Q4 2021 Crombie Real Estate Investment Trust Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Q4 earnings Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on February 24th 2022, I would now like to turn the conference call over to you. Mr. Martin. Please go ahead. Thank you good day, everyone and welcome to Crown buried fourth quarter conference call and webcast. Thank you.
For joining us this call is being recorded and live audio and is available on our website at www dot crombie dots yet slides.
Slides to accompany today's call are available on the investors section of our website under presentations and events on the call today are John <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 MD&A and annual information form for a discussion of these risk factors.
Now I'll turn the call over to Don who will begin our discussion with comments on Columbus' overall strategy and outlook Glenn will follow with a development update and a review of Crombie operating fundamentals and highlight Glenn.
Clinton will then discuss our financial results capital allocation and approach to funding and Tom will conclude with a few final remarks over to you Don.
Thank you Ruth and good day, everyone and thanks for joining us.
Credibly proud of properties results in both Q4 and fiscal 2021 .
Our team remains steadfastly committed to our strategy, while successfully navigating through the waves of the COVID-19 pandemic.
Results of this commitment are evident in the growth of our stainmaster cash NOI, that's F O and <unk> and then the fair value created through our investment in Empire related initiatives, our development activities and owning grocery anchored properties that have grown even more precious in value over time.
Reached many milestones in 2021, including the completion of two major mixed use development Zephyr in Vancouver, with our partner West Bank.
Duke in Montreal, with our partner prints developments.
When I think back five years since we embarked on our development growth strategy I'm thrilled to be able to say we did what we said we would do.
The market recently is recognizing that commitment to creating value strategic growth and strong fundamentals in our unit price performance has demonstrated investors confidence in us as good stewards of their capital. Thank you.
We continue to improve our portfolio in 2021 grocery anchored retail is the foundation of our business and it's one of the most desirable and valuable asset types in Canada.
In addition, residential and industrial properties are gaining space in our asset mix and represent an area of significant growth opportunity in the future.
Deliberate improvement of our portfolio over the last 10 years, that's increased the quality and growth of our cash flow.
Our development and construction teams oversaw several successful projects Cross Canada, 2021 for a major developments largest intensification and investments in empower related initiatives. There remains plenty of development opportunity for Krabi, Glenn will speak to the specifics shortly but I want to commend the team on the incredible success with these projects.
Over the last few years, especially during the pandemic I also want to thank our joint venture partner's West Bank at Prince development stretch standing results working together, our development pipeline presents significant value creation opportunities that to date have met or exceeded our expectations.
Our relationship with Empire remains crombie sustainable competitive advantage working closely with this outstanding retailer creates unique opportunities and we continue to launch strategies and share intelligence to create value for both of US. This alignment allows us to make strategic and accretive investments in the modernization acquisition expansion and conversion of gross.
<unk> stores accelerate Empire's build out e-commerce hub and spoke network and unlock additional major development opportunities, we know that our strong financial condition enables future growth, we achieved increases in liquidity and improving our cost of capital and an increase of unencumbered assets to one 8 billion during 2021.
<unk>.
Significant deleveraging took place throughout the year with a substantial reduction in debt to gross fair value and debt to EBITDA, which Quentin will speak to shortly it is worth remarking, though that despite this deleveraging which is dilutive to earnings we still achieved strong results a feat that is not easy to accomplish none of this success would be possible.
Without our team and their dedication to crombie. These past two years have been challenging for so many in our new hybrid working arrangement. We've remained productive close connected and engaged well also juggling provincial lockdowns restrictions homeschooling and more we are well positioned with our team as we look ahead with optimism that the contingent.
Execution of our strategy, which our team is a fundamental and critical pillar, we worked hard to ensure that krabi as an equitable gratifying and innovative workplace.
<unk> focus on learning and development employee defined guiding principles and ongoing opportunities for growth are critical components of our employment value proposition. We've helped our people leaders work with their teams to build a model that fits for all and we're very pleased with the results for.
Before I hand, the call over to Glenn I wanted to comment on sustainability, which includes U S. G 2021 was a big year for Crombie of formalizing our sustainability journey, we achieved many firsts, including our inaugural sustainability report at first Grosbeaks submission. We're very proud of the work we've done to focus on environmental social and governance priorities.
And we're now pleased to focus on measuring reporting and improving on that work with that in mind in January we created a new leadership position to oversee this important work our newly appointed Vice President of sustainability is Dan Burke, who most recently served as Croppies director of operations for Atlantic, Canada, and it has been a leader on our team for over 18.
Years, Dan has been instrumental in many of our environmental initiatives at Scotia Square at Avalon Mall in as President of Bom in Nova Scotia. It sits on the board of BOMA, Canada. We're excited to continue on the sustainability journey with just solid leadership good luck to them.
And with that I'll now turn the call over to Glenn who will provide an update on our development activity and operational highlights.
Thank you Don and good day, everyone Crombie continues to demonstrate our ability to deliver major developments on time and on budget. The strong consistency. These major developments play a key role in our long term strategy of accelerating share value and growth.
<unk> achieved substantial completion of our first two mixed use residential development in 2021 staffer located on <unk> Street in the West end of Vancouver reached full occupancy in the hall and remains at that level with rents materially above pro forma.
Leasing momentum continues that the Duke in Montreal, with 37% or 145 of the 387 available units leased as of February 15th of this year at rents at or above pro forma.
Our third mixed use residential development Bronco Billy's in Oakville contains 481 units and tower a welcomed its first tenant in the third quarter. The occupancy permit for tower D was just received substantial completion was reached in January slightly behind the targeted Q4 2021 substantial completion date that we previously.
Third to date 92 units were 38% of building a has been leased a 100% leased Montreal ball off our Iga customer fulfillment center, Stoke economic occupancy and began paying rent in the first quarter of 2021 in December we sold a 50% non managing interest in the CFC to next.
<unk> suite for $98 $2 million. This transaction allows <unk> to achieve deleveraging objectives and capitalize on strong demand for industrial assets, while highlighting the quality of our retail related industrial portfolio and our attractiveness as a partner in completing joint arrangements for crombie retains both an ownership interest.
And ongoing property management.
Crombie continues to capitalize on opportunities within the ball a hub and spoke network construction of CFC three in Calgary is well underway to meet Empire's opening date objectives. The first spoke location in our portfolio opened in the first quarter of 2021 in Toronto at dislocation, we repurposed they can retail space.
To create additional value we have other spokes under construction with Empire possession, and rent commencement occurring imminently hubs and spoke locations are augmenting our growing base of retail related industrial assets and further diversifying our income stream during the fourth quarter. When additional property was added to a major development.
Bringing the total to 31 properties with the potential to unlock significant future value Broadview is a jointly owned transit oriented medium term development sitting on 1.43 acres in Toronto, we are committed to unlocking significant land value embedded in our development pipeline as we continue.
Our work to entitle projects across Canada for their highest and best use as major development projects. Currently crombie of six projects that are fully entitled to weather near term projects, where zoning applications have been submitted and a number of additional medium to long term projects, where entitlement work is actively underway we are operating our.
<unk> to accelerate our entitlement activities as the value created from these efforts is significant.
There are three distinct opportunities where value recognition can be realized on development asset firstly as just noted when final entitlement and development plan is achieved secondly, when substantial completion of the development project occurs and lastly throughout the lease up and stabilization process as NOI and value is fully optima.
Throughout 2021, and now in 2022 additional land entitlements are finalized substantial construction completions achieved and the lease up and stabilization process is continuing crombie has and will continue to recognize additional fair value in summary, we have a significant opportunity to supplement.
The value creation from completed developments alongside material value creation throughout the entitlement process, a very complementary two prong approach.
Probably as year end occupancy remains strong with economic occupancy at 95, 6% and committed occupancy at 96, 2% new leases and expansions increased occupancy by 710000 square feet at a weighted average first year rate of $20 92 per square foot, while we experienced three.
39000 square feet of net lease Expiries vacancies terminations and space adjustments approximately 71% of new leases equivalent to 503000 square feet were completed in back end nature of markets at the end of 2021 114000 square feet was committed to leases at an average.
First you are right at $18 76 per square foot, which will boost NOI growth throughout 2022 back com in major markets represent 90000 square feet at this committed space, including 42000 square feet that are supposed to square complex in Halifax during the fourth quarter 97000 square feet and renewed.
<unk> were completed at an increase of 5% over expiring rental rates driving this growth was 58000 square feet of renewals at retail plazas with an increase of six 1% over expiring rental rates an increase of six 8% was achieved for fourth quarter renewals when comparing the expiring rental rates to the average.
Rental rate for the renewal term for the full year crombie demonstrated portfolio stability with approximately 47, 2% renewals occurring in <unk> com and nature markets renewal activity consisted of 905000 square feet with an increase of three 4% over expiring rental rates.
Or or growth of six 5% when comparing the expiring rental rate to the average rental rate for the renewal term subsequent to the quarter.
<unk> acquired 100% interest in <unk> retail properties seven from Empire totaling approximately 290000 square feet with a purchase price of $42 million, excluding closing and transaction costs. When property was acquired in major markets with the remaining seven properties in rest of Canada markets. Additionally, crombie.
Wired the remaining 50% interest in our retail related industrial property in Montreal from Empire for $38 million further expanding our retail related industrial portfolio and with that I will now turn the call over to Clinton, who will highlight our fourth quarter financial results and discuss our capital and development funding approach.
Thank you Glenn and good day, everyone on a cash basis quarterly same asset NOI increased by two 4% and 5% for the full year adjusting for what management estimates to be the impact of COVID-19, same asset cash NOI increased by one 2% for the fourth quarter and one 4% for the full year.
For the quarter <unk> was 25.
Increasing from 23 for the same quarter last year <unk> was 29 tenths, increasing from 27 for the same quarter last year.
<unk> and <unk> payout ratios in the quarter improved to 95% and 78.0% respectively. The.
The increase in <unk> and <unk> for the quarter is primarily a result of increased net property income due to income from completed developments strong occupancy lease termination income and lower finance costs from operations, primarily due to the early partial redemption of series B senior unsecured notes in 2020.
This is offset impaired the increased general and administrative expenses, primarily as a result of an increase in salaries and benefits and unit based compensation, resulting from an increase in our unit price G&A as a percentage of property revenue for the fourth quarter was seven 1% or $7 4 million, excluding the impact of unit.
Based compensation of $2 6 million G&A was four 6% of property revenue.
2021 was a solid year for crummy as our team remained focused on the continuous improvement of our balance sheet and overall financial condition.
<unk> access multiple sources of capital to reduce our debt levels in 2021, enabling continued funding of our development pipeline and Empire related initiatives.
Our debt to gross fair value at the end of Q4 2021 was 42, 9%.
Noteworthy improvement from 49, 4% at Q4 2020.
The primary drivers of the improvement in our leverage ratio, where an increase in fair value from our investment properties and net assets held in joint ventures of $290 million, a $100 million equity issuance and debt repayments throughout 2021 Crombie ended the year with ample liquidity of over $500 million.
And our unencumbered asset pool grew from $1 4 billion to a record high $1 8 billion as a result of mortgages maturing in the quarter.
We ended the quarter with debt to trailing 12 months adjusted EBITDA at $8 two five times the.
The improvement was primarily due to increased outstanding debt and higher adjusted EBITDA driven by reduced bad debt expense and increased income from development activity acquisitions and Modernizations.
A strong balance sheet with significant liquidity is critical to ensure we retain the flexibility to handle the next crisis or pursue strategic growth initiatives.
Access to multiple sources of capital to fund investments and Empire related initiatives and their development program as an important component to that flexibility.
Subsequent to the fourth quarter on January 31, 2022, Crombie demonstrated this flexibility with a successful $200 million equity financing with net proceeds used to repay outstanding indebtedness and fund value add capital programs.
With that I will now turn the call over to Don for a few closing comments.
Okay.
Thank you Clinton.
Quite a world full of uncertainty, including the risks and challenges of COVID-19, we remain positive.
I'm very grateful for Crombie team and a culture that allows us to be prepared for any kind of crisis.
To execute our long term strategy in 2021.
We're very proud of the results we achieved our recent equity issuance enabled us to pre fund growth opportunities like developments and investments in empower related initiatives and our improved balance sheet and ample liquidity provides us the necessary defensive strike that allows us to focus on long term sustainable growth we.
We are confident crombie future and are engaged highly scaled and high performing team, we'll continue to deliver.
That concludes our prepared remarks, and we're now happy to answer your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear three ton prompted switching your request and your questions will be pulled in the order. They are heat should you wish to decline from the police.
Please press star followed by you and if you're.
Using a speaker phone please lift your handset before pressing any keys one moment for your first question.
Your first question comes from Mark Rothschild with Canaccord. Please go ahead.
Thanks, and good afternoon guys.
Hey, Mark Hey, and in regard to the to the leasing spreads went when I look at where the rates are on leases in the market and what's expiring. This year should we assume that there's potential for that number to rise.
In 2022 as compared to what we saw last year.
Hey, Mark it's Glenn I would say.
You started in 2021 to disclose both the spread in the leases that occurs at the time of the rollover, which has been consistently in that sort of three five to five 5% range for the year. So Q4, our leasing spreads were five five.
But for the full year, we were about $3 five but when you look at the spreads the average lease rate through the term we were six 5% for the year and about $6 eight in the quarter.
That is certainly sustainable we always thought high single digits was the range last couple of years.
There are no surprising reason with tenant struggling COVID-19 et cetera, we did see some reduction down to that three or four 5% range, but we're feeling pretty good but our issue is still though as sample size like in 2021, we had 900000 feet renewed 350000 that was sold these leases. So some of those are one 5% a year.
Rollovers and some of them are rolling over 10%, let's say every five years, so depending on the mix fits in our IRA rollovers that percentage can move around but I would say with confidence that what we achieved in 2021% to six 5% to six 8% spread range that that certainly looks comfortable.
Going forward.
So from your comments I can assume that the mix for this year is relatively comparable to 2021.
Yes, okay.
Okay, and then maybe just one more on <unk>.
You spoke about selling interest in properties and obviously the property they saw the partial interest to Nexus.
Can you just expand on the types of assets, you're looking to maybe in the future sell partial interest in does it depend on the asset class at all whether it's industrial or residential or retail.
Okay.
Yes, so I mean, our disposition program overall, we've done a lot of work in terms of just selling non core over the last really it spoke for years and then when we get into what I call core.
Which are the partial interest dispositions that we've done.
To be honest, we looked at it partially as funding and partially as call it portfolio management and the funding part we're looking at I'll call it lower cap rate assets with.
Call it relatively low growth even if they are very.
Very stable high quality cash flow and it's really about talking already that's all gross up and taking advantage of low what I perceive to be reasonable cap rates are.
Certain asset classes so.
Yes.
It's a balance of issues Mark I'd say that we consider.
And some of them are I'll call it opportunistic and in the case of Nexus they were for <unk>.
<unk> by us to be a good partner and potential depending on what we have coming up in the future potential good partners.
And it was at a reasonable price.
Pleased with Chris.
Crystallizing, our NAV accretion in that case, we also wanted to show the world that we.
Can crystallize the NAV creation, that's been achieved which I think from time to time as help himself.
Rambling.
Answer, but it's if you can see it's multifaceted and we'll take them opportunistically, probably as we come out right.
Tom.
Yeah. It will be again as Clinton said in his remarks multiple sources of capital, which includes non core dispositions partial interest dispositions equity variety of things.
To continue to fund the business and allow or enable our growth strategically.
Okay, Great. That's helpful. Thanks, so much.
Okay. Thank you.
Your next question comes from Sam Damiani with TD Securities. Please go ahead.
Thanks, and good afternoon, everyone.
Congratulations on a good quarter and year as well.
Thank you so maybe just to start off on the developed like the long term development pipeline the costing was updated.
You added another 1 million square feet with the broad view location in Toronto, but if I just look at the sort of the mid point of that.
Cost increase it looks like around 18% and if you adjust for the 10% increase to the GLA would that.
Is that basically at 8% same asset sort of cost increase or is that the inflation that you're seeing.
Is that the right interpretation and I guess, one when was the last time these numbers were scrubbed.
Yeah.
Yeah.
Uh huh.
Yes.
Sam It's Dani I'll, just briefly Glenn wants to comment on inflation.
I will say that it's certainly to some degree that's what I wanted to say was just that the.
Theres value increase in the land.
That is not insignificant and its continuous right and so the value of our sites in Vancouver as an example, but also another major urban centers is continuing to.
To elevate the value. Therefore is continuing to go up but also in addition, we're call it through our relationship with Sylvia uncovering I'll call. It additional density.
And the urban markets.
They are also requiring or looking for additional density right screening.
Our local communities by becoming denser so taken advantage of transit et cetera.
Just to comment I wanted to make one over to you.
Yes, I would just add Sam that the estimates that we put in the MD&A. Our ranges as you know and we scrubbed them a little bit this quarter to add broad you. Yes. The other thing that we're doing is as we continue to refine the way we look at our development pipeline.
For example, we look at those 31 properties through potentially the number of phases over time they could deliver.
Deliver and it just allows us to EBIT more accurate and a bit more granular. So I think in the math as well you'll see that we went from about 12000 units last quarter to closer to 13000 units. We added 1 million square feet on the residential so I think there might be some latent inflation in there, but there's no specific inflationary add of any big number but it is.
Reflecting on where our current cost is but I just want to remark that those numbers as we put in each quarter. Our best efforts are putting in a good solid range and the update this quarter was to reflect broad view as you noted, but also just a little bit better granularity as we look at how these projects may play out over the next 15 or so years.
Okay, and I guess, just when you look at you've got some operating properties.
One stabilize others in lease up.
Is your sense that the the rent growth is keeping up with cost inflation on the development side to keep the yields.
Largely intact.
So your updated view there.
Yeah, I would I would say that it has a whole rents continue to go up.
Shortly you have housing national immigration is high.
It is worth it national integration tends to focus.
And so I'd say that for now Sam I mean, that's always a thing we've all seen our way through a number of cycles of development if it's when.
Supply exceeds demand that you can have a call it continued cost increases.
You know some relaxation of rental growth, where you can't pass that cost on to the consumer we're not there yet in our judgment in the markets that we're dealing and and <unk>.
In particular, Vancouver rents are nicely up Montreal rents are nicely up not quite as much in Toronto, but you know in general.
Again, there's just there's still not enough housing for people and continued population growth. So were quite I think over the medium or long term, but there is no issue with.
With continuing to build.
Great housing, especially in sites like we own which has a grocery store near transit nodes et cetera. So.
Some of the most highly desirable sites in the country.
Yeah.
That's great. Thanks, I'll turn it back thank you.
Okay. Thank you.
Your next question comes from Mario <unk> with Scotiabank. Please go ahead.
Thank you and good afternoon.
Got it.
Ron in the past you've talked about one to $2 per unit of fair value creation.
From a near term development completions.
These projects tend to go up as we go through the three kind of milestone by Glenn highlighted namely zoning.
Substantial completion costs, what we say and if you take into consideration kind of a recent equity raise increasing the number of units.
Perhaps the harder than expected yoga upper.
Can you highlight your comfort level in terms of being at the upper end of that range versus the lower end of the range today, how that's changed.
Perhaps how much of about one to $2 have already been reflected in your fair values.
Yes, we're still in the range Mario and I would say still isn't middle upper I mean, the equity raise does.
Affected to some degree for sure my Count was on what we had when I said, it's the first time, which I think was probably 'twenty two.
But nevertheless, it's still extraordinary value creation and I think the math at the time was $150 million to $300 million of value creation and we're in the upper end of that range.
And then in terms of what's recognized obviously with <unk>.
We didn't get occupancy permit hasn't been recognized.
You know in terms of.
Bumped it fair value I think in Q4, so there's still obviously some to go in on some of the other projects. There is still some to go still based on stabilization of income. So we still have a ways to go I can't give you the specific numbers I don't really you know we're talking.
Fair value I think at the time I was talking NAV. So I'd say, we're still very confident and comfortable with.
The numbers I quoted a few years ago, which had pretty.
Pleased if I can.
Predict that reasonable reasonably well.
And importantly, again on time on budget some of those projects.
We really I think dealt with any of the cost increases from inflation very well, it's still have contingencies left to deal with anything else that comes our way and they are pretty well done. So I think we're in good shape.
And looking forward to more.
Donnie I think maybe I'll just add again in terms of recognition just reminder.
We have different stages of recognition so while we have substantial completion and David Street and Ledoux, we still haven't reached stabilization for purposes of more fair value creation. So.
Dr phases, as Dan has pointed out and with respect to <unk>.
Brian too because we haven't reached substantial completion that will be in 2022 event for that recognition, but again, we do it in phases.
When we reach substantially all of the fair value has been recognized we do wait until we get to a stabilized point for that to happen.
Alright, and Meera I would say that we tend to err on the side of being conservative, which hopefully speaks well of the company, but it's not as aggressive as others, but it's the way we do stick to a good process of valuation I think it works.
Sure.
Unaccustomed to seeing development yields go up and disclosure as opposed to down in the space.
Graduation from that maybe.
Maybe.
A related question.
Her for Clinton that perhaps there was as I answered before on the call, but I'll try it anyway.
Similar question, but from an ethical perspective, given capitalize interest and so on and so forth.
Presumably with a contribution from Zephyr in Q4, although not proposed standpoint, probably not very much when we do go Broncos.
How should we think about.
For a full contribution from those three in aggregate in Q4 relative to what a stabilized where we are for <unk>.
Contribution could be like where are we in that spectrum.
I think we are at the initial stages, it's really ties into the lease up that drives that and so we have David <unk> fully leased up.
Still have room to go with Ledoux, Cana and Bryan just starting so my view is you are in the early stages.
We would I would just add marrow that we'd probably have obviously a drag on our side.
So at the moment.
Given that it's still early days in the leasing and once you get that.
Substantial completion youre starting to expense the interest so it's the nature of the game in development you have these projects at various stages and.
Until they hit a breakeven point, they're not really sort of they're not forgiven stuff, where we have to as I said in my remarks, we're pleased with the net growth of our.
Our cash flow.
For this stage of the development.
The cycle for our developed so Oh, which includes against some drag from development at this stage.
And Mary I would just add that for 2022 for the aggregate of the three Jv's, David Duke and Brian There will be a positive <unk> contribution it's modest.
But we have growth projected in 2022, despite the fact that theres modest contribution and we will certainly start to see a ramp up in <unk> from those projects in aggregate in 2023.
Okay.
On the operational side.
Can you provide a bit more color on.
900000 information fee this quarter and whether that was a driver at all of the models kind of 20 to 30 basis point quarter over quarter decline in occupancy from Q4.
No actually not it was an isolated event the decline in occupancy was flat in single tenant. So we're pleased there was a 37000 square foot vacancy at Newfoundland very low rent space.
It'll be space that we can repurpose re rent and that moved our occupancy by about 20 basis points that was detected with the lease termination income as an isolated.
I've answered in the quarter unrelated to that property and that that tenant.
Got it Okay. My last question just on the on the parking side.
I may have missed it but where are where would be Q4 parking on O Y have come in relative to Q4 19 levels pre pandemic.
I think we're still running at that significant below I'm trying to think of where we I'd say, it's where we were in Q4 of 2020, Mario So probably still down 50, 60, 70% Donnie that's an estimate but you know what.
Our office. So we're fortunate yes, we're fortunate in Scotia square, we probably have.
Prior to Omicron, we were getting up to 25%, 30% office population returns, we were seeing a bit of upward trend, but then late in the calendar year with omicron.
We're back to lower levels. So.
That's still the drag that's our only COVID-19 drag I would say that exist today with our strong rent collections at 99% for for Q4 and virtually no bad debt expense in the quarter.
But parking is still a drag that should be a pick up here in 2020 to Nova Scotia, just announced March 21st restrictions being removed so that should be a positive catalyst for people getting back into the complex and seeing our parking revenue.
In the right direction.
And where the parking complex and adjacent to the events facility with hockey etcetera basketball variety of contracts et cetera. So.
That's totally been nullified through Covid and so again I think it is after March 21st one restrictions come off will start to see people have their confidence to get out and start doing things like they did previous to COVID-19 .
Right.
Okay, Great I've got a couple more but I'll turn it back and procure and then I'll come back with.
Yeah.
Okay. Thanks Maria.
Your next question comes from Howard Leung with Veritas. Please go ahead.
Thank you.
I just wanted to turn to.
The Toronto.
Major developments. So now that are brought in when it looks like it's about to be finished and.
What's your thoughts with some of the other Toronto developments that are in the pipeline.
Looking at them and you also added a broad deal recently, but.
They are in the pre planning phase. So are you getting more comfort around developing in the Toronto CMA and are you thinking about adapting those zoning applications more ore.
Are you a little more cautious you know when you said earlier in Toronto wins haven't moved as much and there are there is cost inflation. So how do you balance the two and what's your thoughts on that.
Yeah I thought is that we are.
We're bullish on the major urban markets in Canada, and I'd say, Toronto Vancouver lead the way we also.
Have great properties in Halifax, which has had extraordinary.
Market dynamics over the last five years in terms of population growth and rental growth.
So it's a great market so.
Even though it's sort of.
Major market not part of the back Tom Group, So and then Toronto, specifically, we're working very hard we've got a number of sites, they're all I guess seeing that dynamic.
<unk> wanted to increase density and tried to figure out very well.
Please note that major transit sites.
And moving so unfortunately, a little slower than we'd like but nevertheless, we're very focused on it we've got a number of sites now in Toronto, and we will keep that going but developments a long game right and especially working with municipalities we've seen delays.
Cases, and that's just the way development works, we've all been around the game a long time, so a toronto will keep pushing its a great market I think it's one of the truly call. It top 10 markets in the world.
Not necessarily just on population, but I think because of.
The political stability and.
The safety and.
And the ability to invest capital I think what I was really a world class market.
But you see large pension funds globally wanted to be there so for us to invest their.
Housing, that's where the housing shortage.
Transit node with grocery it's an excellent formula, but I think it was one of the best investment you can make in the country. So it would be.
So as you asked it.
Howard I would just add to that that just to add to that that Toronto is also a market where there's opportunities for in addition to residential mixed use development. We've developed spokes there for the Soviets while our program still work more work in progress there for US and also Theres retail development potential in GTA. So we've got a good.
A multi faceted approach for development in GTA.
Right. So I guess, if you could move faster you would but zoning kind of touch on that.
One of the potential barriers.
Yep, Yeah, but it's fair for everybody so.
As part of the difficulty of doing it but it's a boat to some degree.
So for sure I mean, the housing supply.
It was exacerbated.
I just wanted to turn to the question about spokes and.
You noted that you have a few better under construction and should be completed in 2020 to Ottawa, Quebec.
And can you just remind us of the economics of the those folks and how they might be similar or different from a typical grocery store and maybe what the what the impact may be too.
At 2023, NOI or or Oh, it could be.
Sure well, they're not as large Howard as major development investments they vary in size that could be in the 10 plus million dollars range in there.
They vary but we build those two are spread over a market cap rate. So from a return point of view they gave us a nice or a positive return.
Contribute to <unk> and of course.
Very strong covenant tenants and so these so it's very low risk.
<unk> development in that retail related industrial class, which has grown more precious and we've seen nice cap rate compression as evidenced by the very successful transaction on CFT two as Donnie said have just demonstrated how that NAV creation was monetized and positive events, but not much more to add it's not as large a part of the development program, but it's a very nice.
Contributor.
We can do as many as those as we can do where we're happy to develop them.
Right right, so I guess going forward.
It's probably nothing nothing official yet that we can expect maybe a few of these every year or something like that it hasn't.
The hub and spoke network continues to be built out.
No. That's it that's more of a question for Zalviso in terms of how many are there will be but I would assume there'll be certain finite number over time, but for example, we are finishing and we haven't spoke about it today, but CFC three which is the hub in Calgary, which we are building our well under construction there is potential for folks in Western Canada.
On that basis, but I don't want to speak for <unk>, but we're just delighted with the opportunity that we've had to be a participant in the call. Our program it's been great for crombie.
Yeah, no. Thanks for the responses I'll turn it back.
Yeah.
Your next question comes from Jenny MA with BMO capital markets. Please go ahead.
Good afternoon afternoon, Hi, Jana journey.
You know in past years, you've talked about your acquisition opportunities.
<unk> $100 million range Empire at $100 million from third party now I know the last couple of years the.
The environment's been different but even before that you were tracking a little bit more. So I was hoping you can give us an update on your thoughts about that $100 million piece, particularly from Empire is that something you still standby or or has it involved and getting supplanted by that behind that two 4 million.
Modernisation project that you do for them.
Higher.
Jamie I'd say our capital allocation.
Allocation, we've been trying to be clear on it it's hard to do but we gave a wide range of 100 to 200 million spending on <unk>, which is a combination of the acquisitions on the modernization and the expansions conversions and in some cases it's.
I think the spokes hubs are generally in our development spend from time to time is a bit of the pulse <unk> spend but it's generally in that range and you know where.
We've been consistent I think for the last few years in that range and then on the development side as you know, we're targeting spending of $150 million to $250 million a year.
And importantly, the last couple of years it would probably be in at the upper end of that range. This year will be certainly in that range, but maybe a little closer to the lower end of the range, but again has tried to drive consistency at scale for our growing company.
And the spending I think is a very balanced.
Type of spend.
And balanced approach to investment in that but facilities you get the secure tenant you start on second base you're on the site you already have the tenants. So then it's really just can you build it reasonably well and and then the yields are good right there 6% to 7%.
And then in the development there five five to six.
But you know there there are a little higher risk.
They take longer they take two to three years.
But the returns in terms of the spreads to acquisition cap rates are in that 200 to 250 basis point spread whereas in the other probably 100 to 150 basis point spread so for us the balance of risk return and the return is both <unk> growth.
And that growth and I'll also say in the soybeans and some of the smaller spending on development they only take.
Some cases six months later 12, whereas the development takes 24 to 36 months. So you just by balancing that investment I think we've got a very strong profile of growth on both <unk> and <unk>.
And then also balancing importantly, our balance sheet.
You know metrics, so that where we want to obviously stay investment grade, but I think more importantly move to triple B mid overtime and again this capital allocation plan and as we've communicated and delivered on that over the last three or four years.
We expect to deliver again in 2022 and through 'twenty, three and four I think it just deliveries that solid predictable.
And then a reasonably conservative prudent manner. This is what our whole pools.
<unk>.
Okay. So I guess when they let me go into the acquisition piece then.
If I'm if I'm interpreting your comments correctly. It seems like there's a better opportunity and of course, there's going to be a mix and then popping up that opportunity coming from some of the intensification.
Bulk related work as opposed to straight acquisition is that is that something.
Hey.
Yes, I'd say you know what.
I'd say better there, but theyre all good because what we're doing is working with <unk> to say whats most important to them. If we buy a store. It's a great store, we looked at that as a win even if we're paying call it close to market the modernization and some of the investments on conversions there are better spread.
They would be like I said, 6% to 7% yield on cost or the average cap rate might be five five and a half. So you end up with a slightly wider spreads.
And you get a renewal of the lease for 20 years again, so for US. It's it's a balance of those two but we will always do whats best for ourselves and for Zalviso acquiring store. That's a great store, we will do that as you've seen us do.
You know over the last few years, so I'd say, it's a balanced journey I hate to be a.
A little bit.
Just to add.
But Jamie just to add to that in his comments. So the subsequent event note. The acquisitions that occurred early in 2020 to be their fresh in mind those were stellar so these stores get.
I get pressed 15, or 20 year terms with her economic arrangements that give us nice growth for <unk>. So it's a very accretive.
<unk> to our earnings and Theyre very strong stores.
And in the markets that they're in so we're pleased to allocate some of our capital to do that in addition to all the other areas sit down he said that can be maybe even more accretive than that okay.
Okay.
Great. That's helpful color. Thank you.
What turned back.
To that parking bilingual it sounds like there is a big component of it that way.
I think trouble could you give us a breakdown of what would be the driver of the parking revenue recovery life me that how much of it is office related I guess I'll return to office and how much it traffic related.
I'd probably have to get back to you with exact specific journey, but I would say the event part is significant we've actually had as well as we've had 100% rent collection from our office tenants to the extent that we've had parking leasing going attached to that office that has been revenue and paid but we may have had a number of office 10.
And if it would have given up parking.
During the Covid period, so I would say I'd have to check the details, but the event portion virtually evaporated during COVID-19 , so that would be the by far the largest recovery piece, but I would be happy to get back to you with details after the call.
Sure.
And then my last question is related to the residential lease up and I know, it's not a small sample size and a couple of buildings that are still actively stuff, but just given all of that.
Frankenberg, Vantol Marquette and considering the cost of power.
Ownership it looks like it's a pretty good set up for 2022.
As you and your partners are leasing up.
How are you.
How are you approaching it with someone who's going to call you out.
Are you, losing as much as you can or.
Is there any hold back on met coal.
Spring and summer season.
Okay.
It's a great question I think it varies by market varies by property Daily Street was just a smashing success at least up very quickly at rents materially above pro forma so that one's an anomalous.
Situation that we're very proud of and we're continuing to be plus or minus 100% occupied I think with Duke and Bronte and Luckily at Duke and Brian taper off to a good start we're nicely above pro forma on <unk> and <unk>.
And at about pro forma also at Duke So early days getting achieving the rents in our pro forma is not going to be the issue I think there could be though a tradeoff between rental rate and leasing velocity and it'll be very iterative. So we have a big project in Oakville 482 units. Our game plan will be to stabilize that asset journey as fast as we can so I don't think strategically.
But hold back units for a better leasing opportunity I think it's important to get the sense of community built in the property. So get it built I get it fully occupied as quickly as possible I think as we gained momentum in leasing up a building a building D by the way will come to market in March.
Our game plan will be to lease those at appropriate rents and to get to stabilization as quickly as possible, we're targeting that Brian T. Because the 480 units will take into 2023 to get fully stabilized, whereas Duke more likely than not will be fully stabilized in 2022.
So it's iterative as we go along but at this point, we're confident because rental rate.
It does not appear to be an issue in either of the properties and maybe that speaks to our conservatism in our pro formats, but we're very happy with the rental rates and we think we can move our leasing velocity along nicely at both projects as well.
Okay, great. Thank you very much.
Thanks Jay.
Your next question comes from.
With CIBC. Please go ahead.
Thanks, Hi, everybody.
Just wanted to start off with the transaction market and I'm, hoping you can share what youre seeing in terms of deals that have happened recently and with cap rates, having come down 2030 basis points over the last year. If you think downward pressure still exist there.
Yeah.
Tony.
There, where we play in terms of it are the three best markets in the country in my mind be grocery anchored retail industrial and departments and I think the order on those has shifted over the last 12 months I've seen grocery I had.
The industrial ahead, an apartment it had from time to time.
But we're pleased that what we're doing a focus of our capital allocations in those three areas.
And everybody knows about industrial and apartments, and what's happening there, but they don't always realize that retail is bifurcated.
And that grocery anchored retail isn't a class I in my mind of its own.
And we've seen cap rates over the last 12 months to 24 months, we've seen some deals where cap rates are.
<unk> actually over 100 basis points in grocery.
And that's including secondary and tertiary market grocery so people looking for long term covenant long term leases with covenant tenants and so you know our fair value and cap rate compression was positive in 2021. It certainly wasn't anywhere as near 100 basis points. It was a very small fraction of that but I think just in general there is strong interest.
And those types of properties and so other markets are wide open to transact.
And lots of great players looking for those types of assets. If you wanted to and so yeah. So it's it's a I'll call. It a very buoyant factor for for our company.
And I will say it to our management team's credit is that we've curated the portfolio right.
We looked at our portfolio back in 2789, I recall, it's a long time ago, but there were a lot of different types of centers and closed centers power centers.
Variety of types.
And today, we just.
Really down basically to.
To three I mean, we do have one.
Small portion of three 4% of our portfolio is office in three of 4% is one and closed center, but both of those are powerful strong assets in the markets, but the rest of what we owe under those three categories, which are I think it's been curated and.
And evolved over time on a very positive way for us.
And we'll continue to do so the interest is strong.
Okay. Thank you.
And then I wanted to touch on the Avalon mall coming up to stabilization.
Not been many buyers of March until some recent new entrants.
Wondering what are you or updated thoughts on it if any on that on the mall its place in the portfolio going forward.
We're extremely proud of Avalon mall semi.
No. The redevelopment area is about 94% occupied so it was 201000 feet. We've leased a 188000. So we just have 13000 feet left to lease in the Redeveloped area of call. It the old series area.
All overall, it's about 560000 feet, we're 96% leased so we're really proud it had a very strong performance during COVID-19 , Newfoundland and Labrador was generally very fortunate during COVID-19 .
Ron was probably the only phase of Covid that actually affected Newfoundland more materially, but we've had strong Christmas we've had very strong performance. The leasing team has done a great job.
We've got tenants that Avalon mall that have had the strongest same store sales in the world of their brand.
In particular weak set of Avalon mall, so that says something for the buoyancy. There. So we're proud of the mall and we're going to continue to operate it to the best of our ability with a fantastic team on the ground in Newfoundland and Labrador and led also by our leasing team that supports the folks on the island.
Okay, Great. That's all from me I'll turn it back thank you.
Thank you. Thank you.
Our next question comes from Tal Woolley with National Bank Financial. Please go ahead.
Hi, there most of my questions have been answered I guess my last one would just be when youre looking at.
You know you've got a fairly large scale development program, we are in an inflationary cost environment.
What are some of the things that you can do that for leverage.
Besides the.
The budget you have to try and contain.
Growth in cost over the next.
Over the next couple of years.
Okay.
Great question, Tal I don't know I mean honestly inflations inflation, it's Ben.
And some of the communities, we're playing in it as much as 10 or 15, 20% and it has been that way for quite a while.
But the good news is that rents continue to grow.
And we pass most of that cost onto the consumer.
And then importantly for us when we look at these projects.
We have a widespread or wider spread than others with we're fortunate for that and that we're able to build a five and a 6% yield on cost.
You know with markets that were whatever mixed use residential trades at a three cap of three and a half cap. Some cases starts with two so for us if I look at it that has a margin of safety.
And so that's the starting point is it narrows because of inflation. It is still a wide gap challenge most people look around and have a look at some of the residential rates endure.
Other private <unk>.
Developers and some of them might say are building at spreads that are less than 100 basis points today.
The risks involved even with inflation, just because they need scale and.
The rental growth that's superior over the long term. So we start with the widespread and we worked very hard we've got good teams really good teams and construction and locking in or a major contracts, which we did very early on all of our first three projects.
We'll do again.
And those locking in prices has been extremely successful we also carry why contingencies.
Don't think we're going to use any.
In all three cases of our first development I don't think we're using 100% of the development contingency.
On any of those projects.
<unk> been very conservative and those are built goes why contingencies are built into the spreads.
Spreads were giving you so for us, it's conservative conservative conservative and in an inflationary environment.
Well honestly think it'll.
Continue.
In the macro economy at that level, but it's it's hard to know.
But the good news again, it's population growth is high.
Most of it goes to where we have sites or sites or some of the best in the markets I think at the end of the day will be fine right and in a lot of these properties have 3% to 5% rental growth that if you make a mistake and you end up with 100 150 basis point spread to $2 50.
Three years from now 3% to 5% growth youll be fine right and it's good high quality cash flow. That's some of the best in the country. So.
I don't know if I answered it for you, but it's I think it's just.
Really macro where we're investing has still has very good dynamics. So I know Glenn wants to jump in too.
Just a comment.
That's great John two things I would say, we disclosed in the MD&A tile that our pipeline of 31 properties, while we await development generates a four 8% yield on cost. So our development pipeline is not burning a hole in our pocket from an earnings point of view and my point is that doesn't answer the inflation question, but it just speaks to the fact that we have a pipe.
It's very efficient and what Donny spoke to we've got a number of properties, where the reason why we have this advantage because we have properties, we spent $20 million for where the land maybe worth $50 $68 million to $100 million. So we have that land cost advantage going into some of our deals where if there is a bit of inflation. We still have the advantage of starting on second base for that lower cost.
Pace of land, we're not buying land for a pipeline at full fair value and then seeking development. So I think those those things enable us to deal with inflation as well as anyone can.
And your your development in Europe , when you quote them. It's on a it's on your cost base for land, it's not a market okay.
It's based on market.
Yes.
Okay. So you've made you've made the cost adjustment for ecolab, but okay got it.
And then just lastly, and I apologize I missed the first couple of months, maybe you already addressed this do you have a disposition target for this year.
We don't generally give guidance, but what we always generally tell people, we look for opportunities, which again multiple sources of capital. So from a funding point of view, we'll look at it.
Already done an equity issue, but we'll look at dispositions as part of that plan and.
And again, they sit in a bunch of categories noncore and then with core it's partial dispositions and with that we've primarily focused around I'll call it lower growth.
Type of Oh stretched so there will be some I would say.
So yeah.
There'll be some I just can't give you guidance on a number.
Okay perfect. Thank you.
Okay. Thanks al.
Tom.
Your next question comes from Alex Leon with Desjardin. Please go ahead.
Good afternoon, just a quick housekeeping item for me.
What what.
Fair value adjustment component.
Based on this quarter.
Could you just I couldnt quite hear allergy with you on there could you sort of.
Yeah, what was the fair value what fair value adjustment component that was included in unit based comp.
I'll have to get back to you on that one again okay.
Okay.
Unit base Okay.
Okay fair value of our unit price.
Okay.
Yeah, we can pick it up and get a clear yes.
Yeah.
Your next question comes from <unk> <unk> with RBC capital markets. Please go ahead.
Thanks, and good afternoon Glenn.
Starting a second base.
Regarding your comment on the land.
Maybe just on the two projects, where you've submitted applications Broadway.
What can you share with us in terms of.
This is going there and.
Any sense or any updated sense of timing.
At least.
<unk> may get closer to approval.
Yeah.
I can't really pardon me. Unfortunately, I mean broadly it's very public what's what's going on and it's a large project, it's between five and $600 million projected switch very significant but we're in the planning phase with the city and we're trying to get it to a public hearing.
We're working very closely with our partner West Bank.
Gillespie, who is a.
Our principal partner of theirs.
Been down this road many times and.
We're working very hard with the city and.
On council to help people understand that this is I think a great project.
For the the neighborhood.
Number one transit site in all of Western Canada and is a natural place for them to be density because people don't need cars. They can use public transport to get to anywhere in Vancouver, which is rare so for us it's a terrific sites.
And we continue to work it.
You know, we're hopeful we'll get it to a public hearing sometime in the next six months, if I can say that.
And and but we will see again, it's it's a process that's driven by the city and we have to respect that.
And we will continue to work with a partner or partners really leading us to be honest and are doing an outstanding job of helping people understand how it will contribute to.
Vancouver, as a whole, but the local community as well.
And offer I think a lot of substantial benefits great public space great.
Great amenities and enhance what's there which is really a very good grocery store, but it's just simply a grocery store and this is a.
I think improved use of the site so but we have still have some work to do and that's normal in development that was a big project. So it takes time.
Okay.
Yeah.
Got it can you remind us again, what sort of density you were you looking to.
For that site.
Forgive me off the top of my head I'm thinking it.
Five to six.
That's correct I think was the number yep that's right.
Five eight I think Donnie.
Yep Yep so.
Not as high as Youre seeing in other areas of Vancouver, right. We're seeing other areas grew seven or eight so it's actually a lower density than we're seeing elsewhere.
And sorry, what was sort of what does that translate to in terms of square footage.
Billable square footage.
[noise] forgive me again, just off the top of my head I can't recall, they will get back to you probably literally give extra footage okay no problem.
We've hit the 60 minute Mark again.
Last question for me, just a bit of a theoretical or accounting question. I know you provided some disclosure, but just curious if you have given any more thought to formally shifting to fair value accounting for your investment properties.
The actual statements or just or is the plan just to continue to.
This call is that you have.
The fair value in your gross book value calculation.
Yes, we've had the conversations about our plans to continue with their current disclosures at this time.
Thanks, very much I'll turn it back.
And Tom you just a quick answer is that the density built out at Broadway it would be over 600000 feet based on the SSR estimate that we gave you.
Thanks Glenn.
Okay.
Your next question is a follow up from Mario <unk> with Scotiabank. Please go ahead.
Alright.
Sorry, just one more quick one for me.
But back in early February Empire announced or another CFC and Vancouver, which are to my understanding Columbia is not involved with so I'm just curious given.
<unk> got two of them are with.
With Empire, what kind of discussion with GARP coastal sport.
The Vancouver.
Neither Mario it's a it's an evolving process lands extremely expensive and Vancouver, and it's tightly controlled by developers and so we work very closely with Empire on there.
Their whole strategic plan, including where they put their cfcs, but just like Toronto.
Certain sites are available and.
Certain you know, it's whether you probably can become a partner or not isn't always our decision.
And we'll do our best to contribute I think theres going to be actually working very closely with soldiers on the build out we've developed I think a very strong.
Team with expertise around the hub construction, so we will contribute.
Some point of you know you never know we might end up owning.
At some point in the future a piece of that but maybe not also but importantly, we'll be looking for as folks are their whole spoke network is driven by AI. So.
And traffic et cetera is considered in population growth et cetera. So we're we're excited even about that opportunity.
<unk> coover, because those folks will be more expensive there bill again, another opportunity to crombie to invest so you can't get everything.
That's that's that's the truth and real estate and it.
It's just not our time has gone on that particular site, but I never say never when it comes to hopefully owning them theyre very strategic assets, we'd love to have a.
Interest in it but at this point, though so.
Got it makes sense.
Okay.
Thanks.
There are no further questions at this time. Please proceed.
Thank you for your time today, and we look forward to updating you on our progress on our Q1 call in May.
Thanks, everybody ladies thanks, everybody have a good day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.