Q1 2021 Crombie Real Estate Investment Trust Earnings Call

Good morning, ladies and gentlemen, and welcome to the Crombie reads, q1 earnings conference call at this time. All lines are in listen-only mode. Following, the presentation 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 May 6th 2021. I would now like to turn the key over to Ruth Martin, please go ahead.

Thank you. Good day, everyone. And welcome to Chrome, Biarritz. First quarter conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at ww.w. To accompany today's call are available on the investor section of our website under presentations and events on the call today. President and chief executive officer Clinton, ke Chief Financial Officer and secretary and Glenn Hines 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 form for a discussion of these risk factors.

I will now turn the call over to Dawn who will begin our discussion with comments on Crombie overall strategy in Outlook. Glen will follow with a development update and a review of Crombie operating fundamentals and results. Clinton will then discuss our financial results, Capital allocation and approach to funding and Dawn will conclude with a few final remarks over to you Don.

Thank you, Ruth, good day, everyone. And thanks for joining us for a first-quarter conference call. Despite the continued disruption caused by COVID-19, probably continues to pursue our long-term strategy with strong short-term results. A long-term strategy is not changed. If we remain committed to delivering, stability, sustainability, and growth for the benefit of all of our stakeholders, the Crombie team continue to grow and optimize the quality of our grocery anchored real estate portfolio and execute our development pipeline. Delivering major developments in Canada's largest cities. While at the same time, improve balance sheet and overall Financial condition. In other words, playing good defense and offense at the same time as the capital markets, turn their focus from balance, sheets, and liquidity to grow Crombie is positioned to continue to perform. Well, we have built a very solid foundation for our business grocery-anchored, retail retail, related industrial. And for the first time in history,

Residential rental units. Continue to be the best classes of real estate in Canada. We have executed are

How did you well to deliver solid, fundamentals driven by high committed occupancy of 96.3% and strong leasing performance in the first quarter. Covenant term are highly-coveted, especially during times of Crisis, probably benefits from both the strong and improving Covenant of Empire and an overall. Lengthy weighted average lease term of 9.9 years which is influenced by Empire remaining lease term of 13.1 years. We have significantly dearest our business by materially increasing liquidity. And the weighted average term to maturity of our debt by leveraging, multiple sources of capital, as well as taking advantage of the low interest rate environment over 55% across these annual minimum rent comes from Empire Canada. Second largest grocery retailer. We have a liner strategies collectively Drive high-quality risk-adjusted growth with Crombie planning to invest approximately 100 to 200 million annually in Empire related initiatives. Misalignment, include strategic. Yep.

Creative investments in the modernization acquisition and expansion of grocery stores, including the FreshCo discount format and western Canada. And the farm boy Banner in Ontario accelerating Sobeys off of their online grocery Home, Delivery Service, la la land, use intense vacations and the unlocking of major developments guala operates under a hub-and-spoke, network orders are filled with large, state-of-the-art automated customer fulfillment centers or CFCs, the hubs of the system to increase efficiency and expand to CFCs coverage area. A number of smaller Cross. Dock facilities, wage the spokes of the system are placed to support each CFC Crombie has the opportunity to participate in ownership and development of both hub-and-spoke, locations, three hundred thousand square footage r. I g a c f c of Montreal developed by Crombie reached the stage of completion of the base building in the fourth quarter of 2020 and is expected to start. Delivering customers in early 2022. Dead.

We are delighted to also be developing their Calgary CFC. Crombie has also has multiple opportunities to support Empire with their spoke locations. We purchase land and develop, Greenfield spoke these or repurpose existing space within our portfolio, into a Spoke facility. We're capitalizing on these opportunities with the first 31,000 square-foot spoke location opening at birth to a common property in Etobicoke Ontario. As our portfolio continues to evolve these hub-and-spoke locations will augment our growing base of retail related, industrial assets and further Diversified income stream. Crabby is fortunate to have a strong and strategic partner that will not only continue to be a Canadian. Grocery industry leader for years to come but will also Drive significant value, creation wage both food retail and real estate over the long-term in addition to this work with Empire, we have become a significant developer of major mixed-use real estate some of the best Urban markets in Canada.

With a Target investment of a hundred and fifty to two hundred and fifty million dollars annually, these major development projects, play a key role in our long-term strategy of accelerating.

Nav and a ffo growth. Our major development pipeline consists of twenty nine sites, including five-year term projects, many of these sites are conveniently located within walking dead of existing and future Transit corridors within Canada's largest cities, our team and our current Partners West Bank. And Prince developments have worked diligently and safely to ensure our development projects remain on track and on budget over the last few years, including throughout the pandemic, the quality of diversification of our developments and their economic returns remains of utmost importance. So this is truly a transformational time for Crombie and 2020. We saw her first four major developments. Reach substantial completion, making it a landmark year tenant, move-in began in November 2020 and her first residential development Davie, Street in Vancouver, officially reached substantial completion in the first quarter. We are very pleased to achieve these key milestones and with probe

Continuing on our LeDuc and Bronte Village projects. We expect Revenue will continue to ramp up into twenty twenty-two. Lastly and most importantly, as we are in the midst of the third wave of COVID-19, we remain focused on the health and safety of our employees are tenants and our communities. I am incredibly proud of are capable passionate and empathetic team and the work they do. Our team has been exceptionally resilient while we have been and continue to be on defense through COVID-19. But interestingly, they are also steadfastly focused on offense or achieving high ffo and nav growth over the short and medium-term with that. I'll now turn the call over to Glenn. Will provide an update on our developments and our operational highlights.

Thank you, Don and good day. Everyone Crombie strong fundamentals on our 287 property portfolio were driven by high committed occupancy of 96.3% and strong economic. I can see if 95.5% new lease has increased occupancy by four hundred thirty two thousand square feet. While we experience just one hundred and one thousand square feet of net. Lease expiries vacancies terminations and space adjustments. The largest contributor to the new leasing activity. In the quarter, was the three hundred thousand square foot voila, CFC in Montreal, which commenced sucking rent in January, in the quarter 86% or 373000 square. Feet of new. Leases were completed in back Tom or major markets aligned with Crombie strategy of increasing. Its birth in these markets. At the end of the quarter, 147,000 square feet was committed at an average first-year rate of $19.05 per square foot which will boost future noi grog.

2021 forty nine thousand square feet of this committed space is that are completed major development projects, Avalon Mall Belmont Market and Davie Street retail. Another forty nine thousand square feet of committed, is least to one office tenant at our Scotia Square complex in Halifax Nova Scotia during the quarter three hundred. Eighty-seven thousand square feet of renewals were completed at a 3% increase over expiring rental rates, approximately 60% of renewal activity occurred, in fact, and major markets at an increase of 3.1% over expiring rental rates. We are happy to say that ninety-eight percent of our portfolio was open and operating as of March 31st. Our team is dedicated to ensuring our underlying business fundamentals remain strong and are able to support areas of the business office that are feeling the impacts of COVID-19. Since the onset of the pandemic, there have been numerous Declarations of store, closures, CCAA applications and or bankruptcies in the broader Market dead.

Our defensive grocery-anchored portfolio.

Is well-positioned with minimal exposure to these announced closures with only twenty-five, leases potentially impacted representing approximately 1.1% of annual, minimum rent, month-to-date. Only three of these twenty-five. Leases have been disclaimed or vacated representing approximately 0.1% of annual minimum rent, which indicates the strength and resilience of birth properties. Property development is a strategic priority for Crombie as it drives nav and a ffo growth while increasing our presence in the country's top urban markets and diversify our overall portfolio. We are thrilled that our first major mixed-use development located, in the West End of Vancouver. Reach substantial completion earlier this year Zephyr, the residential component of Davy Jones Street is owned in partnership with West Bank and contains 330 residential rental units. Surrounded by amenities Zephyr, is built to Leed gold equivalent standard and contains a public art feature to suck.

Hence the street skate lease up has been strong with initial move-ins beginning in November of 2020 as of April 30th, 62% or 204 units have been least the school team at West Bank continues to work hard. Despite the ongoing COVID-19 related challenges with an expectation to reach stabilization. By the end of 2021 progress is being made and Bronte Village projects is they remain on track and on budget, substantial completion is expected to be achieved in the third quarter for LeDuc and the fourth quarter for Bronte Village. We are committed to unlocking significant land value embedded. In our major Urban Market grocery stores. As we continue our work to entitle, upwards of ten additional projects across Canada is generating opportunities to continue our development program is Don. Noted Empire recently announced the expansion of their online grocery Home Delivery Service who Allah to western Canada. Crombie is very pleased to age

Stop in the upcoming development of Empires. Third CFC located in Calgary. This project is expected to be added to our pipeline in the second quarter of 2021 upon acquisition of the month. And we have also completed property, Acquisitions and have been active in our Capital recycling program in the quarter Crombie acquired, six income-producing properties and one development property in q1. Total aggregate purchase price of $46 million dollars, five of the seven Acquisitions are located in back, or major markets. We concluded the disposition of three income-producing, properties, for total gross, proceeds of forty-two million dollars and with that, I will now turn the call over to Clinton will highlight our first quarter Financial results and discuss our capital and development program funding approach.

Thank you, Glen and good day. Everyone Crombie continues to reduce risk and maintain Financial strength with a strong and flexible balance sheet, ample liquidity, creatively Source, Capital imprudent, Capital, allocation, despite the recent lockdowns, and increased restrictions across different areas of the Country, Strong collection rates continue with 98% collected in the fourth quarter of 2021 and 98%. For April, this is on par with our fourth-quarter Collections and a reflection of our stable portfolio.

On a cash basis.

See now in awhile increased by 2.2% primary drivers, at this growth are strong occupancy, modernization, income reduced, bad, debt, expense and lease termination income tax COVID-19 judgment such as bad debt, expense rent, abatements and a decline in parking Revenue, same asset. And oh, I would have increased by 3.8% for the first quarter for the month per unit was twenty-five cents and ffo per unit was $0.29 ffo, and ffo payout ratio, were 90.8% and 76.4% respectively off ffo. The quarter was impacted by improving net property income. Partially offset by higher G&A and finance costs. And the quarter was negatively impacted by the effects of unit page compensation of approximately $0.01 per unit,

G&S percentage of property revenue for the first quarter was 4.9% or five million GNA, excluding the impact of unit based compensation expense would be 2.9%.

Unencumber data pool is approximately 1.4 billion or 28% of Crombie. Total assets of 4.9 billion. Our debt, to gross fair, value, net of cash at the end of q1 was 48.3 per month. Increase fair value of investment in joint. Ventures from the completion of Davie Street residential is a primary driver of the decrease in leverage ratio. During the quarter, we ended the quarter with debt to trailing-twelve-month net of cash of 9.58. Times, this increase is primarily impacted by the spending on development with no income until project, completion trailing 12 months, even years. So disaffected by bad debt, Provisions taken over the past twelve months.

Looking ahead. We are focused on a continuous Improvement of our balance sheet while also retaining flexibility to pursue strategic growth initiatives during the quarter we renewed our 130 million unsecured loan facility. Now maturing June 30th, 2023 $225 million of our total debt is maturing during the remainder of this year, at a weighted average interest rate of 4%, including this is 150 million of unsecured notes maturing on June 1st 2021 and seventy-five million on mortgages, maturing in the fourth quarter.

Crombie is committed to delivering value through nav and nav of growth and strategic allocation of capital while providing support to our employees, tenants and communities through an ever-changing environment. I would not turn the call over to Don for a few closing comments.

Thank you Clinton. As we look ahead, the challenge of COVID-19 remains. However, we are committed to our long-term strategy in the safety and well-being of our stakeholders remains a priority. We expect stable grocery-anchored portfolio and financial strength together with our resilient team to continue to work closely with Empire to unlock value while supporting their business and continuing to grow and develop Crombie. We are confident in the future. We are building at Crombie, our q1 results were solid, and we're excited by our future opportunities that concludes our prepared remarks. And we're now happy to answer your questions.

Thank you.

The ladies and gentlemen will now begin the question-and-answer session, should you have a question please? Press star. Followed by one on your touchtone phone, you'll hear a three-tone prompt acknowledging, your request off and your questions will be pulled in the order. They are received. This should you wish to decline from the polling process. Please press star followed by two if you're using a speakerphone, please lift, the handset, before pressing any Keys one moment for your first question. Okay, your first question comes from Mario, sarek from Scotiabank Mario, please. Go ahead.

Hi. Good afternoon just maybe with respect to the the substantial completion. Can you highlight how much I know why was included in the quarterback? Any at all and and ffo impact of transferring to substantial completion during the Border

Yeah, thanks Mario. It's Glenn. I think in the notes to the financial statements, think it's around note, for Note 5, we break out for Davey. Now that it's completed on page ten of the financial statements off. It shows the revenue property operating expenses etcetera. We're showing for Davey in the quarter and that loss our share of about $889,000 off. So that reflects the, the revenue in place based on the initial lease up and obviously, as the year progresses that will continue to improve as we continue to lease up and Achieve stabilization by the end of June.

Yeah. Okay. Thank you for that. I'll take a look and then maybe shifting gears to the bad debt expense which is fairly minimal. Again this quarter how much of the 0.6% would have been attributable to have one moment.

I would say attributable to Avalon Mall. I can get that easily because it is the portion that is not in same asset and Ally. So there's a table, press release, that shows the impact. So, on page 3 of the press release, we show the bad debt expense impact of 227. So, up to $648,000 Mario, bad debt, expense wage. Um, about $400,000 of it is in properties that are not in same assets. I would say that's probably almost a hundred percent Avalon MO

Okay, 400,000 would be Avalon Mall 220,000 is properties, that are in the same asset category.

Okay, and they appeared of yours earlier this morning, noted improved, at least residential rental demand in Newfoundland recently. Maybe you know close-quarter, what are you seeing a specter, recollection and bad debt? Expense at Avalon Mall this far or you seeing any one of the trans there. We're delighted Avalon Mall is ninety-nine percent, open today, ninety-nine percent of tenants. Think, Clinton mentioned, 80% collection in the quarter, our traffic counts at Avalon Mall right now or at pre COVID-19 levels essentially dead. So you know, there's still a few tenants that are challenges, you know, Newfoundland. We shut down for a part of February so we did see a bit of a blip in the quarter through February but sitting, today were 99% off of our tenants are open and I suspect Avalon Mall is probably one of the top-performing malls in the country right now based on Lenz great success with COVID-19. So yeah. Yep,

St. John's Newfoundland where in

Very strong position at Avalon Mall.

Okay. All right. My, my last question is pertains to the disclosure husband spoke strategy. I'm assuming that the expected Capital deployment. There would be included in the hundreds of two hundred million a year. Reference by the audience started the call, how do we actually think about the unlimited return potential on that Capital spend relative to the more traditional store modernization returns?

Amira, they'll be most likely the spokes are in the hundred. Two hundred million that we're targeting, were Sobeys initiative because they're generally smaller the major developments or where they're over. $50,000 is we? We characterize them the returns, you know, we have had very solid, we call them solid risk-adjusted returns where we've seen returned. I'll call it in the six to six and a half percent yield on cost. And so that probably a fair Target for these types of Investments and yeah they call it similar in a methodology for the most part to the modernization that expansions but yeah, that's about all all good.

Garden in the recent Burlington.

We can't comment on Earth at the stage, what that land is for?

Mario, are you still on the call? I just wanted to clarify going to climb, and he had said that the numbers in a bar where our Shirataki, one hundred percent of the JV share, we would have 50% of the numbers in that note.

Okay. Mere is no longer in the queue just so you know your next question comes from from CIBC please. Go ahead. Thanks morning everyone. A a couple of questions on the hub-and-spoke model to look like the options are to do it either Greenfield or repurpose existing space. So what option would you feel it? More attractive? And then for repurposing, like I said, you survey your portfolio for potential space that could work. What do you look for in terms of market and just as physical attributes of the space?

You know, the the selection of the space is driven by artificial intelligence in terms of maximizing the productivity of the of the network. And so we're very fortunate to be working closely with Sobeys in terms of their Network intelligence and understanding that a i and therefore being able to Source sites. So it's, you know, clearly if we have a site that the a, I would say is, area where it's good and we have a site ourselves and then we start looking and and so we've announced that the site in Etobicoke will be converted and it was a Ford former c r u z bars and not a Sobeys store and so that when fit very nicely for us and the returns and costs et cetera worked for us. And so we convert, we're converting them but there will be others that are Greenfield and, you know, essentially again, we're looking for returns, you know, in that six to six and a half percent, yield own cost in terms of overall, for the overall project.

And each individual site depending on where it is and as you get into the centers of the major cities in the country, that's going to be more and more challenging to deliver. But also potentially

More and more impactful in terms of returns. So we're still working very closely as I said with Sobeys, to try to figure out the economics on those, but we're excited about it cuz they think it's one of the most strategic parts of their business days. We're excited to be a part of it and and providing Solutions. Absolutely. Thanks for that. And then uh, we spoke a bit about just this trend at Avalon month and looks like same-store sales were up about 10%, so just any more color there was where there's a couple of significant drivers or just, you just saw more broad-based improvements from, you know, all all the, all the tenants there.

I would say somebody is a broad-based. But what's really cool at Avalon now is the opening of the tenants. So we've had Sports Shack. Open recently, Tommy Hilfiger Gap. Banana Republic, wage is a really great halo effect. Now that the racetrack phase two expansion area. The mall is open. We're having the influx of these first to Newfoundland and Labrador, tenants. So that's causing a great buzz in a mall. And of course, we had the other retailer, the European retailers escaping me right now that opened last November that is doing great business. So I think we're seeing a broad-based strength in the mall and um, that's how I would describe it.

Okay, just last week. I was thinking of sorry, my H&M is, the 10:00 is opened my sleep last year? Okay, great. Okay. I just last name is sort of a minor detail point, but there was about some lease termination income of around one-and-a-half million in the quarter, just wondering what that pertain to

Sure, interestingly in it's not covered related. First of all, I think we indicated in our script that we had about twenty-five leases across the country that have been off subject to disclaimer, CCAA, and of those 25, only three have resulted in a tenant departure, which is 0.1% of those were in my earlier remarks. But there was about half a dozen lease terminations in the quarter. And I would characterize a few of them. Few of them are at Avalon tenants that had made plans to depart the mall and departed and not get compensated in the quarter. One in Halifax for both, $400,000 was an office tenant. We're an m&a. Transaction, of another tenant that we had, had bought a tendency in another, one of our buildings and decide consolidate, and, and pay to pay this out. And there was another of a call small call center tenant in Atlantic Canada. So, it was a bit of a mixed bag, but nothing specific that wage

I'll call it directly related. These were plans that were put in place before but it did add up to about 1.5 million dollars in the quarter.

Okay. That's a very helpful. Thank you. Thank you. Your next question comes from from National Bank Financial. Please go ahead. I'm just as a refresher for me. I'm, I don't cover any of the other apartment reads. The rent control laws for BC month. Is it? Like, how, how, how should we be thinking about rental growth there? Over over time, as this as that asset develops?

you know, the long

Term rental growth in Vancouver, has been, you know, low single-digits, but 3 to 5 %. So we that's one of the main reasons in the long term that we felt this investment was dead. You know, extremely important for us we continue to try to grow r, a f f o and ultimately you know through growing our rents and the rent rental growth there. There's been a pause there is you know, rent control or Rental. Rent control effectively this year announced while ago. I think it was last fall and so it was one of the reasons we've gone out to Market at higher rent, than maybe we would originally anticipated because that was in place, and we weren't certain how long it would last. And so, we're still not not quite certain, but I think on a long-term basis with, you know, tremendous macroeconomic factors demographic factors with immigration. And if I think Vancouver will be, uh, fantastic place to to invest in a long-term basis dead.

And we're continuing to look at it. And then for your daily Street in particular, starting with a higher than performant number that we're quite pleased with our partner, West Bank has done an outstanding job, delivering a product that's been very well received in the market. That I think in the long-term basis, rental growth will, I think we revert to, uh, you know, significant levels on a national basis and that I think in like three months 5% level, so I don't know if I can tell you more, I can't really predict the future tell, but I got sense. Well, thank you on the edge of the spoke facilities. I just understand what's going on there. So this is the case where like you have one one large carrier coming in dropping off if it is effectively like a cross between one carrier into a bunch of local carriers. Or is there actual like

Activity like packing and stuff like that going on in these books, abilities know. It's it's a Cross Dock. So. I mean, you think about it? Let's take an example or a new Montreal, CFC bulbs order from Quebec City and because it's, you know, whatever a couple hours away or whatever. It's it's loaded on an 18-wheeler ship to Quebec City. And there's a across. Facility there. That's spoke with broken down, put into a cube, and then, not delivered to your home. And, and then in and around the major centers in the country. You know, they Empire has not disclosed to date how many spokes that they'll have, but I don't, I think they'll be fairly significant number given the dispersion of the population. And so they, you know, again it's driven by artificial intelligence, which will take the optimization of how to deliver it profitably. Which I think is the big issue in delivering a little margin product with groceries is that, you know, even the largest players in the world can't do that job.

probably at the moment and have to, I think ocado is really doing it, profitably in the UK and bringing that methodology, the candidates, you know, for Sobeys and uh,

We have great hope that this whole network ultimately will drive some very significant profitability for Empire and be very successful and it's not if you were to use some of your existing shower to locate some of these, it's not seen as like a different use like its it all fits within zoning. It's not a big deal to do or, or it might take a little bit of work, but you're not that worried about it. We're not worried about it at 5, generally, if it's within the use and we are smart enough to figure it out in terms of figuring out with the, the traffic flow of the civil engineering and the parking, which is really you got part of Cuba, et cetera, and putting those in place probably seen those in areas where it doesn't affect foot traffic for the adjacent retail. So, which is what we're doing in the current location of first one that we're doing, okay? And then just maybe right now I know I know in the maritimes there's been some you know some restricted activity that's happened. Unfortunately, can you just give us a rundown of sort of like how things are dead?

Evolving right now and whether we should have any real, you know, should we have any concerns about just lockdown activity and stuff like that for the next quarter's.

I'll speak generally to, we're in lockdown in Nova Scotia, but the other three provinces are doing pretty well. And we've got on Adderley here in Nova Scotia Rico, and the purpose of Health have done. I believe a very good job of managing the pandemic for the last fourteen months and getting on Adderley has proven successful in the past, the thing not only for Nova Scotia but New Brunswick and Newfoundland. And we're hopeful, we're still waiting to see numbers come down and still ramping up at our test positivity. Rate is very low. I think we're still less than 1%. I saw a number was off 8%, which is much lower than, you know, some of the provinces in Central and especially western Canada. So that, you know, we've got a lot of testing and the community has got together and reel, you know, become I think, the norm now is to be tested on a regular basis, in addition to ramping up vaccines so high level. So we're hopeful. But again, in New Brunswick people,

And do some and we're we're open is Glen said earlier and all of our retail and I think one of my peers had a great joke, he said, you know, the best retail is open retail and, you know, so we we've been fortunate especially with Avalon to have that. Um, so and and where we have in areas of locked down, you know, we're an essential service. So we're we've been, we've been relatively in good faith. Okay. My my lock is sad that they could we were running around 98% open for the portfolio and with the recent lockdown activity took out, I saw we're about ninety 3.3%. I would say the Halifax lock into Nova Scotia. Lockdown is a factor in that but we're still pretty satisfied. Have 93. 5% of our of our tenants open and and doing business but that's off a hive about close to the 98%, okay? And then just my last question, you know, prior to age

To, you know, the world kind of going.

Chaos for the last twelve months. You know you guys were sort of setting up kind of like long-term longer-term Financial guidance for the street dead, you know, and sort of like that 3 to 5% nav growth 3 to 5% ffo f. F o. Group obviously a lot has changed. You know, you've sort of continued to move things forward. You know, do you still sort of feel comfortable with that or any sort of changes around? How? How that, how that sort of Prior guidance, kind of looks like your plus later. Yeah, no, I am comfortable with it. So, it's, um, you know, that's a best-in-class measure in my mind. And so, and I think we're, you know, we've been the lower end of that. So it's really trying to get into the upper end of that range on both math growth and job growth. And the nature of the portfolio is it's, you know, one of the strongest in the country, we've evolved it over the last decade, you know, really manage the portfolio well, to a position of strength as you age

Team with both in a time of defense and the time of offensive, we we managed commented in their script. And so as we transition to, you know, having 10% of our portfolio in the next year, or two years of being residential, which has very high occupancy rates, and very strong rental growth. We've got 10% of our business roughly being retail related industrial, which is full. You know, we should continue to evolve our portfolio towards essential services, and grocery-anchored, Retail. We think they're the three best asset classes in the country at the moment. And and then, you know, given the transition we can achieve. Those kinds of of growth spending and and work with Sobeys is critical to to improve their Network, which some people again, don't understand. But it's really trying to improve their competitiveness and our ability to invest with them, also drives growth on a consistent basis if we're able to achieve those spending targets. So yeah. So we're pretty confident, still? Okay, but great pay for my stolen phone.

Thank you. Your next question comes from Jenny ma from BMO Capital markets, Jenny please, go ahead. Hi everybody. Jenny but asked about the spoke specifically at Queensway common. I'm not sure if I missed it earlier in the call, but how does that align with the store? That's currently there is it, is it in the same property? Or is it kind of like a couple blocks over?

Yeah, there's no grocery store Jenny on that site. I think the the 31000 foot space that's at the Queensway was a former golf store or a believe it was. So it was vacant space. There is a sob store in the neighborhood but this this spoke would be serviced by the Von CFC and it is the first month I spoke facility that Sobeys is opening has opened in in GTA and there's obviously more to come

okay, so if someone are saying

Correctly with the spoke facility. There's no, you know it's it's part of the voila ecosystem, right? There's no back and forth with any stores. That might be closed by. Is that correct? That's correct. The second part of the month program. Though is a curbside pickup program that's using some of the same ocado, voila, technology. So, they're rolling that out. But no, the the hub-and-spoke program is separate entirely from grocery store in terms of grocery store involvement. It's orders being assembled at the Hub and is Don mentioned transported to the spoke with Thursday. Facility. Put into delivery Vans for the last mile delivery.

Okay. And I realized, you know, with this being the first one, you might not want to get too specific about the details, but when we think about rent on these folks took the classified as an industrial property and I guess it depends on what the what the use of a of a former unit would be but how does that rent sort of fall between that retail to Industrial Spectrum?

Yeah and basically it's just a hour. Is. He mentioned the return that we're getting is the function of six to six and a half percent yield on cost. So it's really the the rent will fall out of the capital costs that are involved. So obviously, the rent will vary depending on the size of the, the spoke and the capital costs to get it. Ready the relatively simple because they're crossed off at least there to receive orders. And then to quickly turn them around through the delivery vehicle. So that's all they'll say, I won't give you any dollar specifics, but it's based on a yield on cost which is very much a creative for Crombie.

Okay. Okay, got it. And how long does it typically take to get a Spoke ready from from the box that you already have?

It varies the one that we did on The Queensway was probably about a year in the works. So it was in that range and some of the other spokes will do will vary. But the first one that we have completed is in the range of about 12 months, from beginning to end, and there was some Municipal approval process there as well. So, that's sort of an order of magnitude. If we're starting from, you know, buying land and developing, then it could be a little bit longer than that, obviously, Jenny. But in this case a little bit more efficient because of dealing with a pre-existing structure and as long as the approvals are in place on an exact time efficient basis in and around that 12 month range.

It's one of the key features of our development pipeline as you know what, the major mixed-use developments they can sometimes take three to five years where as long as industrial developments are taking us eighteen to twenty-four months. And the cases folks, is Glen said 12, that maybe even eighteen months, but they allow us to call it modulate, the money spending, uh, in our Pipeline. And so we accept these targets as we evolve, both the mixed-use pipeline, its larger commitments longer period of time. But, you know, clearly riskier, but wage higher. Now pick up. But then these are the the industrial or the hubs. And spokes are shorter time frames with colored better risk-adjusted returns and and short time line. So it's it's a really nice Balancing Act for Crombie to be able to manage our spending levels and manage our commitment levels, you know, as we look forward and try to develop a game.

Immature development program. The nice feature, definitely. That's, that's very helpful. Thank you. Moving over.

To the bad debt. I realized we're talking, you know, small numbers here, but it did pick up from 2, 4 of 20, 20. So I'm just wondering what the moving parts were. And if there were any, you know, specific one often. And send me after than that change, Jenny, I think it's content. I think the, the, you know, the little, I call them on your plate, would have been that, we have the Avalon Mall club for a period of time in the quarter. So that's what you get a tribute to nothing.

Okay, great. Well, you happy with our expense is Clinton mentioned, Jenny 0.6% of Revenue. I think Stacks up. Pretty well amongst the peers and we're pretty satisfied and off collections staying in that 98% range. We're cautiously optimistic from here. Yes, definitely. And then my final question is in the md&a regards to the disposition? Not sure if I'm not reading it correctly, but it said in a footnote that the, the net property income last year was eleven million dollars on the forty two million dollars of disposition. Can you walk me through what the Gap is there?

That sounds that sounds. It doesn't have any empty or the financial statements. It is in DMD n a

Maybe we'll have to plan when we get back we'll get back to you soon. We'll get back to you on that Journey. Okay. Sounds good. Thank you very much. Have a good afternoon.

Your next question comes from pammi bir from RBC Capital markets, please go ahead.

Thanks and every once I call you, but maybe just can you just comment on the impact. It has some repair value perspective, in your debt to gross Book, value calculation, um, relative to maybe the cost that are shown in the notes.

You know, what will, what will say is that we're taking benefited from a partial recognition of the nav creation that suffer. We're not going to get into Civic property by property numbers. Um, but you know, we have provided some ranges in the, you know, in our investor day, back in 2019 when we should all get together. And so those ranges are all, you know, holding and and we've said, I think in recent IR dollar, 32 a dollar eighty a sheer, which is what two hundred, two hundred and eighty million in navigation potential in the first six. And so what we've recognized the date is a, you know, a portion of Davie Street to date. And and, and I think a portion of the Montreal CFC that was completed in Q4 is what's what's so far been recognized, but you can see it helping us move our debt, the gbv, in a fair value down quite nicely, which is what you age.

is our plan was

Saul along, so I apologize. We're just not prepared to get the property specific information on that phone, that's okay, or the financials, you'll find some color on that. So if you want to have a read them, see some details on on fair value.

Got it. That's that's helpful and presumably you know as as this property get stabilized over the course of year that I presume you and you know ultimately pick up the full for Value recognition, right? Oh yeah, that's right. And in fact Tommy in fact Tommy we've been West Bank's been doing a heck of a job out there in terms of lease up and it rates that they were higher than our original. And, you know, we're hopeful that we'll continue and if it does, then maybe additional pick up. But it's, it's still too early to tell.

Yeah, I know the the VC does look pretty well considering I believe it only started last fall and you know, I think still, you know, with everything that's been happening from the pandemic standpoint. So that's good to see em, the adults cap rates on Red Cap rates and Reggie of compressed of Vancouver's, you know, CBRE latest report amount of two and a quarter to two and three quarter. And, you know, so it's it's a improving Mark, I can press improve Market circumstances. If you just Switching gears, call me back to the, the lease termination, just to clarify. Any of that, I'm related to, I believe, the Walmart the Topsail, I believe, that's one of the closures in your portfolio but just anything, you can share there and then just prospects oddbods releasing that space. Sure Topsail. Road Walmart is our one and only Walmart in the country. Ironically enough. It's got about twelve years left of remaining term dead.

We're not worried at all, but there's no lease. Termination income in the quarter relating to that store. Still open. I think we have an idea when the closure date will be. It's it's it's coming but as you know, from many of those old-fashioned Walmart lease is pommy rents are relatively low. So this is an eighty-five Thousand Foot Store. It's in a grocery-anchored center with other great tenants, so these Banks, et cetera. So, we'll take our time and come up with Redevelopment play there that'll be. I think quite accretive to both a ffo and nav, but until we sort that out will be paid rent in the ordinary course.

I see. And so they have they provided sort of the like at what point that store will actually close. Yeah, I believe it's sometime this year. I think they've been public about that in terms of closure date. And yeah. And then from there, we'll they say there's twelve years left and the lease they don't have a must operate cause obviously, but they have to continue paying rent and we do evaluate next steps at the appropriate time.

Got it. And then just lastly just put some of the other determinations that you mentioned some smaller stuff just generally speaking. You know the timing of when perhaps you think could be able to get some of that space you know back home.

A good question. Actually the office space and Halifax. We've got prospects for the call center space, that's in Atlantic Canada. No current prospects home and we've got added prospects for Avalon Mall. We got some tenants there that want to expand. I mentioned earlier about some of the first to Newfoundland and Labrador tenants that have recently opened. But the the space is a time, we're feeling really strong about and probably the majority of the lease termination income around around half of, it would have been related to the Avalon Mall. So Thursday. We're feeling very good about about that.

Good. Thanks. Very much and I will alternate back. Thanks, thanks for calling me. Your next question comes from Sam, damiani from TD Securities, Sam, please go ahead. Thanks and good afternoon. Everyone just hey, I just start off on the developments with the, you know, the three new projects that have been added to the near-term pipeline. How should I think about yields on those relative to, you know, the the recent Davie Street specifically in in Leduc, which is coming up for completion shortly? Where you were kind of in the in the mid fives? Roughly four four on average for these residential projects? Historically, you know, how how do you think about guilds going forward on your Broadway commercial and, and, and the one in Halifax?

Sam. We, we think of the yield still in the fives, depending on the nature of the, the development. And so we would typically obviously Target wage. I think it may be aggressive, but we do it anyway and probably a hundred and fifty basis points over over acquisition cap rates, but we've managed well over that in Vancouver to date. There is certainly pressure in terms of construction costs, uh, at the moment. And so we're still working very hard. We haven't committed to the large projects at this stage, but we're working very hard to, you know, in sure, we're out for casting, I'll call it conservatively and so that might compress the yields on cost to some degree. But so far to date we've been able to, you know, for six we've we're basically On Target and on budget and we benefited from rental increases in Capri compression in the future to date, we're still seeing the ability to pass on those cost increases to Consumers dead.

Through rental increases and you know, when we first started looking at some of these projects, you know a year or two ago, cap rates were higher for these types of projects like Broadway and commercials so long. So we think all-in-all we're we're still in good stead and can make you know make them work and moving forward, haven't committed but working towards that with our partner West Bank on East Broadway an example. But it's it's it is we are seeing inflation that's running at a higher rate and it has been volatile. So it's it's something we're, we're very conservative, you know, predictions and will continue to be, you know, and just to be, I guess the, to be clear. I mean, you've put 1788 Broadway on the near-term list.

because you've got,

Like your your intention is one hundred percent to commence construction on that on that one next year barring any, you know, crazy unforeseen situation you based on your current assessment of the market on both the revenue and the course site. That, that one's ago is that right? What I would say is that we're working very closely with West Bank and the City of Vancouver and looking to get the project of Faith. So until that happens, obviously it's not. And so there's no. No such thing and development. As a hundred percent certainty, there are still work there still still work to do and before it's finally approved object West Bank and ourselves will need to, you know, have everything up to date in terms of cost forecasts and revenue forecasts. And there's a portion of that that's condominium Condominiums, pricing, so still uh you know work to do to have the project be you know one hundred percent committed and it won't be committed. Until we actually, you know, sign the contract to commence construction. So for us,

You know, I'll call it off ramps. If the market changes for the negative and that's normal in development and especially with sophisticated developers like Westlife ourselves, if you, You're basically trying to, you know, make sure you got that clear picture to profitability. And in our case, we like those mid five Returns on assets that have a 3 cap handle and when it's finished that's for us we look at it as a very significant margin of safety when we actually make the commitment. So anyway, we're continuing to work forward on it and will be comfortable when we do it and, you know, we bring a board for final approval, right? But the market as it is today it would be a go. If everything was ready to go,

We think the market conditions are solid. As I said, we're concerned about cost increases but we're seeing rental increases. Let me think the product really, fits the market West Bank Center, spectacular, design wage, but we still have work to do with the city. So um, you know, until we get to the final point with the city then you know, that's not determinable, right? And so we're we're getting closer but we still have wage and last one for me and I'll I'll listen to the replay at this is already been asked but certainly the the lease up that Zephyr has been has been quite quite strong and you know congratulations to you when you're in your partner there. Um, so just I guess you know, given the given the pace of the lease up, you know, did you did you go out with an asking rent? That was perhaps the lower than you initially hoped to just in order to get the velocity and how it is or how is how do the rents that you've achieved State compared to your expectations?

Yeah. So we're original the rents that we've gone to Market with are much higher than our original pro-forma and so we would have set our performance four or five years ago and then Revisited it off last year. And then, once the province brought in rent control, we actually went to Market with higher rents because we knew we wouldn't get growth for a year. Maybe we weren't sure if it would be more than that off and the Market's been very receptive and in fact, we just, you know, looking at increasing their rights beyond that number. So there is no discounting to get paid. In fact, we're home, you know, how to market for Grant's above, above, are pro forma and still exceeding our expectations in terms of Lisa and and leasing, you know, is a broad-based in terms of the cross, the unit. So we've got lots of quality in its left and and it's just gone very well. West Bank doesn't understanding job in terms of the marketing and model sweets and we've dead

We benefited as a team from that.

Congratulations. Thank you. I'll turn it back. Thank you.

Star followed by one.

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Thank you for your time today and we look forward to updating you on our progress, on our queue to call in August, stay safe and healthy.

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