Q1 2024 RioCan Real Estate Investment Trust Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust first quarter 2024 conference call and webcast. As a reminder, this conference call is being recorded. I would now like to turn the call over to Miss Jennifer Suess, Senior Vice President, General Counsel, ESG, and Corporate Secretary. Ms. Suess, you may begin.

Good day, ladies and gentlemen, and welcome to the really can real estate investment Trust first quarter 2020 full conference call and webcast.

Operator: This conference call is being recorded.

Jennifer Suess: I would now like to turn the conference over to MS. Jennifer <unk> Senior Vice President General Counsel, ESG and corporate Secretary Mr. <unk> you may begin.

Jennifer Suess: Thank you and good morning everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG, and Corporate Secretary of RioCan. Before we begin, I am required to read the following cautionary statements. In talking about our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts.

Jennifer Suess: Thank you and good morning, everyone I am Jennifer <unk> Senior Vice President General Counsel, ESG and corporate Secretary of real can before we begin 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 state.

Jennifer Suess: 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 in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP, under IFRS. These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.

Jennifer Suess: That's concerning Rio Kansas objective.

Jennifer Suess: How did used to achieve those objectives as well as statements with respect to management's beliefs plans estimates intentions and similar statements concerning anticipated future events.

Jennifer Suess: 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.

Jennifer Suess: Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows, and profitability. However, RioCan's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we applied in making these forward-looking statements, together with details on our use of non-GAAP financial measures, can be found in the financial statements for the period ended March 31st, 2024, and management's discussion and analysis related thereto, as applicable, together with RioCan's most recent annual information forms that are all available on our website and at www.cdarplus.

Jennifer Suess: In discussing our financial and operating performance and then responding to your questions. We will also be referencing certain financial measures that are not generally accepted accounting principle measures GAAP under ifr at these measures do not have any standardized definition prescribed by EIOPA RF and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.

Jennifer Suess: non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with Ifr F. As indicators of Rio can perform liquidity cash flow and profitability real Ken's management uses these measures to aid in assessing the trusts underlying core performance and provides these additional measures. So that investors may do the same additional.

Jennifer Suess: Information on the material risks that could impact our actual results and the estimates and assumptions we 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 March 31, 2024, and management's discussion and analysis related there too that's applicable together with.

Jennifer Suess: Rio cancel its recent annual information form that are all available on our website at www Dot SEDAR Dot com.

Jennifer Suess: And now I'd like to pass it over to Jonathan Lim, our president and CEO.

Jonathan Gitlin: Thanks, Jennifer, and thank you for joining RioCan's senior management team today. The first quarter of this year has been a testament to the sustained demand and attractive growth prospects for RioCan's high-quality retail portfolio. As I've been saying for a while, retail space remains scarce, and in the current condition, it's unlikely that any meaningful amount of new supply will be added to the market. At the same time, we're witnessing substantial population growth, particularly in Canada's major markets.

Speaker Change: Thanks, Jennifer and thank you for joining <unk> senior management team today.

Jonathan Gitlin: The first quarter of this year and a testament to the sustained demand and attractive growth prospects for <unk> high quality retail portfolio.

Jonathan Gitlin: I've been saying for a while retail space remains scarce and then the current condition, it's unlikely that any meaningful amount of new supply will be added to the market.

Jonathan Gitlin: The same time, we are witnessing substantial population growth, particularly in Kansas This major markets.

Jonathan Gitlin: This backdrop, coupled with our emphasis on portfolio quality over the years, has put us in a position to fuel long-term organic growth. Today, I'll discuss our operational highlights for the quarter, and I'm going to focus specifically on our standout leasing results. RioCan's portfolio and team have successfully built upon the positive momentum for 2023. RioCan continues to capitalize on its unique combination of ideal locations in Canada's six largest and most densely populated cities

Jonathan Gitlin: This backdrop, coupled with our emphasis on portfolio quality over the years has put us in a position to fuel long term organic growth.

Jonathan Gitlin: Today, I'll discuss our operational highlights for the quarter I'm going to focus specifically on our standout leasing results.

Jonathan Gitlin: REO portfolio and team have successfully built upon the positive momentum from 2023.

Jonathan Gitlin: Reoccurring continues to capitalize on its unique combination of ideal locations in Canada, six largest and most densely populated cities.

Jonathan Gitlin: Superior Demographics and its Resilient Tenant Mix. The first quarter saw sustained momentum in leasing driven by RioCan's high-quality, necessity-based retail portfolio. The committed occupancy of our retail portfolio is 97.9%. Our top-tier team leased 1.3 million square feet of space in the first quarter, nearly half a million of which were newly constructed. The blended leasing spread stood at 14%, bolstered by new leasing rent spreads of 20%. Renewal spreads were also healthy, at 12%.

Jonathan Gitlin: <unk> demographics, and it's resilient tenant mix.

Jonathan Gitlin: The first quarter saw a sustained momentum in leasing driven by REO cans high quality necessity based retail portfolio.

Jonathan Gitlin: The committed occupancy of our retail portfolio is 97, 9% our top tier team leased one 3 million square feet of space in the first quarter nearly half a million dollars of which were new leases.

Jonathan Gitlin: London leasing spreads stood at 14% bolstered by new leasing rent spreads of 20%.

Jonathan Gitlin: Renewal spreads were also healthy at 12%.

Jonathan Gitlin: RioCan continues to improve the overall quality of the portfolio with a focus on improving the percentage of strong and stable necessity-based use tenants. A remarkable 98% of the new deals completed in the quarter were with precisely this type of tenant, bringing our portfolio's strong and stable tenant category to 87.9% of annualized net rent. The average net rent of the new leasing activity was $23.62 per square foot, an 8% increase over RioCan's average net rent.

Jonathan Gitlin: Rio can continues to improve the overall quality of the portfolio with a focus on improving the percentage of strong stable necessity based tenants.

Jonathan Gitlin: Marketable 98% of the new deals completed in the quarter with precisely this type of tenants, bringing our portfolio of strong and stable tenant category to 87, 9% of annualized net rent.

Jonathan Gitlin: The average net rent of the new leasing activity was $23 62 per square foot at an 8% increase over Rio can average net rent.

Jonathan Gitlin: This is an impressive increase considering that most of the new leasing was for larger space. Our leasing efforts are particularly noteworthy as they include the immediate backfill of a significant portion of the vacancies that came online in the quarter, primarily due to the failure of Bad Boy and Rooms in Space. These tenants previously occupied 10 locations in our shopping center. As of May 7, six of the 10 locations have been leased at significantly higher base rents, higher embedded year-over-year growth, and with far fewer restrictions. Negotiations are advanced for the majority of the remaining four locations.

Jonathan Gitlin: This is an impressive increase considering that most of the new leasing was for larger spaces.

Jonathan Gitlin: Our leasing efforts are particularly noteworthy as they include the immediate backfill of a significant portion of the vacancy that came online in the quarter, primarily due to the failure of bad boy and rooms in spaces.

Jonathan Gitlin: These tenants previously occupied 10 locations in our shopping centers.

Jonathan Gitlin: As of May seven six of the 10 locations have been leased at significantly higher base rents higher embedded year over year growth and with far fewer restrictions.

Jonathan Gitlin: Negotiations are advanced for the majority of the remaining four locations.

Jonathan Gitlin: Vacancies typically raise concerns over tenant weakness, the cost to refit space, and foregoing. What I would say is that RioCan's Defensive Portfolio and exceptional Leeson Kraus turn these temporary issues into opportunities for medium and long-term benefits, shopping center upgrades, and space recycling with new tenants. It's worth noting that only 2.1% of our portfolio comprises transitional tenants, which are businesses that can be more susceptible to macroeconomic volatility.

Jonathan Gitlin: Vacancy is typically raised concerns over tenant weakness the cost to refit space and foregone income.

Jonathan Gitlin: What I would say is that railcar defensive portfolio and exceptional leasing crouse turn these temporary issue into opportunities for medium and long term benefits shopping center upgrades and space recycling with new tenants.

Jonathan Gitlin: It's worth noting that only two 1% of our portfolio comprises transitional tenants, which are businesses that can be more susceptible to macroeconomic volatility.

Jonathan Gitlin: When RioCan units do become available, we're perfectly positioned to select relevant, resilient tenants that enhance the cross-shopping opportunities of our centers and contribute to higher rents. Vacancies also allow us to accommodate the increasing space requirements of tenants such as Loblaw, Metro, Shoppers Drug Mart, Dollarama, and TJX. A testament to this is RioCan Center Kingston, where a 32,000 square foot food court opened last month in space that was formerly occupied by Home Out. Our leasing achievements for the quarter are impressive.

Jonathan Gitlin: When Rio can units do become available we're perfectly positioned to select relevant resilient tenants that enhance the cross shopping opportunities of our centers and contribute to higher rent.

Jonathan Gitlin: Vacancies also allow us to accommodate the increasing space requirements of tenants such as Loblaw Metro shoppers drug Mart dollar Ram and T J Maxx.

Jonathan Gitlin: A testament to this is Rio can center Kingston, we're at 32000 square foot food basis opened last month in space that was formerly occupied by home Outfitters.

Jonathan Gitlin: Our leasing achievements for the quarter are impressive however, the signify more than just strong operating metrics for a single quarter.

Jonathan Gitlin: However, they signify more than just strong operating metrics for a single quarter. The nature of this leasing activity has practical impact, bolsters the resilience of our portfolio, and enhances our income quality. Tenant upgrades also lead to enduring organic growth. Great retailers attract other great retailers.

Jonathan Gitlin: The nature of this leasing activity has practical impacts.

Jonathan Gitlin: Bolsters, the resilience of our portfolio and enhances our income quality.

Jonathan Gitlin: Kevin upgrades also lead to enduring organic growth great.

Jonathan Gitlin: Great retailers attract other great retailers.

Jonathan Gitlin: Moreover, with the demand for our site surpassing supply, we're negotiating favorable terms that support sustained growth and future flexibility. This includes embedded annual rent increases, reduced overlapping use restrictions, increased flexibility in development rights, and the inclusion of green lease clauses. In the short term, this transitory downtime can result in a temporary dilution of same property NOI, as was the case this quarter, which ended at 0.4% growth.

Jonathan Gitlin: Moreover, with the demand for our sites, surpassing supply, we're negotiating favorable terms that support sustained growth and future flexibility.

Jonathan Gitlin: This includes embedded annual rent increases reduced overlapping use restrictions increased flexibility and development rights and the inclusion of green lease clauses.

Jonathan Gitlin: In the short term this transitory downtime can result in the temporary dilution of same property NOI.

Jonathan Gitlin: As was the case this quarter, which ended at <unk>, 4% growth.

Jonathan Gitlin: The most significant impact of our new leasing activity for the first quarter will be realized in 2025. However, the ultimate outcome is the addition of grocery and critical service tenants that yield significantly better long-term results. We'll take a moment to delve into the specifics of our Q1 leasing activity, which contributed to our solid foundation for enduring income stability and growth. RioCan successfully finalized three new agreements with grocery stores during the first quarter.

Jonathan Gitlin: The most significant impact of our new leasing activity for the first quarter will be realized in 2025. However, the ultimate outcome is the addition of grocery and critical service tenants.

Jonathan Gitlin: <unk> significantly better long term results.

Jonathan Gitlin: I'll take a moment to delve into the specifics of our Q1 leasing activity, which contributed to a solid foundation for enduring income stability and growth.

Jonathan Gitlin: Rio can successfully finalized three new agreements with grocery stores during the first quarter.

Jonathan Gitlin: These leases are in highly sought-after assets, RioCan Hall in Toronto, RioCan Colossus in Vaughan, and Grand Crossing in Ottawa. These deals encompass 65,000 square feet of average net rent that is 50.3% higher than the rents previously paid on this space. We're also on the verge of concluding negotiations with two additional grocery stores, which are expected to be finalized in the second quarter. In addition to the five grocery deals I've just mentioned, negotiations are nearing completion for a land lease with Costco for a redevelopment of a large component of Rio Canberra in the western end of the GTA.

Jonathan Gitlin: These leases are in highly sought after assets Rio can haul in Toronto relocated Colossus and bond and grant crossing in Ottawa.

Jonathan Gitlin: These deals encompass 65000 square feet and average net rent that is 53% higher than the rents previously paid on this space.

Jonathan Gitlin: We're also on the verge of concluding negotiations with two additional grocery stores, which are expected to be finalized in the second quarter.

Jonathan Gitlin: In addition to the five grocery deals I've just mentioned negotiations are nearing completion for a land lease with Costco for a redevelopment of a large component of REO, Ken Berlin, and the western end of the GTA.

Jonathan Gitlin: The long-term traffic driving benefits of transitioning spaces occupied by tenants such as rooms and spaces and bad boys to grocery uses are evident. The transformation of open-air assets into highly valued grocery anchored centers also boosts net asset value as grocery anchored centers often warrant a lower capitalization rate when valuing the center due to the market's recognition of their stable income potential. Our development projects continue to deliver a steady stream of diversified net operating income, contributing significantly to our operational performance.

Jonathan Gitlin: The long term traffic driving benefits of transitioning spaces occupied by tenants such as rooms, and spaces and bad boy to grocery users are evidence.

Jonathan Gitlin: The transformation of open air assets into highly valued grocery anchored centers also boost net asset value as grocery anchored centers, often warrant a lower capitalization rate when valuing the center due to the market's recognition of their stable income potential.

Jonathan Gitlin: Our development projects continue to deliver a steady stream of diversified net operating income contributing significantly to our operational performance.

Jonathan Gitlin: Our progress continues to be excellent at The Well, our flagship mixed-use development in Toronto's downtown West. The retail component is 94% leased, with more than half of the space open and in operation. We anticipate that the majority of the remaining retail tenants will commence operations in the coming month. There's likely no greater example of RioCan's team's vision and talent than this well. We're excited to advance the evolution of Toronto's food scene with the upcoming opening of Wellington Market at the end of this month. Wellington Market will be fully licensed and house more than 50 food and beverage merchants.

Jonathan Gitlin: Our progress continues to be excellent at the well our flagship mixed use development in Toronto downtown West.

Jonathan Gitlin: The retail component is 94% leased with more than half of the space open and operational.

Jonathan Gitlin: We anticipate that the majority of the remaining retail tenants will commence operations in the coming months.

Jonathan Gitlin: There's likely no greater example of REO can't team's vision and talent than the well.

Jonathan Gitlin: We're excited to advance the evolution of Toronto as food theme with the upcoming opening of Wellington market at the end of this month.

Jonathan Gitlin: Wellington market will be fully licensed in house more than 50, food and beverage merchants.

Jonathan Gitlin: The diversity of the food offering, together with the planned programming and activation of the market, will fuel further excitement for the already busy well. The offering will be further complemented by additional restaurants in the complex that will open in the coming months. In the face of a volatile macroeconomic environment, we recognize the impact of inflation and interest rates on our sector. Our strategy is thus anchored in building a resilient portfolio that ensures steady growth.

Jonathan Gitlin: The diversity of the food offerings together with our planned programming and activation of the market will fuel further excitement for the already busy well.

Jonathan Gitlin: The offering will be further complemented by additional restaurants in the complex that will open in the coming months.

Jonathan Gitlin: In the face of a volatile macroeconomic environment, we recognize the impact of inflation and interest rates on our sector.

Jonathan Gitlin: Our strategy is thoughts anchored in building a resilient portfolio that ensure steady growth.

Jonathan Gitlin: Quality is our mantra. It mitigates risk and fosters growth. Our approach is patient and strategic, negating the need for hasty asset sales, rushed leases, or development under suboptimal conditions. Retail Evolved has crafted a portfolio designed to absorb macroeconomic reverberations.

Jonathan Gitlin: Quality is our mantra and mitigates risks and fosters growth.

Jonathan Gitlin: Our approach is patient and strategic negating the need for hasty asset sales rush leases or development under suboptimal conditions.

Jonathan Gitlin: Retail of ball.

Jonathan Gitlin: We've crafted a portfolio designed to absorb macro economic reverberations.

Jonathan Gitlin: A tight leasing market and strong demand for our space combined with our team's extensive experience foster positive tension in lease negotiations, safeguards occupancy levels, and supports overall productivity and profitability. I'll now take a moment to discuss our balance. In the quarter, our net debt to EBITDA ratio improved to 9.17 times, down from 9.28 times at the end of 2023. This decrease represents the advancement of the downward trajectory that will take us to our target of eight to nine times net debt to EBITDA.

Jonathan Gitlin: Type leasing market and strong demand for our space combined with our team's extensive experience fosters positive tension in lease negotiation safeguards occupancy levels and supports overall productivity and profitability.

Jonathan Gitlin: I'll now take a moment to discuss our balance sheet.

Jonathan Gitlin: In the quarter, our net debt to EBITDA ratio improved to $9, one seven times down from $9 two eight times at the end of 2023.

Jonathan Gitlin: The decrease represents the advancement of the downward trajectory that will take us to our target of eight to nine times net debt to EBITDA.

Jonathan Gitlin: In a moment, Dennis will provide some details to support our confidence in achieving this target. However, I want to note that, beyond the secured plan, we have to reduce net debt to EBITDA by eight to nine times. Our portfolio also has a considerable amount of development density and low cap rate property. These assets provide RioCan with incremental levers, such as disposition, to further enhance financial flexibility should attractive opportunities arise. While we remain focused on our operations, balance sheets, and development pipeline, we're also committed to responsible growth.

Jonathan Gitlin: In a moment Dennis will provide some detail to support our confidence in achieving this target.

Jonathan Gitlin: However, I want to note that beyond the secure plan, we have to reduce net debt to EBITDA to eight to nine times. Our portfolio also has a considerable amount of development density and low cap rate properties.

Jonathan Gitlin: These assets provide REO can with incremental levers such as disposition to further enhance financial flexibility should attractive opportunities arise.

Jonathan Gitlin: While we remain focused on our operations balance sheet and development pipeline. We're also committed to responsible growth.

Jonathan Gitlin: This has been well demonstrated by the numerous accolades we've received regarding our advancements in the areas of sustainability, ethical governance, and fostering a positive culture. Before I turn the call over to Dennis, I reiterate that the dynamics of retail real estate are in our favor, creating long-term demand for our product. Our consistency, vision, and demonstrated commitment to responsible growth will continue to benefit our unit holders while ensuring the trust's stability. RioCan operates a top-tier retail portfolio in the country's most desirable markets. We remain dedicated to prudent financial management backed by an exceptional team. Speaking of which, I'll now turn the call over to Dennis.

Jonathan Gitlin: This has been well evidenced by the numerous accolades we've received regarding our advancements in the areas of sustainability ethical governance and fostering a positive culture.

Jonathan Gitlin: Now before I turn the call over to Dennis I reiterate that the dynamics of retail real estate are in our favor, creating long term demand for our products.

Dennis: Our consistency vision and demonstrated commitment to responsible growth will continue to benefit our unit holders, while ensuring the trust stability.

Dennis: Rio can operate as a top tier retail portfolio in the country's most desirable markets.

Dennis: We remain dedicated to prudent financial management backed by an exceptional team.

Jonathan Gitlin: And speaking of which I will now turn the call over to Dennis.

Dennis: Thank you, Jonathan, and good morning to everyone on the call. Our business is strong and well positioned to capitalize on Canada's favorable retail real estate market dynamics. RioCan's top quality portfolio is made up of assets located in the country's most densely populated cities, adjacent to public transit and major thoroughfares, and offers consumers an ideal mix of retailers for their daily needs. As a result, we are at the top of tenants' call lists for their growing space requirements, which is evidenced by our leasing spread this quarter.

Dennis: Thank you Jonathan and good morning to everyone on the call.

Dennis: Our business is strong and well positioned to capitalize on Canada as favorable retail real estate market dynamics.

Dennis: <unk> top quality portfolio is made up of assets located in the country's most densely populated cities.

Dennis: Jason to public transit a major thoroughfares and offers consumers an ideal mix of retailers for their daily needs.

Dennis: As a result, we are at the top of tenants call list for their growing space requirements, which is evidenced by our leasing spreads this quarter.

Dennis: Based on the strength and quality of our portfolio, whenever space becomes available at our sites, we have the ability to improve tenant quality and income stability and, importantly, to increase rent. Over time, we expect the ongoing improvement in the quality of our tenant mix will drive improved earnings growth and increases in net asset value. Let me now turn your attention to our financial results for the quarter.

Dennis: Based on the strength and quality of our portfolio whenever space becomes available at our sites, we have the ability to improve tenant quality and income stability and importantly to increase rents.

Dennis: Over time, we expect the ongoing improvement in quality of our tenant mix will drive improved earnings growth and increases in net asset value.

Dennis: FFO for the quarter was $0.45, growth of 2.3% over the prior year. Drivers of our FFO growth this quarter include strong operating performance and the benefits of development delivery. The delivery of commercial and residential development assets added $0.02 to FFO per unit, and we recognize another $0.05 through gains from our residential inventory project. Inventory gains include the sale of an additional 12.5% interest in the 11YB project, which accelerates the benefit of inventory sales, not only in the form of the current period gain, but also because the buyer assumes their proportionate share of the existing debt on the project, as well as future spending obligations.

Dennis: Let me now turn your attention to our financial results for the quarter.

Dennis: <unk> for the quarter was 45.

Dennis: Growth of two 3% over the prior year draw.

Dennis: Drivers of our <unk> growth. This quarter include strong operating performance and the benefits of development deliveries.

Dennis: The delivery of commercial and residential development assets added <unk> <unk> per unit and we recognized another five through gains from our residential inventory projects.

Dennis: Inventory gains include the sale of an additional 12, 5% interest in the 11 Y V project, which accelerates the benefit of inventory sales not only in the form of their current period gain but also the buyer assumes their proportionate share of the existing debt on the project as well as future spending obligations.

Dennis: Our strong operating performance was offset by a short-term and expected decrease in our in-place occupancy. This decrease was driven by previously disclosed tenant bankruptcies and tenant rotation in various components of our portfolio. This resulted in a widening of the spread between in-place occupancy and committed occupancy that will narrow as tenants take possession of newly leased space.

Dennis: Our strong operating performance was offset by a short term and expected decrease in our in place occupancy.

Dennis: This decrease was driven by previously disclosed tenant bankruptcies and tenant rotation and various components of our portfolio.

Dennis: This resulted in a widening of the spread between in place occupancy and committed occupancy that will narrow as tenants take possession of newly leased space.

Dennis: Case in point.

Dennis: Since quarter end to our results release date, in-place occupancy has already improved by 30%. While this creates a temporary slowdown in same property NOI, we are fueling FFO and NAV growth for the long term, as we are continuously replacing weaker tenants with stronger necessity-based tenants at higher rent. The NAB improvement will be more pronounced where we have added a grocery to a center that did not have a grocery tenant previously. Offsetting the FFO growth was higher interest expense, net of higher income, which had an impact of $0.04 per unit.

Dennis: Quarter end to our results release date in place occupancy has already improved by 30 basis points.

Dennis: While this creates a temporary slowdown in same property NOI, we are fueling <unk> and NAV growth for the long term as we are continuously replacing weaker tenants with stronger necessity based tenants at higher rents.

Dennis: The Nab improvement will be more pronounced where we have added grocery to centers that did not have a grocery tenant previously.

Dennis: Offsetting the <unk> growth was higher interest expense net of higher interest income, which had an impact of four cents per unit.

Dennis: The impact of prior year dispositions, net of acquisitions, reduced FFO by one cent per unit. Finally, FFO in the prior year included lease buyouts that did not recur in the current year quarter, an impact of $0.02 per unit. We remain on track towards our FFO guidance for the year of $1.79 to $1.82 per unit. Risks to this guidance remain unchanged, and they are higher interest rates, a worse than consensus economic environment impacting our tenants, and the timing of condominium closings, noting that we do not see a significant risk to the overall amount, but as in all construction projects, minor shifts in timing between quarters can occur.

Dennis: The impact of prior year dispositions net of acquisitions reduced <unk> by <unk> <unk> per unit.

Dennis: Finally, <unk> in the prior year included lease buyouts that did not recur in the current year quarter and impact of <unk> <unk> per unit.

Dennis: We remain on track towards our <unk> guidance for the year of $1 79, $2 82 per unit.

Dennis: Richard This guidance remain unchanged and they are higher interest rate.

Dennis: First the consensus economic environment impacting our tenants and the timing of condominium closings, noting that we do not see a significant risk to the overall amount, but as in all construction projects minor shifts in timing between quarters can occur.

Dennis: Our capital allocation activities also continue to improve our asset quality. In the quarter, we closed previously announced acquisitions, which were funded by dispositions that were completed in late 2023. We have also completed $31.1 million of non-core asset sales so far in 2024. Through this process, capital from lower quality assets, such as Cinema Anchor Centre in B.C., a secondary market asset in Ontario, a non-core development land in Calgary, and an enclosed mall in Winnipeg, was recycled into top quality major market assets, including a grocery anchor center in the heart of Toronto and a brand new purpose-built residential rental asset in Montreal and Calgary We also delivered $62.9 million of assets from properties under development to income-producing properties in the quarter, most notably at the well with retail and residential rental deliveries in the quarter.

Dennis: Our capital allocation activities also continued to improve our asset quality.

Dennis: In the quarter, we closed the previously announced acquisitions, which were funded by dispositions that were completed in late 2023.

Dennis: We also completed $31 1 million of non core asset sales so far in 2024.

Dennis: Through this process capital from lower quality assets, such as cinema anchored center in D. C. Our secondary market after that Ontario.

Dennis: Non core development land in Calgary, and an enclosed mall in Winnipeg, whereas recycled into top quality major market assets, including a grocery anchored center in the heart of Toronto, and a brand new purpose built residential rental assets in Montreal and Calgary.

Dennis: We also delivered $62 $9 million of assets from properties under development to income producing in the quarter, most notably at the well with retail and residential rental deliveries in the quarter.

Dennis: These completed developments also continuously improve our portfolio quality and growth process. As noted previously, this capital recycling process has reduced FFO per unit in the short term, but we anticipate it will drive longer-term growth and improve NAB over time. In addition, we continue to allocate capital to our lending program, including $68 million of loans in the quarter, bringing the total allocated since the beginning of 2023 to $111.4 million. This is an opportunity in the current environment to allocate capital at a solid return, with a diversified pool of loans against strong major market, retail, and residential assets that we would be comfortable owning in a downside scenario.

Dennis: Completed development also continuously improve our portfolio quality and growth prospects.

Dennis: As noted previously this capital recycling process has reduced <unk> per unit in the short term, but we anticipate will drive longer term growth and improve NAV over time.

Dennis: In addition, we continue to allocate capital to our lending program, including $68 million of loans in the quarter, bringing the total allocated since the beginning of 2023 to $111 $4 million.

Dennis: This is an opportunity in the current environment to allocate capital at solid returns with a diversified pool of loans against strong major market retail and residential assets that we would be comfortable owning in a downside scenario.

Dennis: Turning now to our balance sheet, the strength of our balance sheet is a top priority, and we maintain our focus on delivering. Net debt to EBITDA continues to trend downward at 9.17 times at the end of Q1 2024 compared to 9.48 times at the end of Q1 2023, remaining on track to reach our target range of 8 to 9 times. We expect to reach the upper end of this range by the end of this year and the lower end of the range by the end of 2025. We have a clear line of sight to our goal.

Dennis: Turning now to our balance sheet.

Dennis: The strength of our balance sheet is a top priority and we maintain our focus on deleveraging net debt to EBITDA continues to trend downward at 917 times at the end of Q1 2024 compared to $9 four eight times at the end of Q1 2023 remaining on track to reach our target range of eight to nine times.

Dennis: We expect to reach the upper end of this range by the end of this year and the lower end of the range by the end of 2025.

Dennis: We have a clear line of sight to our goal.

Dennis: We are naturally deleveraging with the ramp-up of new EBITDA from recent development deliveries and paying down debt with proceeds generated as we close on condominium sales. In addition, we continue to monitor the market for asset sale opportunities, which, if available, would accelerate our path to achieving our target. Our liquidity position remains strong at $1.5 billion at the end of the quarter. This is down to a more typical level this quarter from the $2 billion at the end of 2023, when our liquidity was elevated due to the timing of asset dispositions that closed in late December.

Dennis: We are naturally deleveraging with the ramp up of new EBITDA from recent development deliveries and paying down debt with proceeds generated as we close on condominium sales.

Dennis: In addition, we continue to monitor the market for asset sale opportunities, which if.

Dennis: Abel would accelerate our path to achieving our target.

Dennis: Our liquidity position remains strong at $1 5 billion at the end of the quarter.

Dennis: This is down to a more typical level this quarter from the $2 billion at the end of 2023, when our liquidity was elevated due to the timing of asset dispositions that closed in late December.

Dennis: We also continue to have access to multiple sources of capital and have made significant progress in our 2024 refinancing plan, having completed about $1 billion of financing so far this year. Long-term financing was completed at a weighted average interest rate of 5.3% across a mix of debentures, commercial mortgages, and CMAC mortgages, inclusive of the benefits of hedging. Before we open the line for questions, it goes without saying that macroeconomic volatility and uncertainty have created challenges that impact us. The RioCan team has evolved a portfolio to thrive in all economic climates and delivered strong operational performance that will provide future benefits.

Dennis: We also continue to have access to multiple sources of capital and have made significant progress in our 2020 for refinancing plant.

Dennis: <unk> completed about $1 billion of financing so far this year.

Dennis: Long term financings were completed at a weighted average interest rate of five 3% across a mix of debentures commercial mortgages and CMA sea mortgages inclusive of the benefits of Patrick.

Dennis: Before we open the line for question it goes without saying that macroeconomic volatility and uncertainty has created challenges that impact our industry.

Dennis: <unk> team has evolved our portfolio to thrive in all economic climates and delivered strong operational performance that will provide future benefits.

Dennis: We remain focused on continuous improvement of our portfolio through tenant quality and capital recycling and on our balance sheet through our conservative payout ratio and disciplined capital allocation. With that, I will now turn over the call to the operator for questions.

Dennis: We remain focused on continuous improvement of our portfolio through tenant quality and capital recycling.

Dennis: And to our balance sheet through our conservative payout ratio and disciplined capital allocation.

Dennis: With that I will now turn over the call to the operator to take questions.

Speaker Change: Thank you.

Operator: Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. Our first question comes from Sam Damiani of TD Security. Please go ahead; your line is open.

Dennis: Please press star followed by the number one if you'd like to ask a question I'm showing your devices on muted like Cleveland shorts anticipate.

Operator: Our first question comes from Sam Damiani of TD Securities. Please.

Operator: Please go ahead your line is open.

Sam Damiani: Thanks, and good morning, everyone. A great overview. Some of my questions have already been answered. But I guess my first question will be just on tenancy. You know, the vacancy did increase in the quarter, as you say, it was expected. As we stand here today, you know, is there anything you know that's coming in the next quarter or two, both in terms of, you know, known vacant properties and, and potential, you know, new, new tendencies coming on?

Sam Damiani: Thanks, and good morning, everyone.

Sam Damiani: Great overview some of my questions have already been answered but.

Sam Damiani: I guess my first question will be just on the tenancy the vacancy did increase in the quarter as you say it was it was expected as.

Sam Damiani: As we stand here today is there anything you know this is coming in the next quarter or two both in terms of.

Sam Damiani: Known vacates and potential new new tenancies coming online.

Jonathan Gitlin: Hey, good morning, Sam. No, I would say that there's nothing other than the usual course, you know, the tenants that are expirations that are coming up, most of which we already have backfill solutions for, but I wouldn't say there are any failures or large spaces coming back to us on the retail front. That may be just that we do.

Speaker Change: Hey, good morning, Sam.

Speaker Change: I would say that Theres nothing.

Jonathan Gitlin: Other than normal course.

Jonathan Gitlin: Tenants that have expirations that are coming up most of which we already have backfill solutions for it but I wouldn't say there are any failures or large spaces coming back to us on the retail front.

Oliver Harrison: And as you're sorry, go ahead. Sorry, I was gonna say this is Oliver, just to add.

Speaker Change: Hey, maybe just add we do expect and as your sorry go ahead.

Oliver Harrison: that we do expect them to allow. And as your, sorry, go ahead. Sorry, I was gonna say this is Oliver, just to add in terms of the second part of your question, which was new tenants, we do expect to have the balance of the rooms and space has been bad for Fox, by the end of the year. That's great. Thank you. Thank you, Oliver. And then just on the dispositions, a little light this quarter. I was wondering what your outlook is in the near term and whether it would include any density to sort of bring down the average yield on your disposition program?

Oliver Harrison: Sorry, I should say this is Oliver I, just just to add in terms of the second part of your question, which was new tenants, we do expect that the.

Oliver Harrison: The balance of the rooms in spaces with vast white boxes.

Oliver Harrison: By the end of <unk>.

Oliver Harrison: Third quarter.

Oliver Harrison: Yeah.

Speaker Change: That's great. Thank you. Thank you Oliver.

Oliver Harrison: And then just on.

Oliver Harrison: The dispositions.

Speaker Change: A little late this quarter wondering what your outlook is in the near term and would it include any any density to sort of bring down the average yield on your disposition program.

Dennis: Nothing immediate, Sam, that we're relying on. As we've said for quite a while, we've done a lot of sales over the last five years, which has set us up well, where we don't need to rely on incremental dispositions of either density or income-producing properties. We have a number of dispositions that are already embedded through the condo sales process. That all being said, if opportunities arise that are extremely accretive for us to dispose of low cap rate assets or density, then we will absolutely look to take advantage of those opportunities. But again, as I said, we do not need to rely on them to put our balance sheet into the state that we're trying to get it into.

Speaker Change: Nothing immediate Sam that we're relying on is we've said for quite a while we've done a lot of sales over the last five years, which has set us up well, where we don't need to rely on incremental dispositions of either density or income producing properties, we have a number of disposition.

Dennis: That are already embedded through the condo sales process.

Dennis: That all being said if opportunities arise that are extremely accretive for us to dispose of low cap rate assets or density than we will absolutely look to action those those opportunities.

Dennis: But again as I said, we do not need to rely on them to put our balance sheet into the state that we're that we're trying to get it to.

Dennis: And Sam, one thing I do want to clarify, just because I'm not sure it comes through exactly this way in our disclosure, when we think about 11YV, that really is a disposition. So we've had a couple of transactions where we've had partial sales of 11YV, and these are effectively non-yielding dispositions. And we often, you would just see disclose the gain, but in addition to that, we've offloaded a proportionate share of the debt.

Speaker Change: And one thing I do want I wanted to clarify.

Dennis: I'm just as I'm not sure it comes through it exactly this way in our disclosure when we think about 11 Y V that really as a disposition. So we've had a couple of transactions, where we've had partial sales of 11 Y V and neither.

Dennis: Effectively non yielding dispositions that we often see disclose the game, but in addition to that we've offloaded a proportionate share of the debt. So when we think about this quarter. We recognized a gain on 11 Y V. But also the debt. So it's actually a $60 million disposition from an asset perspective.

Dennis: So when we think about this quarter, we recognize the gain on 11YV, but also the debt. So it's actually a $60 million disposition from an asset perspective, same as what we did late last year. So in total on 11YV, that's $120 million of dispositions. And in addition to that, we're avoiding future spend, which is another $40. So the balance sheet impact of those dispositions is $160 million, and it doesn't quite show up that way in our capital recycling disclosure. So I just wanted to clarify that point as well.

Dennis: Same as what we did late last year. So in total on auto level Y V. That's $120 million.

Dennis: Dispositions.

Dennis: In addition to that we're avoiding the future spend which is another 40. So the balance sheet impact of those dispositions is $160 million and it doesn't quite show up that way in our capital recycling disclosure. So I just wanted to clarify that point as well.

Sam Damiani: Last one for me is, in the NBNA, I think for the last, at least the last couple quarters, there's been three or four listed purchase obligations that would, I guess, take place over the next couple of years. I wonder if you could give a sense of the aggregate dollar amount of those and the mix between residential and commercial?

Speaker Change: Very appreciated.

Speaker Change: Last one for me is in the MD&A for I think for the last at least last couple of quarters, there's been three or four listed purchase obligations.

Sam Damiani: I guess it took place over the next couple of years I Wonder if you could give us a sense on the aggregate dollar amount of those in the mix between residential and commercial.

Sam Damiani: Yeah.

Dennis: So the vast majority is residential, and in terms of the aggregate dollar amount, I'm not sure if we've disclosed that; we haven't yet disclosed it, so we will provide more color as they get closer.

Sam Damiani: So the.

Dennis: Vast majority is residential.

Dennis: And in terms of the aggregate dollar amounts.

Dennis: I'm not sure if we've disclosed that.

Dennis: We haven't yet disclosed it so we.

Dennis: We will provide more color as they become.

Dennis: Well as they get closer.

Dennis: Yeah.

Sam Damiani: Okay, great. Thank you. I'll turn it back.

Speaker Change: Okay, great. Thank you I'll turn it back.

Speaker Change: Thanks Sam.

Operator: And our next question comes from Lorne Kalmar of Desjardins. Please go ahead.

Speaker Change: And our next question comes from Lauren Tomo Dalton. Please go ahead.

Lorne Kalmar: Good morning, everybody. I was just wondering about the TI, which looks to be up quite substantially, at least year over year. I was wondering if you could give a little bit more color there and sort of the outlook for the balance of the year and just was that really, outside of the bankruptcies, the big driver of the quarter over quarter decline in NOI?

Lorne Kalmar: Hey, good morning, everybody.

Operator:

Lorne Kalmar: On <unk> I was just wondering on the Ti as they look to be up quite substantially at least year over year.

Lorne Kalmar: I was wondering if you can give a little bit more color, there and sort of the outlook for the balance of the year and just was that really the outside of the bankruptcies the big driver of the quarter over quarter decline in NOI.

John Ballantyne: Yeah, Lorne, it's John Ballantyne. It is a bit of a timing issue. So there were a bunch of big deals that we did last year, a couple of grocery stores and the replacement of the Canadian Tire Box in Ottawa, a 140,000 square footer. It's really kind of a bleed of cost year over year, the cash actually going out in Q1 rather than

Lorne Kalmar: Yeah, Lauren it's John Valentine is a bit of a timing issue. So there were a bunch of big deals that we did last year.

John Ballantyne: Couple of grocery stores and.

John Ballantyne: Placement of the Canadian tire box in Ottawa, 140000 square footer, its really kind of a bleed up cost year over year.

John Ballantyne: The cash actually going out in Q1, rather than.

John Ballantyne: Last year.

John Ballantyne: Okay, so that's probably the best way

Speaker Change: Okay. Okay. That's around the way you do you expect that to kind of come.

John Ballantyne: Sorry

John Ballantyne: Sorry on the per square foot basis, yeah on the balance of the year, we expect it to come back now we are putting money obviously into the 10 boxes that we disclose so I think year over year, our total spend should be pretty consistent on the tenant allowance side.

John Ballantyne: Yeah, on the balance of the year, we expect to come back. Now, we are putting money, obviously, into the 10 boxes that we disclosed. So I think, year over year, our total spend should be pretty consistent on the tenant allowance side.

John Ballantyne: And just to add to that, Lorne, we're not seeing significantly higher demands from tenants to provide outsized TI's to get deals done. So it really is just a sort of an aggregated number that we've had to pay out because of the volume of deals we've completed over the last few months. But it's not to suggest that on a per square foot basis, these demands have increased from tenants.

Speaker Change: And just to also add to that Lauren.

John Ballantyne: We're not seeing significant higher demands on from from tenants to provide outsized Ti has to get deals done. So it really is just a sort of an aggregated number.

John Ballantyne: But we have had to pay up because of the volume of deals. We've done we've completed over the last few months, but it's not to suggest that on a per square foot basis. These demands have heightened from from tenants.

John Ballantyne: Yeah.

Lorne Kalmar: Okay, that certainly wouldn't make sense given the commentary around the leasing environment right now. On the bad boy of rooms and spaces, do you expect to receive any settlement income from those?

Lorne Kalmar: Okay, I, certainly wouldn't make sense given the commentary around the leasing environment right now.

Lorne Kalmar: On the bad boy in rooms, and spaces do you expect to receive any settlement income from those.

John Ballantyne: Rooms and spaces, likely. We will get a bit of a settlement on both, but it'll be pennies on the dollar, and it'll take a little bit to unwind.

Lorne Kalmar: Rooms and spaces.

John Ballantyne: Likely we will get a bit of a settlement on both but it'll be pennies on the dollar and then it'll take a little bit online bus.

John Ballantyne: keeping in mind too that we've mitigated by backfill, and so we don't have a lot of damages to suggest that we've incurred. Oh, fair enough.

John Ballantyne: Keeping in mind too that we've mitigated with that buyback fill them. So.

John Ballantyne: We don't have a lot of damages to suggest.

John Ballantyne: We've incurred.

Lorne Kalmar: Oh, fair enough. Okay, that. And then maybe just maybe one last one for me. Outside of the condo inventory gains and the $17 million of profits, I guess with the $12 million this quarter and the $5 million expected next quarter, is there anything else one time that's included in the 2024 FFO guidance?

Speaker Change: Fair enough, okay that makes sense.

Lorne Kalmar: And then just maybe one last one for me outside of the condo inventory gains in the $17 million of profits I guess it was the $12 million this quarter and the $5 million expected next quarter is there anything else. One time that is included in the 2024 <unk> guidance.

Lorne Kalmar: Yeah.

Dennis: Yeah, I can't say there's anything that kind of stands out, per se; there are always things that happen throughout the year. But I wouldn't say there's anything else, or anything abnormal, necessarily.

Speaker Change: I can't say, if there's anything that kind of stands out.

Dennis: Per se, there's always things that happen throughout the year.

Dennis: But I wouldn't say, there's anything else anything abnormal necessarily.

Lorne Kalmar: Okay, thank you very much. I will turn it back.

Speaker Change: Okay. Thank you very much I will turn it back.

Speaker Change: Thanks, a lot.

Operator: Our next question comes from Mike Markidis of BMO. Please go ahead.

Lorne Kalmar: Our next question comes from Mike <unk> of BMO. Please go ahead.

Michael Markidis: Thanks, operator. Good morning, everybody.

Michael Markidis: Thanks, operator, good morning, everybody.

Michael Markidis: You know, the retail backdrop certainly seems favorable. So I guess, unfortunately, for you guys, my questions are going to be focused on some other areas. But just on the first one, maybe a bit of an accounting question here. But I guess the commercial, the retail component of the well, I know not everyone's in operation, but I think the majority, more than 90%, are in possession. So I'm just looking at the $200 million fund balance still there and wondering if you could just give us a reminder of the accounting impact as we move forward, just as it relates to straight-line rent that is in FFO today and capitalized interest on the remaining part balance that may or may not have hit the income statement.

Michael Markidis: The retail backdrop, certainly seems favorable so I.

Speaker Change: Yes. Unfortunately for you guys my questions are going to be focused on some other areas but.

Michael Markidis: Just on the first one.

Michael Markidis: Maybe a bit of an accounting question here, but I guess the commercial the retail component of the well.

Michael Markidis: Everyone's in operation, but I think majority of more than 90% are in possession. So I'm just looking at the $200 million.

Michael Markidis: <unk> still there and I'm wondering if you could just give US a reminder of the.

Michael Markidis: Accounting impact as we move forward just as it relates to.

Michael Markidis: Straight line rent that is <unk> today in capitalized interest on the remaining part balance.

Michael Markidis: It may or may not have hit the income statement.

Dennis: So most of what's left in the PUD balance is going to relate to building out the balance of the well, as well as there are some TIs in there, as well as 450 the well getting built up. The PUD transfers will happen as units go into possession. So we still have some of those transitioning, with the largest being the market. As that opens up, we'll see that transition out over the balance over the next couple of quarters as those tenants begin to pay rent.

Michael Markidis: So most of what's left in the in the pod balance is going to relate to.

Dennis: Building out.

Dennis: The balance of the world as well as there's some ti isn't there as well as a $4 50, the well.

Dennis: Getting getting built out the pud transfers will happen as.

Dennis: You just go into production. So we still have some of those transitioning.

Dennis: With the largest being the market. So as that opens up we will see that transition out of over the balance over the next couple of quarters.

Dennis: As those tenants to pay rent.

Michael Markidis: Okay, so I mean, simplistically, if I assume an average yield on the project, I'm going to see a $211 million estimated cost to complete, which I'm probably going to apply some sort of yield to that in terms of the incremental straight line rent and then eventually the cash rent that that comes on.

Speaker Change: Okay. So I mean, simplistically, if I assume an average yield on the project are going to see a $211 million estimated cost to complete which their own product do we just apply.

Michael Markidis: Sort of a yield to that in terms of the incremental.

Michael Markidis: Straight line rent and then eventually cash rent, but that comes on.

Dennis: That's probably a pretty reasonable approach. And then, and then likewise, you've got as you roll off the capitalized interest, you've got those balances transferring out like an ad for the average capital, the capitalized interest rate, which is about 3.85 or so that we disclosed in our MDI.

Michael Markidis: That's probably a pretty reasonable approach and then.

Dennis: And then likewise, you've got as you roll off the capitalized interest you've got those balances transferring out like in the average capital capitalized interest rate, which is about 3.85 or so that we disclosed in our MD&A.

Michael Markidis: Okay, no, that's helpful. Thanks. You know, just with respect to the RioCan living portfolio, I guess we've seen a little bit of data suggest that market rents in Toronto, specifically at the high end of the rent per square foot range, may be softened a little. I think you guys mentioned some turnover you're experiencing at a single building in Toronto. And then I'm not sure if this was a mistake or if I'm reading too much into it.

Speaker Change: Okay No that's helpful. Thanks.

Michael Markidis: Just with respect to the Rio can living portfolio I guess, we've seen a little bit of data suggests that market rents for in Toronto specific play at the high end of the rent per square foot range or may be softened a little.

Michael Markidis: I think you guys mentioned some turnover you're experiencing at a single building in Toronto.

Michael Markidis: And then I'm not sure. If this was a mistake or am I reading too much into it but it looks like when you talked about the lease up at four.

Michael Markidis: But it looks like 450, the well, you had incremental lease up, but the narrative changed from rents being above expectations to in line with expectations. So just given sort of that mosaic theory there, I was wondering if you get a little bit of expanded cover on what you're seeing.

Michael Markidis: For 50 of the well.

Michael Markidis: Incremental lease up but the narrative changed from rents being above expectations in line with expectations. So just given sort of that most of the activity. There I was wondering if you could give us a little bit of expanded color on what you're seeing.

Dennis: Yeah, what I would say is it's in line with higher expectations. So, and this may be, it's a point to clarify, when we think about expectations relative to the pro forma, which is what we were often referring to before, we're still well ahead of that. I think the expectations that we're referring to in that threshold are our current year budget. So we're staying, we're in line with that, which was, you know, significantly higher than the original expectation. So, in line with higher expectations, is maybe what I should say.

Speaker Change: Yes, what I would say is it's in line with higher expectations. So that maybe it is important to clarify when we think about expectations relative to the pro forma which is what we are often referring to before we're still well ahead of that.

Dennis: Yeah, the expectations that were doing that press release is our current year budget.

Dennis: So were state were in line with that which was significantly higher than the original expectation so in line with higher expectations.

Dennis: And in terms of the overall market, Mike, you know, it is very seasonal, dry rates month to month. And, you know, last month I would have said there was a little bit of softness, and this month we're seeing a little more strength. So it really is moving around, but I think the trends are still very favorable, particularly in Toronto, but we're also seeing strength in Calgary and Ottawa.

Dennis: Sure.

Dennis: And in terms of the overall market Mike.

Dennis: It is very seasonal gyrates month to month.

Dennis: Last month I would've said, there was a little bit of softness in the spots, we're seeing a little more strength. So it really is moving around but I think the trends are still very favorable, particularly in Toronto, but we're also seeing strength in Calgary and Ottawa.

Michael Markidis: Okay, that's, that's helpful. Thanks.

Speaker Change: Okay. That's that's helpful. Thanks, and then just last one for me to turn it back and circle being a disciplined measured here on accounting, but.

Michael Markidis: I just lost one for me to turn it back and sort of being a bit of a nerd here on accounting, but Just with respect to 11 Yorkville, Dennis, you give some really good reports, so you give some really good color there with respect to how you look at the capital and disposition volume there. Can you just remind us of the residential development gain? That's, you know, that's clear. But I think there's a VTB associated with that. Just remind us what the impact of that is and when it rolls off.

Michael Markidis: Just with respect to 11 Yorkville Dennis you gave some really good. Unfortunately, you gave some really good color there with respect to the how you look at the capital and the disposition volume. There can you just remind us the residential development game. That's that's.

Michael Markidis: Clear, but I think theres, a BTB associated with that just remind us what the impact of that as and when it rolls off.

Dennis: Right, yes, we gave a VTB as part of the purchase, and so we'll earn interest on that, and it will unwind when the units close. So at the end of the end of the project, so it's about $20 million of aggregate loans in there that are carrying a

Dennis: Right, Yes, so we gave a BTB with as part of the purchase.

Dennis: And so we will earn interest on that and it will unwind.

Dennis: When the when the.

Dennis: That's close so at the end of at the end of the project. So it's about $20 million of aggregate.

Dennis: Mezz loans in there that are carrier rate around that.

Dennis: 10%.

Dennis: and the U.S. Trade Department as well as throughout the course. Bob

Speaker Change: Gotcha so.

Dennis: So that's up of course.

Speaker Change: But yes.

Dennis: 2025 mostly, right? So you'll have that benefit throughout this year on the mezzanine.

Dennis: Throughout 2025, mostly right. So you'll have that benefit shrimp. This year on the Mezz loan that's correct.

Dennis: That's correct. Right, that's correct. Okay. Thank you for the clarification. Congratulations on a strong quarter. I'll turn it back.

Speaker Change: That's correct okay.

Dennis: Thank you for the clarification and congrats on the strong quarter I'll turn it back thank you.

Speaker Change: Thanks, Mike Thanks, Mike.

Operator: And our next question comes from Mario Sarek of Spatia Bank. Please go ahead. Good morning, and thank you.

Mario: And our next question comes from Mario Sorry off price Your bank. Please go ahead.

Mario Sarek: Good morning, and thank you for taking the questions. The first one is just coming back to the 2024 guidance, the intact guidance. Has the mix of recurring FFO for retail and expected residential gains changed at all since you put it out originally? I'm asking just because of the post-quarter incremental decision at 11YV. No. Okay. Coming back to your comment on the grocery tenancy, and specifically, thinking about how it impacts the cap rate on the property. You mentioned that growth is improving because of it all. What's your estimation in terms of the cap rate compression by simply replacing a big box store with a grocery anchor at a property?

Mario Sarek: Hi, good morning, and thank you for taking the question.

Mario Sarek: First one just coming back to the 2020 for guidance.

Mario Sarek: Tax guidance.

Mario Sarek: Has the mix of recurring ethanol from retail.

Mario Sarek: Unexpected residential gains changed at all since you put it out originally I'm asking just because of the fourth quarter incremental.

Mario Sarek: Might be.

Mario Sarek: No.

Mario Sarek: Okay.

Mario Sarek: Coming back to your comment on the grocery tenants specifically.

Mario Sarek: About how it impacts the cap rate on the property.

Mario Sarek: You mentioned that both are improving because of that all else equal.

Mario Sarek: Your estimation in terms of the cap rate compression.

Mario Sarek: Replacing.

Mario Sarek: A big box store with a grocery anchored property.

Dennis: It's a good question, and it's a nuanced answer, because it really depends on how big the grocery is relative to the rest of the center and how impactful it would be to the co-tenancies it creates. And I think, by and large, it is again, anywhere from, you know, a five basis point compression to a 40 basis point compression based on what we're seeing in the market. But again, before we make these considerations or these changes to our valuations, Mario, as you can appreciate, it gets pretty scientific, and we will look at comps in the market relative to what it was previously as a power center and relative to what it is with But I definitely think that's a logical range, depending on how big the grocery store is. And I should mention

Mario Sarek: That's a good question and it's a nuanced answer because it really depends on how big the grocery is relative to the rest of the center and how impactful therefore, it would be to the co tenancies that creates.

Dennis: And I think by and large it is.

Dennis: Again anywhere from now on.

Dennis: Five basis point compression to a 40 basis point compression based on what we're seeing in the market, but again before we make these considerations are these changes to our valuation scenario as you can appreciate it gets pretty scientific and we will look at comps in the market relative to what it was previously.

Dennis: As a power center and relative to what it is with the grocery anchor just looking at some of the other transactions that have happened or valuations within our own portfolio for some of our assets, but I definitely think that's a logical range depending on how big the groceries and I should mention we haven't reflected valuation.

Dennis: And I should mention, we haven't reflected valuations through our Q1 valuations; none of this is reflected at this point. So it's something that we're going to be working through in Q2, and it would come through in those results if we do make a change there.

Dennis: Through our Q1 valuation none of this is reflected at this point. So it's something that we're going to be worked it through Q2 and it would come through and those results are if we do make a change there.

Mario Sarek: Got it. Okay. And then, associated question, I think you mentioned about a 50% increase in base rent on the 65,000 square feet, again, conversion to groceries that he's done. How should we think about the unlimited return that you're generating on the incremental TI that you're putting into the boxes, as John pointed out in some of his comments?

Speaker Change: Got it.

Dennis: Okay and then.

Mario Sarek: Associated question I think you mentioned about a 50% increase in base rent on the 65000 square feet.

Mario Sarek: Again conversions groceries.

Mario Sarek: But he's done.

Mario Sarek: Should we think about the Unlevered return.

Mario Sarek: You're generating on the incremental ti that youre, putting into the boxes as Don pointed out.

Mario Sarek: Some of his commentary.

Mario Sarek: Yeah.

John Ballantyne: Yeah, I don't have the exact math for you, Mary, and we can certainly provide that to you. But we think it's, you know, somewhere between the high and low.

Speaker Change: Yeah, I don't have the exact math for you Mario and we can certainly provide that to you, but we think it's somewhere between the high teens.

John Ballantyne: Yeah.

Mario Sarek: Got it. So that's the unlevered high-tech 20%

Speaker Change: Got it.

Speaker Change: Hi, Debbie.

Mario Sarek: 20%.

John Ballantyne: Yeah, the return on capital on these deals is very strong. We typically would target any kind of capital we invest to be a minimum unlimited return of 8.5%. These particular deals are much higher than that.

Mario Sarek: Return on capital on these deals is very strong we typically would target any kind of capital we invested via a minimum unlevered return of eight 5%. These particular deals are much higher than that.

Mario Sarek: Got it. And just to be clear, John, you're referring to only good return models.

Mary: Got it and just to be clear and John you're on good returns not levered.

John Ballantyne: Those are our monitored returns. Yeah.

Mario Sarek: These areas those are unlevered returns yet.

Mario Sarek: Okay, my last one, and just coming back to the MES program. Sorry if I missed it, but I'm not sure if you disclosed what the average MES loan rate you're achieving is and how that would compare to the kind of estimated stabilized top grade on the product that you're learning.

John Ballantyne: Okay.

Speaker Change: My last one just coming back to the Mezz program I'm, sorry, if I missed it but I'm not sure. If you disclosed what the average has gone away.

Mario Sarek: Youre, achieving and how that would compare to the kind of estimated stabilized cap rate on the product that you are lending against.

Mario Sarek: So I didn't kind of break out. Mario, can you repeat that?

Speaker Change: So I think it kind of broke out Mario can you repeat that.

Mario Sarek: Sorry about that. I'm asking about your MES program and kind of the average, I may have missed the disclosure, so I apologize, but your average MES loan rate and what you think, what kind of spread that loan rate looks like relative to your estimation of the stabilized cap rate on the property that you're looking at.

Mario Sarek: Oh, sorry about that.

Mario Sarek: Im asking you about your remodel program and kind of the average I may have missed the disclosure so I apologize, but your average mezz.

Mario Sarek: The loan rate and.

Mario Sarek: What you think what kind of spread.

Mario Sarek: Right.

Mario Sarek: It looks like relative to your estimation of the stabilized cap rate.

Mario Sarek: On the property that you once again.

Dennis: Yeah, so, again, the average interest rate is, again, double digits, but it's somewhere, it's probably somewhere between 10 and 12%. And in terms of the cap rates of the properties that we're lending against, I mean, again, our assessment is that there's usually going to be about 400 basis points of cushion, anywhere between sort of two and 400 basis points, between the asset value and the.

Speaker Change: Yeah. So.

Dennis: The average interest rate is again, it's double digits, but it's somewhere it's probably somewhere between 10 and 12% and in terms of the cap rates of the properties that we're lending against the game are.

Dennis: Our assessment is that there is usually going to be about 400 basis points of cushion.

Dennis: Anywhere between sort of two and 400 basis compression between the asset value and the two fundamentals.

Dennis: And I think the thing that's interesting with this program from a risk perspective is that in this environment, because of the coverage ratios from first mortgages, that first mortgages are getting curtailed back from previously 65%, say loan to value, to 50 to 55% loan to value. So we're doing MES loans that are stepping up into the, you know, filling a gap up till 70. So these aren't MES loans up to the 90% level, like you may have seen in the past; second mortgages basically fill in a gap between 50 to 70.

Dennis: And I think the thing that's interesting with this program from a risk perspective is that.

Dennis: We're seeing in this environment because of.

Dennis: Just just coverage ratios from first mortgages that first mortgages are getting curtailed back from previously a 65% say loan to values of 50% to 55% loan to value.

Dennis: So we're doing mezz loans that are stepping up into the <unk>.

Dennis: GAAP up till 70, so these aren't mezz loans up to in the 90% level like you may have seen in the past the second mortgages basically fill in a gap between 50 to 70, so theres a lot of value cushion there.

Dennis: So there's a lot of value cushion there in these loans. And I think our average rate is around, we're just looking at disclosure, around 11%. Yeah, and again, all assets that we would be comfortable owning.

Dennis: And these loans and I think our average rate is around.

Dennis: We're just look at the disclosures around 11% and again all assets that we would be comfortable owning if need be.

Dennis: <unk>.

Operator: Got it. That's helpful. Thank you.

Speaker Change: That's helpful. Thank you.

Operator: Yeah.

Speaker Change: Thanks Mario.

Pammi Bir: And our next question comes from Pammi Bir of RBC. Please go ahead.

Operator: And our next question comes from Amit <unk> of RBC. Please go ahead.

Pammi Bir: Thanks, good morning. I just wanted to clarify the commentary on the impact of releasing some of the vacancies that you talked about. How quickly does that ramp up into cash NOI? And, I guess, maybe more specifically, does the 3% same property NOI guide for the year assume that the bulk of that space is released and cash NOI is produced this year?

Pammi Bir: Thanks, Good morning.

Pammi Bir: Just wanted to clarify the commentary on the impact of releasing some of the vacancies that you talked about.

Pammi Bir: How quickly does that ramp up into cash NOI.

Pammi Bir: And I guess, maybe more specifically does the 3% same property NOI guide for the year I assume that the bulk of that space re leased and cash NOI producing this year.

Dennis: Yeah, I would say the bulk, the majority of it, this year, but it depends on the type of tenancy. Some of the larger tenancies, like the grocery stores, do take a little bit more time to fit out and grant occupancy. So the actual cash rent for some of them will be pushed into early next year. But there is a lot of work being done to ensure that these tendencies are incorporated as quickly as possible, and that is what our 3% guidance is based on. I would say, you know,

Speaker Change: Yes, I would say the bulk the majority of it is this year, but it depends on the type of tenancy that some of the larger tenants you'd like the grocery stores do take a little bit more time to fit out and grant occupancy. So the actual cash rent and some of them will be pushed into early next year.

Dennis: But there is a lot of.

Dennis: Work being done to ensure that these tenants. He has got in as quickly as possible and that is where our 3% guidance is based on I would say just adding on that if we were going to identify a risk a risk it's a bit of a eric what's the risk to the guidance. If we are able to get tenants that are higher quality and trade that off for us a bit of a longer fixed rate.

Dennis: I would say, you know, just adding on that there, if we were going to identify a risk, it's a bit of an air quotes risk to the guidance, is if we are able to get tenants that are higher quality and trade that off for us, you know, a bit of a longer fixturing period, that is something that could hit that number, so to speak, but to the benefit of multiple future years. So that's, you know, it's, I guess you could call it a risk when you're thinking about a current year number, but it's a benefit for sure, long term, if that's what happens.

Dennis: <unk>.

Dennis: That is something that could.

Dennis: We hit that number so to speak.

Dennis: But to the benefit of multiple future years, so thats.

Dennis: Yes.

Dennis: I guess you could call it a risk when youre thinking about current year number but it's.

Dennis: Benefit for sure long term if that's if that's what happens.

Pammi Bir: Right, yeah, no worthwhile trade in those types of scenarios. I did find that Costco land lease interesting. I'm just curious if you can provide maybe some more color on how that deal evolved and what made that site work for them.

Speaker Change: Right, Yeah, no worry.

Dennis: While trade and those types of scenarios.

Pammi Bir: Yeah, I did find out Costco land lease interesting I'm just curious if you could provide maybe some more color on how that deal involved in and what made that site work for them.

Pammi Bir: Okay.

Jonathan Gitlin: I mean, Costco can speak to their own sort of views on the site, but I think obviously they just didn't have another property in that area that was viable. This one is right off of the highway, it's got great access and good co-tenants for them. For us, though, it was the opportunity to take what was, I would say, a bit of an oversized power center that was built in the earlier 2000s when that was a logical trend, where we were continuously keeping it reasonably occupied, but it always came at the expense of human capital and, of course, financial capital.

Speaker Change: I mean, costco can speak to their own.

Jonathan Gitlin: The reviews on the site, but I think obviously, they just didn't have another.

Jonathan Gitlin: Property in that area that was viable. This one is right off the highway it's got great access and good co tenants for them for US, though it was the opportunity to take what was a I would say a bit of an oversized power center that was built in the earlier two thousands when that was a logical trend.

Jonathan Gitlin: We were continuously keeping it reasonably occupied but it always came at the expense of human capital and of course financial capital and whenever we have the opportunity to bring in an exceptional tenant one that will draw a tremendous amount of traffic to the rest of the center, which is also a grocery anchored and.

Jonathan Gitlin: And now we have the opportunity to bring in an exceptional tenant, one that will draw a tremendous amount of traffic to the rest of the center, which is also grocery anchored and restaurant anchored. And I think it just improves the quality of the portfolio, but also it just takes away a significant amount of risk in having a lot of these medium and smaller boxes, that there were just a few too many of them on that site. So, for us, it was a no-brainer. Financially, it works out quite well for us. And again, anytime we can have a Costco, we've seen from other sites, they make for a tremendous co-tenant.

Jonathan Gitlin: And restaurant anchored and I think just up the quality of the portfolio, but also it just takes away a significant amount of risk and having a lot of these medium and smaller boxes that.

Jonathan Gitlin: There were just a few too many of them on that side. So for US. It was a no brainer financially it works out quite well for us and again anytime we can have a costco we've seen from other sites. They just make for a tremendous co tenant.

Pammi Bir: Okay, last one for me, just, you know, with respect to HBC, sorry, they're closing some additional stores. So can you maybe just talk about what's the longer-term outlook with respect to the JV that you have with them and, you know, any potential implications for stores in your portfolio?

Speaker Change: Right. Okay. That's that's helpful.

Pammi Bir: Okay last one from me just with respect to the HP HBC sorry.

Pammi Bir: They're closing some additional stores. So can you maybe just talk about what what's the longer term outlook with respect to the JV that you have with them.

Jonathan Gitlin: We don't believe so. I mean, we speak to HBC often as a partner, remembering that we own the properties with them, for virtually every one of our tenancies is embedded in our property where we own a 20% or just about a 20% interest in them, and they own the other 80%. And that real estate, by and large, is very strong, well-positioned real estate. So I don't see them walking away from those stores.

Jonathan Gitlin: And any potential implications for stores in your portfolio.

Jonathan Gitlin: We don't believe so I mean, we speak to HBC optimists partner remembering too that we own the properties with them.

Jonathan Gitlin: Virtually every one of our our tenancies are embedded in our property, where we own a 20% or just about a 20% interest in them and they own the other 80% and that real estate.

Jonathan Gitlin: And largest very strong well positioned real estate, so I don't see them.

Jonathan Gitlin: Walking away from those stores. They are all according to HBC doing reasonably well and I think HBC again, letting them speak for themselves, but they have presented to us.

Jonathan Gitlin: They are all, according to HBC, doing reasonably well. And I think HBC, again, letting them speak for themselves, but they have presented to us their business plan going forward. I think there is room for them or an opportunity for them to be a viable business going forward. And I think those stores, based on all those factors, will do fine. But if they weren't, again, the whole premise behind SJV is that exceptionally strong, well-located real estate comes back into our hands absent that tenancy.

Jonathan Gitlin: Their business plan going forward I think there is room for them or opportunity for them to be a viable business going forward and I think those stores based on all of those factors will be fine, but if they werent again the whole premise behind this JV is exceptionally strong well located real estate comes back into our hands.

Jonathan Gitlin: Absent that tenancy, but as I said, we don't have we don't see significant risk even though there are of course always rumors about that name.

Jonathan Gitlin: But as I said, we don't see a significant risk, even though there are, of course, always rumors about that name. But if those risks were to happen, we are comfortable with the real estate that underlies those tenancies, which we, of course, are owners of. And in particular, a couple of the strong...

Jonathan Gitlin: But if those risks were too.

Jonathan Gitlin: Were to happen, we are comfortable with the real estate that underlies those tenancies, which we of course are owners up and in particular, a couple of the strong locations, namely Vancouver, Montreal or in a zoning process. So they have.

Dennis: And in particular, a couple of the strong locations, namely Vancouver and Montreal, are in the zoning process. So they are, as Jonathan said, extremely well located in those markets and have upside potential through zoning in the future as well. So, you know, numerous backstops.

Dennis: As Jonathan said extremely well located in those in those markets and have upside potential through through zoning in the future as well so numerous back.

Dennis: Backstops.

Pammi Bir: Got it. Thanks very much for the caller. I will turn it back.

Speaker Change: Got it.

Speaker Change: Thanks, very much for the color I will turn it back.

Speaker Change: Thanks Bonnie.

Operator: Thank you. We have no further questions at this time. So I'd now like to turn the conference back to President and CEO, Jonathan Gitlin.

Speaker Change: Thank you.

Pammi Bir: No further questions at this time, so I'd now like to turn the conference back to President and CEO Jonathan Chaplin.

Jonathan Gitlin: Thank you everyone for joining us today, and we'll look forward to seeing you all soon.

Jonathan Gitlin: Thanks, everyone for joining us today, and we'll look forward to seeing you all soon.

Operator: This concludes today's call. Thank you for joining us. You may now disconnect your line.

Jonathan Gitlin: This concludes today's call. Thank you for joining you may now disconnect your line.

Operator: Yeah.

Operator: [music].

Operator: Okay.

Operator: Yeah.