Leon’s Furniture Limited is planning a massive mixed-use development, with about 4,000 residential units, on 40 acres of land it owns in Toronto at the crossroads of Highways 401 and 400.
Phase One of the development will be focused on the building of a new flagship retail store and corporate headquarters on the site. LFL’s home office has been located on this parcel since the company went public on the TSX in 1969.
Subsequent phases will focus on plans for 4,000 homes which will include townhouses, mid and high rise buildings and community spaces. LFL will be partnering with top-tier developers to co-lead the project.
“The Company has a successful track record building retail showrooms and large scale distribution centres across Canada as it continues to move toward a centralized distribution model,” it said.
“By establishing more density as part of a multi-year, multi-phase development, we will be helping to meet the overwhelming demand for additional housing within the city, while generating substantial value for LFL shareholders,” said Michael Walsh, President and CEO of LFL.
Leon’s Furniture Limited is the largest retailer of furniture, appliances and electronics in Canada. Retail banners include: Leon’s; The Brick; Brick Outlet; The Brick Mattress Store; and Appliance Canada. The company has 303 retail stores from coast to coast in Canada under various banners.
Walsh said there are 52 Leon’s corporate stores; 35 Leon’s franchise stores; 118 Brick corporate stores; 66 Brick franchise stores; 21 Brick Mattress stores; six Brick Outlet stores; and one Appliance Canada store.
“On the Leon’s side, we’d love to open up more stores in B.C. because we only have six and the challenge is we’ve only opened up one since the first five were opened back in 2017,” said Walsh. “One of the reasons for that is the cost of entry. Land costs and lease costs in B.C. are super, super high and there’s no vacancy.”
LFL recently received approval from the Province of Ontario to change the original Employment Use zoning to Regeneration zoning for the 40 acres, bordered by Highway 401 to the north, Highway 400 to the west/southwest and Jane Street to the east.
The next step in the development will be to complete a secondary plan with the City of Toronto which the Company expects to complete during mid 2025.
Walsh said rezoning this large parcel of land creates an unprecedented and historic opportunity for both Toronto and the company.
“We acquired the Brick in 2013 and I think in order to realize all the synergies with that acquisition it took to about 2016 and in 2017 we actually started the work on this property and pandemic and everything else it took until December 2023 before the approval for the Regeneration area was given,” said Walsh.
“And the reason why there’s houses on this is we wanted to maximize the 40 acres and in order to do that we got to the point where we believe we can build 4.6 million square of gross floor area and how you get to maximize that is by going vertical and vertical is generally high rises, mid rises, low rises. It’s a function of how you maximize the plot of land.”
Walsh said one or two of the company’s banners as well as its new head office will be located on the site.
“We bought this parcel of land back in 1967. The thought on how to build a business was build gigantic warehouses all over the place, build retail and then they will come and they will buy stuff and they’ll take it with them,” said Walsh.
“We started a number of years ago in B.C. and built the first-ever DC that would house both Brick and Leon’s product in one building and would be delivered by one set of driver teams. Then we mimicked that in Halifax with a 168,000-square-foot DC and we’re just about to open this fall a new distribution centre in Edmonton that’s 500,000 square feet which we can do the same thing. So centralized distribution is basically the hub and spoke approach. You would have one large DC servicing a very, very large area, which goes away kind of on how the foundation of the company was built on.”
Currently on the proposed development land is 65,000 square feet of retail and 90,000 square feet of warehouse space – about six acres of the 40 total acres.
Walsh said the first phase of the new development will be the retail and home office followed by the master community planning phase. Walsh said he hopes the master plan phase is complete by mid 2025. The current structures on the land would be “disposed” to make room for the overall development.
In the company’s most recent financial quarterly results, it reported in November that for the third quarter, which ended September 20, 2023, revenue was $661 million compared to $662.2 million in the third quarter 2022. Revenue decreased $1.2 million or 0.2 per cent as compared to the prior year quarter.
Adjusted net income for the quarter totaled $51.7 million, a decrease of 12.7 per cent.
Same store sales in the quarter decreased by 0.6 per cent compared to the prior year’s second quarter.
The gross profit margin for the third quarter 2023 was 44.04 per cent compared to 45.92 per cent for the third quarter of 2022, a decrease of 188 basis points. The decline in the gross profit margin is driven by sales mix due to strong growth in the commercial business, higher promotional activity, along with comparing to an exceptionally strong performance in the third quarter of the prior year, said the company.
The company’s next quarterly financial results come out February 21.
“There’s pretty serious headwinds out there with interest rates. We saw it with one of our competitors that is no longer around. We’re seeing in the increase in bankruptcies both personal and business wise. So I think the headwinds are pretty strong. But I also think that there’s a favourable outlook if rates start to get adjusted downward,” said Walsh. “I think the retail landscape is going to be a challenging environment. When I look at it from the perspective of our company, I’m feeling good because I believe that consumer confidence in buying in a brand that they can trust is going to be something that is very, very important.
“As the market share, or the pie, shrinks, generally what happens because we’ve been through every market condition over the last years, our piece of the pie generally grows so that when the whole pie increases we generally have a little bit more market share.
“The big one for me is consumer confidence. From a retail perspective, a lot of the headwinds I can’t control nor can the company. But what we can control is making sure that your shopping experience is amazing, your omnichannel experience is amazing, that you got good people and you treat them well. That’s really how you’re going to get out of whatever you want to call it we’re in.”
LFL’s Board of Directors approved the company’s resolution to create a Real Estate Investment Trust (REIT) via initial public offering (IPO). The timing is subject to prevailing market conditions and receipt of required regulatory approvals.
“Right now we’re going through a lot of the behind the scenes work which is valuations on the property and all the other legal stuff you need to do with the REIT,” explained Walsh. “It will be a separate publicly-traded company with a separate CEO and separate CFO and a separate board of trustees.
“The timing is really when the REIT market starts to come back and some of that will be predicated on some relief on the interest rates. So it will be really when the market is ready for this type of IPO.
“The beautiful thing of having a REIT is because of the properties we have for example our Mississauga Leon’s location is in an industrial location and it does really well on the retail side but we could one day move that retail into a lease area in our retail node and given that this is an industrial node then the REIT could redevelop that land. That’s how you could connect the REIT to Leon’s Furniture Limited.”
