Q1 2022 Crombie Real Estate Investment Trust Earnings Call
Yes.
Good morning, ladies and gentlemen, and welcome to Crombie REIT first quarter 2022 conference call. At this time all lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
At any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on May 12 2022.
I would now like to turn the conference call over to Mr. Bruce Martin. Please go ahead.
Thank you good day, everyone and welcome to Crombie rates first quarter 2022 conference call and webcast. Thank you for joining US. This call is being recorded and live audio and it's available on our website at Www Dot Combi D. G I spy.
To accompany today's call are available on the investors section of our website under presentations and events.
On the call today are Don <unk>, President and Chief Executive Officer, Clinton, Kay Chief Financial Officer, and Secretary and Glenn Houghton's Executive Vice President and Chief operating Officer.
Today's discussion includes forward looking statements.
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 DNA and annual information for them for a discussion of these risk factors.
I will now turn the call over to Dan who will begin our discussion with comments on crombie overall strategy and outlook Glenn will follow with a development update and a review of Crombie operating fundamentals and highlights Clinton will then discuss our financial results capital allocation and approach to funding 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 Krabi has offered a stable investment opportunity for our unit holders since our IPO in 2006.
Shortly six years ago, we embarked on an ambitious tenet to our strategy broadening our focus to accelerating that growth through a combination of an increased investment in empire related initiatives with new and significant investments in real estate development, including retail related industrial and mixed use residential properties.
Investments are both strategic and complementary to our industry, leading grocery anchored retail portfolio.
Fast forward to 2022, when despite the effects of a global pandemic over the last two plus years I'm pleased to say, we achieved strong outcome in both assisting our strategic partner acquire to be more competitive.
Adding some of the most desirable real estate in Canada, namely the retail related industrial and multi residential the major urban markets to our portfolio at scale today. They each represent approximately 8% respectively of our total fair value of $5 $6 billion.
The last of our first six major developments brought to village reached substantial completion this quarter.
There are moments milestone moments when as a CEO you step back I'd taken accomplishment with a sense of pride and this is one of those moments.
So appreciative of our team and the hard work it took to get here not just the development and construction teams that are mature it substantially over the past six years, but all of the teams who work to make our development program. Our success successful logs to all of us that I couldnt be prouder of our fair value creation from our first six major development.
<unk> is expected to be at the upper end of our $1 to $2 per unit projections provided at the commencement of these projects.
Over the last six years, we were fortunate that this initial period of increased investment in Empire competitive competitiveness and major development activity coincided with strong and consistent operating fundamentals and grocery anchored retail real estate EBIT through a pandemic.
In addition, crombie continues to have an improving and robust balance sheet that remains an important focus for our team our liquidity remains at all time high levels of over $500 million, our debt to gross fair value, including our share of joint ventures decreased to its lowest level in our history at 42, 4%.
At our unencumbered asset pool increased to its highest level at over $2 billion.
We are pleased to investor support at the capital markets for our strategy over the last 12 months as we issued $300 million of equity at record high pricing multiples.
<unk> overall strong financial condition.
Laos us to stay committed to our strategy and continue our efforts to improve our portfolio as well as growing <unk> and now.
Our strategic opportunities are plentiful as we are committed to spending $100 million to $200 million annually with Empire as we align our strategies and work closely together sharing market intelligence to create value for unit holders communities and our customers empower related initiatives include modernizations acquisitions expansions and conversions that grocery store.
As well as the build out of its Warlock grocery E Commerce hub and spoke network to new spoke facilities came online in the quarter, which Glenn will speak to a greater detail shortly our relationship with Empire remains our sustainable competitive advantage.
Also we intend to continue to target an investment of approximately $150 billion to $250 billion annually on our development program, while we often highlight major developments in our pipeline. It's also important for us to share. The many smaller development projects that contribute to our growth. These include property Redevelopments and land use intensification.
Lastly, none of crombie success as possible without our team collectively we are all dedicated to the success, we are well positioned with a capable skilled resilient team as we look ahead and continue to achieve our strategic objectives. We're very proud of the progressive culture. We've built probably one that supports and encourages total wellbeing and diverse.
Thought leadership and is guided by our employee driven values I'm proud to share that <unk> has won the Atlantic Canada top employer, Nova Scotia top employer top small and medium enterprise employer again, this year, which further affirms that the culture, we have and continue to refine is working.
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.
Ron <unk> village in Oakville, Ontario, our third mixed use residential development and six major development project reached substantial completion in the first quarter the.
Two luxury residential towers include 481 rental units with 54000 square feet of commercial space anchored by a firm boy grocery store retail and residential leasing is underway as tower a welcome tenants in the third quarter of 2021 and tower B in the second quarter of 2022.
As of May 629% or 140 units had been leased at rents nicely above pro forma.
Duke Nashville between the blossoming Griffin town neighborhood in the charming old Port in Montreal continues to demonstrate strong leasing momentum with 56% or 218 units leased as of May six also what brands nicely above pro forma.
Construction of the approximately 300000 square foot customer fulfillment center in Calgary for Empire E Commerce grocery home delivery service <unk> is well underway based building roof checking and significant portions of the interior mezzanine or nearing completion sections of the buildings are in close with interior floors and <unk>.
Tenant fit up work is expected to commence this quarter.
<unk> is committed to our development program on all fronts as these projects present, a significant opportunity to unlock value and drive future growth currently in relation to our major development pipeline Crombie has five projects that are fully entitled three other projects, where zoning applications have been submitted in a number of additional.
Projects were entitlement work is actively underway during the quarter. Our rezoning application was submitted at Macau and Ellesmere at transit oriented property in Toronto, Ontario, The application proposes to transform the current site into an approximately one 3 million square foot mixed use development comprised.
The three residential towers totaling 4800 units and grocery anchored retail built over two phases, and we will adhere to our sustainable development policy.
Crombie continues to have multiple sources of value creation opportunities from our development activities, whether it's the value generated from successful completion of zoning entitlements or the additional value created from successful development completions.
In addition to our major developments there are numerous retail land use intensification and redevelopment projects taking place at various properties across the country be smaller scale shorter duration projects complement our large scale development pipeline, while also providing solid risk adjusted returns in the first.
Quarter Crombie added approximately 100000 square feet to gross leasable area from such activity, including retail development at grocery anchored Plaza in Halifax, Nova Scotia, Charlottetown, Prince Edward Island, and Grand Prairie, Alberta, totaling 77000 square feet. Additionally, in the first quarter of 2022 as Don mentioned.
And we added an additional two voila spokes are second and third spokes totaling 20000 square feet of additional gross leasable area. The Ottawa spoke was a greenfield development with land acquired in late 2020, the Quebec City location is attached to an existing Iga store that was downsized and repurposed.
Spoke facility with a small overall increase to GLA as we continue to optimize our portfolio hub and spoke locations will augment our growing base of retail related industrial assets and further enhance our NOI.
With economic occupancy at 95.5% and committed occupancy at 96.4% speaking to the defensive nature of our portfolio 99.5 per cent of rent was collected in the first quarter and only one lease has been disclaimed over the last 12 months and only three leases remain impacted.
By C C double a or a bankruptcy filings new leases increased occupancy by 142000 square feet at a weighted average first your rate of $20.94 per square foot, we experienced 67000 square feet of net lease expires vacancies terminations and face adjustments approximately 64 per.
Percent of new leases equivalent to 91000 square feet were completed in back Tom and major markets 150000 square feet was committed to leases at an average first year rate of $19.58 per square foot at March 31, 2022 with tenants expect it to take possession throughout 2020.
To boosting future NOI growth that Tom in nature markets represent 110000 square feet of this 150000 square feet of committed space included and committed occupancy is 49000 square feet at <unk> square complex in Halifax, Nova Scotia, which we expect to move into economic occupancy in the.
Second quarter.
During the quarter 255000 square feet of renewals were completed at an increase of 2.3% over expiring rental rates driving this increase was 73000 square feet of renewals at retail plazas with an increase of 5.3% over expiring rental rates, partially offset by more muted renew.
<unk> spreads in our office and retail enclosed portfolios an increase of 3.6% was achieved for first quarter renewals when comparing expiring rental rates to the average rental rate for the renewal term crombie proactively manage its leases majorities, taking advantage of opportunities to renew tenants prior to X.
Proration during the quarter, approximately 77000 square feet of renewables related to future. Your expiry is where completed and with that I will now turn the call over to Clinton, who will highlight our first quarter financial results and discuss our capital and development funding approach Clinton.
Thank you Glenn and good day, everyone on a cash basis same asset NOI increased by 1.9% compared to the same quarter in 2021 primary drivers of this increase or reduce Baghdad expense and strong occupancy.
This is offset in part by a decrease in lease termination income as a result of three tenants vacate administration in the first quarter of 2021 with the largest impact being in our office portfolio.
Adjusting for lease termination income in Baghdad expense same asset NOI increased by 2.6%.
If appropriate unit was 20 <unk> decreasing from 25 for the same quarter last year, while <unk> and it was 28 cents decreased from 29th for the same quarter last year.
<unk> on a per unit basis, we're diluted by equity financings in May 2021 in January 2022 <unk>.
<unk> and <unk> payout ratios in the quarter, where 93.6% and 79.9% respectively.
On one dollar basis, both <unk> reached record levels.
Increasing compared to Q1, 2021, and Q4 2021.
The increase in <unk> for the quarter is primarily the result of lower finance costs from debt repayments income from acquisitions and a reduction in bed that expense. This.
This is partially offset by a reduction in lease termination income and disposition since the first quarter of 2021.
G&A answer percentage of property revenue for the first quarter was 4.6% or $4.9 million, excluding the impact of unit based compensation of 1.5 million G&A was 3.2% of property revenue.
During the quarter Crombie issued $200 million in equity at a net unit price is $17.45 with.
With the Empire company participating and continuing to hold a 41.5% economic and boating interesting crombie the.
The net proceeds were used to repay outstanding indebtedness to fund our development pipeline and value add capital programs with Empire and for General Trust purposes.
Crombie continues to grow are unencumbered ethical increasing its fair value from $1.8 billion in Q4 of 2021 to a record high 2 billion this quarter predominantly from mortgage repayments in acquisitions.
Unencumbered assets as a percentage of unsecured debt or 179% an increase from 129% at December 31, 2021, providing crombie with additional financing flexibility and optionality.
With the completion of another development Bronchia village held in a joint venture and the progression of our mixed use residential properties towards stabilization, we have adjusted our methodology for calculating that to grocery value in debt to trailing 12 months adjusted EBITDA to provide more clarity on the financial results within our joint ventures.
Debt to gross fair value, which now includes crawfish portion of debt and assets held in equity accounted joint ventures was 42.4% at the end of Q1 further improving from 45.2% a Q4 2021 the increase in gross fair value of $223 million in the quarter was driven by acquisitions investment and development.
And the substantial completion abroad, a village in the quarter.
Lower dead Oh standing at the end of the first quarter due to a mortgage and credit facility repayments also contributed to our improved leverage ratios.
We ended the quarter with depth to trailing 12 months adjusted EBITDA at $8 seven times down from 896 times of December 31, 2021, the improvement was primarily due to lower that outstanding and higher adjusted EBITDA driven by increased property revenue, mainly from acquisitions strong occupancy and continued lease up of joint.
Residential developments and lower G&A.
Over the past number of years Cromie has increased the weighted average turned maturity ever get two five years.
Notably in the quarter, the Ledoux joint venture refinanced, it's fixed it's floating rate constructing loan with a 104 million seven year, 3.15% fixed rate mortgage.
Events.
<unk> market volatility and rising interest rate environment Crombie has only 12% of us debt maturing for the remainder of 2022 mortgages totaling $80 million with a weighted average interest rate of 4.3% whichever over the next three quarters are $150 million series D. Unsecured note bearing an interest rate of 4.1% mature.
In November of 2022.
<unk> has $530 million and available bank credit facilities with only $7 million utilized as of March 31st 2022.
R for financial success is underpinned by a robust and flexible balance sheet with ample liquidity as well as access to multiple sources of capital, including equity issue inches unsecured notes commercial and residential mortgages and investment property dispositions are full of personal interest.
We continued to reduce risk and build financial strength by strategically managing our capital structure and optimizing allocation an empire related initiatives and their development program.
With that I will now turn the call over to dawn for a few closing comments. Thank.
Collected we're very pleased with our results again this quarter and look forward to successfully pursuing our strategic objectives throat 20, twenty-two that'd be all it. We're excited to continue our focus on long term sustainable growth to create value for our unitholders employees and the communities in which we operate our commitment extends to our input.
<unk> on the environment and I look forward to sharing our second annual sustainability report with you later and Q2 I'm.
I'm excited about the great work of our team for our team continues to do in the future that we are building together.
That concludes our prepared remarks, and we're now happy to answer your questions.
Thank you ladies and gentlemen.
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Your first question comes from.
Bank. Please go ahead.
Probably the afternoon.
Hi, Margaret.
I'm, sorry, I forgot answered. This question every quarter, but you keep reaching different milestones Balkan sorry, So we'll keep asking but on the on the $2, which sounds like do you have a cold for a valued game that you're expecting <unk>, sorry, $2, how much about $2 or would be in your area for us transfer value statement store.
[laughter] Fox tough one I'd say I'm gonna say roughly called <unk>, Mario is where I would say it I don't want to actually give you a risk of an actual number but I would say the low one's going to.
You know whatever <unk> whatever it serves a one to $3 sorry.
One to $2 a night, so yeah, I'm going to high too. So we've got a ways to go.
Yeah, but you know a lot of that is the you know.
The way, we recognized fair value over time, and the multiple stages as we go through the projects including.
Fortunately the final lease up and we recognise final fair value based on trailing 12 months at a lot and so once we get to stabilization. That's when we recognize the final stages.
So.
Glen wants to speak to it as well go ahead <unk>.
Oh Oh.
I was just gonna say that directionally.
I'd say, Donnie, we probably have about 70% of.
The fair value recognized and I for us and there's a nice amount mario's until they come through the stabilization process dance right at the dollar to $2 a unit.
We joke a little bit about the fact, we made that estimate winter units were about $20 million to $25 million lesser so the.
Vargas higher Everytime Clinton wants to raise equity.
So it's internal matter that we laugh about but now we're quite happy with where we're at but we are in the range of recognition, probably and that 70% range.
Here's the thing I'll say, Maria which I think is.
Kudos to our team as we predicted that call at three to five years ago and the yields on cost that we predicted at that time upheld true alright, and given all that's going on with Covid lots of crisis lots of variables in the capital markets, including installation et cetera, Covid supply chain labor et cetera.
I'm just thrilled with the team's performance to deliver you know basically on the costs that we anticipated delivering the yields we anticipated and on a timeline that we anticipated then it just for me proves that this team can execute and that we select a good partners that can also execute.
What I would say it would be the toughest conditions, especially over the last two years, so really really proud of the accomplishments yep.
Okay.
<unk>, Okay. So then.
<unk>, there's still some upside there alright, I appreciate the inventory furniture disclosure this quarter and so.
Those projects that could.
<unk> premium contributed negative 600000, the reference all during the quarter.
<unk> can you kind of based on your underwriting.
Can you kind of walk us through how about 600000 of erosion Q1, how 'bout builds up.
The next two quarters two quarters of the 20th 23.
Sure. We can put you tabatha just curious and she was literally how do you think about that build up the.
The quarters for Russell.
18 months.
Sure our theory, fearing area to the the JV disclosure of income contribution for the quarter the small <unk>.
Correct sore throat on page 54, the <unk> muscle loss like how how should we think about 600000, megabits evolving into where it should be pretty substantial positive whenever <unk>.
Alright.
So essentially we any guide.
Guided a little bit it we don't guy, but we indicated last quarter that for the year, we thought we'd be plus or minus zero for the for Duke Bronte and Davie Street during the quarter were not surprised with the small lost that were disclosing that should move positively obviously rent or lease up now mode and do <unk> more aggressively.
Clearly stabilized at Davy Street, So we're still suggesting that for 2022. The F. F O contribution will be more or less mill, our expectation of ourselves for next year is that should be about three and a half and positive to the <unk> and then by the end of 2024, it should be about a nickel five cents to the reason the reason why.
It's gonna leg, not wag, but extend into 2024.
Because the lease up periods of stabilization period at Bronte is going to take us into into later in 2023, but that's essentially the tale of the tape is that this year it'll be pretty flat about three and a half cents to make it a little bit more than that $3.75 next year and then the <unk> for 2024.
Okay.
Great. Thank you very much for.
My last question just in terms of the lease brother was down a little bit.
This quarter, which you attribute it to you also seemed to include retail.
How should we think about.
What your target blood locally spreads are for the remainder of the year overall elevated but closed down by individual lots of pets.
Sure. We still think mid single digit is where we ought to be this quarter was a bit of an anomaly and I.
It may sound like a broken record because some quarters. We do we have small sample size, we had 40 leases rolled over this quarter maryelle like 1.4% of her occupied space and then we're in for example, any grocery leases rolling over at 7.5% lifting that can move of any quarter.
Very positively so the 2.3% for the quarter was a bit like we think mid single digits is right retail will be you know when that five 6% range office will continue to be fairly flat.
The office market is challenging Halifax, we're really doing well with occupancy, but we expect renewable pressure there so.
Maintaining maybe getting slaves increases there is fine retail related industrial there's really nothing rolling over in his you know or a rental spreads right. Now we're just coast classes. They don't include anything on on the residential side. So the vast majority of our our renewals or retail and also in the quarter. We disclose this that.
At that time was quite strong.
Major markets was strong and rest of Canada was a bit weak I think that's generally sample size related but in getting to that mid single digit growth overall for a rental spreads more likely than not that common major markets will be slightly better than the rest of Canada.
And then the five to six per cent retail being closed retail would fall within that range as well or is there a difference between me included.
But the retail and clothes would probably be a drag the retail open air centers are clearly the strongest we don't have a lot of you know and and close we have a couple of sort of legacy small properties, but there's not a lot. There we expect avalon to hold its own as our major enclosed and there's not a lot of leases rolling over there currently.
And I think that Avalon it will be probably mixed bag when when on the one hand seeing very strong sales very strong occupancy, but there's the occasional tenant that's going to be coming out of a lease from pre COVID-19 time that may need an adjustment lower but overall I would blend all of that into that sort of 5% plus retail.
Spread.
One last question for me on my $90 million of acquisitions and a quarter of what would you all for your kind of Gordon chop right on those and how would be like the grocery anchored stores in terms of like rugged compared to your overall portfolio Roberts.
Okay.
Mary we don't generally give it to <unk>.
We had one but over a third of that was an industrial property in Montreal, which would skew it down to some degree, but I would say call it whatever.
Whatever between five and three quarters, and six and a quarter somewhere in that range on average overall so it's it's for us it's.
Important that the these rest of Canada assets, we've said it before they are born like in our view longterm leases 15, 20 years and lots of options and they're strong stores and I think importantly for us the smaller opportunities are very accretive that those kinds of yields and again, it's one of the.
Call. It the advantages of working with empires, we see these opportunities where others might not the single narrative, where somebody's talking about back Tom or only the super urban or only this or that we think that that type of activity in those markets, where we understand the stores better than anybody else is super complimentary for our.
Portfolio and how does it really nice balancing profile to buying you know a four capp retail acid in Toronto, We we also like the six and a half cap 5 million dollar store and and you know whatever a rural.
Community, but that has you know very strong market share and so it's a balancing act that we we we work with our partners Soapies on it I think it's it's very.
Fruitful for us overall in terms of continuing to grow I F. F O, which I think is the number one.
Honestly the number one criteria over the longterm is what people are gonna judge us by so I <unk>.
That's a key part of that.
Okay, Great I would agree.
Okay. Thanks.
Your next question comes from <unk>, what National Bank Financial Please go ahead.
Hi, good morning.
F L.
I was just wondering if you can we can just hit on a couple of <unk> you touched on Avalon malls grocery square.
Those questions, but I was wondering if you talk a little bit more about the leasing environment for office in Calgary like you know obviously the economy was much more open that it was maybe in other parts of the country for the duration of the pandemic.
There was also somebody in migration into the maritime provinces like what are you start Phoebe outlook for the office options you have in the markets.
Well, we're very bullish on the office assets, we have in our small sample sizes significant presence in Halifax, where we're running mid nineties ish occupancy, but in a market that is I think mid eighties, 80, 586 were significantly stronger than the market.
We have.
I think competitive advantages with our portfolio, we're very much priced in the right place in the market are rents <unk> square are very competitive relative to any new product that's on the marketplace like materially.
Better priced so that's an advantage we have significant food court, we've got the biggest parking acid in the city, we have the pedway access right on the transit lines and of course, we have the ability to build over a thousand residential units in and around Scotia square. So we have a very unique situation. There. So we.
T Halifax, a strong I'm surprised that the reports I read from CBRE and others are so bullish just giving that the overall Halifax occupancy rate an office is fairly low and it's not similarly low to Calgary and then you just mentioned Calgary, where we have no office, obviously, but.
The sense is that Halifax is going to absorb that space significant population growth significant net migration that you mentioned, so we're feeling very good about it but as I said in the comment about our leasing spreads.
We're cautious because as much as we have a great opportunity it's.
It's a competitive marketplace and there are other buildings that have vacancy and sometimes that can result in competitive reality mountain New Brunswick, we have a small amount of office bit more vacancy there and it's a good marketplace as well, but Halifax is is really strong and we're proud of our situation there.
Do you have with us at this point in time like.
You know you've got you, obviously, you're occupant, but do you have.
Give us a public on a day to day basis like how occupied the building actually is like maybe parking revenue other days like deal. If that's all you know how 'bout <unk> right now.
Yeah, we tracks at all the time and we have key metrics around food court and just off this tendency of just to give an example for Scotia square typical pre pandemic population in office is about 4500 people a day. We're currently running about 22 22 50, so just over 50%, which we think is good.
Fact that just that may be a quick segue to parking.
You know.
As much as our results are very solid were still on the way back to <unk> to getting to back to pre pandemic revenue levels were probably two thirds to three quarters of a cent hit in 2022 F. F O and a F. F O that we're going to get back in 23 and 24.
So we're still dealing with the reality cause I've only 50% of your office population is there that's gonna hurt on the monthly parking.
But we're doing better on event parking we're really pleased to hear the announcements at the World Junior Hockey Championships are going to be hosted by Halifax in Montana at the 10 day event later this year and into early 2023, and that's gonna be a big positive on the uneven site. We also track arc arc arc customer counts.
In our food court and those those are still tracking well below pre pandemic I won't give us specifics there, but we track those on a on a daily basis and we also track other metrics on the parkade side to see how quickly we're getting back to pre pandemic levels.
Tell just to remind you ill effects would have performed better than anybody through the pandemic in terms of downtown office population, probably one of the best in the country, just because of the way that our population I'll call. It behaved and people were I think following government protocols and therefore, our occupancy was.
Call it higher than for sure downtown Toronto, which I think unfortunately may have been one of the worst.
In North America in terms of downtown occupancy. So we're an outlier, we're very thankful for that but it it took our team and it took the people who are our tenants to ensure people were safe throat that time and now people are you know.
Figuring out the work from home and I think feeling generally pretty safe coming back to the office and and benefited from that.
Okay and then maybe you can just go some color no similarly around traffic counts Brabble a mall too.
I don't have specific traffic counts.
To share with you how about what I will say is our sales are back in line with pre pandemic levels at strong I think we shared last quarter that of the the new wing of the mall that we built we're approaching 95 per cent occupancy end the call. It the older renovated.
Part of the mall is closer to 100% occupancy. So we're finishing up leasing activity. One of our challenges is just getting tenants to travel to come to see some land.
Place to get to.
But we're confident we're going to get back.
Back to approximately 100 per cent occupancy there and obviously, that's gonna mean that tenants are doing quite well, but my only general numerical statement is that sales are back plus or minus a pre pandemic levels and we're pleased with that.
Okay, and then just lastly, I'm going back to the development pipeline. You know you guys have to obviously set that marker. When you. Initially started building up to development pipeline now that it's you know sort of phase one.
Or you know the first roszell projects have been completed given where you know how the market shifted where things are how do you think about you know the accretion potential for the current set of projects inactive development.
Yeah. So the guide forgiven throughout has been our target is to get the consistency at scale in development and consistency with given the range publicly 150 to 250 million tell and in 2022, we're gonna be admittedly at the lower end of that range, but in that range and even though we have one project.
<unk>. We you know we want also pointed out the people that I have we have what I call. It small D development, so developments under 50 million and we have the one major one CFC three in Calgary, but the small thedevelopment are important right. They're very important I mean, we're still doing those are the six six and a half yields on cost.
On average and you know they can be $3 million to $10 million, but you can have you know 20 of those and so for us today and they take a variety of forms. We just think you would've seen her MBNA reported completions of some spokes, which are part of the hub and spoke e-commerce platform for Soapies bunch of L. U I's even development of do gross.
Frank or shopping centers and those fields are I think important because they're very accretive they're very low risk because we already have the tenants in place, they're they're actually relatively immune to inflation I mean, we've been this the short timelines that we take to build these these types of projects you know, they're six to 12 months.
In most cases, where is the big developments or three to five years, where you got serious inflation risk. So for us. They are a very nice compliment the small the balances out with the big the Big day development of the of the major mixed use and even though those have been outstanding successes for us, we think that flexibility going forward to be choosing in and.
<unk>, you're saying, where it suddenly there's a risk on type of mindset in the capital markets that for us to be ultimately achieve consistency upscale we want to have the flexibility of where we spend our money and I think 2022 is evidence that we can continue to spend in a very solid risk adjusted way that people will appreciate that ultimately again comes back at that number one drive.
Richard generating solid cash flow so.
I'm proud of our team for.
And yet even even with that I'd say it you know I know people will get the asking me about the next major development. We're continuing to work on 10 projects to entitlement to entitle them and you know and when we have the moment in time that comes that we have to approve a larger one uhm then we'll see where we are at that moment in time right now everybody's very cautious.
With the volatility Andy inflation and interest rates rising et cetera, and so we're we're not really there yet and we have a bit of time before we have to get to that moment in time of approval. So we like where we are we like the growth profile and we liked the flexibility of the development pipeline to nevertheless generate growth even if we don't have a bug.
<unk> Big next juice underway, we still have the spending levels that we've we've told everyone. We we hope to achieve and target.
And just lastly, how many farm boys do you happen to network right now and.
And your properties.
I would estimate in our portfolio, it's less than five town I know we have one that's just in the process of opening we had went into P. N, but I think it's somewhere between three and five currently.
And I guess like as you pursue more mixed use around you know like around the country.
Obviously, farmboy roommates like Ontario, only properties or Ah, you know, where maybe only in Ontario, right now, but it's kind of a nice size box for a mixed use development like are there sort of plans we offer to try and increase your exposure to that branch and being a part of network.
Oh, absolutely I mean, it's an amazing bread and we just are you know a project that we just completed and and <unk>. The project village has a farm boy below it and we converted it from a service and so where it's optimal in that market. We think it is optimal and Farmboy agreed we converted it.
And we're looking forward to doing more firm boyfriend Amazing Brad but you know in addition, it it's really I think matching the <unk> the brand that Soapies has to the local marketplace is really going to be the key and again this strategic intelligence that we share with Empire, we meet with them weekly like it's it's a very.
Deep and fulsome relationship and so the selection to the branch will be ongoing and importantly, they continue to increase the brands right. There's not only farm boy, but there's obviously fresh coat, but longo style as well and the other so we're very pleased with that and and look forward to continuing the growth in that part of our portfolio.
Okay. That's great. Thanks, gentlemen, super Thank you.
Your next question comes from Jenny mile with the amount. Please go ahead.
Hi, good afternoon.
<unk>.
<unk> made a comment about the clarity looking at the development pipeline 60 years ago. When you embarked on the first six so I'm wondering if you'll give us some color on where you are cold that'd be awake now because on one hand I think.
<unk> the risks in the cockpit certainly changed substantially for six years ago, but then again you have a lot of experience and I get that with after going to the so would you say that the next batch of development projects have a similar level of clarity when you're looking.
Looking to embark on them.
You know that it's Super tough question journey and thank you for asking it I mean, it's the volatility. We're seeing now is you know pretty uses the word too much but unprecedented in in so many areas that it's always hard to know I'd say the good news for Crosby and our unitholders is that we have an abundance of amazing opportunities to develop it.
That we control them and it's it's really the quality of the land I think on a per capita basis is as good as you're gonna get in Canada reached sector and so for US we're very pleased with that.
World class opportunity of of land development, and then for US we'll get him a longterm investors. It's that it can be patient. The other piece of good news is that yeah. There's there is inflation, there's interest rates rising et cetera, but with a big chunk of our portfolio over half as in Vancouver, which to date has been you know your.
Still able to do business, there and I always say in development.
If you have cost inflation, it's whether you're wrench Ah continue to rise and or your condo pricing continues to rise.
That enables you to make sense of the deals in in Vancouver, those conditions continue at Toronto, it's a bit more challenging at the moment.
Yeah, I'd say is I'm seeing the number of projects that are potentially you know maybe canceled or deferred not on our books, but with others I've been talking with a number of people in the industry and so there's caution clearly so who knows where it goes we're patient we have flexibility as I said, you know to do smaller.
Stuff that's on a risk adjusted basis, you know you're doing stuff that you're investing is six six and a half in Europe . It's a five cap asset, it's not investing five and a half six in two or three cap asset, but it's still very strong contributor to a F. F O growth not quite as much to naff and as long as we have that flexibility we can manage our way through these.
The downward part of the cycle I hope and I believe and so so we are and continuing to pursue it but prudently right. We've I think we've been very strong Clinton and the team have been in improving the balance sheet and importantly, issuing you know 200 million in equity in January 8th record pricing, which today looks.
<unk> I think very savvy on hand, a T M. A team and I think it's it was good timing and you know our balance sheets really strong if there's a storm or a recession, we can whether it but on the other hand, we can be opportunistic and you know move forward with certain types of development that are critical to the you know ultimately to the growth of both having a F F O. So.
Cautiously optimistic could be the way I'd put it and the visibility you know we've got 10 projects working on entitled Land. We looked at the next seven projects. We've listed them I think publicly and we're various again cautiously optimistic that will continue down the path and we may be delayed a little bit, but I don't think it's permanent cause the <unk>.
Entities are just such good quality yep.
Thank you I I appreciate that color I know when your dining to the the current and the cost on the on the first six uhm fairly conservative approach. So would you say that considering the the heightened risk now when you look for it at the next major project you think though that that bandwidth is enough to take into account, but with more I'd be may.
Can any tweaked in terms of how you underwriting project and and you know maybe some more even more conservative than some of your assumptions what's up on that.
Yeah, well of course, I mean inflation rate ties, it's sustainable where do interest rates ultimately settle out a bunch of those things, but also importantly, you know how far and fast you rent go I mean, there's a shortage of supply of housing in this country and retail is a very balanced and a very balanced place so work.
I think in a good spot we have the top three types of real estate and you know <unk>.
Grocery anchored retail apartments in industrial we can kind of pick our spots to continue continue the growth and do so you know when we have our prices locked in when we you know I think we can achieve certain returns, especially if we're selling condos to some degree although that is a very small amount of our.
Forecasted future. So it's I think we're able to manage it Jenny but it's it's it's certainly let's I guess that answers I'm going on too long, it's really bad. It's yes were taken into consideration we've always been conservative we're a little more conservative right now and I guess, that's really how big is bad does that storm and had a.
Long does it go on right.
On the Empire related project are you seeing material cost pressures for that kind of work and if so how much latitude is there to to discuss with empire to be able to maintain that 66 and a half.
I answer that you anybody talking about T. S. C. Three because it happens sort of early on in the challenging environment of inflation and Trevor Lee and the team did a great job last early last spring and summer essentially preordering the steel for.
For two reasons one for supply chain reason, so that we had this deal to be able to complete the project on time, and secondly to mitigate the inflationary risk.
And I want to mention CFC, three which is a soapy project because we obviously have the obligation to be diligent developers and optimize cost.
But we were both good and fortunate on CFC three because we were proactive we just finished building CFC too we knew generally what we required so we were able to get out in front.
N B some of this inflationary pressure also ironically, the Calgary labor market was not as tight at that point in time. So we were able to get reasonable pricing on a lot of labour aspects of the job and as it turns out CFC three as a project, we believe will be on or under budget, which is not something that's easy to do.
This environment.
<unk> any project, we start with so these or any other tenant starts with a proposition of what rent or you desiring to pay and then iteratively us on the other side looking at our cost to get cost that can allow that ran to pencil out in a way that gives us reasonable returns.
So obviously any tenant that has pressure on their economics, whether it's <unk> or whether it's any other tenant they're not gonna want to see their rents go materially higher that's just common sense. So the big challenge in this inflationary environment is just to be as.
Diligent and proactive as we can be both on the leasing and operational side, but also on the construction and development side to try to get that situation, where the tenants satisfied with the rent and we can get a reasonable return, but there's no free lunch tenants are not prepared to give us higher rent just because and you may see occasional.
Next to get the later deferred if you have a short term situation, where the cost just don't enable a rant that makes sense sense for the tenant so it's a real partnership and we rolled up our sleeves on every deal whether it's a small densification of a site or a big project. It's the same approach for us to be smart and we're very diligent on using quantity survey.
Our approach is on our bigger projects to make sure there are costing us.
As optimizing that were value engineering at every step of the way. So that we can do our part to help that rent pressure situation, but that's that's how I would summarize it.
Okay, great. Thank you Uhm. My final question is if a guy to some of the near term mortgage maturity I think the weighted average to the whole stack of about 4% is there a big variance for some of that mortgage materials in 2022, and 2023 or is it kind of hovering around that four per cent mark actually they're all pretty much over here with a little bit over 4443.
<unk> so yeah, it's pretty steady there's no major variances okay.
Okay, great well, thank you very much I'll turn it back down.
Thanks Jenny.
Your next question comes from Paul Me Bear with RBC. Please go ahead.
Thanks, Hi, everyone. You know I do think about the the the value creation for the next five projects that are underway and specifically I guess, the the near term developments how does maybe the the value creation from from that pipeline compare to the you know to the dollar to $2.
You know that you expect on the first six projects and then just checking the over what time frame do you see being able to deliver on these cause some of these of course do require some zoning work that's still in progress. So I'm. Just curious if you could compare that to what you've been able to do successfully on the first round.
Mmk Upon me there's no question, it's gonna be a little call it slower and a little less I guess is the answer to the truthful answer I mean, we have had outstanding returns with our first six projects like they're off the church and get up that was good work and good timing and good luck and lots of good thing.
<unk>, but you know so I I can't say that just that just as much as I can give you I mean, we're obviously in an unprecedented environment, where we're seeing inflation that we haven't seen for what kind of a decades and so it has to how that pencils out is a good question, but the good news is we have some time thing can stabilize.
Things can revert to call it a more stable environment and importantly, we have I'll call it better conditions, where we have opportunity so you'll get Vancouver, as an opportunity where there's not as much union activity. There's just I don't know there's a little.
A little more stability and some in the construction trades so.
My view so it gives us more opportunity and then obviously, there's a shortage of of good housing and we're looking at some housing opportunities on top of retail. So I think we can end up passing cost increases onto the consumer continuously but it's it's what we won't know until we get to those moments in time, where we have to actually approve of.
A big project and at those moments, we'll be making a judgment and the good news is the value of our land I don't think is going down no longterm. It's it's because these opportunities are world class and so I think we're I don't want to call the Manhattan like opportunities, but they're strong very strong yeah. So we're we're very fortunate with the quality that we have.
The dirt and so yeah, that's all I'll say.
No. That's that's a good color. Thanks, Tony maybe just switching to the to the acquisition environment, certainly obviously octave on some of the acquisitions with the Empire.
Any comments on perhaps what you're seeing from third parties has the backup and bond yields changed at all perhaps pricing for or maybe the motivation of some owners out there that might be looking to maybe lighten up or I'm, just curious what you're seeing out there.
I'd say you know the capital markets react first and they've been severe in terms of real estate and then the private markets tend to leg. There is on call. It on the acquisition side I'm seeing things slow a bit.
And especially in the larger the ticket price larger transactions the smaller ones in the right sector. There's not there's no slowed down so, especially grocery anchored industrial or apartments, we think there's still solid long bid list.
And then in terms of sale, we gonna we've had for discussions with no pension funds private equity over the last couple of months just exploring opportunities exploring different things that we're looking to do in in every one of those would have people express interest in partnering with US on you know buying the three top categories.
What your grocery anchored retail industrial in apartments, and so there's clearly interest even though the markets are volatile and interest rates have gone up. So you know with the other pieces that the people who own the real estate generally are very strong.
So you're not going to see I think a lot of evidence to support the notion of people may have the cap rates are going up and.
So it's it for US. It's you know we're not in a rush on anything that we don't feel pressure in that regard and and you know, we'll keep being able I think being able to do the business that we Wanna do allocate capital, where we want to and or sell assets from time to time as we want to so we're we're pretty fortunate I think the curate.
Asian of our portfolio over the last decade, I think has really been well done and as you know we've got three top categories for the most part up like 94 per cent of our portfolio are those three categories. So we're we're very fortunate that we've we've curated the way we have in this kind of market. That's that's really.
You know maximizes our flexibility and ultimately a return so I believe.
Got it got it sorry, I'm just I guess the last one for me you just on the coming back to the to the acquisitions from Empire I guess in total 90 million ish roughly alright, you know just again the whole comments around elevated inflation do do these did the leases on these assets have annual rent steps.
Or are they more periodic kind of after I mean five years or so.
Generally speaking what ran steps where every five years <unk> that's done the typical Tommy.
<unk>, Alright, I'm sorry.
And.
Sorry, Glen every five years.
Yes, the <unk> steps for every five years, and then what sort of rent step is that like there's a 10 per cent or is it a good.
Good lesson that.
Yeah, they vary but generally speaking in the seven and a half per cent range.
In that range would be with the low end, but that's the general range around seven and a half per cent steps every five years.
In the Sierra use in the shopping centers that have a grocery store and see argue they would be higher than that on average could see or you would have to step up some more like the 10% range.
That's correct, yeah, I'm speaking more to the food leases, but yes, the the step ups on C. R U could be materially higher than that.
Got it thanks, very much guys I'll turn it back.
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one.
Your next question comes from.
Johnny with T D Securities. Please go ahead.
Thanks, Good afternoon, everyone.
Just <unk>.
Just on the same property and why growth. It adjusted number for Q1 of 2.6% was there anything unusual from an occupancy perspective. It was in there and how does that make you think about how the full year 2022 is gonna shake out on a on an adjusted basis for fishing property.
Okay, and what feeling pretty good about it I think it was key for us to disclose that when you're just out with the bat that expense and the fact that we had a lot to lease termination and come into one of last year. The 2.6 is really the relevant marker. We thank the rest of the year is going to be in that two to three per cent range, we feel very confident with that based.
On the activity that's in front of US both on the renewal spreads any additional leasing and any other activity that bolster same asset. So we're feeling 2022 is going to be a solid year for same acid in a micro.
That's great and my my last question don't you think you mentioned early on the call that you felt Vancouver still looks pretty good from a development perspective, Toronto was mobile more challenging.
So I was wondering if you could provide a little bit of color to just sort of you know why you why you say that and then and also 117 80 Broadway I know, it's stolen process, but if if there's any any.
That you can provide there and.
In terms of how the process is is is progressing.
Yeah, you know Sam I mean, Vancouver, just its own market and has been for a long time on the ninth I know for the last decade people have said you know cost inflation has been unsustainable there and yet <unk>.
<unk> have continued up and or the condo pricing is continued up and you know so as we talk to her partner out there as well as others. You know there's continued no cautious optimism but optimism.
That the revenue side will continue want even if there is cost inflation and you know for US we've got a number of projects as you know out there. It's the biggest chunk of our development pipeline. So for US that's terrific again, I think you may see a number of pauses on development here and there.
Because people can't make a pencil out and I think you might see some of that and call. It more in Central Canada. Then you might've had been Vancouver, Although you know there.
There might be some there, but anyway I think the dynamics have been this way for a long time and I also think population growth in D. C. There was 100000 people there I think last year with a D C, which is unprecedented which is amazing you know call. It demand for housing and so for US where we are very pleased to that and you know want to be able to ultimately.
Build into that in terms of Broadway commercial we're continuing to work through the city process. It there. It's a very long process for us. This is a very important location. It's the number one transit node in all of Western Canada has a very strong and vocal local community, which we're very respect.
For love and and working with we've done a lot of pulling with our partner West Bank of the local community and working with the city and you know we're hoping to have it at this project appear before the city and you know.
Later on this spring or in July , we'll see and if that's the case then you know it gives us the optionality to move hopefully if it's approved we would then be in a position maybe in the fall or.
The next year or two to move forward with it if conditions are right in that move forward.
You get into some condo pre sales that type of thing so our actual commitment on the project will be over a year out in terms of actual loss having to commit our balance sheet to that project. So, but it's I think importantly, west Bank is I think number one developer in in Vancouver, and doing it outstanding job working with the community.
To get the humidity, what it what it wants and what works for us too and so so we're cautiously optimistic and respectful that you know it's gotta go through the political process, which you know is.
Is a lengthy and and importantly has a lot of input. So we're respectful of that and looking forward to to making their case hopefully soon.
That's great. Thank you.
Okay. Thank you okay.
Your next question comes from.
What's the I B C. Please go ahead.
<unk> just have one I think quite question wondering if you could share the rationale for not pursuing the Ah Kang charged development at this time.
Yeah. Unfortunately, we can't <unk>.
It's it's a great site and we've said what we've said and that's all we can say at the moment for call. It competitive reasons. So I can so unfortunately can't go into more detail hopefully we'll have more color.
<unk> the commentary next quarter.
Okay I understood that was it for me thank goodness.
Thank you.
There are no further questions. Please proceed.
Thank you for your time today, and we look forward to updating you on our progress cop and <unk> in August . Thank you.
Alright, thanks, everybody.
Ladies and gentlemen, this concludes your conference call for today and we thank you for participating and ask that you. Please disconnect your lines have a great day.