO & Trustee]

Yes.

[Jonathan Kelcher, Analyst]

Okay. And the property you're buying in Minnesota, the new development there, is that -- where does that stand in terms of occupancy?

[Kim Riley]

The Prime Therapeutics...

[James Green, Chief Financial Officer]

Prime. So that is a 100% occupied, 15-year lease with 2% annual bumps in it. This property was a forward purchase, so it's been in our MD&A for almost 2 years now, but...

[Jonathan Kelcher, Analyst]

Okay. Fair enough. And then just lastly, on the special committee you put through $400,000 or so of charges this quarter. Was that in your G&A and then you're just adding back to FFO?

[Armin Martens, President, CEO & Trustee]

Yes. That's correct.

[Jonathan Kelcher, Analyst]

Okay. And is -- how long is the mandate for the special committee? And is that sort of $400,000 kind of how we can think about it on a quarterly basis until they're done? Or was there any onetime things in there?

[Armin Martens, President, CEO & Trustee]

That's a good question. I don't know if they've got a term on their mandate.

[James Green, Chief Financial Officer]

They have an expiry date of their mandate. I guess they're still working through it. Probably, I'm going to say, it's a little bit cheaper going forward because some of that, the bulk of that was legal costs as they were getting and going. And so -- and probably the next quarter or so will be a little less than that.

[Armin Martens, President, CEO & Trustee]

Yes. And we're not on the committee and not official spokespeople, but I would expect, between now and next June AGM, we'll get a lot of visibility from them and even a report from them. And things will either ramp up or wind down.

[Operator]

Your next question is from Matt Logan from RBC Capital Markets.

[Matt Logan, Analyst]

I'm just wondering if you could talk a little bit about your same-property NOI growth outlook. Last quarter, you mentioned it was about 2% to 3%. Would that include some of the drag from the Calgary office portfolio that we've seen here this quarter?

[James Green, Chief Financial Officer]

So yes. The -- I mean the 2% this quarter was including the drag from the Calgary office portfolio. So yes. The guesstimate from us of 2% to, hopefully, 3% is inclusive of any drag from Calgary office.

[Matt Logan, Analyst]

And going forward, I mean, it seems like the organic growth from the business pretty much everywhere, except for Calgary, is doing quite well. And when we look at the industrial growth, that's obviously quite great, but how should we think about the tenant inducements and some of the CapEx for the portfolio? I mean, will that trend down as you sell more of your Calgary office business?

[Armin Martens, President, CEO & Trustee]

Yes, it should, for sure. And even -- and our organic growth, it's not just the Calgary office as we sell that down, our Minneapolis retail and our enclosed malls. This is where there might have been a drag in same-property NOI growth. And as you already mentioned, as we streamline our portfolio and finish out with our disposition plan, we will have a better portfolio. We'll get better earnings profile. We're optimistic about that. Back to CapEx: Yes, the Calgary office always requires a lot of CapEx, so the less of that we have, the less -- the better off our portfolio will be.

[Matt Logan, Analyst]

So when we look at kind of the business at the end of the strategic review, the maintenance CapEx that we see and the AFFO deduction should really converge to the actual CapEx as we look out to 2020 and 2021.

[Armin Martens, President, CEO & Trustee]

Yes.

[Matt Logan, Analyst]

Okay. And just in terms of the future asset sales, can you give us a sense for what else you plan to sell in Canada outside of the Calgary office segment?

[Armin Martens, President, CEO & Trustee]

We will. We have it listed here, I think.

[Kim Riley]

So we have one last in Ottawa, so we plan to sell that one. And then an enclosed retail center in Saskatchewan. So those are on the list. And then the rest is really a lot of Calgary office, so...

[Armin Martens, President, CEO & Trustee]

Yes. It's Calgary office. And I think things are going nicely in the Minneapolis retail, of course...

[Kim Riley]

Yes. It's already unconditional sale, yes.

[Armin Martens, President, CEO & Trustee]

Yes.

[James Green, Chief Financial Officer]

Yes. One was just unconditional. That's why we are kind of -- it was in there, but it just only mean that [indiscernible]. So...

[Armin Martens, President, CEO & Trustee]

And we've got 4 Calgary offices [indiscernible]. Then we're looking at some other office properties that, again to your point about CapEx and outlook, as we think we've maximized the value, we'll let them go too. You might recall we own a building in Hartford, New York -- or is it -- and [indiscernible] Hartford insurance. We just removed their lease but they had the right to give us back 1 floor. So they take 2 to 3 floors. Now we've been able to re-lease that top floor. And now with those new leases to us we're going to sell that property as well. So we've been running -- and there are certain noncore buildings we're looking at. And there's a small office building in suburban Minneapolis called DSI Building that's on our list as well. We think we've got a good focus on what we want to sell and how we're going to streamline the portfolio.

[Matt Logan, Analyst]

And as you downsize the business, how do -- what sort of impact does this have for the staff or the leasing folks who are doing the day-to-day leasing and the planning? Does this simplify their life in terms of the operations? And maybe just some color on how it impacts the rest of the business from an operational perspective.

[Armin Martens, President, CEO & Trustee]

A good question. It's funny how often we might ask one of our property managers or leasing people about a building that we're thinking about selling. And they'll say, yes, please sell that one. They don't mind at all, but on the other hand, doing kind of the point like in Calgary, for example, it's been tough. Morale is not good at anywhere -- in Alberta and almost any sector right now. And we find ourselves spending more time and -- doing our best to cheer our people up and then even talk about leasing and getting -- keeping the morale up there. And the way they're working really hard -- it's a thankless job in many respects in being a leasing agent in Calgary. But so at a certain point -- when we sell properties in Calgary, we do our best to give property managers for them to transfer with the property to the new owner -- -- and the leasing, once -- there are -- make no mistake about it. Some of the offices involved sometimes, and that's not a good thing, but that's the situation we're in right now.

[Matt Logan, Analyst]

And maybe just last question from me in terms of a quick housekeeping item. Can you tell us the IFRS values for center 15 and the Minnesota retail portfolio?

[Kim Riley]

Total off the top of my head. What I can tell you...

[Armin Martens, President, CEO & Trustee]

.In the 15.

[Kim Riley]

Yes. And then I don't know the retail. So it'll be -- that's Canadian. So 65.

[Armin Martens, President, CEO & Trustee]

In total.

[Kim Riley]

Yes, in total.

[Armin Martens, President, CEO & Trustee]

Yes. Does. That help you?

[Matt Logan, Analyst]

65. So that would be -- okay. And the split between the two, was that 15 for center 15?

[Kim Riley]

It's 13 for center 15.

[Matt Logan, Analyst]

13 for center 15, and the balance from the Minnesota portfolio. Excellent.

[Kim Riley]

Yes. So that's like [ entire ] 15.

[Operator]

Your next question is from Jenny Ma from BMO Capital Markets.

[Jenny Ma, Analyst]

So you talked about reducing the overall debt, but I'm just wondering what your thoughts are on the debt strategy over the near to medium term given that you still have a pretty big proportion of floating-rate debt. The weighted average term on your mortgage is quite low. And presumably you're paying off the credit facilities first, but how do you expect that to shake out in the next 1 to 3 years, call it?

[James Green, Chief Financial Officer]

We're still seeing today that we can refinance much of the maturing debt at interest rate savings, so expect that there will be some savings to come. You're correct. A bunch of it is still floating-rate debt. However, LIBOR and BAs in Canada really have not moved as much as you would expect given where the underlying bond rates have gone. So the floating-rate debt really isn't as cheap compared to fixed debt as it used to be. That's the reason we've been placing a few more swaps on some of the floating-rate debt just to lock them in.

[Jenny Ma, Analyst]

So you said there -- that floating-rate debt is not as cheap as they used to be.

[Armin Martens, President, CEO & Trustee]

No.

[James Green, Chief Financial Officer]

It's no because the -- LIBOR is still running at 190 basis points. So if you're spread is 160 or 170 over LIBOR, you're still running 3.5% on floating-rate debt, which is where you can get 5-year fixed debt today.

[Jenny Ma, Analyst]

So in that case, would you be more inclined to over time convert that into a fixed-rate secured debt?

[Armin Martens, President, CEO & Trustee]

Some, we've done with swaps, right?

[James Green, Chief Financial Officer]

Yes. Some we've -- so some of that, we've been doing with swaps and -- but yes. I'm going to say, over time, we would be more inclined to be fixing more debt today.

[Jenny Ma, Analyst]

And how are you thinking about the secured versus unsecured balance?

[James Green, Chief Financial Officer]

So our secured debt today is less than 30% of GBV, which is probably where we would roughly want it to be. So expect that the secured debt will stay about where it is today. And then the unsecured will layer on top of that.

[Jenny Ma, Analyst]

Okay. That's fair. Just wondering: the Madison office portfolio. It looks like the occupancy has crept up a bit, and it's been fairly stable. When you look at that, do you view it as a core component of your long-term portfolio?

[Armin Martens, President, CEO & Trustee]

Good question. I mean, as a REIT, long-term owners and managers and holders of real estate, right now we do consider it as core. It's a good, stable, predictable, reliable source of income. Our NERs are relatively high there compared to the face rates, but we're pleased with that. It's a market that doesn't get disrupted by large players coming in an older building and then poaching tenants. So we like all of that. It's -- it adds some good balance to our portfolio. That doesn't mean that somebody wouldn't dispose of -- not everybody agrees with us that we should be in Madison, but it's a state capital and it's a university capital. And in terms of mid markets, that's, well, the 2 key features to real estate valuations and drivers of rent. So right now we like it. That's not on our list -- on the top half of our list of properties to sell. That's for sure.

[Jenny Ma, Analyst]

Would you be able to comment on the cap rate on this portfolio versus when you bought it? Has it changed much?

[Armin Martens, President, CEO & Trustee]

Well, the annualized has gone up a fair amount, right, Kim?

[Kim Riley]

Yes.

[Armin Martens, President, CEO & Trustee]

And we feel that cap rates dropped at least 50 bps from our cap rate. We were over 8% when we bought it. And it was 88%, 86% occupied. We've gone up to 90%. We raised the rents across the board. We've added -- we've been able to add, make some additions on surplus land and with long-term leases in place for existing tenants. And so we've been able to add value to that portfolio as well, all right? I definitely feel it's worth more than we paid.

[Jenny Ma, Analyst]

Okay. That's interesting. Okay. And then on the held-for-sale portfolio, could you comment on sort of the NOI associated with that in aggregate?

[Armin Martens, President, CEO & Trustee]

I'm looking to somebody else in the room, Kim or Jackie or Jim.

[Jenny Ma, Analyst]

Well, I'm asking because, when you look at some of the more recent transactions, the cap rates on them are quite high. And I'm just wondering if that's indicative of what's left in held-for-sale bucket.

[Armin Martens, President, CEO & Trustee]

That all depends. There were some anomalies there. And obviously Minneapolis retail is an anomaly. And I think -- John has nod. We've tried to -- and other ones. We had a couple of anomalies. So again the retail property....

[Kim Riley]

Yes. I mean I don't have the exact calculation off the top of my head, but I would say in the held-for-sale bucket again it would be closer to that low-7 cap range as kind of where we're expecting it to be.

[Operator]

[Operator Instructions] Your next question is from Mike Markidis from Desjardins.

[Michael Markidis, Real Estate Analyst]

Two quick ones from me. On Concorde Corporate Centre and Poco Place, just curious if you could give us some color as to where you guys might be with respect to getting rezoning or up-zoning on those 2 assets.

[Armin Martens, President, CEO & Trustee]

Well, it's still progressing. It's a work in progress going from meeting to meeting, so to speak, booking more meetings with planners and with members of the community. I'd say Concorde is definitely further ahead. And we really are optimistic, by end -- by Q1, Q2 at the latest, next year, we'll get at least a positive report, a support report, if you will, from the planning department. And then after that, it should be downhill to get the final density approved if the final entitlement is at the level of counsel. Poco Place we've had several meetings as well and include the mayor there in Port Coquitlam. And we're progressing but, I'd say, at a slower rate. And however, by the end of next year, we -- also we have a very good chance of getting our entitlements at least confirmed in principle. Now that's not to say that we wouldn't achieve a lot of value if we dispose off the properties now, but however, we feel -- they're not at the top of our list. We've got other properties we want to sell first. And we'll keep working hard at getting these density approved before we go to market with them.

[Michael Markidis, Real Estate Analyst]

Okay. When you say preliminary plans, have you made an initial application? Or is it just sort of you're having discussions before you make your initial application?

[Armin Martens, President, CEO & Trustee]

No, no. We've got a lot of plans. We've paid a lot of consultants a lot of fees. I hope they've done something for us. Now I assume the plans do -- no. I mean at Concorde, for example, we're looking at density for about 550 suites in one large building there. That's moving forward. And we've had back-and-forth with the planners on make changes to the plan so that they can support them. And then at Port Coquitlam it's a bigger densification. It's about 1.59 square feet. We're looking at either 3 or 4 towers of multifamily. And that requires a lot more talking and then digesting, if you will, to go through a process with the planners there, but so far they're -- in principle, they're very supportive of giving us more density there because we are within less than a kilometer of a sky train station there, which what makes it a TOD, so to speak.

[Michael Markidis, Real Estate Analyst]

Okay. And last one here for me, just with respect to how you guys carry those assets. Is there any [ cargo ] for the land that you're building on, the excess density? Or is it just kept as a normal property without any regard just to...

[James Green, Chief Financial Officer]

No, just treated as a normal operating property, no potential lift recorded for the future density.

[Operator]

Your next question is from Johann Rodrigues from Raymond James.

[Johann Rodrigues, Former Associate Equity Analyst]

All my questions have been answered. I'm good...

[Armin Martens, President, CEO & Trustee]

Yes. Thank you. Best caller.

[Operator]

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

[Armin Martens, President, CEO & Trustee]

Cool. Well then, thank you again, moderator and everyone, for joining us on this call on short notice. For Q4, we'll give everyone more time with the year-end, and we will have the call the next day after the release of the results. In the meantime, we're looking forward to working hard for our investors. And we hope to see a lot of you at the next real estate forum in Toronto and, hopefully, when we do some marketing as well. And we're looking forward to delivering more good results in Q4 as well.Thanks again, and have a good evening.

[Operator]

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