Q4 2019 Earnings Call

February 13, 2020

Operator 2: Ladies and gentlemen, thank you for standing by, and welcome to the Choice Properties Real Estate Investment Trust Q4 Earnings Announcement Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Adam Walsh, Vice President, General Counsel. Thank you. Please go ahead, sir.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Choice Properties Real Estate Investment Trust Q4 Earnings Announcement Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

And welcome to the choice properties Real estate investment Trust Q4 earnings announcement conference call. At this time, all participants are any listen only mode. After the speakers presentation. There will be a question answer session to ask your question. During the session. You want me to press Star one onwards.

Operator: To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Adam Walsh, Vice President, General Counsel. Thank you. Please go ahead, sir.

<unk>.

Please be advised the todays conference is being recorded if you require any further students. Please press star zero I would now like to have a conference over to your speaker today, Adam Walsh Vice President General Counsel. Thank you. Please go ahead Sir.

Thank you Jason Good morning, and welcome to choice properties fourth quarter Conference call. A go into this morning by rail Diamond President and Chief Executive Officer, and Merial Bear a photo Chief financial Officer.

Adam Walsh: Thank you, Jason. Good morning, and welcome to Choice Properties Q4 conference call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer, and Mario Barrafato, Chief Financial Officer. Before we begin today's call, I'd like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements.

Before we begin today's call I'd like to remind you that by discussing our financial and operating performance and in responding to your questions. We may make forward looking statements, including statements regarding choice properties objectives strategies to achieve those objectives.

As well the statements with respect to managements beliefs plans estimates intentions outlook and similar statements concerning anticipated future events results circumstances performance.

Exceptions that are not historical facts.

But there based on our current estimates and assumptions.

Subject to risks and uncertainties that could cause actual results could differ materially from the conclusion in these forward looking statements.

Adam Walsh: Additional information on the material risks that can impact our financial results and estimates and assumptions that we applied in making these statements can be found in the recently filed 2019 annual report and management's discussion and analysis, together with Choice Properties annual information form, all of which are available on our website and on SEDAR. I will now turn the call over to Rael.

Additional information on the material risks that can impact our financial results and estimates and assumptions that we applied in making these statements can be found in the recently filed 2019 annual report.

And management's discussion and analysis.

Together with choice properties annual information form all of which are available on our website and on SEDAR.

I'll now turn the call over to rail.

Rael Diamond: Thank you, Adam, and good morning, everyone. Thank you for taking the time to join our Q4 conference call. We are pleased with both the financial and operational results for the Q4. I'll start with an update on our operational results, and Mario will then provide you with detail on our financial performance. Our income-producing portfolio is comprised of 708 properties and 65.8 million sq ft of GLA and represents a total income-producing value of CAD 15 billion. The portfolio continues to produce consistent and stable results with same asset NOI growth of 3.1% for the quarter and year-end occupancy of 97.7%. Retail real estate represents the majority of our portfolio with a focus on grocery anchored properties and necessity-based tenants. These retailers are far less sensitive to short-term economic fluctuations in the ever-changing retail environment.

Thank you Adam and good morning, everyone. Thank you for taking the time to join up to four conference call.

He's with both the financial and operational results for the fourth quarter I'll start with an update on operational results and Mary will then provide you with detail on our financial performance.

Income producing portfolio is comprised of 708 properties and 65.8 million square feet of geometry, and represents a total income producing value of 15 billion.

The portfolio continues to produce consistent and stable results, but same acid in a wide growth of 3.1% for the quarter and your end occupancy of 97.7%.

Retail real estate represents the majority of our portfolio with a focus on grocery anchored properties and necessity based tenants. These retailers are far less sensitive to short term economic fluctuations and the ever changing retail environment, our retail portfolio is well situated to deliver stability and growth.

Rael Diamond: Our retail portfolio is well situated to deliver stability and growth. Occupants in our retail portfolio was consistent quarter over quarter at 98%. We continue to successfully add to our retail portfolio, both through acquisitions and development. During the year, we acquired four retail assets for CAD 70 million, representing approximately 300,000 square feet of GLA. Each of these assets is anchored either by a Loblaw grocery store or Shoppers Drug Mart, and were all acquired with long-term leases in place. On the development front, we added to the retail portfolio through a mix of greenfield developments and intensifications. These development initiatives continue to provide us with the best opportunity to add high quality real estate to our portfolio at a reasonable cost.

Occupancy in our retail portfolio was consistent quarter over quarter at 98%.

We continue to successfully avatar retail portfolio, both through acquisitions and development. During the we acquired for retail assets for $70 million, representing a price of approximately 300000 square feet of Chile.

Each of these assets is that can either by a lot more grocery store shoppers drug Mart and we're all acquired with long term leases in place.

On the development front, we added to the retail portfolios, where it makes a greenfield developments and intensification.

These development initiatives continue to provide us with the best opportunity to at high quality real estate top portfolio at a reasonable cost you total <unk>.

Rael Diamond: In total, we delivered 385,000 sq ft of retail GLA at a total cost of CAD 136 million during 2019. Included in the transfers for Q4 is a 33,000 sq ft grocery store located on Coxwell Avenue near Gerrard Street in Toronto. This No Frills store opened in December and is an exceptional urban retail asset that we've added to our income-producing portfolio. Our industrial portfolio is concentrated in Canada's largest distribution markets. Apart from the small Bay market in Alberta, industrial assets are operating under healthy fundamentals with low vacancy rates and increasing rent. Period-end occupancy was down 20 basis points to 97.9%, driven mostly by a 100,000 sq ft vacancy in Ontario. There's tenant demand for the space, and we expect to have it re-leased shortly at higher rents than those historically in place.

We delivered 385000 square feet of retail July at a total cost of 136 million. During 2019 included in the transfers for Q4 is a 33000 square foot grocery store located on comfortable Evan Gerard treated drawn to the snowfall store opened in December and he's an exceptional.

Urban retail that said it we've added a income producing portfolio.

Industrial portfolio is concentrated in Canada's largest distribution markets apart from the small bay markedly in Alberta industrial assets operating on a healthy fundamentals, but low vacancy rates and increasing rent parity in occupancy was down 20 basis points to 97.9% driven mostly by hundred thousand square foot vacancy.

Ontario, These tenant demand for the space and we expect to have it is really shortly at higher rents in those historically in place.

Rael Diamond: The acquisition environment for industrial properties continues to be extremely competitive, so we worked with our development partners to grow our industrial portfolio. In 2019, we completed and transferred a total of 768,000 sq ft of industrial development at a cost of CAD 78 million. Incrementally, our development partners continued to provide us opportunities to acquire their interest in stabilized assets. In 2019, we acquired three industrial assets from our development partners, representing 335,000 sq ft at a total cost of CAD 48 million. This includes our partner's 15% interest in our Peddie Road and James Snow Parkway assets in Milton, Ontario, which we acquired in Q4. These assets are new generation, large bay distribution facilities in the GTA West industrial node. We now own 100% of both of these properties.

The acquisition environment for industrial properties continues to be extremely competitive who worked without development partners to grow our industrial portfolio. In 2019, we completed and transfer it turned up 768000 square feet of industrial development at a cost of $78 million incrementally a development partners continue to provide or something.

Trinity's took quite a interest in stabilized assets in 2000 onto we acquired three industrial assets from a development partners, representing 335000 square feet at a total cost of $48 million.

This includes a part is 15% interest you know Petty road and James Snow Parkway assets in most in Ontario, which required in the fourth quarter.

These assets on your generation large paid distribution facilities in the GTK West industrial node, we now own 100% to both of these properties.

Rael Diamond: In addition to our development projects, we acquired a 120,000 sq ft industrial asset from Weston Foods in Q4. The property is located at Weston Road and Lawrence Avenue in Toronto, and was acquired for a total cost of CAD 13 million. We acquired the property with a short-term lease in place, and we will ultimately look to re-lease the building long-term. The asset is within walking distance to the Weston GO Station and Union Pearson Express station stop, and has great access to highways and a deep labor pool. These transactions represent a wonderful opportunity to continue growing our industrial portfolio in strong distribution markets. Next is our office portfolio. Our office portfolio is focused on large, well-located buildings in the downtown core of Canada's largest cities.

In addition taught development projects, we're quite 120000 square foot industrial asset from West infused in Q4. The property is located at Westwood wrote in launch Avenue drawn out and it was acquired for total cost of $13 million.

Why the property with a short term leasing plays and we will ultimately look to release the building long term. The after these within walking distance to the Western go station and your New PS and Express station stop and it's great access to high wage and a deep labor pool.

These transactions represent a wonderful opportunity to continue growing industrial portfolio in strong distribution markets. Next is office portfolio office portfolio is focused on large well located buildings in the downtown cool off Canada's largest cities.

Rael Diamond: Period-end occupancy of our total office portfolio was up slightly from the prior quarter to 93.3%, primarily due to positive absorption in our Vancouver and Calgary portfolio, offset by some declines in Montreal. Our residential platform provides an opportunity to further diversify our portfolio. Our focus has been on developing new rental residential assets, primarily in the GTA. The rental market in the GTA is strong as limited new supply and robust demand has driven up rents. Our current residential platform includes three residential assets that are income producing and another six residential rental assets in various stages of development.

Parity and occupancy about total office portfolio was up slightly from the prior quarter to 93.3% primarily due to positive absorption in our Vancouver in Calgary portfolio offset by some to Todd you Montreal.

Our residential platform provides an opportunity to further diversify our portfolio. Our focus has been on developing new rental residential assets, primarily in the GJ the rental market into GJ strong is limited new supply and robust demand has driven up rents.

Current residential platform includes three residential assets that are income producing an another six residential rental assets at various stages of development to date, we are under vertical construction on two of these projects in the DJ and we expect to commence construction on two additional development projects in 2020, including one project in brand.

Rael Diamond: To date, we are under vertical construction on two of these projects in the GTA, and we expect to commence construction on two additional development projects in 2020, including one project in Brampton next to the Mount Pleasant GO Station, and one in the Westboro neighborhood of Ottawa. We have invested approximately CAD 120 million into our residential developments to date, with an additional CAD 425 million of additional spending planned on these six residential projects over the next few years. Finally, I'd like to provide an update on our transaction activities. We continue to be active with capital recycling. In Q4, we completed two dispositions for total proceeds of CAD 24.3 million. This included a standalone retail asset in Red Deer, and a parcel of development land in Edmonton.

And next to the Mt doesn't go station and wanting the Westborough neighborhood of Autoweb.

We have invested approximately 120 million into residential developments to date with an additional 425 million of additional spending planned on these fixed residential projects over the next few years.

Finally, I'd like to probably bought an update on our transaction activities.

We continue to be active with capital recycling in Q4, we completed two dispositions for total proceeds of 24.3 million sifting through to the Standalone retail acid in red yet in a parcel of developing land in Edmonton subsequent to the quota and we completed the sale of the shops of oakbrook for approximately $98 million Oh Plaza.

Rael Diamond: Subsequent to the quarter end, we completed the sale of the Oakbrook Plaza for approximately $98 million. Oakbrook Plaza is in Chicago, and the asset was not aligned with our long-term strategic focus, considering it was the only asset we owned in the United States. Each of these transactions represent a good opportunity for us to recycle capital into both future acquisitions and into our development program. That concludes my comments. I'd now like to pass it over to Mario to provide an update on our financial performance for the quarter. Thank you.

He's in Chicago.

And the actual was not aligned with a long term strategic focus considering who is the only acid we owned in the United States. Each of these transactions represent a good opportunity for us to recycle capital.

It's about future acquisitions, Andy talked development program that concludes my comments I'd now like to pass it over to married to provide an update on our financial performance for the quarter. Thank you.

Thank you Bill good morning, everyone I'll begin with a brief overview of our financial results and then I'll comment on our balance sheet activity.

Mario Barrafato: Thank you, Rael. Good morning, everyone. I'll begin with a brief overview of our financial results, and then I'll comment on our balance sheet activity. Overall, our results for Q4 and for the year ended 2019 were in line with our expectations and continue to reflect the stability that is inherent in our portfolio. Our reported funds from operations for Q4 was CAD 166 million or 23.7 cents per unit diluted, compared to 25 cents per unit at 30 September. The decrease in FFO was primarily due to two reasons.

Overall, our results for the fourth quarter and for the year ended 2019 were in line, where star expectations and continue to reflect the stability that is inherent in our portfolio.

Our reported funds from operations for the fourth quarter was $166 million or 23.7 cents per unit diluted compared to 25 cents per unit at September Thirtyth.

The decrease in AFFO was coming into the two reasons. One is a 3 million dollar nonrecurring allowance for bad debt associated with a certain mortgage receivable.

Mario Barrafato: One is a CAD 3 million non-recurring allowance for bad debts associated with a certain mortgage receivable, and a CAD 7.1 million non-recurring reimbursement of previously recognized contract revenue for certain solar rooftop leases. This reimbursement relates to revenue received over the last seven years by Choice in error that should have been received by Loblaw. Along with the reimbursement, Choice and Loblaw acknowledged that all future revenue and liabilities related to the solar rooftop leases and related rooftop repair costs belong to Loblaw. Excluding the impact of these non-recurring items, FFO for Q4 would have been CAD 0.25 per unit diluted, which is consistent with the prior quarter. Included in our Q4 performance was growth in same asset cash NOI of 3.1%.

And the 7.1 million nonrecurring reimbursement of previously recognized contract revenue for certain solar roof top leases.

This reimbursement released for revenue received over the last seven years by choice in error that should have Henderson should've been received by Loblaw.

Along with the reimbursement choice in Loblaw acknowledge that all future revenue in liabilities related to the solar rooftop leases and related rooftop repair costs launch loblaw.

During the impact of these nonrecurring items as I thought for the fourth quarter would've been 25 cents per unit deluded, which is consistent with the prior quarter.

Included in our Q4 performance was growth and see massive cash NOI of 3.1%.

Mario Barrafato: This growth reflects annual step rents embedded within the Loblaw portion of our portfolio, as well as incremental cash generated from leasing activity and year-end adjustments for recoveries and percentage rent. Quarter-end occupancy remains strong at 97.7%, with retail occupancy at 98%, industrial occupancy at 97.9%, and office at 93.3%. We did have negative absorption of 49,000 sq ft. However, as Rael mentioned, that figure includes a 100,000 sq ft industrial vacancy in Milton that is expected to soon be re-leased at rents higher than those that were in place. This quarter caps off a strong operational performance year with consistently high occupancy, 403,000 sq ft of positive absorption, and annual same asset cash NOI growth of 2.6%. Now on to our balance sheet.

This growth reflects annual step rents embedded within the law portion of our portfolio as well as incremental cash generated from leasing activity in your own adjustments for recoveries in percentage rent.

[noise] quarter and occupancy remains strong at 97.7% with retail occupancy at 98% industrial occupancy at 97.9% and office at 93.3%.

We did have negative absorption of 49000 square feet. However, as Bill mentioned that figure includes a 100000 square foot industrial vacancy and Milton that is expected to soon be released at rents higher than those that were in place.

This quarter caps off the strong operational performance here with consistently high occupancy 403000 square feet of positive absorption in annual CMS attaching to why growth of 2.6%.

Now onto our balance sheet.

Mario Barrafato: In 2019, we've made significant progress in improving our property portfolio, our financial position, and our risk profile. We improved our property portfolio through ongoing investment in our development program with CAD 140 million of spending during the year on intensification, greenfield, and residential development projects. In 2019, we completed and transferred CAD 256 million of properties under development to income-producing status, delivering 1.1 million square feet of high-quality GLA to our existing portfolio. We also improved our portfolio through active capital recycling, disposing of CAD 468 million in assets in 2019, and the proceeds were utilized to facilitate CAD 153 million in acquisitions, including CAD 133 million of income-producing properties and CAD 20 million of development properties. The balance of the proceeds from our capital recycling were utilized to repay debt.

In 2019, we've made significant progress improving our property portfolio, our financial position and our risk profile.

We improved our property portfolio through ongoing investment in our loan program with a $140 million the spending during the year on intensification Greenfield in residential development projects.

2019, we completed been transferred to $256 million of properties and development the income producing status delivering 1.1 million square feet high quality to relate to our existing portfolio.

We also improved our portfolio through active capital recycling disposing of 460 million assets in 2019, and the proceeds we utilize facility to 153 million acquisitions, including 133 million of income producing properties and $20 million properties.

The balance with the proceeds from a capital recycling utilized repay debt.

Mario Barrafato: When combined with the CAD 395 million of equity we raised in May 2019, we significantly improved our financial position and our risk profile. In 2019, we reduced our leverage ratio to 7.5x debt to EBITDA from 8x at the start of the year. We flattened out and extended our debt maturity ladder, and we maintained a strong liquidity position with CAD 1.4 billion available on our credit facility and CAD 11.8 billion pool of unencumbered properties. Overall, we're extremely pleased with the improvements made to our property portfolio and our financial profile in 2019. Looking forward to 2020, we expect to have continued stability in our core operations, and we will continue to improve our balance sheet as the opportunity arises. I'd now turn the call back to the operator for questions.

When combined with the $395 million of equity, we raised and make when you're thinking we significantly improved our financial position and our risk profile.

In 2019, we reduced our leverage ratio to 7.5 times debt to EBITDA from eight times it started the year.

We flattened out and extended our debt maturity ladder and we've maintained a strong liquidity position with $1.4 billion available on our credit facility.

And 11.8 billion pool of unencumbered properties.

So overall, we're extremely pleased with the improvements made to our property portfolio and our financial profile in 2019.

Looking forward to 2020, we expect to have continued stability in our core operations and we will continue to improve our balance sheet, that's the opportunity arises.

I'd now turn the call back to the operator for questions.

At this time or if you would like to ask your question. Please press Star then the number one on your telephone keypad. Once again, let me start than the number one on your telephone keypad. Your first question comes from a line of Himanshu group down from Scotiabank Your.

Operator 2: At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that is star, then the number one on your telephone keypad. Your first question comes from the line of Himanshu Gupta from Scotiabank. Your line is open.

Mario Barrafato: At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that is star, then the number one on your telephone keypad. Your first question comes from the line of Himanshu Gupta from Scotiabank. Your line is open.

A line is open.

Thank you and good morning.

Himanshu Gupta: Thank you and good morning.

Good morning on the lease expiry in Twentytwenty I think around 1.1 million square feet. All three d., Julie it's coming up for renewal and I think all of which is taught body. So what are your torched here, what kind of challenges or opportunities do things out there.

Mario Barrafato: Good morning.

Himanshu Gupta: On the lease expiry in 2020, I think around 1.1 million sq ft of retail GLA is coming up for renewal, and I think all of which is third party. What are your thoughts there? What kind of challenges or opportunities do you think are there?

Yeah, Hey, messes Ralph Thanks, much for your question I think you have to really look by by asset class and I don't have the numbers exactly Andy's Michigan.

Rael Diamond: Hey, Himanshu. It's Rael. Thanks so much for your question. I think you have to really look by asset class, and I don't have the numbers exactly handy. Just give me a second. Look, I think generally what we're seeing across the portfolio, we don't have mass rolling on office. We're seeing, you know, really positive absorption in Toronto. Montreal continues to be strong, and Calgary continues to be weak. I think on the industrial side, again, Ontario is strong, and Alberta, we're seeing some roll down, particularly on the small bay space. You know, there continues to be decent demand for space in our retail portfolio.

Look I think I think generally what we've seen across the portfolio.

We don't have much rolling.

On office and we've seen no real positive absorption in Frano Montreal continues to be strong in Calgary continues to be we I.

I think on on the industrial side again, Ontario is strong and L., but are we seeing some roll down in particular on the small base space and then you know this continues to be decent demand for space. You know you know retail portfolio.

Sure Okay.

Himanshu Gupta: Sure. Okay. You touched upon the industrial portfolio, obviously seems so, NOI was strong, 3.9% in the quarter. Does that include the CREIT industrial portfolio?

And you touched up on the industrial portfolio, obviously seems so.

And why it was strong people nine person in the quarter.

Does that include the Creed industrial portfolio.

Yeah, Yeah, it's a marriage the 3.9 importing crude and creed.

Mario Barrafato: Yeah. Yeah. Mario's, the CAD 3.9 in the quarter including CREIT?

Yeah, Yes. It includes both.

Mario Barrafato: Yeah.

Mario Barrafato: Yes, it includes both.

Himanshu Gupta: Sure. Maybe, you know, just on industrial, how much of your industrial portfolio is in Alberta as a percentage of NOI or asset values, and what are the trends in, say, Calgary or Edmonton markets?

Sure and and maybe just on industry and how much off your industrial portfolio is in Alberta as it but sometimes you have analyzed asset values and what are the trends and I say category you Edmonton markets.

So so if you look at the non Ludlow assets that's approximately.

Mario Barrafato: If you look at the non-Loblaw assets, it's approximately, you know, 45%, I believe, is in Alberta. Calgary is definitely stronger than Edmonton. But we are seeing weakness in the Calgary small bay market, as we said. Having said that, we have quite a bit of potential expiry in Edmonton in 2020, which we expect on the, you know, mid or large bay to retain all the tenants.

45% I believe is in Alberta.

Kelly, Calgary, Steffi stronger than Edmonton, but we all see weakness in the Calgary small day market as we said I'm, having said that we have quite a bit of.

Potential expiry in Edmonton in 2020, which we expect from the middle large paid to to retain all the tenants.

Sure.

Himanshu Gupta: Sure.

Mario Barrafato: Actually we are seeing decent activity as well on our Great Plains. We have one building that is for lease that we are in discussion with a tenant to potentially take the whole space. We actually view that as very positive.

Actually we all think Ethan activity as well on our great Plains. We have one building that is for lease that we are in discussion with the tenant to protect you take the whole thing so we actually.

We view that is very positive.

Himanshu Gupta: Sure. Maybe just switching gears on the fair value adjustment, this quarter. I think in the disclosure you mentioned increased fair value of value on Ontario residential development project. How much was the size of fair value adjustment? I'm assuming it must be Dufferin Street or East Liberty.

Sure and maybe just switching gears on the fair value adjustment. This quarter I think there disclosure you mentioned, increasing the value of value on on T. deal that you'd actually I've been talking like how much was a sizable fair value adjustment and I'm, assuming it must be dolphins treat all the east Liberty.

Yeah, the amounts approximately $8 million and yes. It was it was on dufresne. So its at a stage now where.

Mario Barrafato: Yeah. The amount's approximately CAD 8 million, and yes, it was on Dufferin. It's at a stage now where we've hit certain milestones on construction, and we changed the fair value from cost to a modified cost to reflect the value today.

We've had certain milestones on construction and so we we changed the fair value from cost to a modified cost reflects the value today.

Himanshu Gupta: Sure. Maybe just last question from me on the capital budget or the maintenance program. Property capital in 2019 came in much lower compared to last year. Is that the new trend or do we see capital budget going back up in 2020? Any color there?

Sure.

And maybe just last question from me on the capital budget on Monday News program.

So poverty capital in 2019 came in a much lower compared to last year.

Is that the new trend or Oh, do we see capital budget going back up in Twentytwenty any color there.

Sure no we intentionally slowed down our capital spending this year on maintenance projects to revise the process and how we evaluate.

Rael Diamond: Sure. No, we intentionally slowed down our capital spending this year on maintenance projects just to revise the process on how we evaluate how we spend, where we spend, and we've added some additional resources, expertise to manage that. It was lower this year intentionally. Next year it'll get back to levels around 2018 level.

How we spend where we spend and we've added some additional resources or expertise to manage that so it.

It was lower this year intensely next year, it'll get back to a to levels around 2018 level.

Himanshu Gupta: Sure. Thank you. Thank you, guys. I'll turn it back.

Sure. Thank you. Thank you guys I'll turn it back.

Operator 2: Your next question comes from the line of Sumayya Syed from CIBC. Your line is open.

Himanshu Gupta: Your next question comes from the line of Sumayya Syed from CIBC. Your line is open.

Your next question comes from a line of sight.

Sure well I'm sad from C.I.B.C. Your line is open.

Sumayya Syed: Thanks. Morning. Just, firstly, can you give us a bit more detail on the residential developments in Brampton and Ottawa mentioned in the outlook, just how many units, any partners, and just the scope of those projects?

Thanks morning.

Just a first it can you give me a bit more detail.

Oh.

And.

Ottawa.

And the outlook just how many units any partner's interest the scope of those.

Sure.

Rael Diamond: Sure. The one in Brampton, we own the land in conjunction with Daniels. We would look to do 270-odd rental units and about 90 to 100 condo units, I believe. We actually build the condo units on spec and then look to sell them, you know, at a later date. We just think that the Brampton market is more suited to that strategy. You know, we basically have barely any land cost on the asset given it used to be a retail property or property that we were, you know, marketing for retail development, and we've actually sold some land at a gain. We're actually very excited by the project, yes, given its location.

The one in Brampton, we other land in conjunction with Daniels.

We would look to do HM 270, odd rental units and about 90 to 100 condo units I believe and wish him build the condo units on on spec and they look to sell them.

At a later dates we just think that the Brampton market is more suited to two that strategy. You know, we basically have barely any land cost.

On the asset given we had used to be a retail property or probably that we were.

Walking fault for retail development and we've actually sold some land set again. So so we actually very excited by the project is given its location is actually very strong demand in that facility and we have a very very good partner.

Rael Diamond: There's actually very strong demand in that vicinity, and we have a very good partner. On the asset in Ottawa, we currently own 100%, but we actually are in discussions to potentially bring in a 50% partner. I guess once we finalize that, we will provide additional color. You know, we are potentially working with an existing partner. We have a development manager in Ottawa who's gonna assist us with the project, and we'll provide you more color as we have it.

On the asset in auto why we currently own 100%, but we actually are in discussions to potentially bring in a 50% partner that I guess once we finalize that will provide additional color, but you know we all potentially working with an existing partner we have a development we have a development manager in auto where he's going to assist us with the project.

And and and we'll provide you more color as we have it.

Okay, and how many units.

Sumayya Syed: Okay.

Rael Diamond: Sorry.

Sorry.

So that one in auto is about 260 units.

Sumayya Syed: Sure.

Rael Diamond: The one in Ottawa is about 250 units.

Sumayya Syed: 250. Okay, great. Can you just go over, I guess, the potential for more major mixed-use sites outside of Toronto, for example, Montreal, BC, and how the scope there compares to what you've identified in Toronto so far?

Two.

Okay great.

And then can you just.

I guess the potential for more a major mixed use sites outside of <unk> for example, Montreal RBC.

School to their compares to.

<unk>.

So far.

Yes so.

Rael Diamond: You know, we will disclose projects as we start a rezoning process. We haven't really disclosed much outside of the GTA. In Vancouver, we've disclosed one project in Coquitlam, and we actually have acquired some additional land, which, in our view, gives us some additional density, because it connects you know, access to the site. We are busy working through the zoning on that site, and as soon as we have more color, we'll provide it. You know, we don't have anything yet to report in Montreal at this time.

We will disclose we will disclose projects as we start a rezoning process. We haven't really just we haven't really disclose much outside of the GCA.

In Vancouver, Weve disclosed one projects include quite to them and we actually.

We have acquired some additional land, which in our view gives us some additional density because it connects you know access to the sites, but we are busy working through designing on their side and as soon as we have more kinda will provide it.

We don't have anything yet to report.

On to all at this time.

Sumayya Syed: Okay. That's fair. This is lastly for me, just on the, I guess the North Hill store developed on Coxwell. Just how would the development yield there compare to what you would see in terms of market cap rates for similar assets?

Okay, that's fair.

I see.

Just on the I guess, an awful store developed on Hawks Hollywood.

Compared to what you would see in terms of market cap rates for a similar assets.

So well in excess we would have you know just north of a seven year old on all cost on that assets.

Rael Diamond: Well in excess. We would have, you know, just north of a 7% yield on our cost on that asset. In the GTA, an asset like that, you know, market rent, 15-year lease would start with a low 5%, maybe even a high 4%.

So in the DTA and asset like that you know market rents 50, new lease would you know would start with a lot of five maybe even a hospital.

<unk>.

Okay, that's great I'll turn it back thank you.

Sumayya Syed: Okay. That's great. I'll turn it back. Thank you.

Your next question comes from the line of Sam.

Operator 2: Your next question comes from the line of Sam Damiani from TD Securities. Your line is open.

Sumayya Syed: Your next question comes from the line of Sam Damiani from TD Securities. Your line is open.

I mean any from TD Securities. Your line is open.

Thank you most of my Big question.

Sam Damiani: Thank you. Most of my big questions have been asked, but just run through some quick, detailed ones. Just on the Chicago, first of all, congratulations there. Nice to see the successful sale there. How did that sale price compare to your IFRS fair value in recent quarters?

Just went through some quick.

Detailed once just on the Chicago first of all congratulations there nice to see the successful silver how would that how does that sell price compare to your eye for us for value.

Quarters.

So since we last quarter, we actually.

Rael Diamond: Sam, last quarter, we actually made some reference to, you know, some write-downs on power centers. We actually had decreased the asset value slightly. You know, the US market is different to Canada. You know, it was a very strong power center, but, you know, buyers of those assets definitely have a more negative outlook just given what's going on in the US. We did actually. It was at our carrying value in Q4, but in Q3, we did have a small write-down.

We made some reference to you noted some write downs on power sensors, we actually had decreased the asset value slightly you know the U.S. market is different to Canada that you know, it's a very strong that wasn't very strong power center, but you know buyers of those assets definitely have a more negative outlooks just given.

It's going on in the U.S.

So we did actually it was that are carrying value in Q4, but in Q3, we did have a small lot though.

Sam Damiani: What kind of cap rate did the CAD 98 million reflect?

What kind of cap rate did the 90 billion.

[music].

Rael Diamond: It was around a six.

It was around the six.

Sam Damiani: A six. Interesting. Okay. Just on the property for CAD 13 million, 125,000 sq ft, I think you said. Sorry, what was the address or what was the division or tenant that was in the building right now?

Interesting, okay, and just on the on the property for $13 million 125000 square feet. I think you said Oh sorry.

Yeah, Chris or what was the <unk> division or tenant that was in the building right now.

Rael Diamond: It's Weston Foods, and it was 1965 Lawrence Avenue West.

It's a question foods.

I was 1965 large revenue west.

Sam Damiani: Oh, okay. That's gonna stay as an industrial use for the foreseeable future?

So that's gonna stay as an industrial use for the foreseeable future.

Rael Diamond: Yeah, like from our point of view, that's a spectacular asset. We view it, we're buying it on an industrial basis, income producing. You know, in the future, you know, has potential gentrification potential. We intend to lease it right now.

Yeah, and we like from my point of view, that's a spectacular asset we view it as we buy and on a on a new docile basis income producing but you know in a few should you know has potential densification potential, but we tend to reduce it right now.

Sam Damiani: Right on. The vacancy you referred to in Milton Industrial, which building is that? I'm just wondering if it would be one of the newly developed ones.

And the vacancy you referred to and is built in industrial which was building is that I'm. Just wondering if it would be one of the newly developed.

No. It's it's it's an older generation bolting on pocket.

Rael Diamond: No, it's an older generation building. It's 89 Parkview.

Sam Damiani: Mario, you give us some outlook for 2020 in your comments there, looking for some opportunities possibly to further improve the balance sheet. If you had an opportunity to, you know, successfully dispose assets, I mean, where would you like to see the leverage go down to?

Okay.

Mario you give us some outlook for 2020 in your comments there I'm looking for some opportunities possibly to further improve the balance sheet.

So if you had an opportunity to.

It's really.

Dispose assets, I mean, where would you like to see the leverage go down to.

Well.

Mario Barrafato: Well, I mean, we're pleased with our leverage right now. I mean, we made a lot of progress from last year. We got rid of a lot of the acquisition debt. Now in the range of where the rating agencies kind of want us to be. I mean, if we had opportunities, it's really gonna be more asset based. Like, as we sell, you know, Chicago and other assets, if we have opportunities to recycle that capital, we will. If we have the opportunity to pay down debt, we're more than happy with that too. There's no urgency right now to get our debt level lower.

We're pleased with our leverage right now I mean, we made a lot of progress from last year, we got rid of a lot of the acquisition debt.

Now in the in the range of the.

Kind of want us to D.. So I mean, if we had opportunity is really going to be more asset base like asked me. So you know Chicago.

In other assets, we have opportunities to recycle that capital, we will but if we have the opportunity to pay down debt.

With that too, but there's no urgency right now to to get our debt level lower okay. That's helpful.

Sam Damiani: Okay, that's helpful. You know, Rael, you did mention the outlook for retail in the US, obviously much worse, and it's certainly a whole lot better in Canada. Nonetheless, you know, are you looking at possibly lightening up on some of the legacy CREIT retail properties in Canada as a way of capital recycling?

Are you really you did mention.

For retail in the U.S., obviously, much worse and that's certainly a whole lot better in Canada.

Nonetheless.

Looking at possibly you'd like to go up on some of the legacy create retail properties in Canada.

As a way of capital recycling.

Yeah, you know Sam we looking we go through a capital recycling process as Mary mentioned.

Rael Diamond: You know, Sam, we're going through a capital recycling process, as Mario mentioned. You know, as we have more to update, we will. It's gonna be a combination of both legacy CREIT and Choice assets.

As we have more true to update we will but its gave me a combination of both legacy Cree said and choice efforts.

Sam Damiani: Just for clarification, is there any exposure of any consequence to, you know, some recent retailers that have decided to close up shop, like, Papyrus and Carlton Cards, La Senza, Pier 1, whatnot?

And just for clarification is there any exposure of any of any consequence to some recent retailers that have decided to close up shop.

Oh populous across car loosens up here one.

There is some exposure primarily in you know the palace and support for the we aren't but yeah I don't know the exact numbers, but it's not significant.

Rael Diamond: There is some exposure, primarily in, you know, the power center portfolio that we own. You know, I don't know the exact numbers, but it's not significant.

Sam Damiani: Well, not measurable. Okay. Just lastly, you mentioned a couple residential projects starting this year, and I appreciate the detail there. What is the timing on 1050 Sheppard and Grosvenor?

Okay.

And just lastly, you mentioned a couple a couple of residential projects starting this year and appreciate the detail there.

What is the timing on 10, 50, Shepherd and a and Kroger.

You know Sam and 10 50 shepherded the rezone process has taken us a bit longer.

Rael Diamond: You know, Sam, 1050 Sheppard, the rezoning process has taken us a bit longer. Why don't I get back to you? We hopeful that 1050 Sheppard we can, you know, have a lot of progress towards the end of 2020 and maybe commence construction, but likely next year. Grosvenor, we still going through the rezoning process. As we have better timing, we'll give it to you.

Why don't I get back to you, we we hopeful that 10 50 weekend.

We have a lot of progress towards the end of 2020, and maybe commence construction, but likely next year and growth no. We don't read through the rezoning process as we have been a timing will give us your.

Sam Damiani: Okay. That's helpful. I'll turn it back. Thank you.

That's helpful I'll turn it back thank you.

[noise] again, if you would like to ask your question. Please press Star then the number one on your telephone keypad. Your next question comes from a line of Janney Mall from BMO capital markets. Your line is open thanks good morning.

Operator 2: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Jenny Ma from BMO Capital Markets. Your line is open.

Sam Damiani: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Jenny Ma from BMO Capital Markets. Your line is open.

Jenny Ma: Thanks. Good morning. Rael, in the past, I guess in Q1 we're gonna start seeing the full contribution of the CREIT portfolio in the same property NOI number. The Choice legacy assets have sort of been running in that 2.5% to 3% range for the last three years or so. Any update or commentary on what you think the pro forma full portfolio SPNOI number may be for 2020?

Ah rail in the past a I guess in Q1, we're going to start seeing the a full contribution accrete portfolio in the same property NOI number the choice legacy assets it sort of been running in that shouldn't have to 3% range for the last three years or so any update or commentary on what you think the pro forma full portfolio.

As piano why number maybe for 2020.

Yeah, Hi, Denise Mary I'll take that one I know you're right as you get to a bigger base the impact of the a of the step rents get smaller.

Mario Barrafato: Hi, Jenny, it's Mario. I'll take that one. No, you're right. As you get to a bigger base, the impact of the step rents gets smaller. Just by basis of math, rather than being in the high 2s, we'd probably be more in that 1.5% to 2% range. What'll impact that further is, you know, as we have rollover, most of that is in the CREIT portfolio or the ex-CREIT portfolio. You will have some temporary vacancies such as the industrial property we talked about and some of the retail. We think kind of in that 1.5% range is likely where we'll be, half of it by math, the other half is by more activity in the portfolio.

And so just by bases of math, rather than being in the and the high twos, we'd probably be more on that wanted to have 2% range and the.

Little impact that further as you know as we have roll over most of that is in the create portfolio or the extra portfolio. So you will have some temporary vacancy such as the industrial property talked about and some of the retail. So so we think kind of in that that wanted to have percent range is likely wont be half of this by mascot houses by more activity.

In the portfolio.

Jenny Ma: Great. That's helpful. With the Chicago disposition, I know in the past, during the CREIT days, there was some tax implication around that sale. In this instance, you know, is there gonna be a tax impact that will come in Q1, or was that sort of resolved in the last couple of years?

Great that's helpful.

With the Chicago disposition I know in the past I'm going to create Dave.

Tax implication around that sale. So in this instance did you you know is there going to be a tax impact that word that will come in in Q1 or was that sort of resolved in the last couple of years.

[noise]. It's due was resolved so basically there'll be no tax it on that from that property.

Mario Barrafato: It was resolved. Basically, there'll be no tax hit on that from that property.

Jenny Ma: Okay, great. My last question is, there were a couple of properties that were still in due diligence as part of the Oak Street portfolio transaction. I'm not sure if one of the two that were sold in Q4 was one of them, but do you have an update on where those two dispositions are at?

Okay, Great and then my last question is there were a couple of properties that were still in due diligence as part of the Oak Street portfolio transaction I'm not sure if that's what.

One of the two that were sold in Q4 was one of them, but you have an update on where those two dispositions.

Yeah, I'm Jenny those two different having those two never preceded.

Rael Diamond: Yeah. Jenny, those two never proceeded. You know, they were small. I think Oak Street was focused on other items, and I think it just dragged out and eventually they said it was just too small to transact on.

You know there was small I think over Threeq was focused on other items and I think it just dragged out and then eventually they said it was just too small to transact huh.

Okay are you still in discussions with them about potential acquisition I start dispositions down the road.

Jenny Ma: Okay. Are you still in discussions with them about potential dispositions down the road?

Right now we know in discussions with them.

Rael Diamond: Right now we're not in discussions with them.

Jenny Ma: Okay, great. Thanks. I'll turn it back.

Okay, great. Thanks, I'll turn it back.

There are no further questions at this time I turn the call back over to the presenters.

Operator 2: There are no further questions at this time. I turn the call back over to the presenters.

Jenny Ma: There are no further questions at this time. I turn the call back over to the presenters.

So thank you everyone for joining us this morning, I'm, starting tomorrow for everyone enjoys the long weekend bye.

Rael Diamond: Thank you everyone for joining us this morning. Starting tomorrow, hopefully everyone enjoys the long weekend. Bye.

Operator 2: That concludes today's conference call. You may now disconnect.

Rael Diamond: That concludes today's conference call. You may now disconnect.

That concludes today's conference call you may now disconnect.

[music].

Q4 2019 Earnings Call

Request a DemoDemo

CHP

Choice Properties

Earnings