Q4 2022 RioCan Real Estate Investment Trust Earnings Call
Good day, ladies and gentlemen, and welcome to the Rio can real estate investment Trust fourth quarter 2022 conference call.
At this time all participants are in a listen only mode.
After management's presentation, there will be a question and answer session and instructions will follow at that time.
I would now like to hand, the conference call over to Jennifer <unk> Senior Vice President General Counsel, ESG and corporate Secretary you may begin.
Thank you and good morning, everyone I'm, Jennifer Smith Senior Vice President General Counsel corporate Secretary of railcar before we begin I would like to draw your attention to the presentation materials that we will refer to in today's call, which were posted together with the MD&A and financials on real hands website yesterday evening before turning the call over I'm required to read the following.
Cautionary statement in talking about our financial and operating performance and then responding to your questions. We may make forward looking statements, including statements concerning real plans objectives and strategies to achieve those objectives as well as statements with respect to management's beliefs plans estimates intentions and similar statements concerning anticipated future events.
All circumstances performance or expectations that are not historical fact these statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward looking statements in discussing our financial and operating performance and then responding to your questions. We will also be referencing certain financial measure.
That are not generally accepted accounting principle measures GAAP under ifr at these measures do not have any standardized definition prescribed by <unk> and are therefore unlikely to be comparable to similar measures presented by other party issuers non-GAAP measures should not be considered as alternatives to net earnings are comparable metrics determined in accordance with IRS as indicators of real time performance.
What any cash flows and profitability Rio has management uses these measures to aid in assessing the underlying core performance and provides these additional measures. So that investors may be the same additional information on the material risks that could impact our actual results and the estimates and assumptions. We are applied in making these forward looking statements together with detailed on our use of non-GAAP financial measures.
Can be found in the financial statements for the period ended December 31, 2022, and management's discussion and analysis related thereto as applicable together with Rio <unk>. Most recent annual information form that are all available on our website and at Www Dot speed, our dot Com I will now turn the call over to our president and CEO , Jonathan Dylan. Thanks, So much Jennifer and <unk>.
Thanks to everyone that taking the time to join US today, It's you've got Rio can't senior management team around the table and much like the rest of 2020 to the fourth quarter demonstrated our portfolios quality, our tenants resilience and our team's extraordinary depth and capability.
Every measure Rio cans, well positioned assets strong stable tenant mix and delivery of developments drove strong results in 2022.
These results reflect our focus on the pillars that support our five year plan Brazilian retail customer centrism intelligent diversification and responsible growth.
And when I think about 2022, the word that comes to mind is significant it was a year marked by significant challenges and disruption, including pandemic related restrictions start and extreme inflation and interest and the interest rate increases as the year progressed.
At the same time it was a year of significant advancements for Rio Kim.
At our February Investor Day last year, we introduced our strategic road map with five year financial growth targets.
We set ambitious goals and I'm pleased to share that despite ongoing economic turbulence. Our 2022 performance has us on the right track to achieve our targets.
Our major market necessity based portfolio generated strong operating results.
The results reflect years of prudent dispositions of lower growth assets, and the strengthening and diversification of our portfolio and income.
These moves have set us up for the delivery of sustainable growth as we progress into the next four years of our strategic plan.
Our development program also had an unprecedented year of fueling growth.
More about this in a minute, but our program achieved a watershed moment with the value of projects. We completed in 2022 outpacing what we spend.
Let's first dive into our operating results which were.
And any conditions, but even more so in the face of 2020 twos market dynamics.
Our commitment to resilient retail and customer Centrism is yielding results.
Brio, Kansas assets are located in Canada's major markets in densely populated areas with high average household incomes of $135000 and an average population of 250000 people within a five kilometer radius.
The portfolio has never been more defensive but approximately 86, 5% of our net rent generated from strong and stable tenants.
Same property NOI for the year grew by four 3% we achieved the higher end of our guidance range with <unk> per unit or $1 71, an increase of 7%.
When we strip out one time or sorry, when we strip out restructuring expenses <unk> per unit was $1 73.
New and renewed leases totaled 5 million square feet. We ended the year with retail committed occupancy of 97, 9% and renew and our renewal retention ratio of 91, 5%.
Tenant retention reached a new high of 93, 5% in the fourth quarter.
The blended leasing spreads for the year was 9% new leasing spreads of 12, 3% bolstered this result.
Rent per square foot for new leasing in the fourth quarter was $24 <unk> 10 above the average net rent for the portfolio of just below $21.
The combination of high retention leasing spreads and rising average net rent allows us to take tenant failures, such as was recently announced by bed Bath and beyond and strive and get them.
Pause for a moment here to address some questions you'll likely have about the impact of bed bath beyond and its recent <unk> filing.
First I will tell you that this outcome was very well forecast and we took proactive steps to mitigate and address it.
I'll also tell you that it was factored in when we developed our 2023 guidance.
Rio Kenneth 13 bed Bath locations most of our unconventional mid sized boxes that are in high demand.
Over the past several months Rio Canada has been in discussions with numerous tenants that have expressed interest in this space all of whom serve a strong traffic drivers.
Once there is clarity on the <unk> process, we expect to fill the vacated space as quickly and in most cases at higher rents.
In the interim we have to mitigate against the immediate impact first will receive occupation rent through the liquidation process, which is expected to pay eight to 12 weeks.
We'll work towards finalizing new leases during this time and in doing so minimize downtime.
And second in addition to the mechanisms under the Canadian <unk> process. We also have an indemnity from the U S parent, we will pursue all remedies available to us with vigor.
Now moving back to the bigger picture our results demonstrate the tenants value. This space and service Rio can provides they'll continue to cover our space, particularly in the supply constrained environment. This allows us to be confident in our ability to find compelling replacement tenants that enhance the retail mix at our shopping centers as we.
<unk> always done.
It also augurs well for Rio can long term sustainable growth.
We continue to see the transactional value of our portfolio.
The hallmark of Brio, Kansas disposition program back in 2021 was raising efficient capital by Opportunistically capitalizing on the clear disconnect between public and private market valuations now in 2022, we shifted to strategically disposing assets to enhance the quality of the portfolio.
Rio can raised close to $460 million in equity through asset sales in the year. The 2022 dispositions included secondary market assets and two and closed centers the sale of which improved our overall portfolio quality and generated capital that can be recycled into more productive use.
Yes.
2022 also saw significant advancements for Rio can living in residential rental portfolio with the delivery of our latitude in strata buildings in the first quarter. The completion of luma in rhythm in Ottawa in the last half of the year and the acquisition of market Labelle back in February .
Rio can live and currently has approximately 2200 completed purpose built residential rental units the <unk>.
<unk> spread across 10 buildings in Toronto, Montreal, Ottawa in Calgary.
Supply is constrained in these markets and there is an increase in demand due to the return to in person studies increased immigration low unemployment and cooling home sales.
Leasing velocity continues to be excellent tenants are drawn to well located amenity rich rental accommodations with easy access to transit.
The eight Rio can living buildings that have reached stabilization of our 95, 7% leased and lease up is progressing very well as luma and rhythm.
At the end of 2022, Rio can living also had 2575 condominium and townhouse units under construction.
Of the fixed active condo construction projects, 85% of the units have been pre sold representing 95% of pro forma revenues.
All pre sales have sizable deposits associated with them.
Between 2023 and 2026. These projects are expected to generate combined sales revenue of over $860 million.
Proceeds from selling condos and town homes combined with capital repatriated from asset dispositions gives us the flexibility to self fund higher valued mixed use development projects strengthen our balance sheet and opportunistically repurchase ryokan units at attractive levels with any excess proceeds.
<unk> intelligent diversification continues to progress as the development team executes numerous mixed use projects in major markets across Canada.
In the year, we completed 651000 square feet of high quality developments, and two condo and townhouse projects with a combined value of over $688 million outpacing, our spending which was approximately $427 million.
We expect to deliver a similar amount of square footage and value in 2023.
Now in our press release, we highlighted five projects that we're focused on as part of our next wave of development absolutely called the focus five.
These five projects are all large scale transit oriented mixed use developments in the GTA. Each has scale that provides options to create value through development partnerships and <unk> sales, which will drive growth for years to come.
We also have a zone development pipeline of 15 million square feet and have submitted applications for an additional 8 million square feet of mixed use development all in the GTA.
We create value by advancing project is a zoning process and take a disciplined approach to determine further investment once the shovel ready.
We also made significant advancements in our commitment to responsible growth our balance sheet remains strong. We ended the year with one 5 billion in liquidity and an $8 3 billion unencumbered asset pool.
We tactically leverage this unencumbered pool and refinance with secured mortgages for the most cost effective capital, we unveiled a new ESG strategy and a plan to introduce science based targets for our operations.
Other accomplishments in 2022 include ranking first among our Canadian peers in the 2020 to grasp real estate assessment, maintaining our first place ranking among Canadian peers in the <unk> public disclosure assessment with an a rating for a fourth consecutive year and increasing the number of properties achieving BOMA best.
Certifications such that over 65% of the gross leasable area of Rio cans portfolio across Canada is now <unk> certified.
We were also recognized as one of greater Toronto top employers and achieved outstanding engagement results of 90% and our annual employee engagement survey something we're all very proud of.
We continue to lead the way in integrating responsible growth in ESG best practices in everything we do.
These efforts lead to immediate results and also serve to bolster sustainable success.
Now as I said, when I started Rio <unk> 2022 performance was significant and demonstrated our strength, which allows us to look beyond short term turbulence and focus on successful outcomes for the long term.
We entered 2023 with science pointing to an economic slowdown. However, we entered the year from a position of strength well positioned to overcome the current volatility while staying in the course of driving future growth and value creation, we're poised to succeed in any environment and to benefit from the favorable supply demand dynamics.
Within the Canadian retail real estate sector at the same time, our established development platform continues to fuel future growth.
<unk> heightened uncertainty with the strength of our foundation and continued demand for our prime locations. We expect our <unk> unit to range between $1 77, and $1 80 for 2023.
This is in line with our five year target combined.
A compounded annual growth of 5% to 7%.
We anticipate same property NOI growth of 3% and an <unk> payout ratio of between 55% to 65% development spending for 2023 is expected to be between $400 million to $450 million.
<unk> reinforce confidence in our competitive advantage I am pleased to announce another distribution increase.
<unk> Board of Trustees has approved a 6% increase towards monthly distributions to unit holders from eight five to nine per unit beginning with the distribution declared in February 2023, and payable in March of 2023, bringing REO gains annualized distribution to $1 eight per unit.
This increase is aligned with the goal of delivering consistent sustainable growth for our unit holders, which we communicated in our Investor day last year.
We face the future confident that we've strategically and responsibly manage every aspect of our business over which we have control of.
Our efforts over the years set Rio cannot for success and our focus remains on the long term.
We're confident in our growth trajectory and the ongoing demand for our scarce and high quality real estate.
Objectives in our five year plan, we're established with purpose and conviction that in concert with Rio <unk>. Many different differentiating attributes are achievable in almost any environment with that I'm going to turn the call over to Dennis to take you through our balance sheet and provide insight into how it continues to support our quality and growth.
Yes.
Thank you Jonathan and good morning to everyone on the call two.
2022 was a year of excellent performance for re okay. We drove strong results through consistent and focused execution of our strategy that we laid out at our Investor day last year.
This was made possible by an exceptional team that strives to maximize the value of our high quality portfolio that is located in Canada as most attractive market.
And my comments today I'll provide additional detail on our 2022 results, our 2023 guidance and highlight our balance sheet strength.
Our 2022 <unk> per unit of $1, 71% with an increase of 11 or 7% over the prior year.
This increase was driven by our core growth drivers, which are same property NOI growth and development deliveries.
Property NOI growth of 4% added eight per unit.
Development deliveries, including growth in our residential portfolio at <unk>.
Higher interest rates, partially offset these increases however.
However, this impact was muted by our early refinancing and hedging activities. As these measures resulted in an effective interest rate interest rate on a refinancing of our 2022 maturities of three 3% significantly below market.
We also benefited from higher interest income on our floating rate loan receivables as.
As a result, the net reduction caused by higher interest rates is only one per unit.
Results were also impacted by reduced <unk> associated with assets that were sold.
But there is an offset here as well.
The accretive impact of unit buybacks acquired using excess proceeds from our distribution program.
The net <unk> <unk> reduction related to assets sold was offset by the unit repurchases, whether once that per unit impact.
Finally, our 2022 <unk> included $4 3 million of restructuring cost that we do not expect to recur.
Our Q4 2022, <unk> was driven by the same factors as our full year results. We reported a decrease of <unk> <unk> as compared to Q4 2021 due to the timing of inventory gains as Q4 2021 included significant inventory gains.
Excluding the impact of this variance <unk> per unit for Q4, 2022 was <unk> <unk> higher than Q4 2021.
Looking ahead to 2023, we provided <unk> guidance in a range of $1 77 to $1 80 per unit.
And our five year model from Investor day, the target of 5% to 7% <unk>.
Growth CAGR assumed a normal business environment and each year.
The reality is that there will be ups and downs across the years, we achieved the high end of the guidance range in 2022 and lower in 2023.
The average across these two years remains on track, we reiterate our five year expectations as strong NOI growth is expected to mitigate the impact of interest rate volatility.
Similar to 2022, our core growth drivers will fuel our 2023 <unk> increase our 2023 plan targets, 3% same property NOI growth from commercial properties as strong leasing in 2022 will drive income in 2023.
We also expect double digit rental growth from a stabilized residential properties.
We anticipate significant contributions from our 2022, and 2023 development deliveries, which totaled $1 $2 billion in value transfer to income producing properties.
Stabilized NOI associated with these deliveries is expected to be approximately $52 million, which.
Which will ramp up over the course of 2022.
2023, and 'twenty 'twenty four.
We also expect our G&A to be slightly lower in 2023% in 2022 as wage cost pressures were neutralized by the 2022 restructuring that I mentioned earlier.
Two factors are expected to partially offset these positive first interest rate expense will have an impact in 2023.
This impact will be partially muted by the aforementioned 2020 refinancing and higher interest income.
We have approximately $1 billion due in 2023 space throughout the year, which is currently at an average contractual interest rate of 375%.
Our 2024 or 2023 plan, we have assumed that these are refinanced at a blended interest rate of 5%.
This is based on an assumed weighted average across secured mortgages CMA sea mortgages bank loans and unsecured debentures.
We have already taken steps to Derisk this assumption in.
In January we refinanced $200 million bank term loan with a three year loan that was swapped to fixed at four 9%.
We also entered into a seven year hedge related to our planned $200 million April refinancing locking in the underlying GSE component at 287%.
We are not interest rate speculators, rather we saw the opportunity to lock in rates that are below the budget assumptions that support the guidance provided today, taking some risk appetite.
The second offset to our <unk> growth is that we disposed of $460 million worth of assets in 2020 at a weighted average cap rate of seven 7%.
These asset sales, while at a higher yield serve to improve our portfolio quality or.
For example through our distribution program, we have reduced our enclosed mall exposure to only 4% of nap.
In isolation 2022 dispositions will reduce 2023 <unk>.
But this will be partially offset as we redeploy disposition proceeds to high return initiatives $204 million of the distribution proceeds were allocated to buyback units on an accretive basis.
$90 million.
Allocated towards acquisitions with about allocated towards development.
Because there's a time lag between the investment in development and resulting income we anticipate a small drag on short term <unk>.
We believe that this is a small price to pay for divesting of lower quality lower growth assets to invest in exceptionally high quality developments that will drive long term growth.
Finally, I want to emphasize that the guidance range of upgrades range provided accounted for the risk of a moderate recessionary environment in 2023, including the risk of tenant failures, such as bed Bath <unk> beyond with Jonathan addressed earlier.
With the 6% distribution increase we announced today, we expect to be around the midpoint of our <unk> payout ratio target of $55 to 65% as we illustrated at our Investor day last year with our target payout ratio level <unk> operating income covers what we refer to as our core priorities, namely.
Our distribution maintenance Capex revenue enhancing capex and the majority of the equity required for our development program with the balance being covered by residential.
Inventory proceeds.
Now one year in executing that plan, we can demonstrate how we apply this approach I would encourage you to review page 28 of our Investor presentation, which shows the funding of our core priorities for our plan as well as the allocation of distributions proceeds.
With our payout ratio is set at a level at which we can fund both our distribution and growth initiatives, we expect to sustainably increase our distribution for years to come.
Turning to our balance sheet and starting with the equity component. Our net book value per unit was $25 73 at the end of 2022 19 cents per unit higher than the prior year.
In 2022.
We recorded fair value losses on investment properties of $241 million, which reduced our net book value.
This loss was more than offset by three primary factors first as a result of our conservative payout ratio, we retain operating income after distributions, which allows us to compound value on our balance sheet.
Second there is a positive impact on net book value per unit, resulting from our unit repurchases.
Third we recorded within equity $86 million of gains related to the hedges I discussed earlier.
Turning to the fair value changes, we note that within the $240 million fair value loss, we had $409 million write down related to higher cap rate assumptions. This is partially offset by $160 million of gains due to higher income reflective of our strong leasing activity and improved portfolio.
Our weighted average cap rate at the end of 2022 was 533% compared to $5 two 9% at the end of 2021.
It's worth while.
Unpack this 4% sorry, four basis point increase.
During 2022, we adjusted our cap rate assumptions driving our cap rate up by 17 basis points. However, this was offset by an 11 basis point decrease due to the sale of higher than average cap rate assets.
And a two basis point decrease from the investment and lower than average cap rate developments and acquisitions.
For example, our weighted average cap rate as at Q3 2018, when interest rates were much closer to today's levels was 551% 18 basis points higher than today. However, this difference includes a 34 basis point impact from the combination of dispositions of lower quality assets and investments in <unk>.
Higher quality developments said another way on a same property basis, our weighted average cap rate today is 16 basis points higher than it was back in 2018 the improvement in portfolio quality has led to the decrease in the headlight cap rate.
Clearly when it comes to the value of real estate assets, the interest rate and cap rate environment is only part of part of the start the continuous improvement in our portfolio quality and income growth over the last number of years has been a significant driver of value.
Over the long term, we expect our cash flows will continue to drive growth in our equity value given our strong positioning of our high quality portfolio that will benefit from supply and demand tailwind.
We also expect to unlock value overtime for our future development pipeline, which is currently valued on our balance sheet at $14 per square foot.
Finally, we continue to operate from a position of financial strength. We ended the year with $1 5 billion of available liquidity.
Combined with our well lettered debt maturity profile and large unencumbered asset pool and ensures that we are able to manage financial risk and also take advantage of opportunities.
Our net debt to EBITDA finished the year at nine five times as we signaled last quarter. This is up slightly from Q3 2022 as high inventory gains in Q4 2021 rolled out of our four four quarter trailing EBITDA measure.
We expect to continue to trend towards our target of nine times as EBITDA from developments continues to ramp up in our income producing properties continue to generate growth.
With that I will turn the call over to the operator for questions.
Yeah.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the one key on your Touchtone telephone, we ask that all callers limit their questions to two each.
Your question has been answered or you wish to remove yourself from the queue. Please dial star two.
We'll pause one moment for questions to queue.
Yes.
The first question is from the line of Mario <unk> with Scotia Bank you May proceed.
Hey, good morning, everyone.
First question is more of a broader.
Our first question is more of a broader question.
If you had to pick kind of real tense to top strategic priorities for 2023 that if you were to accomplish those.
Consider 2003, a successful year and your eyes, what would those two priorities.
Yes.
Well, if I'm looking at like sort of broader strategies I think.
Obviously, the continuous delivery of our development.
Finish is key and that includes finishing the well on time.
Because those really do we saw this year really do contribute a significant amount of growth <unk> growth and NAV growth all of the key elements and also of course once you stopped paying for them.
You don't have anymore.
Variable debt through the construction loans, so I would say that the continuous achievement and conclusion of those projects is critical for Rio again, and then of course I can go I can expand further on developments to say that we would like to also start the projects that are in our pipeline and continue moving the ones along that are that are in there but to me it's really about.
The completions and doing them on time.
And then I would say the second is look we're always focused on <unk> growth and really churning out a significant or the as much productivity out of our existing portfolio as we can and if I look back to our pillars of customer Centrism and re imaging retail I think we've done a very good job of it.
Allocating the appropriate amount of capital to improving our offering both on the service level and at the property level to make our properties.
Worth the increased rent that.
We are seeking from our various tenants. So I would say that that is a continuous and very important priority for us I would be remiss, though in saying that we're not focused on our balance sheet and our debt reduction in net debt to EBITDA for US is critical and we will continue to put a lot of emphasis behind achieving that nine times debt net debt to EBITDA.
Nine times or below I know I gave you three there Mario but I couldn't help myself.
No fair enough.
That works.
Thank you and then my second question.
Coming back to the guidance in bed Bath and beyond specifically, thank you for the incremental color you provided at the onset.
Can you just maybe give us a bit more sense. So again within the guidance, how you're treating those 13 locations in terms of the.
I know you mentioned you expect to release it at a higher rent, but just in terms of timing.
On the re lease and how many stores you think you may after meetings and so on so.
Sure I'm going to turn that question over to John Valentine, Our Chief operating officer, who can give you. Some good color on it and I should also say I said 13, but it's tactically 14, because we have a combined combined bed bath and buy buy baby a colossus. So I guess it could go either way, but John why don't I turn it over to you.
Okay.
Yes, so we've got <unk>.
Technically 13 locations they RCC double a right now we don't fully understand what that means we assume it's going to be a full liquidation and we will get all of those stores back but that process is going.
Actually just recently.
Applied to extend the state on May one.
So we will continue to receive occupation rents over that time, we've got our full February rents right now and we'll continue to get those until they if they disclaim the leases they could very well be going through a process right now of trying to either sell stores or sell the entire portfolio of stores, we won't know that right away, but ultimately if they.
We are doing that they are going to have to kind of the landlords. So in the meantime, we are working diligently to find backfill tenants.
Never good timing to get space back, but we actually feel.
That right now is a bit of a beneficial time career Canfor a number of reasons first of all as Jonathan noted we have known these that have been coming back for quite some time or bed Bath would be filing we have been speaking of retailers.
We recently participated in the ICSC conference in Whistler in January and.
Quite frankly, a good handful of the retailers. Their first questions were can we talk about your bed bath boxes.
Our retail occupancy is 98% right now and there is a shortage of box space in the market.
So I.
I Wouldnt say theres, a feeding frenzy going on but there is definitely interest from a lot of their interest in categories.
We have on our locations average about $17 a square foot, which we considered to be under market, it's well below our portfolio average of 2098.
And if you look at the deals we did over the last quarter of 2022.
We were averaging $24 a square foot. So we believe theres room there.
Also good timing just based on the reinvestment we put into a lot of our major market assets, where these are located and our focus on customer Centrism we reorganized.
Our leasing team last year, and our construction team to reposition them more as a tenant experience team, which is a going to provide a better products to put new tenants into.
But also to have more of a white glove experience for the retailers that we're putting in place.
Lastly, if we do get those spaces back we are shedding some I would say difficult leases from a rather difficult U S.
Tennant's.
They do have kept costs. They do have a lot of restrictions and exclusive built into them, which is quite frankly impacted our ability to lease.
Similar uses in a bunch of our centers.
So all in all of course, not great news when we are losing a larger tenant but I think we're in very good shape to backfill them relatively quickly, particularly given the strides we've taken.
So far and the length of the <unk> stay period and I'll just reemphasize Mario that this was because we had a good sense about this it was incorporated into the guidance and our 2023 business plan and we do have the U S parent company, which I mean, I'm not sure what happened there, but at least it's an extra step we can take maybe I'll just wrap some numbers around that sensitivity.
<unk>, so it's $8 million of revenue.
John mentioned, we've received February rents already and expect occupancy rents for another it sounded like two to three months, depending on the timing of the liquidation. So you take the $8 billion you back off lease.
At least a couple of million $2 million to $3 million from that.
It gives you a sense of what that kind of a downside scenario that we would take our taken sensitized to our through our budget medicines.
If you had a downside scenario that assumes.
That we don't backfill any this year, which again is probably unlikely. It gives you a sense of we are really talking about.
$5 million or so is a bit of a worst case scenario to give you that sense. So when we do our our guidance ranges and forms.
That sensitivity analysis informs how we come up with the range.
And I would just add similar to what we went through with target.
The opportunity to make our portfolio better.
A bunch of the interest we're getting early on is actually from grocery as we all know grocers are desperately looking for more space to increase their footprint in Canada and quite frankly, we've got a bunch of centers that are currently not grocery anchored.
Where they are willing to take I would say a little more unconventional space or potentially smaller space in Q4 of 'twenty. Two we finalized the metro deal at our Rio can center in Kingston, which has never had that grocery component to it and it just drives much better traffic to those sites and.
And overnight increase in half.
Got it okay. So just as a follow up it seems to me based on those numbers that the expectation that's built in within guidance is.
Like most of the space will be leased up by year end necessarily maybe cash rent paying but yes.
The expectations for substantial progress by the end of the year.
Correct.
Yes.
Okay.
Okay. Thanks, everyone.
Thanks Amir.
Thank you. The next question is from the line of Dean Wilkinson with CIBC you May proceed.
Thanks, Good morning, everybody.
Question on the well did the retail leases have any form of a sort of co tenancy clause or an out for.
The office component.
Negative.
Negative perfect easy.
And for Dennis your provision for.
Doubtful accounts and I know that this is like minutia in the weeds.
Still $13 4 million is that just really a hangover from sort of uncollected stuff from the pandemic.
You didn't really add much in it.
In the course of the year is that just something we could expect as they burn off over the next couple of quarters or is that sort of in line with say pre pandemic expectations.
No I'd say, it's definitely the former at the hangover from the pandemic and.
Our team has been working tenant by tenant two to work through that.
I don't know if I could could say that it would be a burn off.
Per se I mean some.
They end up as write offs or certainly some of that will end up is right obviously gets var.
But we also.
Collect stuff as well so I think that's the way we look at it will kind of worked through that volatility.
Of course this.
This year.
Okay, great. Thanks, guys.
Thanks, Steve.
Thank you. The next question is from the line of Tommy Beer with RBC capital markets. You May proceed.
Thanks, Good morning, just.
Last year, certainly was active in terms of capital recycling and you've made some great strides in terms of the the portfolio quality, but what are your what are your thoughts around this year and also how are you thinking about <unk> at this stage.
So I.
I don't think this year will be nearly as active from a disposition.
Process I think as I've said 2021.
It was characterized as a year, where we were really taken advantage from a quantitative perspective of raising efficient capital 2022, while we did raise capital we did it really more as a qualitative measure improving our portfolio 2023, I don't think we need to do either but there will probably be some dispositions over the course of the year Bofa land.
Dispositions bofa partial interest in certain properties, but it's not a focal point of our business plan for 2023, So I wouldn't I wouldn't lean into that too heavily.
And with respect to the NCI B as we articulated last year Pommie, we kind of we did the <unk> on the backs of over achieving on our disposition program and so we have if you will excess cash flow. After we funded our core obligations, which is really of course our distribution.
And paying back some debt and funding our development pipeline and we were in the fortunate position to have excess cash flow and our unit price. We thought was so well below NAV and we took advantage of that and we acquired through the NCI program.
So unless anything changes dramatically and we really ramp up the disposition program again, I don't think theres going to be a significant amount of NCI would be for 2023, yeah. What I would add pardon me at that at this point, we're in a I think a pretty pretty great position that.
To fund, our what we're calling our core priorities.
Yes.
Distribution is maintenance capex and growth Capex.
<unk>.
We don't need to sell any assets combination of our retained cash flow and inventory proceeds over the next.
Four years is going to fund our development program, along with project level debt. So.
Disposition, we don't have to sell anything so that to jonathan's point, unless we have really good opportunities to sell assets and redeploy that capital into better assets or other accretive initiatives.
Nothing that we have to do in the base case.
It doesn't necessarily pushed to do.
Unless there is a real compelling opportunities.
So we can be flexible, but don't need to rely on it.
Okay.
Got it no that actually helps.
My second question, but in terms of the <unk> guidance, what is what does the guidance incorporate from a development completion standpoint.
And also in terms of the anticipated residential gains.
So in terms of residential gains, meaning like condo inventory gain.
I would assume those are effectively flat to 2022 levels on that part.
Terms of development deliveries, it's about $1 2 billion of IPP across.
2022, and 2023, which then.
It's about $50 million of stabilized.
NOI has those of you just assume some ramp up.
Against that.
That probably gets you have out there.
Great. Thanks, very much and I'll turn it back thanks.
Thanks Tommy.
Thank you.
Our next question is from the line of <unk> Garg with Veritas Investment Research Corporation you May proceed.
Alright, Thank you and good morning. My question is pretty simple. So thanks for the color on dispositions might not be required for anybody.
Finally, our development, but.
Still have some asset sale around consolidation.
Are you seeing any decline in buyer activity because of the English language.
The forwarding buybacks.
Florida and buy button.
<unk>.
The foreign buyer.
You are speaking to the foreign buyers prohibition.
Yes, so it does and then we're going to get back on the commercial real estate.
Oh, it could be meaningful definitions, but then.
If a particular longer season until next year.
Without having this thing again and again.
It's been.
At that point.
I'm talking about.
Yeah, I don't think that will have any impact on that didn't inform our disposition strategy for 2023, whether that legislation exists that or didn't we're really not focused on selling a lot of residential land and if we did I mean, it's more likely we would have domestic.
Investors rather than foreign as we've done in the past. So I don't think it has a significant impact on what we would do from a disposition program for this year.
Okay. Thank you.
My question to held for sale.
Okay. So I just want to clarify that for sales out that wasn't assay in Calgary that was <unk>.
Conditional at year end and we closed it.
Already this year.
Okay. Thank you.
Okay. Thank you.
Thank you. The next question is from the line of Sam Damiani with TD Securities You May proceed.
Thanks, Good morning, everyone.
Just a couple of quick ones on the disposition activity expected for 2023.
How should we think about the cap rate relative to.
What was achieved on the 2022 dispositions.
Well again, I think 2023 as I suggested was characterized by a qualitative improvement of our overall portfolio and so we did we did get rid of some low growth assets. Some enclosed malls two of them to be precise and I think that that's why the cap rate was obviously relatively high.
But again, because we're not really proposing to do a substantial amount of dispositions in 2023.
We don't really have a strategy for which kind of assets, we would dispose and.
If we were going to dispose of any assets now we would certainly expect it would be reflective of the high quality of our remaining portfolio. So.
Cap rates I would suspect would be lower.
We don't have that much load growth asset anymore. So I think Sam what I referred to in my commentary about the impact of asset sales in 2023 <unk> is just the carryover of the 2022 assets you got partial year impact in the 2022 dispositions that then increases when you get into 2023.
So that was that PC.
The asset that we had as held for sale at the end of the year.
A little over $40 million has one asset in Calgary that result.
It's not that it's not a large impact and there's nothing else.
Contemplated for this year.
Yes.
No I hear you.
In modeling, obviously, you I assume you want to enter 2023 at or below the leverage that you into 'twenty. Two so I just want to make sure that I have that kind of factored in appropriately.
Appropriately switching over to the well what's the latest in terms of I.
I guess the timeline in terms of completion Grand opening of the retail et cetera. How are you thinking about how is the sort of next few months are going to play out.
Yeah, I'm going to hand that question over to all of our Harrison our.
In charge of leasing and tenant experience and give some color.
Good morning, Sam can you hear me okay.
Hear you fine.
Okay.
I think to describe it in.
Precisely.
Well as it nears completion the scale of the opportunity is certainly more evident to retailers, which is continuing to drive significant interest in the project.
And we.
We're we're very optimistic.
Within the.
<unk>.
Fourth quarter of this year, we will be.
Significantly.
Animated and ready to where they are ready to deliver the project too.
In totality.
We are expecting tenant to open in advance of Q4, though I think first tenants are scheduled to open in the second quarter of two.
<unk> 2023.
And we're looking forward to that happening, but certainly I think you've been recently as we bring tenants of the projects. They can see the opportunity that's in front of us.
They are extremely excited.
We are starting to certainly see the benefits of that from a from a leasing perspective.
Okay, great and so some sort of looks like the Grand opening is it's looking like Q4 now or.
What are you what are you thinking on that front.
Yes, I think Sam there is going to be a grand opening which is really just to date and it's like a bit of a celebration, but it doesn't necessarily mean that that marks a day, where income starts for the retail element of the well we're going to have as Oliver suggested rolling openings.
Starting.
Early in the year in Q1 and Q2.
But yes, we are expecting to have a grand opening and that's about logistical matter with respect to when some of the hoist come off the residential buildings and the hard landscaping is done so really don't let the grand opening serve as a marker of <unk>.
Significant it's really just sort of a celebration.
But yes, I think youre going to see retailers opening an animated in.
Sure, Yeah, and I would just add Sam as far as a residential component goes a 600 unit building, we're going to start leasing pre leasing that at the end of March and we expect to have resident start moving in between July and the beginning of August .
Oh, that's great. Thank you very much.
Youre welcome.
Thank you.
There are no further questions at this time I will now turn the call back to Mr. Gitlin for closing remarks.
Well, thanks, everyone and we're looking forward to reporting back to you after Q1.
Have a good day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.