Q2 2022 Choice Properties Real Estate Investment Trust Earnings Call
Speaker 2: Good morning and welcome to the Choice Properties Real Estate Investment Trust, second quarter, 2022 earnings. My name is Rob and I will be your conference operator today.
Speaker 2: Today's call is being recorded and all lines have been placed on mute. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. I would now like to hand the conference over to your speaker today, Erin Johnston, Vice President of Finance. Please go ahead.
Speaker 3: Thank you. Good morning and welcome to the Choice Properties Q2 2022 conference call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer, Mario Farafato, Chief Financial Officer and Anna Raddick, Executive Vice President, Leasing and Operations.
Speaker 3: Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make four-looking statements, including statements regarding choice properties, objectives, strategies to achieve those objectives, and a lot of statements with respect to management's beliefs, plans, estimates, intentions, outlook, as similar statements concerning anticipated future events, results, circumstances, performance.
Speaker 3: or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements.
Speaker 3: Additional information on the material risk that can impact our financial results and estimates and the assumptions that were made in applying and making new statements can be found in our recently filed Q2 2022 financial statements and management discussion and analysis, which are available on our website and on Cedar. And with that, I will turn the call over to Raal.
Speaker 4: Thank you, Aaron, and good morning, everyone. Welcome to our second quarter earnings call. To start the call, I'll provide a brief recap of our quality performance and cover the highlights about transaction and development activities.
Speaker 4: Anna will come up operational results followed by Mario who will conclude the call with the review of our financial results before we open the lines for Q&A.
Speaker 4: Before we dive into the activities of the quarter, I'd like to first highlight that along with our earnings release, we announced that the Science-Based Targets Initiatives, or SBTI, has validated CHOICE's greenhouse gas emissions targets, making CHOICE one of the first entities in Canada to have net-zero targets approved by the SBTI.
Speaker 4: As we've said before, finding climate change is fundamental to our purpose of creating enduring value for our stakeholders, and we are proud to deepen environmental commitment with these targets.
Speaker 4: Turning to our results.
Speaker 4: Last quarter, we announced that we are focusing on time and capital on the opportunities available in our core business areas of essential retail, industrial, and our growing residential platform. Our strong operating results in the quarter demonstrate this focus with improved occupancy in each of these core asset classes and same asset cash in our growth of 3.8%.
Speaker 4: A performance in the quarter was underpinned by several key themes, first the sprint of our retail portfolio, next the significant growth potential of our industrial portfolio, and finally a focus on managing risk in the current economic environment.
Speaker 4: Our retail portfolio is one of the best performing in the Canadian read industry. It is primarily leads to necessity-based tenants that provide stable and steady cash flow growth. And we also benefit from our strategic relationship and long-term leases with love long. This relationship provides us with both long-term stability and growth opportunities.
Speaker 4: An example of long-term stability includes the renewal of 2.9 million square feet of loved-law leases subsequent to the quarter for an average term of 7.7 years, which Anna will expand shortly.
Speaker 4: An example of growth on five active shoppers drug market developments representing a total investment of 22 million, an expensive initial yield of 6.75% with additional projects in planning.
Speaker 4: The size, quality and growth potential of a DASA portfolio contributed to our strong operating performance in the quarter.
Speaker 4: A 17.4 million square feet industrial portfolio includes large per-fifth-spilt distribution facilities for love law, as well as high quality generic industrial assets. They can accommodate a wide range of tenants.
Speaker 4: We have significantly embedded growth in our industrial portfolio with non-love law.
Speaker 4: tenants representing 2 thirds of NOI with leases being on average below 40 being on average 40% below market
Speaker 4: In addition to the growth in our existing assets, we believe that over time, we have the ability to significantly increase industrial portfolios through development.
Speaker 4: Our investment activity in the quarter significantly increased our future industrial development pipeline, which now has approximately 6.5 million square feet under development on various stages of the rezoning and planning process.
Speaker 4: First, we acquired an additional 97-acre parcel of land adjacent to the future industrial site in Caledon that we acquired in 2021. This acquisition increased our total future net development of industrial land in this multi-phase industrial park to approximately 380 acres of which we own 85% interest.
Speaker 4: The assembly has been completed and it attracts a pricing of 700,000 per acre. We're currently working through the resounding process with a ton of cowl then to permit a total of approximately 5.5 million square feet of industrial space.
Speaker 4: Next, we exercise the previous enough equity conversion rights from the RISC group to apply 75% ownership interest in 154 acres of developed mobile industrial land in East Quillenbury, in the GTA.
Speaker 4: The plan is to build a multi-phase industrial park with a potential for approximately 1.8 million square feet of new generation logistics space.
Speaker 4: For the first phase of the development we have entered into a 100 acre land lease with Love Law where Love Law intends to build a 1.2 million square feet.
Speaker 4: fully automated, multi-temperature industrial facility.
Speaker 4: We've spent an initial yield of between six and a half and seven percent on this land lease to log north with the rate commencing in the first quarter of 2024.
Speaker 4: And finally…
Speaker 4: We also have two other active industrial developments at the construction, totaling 500,000 square feet in Vancouver and Edmonton, which are expected to be completed in the second half of 2023. With this thing,
Speaker 4: with leasing expectability to be completed prior to construction completion.
Speaker 4: Turning to the current economic environment.
Speaker 4: Since the beginning of the year, concerns over inflation have resulted in a significant increase in interest rates. This increase has put downward pressure on the valuation of our investment properties and resulted in high incremental borrowing costs.
Speaker 4: Marble Discuss
Speaker 4: shortly, the steps we have taken during the quarter to ensure that in light of these changes, a balance sheet remains extremely strong.
Speaker 4: I'm not going to pass the caller to Anna to this press Operation Results Anna
Speaker 5: Thank you, Rael, and good morning, everyone. As Rael mentioned, our operational results for the quarter were strong, driven by our high-quality portfolio and the talent of our operational team. We continue to see strong new leasing velocity and tenant retention, driven by increasing consumer spending, retailer confidence in opening new locations, and continued demand from industrial users.
Speaker 5: Our period and occupancy was exceptionally strong at 97.6% an increase of 60 basis points compared to last quarter. During the quarter, we completed 517,000 square feet of new leasing commencing in the quarter. We had approximately 1.4 million square feet of leased expires and we renewed 1.3 million square feet, at leasing spreads 7.8% higher than expiring rents.
Speaker 5: Tenant retention in the quarter was exceptionally strong at 92.7%, resulting in positive absorption of 419,000 square feet.
Speaker 5: Turning to our ATHSA classes.
Speaker 5: are approximately 44 million square foot retail portfolio, which consists of open air centers with necessity-based tenants, once again delivered stable results.
Speaker 5: Canada has maintained strong retail sales through the first half of this year, with consumer spending exceeding 2019 levels.
Speaker 5: Our retail portfolio continued to strengthen, increasing 10 basis points to 97.5% occupied.
Speaker 5: We completed 512,000 square feet of renewals in the quarter with 10 retention of 87%.
Speaker 5: Long-term renewals were completed at RENCE, 5.3% above expiry.
Speaker 5: We also had 67,000 square feet of new retail deals commence in the quarter.
Speaker 5: In addition, subsequent to quarter-end, we finalized renewals with law blogs for 42 locations expiring in 2023.
Speaker 5: Loblot exercised a five-year renewal option on 42 retail leases, totaling 2.9 million square feet. The average rents increased from $16.16 to $16.98, which is an increase of 5% over the expiring rent. Loblot and choice agreed to an additional five-year extension on 23 of the 42 leases, totaling 1.7 million square feet.
Speaker 5: These rents increased from $16.52 to $17.80, which is an increase of 7.8% over the 2028 for expiring rent.
Speaker 5: Lease renewals in future years present greater opportunity for rental rate growth as compared to these earlier years, where in-place rents are closer to the current market rents.
Speaker 5: Turning to our industrial portfolio, demand for industrial continued to surge during the
Speaker 5: continue to search, driving the availability rate in Canada to a new record low of 1.6% in the second
Speaker 5: Half of Canadian markets have availability rates of 1% or less, with the Edmonton and Calvary experiencing the largest quarterly decrease in availability, 110 basis points and 80 basis points respectively.
Speaker 5: The asking net rental rate in Canada rose 17.4% year over year to $11.20 per square foot.
Speaker 5: Recording its strongest quarter on record with Toronto and Montreal seeing rental regress of 30% year over year.
Speaker 5: Occupancy in our industrial portfolio increased 200 basis points in the quarter, finishing at 99.2%.
Speaker 5: We completed 751,000 square feet of renewals in the quarter at rents 13.1% above expiry.
Speaker 5: and reflecting tenant retention of 97%.
Speaker 5: We also had 440,000 square feet of new leasing commence in the quarter.
Speaker 5: The increase in occupancy was primarily due to the completion of two new deals in Alberta and one in Ontario. As we mentioned on our prior quarter call, two of these spaces were vacated in Q1 of this year and we were able to capitalize on the strong industrial market fundamentals to quickly release these spaces at new rents significantly exceeding the expiring rents.
Speaker 5: 170,000 square feet in Calgary was released at rents 30% above the previous tenants expired in rent.
Speaker 5: While in the GTA, 113,000 square foot building was leased at rents 150% higher than that paid by the previous tenant.
Speaker 5: Both deals required limited landlord capital.
Speaker 5: Subsequent to the quarter, we also completed two new deals with Amazon. Amazon leased 603,000 square feet at 2700 Francis Hughes in La Valle for a 10-year term.
Speaker 5: Amazon's starting rent is 90% higher than the previous tenant's expiring rent, with 0.75% annual rent steps.
Speaker 5: Amazon also leased 290,000 square feet at 2625 Sheffield Road in Ottawa, a building we purchased from Law Blah last year with the plan to release it.
Speaker 5: The deal was done at a strong market rent, also with a 2.75% embedded annual rent step.
Speaker 5: Both deals commence in September of this year and rent will commence in November , once Amazon completes their fixturing.
Speaker 5: Demand for rental residential continues to increase.
Speaker 5: Our rental residential portfolio consists of three stabilized assets, which ended the quarter at approximately 97.4% least.
Speaker 5: are two newest assets, the Brixton and Liberty House, located in the West, Queen West, and Liberty Village neighborhoods respectively, are 72% occupied and 77% least.
Speaker 5: We expect the bricks in to reach stabilized occupancy by the third quarter of this year, and Liberty House by the second quarter of next year, if not sooner.
Speaker 5: Our operating results in the first half of 2022 were exceptionally strong, and we remain confident that our portfolio will continue to deliver solid operating results through the balance of 2022.
Speaker 5: I'll now pass the call over to Mario to discuss our financial performance.
Speaker 6: Thank you, Edna. Good morning, everyone.
Speaker 6: As Raylan and I mentioned, we are very pleased with our strong underlying operational performance so far in 2022.
Speaker 6: In addition, we continue to take steps to ensure we maintain our strong balance sheet despite pressure from inflation and rising interest rates, which I will speak to in a few minutes.
Speaker 6: Our report has funds from operations for the second quarter with 175.3 million or 24.2 cents per unit. The report has funds from the second quarter with 75.3 million or 24.2 cents per unit.
Speaker 6: On a gross dollar basis, our funds from operations for the quarter increased 3.4 million, or 1.7%, compared to the prior year.
Speaker 6: And this was primarily due to higher same-asset net operating income in both retail and industrial, higher interest income from our mezzanine loan program, and lower overall interest costs driven by low interest rates on our 2021 debt refinancings.
Speaker 6: In clear NIFO was approximately 1.3 million and non-recurring NLI, primarily from least or under revenue.
Speaker 6: On a per unit diluted basis, our Q2FL was 24.2 cents per unit, up 1.7 compared to the 23.8 in the second quarter of 2021.
Speaker 6: occupants increase in the quarter and contribute to our strong same-massive results.
Speaker 6: The same asset cash and a Y increased by 8.2 million or 3.8% compared to the second quarter of 2021. The same asset cash and a Y increased by 8.2 million
Speaker 6: By F the class, retail increased by 6.8 million or 4%. This increase was primarily driven by a combination of new leasing activity, higher renewal rents on expiring leases, law-block rent steps, and higher capital recoveries.
Speaker 6: The increase also included reduction in that debt expense of 1.4 million dollars.
Speaker 6: Industrial increased by 1.1 million or 3.3 percent.
Speaker 6: This increase was driven by higher occupancy and rents.
Speaker 6: mixed use for residential and other increased by 200,000 or 2.2% and this was driven by positive leasing in our residential assets, coupled with a decline of 250,000 in budget expense.
Speaker 6: And this game is partially offset by challenges, primarily in our remaining Alberta office portfolio.
Speaker 6: Pernitour Balansche, we continue to take a transparent conservative approach to valuations. We continue to take a transparent to take a transparent
Speaker 6: With a higher cost of capital putting pressure on real estate valuations, we have updated our valuations to incorporate this impact as well as other market factors.
Speaker 6: In the quarter, we reported a fair value loss on investment properties of 522 million.
Speaker 6: This represents a decline of 3.3%, driven primarily by our retail portfolio and partially offset by gains in our industrial portfolio and certain development projects.
Speaker 6: The net fair value loss on our retail portfolio reflects the impact of current market conditions.
Speaker 6: Gains from new leasing and appraisals were more than offset by the impact of cap rate expansion.
Speaker 6: from changing return expectations due to higher borrowing costs and also increased risk just due to overall market uncertainty.
Speaker 6: This resulted in an approximately 40 basis point increase to the implied retail overall cap rate, bringing it to 6.42%.
Speaker 6: The fair value gains in our industrial portfolio were driven by strong industrial fundamentals with least super-newing at significantly higher rates.
Speaker 6: Gains on our development assets primarily relate to our industrial development pipeline and demonstrate the future value creation potential of these projects.
Speaker 6: In addition to the net fair value loss in our investment properties, we reported a 159 million downward fair value adjustment on our investment in our life property units.
Speaker 6: Under IFRS, we are required to mark-to-market this investment to its trading price at June 30.
Speaker 6: Our business is supported by our industry leading balance sheet and disciplined approaches of financial management.
Speaker 6: With ongoing economic uncertainty and recently heightened stagnation and recession concerns, we continue to prioritize liquidity and a balanced debt maturity ladder to reduce risk and create financial flexibility.
Speaker 6: We closed the quarter with strong debt metrics and ample liquidity.
Speaker 6: Our deck to give it that was 7.4 times, up slightly from 7.3, reported in the second quarter of 2021. This was due to the acquisition of our industrial development lands that were referred to earlier. The deck to give it that was 7.4 times, that was 7.4 times,
Speaker 6: And from a liquidity perspective, they have approximately 1.4 billion available on our credit facility, and this is further supported by approximately 12 billion one-incumbre properties. Bona- ? Certain Pursuit Can ? What did you think did you think it did? This is the you
Speaker 6: We successfully completed the issuance of 500 million unsecured ventures for a 10-year term bearing interest at 6%. And the proceeds from this offering we used to redeem our $300 million, $3.6% series 10 senior unsecured ventures and repay a portion of the balance drawn on our side of the facility.
Speaker 6: The issue is part of our overall financing strategy, which in this period of volatility places more emphasis on maintaining a high level of liquidity and a balanced and matured ladder. The issue is part of our overall financing strategy, which in this period of volatility places more emphasis on a balanced and matured ladder. a lot.
Speaker 6: For the arrangement of the year, we have a very manageable $128 million of remaining debt obligations coming due.
Speaker 6: We are fortunate to have access to several sources of capital, including unscrupulous ventures, commercial mortgages, C-MAC financing and property dispositions to deal with this refinancing.
Speaker 6: So overall we continue to believe the resilience of our earnings in conjunction with our strong balance sheet and our commitment to prove the financial management will allow us to navigate through market volatility and uncertainty. We are going to start.
Speaker 6: And with that, Rael, Anna, Erin, and I would be glad to answer your questions.
Speaker 7: Dr. H the
Speaker 2: At this time I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad. Your first question comes from a line of Sam Damiani from TD Securities. Your line is open.
Speaker 8: Thank you, good morning everyone. First of all, maybe just on the law, law lease renewals, just want to clarify some of the numbers. You said that the rent increase on the first five year term was 5% and the new rent was 1698. I didn't quite catch the per renters. I didn't quite catch the per renters.
Speaker 5: The prior rent was 16, 16. Oh, sorry. We are going to work the same 1989 in Seoul Nation,
Speaker 5: $16.16 going to $16.98.
Speaker 8: Okay, okay, and then on 23 leases, there's another five years added, with the 7.8% increase on the 2028.
Speaker 8: And so annualized, that's slightly above, I guess, 1% on average, maybe 1 or 1.25, whatever the math might be. How does that compare to what these leases deliver in terms of rent increases on average over the last five years?
Speaker 5: On average, they delivered
Speaker 5: about one and a half percent.
Speaker 5: Annual lives when you average annual live.
Speaker 8: Sir, that eh damn discount call?
Speaker 9: The old terminal is on screen.
Speaker 4: The portfolio was set up that there were various steps and on average the portfolio as a whole delivers 1.5%.
Speaker 4: These renewals, as you pointed out, were, you know...
Speaker 10: would get out.
Speaker 5: So yeah, they were about 1.25% when you average it over the term, that the 7.7 average term. And again, as I sort of said, it just depends which leases are rolling at a given time and what the spread is between that end place rent and the market rent of the tranche of leases. And the market rent of the tranche of leases.
Speaker 8: Okay, and I missed your comments earlier, but you said that the fees rents were a little closer market versus the average law at least, is that what you were saying?
Speaker 11: Yes.
Speaker 11: Okay.
Speaker 8: And so for future extensions with Lablea, you would expect that on average.
Speaker 8: the increase.
Speaker 8: would be a little bit higher all else the same.
Speaker 11: Yes, I do.
Speaker 8: Okay, and just on the on the I created was there any inducement paid to Lobla to to achieve your own ? on the expressions.
Speaker 7: So, nothing.
Speaker 8: And on the two leases not renewed, is there any color you can share in terms of locations, properties or alternative plans for them?
Speaker 5: Yeah, both are in Quebec. Some vacant stores that have great redevelopment potential. One's on the island on the northwest and the other one's just across in Laval across the A19 bridge.
Speaker 8: Are there any plans sort of underway at the moment?
Speaker 4: We're actually working with Love Law because they've been thinking about reopening the stores or maybe in a different format. So we've actually been working with them and we hope to share plans shortly. We do expect to have a food store component and then either residential or salvage density.
Speaker 8: Great, great. And just switching over to the industrial development, it looks like the yields were pretty much intact from what was announced last quarter. Of course, the addition of the Laudlo ground lease at 6.5.7, it was great to see.
Speaker 8: Have you recast your pro formas with updated costs and rents and everything and just wondering how you think about yields on development of industrial going forward?
Speaker 4: So, the proformers had good contingencies in them. So, we've obviously recast the costs and we're still within the original numbers disclosed. The rents, Sam, we do believe are probably conservative, just given what's going on in the market, but we haven't leased them, so we haven't updated our proformer accordingly. How we think about it, like,
Speaker 4: We have a phenomenal industrial development land bank and very low land cost, and we can be extremely competitive. And the bulk about development is in the GTA. And rents keep pushing up. Recently we heard of about a million feet. There was done at a rent starting at about $90 in new development. So we very, very bullish on our land holdings. And as soon as we get news to share, we will share with you.
Speaker 8: Okay, great. And last question from me just on the lease surrender fees of around $1.9 million, was there any particular property or tenant that drove the bulk of that?
Speaker 5: It was two locations.
Speaker 5: with national sports where they were head closed the locations and we backfilled actually one space completely in 70% of the other one and negotiate a lease surrender with C-T, with Canadian tires for the locations.
Speaker 8: Fantastic. All right, that's it for me. Thank you very much.
Speaker 12: Thank you very much. Thanks, Sam. Thanks, Sam.
Speaker 2: Your next question comes from the line of Jenny Ma from BMO Capital Markets. Your line is open.
Speaker 5: Thank you, good morning. Just going back to the Loblaw lease renewal, I want to clarify the numbers that you gave, the 1616 to 1698. That is the 1698 is the average of the renewals over the expiring rent, is that correct?
Speaker 5: Yeah, it's a flat window, so it goes from 1616 average over the 2.9 million square feet.
Speaker 5: Okay so 1698, so 1698 the day one on the new lease or is that going to step up over time over the five years? That's the day one and we get that 5%. Yeah okay but then there's no more rent steps for the duration of the five years?
Speaker 5: Okay, so 1698, the day one on the new lease or is that going to step up over time over the five years? That's the day one. And so we get that five percent. Yeah. Okay, but then there's no more rent steps for the duration of the five years? Correct.
Speaker 5: Okay, I'm just wondering considering the inflation that we're seeing and maybe the law law leases have different terms, but are you starting to see any inflationary pressure on the annual rent funds you might be seeing whether it be from third parties or from law laws specifically?
Speaker 4: Jenny, just maybe we'll step back. And the way that leases with Lovelot work is they are negotiated at market, but there's a ceiling and a floor. In this inflationary environment, it's obviously very fluid, and we do expect it to have a positive impact on future leasing given we do expect obviously replacement costs is increasing significantly.
Speaker 4: and therefore there's a dynamic grants of the locations are increasing and therefore rent should increase. The
Speaker 13: Okay, but it wasn't a factor for this negotiation. It was just a matter of timing.
This reaction started speaking to Love Law a couple of months ago on this. It was actually just papered up prior at the end of the quarter. It was in a real factor in this negotiation.
Okay. When I look at the 2023 lease rolls, it looks like the law block component is 3.8 million square feet. So I'm just wondering if you provide some color on the 7000 remaining that wasn't part of the IPO portfolio. Is that something that you and law law will be addressing later in the year, or throughout 2023?
Actually that's the Francis Hughes Industrial Building that I spoke of that has been leased to Amazon.
you
Okay, so we're really easy to do.
Okay, perfect. I wanted to move forward to the IFRS valuation. Mario, I know you spoke about some of the factors driving the changes in the retail portfolio and it looks like it was the discount rate that was moved, but quarter over quarter, the overall capitalization rate didn't actually move. I wonder if you could speak to, from the appraisal side or the internal valuation side, what would it take to make the difference in terms of the
for that number to be moving versus the discount rate.
Hey, good morning Jenny. Actually, Jenny, that was a typo. So we actually just amended our MDNA and reposted it on our CDAR and our website. Actually, the overall Calc rate for retail went up by 38 basis points. So that's just a function of the MDNA.
the discount rate and the terminal cap rate. So it did have some movement. And I think that translated into a load of 25 base point increase in overall cap rate for the portfolio.
Oh, okay. Gotcha. That makes a lot more sense then.
A lot more sense then.
Okay, perfect. That's all for me. Thank you.
Your next question comes from a line of Tal Wolley from National Bank Financial. Your line is open.
Hi, good morning everybody.
Morning.
I just want to stick on the fair value question. Can you...
Talk a bit about what are sort of the toughest parts for you guys to estimate right now when you're trying to establish fair values? And why did you feel it was necessary to add the cautionary language about the second half of the year? What about the second half of the year? What about the second half of the year?
I can tell you maybe our thought process, Ralph can share what the toughest part is because he not only has the value, but he also has the supply capital. In our part, we do what we do every quarter and in this quarter we saw that almost every buyer has a higher cost of capital, which means...
that the returns on portfolios will be less. So they have to factor in what their return expectations are. We also thought there's a riskier environment right now so people will expect a higher return. The appraisals weren't very helpful. They were all back, we're looking. They were very few transactions, but we did get broker-centiven and it was consistent across the board that it would take every asset would be a 50-100 basis point potential impact. So.
So nothing tangible, but we saw the sentiment and we talked to a few others in the industry who shared that sentiment. So we just did a general blanket cap rate expansion. And so, but there's no the number.
It can be challenged, but the directionally and sentiment is what's reflected in our financials.
Yeah, I think, Tal, just on the second half of the year, no one knows. We'll have to wait and see. It's more of a cautionary outlook. But I think the toughest part was all indicators in the market are pointing that valuations are trending down. But as Mary said, there have been no trades. So we debated, is now the right time, or do you hang your hats on the fact that there'd be no trades? And we just felt that it was prudent.
to start reflecting that we are seeing a slowdown in volume of transactions. We're seeing a bigger bid-ask spreads between buyers and sellers. And we just felt it was prudent to do it now, first hang your hats on waiting because there are no trades.
Got it. I'm. I'm.
You know, you guys did the $500 million to venture offering. I'm assuming part of the rationale for choosing to take that money at that time was to maybe keep your credit lines. The $500 million was to maybe keep your credit lines.
fully available. If the market does, we can hear, do you guys have a shopping list of things that yours?
You're the type of asses you're looking for and can you talk a little bit about that?
Look, the first thing is we always want to make sure that our entity is exceptionally strong and we have a fortress balance sheet. And if things do dislocate, we are in a position of strength and we would look to buy all of our core asset classes of retail, industrial, and residential.
Okay. And then I guess this lastly, given the state, given that you have, as you put it, a fortress balance sheet. Um, um, um, um, um, um, um, um, um, um, um, um, um, um, um,
And you have an active and arguably quite enticing industrial development program ahead of you, and that is a, that's a, industrial development's much faster than a lot of other types, like residential and things like that. Would you consider maybe stepping up the speed or pace at which you choose to pursue a development of the industrial portfolio?
Yeah, we're always looking to say, how can we do it as quick as possible on a risk-adjusted basis? So we will do buildings on spec, but we'll never do too many on spec that puts pressure on the entity. But we have a phenomenal land cost basis and are very, very optimistic about the prospects in that asset class.
Is it fair to say that like with the supply chain challenges there are right now it's easier to do industrial development than other types or is it still kind of still a bit challenging across all asset classes.
Just given the complexity of the building, it is easier from that point of view.
but.
Thank you. I'm Adam and Tau, if you're looking for more.
Okay, and then just lastly in your retail portfolio, do you have an estimate of how many of the sites are anchored by discount banners versus market banners?
I don't have that information, sorry. Okay. Off-hand, I don't know. Okay.
Okay, we can get it for you. Okay, perfect. Thank you.
And again, if you would like to ask a question, press star the number one on your telephone keypad. Your next question comes from a line of Pammy Burr from RBC Capital Markets. Your line is open.
Thanks, good morning. Just coming back to the fair value mark down in retail, it sounds like again, it was more of a blanket reduction, but for any regions, maybe more impact than others, prior versus secondary markets, or you may be open air centers versus the free standing cross-restors.
Nothing that can harm me, you know, really just based on broker sentiment.
Maybe they made a comment that maybe larger assets might be less liquid. So, a slight difference there, but otherwise no, it's more of a blanket view that more higher cost of capital, greater return expectations, really small back row.
Okay, and I did want to clarify one of your earlier questions on the renewals with blah, blah. Again, it was a 5% bump in year one to 1698. But to clarify, there are no steps over the, like, over the, the, I guess the next 5 years.
No, well the second, the second tranche has another step, but...
another staff, but so there's...
23 of the 42 were extended for 10 years, so there's a subsequent bump on those leases that are 728% higher.
Did I answer your question?
Yes, no, that helps you. And then just lastly, if I look back to some of the commentary from last quarter in terms of the organic growth outlook, I think you've kind of guided something in that, one and a half, a 2% range for this year, but given I guess the strength that you've had so far through the first half, plus I think you maybe talked about some downtime from a vacancy standpoint in industrial, which it looks like it's been addressed. So you put all that together, you know, as you're a little sort of balance of these groups.
changed or the overall change for say property in a wide kind of something north of 2% on the back of the same thing missing.
Yeah, hey, Bobby, right? No, you're right. We've got the two big things. Yeah, a lot of that industrial downtime has been materialized. We may have a little bit in Q3, but that was big. And then when you look at the rents we're getting on the industrial all over, that's been higher than we expected. And the retail has really been resilient. And, you know, brands are strong. And so I think that's the byproduct of maybe this inflationary environment coming off.
Are you maybe seeing any early signs of changes in any tenant behavior at all? Whether it's on renewals, new leasing, expansions, and I guess more so on the retail side more than anything. Industrial clearly continues to hold up quite well but here's if there's any cracks that you know might be coming to light.
No, Pomi, we're really not seeing that.
We're seeing really high tenant retention and we have very high quality tenants and
and great locations and so we're not seeing, you know, a line of...
You know, a lot of, you know, headwinds right now.
Thanks very much. I'll turn it back.
And there are no further questions at this time. Rail Diamond, I turn the call back over to you for some closing remarks.
Thanks Rob. To summarize, we have very pleased with our second quarter operating performance.
And in the face of broader market volatility, we are really uniquely positioned to remain in a position of strength. Our Savers because we have an exceptionally high quality income producing portfolio that is long term leases with stable and growing cash flow, with one of the best development partners in Canada that provides us with long term growth potential. And finally, our strong balance sheet with over $1.4 billion of liquidity provides us with flexibility.
Thank you for your interest, your investment and choice, and for joining us this morning. Have a good weekend.
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Please enter your conference ID and press the Pound key. Please enter your conference ID and press the Pound key. Rachel Smith, Company Ayara.