Q2 2023 Choice Properties Real Estate Investment Trust Earnings Call
over to your first speaker today, Aaron Johnston, Vice President, finance. Please go ahead.
Thank you. Good morning and welcome to the Choice Properties Q2 2023 conference call.
I'm joined here this morning by Rael Diamond, President and Chief Executive Officer, Mario Barafato, Chief Financial Officer, and Anna Radek, Chief Operating Officer. Rael will start the call today by providing a brief recap of our second quarter performance and provide an update on our transaction and development activity in the quarter.
Anna will discuss our operational results, followed by Mario, who will conclude the call with a review of our financial results before we open the lines for Q&A.
Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and then responding to your questions, we may make forward-looking statements that include statements regarding choice property's objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, and
plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, 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 those forward-looking statements.
Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying these, making these statements can be found in the recently filed Q2 2023 financial statements and management discussion and analysis.
which are available on our website and on CDER.
on our website and on CDAR. And with that, I will turn the call over to Reth.
Thank you, Aaron. Good morning, everyone, and thank you for joining us today. We are pleased with our second quarter results, delivering another solid quarter. We delivered strong same-asset cash NOI growth of 4.35%, and FFO growth of 5%.
This was driven by strong leasing and active asset management.
While inflation remains elevated and investors continue to be cautious, fundamentals across our three strategic asset classes remain strong. Our financial and operating performance in the quarter demonstrate the continued demand for necessity-based retail centers, well-located generic industrial assets, and the
and transit orientated residential buildings.
Robust tenant demand for space within our properties continues to drive momentum in our leasing pipelines and in our ability to drive rent growth, which Anna will speak about in a moment.
One trend that we continue to see since our last quarter update is in regard to the transactions market. The market has been impacted by uncertainty in the financing markets and we continue to see slow down in transactions with wide bid-esque spreads persisting.
Despite this, our team continues to be hard at work looking for opportunities to execute on our capital recycling program with a focus on ensuring we maintain our high quality portfolio.
In the second quarter, we completed 103.1 million of transactions, including 101.2 million of dispositions. Our dispositions were focused on continuing to exit office, taking advantage of strong market fundamentals in assets we consider on-call and improving the quality of our retail portfolio.
We completed the cell.
of one of our final two non-strategic office assets in the court at disposing of metropolitan place in Dartmouth, Nova Scotia for proceeds of 13.4 million. This disposition completes its municipal presence and will enable you to establish integrated solutions to background
Office Exit in Atlanta, Canada. We are actively marketing our remaining Office Asset in Calgary.
On the theme of selling long-haul assets, during the quarter, we leveraged the strong market for data centers.
Enclose on the cell of a data center adjacent to the Loblaw head office in Brampton.
for net proceeds of $74.2 million.
Lastly, we completed the disposition of a single tenant retail site in Cornwall, Ontario for proceeds of 10 million. The site, which had been dark since 2019 and was tenanted by a large box home improvement retailer on a long-term lease. Our team was able to facilitate the sale.
of the asset to a buyer while capitalizing on the remaining value of the lease but negotiating receiving a lease termination payment of 7.4 million from the existing tenant.
While transactions have slowed, our developments are progressing very well, and the team continues to focus on delivering on a development pipeline. In addition to our ongoing retail intensification program, we are on track to complete approximately 1.6 million square feet of industrial space.
and two residential projects this year.
During the quarter we commence servicing and site work at Choice Caledon Business Park. Servicing for the entire site is expected to take approximately 18 months and cost approximately 165 billion a share.
Once complete, Choice will have a fully graded service site at a land cost of approximately 1.1 million per acre. We're also pleased to report that for the first phase of this development, we have entered into an approximately 90 acre ground lease with Love Law with rank commencement in the first quarter of 2025.
The lease has initial term of 25 years with 2% annual rent steps. The total cost of the first phase with Lovelaw including land, servicing and phase one specific costs expected to be approximately $125 million a share and yield between seven and a quarter and seven and three quarters percent.
For future phases of the site, our leasing team continues to see strong interest in his working through proposals with potential tenants.
In subsequent to the quarter, our team also completed leasing at our development in South Surrey, BC, leasing the entire 353,000 square feet for initial term of 10 years.
With the completion of this lease, our revised yield is now expected to be approximately 10.75% with a total cost of approximately $72 million.
The advancement of each of these projects demonstrate our team's ability to create value and add high quality assets to our portfolio. We continue to focus in the short term on the opportunities available to us in our retail and industrial development pipelines and continue to deliver the best possible solutions for
Strong return to spot hot and interest rates.
With that, I'll hand it over to Anna to provide more color on our operational results. Anna?
Thank you, Rael, and good morning, everyone. Our portfolio continues to perform well. Leasing activity is strong, and our tenants continue to demonstrate their resilience. Occupancy remains near full at 97.4%, and we are seeing strong rental rate growth.
across our three strategic asset classes.
During the quarter, we had approximately 1.1 million square feet of lease expiry. We renewed 743,000 square feet at an average spread of 21.1%. And we completed 116,000 square feet of new leasing that commenced in the quarter. We experienced negative absorption of 212,000 square feet.
year resulting in only two months of downtime.
The balance of the negative absorption was primarily related to three retail vacancies, which I will speak to shortly.
In our approximately 44 million square foot necessity-based retail portfolio, occupancy decreased slightly to 97.7%, primarily related to three retail vacancies.
The largest being a 33,000 square foot location in Waterloo, Ontario, where we negotiated an early lease surrender and lease surrender payment from the in-place tenant. The full space has been released to no-froze with rent commencing in the fourth quarter of this year.
The remaining decline was due to the closure of one Nordstrom location in Edmonton and one Bed Bath and Beyond in Dartmouth, Nova Scotia. Both spaces totaled 39,000 square feet at our share.
We are very close to finalizing a deal to backfill the bed, bath, and beyond location and continue to work on backfilling the 18,000 square foot space vacated by Nordstrom Rack.
We had 306,000 square feet of retail space naturally expire in the quarter, and we completed 264,000 square feet of renewals, resulting in tenant retention of 86%.
The renewals were completed at rents 19.6% above expiry.
Included in our renewals was a 28,000 square foot space where the expiring rent was reduced during COVID and then renewed at current market rents which resulted in an increase of a hundred percent.
Excluding this deal, spreads were still very strong at 13% above expiry, making this the highest quarterly retail leasing spread we have recorded.
Demand for retail space remains high.
While tenants are dealing with rising costs and labor challenges, they are not suspending their plans to grow or relocate stores. We continue to see strong demand for our retail centers as evidenced by our sustained high occupancy despite recent bankruptcies that have impacted the entire retail market.
As I've mentioned on past calls, there is very little new supply being built.
This is driving tenants to existing centers and adding upward pressure on market rents.
The quality of our tenants and our focus on necessity-based retailers continues to provide resiliency in our portfolio.
Many retail tenants continue to move ahead with their plans to grow store counts and relocate to superior sites. We are working to accommodate several such retailers by relocating and rightsizing existing tenants at our centers, enabling us to increase rents, increase rent, and increase rent.
drive asset value, as well as enhance the tenant mix at our sites. While overall industrial leasing activity has moderated slightly in the second quarter of 2023, industrial demand remains strong.
The national vacancy rate at 1.9% remains well below the historical 15-year average of 4%. And that rental rates continue to rise.
Occupancy in our industrial portfolio is 97.3%.
While remaining close to full occupancy, this quarter marks a slight decline of 10 basis points, primarily due to the temporary 2-month vacancy of 122,000 square feet in Ontario, which I spoke of earlier.
The remaining 56,000 square feet was primarily due to rollover in Alberta.
We have released over 80% of the total space vacated this quarter to new tenants with rent commencing this year.
We had 661,000 square feet of industrial leases expire in the quarter, of which we renewed 474,000 square feet at ranks 22.3% above expiry.
In Ontario, 33,000 square feet of expiries were renewed at rents, 110% above the expiring rent.
We have significant embedded rental rate growth in our industrial portfolio and with our current national average in place industrial rent at $8.57 per square foot and our average in place rent in Ontario at $8.18 per square foot.
we expect to deliver strong rental rate growth across our industrial portfolio. The industrial asset class continues to experience elevated demand and we continue to transact at rents well above current in-place rents.
We believe that well-located new generation distribution space will continue on an upward trajectory, though not at the same pace we have seen over the past few years, and rents in older generation buildings will likely moderate sooner.
There are 49 Loblaw leases expiring in 2024, consisting of 48 retail locations and one industrial site.
Subsequent to the quarter, we renewed 46 of these leases totaling 2.77 million square feet at a weighted average extension term of 4.9 years.
In addition, blah, blah has condition conditionally agreed to renew to additional retail leases totaling seventy thousand square feet for five years at a ten percent increase. And we expect these renewals to be finalized in the fourth quarter. The total base rent across all forty eight locations is increasing.
ongoing stability their anchor tenancy brings with it and the quality of the necessity-based tenants we are able to
I'll now pass the call over to Mario to discuss our financial performance.
Thank you, Anna, and good morning, everyone. We are pleased with our financial performance in the second quarter as our business continues to be well positioned to deliver on our financial goals.
Our reported funds from operations for the second quarter was $183.6 million, or 25.4 cents per unit.
Including an FFO for the quarter was a lease surrender income of $8.4 million. There were no other significant or unusual one-time items.
On a per unit diluted basis, our second quarter FFO of 25.4 cents per unit reflects an increase of approximately 5% in the second quarter of 2022.
Strong same asset NOI, lease surrender income, and higher interest income from MES loans was offset by higher borrowing costs and higher G&A costs driven by inflation and a competitive talent market. Occupancy remained strong at 97.4% and contributed to our strong same asset results. Same asset cash NOI increased by 9.6 million or 4.3 million.
at Cash N.Y. to trend back to our target range of 1.5 to 2% as we start to lap the impact of higher occupancy rental rates and interest on capital recoveries in the second half of the year.
Industrial increased by approximately 2.4 million or 6.7 percent.
This increase was primarily due to higher rental rates for both renewals and new leases completed, as well as contractual rent steps. Mixed use residential and other increased by approximately $1 million or 14.6%. This increase was due to improved residential occupancy and other revenues. Turning to our balance sheet.
RFRS NAV increased 1.1% to $13.55 per unit, an increase of $106 million over the last quarter.
NAV growth was driven by $88 million of fair value gains in our investment properties, partially offset by the fair value adjustment on our investment in allied properties of $31 million.
where we are required under IFRS to mark the mark of this investment to its trading price as of June 30th. We continue to take a transparent and conservative approach to the valuations of our investment properties. In the second quarter of last year, a rising interest rate environment driven by inflationary concerns led us to adjust our retail cap rates, reflecting our belief that a higher cost of capital would put downward pressure on property valuations. We are now seeing this reflected in external appraisals in the challenging transaction markets.
confirming our approach to hold retail cap rates since our revaluation last year. That being said, we have recorded fair value gains in each asset class every quarter since then, driven solely by cash flow growth and major development milestones.
Current quarter fair value gains on investment properties were mostly property specific and primarily driven by industrial leasing, retail cash flow growth, and transaction activity. We had minimal financial activity in the quarter. We weighted the quarter in a solid financial position with strong debt metrics and ample liquidity.
Our debt to EBITDA ratio was 7.4 times and we have over 1.4 billion available on our credit facility. And this is further supported by approximately 12.5 billion of unencumbered properties.
Subsequent to the quarter end, we repaid the $200 million Series B Senior Unsecured Adventure upon maturity on July 5, 2023, using proceeds drawn on our credit facility.
This debenture had an interest rate of 4.9%.
With strong demand from lenders, translating into relatively low credit spreads, we're well positioned to fund our remaining capital requirements in 2023 at a reasonable cost.
We expend a fund with our remaining capital requirements to the unsecured market. As for us, there is no longer a meaningful spread between unsecured pricing and what we're seeing in the secured market.
So overall this was once again a very solid quarter. Our results reflect the stability and resiliency of our retail portfolio and the growth potential from strong industrial fundamentals. And with that we remain confident in our ability to deliver on our 2023 outlook. So, you know, Rael, Anna, Erin and I would be glad to answer your questions.
If you'd like to ask a question, please press star then 1 on your telephone keypad.
Our first question is from Himanshu Gupta with Scotiabank. Your line is open. Thank you and good morning everyone.
So just on the Loblaw renewal done, I think you mentioned 7.5% rental spread. So just to be clear, does that mean 1.5% on annualized basis?
It's actually a 7.5 percent from the expiring rent and it's flat for five years. So we get the full seven and a half percent in year one.
Okay, okay, thanks. And just to clarify, Anna, I mean, is there like a negotiation involved when you do the renewal? Because I think that based on the formula, you can go up to 10% on the renewal here.
That's correct. The renewal provision is standard in all of the law of law leases and the renewal is to be at market rent. However.
It can't exceed a hundred and ten percent of the expiring grant, but nor can it be less than the expiring rent. So there's a floor of zero and a feeling of a ten percent increase.
Okay, okay, fair enough. And then, you know, I think there was one lease remaining, which was not renewed. Any color on that? It's a small store in a very small market in Ontario and our transaction team is looking to dispose of it. It has a very material. Correct. Okay, thank you. And maybe, you know, just turning to your same property and why guidance, you know, first half of the year is very strong, you know, mid 4% and I think your guidance was unchanged to 3%.
Are you expecting more retail vacancy in the second half of the year in your guidance? Are you looking at some vacancy uptick here?
No, the NOI will remain strong. It's just that the comparator base now is higher, so therefore the growth number is lower and it's just math, but it's still very, very strong and it'll be at the high end of our range.
Okay, awesome. Thank you. And my last question is on the Ontario industrial portfolio. I think you mentioned in place ends are like low $8 range. So what do you think is the mark to market on this industrial portfolio in Ontario? And what rates are you signing these lists, due to every space? Thank you. So the next question I'd like to hear how omn Adviser company signals to promote local production or quality of our internal operators are helping us tri TOD funds to activity live or quite maybe let all EU
Oh, yeah, so the market rents in Ontario range due to size and.
You know, location, but they're they're generally we're doing deals are between fifteen and eighteen dollars square foot.
Okay, thank you.
The next question is from Mark Rothschild with Canaccord. Your line is open.
Thanks good morning Mary, maybe just following up on your answer there as far as the same property and why growth. So, are you saying that the growth should remain in this 4% range in the 2nd, after the year, or that the will remain consistent and still grow? But because. It was stronger the 2nd, half of 2022. The pace of growth will get more like.
1 to 2% of the second have to average out to the guidance for the year? Yeah, it's the latter mark exactly. There won't be a big vacancy and there's no, there's nothing that's going to impact the occupancy or the number of the NOI. It's just the comparator, the comparator levels higher.
Okay, great, thanks. Then in regards to the industrial fundamentals, there was a comment made that maybe the growth is moderating. Are you expecting to... Okay, great. Thanks.
see rents continue to rise in your markets for the industrial properties you own or Are you seeing that rent growth maybe has just peaked based on what tenants can afford to pay?
No, I think what we were referring to was more the fact that they've risen by 20, 30, you know, 60% in some markets. We are still seeing rental rate growth, but, you know, not at the historical levels and the tenants are...
paying the market rents despite the increase from their current in-place rent, which, as we mentioned, was sort of under $9.58 a square foot.
Okay, thanks. Maybe just one last question, just on the data center lease, the NSF sale, rather. Just provide some color on how that worked with the payment to the tenant to get out of the lease. Was that a requirement of the purchaser?
Hey, Marcus Rael. It wasn't a requirement. We actually took it to market knowing Love Law was going to downsize their space. And we worked a formula with Love Law that we shared in the upside. And the payment to them was based on that formula. And it just speaks to the power of the relationship that we have with Love Law.
Okay, thank you very much.
The next question is from Lauren Kalmar with Desjardins. Your line is open.
Thanks, good morning everybody. Maybe turning back to the industrial portfolio, it doesn't look like there's much left to mature in the GTA for the remainder of the year. What do maturities look like for the region in 2024?
Yeah, so in 2024, our industrial, about 40% of it actually is in
is in Ontario about 43%.
Yes, we have a 1.7 million square feet rolling in 24.
Okay, and then maybe just following on that, would you expect given the mark to market there, you know, some jump insane property NOI as those leases are renewed?
Yeah, absolutely. The average in-place rent in 2024 on those leases is actually sub $8. So, we do expect strong growth on those renewals.
Okay, great. And then it looked like you guys started doing pre-leasing at the element out in Ottawa. Just wondering how that's going so far.
It's going well. We're actually about 25%
Sort of pre least, including just validating sort of 10 and applications, but there's been strong, strong demand.
And how have rents been relative to Proforma? They've been in line with Proforma, probably a little bit higher than we expected.
Okay, and then just last one with the phase one of Kaladin getting underway. I know Lava going in there. What are the thoughts on timing for the balance of the project?
about the phases of the project, I should say. Yeah, so it's going to take us, call it 18 months to fully service the site. During that time, we're going to be looking for other tenants. Hopefully, we'll have something to report in the next few quarters, but luckily...
You won't have income coming from another tenant until probably later, 25, 26, assuming we can get some decent traction soon. But live loss commences in Q1 of 25, right?
Okay, great. Thank you so much for the color. I will turn it back. The next question is from Gaurav Mathur with IA Capital Markets. Your line is open.
Thank you and good morning everyone. Just on cap rates in the residential and mixed use segment, could you provide some color on what's driving cap rate compression there since the beginning of the year?
It's a function – you're referring to our NDNA table which shows our cap rates coming down. It's because we're selling non-core office and higher cap rates. And the remaining assets are core assets.
So that's what's driving it down. Okay, okay. And just as a follow-up to that segment, how should we think about future development activity as construction costs continue to increase?
Yeah, I think construction costs are definitely moderated in that. So we're probably 12 months away from any of our sites being truly shovel ready. And we're going to make a decision at that time, but right now we're in a truly unique position that we have lots of opportunities
as they're closer to being obviously shovel ready, which is not in their position yet. Okay, okay, fantastic. And just lastly, switching gears to the balance sheet, is there a targeted leverage range that you're focusing on?
Yeah, so right now we've been working at a 7.5 times that deep, but we're okay if it goes a bit lower or a bit higher, but we feel at that level it gives us a lot of flexibility to operate and deal with any time you get developed to spend. Okay, and just what moves the needle?
The next question is from Sam Damiani with TD Calend. Your line is open. Your line is open.
Thanks and good morning everyone. Really just wanted to focus in on the retail leasing. So, Anna, I wonder if you wouldn't mind giving a little more color on the 20% renewal spread in the quarter, I guess 13% adjusting for the pandemic relief. Is that kind of...
uplift expected to continue in the near term. What sort of tenants are driving that, you know, sudden spike in rent growth?
I think it's definitely driven by increased demand. We're just seeing that as we're seeing strong tenant retention and general optimism for retailers. It's a real mix.
of tenants, both necessity-based, some banks, fashion, as well in our
power centers where the fashion retailers, you know, were coming off maybe a little bit lower rents, but...
So that's also a factor in the spread. So I would say there, I don't know if there'll be 13% in the subsequent quarters, but definitely in that sort of higher range for us.
And just on the pandemic relief, how much of that is now unwound or is still left to go and how long do you think it will take to fully unwind?
relief provisions that were granted. I think most are now.
unwound. We had tenants who were
This was one of the last ones, I think. We had a few fashion tenants that in the previous quarters, but nothing material remains in terms of.
of COVID related concessions. Okay, fantastic. That helps and I'll turn it back. Thank you. The next question is from Tal Wooley with National Bank Financial. Your line is open.
Hi, good morning. I just wanted to circle back on your comments about the development pipeline and how you're focusing a little bit more near term on advancing commercial projects with the interest rate environment.
I guess, how long do you think that sort of view on how to allocate your development capital will persist? What do you sort of need to see in the market?
to advance more residential stuff.
Yeah, look, I think for us, as I said earlier, we're just in a unique position that we're making a really good spread over where we're developing the commercial product to, to where the cap rate is. So use the one in Surrey right now. We developed it.
to tenants recorded yield and cap rates in Vancouver, modern generic industrial would be like half of that. So we're making a lot of money and for us we're very focused on keeping a strong balance sheet.
And we're not going to allow that to, you know, we're not going to allow leverage to creep up. So if it means deferring the rental to start, because we have better opportunities available on the commercial, we'll keep doing that. And on many of our residential sites, as you know, like, you know, it's excess land and we continue to collect rent from the existing tenants. So it's not like there's much of a carry.
on the land, but I think the short answer to your question, Tal, is we need to see, we need to believe that our realistic pro forma will deliver us, you know, we can essentially create nerve growth, otherwise we shouldn't be doing it.
Okay, and then I apologize, I had my phone cut out a little bit while you were talking about the retail piece. I was just curious, is there a specific type of tenant that drove the size of the termination piece this quarter or is it just a bunch of little ones?
It was really two tenants, so just a general kind of merchandise tenant where we, they had a few years left on the term and they were still paying rent. In which weambareq and then
we were able to negotiate a termination that was about 800,000 and then release it to no frills. And the other was a, as Israel spoke about, like a home improvement tenant who was dark in also in Ontario. And so we negotiated a lease termination. They had 13 years left on their term, so it was a significant.
that you're sort of down the path, was there a particular rationale for going with the ground leaf structure versus something more traditional?
particular rationale for going with the ground leaf structure versus something more traditional and
given that you're sort of seeing, I think, a development yield in the mid-sevenths with a ground lease, are, you know, would there potentially more on offer if you'd done the full development, you think? Sorry, Tal, I heard the second part of your question. When?
given that you're sort of seeing, I think, a development yield in the mid-seventies with a ground lease, are, you know, would there potentially more on offer if you'd done the full development, you think? Sorry, I'm sorry, I'm sorry, repeat the second part of your question.
Yeah, I was just trying to understand with the ground lease sites, what was the driver for going with that particular method as opposed to a more traditional like, you know, owning the building, doing all you know, doing the rest of the development getting compensated for that. I think you're getting, you know, a pretty great return on a ground lease. I'm just wondering if there was you know, by themselves, either they would have 2018, 2015, or $20 or $10,000 orseller
more on offer if you had done more of the project. Yeah, firstly, from a macro point of view, we do like land leases. And if you think about the most secure form of real estate, they're truly a land lease. And it's because the tenant invests a lot of improvements in their building. And if they don't renew, you essentially get a free building.
You know, we love law in East Gwillimbury. We're done a land-east structure. They're investing a lot of capital, as they've reported, in East Gwillimbury, and we use that same structure on Calgan, and it truly, it works for us. It's quick, and it's low-risk, and we're getting a really good...
return and then it allows Lovelot to control the timing of their capital investments into the building. So that's what drove our decision. And the other thing just on land leases in general, I'd say we're probably one of the few, if not the only REITs who's actually been doing land leases on rental buildings with development partners. And I think that just speaks to how we think about it.
that we really focused on long term, we're trying to generate long term income and also in a phenomenal shape with our balance sheet, we don't need the cash right away and I think that's why we are so unique in the Canadian wheat landscape.
Okay, that's great. Thanks very much everyone. The next question is from Sumaya Syed with CIBC. Your line is open.
Thanks, good morning. First, just a follow-up on the renewal of the law of the leases, average term of almost five years, and I believe the renewal last year was closer to almost eight years. So just wondering what would explain the difference in the average terms between last year and this year's renewals? Too many Visits to talk about Prud kindred with all of the same Reef management forth
Yeah, last year we renewed some of the leases for five and ten years. So essentially two options to extend were exercised and that's why there was a bit of a weighted, weighted longer average lease term. And that was, you know, we had a desire to
you know, secure some of the larger superstores that we're rolling that year in Atlantic Canada and and was comfortable doing that. So that sort of was the reason for our decision to to do a longer term in this in this year.
we were happy with the five-year extension and we'll... Yeah, I think the other thing as Anna said is like you know essentially all like essentially 100% of the leases were renewed. The one that was not renewed was closed for multiple years and we're waiting out the lease term and we intend
And from our point of view, it's a great story. And again, it speaks to the power of the relationship with the tenant. Okay, thanks for that. Welcome back, Sumaya. It's good to have you on the call. Thank you. And just looking at the leasing needed on the Surrey Industrial Centre, just wondering about the profile of the tenant there and also any info you can share on the escalators on that.
And the growth, the average rental rate steps are three point nine five percent over the ten years.
The growth, the average rental rate steps are three point nine five percent over the ten years. So annually.
Okay, thanks. And just lastly, Rael, anything changed on your stance on the allied units with the first lockup expiring last month?
No, nothing's changed. We'll sell it when we need the capital and that we see that the shares are trading closer to what we perceive as value. But nothing's changed. Right now, she's in great shape and we're very happy that they completed the data center sale because...
puts their bell, she did in really good shape and
That's it from us. Okay. Okay. Thank you guys. The next question is from Tommy Bird with RBC Capital Markets. Your line is open.
Thanks, good morning. You know, Loglo has previously indicated plans to sell some real estate. Are you anticipating any further acquisitions from them this year? And can you maybe just talk about what sort of cap rates you're seeing on transactions that are in the market?
good morning. You know, Loblaw's had previously indicated plans to sell some real estate. Are you anticipating any further acquisitions from them this year and can you maybe just talk about what sort of cap rates you're seeing on transactions that are in the market?
So the short answer is yes, we do intend to still continue purchasing from Love Law. What we said at our investor day is that we want to be balanced from a capital recycling point of view and we've done a very good job so far in recycling assets at very good value choice unit all of this.
And we probably have identified around another $100 million that we will do towards the end of this year or sometime early next year, just as far as magnitude. You know, I think we cap rates are probably, like, you know, a year ago we wrote down our retail cap rates about...
you know, so about 40 basis points. So we wrote down values, we increased cap rates about 40 basis points. And I think what you're starting to see is appraisers are starting to get closer to that number now. And I think that's where things are trading, but you know there's definitely been more groups who are very hesitant.
to buy assets with negative leverage, so i.e. where they're paying more on the interest expense or interest rate than they will, or the earning on the assets. And there's definitely been a tone change on that front, whereas previous, earlier this year, people were willing to do that. But definitely there's
a slow down in volumes. Got it. Thanks for the color rail. Maybe just coming back to developments, if you look ahead, I know it's still a ways out for 2025, but I think I only see one project slated for completion. How do you see the pipeline grow?
over the next call it 12 to 18 months for 2025 and what could that look like in terms of what you took in that year.
Yeah, look, we have a lot of commercial development that's going to keep us busy for the next five to seven years. And remember, the commercial development is a lot shorter in the time to develop it. So for example, in Phase 1 in Caledon, we're going to deliver it in Q1 of 25. So I think as we start getting leasing traction or as we ready to go on a spec device, we
see income come for a few years. It takes three to four years to stabilize the asset. But hopefully you'll start seeing something in the pipeline over the next 12 to 18 months.
Okay, and then just maybe sticking to your comments on Rezi, I think you've gotten a pleasant condo completion schedule for the second half of this year. And so should we anticipate the closings on those condos like starting end of this year or into more is that more 2020?
Just curious, were there any changes that were notable relative to the prior agreement? Any update there? No changes. This is an automatic renewal.
Okay, thanks very much. I'll turn it back. Again, that's star one if you'd like to ask a question.
The next question is from Himanshu Gupta with Scotiabank. Your line is open. Thank you. Just a follow-up question on balance sheet. So credit facility of $200 million was used to pay down I think unsecured venture expiry. What is your plan to put permanent financing and what interest rate are you expecting now?
So yes, I mean, as I said, you know.
The unsecured market would be probably the most effective way to go right now given the gap between secured and unsecured just for us. It's gotten narrower. And so as Rael said, we have a few dispositions still on the go that'll determine you know if we can use proceeds to pay down the line or we can do a financing. So we'll just keep watching it. It's only a trend.
take advantage. All right, and Maru, do you have a sense what will be the rate if you were to access the unsecured venture market? Is it like still mid five or is it even creeping higher than that?
as well so 10-10 is a spot that would work and the pricing would be good. Thank you, I'll turn it back. There are no further questions at this time. We'll turn it back to the presenters for any closing remarks. Thank you, Chris. To summarize, we're very pleased with our second quarter performance. Our high quality portfolio, ongoing focus on operational excellence, development opportunities, and balance sheet strength uniquely position us in the Canadian REIT landscape.
We remain really confident in our ability to execute on our strategic priorities and drive long-term nerve growth. Thank you for your interest, your investment in choice, and for joining us this morning. Have a great weekend. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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