Q1 2020 Earnings Call

May 7, 2020

Operator: Good morning, ladies and gentlemen, and welcome to Crombie REIT's Q1 2020 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, 7 May 2020. I would now like to turn the conference over to your host, Claire Mahaney Lyon. Please go ahead.

These past two months have been unlike any we've seen in our lifetimes with a global pandemic a virtual shutdown of the global economy.

Most rapid decline in global Capital markets in history and the most significant government stimulus package has ever truly these events are unprecedented the face of all this turmoil in a long-term strategy remains unchanged over the last two months our team mobilized in a Relentless manner to prioritize the health safety and the well-being of our employees tenants communities and our business is this talented team in combination with chrome be strong financial condition and high-quality Grocery and Pharmacy anchored portfolio that positions us well to manage the uncertainty presented by this unprecedented event Approximately 80% of crappies retail portfolio remains open as grocery stores and pharmacies are essential Services provided Canadian food and Vinyl Products during this Global pandemic our largest tenants Soby's and our strategic partner Empire our meeting the essential needs of Canadian customers, exceptionally. Well, yep.

Claire Mahaney Lyon: Thank you, Chris. Good day, everyone, and welcome to Crombie REIT's Q1 conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.crombiereit.com. Slides to accompany today's call are available on the investor section of our website under presentations and events. On the call today are Don Clow, President and Chief Executive Officer, Glenn Hynes, Executive Vice President and Chief Operating Officer, and Clinton Keay, Chief Financial Officer and Secretary. Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our annual information form, for a discussion of these risk factors.

Finance team secured increase liquidity and it worked tirelessly with our operations accounting and leasing teams to build and Implement our rent deferral program Crombie value small business in mid-march. We implemented a thank-you program for our property employees who are doing the important work of maintaining our operations and infirm ensuring the safety of those customers visiting our sights. We're incredibly proud of our team and the work they do especially at a time like this. We extend our heartfelt sympathy to all of those who have lost loved ones to this virus and our gratitude to be front-line employees who work to keep our health care and essential services including so be stores.

Claire Mahaney Lyon: I will now turn the call over to Don, who will begin our discussion with comments on Crombie's overall strategy and outlook. Glenn will follow with a development update and a review of Crombie's operating fundamentals and results, and Clinton will conclude our prepared remarks with a discussion of our financial results, capital allocation, and approach to funding. Don?

Don Clow: Thank you, Claire, and good day, everyone. Crombie's long-term strategy is to deliver strong risk-adjusted returns by effectively allocating capital within our grocery and pharmacy-anchored real estate portfolio to accelerate net asset value and AFFO growth per unit. This is accomplished through maximizing the value creation of our strategic relationship with Empire and Sobeys, as well as the development of one of the strongest major market urban development pipelines in Canada. Our strategy is supported by ample cost-effective capital, strong balance sheet, and as well as one of the most talented real estate teams in the country. These past two months have been unlike any we've seen in our lifetimes, with a global pandemic, a virtual shutdown of the global economy, the most rapid decline in global capital markets in history, and the most significant government stimulus packages ever. Truly, these events are unprecedented.

Operating although we are facing unprecedented conditions Crombie long-term strategy nevertheless continues to look promising through q1, probably strong fundamentals drove off massive property cash nly with rock record Hyatt committed occupancy and solid leasing our grocery and Pharmacy anchored retail is robust and defensive. We're working partnership with Empire to align our strategies to maximize value creation. They recognize a need to reinvest and renovate their current stores across the country and we will continue to work with them through modernization Fresco conversions the build out of their e-commerce home delivery hub-and-spoke Network land-use intensification and the unlocking of major developments our first six major developing continue to progress albeit at a slower Pace do the temporary delays caused by government required shutdowns labor shortages or supply chain issues during the shutdown and non-essential consumer.

Don Clow: In the face of all this turmoil, Crombie's long-term strategy remains unchanged. Over the last two months, our team mobilized in a relentless manner to prioritize the health, safety, and the well-being of our employees, tenants, communities, and our business. It is this talented team, in combination with Crombie's strong financial condition and high-quality grocery and pharmacy-anchored portfolio, that positions us well to manage the uncertainty presented by this unprecedented event. Approximately 80% of Crombie's retail portfolio remains open, as grocery stores and pharmacies are essential services providing Canadians with food and vital products during this global pandemic. Our largest tenant, Sobeys, and our strategic partner, Empire, are meeting the essential needs of Canadian customers exceptionally well. Crombie's finance team secured increased liquidity and have worked tirelessly with our operations, accounting, and leasing teams to build and implement our rent deferral program, Crombie Values Small Business.

In Quebec and Montreal CFC development projects are currently on hold with construction restart schedule next week on May eleventh British, Columbia and Ontario of DM construction jobs, including residential construction essential accordingly or projects at Davie Street in Vancouver and brought a village in the GTA continued albeit at a slower Pace to ensure these to ensure the safety of all individuals on site Belmont Market in British. Columbia is experiencing minimal delays through 2020. We continue to expect to reach substantial completion on approximately three hundred million dollars of construction on Davie Street, Belmont Market and Avalon Mall with a slightly delayed schedule. We will continue investing in Bronte LeDuc and the phone number for Film It Center to complete those developments totaling approximately three hundred million during 2021. We have another seven projects in pre-planning where we continue our work to improve a game.

Don Clow: In mid-March, we implemented a thank you program for our property employees who are doing the important work of maintaining our operations and in turn, ensuring the safety of those customers visiting our sites. We're incredibly proud of our team and the work they do, especially at a time like this. We extend our heartfelt sympathy to all of those who've lost loved ones to this virus, and our gratitude to the frontline employees who work to keep our healthcare and essential services, including Sobeys stores, operating. Although we are facing unprecedented conditions, Crombie's long-term strategy nevertheless continues to look promising. Through Q1, Crombie's strong fundamentals drove our same asset property cash NOI with record high committed occupancy and solid leasing. Our grocery and pharmacy-anchored retail is robust and defensive. We're working in partnership with Empire to align our strategies to maximize value creation.

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Even answering entitlements for each development in summary Crombie is resilient and Nimble in the face of a fast-changing and unprecedented macro-environment. When we continue to work diligently to ensure commitment to our stakeholders remains steadfast with that. I'll now turn the call over to Glenn who will provide an update on our development and operational highlights Glen. Thank you. Have a good day everyone. I would like to begin with an overview of crombie's response to this endemic to reassure you our unit holders that we are committed to delivering value through a business that remains strong despite the current economic reality. We enacted our business continuity plan to create optimal conditions for the safety of our tenants customers staff and properties our teams continue to enhance cleaning and sanitizing and physical distancing measures and thankfully are now proactively preparing critical plans for reopening of those tenants that were forced to close near the end of month.

Don Clow: They recognize a need to reinvest and renovate their current stores across the country, and we will continue to work with them through modernizations, FreshCo conversions, the build-out of their e-commerce home delivery hub and spoke network, land use intensifications, and the unlocking of major developments. Our first six major developments continue to progress, albeit at a slower pace due to temporary delays caused by government required shutdowns, labor shortages, or supply chain issues. Due to the shutdown of non-essential construction in Quebec, our Leduc and Montreal CFC development projects are currently on hold, with construction restarts scheduled next week on 11 May. British Columbia and Ontario have deemed construction, including residential construction, essential. Accordingly, our projects at Davie Street in Vancouver and Bronte Village in the GTA continue, albeit at a slower pace, to ensure the safety of all individuals on site.

Order we launched Crombie value small business a rent deferral program for small business tenants who have been impacted by business closures prompt as well positioned with respect to the defensiveness annual minimum rent with 75% generated from grocery and Pharmacy anchored properties 67% from essential services and only 6% from small business with our largest tenants are investment-grade grocery stores pharmacies Banks and government offices over the last few years. We've improved the quality of our portfolio by acquiring assets in Canada stock markets as well as recycling approximately eight hundred million dollars in assets mostly in secondary and tertiary markets to reinvest in crombie's urban major developments the portfolio we close at today is stronger and improves our positioning for future periods of uncertainty such as what we are experiencing today with covid-19.

Don Clow: Belmont Market in British Columbia is experiencing minimal delays. Through 2020, we continue to expect to reach substantial completion on approximately CAD 300 million of construction on Davie Street, Belmont Market, and Avalon Mall with a slightly delayed schedule. We will continue investing in Bronte, Leduc, and the Voilà par IGA customer fulfillment center to complete those developments, totaling approximately CAD 300 million during 2021. We have another 7 projects in pre-planning, where we continue our work to improve and deliver value enhancing entitlements for each development. In summary, Crombie is resilient and nimble in the face of a fast-changing and unprecedented macro environment, and we continue to work diligently to ensure our commitment to our stakeholders remains steadfast. With that, I'll now turn the call over to Glenn, who will provide an update on our developments and operational highlights. Glenn?

During the month of April 87% of gross rent was collected in addition to collected amounts. We have completed two months rent deferrals with certain tenants representing about 2% of monthly gross rent the remaining 11% consists of approximately 2% who could qualify for deferral and approximately 9% representing other larger Town most of whom could and should have paid April rent, but chose not to we are evaluating the implications of the recently-announced secrets small business government program may be productive in supporting small-business through this unprecedented time a particular note close to 40% of crombie's uncollected. April rent was from one property laws are enclosed Shopping Centre Avalon Mall, which has been effectively closed due to provincial government restrictions, since the end of March our defensive portfolio is robust and our team wage.

Glenn Hynes: Thank you, Don, and good day, everyone. I would like to begin with an overview of Crombie's response to this pandemic, and to reassure you, our unit holders, that we are committed to delivering value through a business that remains strong despite the current economic reality. We enacted our business continuity plan to create optimal conditions for the safety of our tenants, customers, staff, and properties. Our teams continue to carry out enhanced cleaning, sanitizing, and physical distancing measures, and thankfully are now proactively preparing critical plans for reopening of those tenants that were forced to close. Near the end of the quarter, we launched Crombie Values Small Business, a rent deferral program for small business tenants who have been impacted by business closures.

Working with our tenants to ensure rent deferrals are provided where necessary and rent is collected strong fundamentals under 285 property portfolio were demonstrated by record-high committed occupancy of 96.2% in q1 new leases and expansions increased occupancy by forty four thousand square feet at an average first-year rate of $22.57 per square foot. We ended the quarter with a hundred and twenty four thousand square feet of committed space at an average first-year rent of $20.08 per square foot boosting future and off during the quarter 156,000 square feet of renewals were completed at a four and a half percent increase over expiring rental rates same asset and growth was off 1.7% And that was slowed by an approximate $500,000 bad debt provision. Otherwise a more solid plus 2.6% same acid noi result would have been dead.

Glenn Hynes: Crombie is well-positioned with respect to the defensiveness of our annual minimum rent, with 75% generated from grocery and pharmacy-anchored properties, 67% from essential services, and only 6% from small business. Our largest tenants are investment-grade grocery stores, pharmacies, banks, and government offices. Over the last few years, we've improved the quality of our portfolio by acquiring assets in Canada's top markets, as well as recycling approximately CAD 800 million in assets, mostly in secondary and tertiary markets, to reinvest in Crombie's urban major developments. The portfolio we have today is stronger and improves our positioning for future periods of uncertainty, such as what we are experiencing today with COVID-19. During the month of April, 87% of gross rent was collected. In addition to collected amounts, we have completed two-month rent deferrals with certain tenants representing about 2% of monthly gross rent.

as we continue to make

Nuber are necessity based portfolio through these uncertain times. Our team is dedicated to ensuring our underlying business fundamentals and core portfolio remain resilient and strong. Our development pipeline has been impacted by the repercussions of covid-19 with minor adjustments to our timelines and related Revenue commencements at this time. We're not expecting significant changes to our cost to complete and are comfortable that our cost estimates including contingencies will be sufficient such that are published cost estimates should remain intact in Vancouver construction continues at our Davie Street project, although at a slower Pace driven by social distancing and a reduced Workforce. The 45,000 square-foot Safeway store is projected to open later this month and the nine thousand square feet of ancillary retail space should follow in Q2 and Q3 construction of the 330 residential rental unit number.

Glenn Hynes: The remaining 11% consists of approximately 2% who could qualify for deferral and approximately 9% representing other larger tenants, most of whom could and should have paid April rent, but chose not to. We are evaluating the implications of the recently announced CECRA Small Business Government program, as it may be productive in supporting small business through this unprecedented time. Of particular note, close to 40% of Crombie's uncollected April rent was from one property, our enclosed shopping center, Avalon Mall, which has been effectively closed due to provincial government restrictions since the end of March. Our defensive portfolio is robust, and our team is working with our tenants to ensure rent deferrals are provided where necessary and rent is collected. Strong fundamentals on our 285-property portfolio were demonstrated by record high committed occupancy of 96.2% in Q1.

Are now scheduled to be complete in Q4 of this year. This project is one hundred percent tender at Belmont Market in Langford committed occupancy is 90% off 137000 square feet that's built and operational the final phase of the development consists of three buildings, totaling $23,000 additional square feet that is yet to be built construction will commence the first building in Q2 of this year with the remaining two buildings slated for 20 21 construction as we expect slower leasing do to covid-19.

There has been significant consolidation in the retail industry such that Regional models such as Avalon Mall and st. John's Newfoundland and Labrador are dominant in their Market Avalon is the only region in all of Newfoundland and Labrador a province with five hundred thousand people and with sales over seven hundred dollars a square foot. Of course that is without an Apple Store prior to covid-19 Thursday. We are confident it will survive this pandemic and remerge re-emerged. Once the economy reopens that said tenants that enclosed malls like Avalon Mall are nevertheless facing challenging times with significant retail closures. We are optimistic as Newfoundland and Labrador is successfully flattening the curve with very few cases of covid-19 over the last two weeks construction of our expansion area is substantially complete as we have turned over certain of our mid box anchor spaces to our tenants. However, the grand opening will be delayed given the current state of emergency.

Glenn Hynes: New leases and expansions increased occupancy by 44,000 sq ft at an average first-year rate of CAD 22.87 per sq ft. We ended the quarter with 124,000 sq ft of committed space at an average first-year rent of CAD 20.08 per sq ft, boosting future NOI growth. During the quarter, 156,000 sq ft of renewals were completed at a 4.5% increase over expiring rental rates. Same asset NOI growth was +1.7%, and that was slowed by an approximate CAD 500,000 bad debt provision. Otherwise, a more solid +2.6% same asset NOI result would have been posted.

Glenn Hynes: As we continue to maneuver our necessity-based portfolio through these uncertain times, our team is dedicated to ensuring our underlying business fundamentals and core portfolio remain resilient and strong. Our development pipeline has been impacted by the repercussions of COVID-19, with minor adjustments to our timelines and related revenue commencements. At this time, we're not expecting significant changes to our cost to complete and are comfortable that our cost estimates, including contingencies, will be sufficient such that our published cost estimates should remain intact. In Vancouver, construction continues at our Davie Street project, although at a slower pace, driven by social distancing and a reduced workforce. The 45,000sqft Safeway store is projected to open later this month, and the 9,000sqft of ancillary retail space should follow in Q2 and Q3.

In these circumstances in the province, which will impact tenant fit-up and opening schedules in Quebec construction was shut down and March 23rd with site schedule Dasani mentioned not open on May 11th in Montreal at our Leduc project. We've adjusted our expected completion date by one quarter to open now in Q3 of 2021 and we expect some cost increases do these delays the 25-story mixed-use Tower with 26,000 square feet of commercial space and 390 residential rental units is currently constructed to the 19th floor and the project is 86% tendered we continue to monitor covid-19 related events in the province or potential impact on our development activity the launch of Wallah the e-commerce service for Quebec and the Ottawa area is still expected in 2021. So work is complete and tendering as well underway with construction to commence this spring the Bronte Village Construction.

Glenn Hynes: Construction of the 330 residential rental units are now scheduled to be complete in Q4 of this year. This project is 100% tendered. At Belmont Market in Langford, committed occupancy is 90% for the 137,000 sq ft that's built and operational. The final phase of the development consists of three buildings totaling 23,000 additional sq ft that is yet to be built. Construction will commence on the first building in Q2 of this year, with the remaining two buildings slated for 2021 construction as we expect slower leasing due to COVID-19. There has been significant consolidation in the retail industry such that regional malls such as Avalon Mall in St. John's, Newfoundland and Labrador are dominant in their market.

Insight remains open in Oshawa

Or in Oakville and it's been marginally delayed due to the impact of a reduced Workforce arising from covid-19. We now anticipate the fifty four thousand square feet of commercial and 483 residential rental units will be delayed 1/4 and completed in Q4 up. 2021 Bronte is 96% tender upon completion. All these properties are expected to create significant not asset value and a f f o growth per unit increase our presence in the country's top urban markets while diversifying and improving our overall portfolio quality and income stream and lastly and most importantly we're not aware of a single covid-19 infection to date on the 6th project construction sites. We are proud of the work that our partners our contractors and our team done in focusing on health and safety. And with that I will now turn the call over to Clinton who will highlight our first-quarter financial results and discuss our capital and development program funding approved.

Glenn Hynes: Avalon is the only regional mall in all of Newfoundland and Labrador, a province with 500,000 people and with sales over CAD 700/sq ft. Of course, that is without an Apple store prior to COVID-19. We are confident it will survive this pandemic and reemerge once the economy reopens. That said, tenants at enclosed malls like Avalon Mall are nevertheless facing challenging times with significant retail closures. We are optimistic as Newfoundland and Labrador is successfully flattening the curve with very few cases of COVID daily over the last two weeks. Construction of our expansion area is substantially complete as we have turned over certain of our mid-box anchor spaces to our tenants. However, the grand opening will be delayed given the current state of emergency circumstances in the province, which will impact tenant fit-ups and opening schedules.

Thank you Glen during these challenging times on please report the crombies financial condition remains strong are unencumbered asset pool has grown and we have intentionally increased our allocation unsecured debt allowing for future additional financing flexibility. We have steadily increased our liquidity and are consistently working to de-risk our balance sheet on a cash basis noi increased by 1.7% demonstrating the consistency and stability of our portfolio ffo per unit was twenty-six cents consistent with the same quarter last year considering our significant disposition activity through 2019 reduction in leverage and our continued investment in our development pipeline. We are pleased with this result.

Glenn Hynes: In Quebec, construction was shut down on March 23, with site scheduled, as Donny mentioned, to reopen on May 11. In Montreal, at our Le Duke project, we've adjusted our expected completion date by one quarter to open now in Q3 of 2021, and we expect some cost increases due to these delays. The 25-story mixed-use tower with 26,000 sq ft of commercial space and 390 residential rental units is currently constructed to the 19th floor and the project is 86% tendered. We continue to monitor COVID-19 related events in the province for potential impact on our development activity. The launch of Voilà par IGA, the e-commerce service for Quebec in the Ottawa area, is still expected in 2021. Site work is complete and tendering is well underway, with construction to commence this spring.

All right, if a full payout ratio was 87.4% versus the same quarter last year at 87.3% ffo for the quarter decreased to twenty nine cents per unit from Thirty cents for a q1 2019 and our ffo payout ratio was 76% versus 74.2% in the same quarter last year. We are feeling the effects of approximately 500,000 and dispositions execute it in 2019 and the investment of approximately four hundred million of capital and major developments with no initial return GNA as a Prestige teach a property revenue for q1 was 3% or 3 million down from q1 19 at 5.5% or 5.8 million. The decrease is primarily due to the decreasing Union and its impact on unit based compensation plans.

Glenn Hynes: The Bronte Village construction site remains open in Oakville, or in Oakville, and has been marginally delayed due to the impact of a reduced workforce arising from COVID-19. We now anticipate the 54sq ft of commercial and 480 residential rental units will be delayed one quarter and completed in Q4 of 2021. Bronte is 96% tendered. Upon completion, all these properties are expected to create significant net asset value and AFFO growth per unit, increase our presence in the country's top urban markets while diversifying and improving our overall portfolio quality and income stream. Lastly, and most importantly, we're not aware of a single COVID-19 infection to date on these six project construction sites. We are proud of the work that our partners, our contractors, and our team have done in focusing on health and safety.

Chrome be closed at 100 million Equity financing during the quarter at $16 per unit on the bought deal basis after the closing of the public offering and private placement Empire continues to hold a 41.5% economic and voting interest in Crombie. This was the first time he has raised Equity since 2016.

Crombie's committed to increasing weighted-average to turn the majority of our debt reducing leverage over the medium-term and increasing your unencumbered asset pool and the first quarter, we repaid 158 million mortgage with a weighted average interest rate of 5.61% leaving 58 million or mortgages maturing for the balance of the year.

Glenn Hynes: With that, I will now turn the call over to Clinton, who will highlight our Q1 financial results and discuss our capital and development program funding approach.

Are unencumbered asset pool increased to approximately 1.5 billion from 1.2 billion to 4 and our balance sheet remains flexible with $500 million of available liquidity as of today off our debt net of cash to gross Book value on a fair value basis was 48.8% at the end of q1 compared to 48.9% at the end of 2019.

Clinton Keay: Thank you, Glenn. During these challenging times, I'm pleased to report that Crombie's financial condition remains strong. Our unencumbered asset pool has grown, and we have intentionally increased our allocation to unsecured debt, allowing for future additional financing flexibility. We have steadily increased our liquidity and are consistently working to de-risk our balance sheet. On a cash basis, same asset NOI increased by 1.7%, demonstrating the consistency and stability of our portfolio. AFFO per unit was CAD 0.26, consistent with the same quarter last year. Considering our significant disposition activity throughout 2019, reduction in leverage, and our continued investment in our development pipeline, we are pleased with this result. Our AFFO payout ratio was 87.4% versus the same quarter last year at 87.3%.

We ended the quarter with debt net of cash to trailing-twelve-month leave it at eight point four four times and Improvement compared to 8.52 * 19.

Subsequent to the quarter in Chrome be completed a 16 year 118 million mortgage financing anirban Ontario Distribution Center at an interest rate of 3.8% off. This transaction extends are weighted average turn to maturity on fixed-rate mortgages from 4.2 years to five point three years proceeds when this transaction, we used to repay $45 million of the one thousand and twenty million unsecured non revolving credit facility with the remainder of the proceeds applied against Bank Dedham standing.

Clinton Keay: FFO for the quarter decreased to CAD 0.29 per unit from CAD 0.30 for Q1 2019, and our FFO payout ratio was 76% versus 74.2% in the same quarter last year. We are feeling the effects of approximately CAD 500 million in dispositions executed in 2019, and the investment of approximately CAD 400 million of capital in major developments with no initial return. G&A as a percentage of property revenue for Q1 was 3% or CAD 3 million, down from Q1 2019 at 5.5% or CAD 5.8 million. The decrease is primarily due to the decrease in unit price and its impact on unit-based compensation plans. Crombie closed a CAD 100 million equity financing during the quarter at CAD 16 per unit on a bought deal basis.

As we continue to progress through this difficult time crombie's Grocery and Pharmacy anchor portfolio of essential services will support our communities businesses tenants and employees. Why am I losing sight of our long-term strategy to effectively allocate Capital to accelerate nav and the ffo growth per unit delivering value that concludes our prepared remarks. We are now happy to answer your questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please? Press star one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request and your question may be pulled and they are they are received should you wish to decline from the polling process, please press star followed by two if you are using a speakerphone, please lift the handset before pressing any keys.

Clinton Keay: After the closing of the public offering and private placement, Empire continues to hold a 41.5% economic and voting interest in Crombie. This was the first time Crombie has raised equity since 2016. Crombie is committed to increasing weighted average term to maturity of our debt, reducing leverage over the medium term, and increasing our unencumbered asset pool. In Q1, we repaid CAD 158 million mortgage with a weighted average interest rate of 5.61%, leaving CAD 58 million of mortgages maturing for the balance of the year. Our unencumbered asset pool increased to approximately CAD 1.5 billion from CAD 1.2 billion at Q4, and our balance sheet remains flexible with CAD 500 million of available liquidity as of today.

Your first question comes from Howard lung Veritas investment. Research Howard, please go ahead. Thanks. Good morning morning. Can you can you call back a little bit on what consideration you're looking at for the bcra and you know what some of the puts and takes are as you decide whether you want to apply for some of your smaller tenants or Howard is Glenn Heights.

The good news is you know with the Crombie value small business program in the secret program and now there's some rumor that there may even be another program for the non-essential Services something larger retailers. It's good that there's options available think what Crombie wants to do is first and foremost focus on the success of our retailers and our office tenants, but speaking about retailers York to your question getting to success is really what's vital. So we want to roll up our sleeves with our tenants and determine the best program. In fact, there's certain tenants that should just pay the rent that really have no need for support and we'd like them to do that and then the category there maybe somewhere a couple of months of deferral from cromby and then being repaid over say 12 months is the right recipe for their success. In other cases. It may be the secret program where for a three month program as we currently understand it, but the details are still not fully communicated through be a 25% investment from us as landlords.

Clinton Keay: Our debt, net of cash to gross book value on a fair value basis, was 48.8% at the end of Q1, compared to 48.9% at the end of 2019. We ended the quarter with debt net of cash to trailing twelve-month EBITDA at 8.44 times, an improvement compared to 8.52 times at Q4 2019. Subsequent to the quarter end, Crombie completed a 16-year, CAD 118 million mortgage financing on our Vaughan, Ontario distribution center at an interest rate of 3.88%. This transaction extends our weighted average term to maturity on fixed rate mortgages from 4.2 years to 5.3 years.

Clinton Keay: Proceeds from this transaction were used to repay CAD 45 million of the CAD 120 million unsecured non-revolving credit facility, with the remainder of the proceeds applied against bank debt outstanding. As we continue to progress through this difficult time, Crombie's grocery and pharmacy anchor portfolio of essential services will support our communities, businesses, tenants, and employees while never losing sight of our long-term strategy to effectively allocate capital to accelerate NAV and AFFO growth per unit, delivering value. That concludes our prepared remarks. We're now happy to answer your questions.

so for us

Howard we want to get to success for attendance and we want to roll up our sleeves and do what's best in each individual situation and hopefully if we have good transparency with our tenants in good dialogue. Okay, we'll get to the right successful conclusion in each case.

Right, so I guess because just thinking about the the secret specifically because it only lasting, you know, freely for another month. I guess you would really only want to apply those were tents that you believed, you know could kind of picture could survive past that point and and and be able then to shoulder a hundred percent of the rent going forward, right? Is that the right way to think about it? But I think it is but the other thing is we just don't know how long this whole pandemic is going to last and I think what you want to do is be judicious and we'd all like to be a supportive if success is the endgame. Unfortunately, there may be some tenants where success won't be an option and that's unfortunate and I guess you know, we want to be careful not to invest significant resources if there's no end game for Success month and that's part of the transparency and the open dialogue, but I think the reason why we want to get to the right solution, so for example, if some tenants should just pay their rent with no support that gives us more resources to support other tenants.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Howard Leung, Veritas Investment Research. Howard, please go ahead.

Howard Leung: Thanks. Good morning.

Glenn Hynes: Good morning.

Howard Leung: Can you comment a little bit on what considerations you're looking at for the CECRA, and you know, what some of the puts and takes are as you decide whether you want to apply it for some of your smaller tenants?

Where maybe there is Need for more than a two month deferral the Fest? Of course when they announced their three month program. They don't have a crystal ball as to how long they may need to provide support. Who knows? Maybe there's a secret wage around 2 if this goes on too long, so the key thing for us is a landlord is to have a focus on success and to try to use our resources judiciously so we can continue to report good numbers to our unit holders, but also to be there to the best extent possible to get the success for attendance, right that makes sense. I guess for the the 9% that you called out which the larger kind of tickets that could and should pay, you know mentioned. I think 40% of them really came from Avalon Mall for the remaining 60% are those tenants. Um, I guess thinking, you know, maybe movie theaters apparel, uh, any any qsrs in their franchisees, like is that kind of the tenants that have withheld rent?

Glenn Hynes: Sure. Howard, it's Glenn Hynes. The good news is, you know, with the Crombie Values Small Business program and the CECRA program, and now there's some rumor that there may even be another program for the non-essential services, some of those larger retailers, it's good that there's options available. I think what Crombie wants to do is first and foremost focus on the success of our retailers, and our office tenants. Speaking about retailers, to your question, getting to success is really what's vital. We want to roll up our sleeves with our tenants and determine the best program. In fact, there are certain tenants that should just pay their rent that really have no need for support, and we'd like them to do that.

Glenn Hynes: The category, there may be some where a couple of months of deferral from Crombie and then being repaid over, say, 12 months is the right recipe for their success. In other cases, it may be the CECRA program, where for a 3-month program, as we currently understand it, but the details are still not fully communicated, there'd be a 25% investment from us as landlord. For us, Howard, we want to get to success for our tenants, and we want to roll up our sleeves and do what's best in each individual situation. Hopefully, if we have good transparency with our tenants and good dialogue, we'll get to the right successful conclusion in each case.

I'm not going to name names Howard. But certainly the qsr. Our segment was a segment where there's a lot of receivables and those ones are interesting because generally speaking there's franchisees local business people that you might offer on a day-to-day basis entertain a small business. But in some cases there's a very strong franchisor Covenant there and in general terms, there's a way to look at those tenants that they're really not your typical small business your mom and pop small business if you will, so it's spread across there are you know in a good news is by towards the end of April when we put a bit of pressure on some of those larger Town ahead and paid through default letters. We actually did get a positive response in some cases. So it is a mixed bag, but you're right we have communicated that close to 40% of our remaining receivables are Avalon enclosed space is very tricky. I think our collections at Avalon were just under 26% of gross rent and as bad as that number is that's actually a decent number in the enclosed Mall space cuz we don't have a dog

Howard Leung: Right. I guess because just thinking about the CECRA specifically, because it's only lasting really for another month, I guess you would really only want to apply those for tenants that you believe, you know, could kind of survive past that point and be able then to shoulder 100% of the rent going forward, right? Is that the right way to think about it?

Glenn Hynes: Sort of. I think it is. The other thing is we just don't know how long this whole pandemic is going to last. I think what you want to do is be judicious. You know, we'd all like to be as supportive. If success is the end game, and unfortunately, there may be some tenants where success won't be an option, and that's unfortunate. I guess, you know, we want to be careful not to invest significant resources if there's no end game for success. That's part of the transparency and the open dialogue. I think the reason why we want to get to the right solution for example, if some tenants should just pay their rent with no support, that gives us more resources to support other tenants where maybe there is need for more than a two-month deferral.

three thousand square foot, you know

Superstore or like a a Walmart or a a big grocery store at Avalon and we don't have a an Apple store. So Avalon was tricky but the balance is spread around but yes, she is a material component of that remaining 9% of tenants that have good Covenant and that's actually encouraging because I'd rather that 9% be tenants that we think will meet success. It's just getting them to the right head space and whether they didn't pay because they're waiting to see what programs are in existence or they think it's an opportunistic opportunity. I can't speak for them. And that's why we're going to roll up our sleeves on a case-by-case basis and get our rent collected in the way that has both tenant success and reach success optimized and Howard Howard is Donny. I'm going to just jump in one additional element is that when were talking with these people? We often have known them for a very long time and have good relationships with them. But part of the exchange is I'll call it real estate Savvy which is you know, we're looking at opportunities elsewhere within wage.

Glenn Hynes: The feds, of course, when they announced their three-month program, they don't have a crystal ball as to how long they may need to provide support. Who knows? Maybe there's a CECRA round two if this goes on too long. The key thing for us as a landlord is to have a focus on success and to try to use our resources judiciously so we can continue to report good numbers to our unit holders, but also to be there to the best extent possible to get to success for our tenants.

Howard Leung: Right. That makes sense. I guess for the 9% that you called out, the larger tenants, I guess that could and should pay. You know, mentioned I think 40% of them really came from Avalon Mall. For the remaining 60%, are those tenants, I guess thinking, you know, maybe movie theaters, apparel, any QSRs in there, franchisees? Like, is that kind of the tenants that have withheld rent?

Portfolio with these people and so it's not just a call it credit issue or collection issue. It's also about how do we maximize the benefits for both parties out of this and and call it a partnership with them? And so we're working very hard each situation is unique and it's Case by case, but it's important that people know we are asking for financial statements. We are working hard to you know, collect all the information. We need to make a good decision and this isn't something that's done inappropriately. So anyway, I think overall we should come out of it exceptionally well,

Glenn Hynes: I'm not going to name names, Howard, but certainly the QSR segment was a segment where there's a lot of receivables. Those ones are interesting because generally speaking, there's franchisees, local business people that you might on a day-to-day basis entertain a small business. In some cases there's a very strong franchisor covenant there. In general terms, there's a way to look at those tenants that they're really not your typical small business, your mom and pop small business, if you will. It's spread across. You know, good news is by, I think, towards the end of April, when we put a bit of pressure on some of those larger tenants who hadn't paid, through default letters, we actually did get a positive response in some cases. It is a mixed bag.

Yeah, and and it looks like you know because of the really the major exposure is is the enclosed mall right now that don't have lower Collections and grumpy doesn't have much of that. That's that's that's pretty good. I guess may may collection. That's pretty early. It's just still just the first week. But you know our our is it so far on par with the first week of past months, I guess excluding Avalon.

I would say this hour that may is not markedly different than April at this point and we'll obviously look forward to updating you in August on how it goes. But so far May is very much aligned with April.

Glenn Hynes: You're right, we have communicated that close to 40% of our remaining receivables are Avalon. Enclosed mall space is very tricky. I think our collections at Avalon were just under 26% of gross rent. As bad as that number is, that's actually a decent number in the enclosed mall space because we don't have a 200,000 sq ft superstore or like a Walmart or a big grocery store at Avalon, and we don't have an Apple store. Avalon was tricky, but the balance is spread around. Yes, there is a material component of that remaining 9% of tenants that have good covenant. That's actually encouraging because I'd rather that 9% be tenants that we think will meet success. It's just getting them to the right headspace.

Great and just one more one more from the let me releases have the step-ups and some of them are are kind of fixed up UPS. Have you had to kind of model step-ups on any releases? Um, maybe in negotiations with some of the tenants?

No, not at this point, you know so far our conversations have been more around what we just been talking with the last few minutes, but you know in terms of renewals and regular step-ups and in rents, those are pre-programmed and we're not anticipating any change in that program, but if tenants need to talk about those things, I'm sure they will but at this point that is not going to conversation that's been active at all.

Glenn Hynes: Whether they didn't pay because they're waiting to see what programs are in existence or they think it's an opportunistic opportunity, I can't speak for them. That's why we're going to roll up our sleeves on a case-by-case basis and get our rent collected in a way that has both tenant success and REIT success optimized.

Okay, great.

And thanks so much. That was a lot of good color. I'll turn it back. Like thank you. Your next question comes from Dean Wilkinson's CIBC Dean, please go ahead. Thanks guys off. Hi Dean Johnny maybe for you bigger question sort of stepping back from the immediacy of of the pandemic and if you look at the portfolio and The Business,

Don Clow: Howard, it's Donnie. I'm gonna just jump in. One additional element is that when we're talking with these people, we often have known them for a very long time and have good relationships with them. Part of the exchange is, I'll call it real estate savvy, which is, you know, we're looking at opportunities elsewhere within our portfolio with these people. It's not just a call it credit issue or collection issue, it's also about how do we maximize the benefits for both parties out of this and call it create a partnership with them. We're working very hard. Each situation is unique, and it's case by case, but it's important that people know we are asking for financial statements.

Are there opportunities in Des to to refine or perhaps change the longer-term view around some of the real estate and and perhaps there's you know some opportunity. That means that the market might be missing here or is it, you know putting it in in terms of a prior life of yours more of maintaining that strong defense and running the a gap.

Don Clow: We are working hard to, you know, collect all the information we need to make a good decision. This isn't something that's done inappropriately. Anyway, I think overall we will come out of it exceptionally well.

You know our strategies as I said in my remarks our strategy remains unchanged so it's been a focus on Sobeys, which we believe has I think unique opportunity that the relationship with unique opportunities the relationship with a retailer to create value in real estate is I think unique and exceptional and only help by call it a few people in our industry and we're really just getting started. I mean, we really honestly been added since Michael Medline was appointed as CEO of Sylvie's and since that time we've really taken it to another level and so I think for us it's really consistently investing in Soby's and Sophie's related projects including open to the unlocking value and major developments. That's really those two things and and not included in the major major Market mixed-use is obviously residential and we've I think forecasted out for people saying by the end of 2021 will be at about eight percent residential dead.

Howard Leung: Yeah. It looks like, you know, because of the really, the major exposure is the enclosed malls right now that have lower collections, and Crombie doesn't have much of that. That's pretty good. I guess May collection; it's pretty early. It's still just the first week. You know, is it so far on par with the first week of past months? I guess excluding Avalon.

Glenn Hynes: I would say this, Howard, that May is not markedly different than April, at this point. We'll obviously look forward to updating you in August on how it goes. So far May is very much aligned with April.

Howard Leung: Great. Just one more from me. Some of your leases have the step-ups, and some of them are kind of fixed step-ups. Have you had to kind of modify step-ups on any of the leases, maybe in negotiations with some of the tenants?

And you know on a longer-term basis over a decade. There's a lot of people don't care about but we do we could see ourselves into that, you know, 15 to 20% range as we hope to continue to build at a consistent pace. And so and as well the hub-and-spoke network for Sobeys e-commerce home delivery platform is retail related in dust. So, you know building those two categories out but doing so I'll call it organically is I think very strategic for us and it just shows the opportunity that's presented by the relationship retailer and then pruning, you know, various parts of our portfolio over time where they're in the minority, you know something that will be thinking about but at this point the properties that we have in that category off, you know generally are the strongest in their Locale and so, you know, those things are, you know, other than call it on a short-term basis, we feel comfortable holding those assets and dead.

Glenn Hynes: No, not at this point. You know, so far our conversations have been more around what we've just been talking about for the last few minutes. No, in terms of renewals and regular step-ups in rents, those are pre-programmed and we're not anticipating any change in that program. If tenants need to talk about those things, I'm sure they will. At this point, that has not been a conversation that's been active at all.

Howard Leung: Okay, great. Thanks so much. That was a lot of good color. I'll turn it back.

Don Clow: Thank you, Howard.

Operator: Thank you. Your next question comes from Dean Wilkinson, CIBC. Dean, please go ahead.

Dean Wilkinson: Thanks. Hi guys.

Don Clow: Hi, Dean.

Glenn Hynes: Afternoon.

Dean Wilkinson: Donnie, maybe for you, bigger question, sort of stepping back from the immediacy of the pandemic, and as you look at the portfolio and the business, are there opportunities in this to you know, refine or perhaps change the longer term view around some of the real estate, and perhaps there's you know, some opportunities that the market might be missing here? Or is it you know, putting it in terms of, say, a prior life of yours, more of maintaining that strong defense and running the A gap?

Working them overtime. So the the opportunity is to stick to our knitting today. I think is someone I talked with the last week, you know, we talked about over the last ten years. What are the top new age that people look at and it's really nav growth a f f o growth and you know noi growth but today it's a liquidity right and or you know the quality of your portfolio and how is it we're all on defense and so for us we feel like we have a very very strong defensive portfolio that has a unique opportunity to go and no fence. So it's really just about pacing ourselves and picking our spots on both whether it be for funding or whether it be for investment. And so we're quite pleased with where we sit today. And again, we don't believe it changes are strapped it really for the moment. Maybe slows it down clearly because of the level of uncertainty, but overall, you know, we're focused on what we're focused on.

Don Clow: You know, our strategies, as I said in my remarks, our strategy remains unchanged. It's been a focus on Sobeys, which we believe has, I think, unique opportunity. Unique opportunity is the relationship with a retailer to create value in real estate is, I think, unique and exceptional and only held by, call it a few people in our industry. We're really just getting started. I mean, we've really honestly been at it since Michael Medline was appointed as CEO of Sobeys. Since that time, we've really taken it to another level. I think for us, it's really consistently investing in Sobeys and Sobeys related projects, including ultimately unlocking value in major developments. It's really those two things. Included in the major market mixed use is obviously residential.

Great and my second question. I know if it's it's Clinton or Glenn.

just on the looks like you're getting ahead on that allowance for doubtful accounts related to some of the funds collected rent was that it was sort of Beth a gas or the worst case or what was that specific insight into stuff that you know, you're probably not going to Black

Don Clow: We've, I think, forecasted out for people saying by the end of 2021, we'll be at about 8% residential. You know, on a longer term basis, over a decade, which a lot of people don't care about, but we do, we could see ourselves into that, you know, 15% to 20% range as we hopefully continue to build, at a consistent pace. And as well, the hub and spoke network for Sobeys' e-commerce home delivery platform is retail related industrial. You know, building those two categories out, but doing so, I'll call it organically, is, I think, very strategic for us. It just shows the opportunity that's presented by the relationship with the retailer.

It was just a bit of a unique situation Dean. It's Glen when you're doing allowance for doubtful accounts, you're using judgment about the wherewithal of somebody to pay something and took making a judgment and many cases. If you're looking forward and you're making the promises they've said that they'll pay you a certain amount by a certain time or there's a more positive backdrop than your less more comfortable with a smaller allowance as we got the Q one we looked at the general situation said, you know, what we should be a bit conservative here in aggregate. We took over a million dollars, but half a million of it hits a Mass Attack the other half a million hit other properties and it was just us acknowledging that there could be difficulty here that's risk. So we thought it was proactive to take the the charge in in in the quarter. I wouldn't say it has any indication how will be thinking about the allowance for doubtful accounts and Q2 and Q3 and Beyond that's going to be obviously dependent on on each individual situation dead.

Don Clow: Pruning, you know, various parts of our portfolio over time, where they're in the minority, you know, is something that we'll be thinking about. At this point, the properties that we have in that category, you know, generally are the strongest in their locale. Those things are other than, call it, on a short-term basis, we feel comfortable holding those assets and working them over time. The opportunity is to stick to our knitting. Today, I think, as someone I talked with last week, you know, we talked about, over the last 10 years, what are the top metrics that people look at? It's really NAV growth, AFFO growth, and NOI growth. Today it's liquidity, right? And/or

We thought it was important to acknowledge that the end of two one that we did have some risk know. It's good to see you getting out in front of it then and I think you know others will probably follow that's it. I'll hand it back. Thanks guys. Thank you. Thank you. Your next question comes from Sam t d Sam, please. Go ahead. Thanks and good afternoon. Everyone first question just on the on the divorce pipeline maybe for you Donny the obviously the the new build residential Market is a growing one. The demand has been strong. But have you been you know chatting with your partners wage and Prince devlon terms of how things how leasing has been going specifically in the last couple of months. Is there been any impact from the pandemic on demand for for newly-built purpose-built rental?

Glenn Hynes: Yes.

Don Clow: You know, the quality of your portfolio and how is it. We're all on defense. For us, we feel like we have a very, very strong defensive portfolio that has a unique opportunity to go on offense. It's really just about pacing ourselves and picking our spots on both, whether it be for funding or whether it be for investment. We're quite pleased with where we sit today. Again, we don't believe it changes our strategy. It really, for the moment, maybe slows it down, clearly because of the level of uncertainty. Overall, you know, we're focused on what we're focused on.

So I have I talked with both of them last week and we have a great relationship and we're very fortunate to have outstanding partners that are very strong in their own. Right but, you know financially but also offer operators and developers and you know, the indications are that things did take up a brief pause in May to some degree, but that the leasing has come back towards in April and in May so the leasing is continuous just that a little bit of a slower Pace. Um, and you know, we're I think quite fortunate when we budgeted our properties in a number of years ago, we would have been conservative as we usually are and since that time the rents have increased and not insignificantly in a couple of jurisdictions and maybe they'd come off just a bit. I don't know. We'll see the bottom line in most of the markets were in is that we want to take our time lease it up well and they don't come on stream. Davie Street will come on probably late late Thursday.

Dean Wilkinson: Great. My second question, I don't know if it's Clinton or Glenn, just on the. It looks like you're getting ahead on that allowance for the doubtful accounts related to some of this uncollected rent. Was that your sort of best guess at a worst case, or was that specific insight into stuff that you know you're probably not gonna collect?

Glenn Hynes: It was just a bit of a unique situation, Dean. It's Glenn. When you're doing allowance for doubtful accounts, you're using judgment about the wherewithal of somebody to pay something. You're making a judgment. In many cases, if you're looking forward and they're making the promises, they've said that they'll pay you a certain amount by a certain time, or there's, you know, a more positive backdrop, then you're more comfortable with a smaller allowance. As we got to Q1, we looked at the general situation and said, "You know what? We should be a bit conservative here." In aggregate, we took over CAD 1 million, but half a million of it hit same asset properties, the other half a million hit other properties. It was just us acknowledging that there could be difficulty here, that's risk.

you're early next year and

By that time the local markets basically any of the new projects are full and in Broad day and Duke, they're well into 2021 and hopefully by that time, you know and off cuz his his ideally past or you know in the latter stages of herd immunity. So we're we're hopeful that you know, and again we believe in these big markets the strong markets and there's a shortage this type of housing. So we're very comfortable with with the projects and and the quality of of the work that our teams are doing in our including our partners are terrific people and get us helpful in the last question just on your discussions with Sobeys on the idea of retrofits does the pandemic change their sort of physical needs for their for their stores either in the in home and inside the box or even the size of the box is ready discussion about increasingly wanting a larger stores to accommodate, you know, a little more spacing between the aisles.

Glenn Hynes: We thought it was proactive to take the charge in the quarter. I wouldn't say it has any indication how we'll be thinking about the allowance for doubtful accounts in Q2, Q3, and beyond. That's gonna be obviously dependent on each individual situation. We thought it was important to acknowledge at the end of Q1 that we did have some risk.

Dean Wilkinson: No, it's good to see you getting out in front of it. I think, you know, others will probably follow. That's it. I'll hand it back. Thanks, guys.

Don Clow: Thank you, Dean.

Glenn Hynes: Thank you, Dean.

Operator: Thank you. Your next question comes from Sam Damiani, TD. Sam, please go ahead.

Sam Damiani: Thanks and good afternoon, everyone. First question, just on the development pipeline, maybe for you, Donnie. Obviously the new build residential market is a growing one. The demand has been strong. Have you been, you know, chatting with your partners, Wesgroup Properties and Prince Developments, on terms of how leasing has been going specifically in the last couple of months? Has there been any impact from the pandemic on demand for newly built purpose-built rental?

You know, it's I mean, there's right now I think honestly they've been so focused on maintaining the supply chain keeping the store is open and most importantly the health and well-being of their staff and their customers. So those kinds of changes I think will be you know initiated they may be already thinking about it, but we're not in any discussions with them at the moment of that type of change where you are though. However in constant conversations with them, we've slowed down just a little on in terms of our pipeline spending with Sylvie's just because they were so focused on delivering those essential services and so for us it ends up with a slight delay on some of our modernizations where we haven't started which just made sense, but you know, we do still have plans to move forward with those off but how they ultimately take shape as we've said there's so many opportunities whether it's be a modernization changing of the store, but can also be, you know, investing as we've done in the hub and then also now the dog

Don Clow: I talked with both of them last week and we have a great relationship, and we're very fortunate to have outstanding partners that are very strong in their own right, both, you know, financially, but also operators and developers. The indications are that things did take a brief pause in May to some degree, but that the leasing has come back towards in April and in May. The leasing is continuous, just at a little bit of a slower pace. We're, I think, quite fortunate when we budgeted our properties, you know, a number of years ago, we would have been conservative as we usually are. Since that time, the rents have increased, and not insignificantly in a couple of jurisdictions.

Folks which will you know be sites that could be parts of stores that are basically where they transition, you know, the orders from the big trucks into small cube and for local delivery all of those hub-and-spoke pieces, you know, and especially in the major of markets are terrific Investments for Crombie and we want to be a part of that with with Sobeys. So variety of circumstances Sam I guess is is this is the end game and we just haven't seen at this stage. They just really haven't turned their minds to ultimately changing the size of the store.

Sam Damiani: Yeah.

Don Clow: Maybe they've come off just a little bit. I don't know. We'll see. The bottom line in most of the markets we're in is that we wanna take our time, lease it up well, and they don't come on stream. Davie Street will come on probably late this year or early next year. By that time, the local markets, basically any of the new projects are full. In Bronte and Le Duke, they're well into 2021. Hopefully by that time, you know, pandemic has ideally passed or, you know, in the latter stages of herd immunity. We're hopeful that, you know. Again, we believe in these big markets, the strong markets, and there's a shortage of this type of housing.

Great. Thanks very much. Okay, thank you. Thank you. Your next question comes from towie National Bank, please go ahead. All right, good morning. Good morning till questions regarding Empire any discussion on how they're viewing their e-commerce business. They're piloting Auto. Do you think that you know, once you sort of we all emerge from this is that, you know, an acceleration of that, um online business is likely something off a fee.

Don Clow: We're very comfortable with the projects and the quality of the work that our teams are doing, including our partners. They're terrific people.

Sam Damiani: Thank you. That's helpful. Second and last question. Just on your discussions with Sobeys, on the idea of retrofits, does the pandemic change their sort of physical needs for their stores, either inside the box or even the size of the box? Is there any discussion about increasingly wanting larger stores to accommodate, you know, a little more spacing between the aisles?

You know today it makes up.

Ecommerce home delivery of groceries makes up, you know, 1/2 to 1% of overall groceries. And so the talk about accelerating it, you know, there has been a lot of press about it and people are dead nearly ordering from home. And so they're you know, it's a little too early to see whether there's significant cultural change, but the denominator is so small that you know, it it took, you know overall impact and even in the near-term is limited to some degree. There's not a great infrastructure for home delivery for calling the largest competitors and delivering from storm is not profitable having somebody run around a store person run around the store is just not it's very suboptimal and not profitable. So even though it's a stopgap and and clearly helping consumer not you know, the the ideal for for ultimate long-term profitability that all said clearly there's going to be a continuous movement towards investing I think so because already as you know and invested in both dead

Don Clow: You know, I mean, there's right now, I think honestly, they've been so focused on maintaining the supply chain, keeping their stores open, and most importantly, the health and well-being of their staff and their customers. Those kinds of changes I think will be, you know, initiated. They may be already thinking about it, but we're not in any discussions with them at the moment of that type of change. We are, though, however, in constant conversations with them. We've slowed down just a little in terms of our pipeline spending with Sobeys just because they were so focused on delivering those essential services. For us, it ends up with a slight delay on some of our modernizations where we hadn't started, which just made sense.

Toronto and in you know now in Montreal The Continuous movement towards that I have not discussed any changes in terms of the pace. I think that's really up to mister Medline and his team and and will be clearly wanting to be part of that conversation and invest alongside with them as we are in Montreal. So again, it's it's too early to tell I guess is the depend answer top off. Okay, and then one of the other things after you know leadership change that Empire that you had talked maybe more about doing was using least location as at Sobeys in shopping centers as leverage to make Acquisitions and I'm wondering like again I'm not try to get you to commit to anything or anyone every now but like off the back kind of transaction get easier to effect in a tougher economic environment.

Don Clow: you know, we do still have plans to move forward with those. How they ultimately take shape, as we've said, there's so many opportunities, whether it's via modernization or changing of the store. It could also be, you know, investing as we've done in the hub and then also now the new spokes, which will, you know, be sites that could be parts of stores, that are basically where they transition, you know, the orders from the big trucks into small cube vans for local delivery. All of those hub and spoke pieces, you know, especially in the major urban markets, are terrific investments for Crombie, and we wanna be a part of that with Sobeys. Variety of circumstances, Sam, I guess is the end game.

Don Clow: We just haven't seen at this stage. They just really haven't turned their minds to ultimately changing the size of the store.

Sam Damiani: Great. Thanks very much.

Don Clow: Okay. Thank you.

Operator: Thank you. Your next question comes from Tal Woolley, National Bank. Tal, please go ahead.

Like the more opportunities open up along that front. Yeah, exactly. So we did that with McKeown and Ellesmere acquisition in 2016. And we've done it with a few other. I'll call it smaller package and we still have a few and we are working. I'll call it continuously on those activities that we I think we've said publicly there's 80 or 90. Um Sobeys leasehold interests that you know continuously looking at in the major Urban markets. And so whether they get easier, you know, a lot of the people who own those places are well-capitalized and Thursday. We're you know, we're constantly working on it, but they're you know, mostly well-capitalized. So the the gap between the bid and the ask is relatively wide. So I'd say we're you know, we're not really focused on it today as much as we were say 2 months ago. We're going to you know slowed down a little but we still have things that we're working on. So, but we want to be very careful with our liquidity. Wow.

Tal Woolley: Hi. Good morning.

Don Clow: Good morning, Tal.

Glenn Hynes: Good morning.

Tal Woolley: Just on the following up on Sam's questions regarding Empire. Any discussion on how they're viewing their e-commerce business, their piloting of Toronto?

Tal Woolley: Do you think that, you know, once we all emerge from this, is that, you know, an acceleration of that, online business is likely something we're gonna see?

Don Clow: You know, today e-commerce, home delivery of groceries makes up, you know, 0.5% to 1% of overall groceries. The talk about accelerating it, you know, there has been a lot of press about it, and people are clearly ordering from home. They're, you know, it's a little too early to see whether there's significant cultural change, but the denominator is so small.

Tal Woolley: Mm.

Tal Woolley: that, you know, it I think, you know, overall impact even in the near term is limited to some degree. There's not a great infrastructure for home delivery for, call it the largest competitors, and delivering from stores is not profitable. Having somebody run around a store or a person run around a store is just not, it's very suboptimal and not profitable. So even though it's a stopgap and clearly helping consumers, it's not, you know, the ideal for ultimate long-term profitability. That all said, clearly there's gonna be a continuous movement towards investing. I think Sobeys already, as you know, invested in both Toronto and in, you know, now in Montreal, it'd be continuous movement towards that. I have not discussed any changes in terms of the pace.

Okay. So what we have to do is execute on our major developments focus on Sobeys plan and part of that will be the odd on transaction that fits that category but it's an exceptional opportunity for us to backfill our major development pipeline as week, you know complete our projects and and also to do a number of other call it interesting type transactions. So we're quite excited about it. Okay, and then obviously late last fall you had sort of rolled out yesterday a longer-term sort of guiding our growth growth guidance of longer-term goals of like three to five percent nav and apropos growth. Obviously, you know, you weren't you weren't saying twenty-twenty would be your that that was going to start to begin with and clearly, you know, given wage are it's probably not going, you know, probably certainly not going to be now, but do you see anything funny that you know would really that longer-term goal at all right now,

Don Clow: I think that's really up to Mr. Medline and his team, and we'll be clearly wanting to be part of that conversation and invest alongside with them as we are in Montreal. Again, it's too early to tell, I guess, is the end answer, Tal Woolley.

Tal Woolley: Okay. Then one of the other things after, you know, leadership change at Empire that you had talked maybe more about doing, was using leased locations at Sobeys in shopping centers as leverage to make acquisitions.

Well, you know, you don't know what you don't know and right now that's about what kind of retailer followed could take place.

It's over the next three to six months. And so but again for us we view it as ideally it's short-term call it transition stuff that we have to work through but our investment thesis Soby's and made major developments is pretty simple straightforward and pretty strong on a risk-adjusted basis. And that's why we've said our strategy remains unchanged. Our investments may be a little lower this year, you know, if we set a hundred a hundred and fifty million on Sauvie's we may be closer to that hundred million dollar range or a little less than that. It's just because of again slowing transactions down and so that you know, but in the long term if that's the question, no, it doesn't change our Target and we're pretty comfortable if we can continue to invest in those programs that we will you know will be in that best-in-class category.

Tal Woolley: Yeah.

Tal Woolley: I'm wondering, like, again, I'm not trying to get you to commit to anything or anything right now, but, like, does that kind of transaction get easier to effect in a tougher economic environment? Like, does it-

Tal Woolley: It-

Tal Woolley: Could some more other opportunities open up along that front?

Tal Woolley: It-

Tal Woolley: Could some more other opportunities open up along that front?

Don Clow: Yeah, exactly. We did that with our McCowan and Ellesmere acquisition in 2016, and we've done it with a few other, I'll call it smaller tuck-ins. We still have a few, and we are working, I'll call it, continuously on those activities. We, I think we've said publicly, there's 80 or 90 Sobeys leasehold interests that we're, you know, continuously looking at in the major urban markets. Whether they get easier, you know, a lot of the people who own those places are well-capitalized. We're, you know, constantly working on it, but they're all, you know, mostly well-capitalized, so the gap between the bid and the ask is relatively wide.

Okay, and then just lastly on the it sounds like it's going to happen before it was better to get up and running when we when should we back to you to bring that property out of a few the end of the month, you know get the speaker numbers correctly?

Tal Woolley: Yeah.

Tal Woolley: I'd say we're, you know, we're not really focused on it today as much as we were, say, two months ago. We're gonna, you know, slow down a little, but we still have things we're working on. We wanna be very careful with our liquidity, focused on what we have to do to execute on our major developments, focus on Sobeys' plan, and part of that will be the odd transaction that fits that category. It's an exceptional opportunity for us to backfill our major development pipeline as we, you know, complete our projects and also to do a number of other, call it, interesting type transactions. We're quite excited about it.

Hi Cal, it's Glenn. Initially. Our expectation was to be substantially complete know in Q3 of this year. We'd have been full interest expense and the lease up would take place through Thursday 4. In fact, there'd be a drag on noi or ffo and an AFF. I should say in 2020 it now appears that will probably be substantially complete more like the end of the year late Q4 off and we'll have that slight drag in lease up and full interest expense in in early 2021. So in an odd way, it's probably going to a slightly improve our results for 2012 because the net drag of having full interest expense and then the lease up of the rental over say four months six months wouldn't have a net net dragging effect. So not material but nonetheless, it's like a drag so we would suggest that that reality will be in early 2021 and not late 2020.

Tal Woolley: Okay. Obviously late last fall, you had sort of rolled out in your press release today a longer term sort of growth guidance, kind of the longer term goals of, like, 3% to 5% NAV and AFFO growth. Obviously, you know, you weren't saying 2020 would be the year that that was gonna start to begin with, and clearly, you know, given where we are, it's probably not, you know, probably certainly not gonna be now. Do you see anything fundamental that, you know, would really shift that longer term goal at all right now?

Okay, perfect. Thanks very much. Thank you. Thank you. There are no further questions at this time. Please proceed.

Don Clow: Well, you know, you don't know what you don't know, and right now that's about what kind of retailer fallout could take place over the next 3 to 6 months. Again, for us, we view it as ideally a short term, call it transition stuff that we have to work through. Our investment thesis of Sobeys and major developments is pretty simple, straightforward, and pretty strong on a risk-adjusted basis. That's why we've said our strategy remains unchanged. Our investments may be a little lower this year. You know, if we set CAD 100 to 150 million on Sobeys, we may be closer to that CAD 100 million dollar range or a little less than that, just because of again, slowing transactions down.

Okay. Thank you very much for joining us everybody and we'll look forward to talking to you next quarter. Have a great day, bye-bye. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Don Clow: In the long term, if that's the question, no, it doesn't change our target. We're pretty comfortable if we can continue to invest in those programs, that we will, you know, we'll be in that best-in-class REIT category.

Tal Woolley: Okay. Just lastly on the Davie Street concept. As you know, it sounds like it's gonna, you know, sort of be late Q4, early Q1 before it's really starting to get up and running. When should we expect you to bring that property out of PUD and into the IPP so that we can, you know, get to keep our numbers correctly?

Glenn Hynes: Yeah. Hi, Cal, it's Glenn. Initially, our expectation was to be substantially complete, you know, in Q3 of this year. We'd have then full interest expense, and the lease up would take place through Q4. In fact, there'd be a drag on NOI or FFO and AFFO, I should say, in 2020. It now appears that we'll probably be substantially complete more like the end of the year, late Q4, and we'll have that slight drag in lease up and full interest expense in early to mid-2021. In an odd way, it's probably gonna slightly improve our results for 2020 because the net drag of having full interest expense and then the lease up of the rental over, say, four months, six months, would have a net dragging effect. Not material, but nonetheless a slight negative drag.

Glenn Hynes: We would suggest that reality will be in early 2021 and not late 2020.

Tal Woolley: Okay. Perfect. Thanks very much.

Don Clow: Thank you.

Tal Woolley: Thanks, Tal.

Tal Woolley: Thank you.

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

Don Clow: Okay. Thank you very much for joining us, everybody, and we'll look forward to talking to you next quarter. Have a great day. Bye-bye.

Claire Mahaney Lyon: Thanks.

Claire Mahaney Lyon: Thank you all.

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

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