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Toronto's residential development plan is part of a “huge” opportunity to unlock value in its real estate portfolio, says CEO
Published on February 22, 2024 • Last updated 5 days ago • 4 minutes reading time
It may seem like a challenge for furniture retailer Leon's to get into the real estate business, but the chain's CEO doesn't see it that way. Photo by Roy Fleece/Leader-Post
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Leon's Furniture Ltd. announced in January that it plans to develop a 4,000-unit master-planned community on a large parcel of land it owns near its corporate headquarters in Toronto. It might seem like a challenge for a furniture retailer to get into the real estate business, but Leon's chief executive Michael Walsh doesn't see it that way. One of the chief executive's tasks is to unlock value from the listed company's vast real estate portfolio – it has 303 stores across the country under the Leon's, The Brick, Brick Outlet and The Brick Mattress Store brands, many of them on land owned by it are key priorities. The Financial Post's Denise Paglinawan recently spoke to Walsh about the company's plans. The following interview has been edited and condensed.
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Financial contribution: Where are you currently in the development process of the residential community?
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Michael Walsh: The first approval came in July 2022 when Toronto City Council adopted a recommendation to convert our land from a general employment area to a redevelopment area. This recommendation was sent to the provincial housing minister and in December 2023, the so-called Official Plan Amendment 591 was approved without changes. The conversion from an employment area to a redevelopment area allows us to build offices, retail, industrial and residential areas.
FP: How will this be divided up in the mixed-use project?
MW: The key to this lies in optimizing and intensifying the soil. There are two phases. We can implement Phase 1 fairly quickly, we just need to submit an application to the city for a new headquarters and a new retail flagship store. The second phase is to develop the master plan and then work with the city to approve a secondary plan. We hope to complete this in 2025.
FP: Why did you take the step to develop the land yourself?
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MW: The real reason is that we own 429 acres statewide. We are currently developing our own properties with distribution centers and many of Leon's properties are owned by the company. You won't see me in a dump truck, but we will work with a top developer and find joint ventures and other business relationships where they develop the land and we move forward to retain some ownership of it.
FP: You mentioned that you already own a lot of land across the country. Can you estimate the value of your property?
MW: I can probably in May. We announced some time ago that given the properties we hold, we would be forming a REIT, which would be a separate company with a separate CEO and board of trustees. This was already announced (in May last year). 35 to 50 percent of our properties are contributed to the REIT. We therefore need to carry out an assessment of all our lands, which we are currently starting to do.
FP: Do you think the company's share price adequately reflects this value?
MW: No, I think our share price is low. We continue to focus on retail because it is the engine of this company and a big focus of ours between our retail and our services. But unlocking the value of our properties is huge. Our land and buildings represent $236 million on our balance sheet and are completely unencumbered. That's definitely not the value of 429 acres, with 40 acres in North York (part of Toronto), then we have another 32 acres of land where our store is located in Burlington (east of Toronto), and we have parcels in others Shops and locations.
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FP: What motivated you to build housing?
MW: We believe we can build 4.6 million square feet of gross floor area with this particular site. So, you can maximize this by using apartment buildings, high-rise buildings, low-rise buildings, rental units, and townhouses. So every property is different, but when you want to optimize and intensify properties, it's a mix of a whole bunch of different things.
FP: In July 2021, you became CEO of Leon's. What is it like to take the helm of a 100-year-old family business?
MW: I am the first non-Leon CEO and I feel very honored by that. You have a retail organization that has been through every market condition known to retail, and we have successfully navigated them. I spent a long time at another retailer, another great company. But when we come here, everyone thinks Leon's is just a furniture store, and we're not. We have a fairly large real estate portfolio and a range of products and services that live in the ecosystem, from an insurance company to a guarantee company to a service company. It's great to be part of a Canadian icon.
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FP: What can the company do to bring more recognition to this diverse portfolio?
MW: We have started this. The REIT will be a publicly traded company. We need people who understand Leon's Furniture Limited and all of its components, from financial services to home appliances to the other retailers. There seems to be a lot of interest out there. They are blown away by how much more Leon's is than just a furniture company. And at the end they say, “Oh, and your stocks are trading where they are? You have a story to tell. You have to start telling it.”
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