Q2 2021 Crombie Real Estate Investment Trust Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the crowd and be read each your earnings conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct question and.
Answer session if at any time you disclose your claim.
Vince Please press star zero for the operator. This skull has been recruited and August 5th.
I would now later in the conference over to Mr. Martin. Please go ahead.
Good day, everyone and welcome to Crombie REIT second 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 REIT dotcom.
To accompany today's call are available on the investors section of our website under presentations and events on the call today are Dan <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 them for a discussion of these risk factors and I will now turn the call over to Dan who will begin our discussion with comments on crombie <unk> overall strategy and outlook Glenn 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 approached us.
Day, and Don will conclude with a few final remarks over to you Don.
Thank you Ruth and good day, everyone and thanks for joining us for our second quarter Conference call.
And we're very pleased with crombie performance during the second quarter and theirs.
Not possible to look at the last year without acknowledging the impact of the pandemic on our economic business and social environment.
The retail REIT space has become more bifurcated over the course of the pandemic with grocery anchored retail emerging stronger than ever.
Crombie major tenant stayed open and mostly thrived, which allowed us to do the same.
Our focus on Curating and optimal asset mix of empower anchored retail.
And with mixed use residential and retail related industrial properties and Canada's top urban markets continues and this quarter. We were fortunate to see significant cap rate compression due to evidence of transactions and the private real estate markets.
During the second quarter, we saw fair value increase of approximately $176 million or 3.6% driven primarily by cap rate compression of grocery anchored properties. This excludes share value growth expectations from our first major developments, which we expect will continue to come online over the remainder of $2000.
<unk> and throughout 2022.
Strength of this asset class has been highlighted throughout the pandemic for several reasons, including the resilience of everyday needs retailers and the importance of lease term and covenant.
And the opportunity for growth.
We're delighted by this value surge and grocery anchored properties as it is a solid complement to the fair value growth, we anticipate will come from our ongoing development activities.
We expect our development projects to contribute significant fair value growth, which we're in the midst of delivering as projects reached substantial completion and lease up progress is to stabilization.
We often refer to the work we do in terms of the importance of a strong defense and a strong offense and our strategy enables us to do both well for a strong defense is rooted in our grocery anchored portfolio, which has proven resilient during the toughest a crisis.
Like we've seen over the last 18 months and the improvement of our financial condition and over time, which Glenn and Clinton will speak to in detail.
Before they do though I want to highlight our overall operating metrics, which are driven by our strong fundamentals and the work. Our team continues to do on lowering our leverage as is evidenced by our declining debt to gross fair value ratio and the improvement and our debt to trailing 12 month adjusted EBITDA. Our results were solid this quarter driven by a continued.
The commitment on the part of our operations and leasing teams to high quality service focused site management lease.
Leasing renewal number.
And the defined work of these teams to meet the needs of our tenants and their customers.
Defense results and a high quality operating cash flow as well and the balance sheet and financial stability that positions us well for the long term.
Grocery anchored real estate has historically been thought of as just stay.
Stable with slow growth, but we are determined to prove the crombie cannot only be stable during crisis, but also strong during periods of higher economic growth.
Going on offense includes operating well and maximizing the value of our strategic relationship with Empire building, a first class development program and strong asset management through select acquisitions and dispositions to improve our portfolio over time and to help fund our strategy.
Our relationship with empires are sustainable competitive advantage and this offers us continuing opportunity to drive growth, we remain committed to investing $100 million to $200 million annually with Empire on strategic and accretive investments and the modernization acquisition expansion and conversion of their grocery stores to improve there.
Competitiveness, including the conversions to the fresh go discount format, and Western Canada, and the farm Boy banner and Ontario.
Accelerating Empire Buildout of their online grocery home delivery service for La land use intensification and the unlocking of major developments.
Major development program is hitting its stride as we reached substantial completion on our first projects and continue to work on the next 6 near term projects, while pushing forward ongoing entitlement work.
Eagerly await the next stage of our development program, where we continue to target to spend $150 million to $250 million annually to accelerate NAV and <unk>.
Lastly, our asset management has been savvy and timely to support our portfolio improvement and at time help fund our business.
Our success this quarter can be attributed to the outstanding work of the people on our crombie team, regardless of where they work on site and a kitchen table from behind the desk. We know that we can rely on them to turnout incredible work for the team past 18 months have been difficult for employers and employees and I'm. So grateful for the crombie.
And who has risen to every challenge.
We've increased our internal communications and ensure that our employees have the resources to cope with the physical and mental impact of this extended public health crisis, we remain committed to the health and safety of our employees and visitors to our sites and recognition that COVID-19, pandemic will be with us and some form for the month.
And to add and.
In response to that we are 1 of the hundreds of Canadian companies participating and rapid testing consortium and that our social square office, and Halifax, Nova Scotia, where all crombie employees will complete twice weekly COVID-19 tests to ensure the ongoing safety of our team and onsite visitors.
The best teams work together offensive and defensively to succeed we're a long term company and our team and remain committed to our strategy. Despite the challenges of COVID-19 and and ever changing economy and.
Proud of the work, we do are crombie and our continued pursuit of excellence with that 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 occupancy levels remained high and the second quarter with committed occupancy at 96, 2% and economic occupancy at 95, 6%, new leases and expansion and increased occupancy by 510000 square feet, while we experienced just 100.
And 55000 square feet of net lease Expiries.
And see as terminations and states adjustments notable new lease activity and the quarter was 42000 square feet of development leases opening at Avalon Mall, Halifax Regional municipality moving into our top 20 tenants with new locations and our Halifax, Nova Scotia complex and dollars Ram, becoming our third largest tenant with their new.
This location at La <unk> in place and Saint John New Brunswick at the end of the quarter 118000 square feet was committed at an average first year rate of $17.83 per square foot, which will boost future NOI growth throughout 2021.
And major markets represent 57000 square feet of committed space, including an additional 25000 square feet at Scotia Square complex and Halifax during the quarter 234000 square feet of renewals were completed at an increase of 3.4% over expiring rental rates driving this growth was 120.
<unk> thousand square feet of renewals at retail Plaza with an increase of 4.6% over expiring rental rates and increase of 6.3% was achieved for renewals in the quarter when comparing expiring rental rates to the average rental rate for the renewal term year to date crombie demonstrated portfolio of <unk>.
<unk> was approximately 51, 1% of renewals occurring and back Tom and major markets renewal activity consisted of 621000 square feet with an increase of 3.1% over expiring rental rates or growth of 6.7% when comparing the expiring rental rates to the average rent.
Right for the renewal term.
Property development is a strategic priority for crombie as it drives NAV and <unk> growth, while increasing our presence and the country's top urban markets and diversifying our overall portfolio with the majority of new tenants open the Grand reopening of Avalon Mall took place from June 24th to 2 and 2007 and included there.
And as community oriented activities and celebrations to commemorate this great achievement overall it was a great success with high traffic count and strong sales reported by our tenants.
Highlight of the event was the donation made on behalf of Crombie, our tenants and our customers to first flight centre, a performance and creativity, a nonprofit organization that serves the urban indigenous and non indigenous community alike by providing programs and services rooted in the revitalization strengthening and celebration.
Indigenous cultures and languages.
And the skilled team at West Bank continues to work hard and the lease up of Zephyr. The residential component of our Daily Street property as of July 31, approximately 90% of units have been leased at strong rental rates and the mid $4 per square foot range, which are above our initial pro forma.
Very pleased with the progress to date and have a lot to be proud of this effort has leased up quickly with stabilization expected before the end of this year.
Progress is being made at <unk> and <unk> projects as they remain on track and on budget with the first residential tenants taking occupancy at both locations in the third quarter substantial completion is expected to be achieved and the third quarter for la <unk> and in the fourth quarter for <unk> and late June Sylvie store converge.
And was completed and brought to the village and farm Boy opened for business and.
In late 2020 Empire announced the expansion of their online grocery home delivery service Walla to Western Canada at the end of June our development momentum continued with the acquisition of a 25 acre site and Calgary, Alberta, which will be the home of empires third CFC construction is currently underway with delivery to customer.
And as expected in 2023, 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 10 additional projects across Canada generating opportunities to continue our development program and with that I will now turn the call over to Clinton.
I'll highlight our second quarter financial results and discuss our capital and development funding approach.
Thank you Glenn and good day everyone.
Strong collection rates continue with 99% collected in the second quarter of 2021 and 99% for July.
Despite lockdowns and increase restrictions across the country for a large portion of the second quarter. Our collections reached pre pandemic levels and a true reflection of our stable portfolio.
On a cash basis same asset NOI increased by 7.2% for Q T <unk>.
Primary drivers of this growth a reduction and bad debt expense strong occupancy and modernization income.
Adjusting for bad debt expense and parking revenue and 2020 same asset cash NOI is flat compared to the same period in 2020.
For the quarter <unk> per unit was 23 and <unk> per unit was 27.
<unk> and <unk> payout ratios were 97, 3% and 81, 7% respectively.
<unk> and <unk> and the quarter were impacted by improving net property income due to lower bad debt expense and income from completed development and Modernizations.
This is offset in part by higher unit based compensation costs finance costs continued reduced parking revenue, primarily at Scotia square and the loss from equity accounted investments, resulting from a drag and operating results and our daily Street residential development project of approximately 500000 and for the quarter and.
Move towards stabilization.
Second quarter, <unk> and <unk> per unit metrics were diluted when compared to the first quarter of 2021 due to the equity issuance in may.
G&A as a percentage of property revenue for the second quarter was 7.4% or 7.4 million.
Unit based compensation included in G&A increased approximately 800000 and from the same quarter last year.
G&A, excluding unit based compensation and the quarter would be 5.1% of property revenue and 4.0% on a year to day basis.
Crombie continues to reduce risk and maintain financial strength with a strong and flexible balance sheet supported by our improved financial condition and ample liquidity at the end of the quarter.
Our unencumbered asset pool is approximately $1.4 billion or 27% of Crombie total fair value of investment properties of $5.1 billion.
Our debt to gross fair value at the end of Q2 is 46% a significant improvement from 49, 4% at Q4.2020.
The primary drivers of the improvement and our leverage ratio where material year to date increase of $291 million and fair value of investment properties and joint ventures, and significant debt repayment and funded by the 100 million equity issuance and May 2021.
Crombie has always viewed grocery anchored assets and a strong stable assets with the potential for growth and our team has worked hard to build a top quality portfolio.
The pandemic highlights the strength of grocery anchored assets and a strong desire for these assets are supported by an abundance of market activity driving cap rate compression.
The cap rate movement was a primary contributor to the increase of approximately 176 million or 3.6% and our fair value during the quarter.
On may 19th Crombie closed, a 100 million equity financing and a price of $16.60 per unit.
The highest issuance price and the organization's history.
The issuance was very successful with funds being utilized and the short term to reduce outstanding indebtedness and improving our debt metrics, while supporting her prior related initiatives and our development pipeline.
We ended the quarter with debt to trailing 12 month, adjusted EBITDA and $9..1 2 times the increase and trailing 12 month EBITDA and is driven by the sizable reduction in bad debt expense of approximately $8.7 million included in Q2.2020.
Crombie remains committed to maintaining our investment grade credit rating as evidenced by our equity raise and me and yesterday's announcement of the reintroduction of a 3% discount and our drip.
We plan to be regular issuers of equity and the future Crombie has access to multiple sources of capital to fund our development pipeline into the future.
We have increased our communications with debris is to reestablish our stable trend and ultimately move closer to our goal of achieving and triple B mid credit rating within the next 3 to 5 years.
And while external risks remain present, given the recent pandemic, we will prudently manage the financial levers within our control.
Continued growth and development activity is important to crombie as we anticipate it will deliver strong NAV growth and ultimately achieve strong <unk> growth. Once these projects are stabilized.
I'll now turn the call over to Don for a few closing comments.
Thank you Clinton and <unk>.
Closing today I'd like to thank our team for their ongoing commitment to crombie values and the work they do to deliver on our strategy every day it is real.
Marketable to step back and look at how our organization has evolved over the past 18 months. This quarter, we published our inaugural sustainability report, which highlights much of the good work, we do to achieve our vision of enriching community sustainably through tangible actions and and ethical and diverse culture.
This was the first year, we formally reported sustainability has been core to crombie business practices since our inception from an environmental perspective, our properties have always been located and what we refer to as Maine, and Maine, which provides convenient access to our tenants' customers and minimize the need for and the impact of transportation and that was.
Communities are Scotia square complex and Halifax is a shining example of the work we've done to set invest in and achieve environmental goals for over a decade from a governance perspective, we believe and we always have and white glove governance with strict policies and ensure high standards and strong risk management, we ask.
All employees and trustees to adhere to a comprehensive code of conduct that business ethics to commit to doing what's right and the long term even if it's hard in the short term from a social perspective, we have worked incredibly hard to attract develop and retain a diverse team and provide a safe inclusive space for those employees.
We've done to build a strong culture of paid off greatly over the course of the pandemic people leaders at Crombie knew we could depend on our teams to work hard and do what was right for themselves their families and crombie, while also keeping their community safe and healthy and our results speak for themselves and we're excited by our future opportunities and confident.
And the sustainable future we are building at Crombie <unk>.
Concludes our prepared remarks, we're now happy to answer any of your questions.
Thank you ladies and gentlemen, we will now begin the question answer session should you have any questions. Please press star followed by 1 and you touched on sales.
Julie a freedom from technology and your request and your question was really pulled.
And the older the overseas.
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1 moment for your first question. Your first question comes from Sarah <unk> with Scotiabank. Please go ahead.
Hi, good afternoon guys.
Good afternoon.
I just wanted to focus from.
The initial questions on the fair value gain this quarter I think you provided new disclosure on page 8 of the MD&A in terms of arriving to your slides.
Particularly percent cap rate.
Broken down by major market backed arm and other.
Do you have that breakdown handy for Q1 this quarter just to see how it's about 18 basis point decline kind of varied across various characterizations.
Okay.
Sorry, I mean, just to say morale and it's pretty level across the board.
As you know our portfolios.
And primarily grocery anchored.
And in my mind, but let's be clear this was a minimal change in fair value or there was a minimal change in fair value from development. So it was primarily in the portfolio.
And so hopefully we have continued share value recognition coming from development over the next.
Few quarters as properties completed and reached substantial completion and then also reach income stabilization its a bit staggered.
And so both the completed developments and the ones that are about to be complete have some fair value bumps to come.
And the other thing I'd like to say is that I think this is just an indicator of the grocery anchored retail separated itself from the rest of retail to some degree of and asset class.
Because anecdotally, we've seen some grocery transactions that we know pretty well.
Reflect cap rate compression of over 100 basis points versus 2 years ago and.
And so the cap rate compression we've reflected.
And that 18 to 22 basis points is pretty reasonable.
And so I.
I think it's an ongoing evolution of the space, that's happening and we're pretty pleased with our asset management decisions over the last really over the last decade to transition to a greater investment in grocery and and then the urban.
Urban mixed use development.
Okay got it and do you have any sense.
And the private market activity that you referred to what the quantum of total private market grocery anchored activity was maybe year to date.
And I don't have the I don't have the total what I do know is there is a there is a.
A number of transactions and I know of 1 that's 9 figures. So theres no its into the 9 figures I don't have the total.
And my head Mario and we can try to gather that from you, but I know, there's at least 1 transaction well over.
It's over $100 million.
And the hundreds of millions of dollars.
And so.
Strong evidence.
<unk>.
And I think you've mentioned that very little of the 176 million or per value related to <unk>.
Ongoing developments or just recently completed developments.
And when we talk about buffer and.
You've also kind of highlighted 1 to $2 of fair value per unit upside from the development from the past.
How comfortable are you with that range today, and do you have more or less conviction and perhaps hitting the upper part of that range as time passes and Matthew lease up and these assets.
And so let's be clear very we did recognize some in Q4 from 1 of our developments and more in Q1 from another.
And then we've still got a ways to go and the remainder of those first 6.
And I'm actually from what I'm seeing and the market feels.
Deals like it's closer to the upper end of that range.
Net.
And for sure.
Just because rents.
Especially at Zephyr as Glenn said, our rents are.
Mid but mid.
Higher for square foot, and we're 90% leased and cap rates are.
Very strong I mean ultra strong so.
More potential fair value appreciation to be recognized there but.
So I'm feeling very comfortable with the range and I'm very I feel comfortable and should at the end of the day and that upper end of the range.
Got it Okay, and then 1 clarification for Clinton and just on Zephyr.
Did you indicate that it resulted in about a half a million negative ethical during the quarter.
Yes, it would have been and our notes.
And note for for joint venture and 562000 and with our share.
Okay.
Okay, Alright, that's it from me thanks, everyone.
Mario Thank you ma'am.
Thank you. Thank you.
Next question comes from channel with Nash.
Please go ahead.
Yeah.
Hi, good afternoon and count.
Total.
Just to talk a bit about the.
Industrial portfolio can you remind me again, how many.
<unk> that Empire is targeting like over for a national rollout of Rollouts.
Yeah, what we've heard publicly from the leadership with Empire is what they are targeting 4 cfcs and there's obviously, 1 that's open and Toronto.
<unk> opened and Montreal, 1 we're building and Calgary and then the forces and the city to be named later.
But likely in British Columbia So.
And that's what we've heard and and then obviously CFC is built around them.
And.
The Toronto CFC has not been dropped down to you correct.
It is not no no that's owned by private developers.
Okay. So.
And if thats not owned by Empire.
It is not okay got it.
And then I was just wondering with empires acquisition of long ago. They also have the grocery gateway business do they have any of those types of assets that would make sense for crombie to acquire.
I can't really speak to that.
This stage, we don't have.
And conversations about those types of opportunities so.
We do have strategic discussions with Empire, both all of the real estate, but it's.
And I don't think Thats, a big opportunity for us to be truthful.
Okay and.
And then for the Calgary site do you have an estimate of like what you think construction costs might look like.
I think it's well I'll turn it over to Glenn but I might gut tells me it's roughly the same as the last CFC, but we catch.
Honestly disclose the detail, but Glenn maybe additional cash we're very we're very pleased as you know there's been both reality and worry about cost inflation. We were early out of the gate and ordering key inputs like steel both for supply guaranteed supply, but also guaranteed price.
We're off to a great start we learned a lot from building CFC too and Montreal, we've taken those learnings that will both allow us to build this building on a faster timeline, but also on a competitive cost.
I can't give any more specifics, but we're very pleased with where we're at we've got a budget. That's been set some months ago and we believe we will actually beat that budget. So we're very optimistic because we just started this project in the midst of some fairly worried from cost inflation, but so far so good and were well along.
Okay and then.
For the rest of the assets that are completing this year.
Was it.
Drove by the Oakville property I don't know its probably about 6.
7 weeks ago and.
And the farm Boy I was just getting completed and it looked like maybe we're starting pre leasing on the.
Residential part can you can you speak at all to pre leasing activity at both <unk> and <unk>.
Sure I really want to emphasize these are still both construction sites.
And have some real true per tenants that are starting to move in and Q3 at both buildings. Our expectation is that we will be substantially complete in.
Duke and Montreal in Q3, and that will likely be sort of a 2 phased occupancy the lower half floors first and then the upper half floors. So we will be pushing substantial completion in Q3, but we have a small number of tenants already and occupancy which allows us to work out the kinks et cetera, but really.
Very early days Bronte, we're expecting tow substantial completion in Q4 and.
And same situation.
So we.
And we actually think timing wise, it's encouraging because COVID-19 hopefully is getting to the and where there's much more mobility and much more people out and about wanting to see the units.
And also we're getting towards substantial completion, but it's too early to be talking about occupancy levels, but we're really delighted with zephyr with just the pace et cetera, where over 90% leased and Don mentioned, the rents and that mid $4 range.
Thats tracking extremely well and we're optimistic for both Duke and Brian and take more units at Duke and Bronco. So there's probably going to be a longer stabilization period is 480 units at <unk> 390, and do so it's going to be a little bit longer than the 330 units and Vancouver, but all and all were very satisfied with where we're at.
And can you give us an estimate of like.
Average asking rents at both at both sites per now.
I would say ballpark.
We are in the.
Mid $3 range.
Starting point and the Oakville market and and the Montreal market were very high and the $2 range would be sort of the starting point for those and those are clearly no market rents for the quality of building and the neighborhoods where they're located.
And then just my last question.
You guys want to keep your put down on the gas with respect to development.
You did the equity raise this year the stocks had a really good run.
And you talked about like you feel you've got access.
Several channel to capital to help fund you.
Prior to this point you have really relied on dispositions and a big way too.
<unk> raised capital and the past how should we think about going forward.
So that's all the.
Anytime you introduce new growth platforms like crombie that 4.
4 to 5 years ago.
Namely the accelerated investment and <unk> and our major mixed use development.
You can occasionally have a little bit of stress on the balance sheet and it takes time I think for investors to understand and it takes time for rating agencies and understand it and honestly everybody requires proof of execution.
For us the good news is we've proved the execution and <unk>.
We funded it again using those multiple sources of capital that are still all available to us and continue to be I think priced very well and at a low cost of capital, so overall or financing or sorry. Your overall, our strategy hasnt changed and our financing strategy.
And first and foremost working with their ratings agency to help them understand the significant changes and our business, which takes some time.
But then just continuing on and to issue equity on a regular basis, we will continue with which includes the drip as you know, which we just did formatted yesterday and we implemented the discount on yesterday as well as dispositions as well as continuing to tap the markets and all forms of debt. So.
I can't give you any guidance other than we are in good shape.
Our balance.
Balance sheet metrics have improved as we come.
And through the 12 months trailing from Q2 and <unk>.
You see our debt to EBITDA coming downloads. So those all of those things are really what was intended to happen before COVID-19 and that caused a little bit of stress and the short term, but I think overall, we're fine and the strategy hasnt changed either from.
Overall real estate strategy or financing strategy perspective.
We're in very strong condition and I think we have again that unique sustainable competitive advantage, which is the relationship and so these gives crombie and opportunity and allocate capital very well and very good places and so our strategy isn't as much about how we allocate capital, which we've been very clear about it is just how you.
To fund it at a good solid pace and do so well that people will understand and respect, which I think we are doing and have done very well over the last.
There are years that we have.
Paul.
And what was the take up on the direct prior to it being.
Taken off.
Yes.
Robert Hoffman and like the high <unk>.
Cent range and Empire was not and so obviously empire was not participating on the drip and they will they will share progress proportionately in terms of the trend.
Okay. Okay.
And therefore, the 1.5%.
Got it okay. Thank you.
Thanks, Tom.
Thank you.
Next question comes from <unk> <unk> with CIBC. Please go ahead. Thanks.
Good afternoon.
Good afternoon.
And you spoke to.
Spoke about having multiple sources of capital available.
And given the cap rate compression that you observed could we see the REIT.
Advantage and maybe a bit more active on dispositions.
What we've always said is we've got multiple sources and we will dabble from time to time, I always say when youre adult dabble in.
The lineup from our.
Former chair Frank Sobey give him full credit for the line, but it's basically that youre using a mix of options and you're picking your spots and so yes, we've done dispositions almost every year some years, a little higher than others.
The interesting part is that our dispositions here now taking different forms.
And so we now have obviously income producing properties that are.
As we're seeing with grocery much more easily and we sold and depth.
<unk> that are much higher than we purchased and 4 but also importantly people have to realize we have entitled land, that's starting to come into our potential sales pipeline and even though it may be trading off a little bit of future growth to fund the development business or to fund.
Current developments whatever.
That is an opportunity to we bought a lot of land and as you know and Vancouver and.
And other major cities across the country and some of those are call it low value.
Because they're single storey grocery stores, but they're very high value, but low density and if they transitioned to high density. The values are very high so for us that's another option thats coming on stream as we get entitled Land, We will potentially take our shot at selling 1 of those just to prove the concept, but to also help fund the business going forward and we think about it is giving up.
Growth from your 10% to 15.
Or further out.
Rather than.
Growth.
Really current.
But anyway. The bottom line is that we have multiple sources and some new ones and we will take advantage of them as we see as we see the opportunities come up.
Alright, and I'm sure lots of interest on that.
Good day.
And then just just wondering on the cap rate side, what are your capex for the industrial and your portfolio sit and have there been any movement. There that you can speak to.
I think industrial in general is highly desirable.
Arguably number 1.2 or 3 I think of industrial apartments, and grocery and not necessarily in that order. It changes at the most 3 most desirable types of real estate and Canada today.
And maybe development land as well.
And so the cap rates on that have generally been compressing.
And so and it's primarily because of rental growth and.
And shortage of supply and that condition hasnt changed dramatically. So I suspect it's continuing.
Continuing and compression so.
And I can't speak to specifically our assets because they don't want to get that detailed I apologize, but it's it's a good.
Situation for us, we like the asset mix, where we're transitioning to.
5% to 10% of our portfolio being industrial because it's a strategic fit but also that.
Further cap rate compression will help us ultimately over time on our share value basis.
Alright, and then just as a reminder for me what kind of rent escalations or in the.
Retail industrial and then would it be the same structure for the <unk> folks.
Yeah.
Yes semi than typical.
Rental lifts, there and the 7.5% to 10% range over 5 years.
Typical retail related industrial rental growth and we anticipate very similar if not same for CFC III.
Okay. Thank you I'll turn it back.
Thank you.
Thank you.
Your next question comes from Kyle Stanley with Desert. Please go ahead.
Thanks, Good afternoon.
Got it.
Most of my questions have been addressed at this point. So just 1 kind of quick housekeeping item for Clinton I'm, just wondering were there any onetime and nonrecurring items, which and interest expense this quarter.
Not that we would have had in the past already.
And just the only thing that will be happening and as these projects come to completion when no longer capitalizing interest.
And it's normal course.
Okay. Okay. No. That's helpful. That's it from me thanks.
Thank you.
Uh huh.
Thank you.
Next question comes from Jenny and Matt with BMO. Please go ahead.
Hi, Good afternoon, Hi, Jamie.
So we've seen some of your peers are getting a little bit more creative in terms of financing.
And the development and I'm, just wondering when you see that and the market balanced with more attractive cost of capital has there been any change in terms of how you approach partnership or financial.
Condo or rental apartments project going forward.
I'd say the answer is no even though it may look like a yes.
Thank everybody is seeing I'll call. It we've seen it for a number of years, but theres been a wall of capital looking for a home and real estate and so these large mixed use developments lend themselves well to large purveyors of capital who don't necessarily have the talent to develop it or don't have the sites and where the relationship with the tenants.
To unlock the value and so as we've.
Worked through our first Redevelopments, we've done it with.
Partners that have cash.
Capital and talent to actually execute on both the development and the operations.
And we've said I think publicly and a number of occasions that we will not only consider those types of developments going forward or development partners going forward, but we will look at capital partners.
To take some of that pressure off the balance sheet that we talked.
<unk> talked about a few minutes ago.
And it's simply and so we have been and discussions with a number of partners.
And primarily looking at long term partners people, who want to do multiple of deals.
We just haven't pulled the trigger and any at this stage, but we have had some good discussions and detailed discussions with a number of players and I think it's a real.
<unk> that we know is probably has got a great team of development people, Glenn and his team and Trevor Lee Our senior Vice President development at West and Calgary has developed a strong development team, where we feel comfortable with 30 people that have good experience and development that we know and time will take on our own development, but also take it on for partners.
And that Optimizes, our cost of capital day stresses the balance sheet from time to time makes the rating agencies and.
And our debt investors quite happy so we're going to look at all those options journey, and I think overtime and there'll be like a number of our other peers, where we'll be looking forward to having some of those types of partners.
Work with us and and.
And we develop a good long term strategy for development.
Great and would you say that the.
The volume of conversations you've been having or inbound.
Shifting at all and the last few quarters or is it really just.
Part of the normal course discussions you've been happened and the last few years.
And I'd say, it's increased over the last 2 years as we've become more comfortable with our developments, reaching completion and ultimately being very successful I think is that you use a sports analogy that I've always said, we want to start off getting doubles or triples, and don't necessarily have to hold it at all and broad, but definitely don't want to have a strikeout and all of our.
<unk> first developments are very strong they are at least doubles and I think I'm now going on and say a number or a homerun so for us getting to the near the end of that process allows us confidence that we can execute shows the market we can execute.
And a multiple of ways and then and I think over the last 2 years, we've been in active discussions with these types of capital partners and <unk>.
We can legitimately say, we can do these developments and but because they have proof that we can and.
Yeah. So.
It's a nice evolution of the company and.
It's good solid proof of concept and mixed use development works for this company well.
That's great to hear thank you.
Turning over to the Calgary CSP could you remind me if there is an agreement already in place with Empire.
Kind of like a memorandum of understanding and when you think about.
The return on those assets.
Could you expand on whether or not that is.
Should we look at it as a yield based return.
And not so much based on the cost or like how should we think about.
The potential returns on that.
Development.
Sure. So yes, we have full documentation in place with Sotheby's and terms of the development agreement.
And the lease for the property not sure of the lease is fully signed and finalized but certainly all of the development construction agreements and the letter of understanding on the economics are all in place I'm not going to give you much detail other than to say that it is in fact, a spread based arrangement.
And based on a spread over what would be a market a market cap rate. So that is the essence of how we do that so it's a fair proposition for both organizations.
Okay, Great and then lastly, just back on the reinstatement of the drag from me I'm just wondering what the rationale for that was tied simply to wear and unit prices or is it just looking at opportunities to return to tapping that source of capital and a small way.
And whether or not you are.
With Empire and tend to sort of re initiate that participation to the same extent the day before.
Sure.
And now with a number of years ago.
Yes so.
Let's be the drip itself has never gone away, Jimmy and just 3.
And 3% discount rate.
So from our standpoint, and the rationale and it really comes down to just emphasizing multiple sources of capital. We've always said, we want to be regular issues and equity and so that just emphasizes that point and we think the timing is right to access the markets on a more steady basis as well as to your point about Empire and they will proportionately and they have their 41, 5% owners.
And so they will maintain that.
Through on a monthly basis.
Okay, great. Thank you very much I'll turn it back.
Thanks.
Thanks, Jamie.
Thank you. Your next question comes from <unk>.
And with Gd. Please go ahead.
Thanks, and good afternoon, just wanted to start off on the leverage side.
The recent equity offering and the drip discount reinstated.
And your comments earlier on the call is there is there a lowered target leverage ratio either on a debt to assets or debt to EBITDA.
And you are thinking about now perhaps versus.
Earlier, this year or even pre COVID-19.
No I think the targets that we have with the rating agencies has been to be below 10 times using their methodology on a sustained basis.
And so that's been the target and so I'd say, there's been no change and that.
Okay, and then the next sort of major development.
Could that get kicked off in 2022 or is it too early.
The next major development has already been kicked off Sam and <expletive>.
Calgary CFS Sea right.
Sorry, I meant the mixed use and met on mixed use for the next day.
Next year, so we have a number of projects we haven't.
They're all in the normal course of both the evolution of municipal approvals and.
Working on.
Costing et cetera, there's a number of.
We would call it conditions, where we want to see and the markets to move forward. So we haven't actually set a date on a number of developments, but theres. Some at the very end of the development approval process and some we still have a little ways to go. So it's a constant process to develop a pipeline that has a continuous action.
And we're still in the early stages of that pipeline, but I still.
I would say there are a number that are close and.
The real goal is ultimately to achieve consistent spending of $150 million to $250 million a year decline development and ultimately reach consistent completions.
At cost of those dollar values, because thats, what ultimately drives your NAV growth I think on a consistent basis that investors understand and it ultimately drives long term cash flow growth. So.
Sorry, I can't give you specifics on the projects and we were just that it is development and it is theres uncertainty all the way through until you actually pull the trigger and signed contracts with construction and so.
We will announce it when we're when we're at that point.
Yes, but it will be staying tuned until Sir go ahead.
Near term projects that you disclose the number of those are fully entitled and could start in 2022 as well.
So I was just going to say you are and the fortunate position and having wants to choose from.
And maybe finally, just for Clinton on the sort of bad debt provision side has your outlook for Q3 and Q4 a moderation.
And that respect and how do you think about the the burn off of government assistance in that regard.
Yes, and we've been consistent with our bad debt over the last number of quarters. So I don't see any real change coming out of that for the rest of this year subject to of course anything and you never say never and and the world and Pandemics.
And what we're seeing at this point and time, Sam I don't see much change.
Great. Thank you that's perfect.
No I'll, just jump and I would say for US we've said if there's risk it's at the corporate level, we generally progress through our properties have done very well.
<unk> Avalon Mall state opened most of the pandemic and.
It's performed probably 1 of the top 5 malls and the country just because it's been open almost all the time and and our tenant sales have been good there.
Many of the reports were getting there back to 2019 levels and.
Or better so we're feeling cautiously optimistic but nevertheless, it's at the corporate level, you never know and there shouldn't be a surprise so at this point.
We're feeling again cautiously optimistic.
Good color. Thanks, very much kind of our tenants are open and thank you.
Thank you. Your next question comes from Pam EBITDA with RBC. Please go ahead.
Thanks, and I ever.
And just maybe 1 question from me on Broadway and commercial can you provide and update on where that is and the entitlement process and then secondly.
More of a general question once it is for once it or other projects are successfully rezoned.
Would you typically then record that.
Mark that mark that value up for fair value per participant.
Maybe I'll comment on first part of it and turn it over the second part of it too to Clinton, but it's it's.
It is currently and the rezoning process and we've still got a public hearing to go this fall and West Bank, it's very capably, leading that so we're working closely with the city of Vancouver.
It's a very difficult area in which to get approvals, but we really I think west bank has done an exceptional job.
And a very tough area.
So the evidence is high and I think West Bank specialty is working through the most complex.
Challenges in development, and Vancouver, and delivering very special projects that at the end of the day. The local communities. There are very proud of.
And so I'm confident that we will continue on and the.
The timeline that we've.
We've targeted and.
In terms of once the land is.
And the zoning is done and.
And I'll turn that over to Clinton because I believe there is some recognition at that point, yeah dummy solar and the accounting rules are that we will book and recognition of the land increase so usually there is a fair the entitlement does that.
Amp and value of adjusted at all here.
Yeah.
Got it and just can you remind us again, what is the demerger and density that you're seeking there.
The top of my head I know the dollars and terms of square footage is about 640000 square feet.
And most of that would be residential day.
Most of it's residential yeah, there's 60000 square feet of retail 50 of office.
And then the rest is residential and Theres 1 tower condo 2 towers a purpose built rental.
Perfect got.
Got it thanks, very much guys and thank you okay. Thank you.
Thank you.
Yeah and no further questions at this time mismatch and you May proceed.
Thank you for your time today, and we look forward to updating you on our progress on our Q3 call in November.
Thanks, everybody.
Thank you.
Ladies and gentlemen, this concludes your conference Gulf, which day, we thank you for participating and ask you. Please disconnect your lines.