Q4 2020 Crombie Real Estate Investment Trust Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to copy of weak Q4 earnings conference call. At this time of all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you need assistance. Please press star zero for the operator.
This call is being recorded on Thursday February 25th 'twenty 'twenty, one I would now like to turn the conference over each of its Martin. Please go ahead.
Thank you Joanna good day, everyone and welcome to Crombie read the fourth quarter conference call and webcast. Thank you for joining US. This call is being recorded and live audio and is available on our website at www Dot Crombie Reed dotcom slide.
The slides to accompany today's call are available on the investors section of our website under presentations and events.
On the call today are Don <unk>, President and Chief Executive Officer.
Clinton Kay Chief Financial Officer, and Secretary, and Glenn Hynes, Executive Vice President and Chief operating Officer.
Today's discussion includes forward looking statements as always we want to caution you that such statements are based on management's 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.
For him for a discussion of these risk factors.
I will now turn the call over to Dan who will begin our discussion with comments I'm crombie overall strategy and outlook.
John will follow with the development update and a review of Crombie of operating fundamentals on the results.
Clinton will discuss our financial results capital allocation and approach of funding and Don will conclude with the few final remarks over to you Don.
Thank you Ruth and good day, everyone. Thanks for joining us for 2020 of yearend conference call.
'twenty was a year like the water, we began the year with record occupancy and all the time high close the unit price of $16 58 in January and a compelling strategy of stability sustainability and growth by operating one of the best grocery anchored retail portfolios in Canada, maximizing our relationship with Empire and executing.
On our major developments, the Canada's largest cities.
COVID-19 pandemic was declared in March and the world around US was significantly impacted by a health crisis of transformed into a global economic crisis. Unlike anything we have seen before.
No real book and the pandemic the unknown duration crombie pivoted from took a thoughtful long term approach that continues today.
The order types of the health safety and wellbeing of our employees tenants and our communities together with maximizing our liquidity sort of business to deal with the myriad of financial pressures that would present themselves the <unk>.
First of all the tenants in the computer and the communities in which the we operate matter deeply to us as a result crombie team tailored approach to rent relief the.
Further strengthen these relationships you've provided financial assistance through our crombie value of small business program C. B S. B and help tenants received funding through the candidate of emergency commercial rent assistance.
The program and the Canada of emergency rent subsidy Sirs program. In addition, we performed a case by case the valuations with select tenants, who did not qualify for C. B S. B C crop or surge to determine appropriate levels of support for their business, we maintain frequent contact with our tenants. There's many we're faced with.
Changes to the way they serve their customers through multiple lockdowns, although the pandemic is not yet over crombie continues to be in a strong position to weather the storm crombie.
Colombia is a long term strategy has not changed as we remain committed to delivering stability sustainability of growth for the benefit of all of our stakeholders and I'm very proud of our crombie team as they show remarkable resilience the made tremendous sacrifices to drive crombie of top quartile unit price performance in 2020.
Crombie of trained team has driven our strategy through the most difficult year in the last decade as it is grown and optimize the quality of our grocery anchored omni channel real estate portfolio and delivered world class development projects, while at the same time strengthening our financial condition.
Grocery anchored retail continues to be one of the best classes of real estate and our Empire anchored core portfolio has stood up to the unique challenges presented over the last 12 months, achieving a new record of committed occupancy of $96 four per cent and strong leasing performance crombie benefits from both the strong and improving cash.
Tenant of Empire and from their length of the weighted average lease term of approximately 12, and a half years, which drives our overall the remaining weighted average lease term of approximately nine of the half years to advance our relationship with Empire, we have aligned our strategies over the next three years to collectively drive high quality risk adjusted growth.
Simply and at scale with Crombie planning to spend approximately 100 to 200 million of year on Empire related investments. This alignment include strategic and accretive investments in the modernization and expansion of grocery stores, including the fresh flow of discount that format in Western Canada.
The boy and Ontario, accelerating showbiz buildout of their online grocery home delivery service, while a lot of juice intensification in the unlocking of major developments case in point in December we achieved substantial completion of the customer fulfillment center and number two in Montreal.
The home of Empires, Walla E Commerce home delivery facility.
I want to commend, Michael Medline and the entire Empire team for their dedication and resilience and relentlessly serving groceries to Canadians and keeping customers safe throughout the pandemic Empire of cheap great momentum through its project Sunrise transformation and we have full confidence they will be successful with project horizon, there new three year growth.
Out of G to drive core business expansion and E. Commerce acceleration Crombie is fortunate to have a strong and strategic partner that we expect will not only continue to be of Canadian grocery industry leader for years to come but it will also drive significant value creation in both food retail and real estate over the long term.
We have become a significant developer of major of mixed use real estate in urban markets across the country of value enhancing major development pipeline includes site strategically and conveniently located within walking distance of the existing and future Transit corridor <unk>. These major development projects a key role in there.
Long term strategy of accelerating net asset value and the S. F O of growth.
Despite COVID-19, our team and our partners West Bank in Prince developments safely forged ahead to ensure active development projects remains on track and on budget the.
Quality of diversification of our developments and their economic returns remain of utmost importance Twenty-twenty was a landmark year for our development program as we saw the first four major development projects reached substantial completion first of market retail tenants opened their new locations and residential tenants moving into our first mixed use residential.
The development in the heart of the West and in Vancouver.
In addition to these achievements progress continues on our remaining to reactive developments the substantial completion expected in 2021, well of pushing forward. Another 10 projects through various stages of entitlements overall, we plan to spend approximately 100, the $50 million to $215 million on developments annually.
Lastly, we are very pleased with the continued improvement of our balance sheet as we leverage multiple sources of capital to increase our liquidity increase the weighted average turned the maturity of our debt and take advantage of low interest rates.
We've been living with COVID-19 for almost a year and we're not out of the woods. Yet we are optimistic for brighter days ahead of US vaccinations continue to rollout across Canada. We are hopeful that herd immunity will be achieved by the end of 'twenty 'twenty, one and we can return to a more normal way of life, we expect our stable of grocery anchored portfolio.
In solid financial condition together with our the Juliet and remarkable team will continue to work closely with empower to support their business unlock value and grow and develop crombie.
I'll now turn the call over to Glenn who will provide an update on our development and operational highlights.
Thank you Don and good day everyone.
We have built a very solid foundation for our business, we've improved the quality of our portfolio by developing and acquiring assets in Kansas top markets as well as recycling assets, mostly in secondary and tertiary markets to reinvest proceeds in empire related investments and crombie as major urban development or <unk>.
<unk> of grocery anchored portfolio is well positioned with minimal exposure to the numerous declarations of store closures do you see double lay applications <unk> bankruptcies in recent months, we're happy to say that 97 per cent of our portfolio was open and operating as of December 31st.
Crombie of strong fundamentals on our 284 property portfolio were driven by record high Q4 committed occupancy of $96 four per cent.
New leases and expansions increased occupancy by 248000 square feet at an average first year rate of $18 four per square foot.
While we experienced just 116000 square feet of net lease Expiries vacancies terminations and space adjustments. We ended the year with 432000 square feet of committed space at an average first year rent of $19 66 per square foot.
Which will boost future NOI growth.
300000 square feet are committed out of Montreal CFC. Another 47000 square feet committed at Avalon Mall and of 49000 square foot office lease is committed at Scotia Square complex in Halifax, Nova Scotia during the quarter 200000 square feet of renewals were completed at a 4.5.
Percentage increase over expiring rental rates in 2020, we renewed 758000 square feet at an increase of four 1% over expiring rent retail Plaza renewals were solid with 404000 square feet renewed at rental increases of 5% the pea.
Portfolio, we have today is resilient and as we navigate through these uncharted times our team is dedicated to ensuring our underlying business fundamentals remain strong.
Property development is of strategic priority for crombie as it improves NAV cash flow growth and unit holder value in 2020 solid milestones were achieved on our major mixed use developments as they remained on track and on budget. This is truly a transformational time for crombie as their of Belmont.
Avalon Mall, JV Street, retail and Montreal CFC major development projects reached substantial completion in 2020, the remaining three active developments, namely Daily Street residential with Duke and Brian Day are expected to reach substantial completion in 2021.
Our 160000 square foot Belmont market on Vancouver Island reached substantial completion in the first quarter of this year of 2020 with the final phase of the development consisting of three small buildings totaling 23000 square feet still to come online construction is substantially complete at the first of these three buildings two.
Of the three units in this building has been leased and the remaining two buildings are slated to begin construction upon pre leasing success.
Avalon Mall is the only regional mall in all of Newfoundland and Labrador.
And has had exceptional performance as one of the top in closed malls in Canada. During the pandemic rent collection at Avalon Mall for Q4 was 94%, Newfoundland and Labrador I've had a low number of Covid cases relative to the rest of the Canada and a relatively strong return to normal economic and social conditions.
Resulting in increased traffic counts and climbing sales at Avalon recently, there has been an outbreak in the province, which put a pause on this progress non essential retail stores are closed to in person service at this time for an initial two week period, which ends tomorrow.
Phase one of Avalon development reached substantial completion in the third quarter of 2020, while phase two achieved substantial completion in Q4, the grand opening of the 165000 square foot redevelopment space is scheduled for the spring H and M had a strong opening in the fourth quarter of 2020.
While numerous other tenants are in possession of their space with opening is expected to commence in the first and second quarter of this year.
The 300000 square foot Montreal CFC reached substantial completion in the fourth quarter of 2020 ahead of our preliminary schedule estimate the base building was turned over at the Empire and Ocado in December 2020, with the lease commencing in Q1 2021.
The Daily Street in Vancouver, the commercial portion of the development reached substantial completion in Q2 of 2020 as the new Safeway store opened Additionally, scotiabank and the government liquor store opened later in 2020, and 100% occupancy will be achieved with the final tenant opening in Q2, which was recently signed.
Standard completion on the 330 day the street residential rental units in two towers was achieved in January the West Tower was completed in the fourth quarter of 2020 with initial tenant move ins beginning in November the East Tower began moving this month in Montreal at our <unk> project the residential structure.
<unk> is complete and interior of fixed dreams are well underway with Duke will include the 25 storey mixed use tower with 387 residential rental units on ground level. There is the 25000 square foot Iga grocery store, which began its fixed during periods of this month and the thousands square feet of retail space with 200.
Underground parking stalls. The project is estimated to reach substantial completion in Q3 of this year with initial leasing activity soon to come in.
Ron <unk> village in the GTA is 96% tendered and both buildings are fully enclosed with interior, finishing work well underway substantial completion is expected in the fourth quarter of this year with the New farm Boy store expected to open in the summer of this year. The pre leasing marketing campaign has commenced with strong interest to date.
And the first residential lease was signed this month. These projects are expected to drive NAV and <unk> growth increase our presence in the country's top urban markets, while diversifying and improving our overall portfolio quality and income stream.
As our first active development approach completion, we continue our work to entitle and additional 10 projects across Canada, we are making progress unlocking significant land value embedded in our major urban market grocery stores and generating opportunities to continue our development program, we expect to invest 150 million to two.
<unk> hundred $50 million in our development program annually as Don noted to date zoning is in place for three projects two of which are in Halifax, Nova Scotia, and one in Victoria, British Columbia to barrage of two projects located in Vancouver in Halifax, and zoning application submitted and the remaining five projects are in various stages of.
Pre planning, we've also completed property acquisitions and have been active in our capital recycling program in the fourth quarter Crombie acquired two income producing properties and one development property for a total aggregate purchase price of $31 million through these acquisitions crombie strengthening the presence and back down in line with our urbanize.
<unk> strategy subsequent to December 31, and additional retail property was acquired from Empire in the fourth quarter. We concluded the disposition of five income producing properties for total gross proceeds of $37 million. Additionally, subsequent to year end two income producing retail properties were disposed for total gross proceeds of 80.
$18 million and with that I will now turn the call over to Clinton, who will highlight our fourth quarter financial results and discuss our capital and development program funding approach Clinton.
Thank you Glenn and good day, everyone. We are very pleased with our 98% collection rate in Q4, which remained constant in January a steady improvement from a 95% collection rate in the third quarter. Despite.
Despite the ongoing challenges crombie remains in good financial health with a strong and flexible balance sheet.
Ample liquidity of $472 million available at year end, and an ability to prudently allocate and creatively source of capital.
On the cash basis quarterly same asset NOI increased by one 9% and decreased by one 1% for the full year <unk>.
Excluding COVID-19 related adjustments such as bad debt expense rent abatements and the decline in parking revenue same asset NOI would have increased by three 6% for Q4 and two 8% for the full year.
<unk> per unit was 23.
Decreasing from 24 cents per the same quarter last year, our <unk> payout ratio was 98, 7% versus the same quarter last year at 93, 8%.
<unk> for the quarter decreased to 27 per unit from 28 for Q4, 2019, and our <unk> payout ratio was 83, 2% versus 81% in the same quarter last year.
In addition to the impacts of COVID-19.
<unk> decreased in the quarter due to the increased finance costs of approximately $2 million.
The resulting from the premium paid related to the partial early redemption of unsecured notes.
Adjusting for the impact of COVID-19 on Crombie of operating performance and the impact of the interest premium paid <unk> per unit would be 25.
<unk> per unit would be 29 cents ahead of Q4 2019.
G&A as a percentage of property revenue for Q4 was five 7% of $5 5 million compared to 6% for the same quarter in 2019. The decrease from Q4 2019 is primarily driven by reduced salaries from the organizational realignment completed in Q2, 2020 and lower unit based compensation.
Crombie continues to reduce risk and build financials transfer strategically managing our capital structure and optimizing capital allocation to generate long term value for our stakeholders.
During the fourth quarter Crombie had successful issuances of $300 million in unsecured notes proceeds were used to partially redeem $100 million of unsecured notes due June one 2021, and the remainder of applied against short term bank debt and the <unk>.
Issuance and partial redemption aligned with crombie is focus on increasing the weighted average term to maturity of its debt with an inaugural 10 year offering and harvesting interest savings with our lowest coupon rate to date on our $7 five year unsecured note offering of $2 six 9%.
In the fourth quarter Crombie secured of long term 16 year $100 million mortgage financing at a favorable interest rate of 287%.
$36 $7 million of the proceeds were drawn in Q4, leaving $63 3 million of restricted cash on hand, which is expected to be fully drawn by the end of Q2 2021.
Both financing activities align with our debt strategy and significantly increases our weighted average term to maturity from four one years in Q4 2019 253 years in Q4 2020, while lowering our weighted average interest rate.
Our unencumbered asset pools of approximately $1 4 billion or 30% of crombie of total assets of $4 8 billion, our debt to gross fair value net of cash at the end of Q4 was 48, 8% compared to 49 for the present for Q3 2020.
We ended the quarter with debt to trailing 12 months EBITDA at $9, one nine times net of cash and Covid related adjustments versus $8 five two times at Q4 2019.
This increase is primarily impacted the spending on development with no income until project completion.
Looking ahead in 2021, we are focused on the continuous improvement of the balance sheet, while also retaining flexibility to pursue strategic growth initiatives too.
$270 million of our total debt is maturing this year at a weighted average interest rate of three 7% included in this is $150 million of unsecured notes maturing on June <unk>, 2021, and 85 million of mortgages with approximately 80% maturing in December 2021.
All of this debt can be funded through utilizing our existing liquidity or with the issuance of long term debt of currently attractive lower rates.
Crombie is committed to delivering value through the effective allocation of capital and the salary NAV and <unk> growth per unit, while supporting our tenants employees and communities during these difficult times.
I'll now turn the call over to Don for a few closing comments.
Thank you Clinton.
Crombie ESG is part of our everyday decision, making since we believe that everyone has the responsibility to do their part to help protect the sustained our environment improve the lives of our employees and Canadians and Governor of trust to the highest standards. We've implemented many programs over the last 15 years, but focused on reducing our carbon footprint.
And other environmental impacts from properties that we own and operate.
Today, we have committed to the grasp of the framework for reporting.
In 2020, the collaboration with empower led retrofits were completed at.
At 147 of our properties across the country. Additionally, clean St. John's Award of the Avalon Mall of the Golden True Corporate award in 2020 sustainable.
Sustainable design and construction is embedded in our development process, our day be street development of tiers to this and has built the LEED gold equivalent from.
The social perspective, Crombie is consistently one of Atlantic Canadian and Nova Scotia of employer of the year Awards as a result of our commitment to our people and our culture. The 2020, we also want to talk Canadian small and medium Enterprise Award.
Diversity equity and inclusion of Crombie is of utmost importance net in 2020, we updated our diversity equity and inclusion policy to include goals accountability and commitments, we held virtual inclusion conversations and we signed the black more of the pledge.
Robbie has always believed in strong corporate governance and ethics, while we have the strategic relationship with Empire, who owns 41, 5% interest in Crombie. We've taken every effort to maintain our independence three of the 10 trustees are appointed by Empire and must abstain from voting on related party transactions with Empire of company limited the remaining <unk>.
Seven trustees, including the board chair of our elected by unit holders. Looking ahead, we are committed to advancing our ESG program. We will report publicly our ESG strategy and operating model of priority ESG objectives, and we will publish an ESG report with the commitments that reflect our values.
Reflecting on the year that was 2020, our business and our people were tested severely and continuously when they show remarkable resilience in the face of immense disruption the.
Courage and innovation displayed was second to none of.
Of the World is not yet safe to return to normal we are confident in the future. We are building at crombie.
That concludes our prepared remarks, we're 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 the star followed by the one on your Touchtone phone you will hear items, Tom prompt acknowledging a request if.
If you are using the speaker phone please lift the handset before pressing any Keith.
The next question comes from Jenny MA at BMO capital markets. Please go ahead.
Thanks, and good afternoon.
Hi, Jamie.
So wanted to ask the Avalon mall of the numbers look a lot better than they did in the first quarter of 2020.
What kind of still in the middle of the outbreak of Newfoundland, but do you have any additional color.
Plenty of conversations with our tenants about what the plans are in genco dissipate any sort of hiccups in the bank collection.
I guess you would of course at February March.
The March Sal.
Yeah, Jamie so no with the Lockdown has certainly changed as we mentioned in the script, 94% rent collection was achieved at Avalon in Q4, and you're right. That's the far improvement from back in the dark days of summer I think there was points in the earliest part of Covid, where about 40% of our bad debt costs.
We're at one property Avalon mall, so it's amazing how we've gotten back to 94% collection in the fourth quarter, 99% of the tenants open and very good shape. During this lockdown of the last couple of weeks.
Essentially the curbside pickup was allowed.
But no in store shopping except for essential service tenants like say pharmacy. So we had about 43% of the mall was actually doing business. During this two week period, which is reasonably impressive given it was really of the stage five locked down and we'll know more tomorrow about whether this lockdown will land or whether it will be extended.
But there's been great progress on the Covid cases, the last week. So we will see in the next 24 hours, what what that foretells in terms of other tenants, it's going well HSM opened very well we've.
We've had situations where now the fixed string of other tenants as the sport Chek has fixed during a GAAP the Tommy Tommy Hilfiger et cetera. So we're gearing up for the Grand reopening it's going to be of different event, because it'll be quasi virtual tenants will not be able from head office does get to Newfoundland et cetera. So we have some really spectacular plans to celebrate the reopening.
But I can just say that it's gone really well and are on the adjacent property to Avalon. The came out road property. We opened of 45000 square foot brick store in November and that's gone really well, but the traffic at the mall has been strong before this call. It locked down of the last two weeks traffic levels were running about 13%.
Below last year, which all things considered is really really strong and we're really pleased with that so overall of the property has done extremely well and we're excited for the tenants that are coming.
With the the Grand reopening.
There is a bit of additional leasing to be done. We've just had some pad spaces are leased two of our four of pad spaces have been leased in the last month. So overall hopefully that gives you some color, but it's been extremely encouraging and I won't say, which tenant but just to <unk> point about Avalon being a very strong mall one of our.
Tenants had the top same store sales in the world at Avalon over the last three or four months of over a couple of week period. So that speaks volumes about the ability of that economy to restore and the strength of that mall to the service Newfoundland and Labrador.
The journey.
Just one more point as people have to appreciate the AD.
Of a lot of malls and one of the top of my mind, five probably five malls of the country over the last year, just because it's been open it's been open.
For a good chunk of the time, so I don't have a detailed stat on that but I'm pretty comfortable that it's been open a lot more and having much better sales in most of the call in closed malls in the country and as Glenn said people now paying the rent. So it's really a strong property in the end of specialty just recovered with strong performance by Newfoundland up until the last two weeks.
Against total debt it's Ben.
An exception I think two of the enclosed regional malls.
In Canada.
Yes, it's good to see.
I guess my question. The rent collection is it fair to say that with February event due before the lockdown of probably track closer to January and then over the course of March I guess, all depend on what gets announced tomorrow that probably impacted to some extent yes.
Yes, that's fair and we're still cautiously optimistic that March will be fine, but in general.
It's newfoundland or whether it's the REIT in general.
February was very much tracking of January which is encouraging and.
Yes, it's a little it remains a little bit to be seen remarks, but we're still cautiously optimistic that at the REIT level, Mark who is going to be strong, but the Avalon is going to be a little bit of uncertain, we'll know a bit more in the next 24 hours hopefully tenants get back the business next week or on the weekend, depending on when the lockdown ends but.
It's a little bit of unknown at this point Jamie.
Okay, great and the other.
The other thing I'll add is that people could see the book I think generally tenants can see the end of the pandemic.
<unk> site potentially with vaccines rolling out across the country.
But in particular in areas where.
They've managed the COVID-19 better than others societies have been behaving on a relatively normal basis and Ms from land one of those.
And so it's I think tenants won't be as aggressive.
This time around because they are much closer to the edge.
So I'm quite cautiously optimistic that the discussions we have will be quite different than we were having in April of last year.
Great It wasn't good.
The development project, Glenn you had mentioned that the.
Paul asked the FC is kind of start pretty soon but this quarter of <unk>.
It'd be a little bit more specific about the timing has it already begun and then the.
Just a question of content, but.
Is there a dislocation between the capitalized interest in the and the timing of the NOI commencing.
Oh in terms of rent commencement rent commenced.
At the.
Early January.
Rent has commenced and we would have ceased to capitalize interest upon substantial completion in late December of 2020 of <unk>.
There is no dislocation of journey.
Okay.
Okay, Great and then turning to the same store NOI.
Congratulations on a positive trends it looks like it was from a lot of the work that youre doing on the so the story I'm just wondering if you could provide some more color on it maybe the mechanics of how.
How that happens in a particular store and how many stores that's sort of apply to.
In that ballpark figure.
Sure. So we reported plus one 9%, but as Quint noted if you back out the impact of parking the COVID-19 impacts parking at that expense and the rent abatements. It was really plus three 6%. So that's a pretty strong quarter for us in normal terms. So as you know journey of theirs for reasons for growing same asset NOI.
It's improved occupancy, which we had a nice year doing that secondly, it's achieving rental bumps on renewals and we achieve four 5% on that in the quarter four 1% for the year. There is land use intensification of where we do minor call. It pad expansions to retail properties, maybe a <unk> of our restaurant here or there because those are relatively small.
<unk> if it's done on the same asset property, we don't change the characterization of that property, that's been pretty slow through COVID-19 tenants when pens down on deals as you would appreciate.
So <unk>, we're expecting to be at a much more rapid pace. This year, we're really getting excited the.
The fourth is what you referred to as the soldiers Modernizations, we do invest money in the modernization of renovation of <unk> stores and the return we get increases the rent so that properties of the same asset property that additional rent those support same asset NOI at any one point in time in the year, we might do.
Upwards of 10 of these it depends.
But they do generate additional revenue that support the same asset NOI, we don't breakout the distinction, but the reason why we mentioned that this quarter. Our same asset NOI was buoyed a bit more by the capital side was because the three 6% overall same asset growth is the stronger number of than normal.
Okay, great well, thank you very much I'll turn it back.
Thanks, Jamie Thanks, Jamie.
Thank you. The next question comes from <unk> <unk> at RBC capital markets. Please go ahead.
Thanks, and hi, everyone.
Hi.
In terms of leasing velocity, certainly picked up with the the developments can you maybe just comment on your thoughts on how you see.
The committed versus economic spreads trending this year.
Sure I'm glad you asked that for me because some of the analysts only focus on economic occupancy and this is the key point, probably the most key thing I'll say today, we reported 94% economic occupancy it would've been 95, and a half of 95, 6% economic occupancy but for the.
<unk> of CFC to in Montreal, because of December 20th we added 300000 feet to GLA in zero two economic occupancy. So if you back out you can do the math yourself you would see in set of 94% economic occupancy you'd see 95, six so we do have a bit of a distortion between that 94% and the 96.
Four of committed occupancy to your question.
It's going to narrow for example, as I just meant mentioned of Jenny's question. The 300000 feet for CFC. Two is now paying rent. So as of early January it's now an economic occupancy.
A number of the other deals are in Avalon, which is going to be opening over the next few months for the Grand reopening. So I think youll see an alignment very quickly in 2021 and this is critical because when we mentioned committed occupancy we talk about future NOI growth potential because of this deal was done but not yet paying rent so that CFC facilities now pay.
Rent the tenants at Avalon are moving closer every day towards paying rent and we do have of 49000 square foot office committed a deal at the Scotia square in Halifax, and that will be probably mid year paying rent. So we will see good traction in getting that committed space into the <unk>.
<unk> space.
Space here early to mid 2021.
That's helpful. Glenn I guess just.
On the flip side, it's been fairly quiet I guess from a bankruptcy standpoint to start the year certainly last year was quite heavy but.
Think about.
The call. It the next few quarters anything in your sites that maybe you're concerned about at all with respect to maybe closures shrinking footprints or <unk> filings.
And I guess as well and how that might play into.
Bad debt and abatements.
We're feeling really blast pardon me at this point.
I think I'll be off a little bit on the stack, but if there was.
30 leases and there wouldn't be a large number of let's say there was 30 leases in our total portfolio that were subject to <unk> in the last year, we would have captured more than 90% of them because they were in great locations like Avalon mall, where the tenant was going to continue on so no I can't think of any particular tenant.
Sitting here today that we're immensely worried about there is theres tenants, obviously that are not as operational as they'd like to be across the country I think of Jim's I think of <unk>.
Cineplex's like video, but we're very confident in seeing some public announcements of financings by those organizations and participation in the federal government leaf program by one of those people was good life. So those of the kinds of tenants that everyone is really sharing for as we are but no I can't find any other tenants in our roster of right now.
We're concerned about.
Pardon me, it's the only one other stat that people don't realize is that there are more tenants actually opened stores in 2020, net and closed and that's actually the same that same situation applies 2017 through 19 in Canada. So each of those last four years, including the one through the crisis more store.
<unk> opened than closed in all of the narrative is on the retail Apocalypse. So it's not necessarily true. There is lots of transition. We've always had transition in retail we've always said, it's the fastest changing type of real estate.
And it's although it's probably not in our type of real estate with grocery anchored but nevertheless, you just have to be able to adapt and continue to move but I think our occupancy the level of interest we have from strong retailers that fit our type of real estate.
Again, we're cautiously optimistic yes, there can be further failures, but again, we have good real estate feel like we could if the situation occurred we could backfill.
But right now we just don't most of the situations not all of them situations look like they are either stabilized financially <unk>.
I think open of doing business. So we're quite I think Glenn said fortunate.
The nature of the portfolio and the quality of the tenants we have.
Alright.
Not all retail trade of vehicle from Don.
For sure of very fortunate.
Just on the maybe switching gears to Davy streak, you gave us some color on your prepared remarks can you just talk about the lease up process there.
Any updated thoughts on perhaps reaching stabilization I know typically you said six to 12 months, but obviously, we're in a bit of of different scenarios.
Just any updated thoughts there.
Yeah no. So we're very pleased we're not actually going to give out the number of we decided not to but we're very pleased with the lease up west thanks doing a heck of the job.
Through various stages of lockdown.
In the community and.
They have a very strong team on the ground very strong.
The model suites.
We've had very strong interest and strong in my mind strong lease up I think that timeframe is still a fair.
The timeframe I will point you to the front of the MD&A, which has some very nice new pictures of JV streets, and we'll be making some of those available I think in the near future on our annual report, but the spectacular.
Property that are you know.
We're very very proud of together with West Bank.
But the lease up is going well.
The interesting part of that we've had some slowdown I think in that community as a whole due to immigration reduction due to Chinese students not coming.
But that's really picked up over the last few weeks.
And then also importantly, I think rental growth has continued up and cap rates have actually gone down so the value creation. There as you know it's a homerun.
Believes and will be when it's fully leased is just going to take a little time so.
Very confident of that.
Got it and just last one from me and I'll turn it back just on the industrial same property NOI.
It did seem a bit unusual.
Yeah that was nothing Fahmi, we bought the second half of the bond DC in late 2019, So late last year and there were just some anomalies on timing of revenue share right. It should be very flat to up that 1% to 2% normal growth in those rents. So it was just an anomaly in how we.
<unk>, the purchase and the rent billing.
Particularly in late 2019, so it's really nothing and it'll sort itself out I think youll, even see in the year to date variance of smaller and that should look after itself here in the next quarter or two.
Thanks, very much I will turn it back.
Thanks, so much.
Thank you. The next question comes from Alex Leon at Day Chardan. Please go ahead.
Good afternoon, just a couple of quick questions from me.
Firstly on occupancy.
There are some moving parts within the economic occupancy number this quarter and you mentioned that if we excluded the developments that would have been <unk>.
$95 six level.
Wondering if you can comment on what the average economic economic occupancy was during the quarter and how that will compare to <unk>.
Okay.
This is Glenn I would say it would be very stable during the quarter because of.
Other than the 300000 feet that went in that we're adjusting for.
Our economic occupancy I don't have the Q3 number in front of me, but I would say our economic occupancy was very stable. We didn't we had some leasing in the ordinary course.
We didn't have any major tenant movement. So I would say our economic occupancy was probably very close to that 95, 596%.
<unk> through the quarter, but it jumped down to the 94% when we added in the 300000 feet the GLA and nothing too.
Two occupancy hopefully that helps but I would say our economic occupancy was quite stable, but for that 300000 foot adjustment.
Okay great.
The second and lastly on the development side I.
The remaining development spend on the three active major developments is about $60 million and then you mentioned you have three projects that are currently zoned.
Just wondering if theres going to be any major capital invested in those selling projects for 2021, and if you could maybe provide some comments on what the project is volatile.
And that kind of give any specific color, but we're excited and as we said in our remarks, we're looking forward to an.
On average annual development spend of $150 million to $250 million. So you are right just to cover a couple of your numbers. So theres 59 million to finish up the three which is David storey residential you can drawn to is also a little bit of spend for the substantially completed projects, probably 2000 30 million of around $20 million just to finish those out this year, although there substantially.
Completion of few dollars more per this year, we are going to be advancing some of those zone projects. We're going to continue the entitlement process. As we said on all 10, but I can't give you specific project as to what project is going to start next we'll be happy to share of that over the next quarter or so but nothing more.
Yeah.
Okay I appreciate it I'll turn it back.
Okay.
The next question comes from Sam Damiani TD Securities. Please go ahead.
Thanks, and good afternoon, everyone.
Good afternoon.
Just on the on the development sort of similar to the last question I think Tony you said in your opening remarks.
Empire spending would be between 100, the 200 billion of year.
And then separately. It was also said the total development spending would range between $150 million to $250 million of year I assume those are I'm not.
Not additive.
So if I could just sort of get into 2021, specifically it looks like there's around $80 million sort of left to go on from the active projects.
But what else is I guess in the pipeline here for 2021, specifically is it going to be at the lower end of that range or do you see potential for.
Perhaps perhaps from.
So the dropdowns from from from Empire.
Sam just so for clarity those are additive right. They are hundreds of 200 on the <unk> initiatives. This includes modernizations expansions conversions of the firm by fresh co.
Acquisitions.
And can include various.
Various parts of the omni channel.
The home home E Commerce home delivery networks.
And then on top of that 100, the 200 and 150 to 250 on developments right.
That can be can.
Can be large steps, which we've talked about or you can also be some smaller stuff and so.
Sure.
Our expectation is as we said is the hit at least the minimum of that.
Which is call it $250 million.
I think over time, our hope is to accelerate.
Yeah, because <unk> is I think importantly doing exceptionally well.
Under the leadership of Michael Medline.
Accelerating there.
Growth and their competitiveness of the store network.
Because of doing so well.
And we're.
Standing shoulder to shoulder with them to help them accelerate.
Their growth and the competitiveness and for Us that's <unk>.
That's tremendous opportunities not all of which are big large scale developments.
The fairly significant number can be smaller amounts, but can be very significant to us because they had a very nice day, <unk> and NAV growth and so.
I'd say, we'll be in my humble opinion will at least the at the lower end of that range, but I think there'll be it in the middle of two you know it could be in the middle of the upper end of that range with our plan. So we're we're quite pleased with the opportunities that we have it's a pretty wide selection of <unk>.
The ambitious too.
To work with <unk>, and and and and of all of those program I've always said, it's the sustainable competitive advantage of the retailer related reached like Crombie <unk>.
Of that relationship can uncover tremendous opportunity in real estate.
Like other reach cannot right and if we can just add on this layer of major development.
It's a very distinguishing the advantage for this company and I think we will continue to prove the spending will be solid and.
But again, where we are trying to balance that off with the uncertainty of the pandemic, it's not quite over we have balanced our.
The the priorities of our balance sheet and our liquidity against the desire to spend money. So we've actually tried to increase the flexibility of our commitments on development and that's hard to do some of the big ones take as you know many many years to go.
So from start to finish.
But others are as we've proven the some of the work we do of soybeans can happen fairly quickly and as a result, we don't have to commit with.
The 12 months or 18 months of two years in advance so spending the money, but it can happen relatively quickly as part of the advantage that we have with the retailer. So again I'm optimistic overall, the spending will be consistent it is our goal to get the consistency at scale and the consistency of it scares getting to those ranges each and every year right in with.
The hopefully the <unk> growth in the NAV growth becomes consistent and at scale such that.
Uh huh.
It drives the growth of the company I believe.
Thank you that's good color and just on I guess on I guess.
Got some context around the plans because of the coming year is it.
Potential likelihood that crombie would be directly involved in the CFC three.
As it was for CFC too.
And I guess.
For the Modernizations or is there a number of Modernizations that you expect to.
Execute on the 2021.
Yeah, we are Michael.
Michael Medline was kind enough to announce it and I believe it was December that they are working with crombie of CFC tree.
In Calgary and so we continue to do that work with them. It is the type of thing that can go quickly.
Sure.
We have a lot of skill now built up within our company is built up within Empire too.
Work with Ocado and develop something that's ex.
Jordan area in terms of the quality of the real estate and the nature of what they do there of the high Tech.
Work that they do and so the scale we've learned in Montreal is going to be carried over to two of the Calgary CFC.
And the in terms of Modernizations.
You know I don't want to give too many.
You know.
Well.
I don't really want to say I guess, you can look at the past and probably see.
The 10 to 20, Modernizations and the last of year and the last two years and that's probably a number that's possibly indicative of future funding.
The goal again is to get the consistency at scale and that work in cars.
I think Michael said.
We've said it before the <unk>.
Bricks and mortar retail and grocery is going to pay for all of the innovation and their company and so for Crombie, we're keen to invest money in their modernization because it makes the stores competitive in it of the World where E. Commerce is one 2% maybe growing to four of five the stores still drive most of the grocery sales and they need to be competitive because.
The competitors are.
Very large entities that are doing a great job and.
So they want to be very competitive. So so we're we're very keen and for us its investments and assets that we already own and.
And so it makes our of properties better and their yields and returns on it are quite reasonable. So we're keen to do it.
And sort of last question from me is just on the on the balance sheet balancing the capital spending.
Expectations against the goal of per.
They're improving the balance sheet.
Three options, obviously equity dispositions and then lastly bumps to the fair value have you booked any fair value gains are mainly reactive.
The developments to date and I'm just wondering what your thoughts are on the other two of the whereas our sources of capital for 2021.
Let me start with saying I think crombie has always been creative at the source of capital and we've done that in the past.
Like to say, we have optionality and so thats something we look at in the.
I think we've proven ourselves.
We're effective stewards of capital and that's going to be of the approach. We take go forward. The when it comes to fair value.
The answer is from the CFC when that came across her as a fair value of bump from that but.
But nothing from our residential development.
And so sort of ml I'll jump I'll jump in on that.
We've talked to the you folks over the last few years of the dollar to $2 of NAV creation and so this is the first quarter, where we've seen a small part of that come into our fair value.
And ultimately we think that's how we drive our debt to the G. P D and a fair value basis down into the mid <unk>, which is one of our goals, which is ultimately hoping to get us to triple B mid ideally over the next three to five years.
And so it started right and so we're very pleased about that and it's one of the benefits of what we do right and investing.
The yields on cost in the five to six range of on assets that trade industrial in the Montreal, even trades in the low fours range right. So these are solid investments and where.
We're pleased with that type of impact and that that's where we get a good chunk of our NAV growth over the next number of years.
Thanks, very much I'll turn it back thank you.
You.
Thank you. The last question comes from Tal Woolley at National Bank. Please go ahead.
Hey, good afternoon everybody.
Sure.
Just a couple of quick questions upfront.
Non mall Geneva can you tell us sort of like the rough carrying value you got on the balance sheet for that right now just because of your asset base of the shifting a lot and I'm not sure exactly how much of the balance sheet of those anymore, yes.
That's something we don't disclose in terms of that.
Okay.
Right.
Yes, we don't disclose specific assets won't until.
Okay.
And then.
Dfc three in Calgary do you have the site.
We do yes, we have the site it's next door to the current modern.
Modern distribution center. The Toby's has there so we own the site, we're working with them and we're working with Ocado at the moment.
We aggressively on the on our plan for the site.
Looking forward to moving pretty quickly on the project horizon.
The plans for E Commerce home delivery were accelerated and so for us.
We're excited to be part of that and trying to accelerate this one as well.
Okay.
And then.
As you sort of work off.
The initial tranche of projects and start.
Of the planning and zoning for the balance.
Fair to say the.
The early signs of the.
The performance of the commercial part of Davis Street has gone reasonably well and Thats why.
And just sort of work down the work down those group of projects.
And of the retail if you have questions about the retail portion of the daily that's gone.
<unk> hundred percent leased towers.
As of Q4, but I might have missed what was the other part of your question I'm.
Sorry, I was just trying to get a sense of like the the performance of that store of that like you at Empire of been pleased.
Pleased and Thats why youre continuing to sort of work down the next the next tranche of projects.
<unk>, we've got a roadmap now working with <unk> to identify the.
It really activate our ladder.
I think I can't speak for soldiers, but from what I've heard the Safeway store at the Daily Street has performed well the beautiful store and that is one of the advantages the facilities of the development program you take of store that's not prototypical you get a very brand new prototypical store in the middle of an urban market. So that's one of the advantages and you've seen some of the <unk>.
<unk> on the Broadway and commercial project same opportunity there for sort of a very large prototypical store. So yes, that's going to be one of the drivers and it's never a guarantee but I think so we feel pretty confident that it can get a prototypical store and greater of in locations that theyre going to perform very well.
And so far that's been our realization.
Okay.
And then just one of the development side.
You've outlined sort of what you think of spending will be I'm, just curious like what what's the ideal number of projects that you guys would like to have on the go like just from.
From a people management perspective, and just not getting the hiring.
Not trying to stretch out of your team of not having them sit idle what's sort of the people capacity.
The I don't know 10 of 11, there around development for over 30 years and I've never known time in development that I haven't been stressed so.
[laughter].
You know what we are growing our team we have.
Over 25 people in development and most of those people have residential development experience. So we're continuing to build.
The capacity to deal with projects, both with partners and on our own I think youll see over the next 12 24 months of the latest we will be embarking on a project on our own.
Or two and so I'm quite pleased of that but it will continue to work with partners.
To do more and so and when do the dealing with partners, it's what I call past of active.
So we're very you know into with what our partners are doing they are in the lead obviously from the development point of view, but we're very past the very active passive partners in other words, we want to make sure. We learn everything we can from our partners who are really good of what they do and.
And overall of boat in time, we will probably end up doing I think of minority of the projects in the future on our own just because of the size of the scale some of them are exceptionally large.
But I think our team is managing the pipeline strategically again trying to get the consistency at scale. That's why we try to give you the spending number.
And and if we can do that I think our team will be stressed the right amount.
Of these distressed but its not Overstressed I guess is my hope, but it's also doing things very responsible right. So.
If that helps you or north of that for us of key considerations are as Dani mentioned the complexity of the projects Thats also of geography, if we can have a project or two going on in each part of the country right now it's been good Montreal, Toronto, Vancouver, Vancouver Island Newfoundland.
We like the idea of having some dispersion we have some great sites in Halifax.
Fantastic market. So we're excited about that marketplace, obviously, and we have lots of opportunities on the west coast. So from a risk management point of view in general, but also from managing people capacity I think we can do more if we have good dispersion geographically across the country.
Okay.
And then I just wanted to circle back to Jenny's question just about.
How to think about.
Progression when we've got these developments coming online.
I know I'm really talented up screwing that up and so just to think about.
Youre going to have <unk> had 19 or youre expecting 19 million.
NOI roughly from the 2020 completions.
How how long would it you know like would it take for that for you to achieve that sort of 19 million run rates. What's your expectation of that we'll have that $19 million in the in the bag.
As of the end of 2021 is that the middle of 2022, how should we think about sort of scaling that up.
Yes.
Direction would be that it's probably.
Middle of the all of 2022 being realistic we're going to achieve substantial completion on Duke <unk> call. It.
Mid year to the Q3 range.
For those projects for the normal lease up period expected. So that takes you into the mid 2022 for those projects getting stabilize in that range, Obviously JV Street should be there before then the other Avalon Belmont.
<unk> CFC to those are essentially much quicker, but I would say that in the on the other comment I would say is that for 2021, we sell of a little bit of drag this year, because we have interest capitalization until we get the substantial completion, so on Duke and Bronte in Davie Street is going to be a little bit of drag this year, but nothing of significance.
But I would say 2022.
Is when we should see the the.
The fruits of our labor on on these first six projects.
And if you're if you're consistently sort of investing $152 million.
Development each year.
The European D balance shouldn't swing around that much that we should have a.
Ton of variance in the amount of interest capitalized is that a fair statement.
I think thats, I think thats reasonable or not fully following but I think the idea that as if we have sort of a normal amount of pod. If you will of normal amount of projects under development.
And you as long as we keep a fairly standard rhythm to the program then things should be pretty much equilibrium and Johnny talks about this we want to we want to of property coming out of the pipe and property going into the pipe and our goal is to maintain a good equilibrium of.
Somewhere in the range is what we have now around $600 million of spend initially, we said which projects on average could be a couple of hundred million, they're three years sorry.
The three year projects sort of $200 million of year of spend of $600 million and that's sort of what we.
We are working through now so if we keep that kind of equilibrium and our interest capitalization should be fairly standard.
Okay. That's great. Thanks, a lot gentlemen.
Okay. Thanks, so much.
Thank you there are no further questions at this time I will now turn the call back over to Rod Martin for closing comments.
Thank you for your time today, and we look forward to updating you on our progress on our Q1 call in May stay safe and healthy.
Thanks, everybody. Thanks, everyone. Thank you Bob.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Okay.