Q2 2024 RioCan Real Estate Investment Trust Earnings Call
Speaker Change: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust second quarter 2024 conference call and webcast.
Operator: Second Quarter 2024 Conference Call and Webcast. As a reminder, this call is being recorded. I would now like to turn the conference over to Ms. Jennifer Suess, Senior Vice President, General Counsel, ESG, and Corporate Secretary. Ms. Suess, you may begin.
Speaker Change: As a reminder this call is being recorded. I would now like to turn the conference over to Ms. Jennifer Suess, Senior Vice President, General Counsel, ESG, and Corporate Secretary. Ms. Suess, 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 statement. 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.
Speaker Change: 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 statement.
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, GAP, 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 Principal Measures, GAAP, under IFRS.
Speaker Change: 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: 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 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 June 30th, 2024, and management's discussion and analysis related thereto, as applicable, together with RioCan's most recent annual information form, which is all available on our website and at www.cdarplus.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Additional information on the material risks that could impact our actual results.
Speaker Change: and the estimates and assumptions to be 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 June 30, 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.com.
Unknown Executive: Thanks, Jennifer, and thank you all for joining RioCan Senior Management. Today, I'll discuss our operational highlights for the quarter, focusing specifically on our stand at leasing results. RioCan's portfolio and team have successfully built upon sequential quarters of positive momentum, setting new records and leasing results this quarter. These results are a testament to the sustained demand and attractive growth prospects for RioCamp's high-quality retail portfolio. However, retail space is scarce, and building new supplies is currently in a standstill. Canada's major markets are witnessing substantial population growth. RioCan boasts a unique combination of a top-tier team and ideal locations in Canada's six largest and most densely populated cities.
Speaker Change: Thanks, Jennifer, and thank you all for joining RioCan's senior management team.
Speaker Change: Today, I'll discuss our operational highlights for the quarter, focusing specifically on our stand-in-the-net leasing results.
Speaker Change: RioCan's portfolio and team have successfully built upon sequential quarters of positive momentum, setting new records and leasing results this quarter.
Speaker Change: These results are a testament to the sustained demand and attractive growth prospects for RioCamp's high-quality retail portfolio.
Speaker Change: Retail space is scarce, and building new supply is currently in a standstill. Canada's major markets are witnessing substantial population growth.
Speaker Change: RioCan boasts a unique combination of a top-tier team and ideal locations in Canada's six largest and most densely populated cities.
Unknown Executive: This backdrop, coupled with our resilient tenant mix and persistent emphasis on portfolio quality, are the ingredients for sustained demand and enable RioCan to preserve stability and fuel growth in the long term. Three key elements drive our leasing results for the quarter. First, our portfolio has never been more desirable or more defensible. Within a five-kilometer radius of Rio Kansas, the average population is 273,000 people with an average household income of $148,000.
Speaker Change: This backdrop, coupled with our resilient tenant mix and persistent emphasis on portfolio quality are the ingredients for sustained demand and enable RioCan to preserve stability and fuel growth in the long term.
Unknown Executive: In the last year alone, each of these demographic statistics has improved by 5%. Since 2017, the average population and household income within a five-kilometer radius of RioCan sites have increased by a staggering 77% and 45%, respectively. Second, our leasing strategy prioritizes strong and stable essential tenants who will drive traffic in any economic backdrop and attract similarly high-quality tenants to our property. Approximately 88% of RioCan's annualized net rent comes from strong and stable tenants. Third, the current market dynamics include population growth and retail scarcity. Scarcity is due to tight zoning regulations and the exorbitant cost to build. These conditions will not change.
Speaker Change: Three key elements drive our leasing results for the quarter. First, our portfolio has never been more desirable or more defensive.
Speaker Change: Within a 5 km radius of Rio Kansas, the average population is 273,000 people, with an average household income of $148,000.
Speaker Change: In the last year alone, each of these demographic statistics has improved by five percent.
Speaker Change: Since 2017, the average population and household income within a 5 km radius of RioCan sites has increased by a staggering 77% and 45% respectively.
Speaker Change: Second, our leasing strategy prioritizes strong and stable essential tenants who will drive traffic in any economic backdrop and attract similarly high quality tenants to our property.
RutoCain: Approximately 88% of RioCan's annualized net rent comes from strong and stable tenants.
RutoCain: Third, the current market dynamics include population growth and retail scarcity. The scarcity is due to tight zoning regulations and the exorbitant cost to build. These conditions will not change.
Unknown Executive: Our retail portfolio's committed occupancy increased to 98.3% in the second quarter, reflecting ongoing demand. It released more than 1.15 million square feet of space in the second quarter, nearly half a million of which were newly constructed. The strength of our portfolio, combined with robust market conditions, resulted in a record-breaking leasing spread. The leasing spread on new deals reached an all-time high of 52.5%, driving blended leasing spreads to 23.4%. Renewal spreads were also healthy, at 10.7%.
RutoCain: Our retail portfolio's committed occupancy increased to 98.3% in the second quarter, reflecting ongoing demand. We leased more than 1.15 million square feet of space in the second quarter, nearly half a million of which were new leases.
Unknown Executive: 2nd quarter, 2024 conference call and webcast. As a reminder, this call is being recorded.
Jennifer Suess: I would now like to turn the conference over to Miss Jennifer Suess, Senior Vice President, General Counsel, ESG, and Corporate Secretary. Miss Suess, you may begin. Thank you and good morning everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG, and Corporate Secretary of RioCan.
RutoCain: The strength of our portfolio, combined with robust market conditions, resulted in record-breaking leasing spread.
RutoCain: The leasing spread on new deals reached an all-time high of 52.5%, driving blended leasing spreads to 23.4%.
Jennifer Suess: Before we begin, I am required to read the following cautionary statement. 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 objective, its strategies to achieve those objectives, as well as statements with respect to management's belief, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. You 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.
Unknown Executive: The average net rent of the new leases was $26.16 per square foot, a 19% increase over RioCan's average net rent. Alongside achieving record-breaking leasing spreads and enhancing the resilience of our income, our Q2 leasing stands out for two reasons. Firstly, we preemptively leased a 135,000 square foot unit in the GTA to Canadian Tire, which was set to become vacant later this year. Secondly, we released another two of the 10 vacant units that resulted from the failures of Bad Boy and Rooms and Spaces, which previously occupied 261,000 square feet of space in our center.
RutoCain: Renewal spreads were also healthy at 10.7%.
Speaker Change: The average net rent of the new leases was $26.16 per square foot, a 19% increase over RioCan's average net rent.
Speaker Change: Alongside achieving record-breaking leasing spreads and enhancing the resilience of our income, our Q2 leasing stands out for two reasons.
Speaker Change: Firstly, we preemptively leased a 135,000 sq. ft. unit in the GTA to Canadian Tire, which was set to become vacant later this year.
Speaker Change: Secondly, we released another two of the ten vacant units that resulted from the failures of Bad Boy and Rooms and Spaces, which previously occupied 261,000 square feet of space in our center.
Jennifer Suess: 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 principal measures, gap under IFRS. These measures do not have any standardized definition prescribed by IFRS, and are therefore unlikely to be comparable similar measures presented by other reporting issuers. Non-gap 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. RioCan's management uses these measures to aid in assessing the trust underlying for performance, and provides these additional measures so that investors may do the same.
Unknown Executive: As of August 8, 8 of the 10 locations, or 203,000 square feet, have been leased at significantly higher base rents, higher embedded year-over-year growth, and fewer restrictions and exclusions. Negotiations for the remaining two units are in the final stages.
Speaker Change: As of August 8, 8 of the 10 locations, or 203,000 square feet, have been leased at significantly higher base rents, higher embedded year-over-year growth, and fewer restrictions and exclusions.
Unknown Executive: While vacancies typically raise concerns, our defensive portfolio and leasing prowess turn temporary issues into opportunities for medium and long-term benefits with shopping center upgrades and space recycling with new tenants. As we recycle tenants, we purposefully and thoughtfully select retailers that enhance the cross-shop and convenience of our center. In doing so, we also accommodate the increasing space requirements of organizations such as Loblaws, Metro, Sobeys, Dollarama, Winners, and Homes, whose leasing achievements signify more than just strong operating metrics for a quarter.
Speaker Change: Negotiations for the remaining two units are in the final stages.
Speaker Change: While vacancies typically raise concerns, our defensive portfolio and leasing prowess turn temporary issues into opportunities for medium and long-term benefits, with shopping center upgrades and space recycling with new tenants.
Jennifer Suess: 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-gap financial measures, can be found in the financial statements for the period ended to June 30, 2024, and management's discussion and analysis related there too, as applicable together with RioCan's most recent annual information forms that are all available on our website, and at www.cdarkplus.com.
Speaker Change: As we recycle tenants we purposefully and thoughtfully select retailers that enhance the cross-shopping convenience of our centers.
Speaker Change: In doing so, we also accommodate the increasing space requirements of organizations such as Loblaws, Metro, Sobeys, Dollarama, Winners, and Homesteads.
Speaker Change: Are leasing achievements signify more than just strong operating metrics for a quarter?
Unknown Executive: We've taken a purposeful approach to replace transitional tenants with more relevant and resilient retailers, including signing six new grocery leases that will transform free previous open air or urban retail assets into highly valued grocery anchored centers. Tenant upgrades lead to enduring organic growth as great retailers attract other great tenants. Building out spaces for these types of users takes more time than is required if we were to backfill with a lesser tenant. We've intentionally chosen to prioritize long- Consequently, we've adjusted our commercial SPO&OI guidance for 2024, excluding provisions, from 2% to 2.5% while maintaining our long-term commercial SDMOI guidance of 3%.
Unknown Executive: Thanks, Jennifer, and thank you all for joining RioCan's senior management team.
Speaker Change: We've taken a purposeful approach to replace transitional tenants with more relevant and resilient retailers, including signing six new grocery leases that will transform previous open-air or urban retail assets into highly valued grocery-anchored centers.
Jonathan Gitlin: Today, I'll discuss our operational highlights of the quarter focused on specifically on our standard net leasing results. RioCan's portfolio and team are successfully built upon sequential quarters of positive momentum, setting new records and leasing results this quarter. These results are a testament to the sustained demand and the track of growth prospects for RioCan's high quality retail portfolio, retail space of scarce, and building new suppliers currently in a standstill.
Speaker Change: Tenant upgrades lead to enduring organic growth as great retailers attract other great retailers.
Speaker Change: Building out spaces for these types of users takes more time than is required if we were to backfill with a lesser tenant.
Speaker Change: We've intentionally chosen to prioritize long-term quality and growth over short-term same-property NOI.
Jonathan Gitlin: Canada's major markets are witnessing substantial population growth. RioCan boasts a unique combination of a top tier team and ideal locations in Canada's six largest and most densely populated cities. The backdrop, coupled with our resilient tenant mix and persistent emphasis on portfolio quality or the ingredients for sustained demand, and enable RioCan to preserve stability and fuel growth in the long term.
Speaker Change: This decision results in temporary downtime, reducing SPNY for the current year.
Speaker Change: Consequently, we've adjusted our Commercial SPNOI Guidance for 2024 Excluding Provision to 2 to 2.5%, while maintaining our Long-Term Commercial SPNOI Guidance of 3%.
Unknown Executive: I'll briefly illustrate the sequence of this lead-through cycle to demonstrate how it impacts our results. First, the space comes back, causing a decrease in occupancy and creating a drag on FFO and same property NOI. Second, we secure a high-quality new tenant, which brings committed occupancy back up. Third, in recognition of the strength of this new tenancy, NAV improves, and, due to the straight line rent, so does FFO. And fourth, the tenant moves in, and the SPNOI improves.
Speaker Change: I'll briefly illustrate the sequence of this leasing cycle to demonstrate how it impacts our results.
Unknown Executive: Choosing high-quality tenants requires investing time and resources to build up the space to their standards, resulting in a longer gap between steps two and four. Simply put, replacing tenants with higher quality ones that offer better uses, as RioCan does, typically involves a cycle where there's an initial dip in some metrics, followed by stabilization, and then significant improvement. RioCan's results this year showcase numerous examples of our strategic decision in action. Last quarter, we saw a dip in occupancy and SPNOI, largely due to the vacancy of the 10 spaces I mentioned a moment ago. RioCan has filed leases in eight of the 10 states.
Jonathan Gitlin: Three key elements drive our leasing results for the court. First, our portfolio has never been more desirable or more defensive. Within a five-kilometer radius of RioCan's asset, the average population is 273,000 people, with an average household income of $148,000. In the last year alone, each of these demographic statistics is improved by a five percent. Since 2017, the average population and household income within a five-kilometer radius of RioCan's asset has increased by a staggering 77 percent and 45 percent respectively.
Speaker Change: First, the space comes back, causing a decrease in occupancy and creating a drag on FFO and same property NOI.
Speaker Change: Second, we secure a high-quality new tenant which brings committed occupancy back up.
Speaker Change: Third, in recognition of the strength of this new tenancy, NAV improves and, due to straight-line rent, so does FFO. And fourth, the tenant moves in and the SPNOI improves.
Speaker Change: Choosing high-quality tenants requires investing time and resources to build up the space to their standards, resulting in a longer gap between Steps 2 and 4.
Jonathan Gitlin: Second, our leasing strategy prioritizes strong and stable essential tenants who will drive traffic in any economic backdrop and attracts similarly high-quality tenants to our property. Approximately 88 percent of lewdocans annualized net rent comes from strong and stable tenants. Third, the current market dynamics include population growth and retail scarcity. The scarcity is due to tight zoning regulations and the exorbitant cost to build. These conditions will not change.
Speaker Change: Simply put, replacing tenants with higher quality ones that offer better uses, as RioCan does, typically involves a cycle where there is an initial dip in some metrics, followed by stabilization, and then significant improvement.
Speaker Change: RioCan's results this year showcase numerous examples of our strategic decisions in action.
Speaker Change: Last quarter, we saw a dip in occupancy and SPNOI, largely due to the vacancy of the ten spaces I mentioned a moment ago. Rio Can has signed leases for eight of the ten spaces.
Jonathan Gitlin: Our retail portfolio's committed occupancy increased to 98.3 percent in the second quarter, reflecting ongoing demands. We lease more than 1.15 million square feet of space in the second quarter, nearly half a million of which were new leases. The strength of our portfolio, combined with robust market conditions, resulted in record breaking leasing and spread. The leasing spread on new deals reached an all-time high of 52.5 percent, driving blended leasing spreads 23.4 percent. Renewal spreads were also healthy at 10.7 percent. The average net rent of the new leases was $26.16 per square foot and 19 percent increase over RioCan's average net rent.
Unknown Executive: We're now well into the second step of the process, doing the work to get all eight tenants in place. As a result, occupancy has increased. SPNOI, FFO, and NAVIMPACTS will follow as these tenants commence rents and open their doors, driving incremental traffic to our properties and, said simply, making them better. We've made a conscious, thoughtful, and responsible long-term decision to focus on high-quality tenancies to drive sustainable growth in FFO and NAB. Yes, the macroeconomic environment continues to show weakness and some volatility.
Speaker Change: We're now well into the second step of the process, doing the work to get all eight tenants in place. As a result, occupancy has increased.
Speaker Change: SPNOI, FFO, and NAV IMPACTS will follow as these tenants commence rents and open their doors, driving incremental traffic to our properties, and, said simply, making them better.
Speaker Change: We've made a conscious, thoughtful, and responsible long-term decision to focus on high quality tenancies to drive sustainable growth in FFO and NAB.
Speaker Change: Yes, the macroeconomic environment continues to show weakness and some volatility. However, our strategy is anchored in building a resilient portfolio that ensures steady growth.
Unknown Executive: However, our strategy is anchored in building a resilient portfolio that ensures steady growth. We've crafted a portfolio designed to absorb macroeconomic reverberations and intentionally focused on tenants who fare well in any economic environment. These tenants recognize the quality of our offers, and they are increasingly turning to RioCan to fortify their positions in the Canadian retail landscape. While RioCan remains focused on operations, our balance sheet is also a top priority, particularly within the current elevated interest rate environment. We are well equipped and are taking prudent steps to fortify our future and mitigate interest rate impact.
Jonathan Gitlin: Alongside achieving record breaking leasing spreads and enhancing the resilience of our income, our Q2 leasing stands out for two reasons. Firstly, we preemptively leased a 135,000 square foot unit in the GTA to Canadian Tire, which was set to become vacant later this year. Secondly, we released another two of the 10 vacant units that resulted from the failures of bad boy and rooms and spaces, which previously occupied 261,000 square feet of space in our center.
Speaker Change: We have crafted a portfolio designed to absorb macroeconomic reverberations and intentionally focus on tenants who fare well in any economic environment.
Speaker Change: These tenants recognize the quality of our offering, and they are increasingly turning to RioCan to fortify their positions in the Canadian retail landscape.
Speaker Change: While RioCan remains focused on operations, our balance sheet is also a top priority, particularly within the current elevated interest rate environment.
Speaker Change: We're well equipped and are taking prudent steps to fortify our future and mitigate interest rate impacts.
Jonathan Gitlin: As of August 8, 8 of the 10 locations for 203,000 square feet have been leased at significantly higher base rent, higher embedded year over year growth, and fewer restrictions and exclusions. Negotiations for the remaining two units are in the final state. While vacancies typically raise concerns, our defense support portfolio and leasing prowess turn temporary issues into opportunity for medium and long-term benefits with shopping center upgrades and space recycling with new tenants.
Unknown Executive: We're on track to achieve our adjusted net debt to EBITDA target range of eight to nine times. We've charted a clear roadmap to lower debt, including reducing construction spend by pausing new project starts and repatriating proceeds from inventory property sales. We've begun to recognize the benefits of our inventory portfolio. Looking ahead, inventory proceeds are expected to generate approximately $700 million in sales revenues and are earmarked for creative uses, such as debt repayment. We recognize that new sales of condominiums have slowed.
Speaker Change: We're on track to achieve our adjusted net debt to EBITDA target range of 8 to 9 times.
Speaker Change: We've charted a clear roadmap to lower debt, including reducing construction spend by pausing new project starts and repatriating proceeds from inventory property sales.
Speaker Change: We've begun to recognize the benefits of our inventory portfolio. Looking ahead, inventory proceeds are expected to generate approximately $700 million in sales revenues and are earmarked for creative uses such as debt repayment.
Jonathan Gitlin: As we recycle tenants, we purposefully and thoughtfully select retailers that enhance the cross-shop and convenience of our centers. In doing so, we also accommodate the increasing space requirements of organizations such as Lawblood, Metro, Sovi, Dollar Raman, Winners, and Homes.
Unknown Executive: Fortunately, we pre-sold approximately 90% of the over 2,500 units we will complete through 2026. The majority of these firm deals were secured before prices peaked. Additionally, for all units sold, meaningful purchase deposits mitigate risk as they motivate buyers to close or, in the unlikely case of default, can be used to insulate margins on resale. On the other side of our B-leveraging equation, we have the ramp-up of EBITDA through a steady stream of diversified NOI from development delivery, such as The Well, our flagship mixed-use development in Toronto's downtown west. On that note, the launch of Wellington Market as a Well in May was a resounding success. Traffic to the well has consistently been in the range of 200,000 visitors a week since it opened.
Speaker Change: We recognize that new sales of condominiums have slowed. Fortunately, we pre-sold approximately 90% of the over 2,500 units we will complete through 2026.
Speaker Change: The majority of these firm deals were secured before prices peaked.
Jonathan Gitlin: Releasing achievement by more than just strong operating metrics for a quarter. We've taken a purposeful approach to replace transitional tenants with more relevant and resilient retailers, including signing six new grocery releases that will transform three previous open air or open retail assets into highly valued grocery anchored centers. Tenant upgrades lead to enduring organic growth as great retailers attract other great retailers. Building out spaces for these types of users takes more time than is required if we were to backfill with a lesser tenant. We've intentionally chosen to prioritize long-term quality and growth over short-term same-property NOI. The decision results in temporary downtime reducing S&Y for the current year.
Speaker Change: Additionally, for all units sold, meaningful purchase deposits mitigate risk as they motivate buyers to close or, in the unlikely case of default, can be used to insulate margins on resale.
Speaker Change: On the other side of our deleveraging equation, we have the ramp up of EBITDA through a steady stream of diversified NOI from development delivery, such as the wells, our flagship mixed-use development in Toronto's downtown west.
Unknown Executive: Fully licensed and with more than 35 diverse food and beverage merchants, Wellington Market has been celebrated for its contributions to advancing Toronto's food scene. The launch exceeded our expectations regarding traffic, which has remained consistently high since opening. Before I turn the call over to Dennis, I want to reinforce that beyond our secure plan to reduce net debt by eight to nine times EBITDA, our portfolio also has considerable development density and low cap rate profits.
Speaker Change: On that note, the launch of Wellington Market of the Well in May was a resounding success.
Speaker Change: Traffic to the well has consistently been in the range of 200,000 visitors a week since Wellington Market opened.
Speaker Change: Fully licensed and with more than 35 diverse food and beverage merchants, Wellington Market has been celebrated for its contributions to advancing Toronto's food scene.
Jonathan Gitlin: Consequently, we've adjusted our commercial S&Y guidance for 2024, excluding provision to two to two and a half percent, while maintaining our long-term commercial S&Y guidance of three percent.
Speaker Change: The launch exceeded our expectations regarding traffic, which has remained consistently high since opening.
Speaker Change: Before I turn the call over to Dennis, I want to reinforce that beyond our secure plan to reduce net debt that EBITDA does eight to nine times, our portfolio also has considerable development density and low cap rate property.
Jonathan Gitlin: I'll briefly illustrate the sequence of this leaking cycle to demonstrate how it impacts our results. First, the space comes back, causing a decrease in occupancy and creating a drag on FFO and same-property NOI. Second, we secure a high-quality new tenant which brings committed occupancy back up. Third, in recognition of the strength of this new tenant's needs, nav improves and due to straight line red, so does FFO. And fourth, the tenant moves in and the S&Y improves.
Unknown Executive: These assets provide RioCan with incremental levers, such as disposition, to further enhance financial flexibility should attractive opportunities arise. A great example of this is our recent agreement to sell an underutilized portion of an open-air retail site in Laval, Quebec. In this transaction, approximately half of the site will be sold to an industrial developer, and based on current income, the sale results in net proceeds that are approximately 84% higher than IFRS carrying value. I will also emphasize that while we remain focused on our operations and balance sheet, we're committed to responsible growth. RioCan published its annual ESG report in June.
Dennis: These assets provide RioCan with incremental levers, such as disposition, to further enhance financial flexibility should attractive opportunities arise.
Dennis: A great example of this is our recent agreement to sell an underutilized portion of an open-air retail site in Laval, Quebec.
Dennis: In this transaction, approximately half of the site will be sold to an industrial developer at a market capitalization rate that is in the low three based on current income.
Jonathan Gitlin: Choosing high-quality tenants requires investing time and resources to build out the space to their standards, resulting in a longer gap between steps two and four. Simply put, replacing tenants with higher quality ones that offer better uses, as Ryokan does, typically involves a cycle where there's an initial dip in some metrics, followed by stabilization and then significant.
Dennis: The sale results in net proceeds that are approximately 84% higher than IFRS carry value.
Dennis: I will also emphasize that while we remain focused on our operations and balance sheet, we're committed to responsible growth.
Unknown Executive: I encourage you to read the report illustrating our significant advancements in sustainability, ethical governance, and fostering a positive culture. I will summarize by reiterating that RioCan operates a top-tier retail portfolio in the country's most desirable markets. The dynamics of retail real estate are in our favor and create long-term demand for our products. Our approach is patient and strategic, negating the need for hasty asset sales, rushed leases, or development under suboptimal conditions. The quality of our assets provides a foundation for growth and mitigates downside risk.
Dennis: RioCan published its annual ESG report in June . I encourage you to read the report illustrating our significant advancements in sustainability, ethical governance, and fostering a positive culture.
Jonathan Gitlin: Ryokan's results this year showcase numerous examples of our strategic decisions in action. Last quarter, we saw a dip in high-convenancy and FPNOI largely due to the vacancy of the 10 spaces I mentioned a moment ago. Ryokan has finally ceased for eight of the 10 spaces. We're now well into the second step of the process, doing the work to get all eight tenants in place. As a result, occupancy has increased. SPNOI, FFO, and nav impacts will follow as these tenants commence reds and open their doors, driving incremental traffic to our properties, and that simply making them better.
Dennis: I will summarize by reiterating that RioCan operates a top-tier retail portfolio in the country's most desirable market.
Speaker Change: The dynamics of retail real estate are in our favor and create long-term demand for our products. Our approach is patient and strategic, negating the need for hasty asset sales, rushed leases, or development under suboptimal conditions.
Dennis: The quality of our assets provides a foundation for growth and mitigates downside risk.
Unknown Executive: We have numerous incremental levers to drive growth, and we remain dedicated to prudent financial management facts by an exception. Our consistency, vision, and demonstrated commitment to responsible growth will continue to benefit our unit holders while ensuring the trust's stability. And with that, I'll turn the call over to Dennis.
Dennis: We have numerous incremental levers to drive growth, and we remain dedicated to prudent financial management backed by an exceptional team.
Jonathan Gitlin: We've made a conscious thoughtful and responsible long-term decisions to focus on high-quality tenancies to drive sustainable growth in FFO and nav. Yes, the macroeconomic environment continues to show weakness and some volatility. However, our strategy is anchored in building a resilient portfolio that ensures steady growth. We've crafted a portfolio designed to absorb macroeconomic reverberation and intentionally focused on tenants with farewell in any economic environment. The tennis right class equality of our offer, and they are increasingly turning to RioCan, to fortify their positions in the Canadian retail landscape.
Dennis: Our consistency, vision, and demonstrated commitment to responsible growth will continue to benefit our unit holders while ensuring the trust's stability. And with that, I'll turn the call over to Dennis.
Dennis: Thank you, Jonathan, and good morning to everyone on the call. Our results reflect the fundamental operating strength of our business as the supply-demand dynamics that we have piloted for some time continue to bear fruit. This is seen across our operating metrics, from record new leasing spreads to rapid rebounds in our committed and in-place occupancy rates. Strong leasing with top quality tenants enhances long-term value as this improves portfolio quality and future growth potential.
Speaker Change: Thank you, Jonathan, and good morning to everyone on the call.
Dennis: Our results reflect the fundamental operating strength of our business as the supply-demand dynamics that we have piloted for some time continue to bear fruit.
Dennis: This is seen across our operating metrics, from record new leasing spreads to rapid rebounds in our committed and in-place occupancy rates.
Speaker Change: Strong leasing with top quality tenants enhances long-term value as this improves portfolio quality and future growth potential.
Jonathan Gitlin: While RioCan remains focused on operations, our balance sheet is also with top priority, particularly within the current elevated interest rate environment. We're well equipped and are taking prudent steps to fortify our future and mitigate interest rate impacts. We're on track to achieve our adjusted net debt to even the target range of 8 to 9 times. We've charted a clear roadmap to lower debt, including reducing construction spend by positive project starts, and we've hatred and proceeds from inventory property sales. We've begun to recognize the benefits of our inventory portfolio.
Dennis: Our FFO for the second quarter was 43 cents per unit compared to 44 cents per unit in the prior year quarter. Organic NOI growth in our operations and the ramp-up of development continue to add to our earnings for the combined positive impact of QCEN. Also benefiting FFO this quarter were higher inventory gains, an impact of two cents, which included the sale of a non-core residential inventory property.
Dennis: Our FFO for the second quarter was $0.43 per unit compared to $0.44 per unit in the prior year quarter.
Dennis: Organic NOI growth in our operations and the ramp-up of developments continue to add to our earnings, for a combined positive impact of $0.02.
Dennis: Also benefiting FFO this quarter were higher inventory gains, an impact of two cents, which included the sale of a non-core residential inventory property.
Dennis: This growth over the prior year quarter was partially offset by one cent due to a higher provision reversal last year, as well as a one cent reduction relating to various other items that benefited the prior year quarter and did not return. This provision variant also had an impact on same property NOI, resulting in muted same property NOI growth of 0.3%. Excluding the provision impact, same property NOI growth was 2.6%. The higher provision of rehearsal amounts in 2023 and resulting impact on variance in our financial metrics is a hangover from the pandemic, the impact of which we expect will be largely behind us after this year.
Speaker Change: This growth over the prior year quarter was partially offset by $0.01 due to a higher provision reversal last year, as well as a $0.01 reduction relating to various other items that benefited the prior year quarter and did not return.
Jonathan Gitlin: Looking ahead, inventory proceeds are expected to generate approximately $700 million in sales revenues, and are earmarked for creative uses such as that repayment. We recognize that new sales of condominiums have slowed. Fortunately, we pre-sold approximately 90% of the over 2,500 units will complete through 2026. The majority of these firm deals were secured before prices. Additionally, for all units sold, meaningful purchase deposits mitigate risk as they motivate buyers to close or, in the unlikely case of defaults, can be used to insulate margins on retail.
Speaker Change: This provision variance also had an impact on the same property NOI, resulting in muted same property NOI growth of 0.3%.
Speaker Change: Excluding the provisioned impact, same property NOI growth was 2.6%.
Speaker Change: The higher provision of rehearsal amounts in 2023 and resulting impact on variances in our financial metrics is a hangover from the pandemic, the impact of which we expect will be largely behind us after this year.
Jonathan Gitlin: On the other side of our B leveraging equation, we have a ramp up of EBITDA through a steady stream of diversified NOI from development delivery, such as the well, our flagship mixed-use development in Toronto's downtown west. On that note, the launch of the Wellington Market of the well in May was a reserving success. Traffic to the well has consistently been in the range of 200,000 visitors a week since Wellington Market opened.
Dennis: Finally, Higher Interests, net of higher interest income, had an unfavorable impact of three cents; of this $0.03, approximately $0.01 is related to lower capitalized interest. A highlight this quarter was the construction completion of 450 The Lab.
Speaker Change: Finally, higher interest expense, net of higher interest income, had an unfavorable impact of three sets.
Speaker Change: Of this $0.03, approximately $0.01 is related to lower capitalized interest.
Speaker Change: I'll highlight this quarter with the construction completion of 450 to the left.
Dennis: This is a positive step forward, but comes with a temporary impact on results. Similar to all of our residential rental projects, we ceased the capitalization of interest relating to this asset upon depletion, well for to do so, The NOI is positive, but is not currently sufficient to cover interest expenses. For the quarter, this transitional lease of effect resulted in an FFO drag of approximately $1.5 million. We expect this property to reach stabilization by the end of this year and generate positive FFO for many years in the future.
Speaker Change: This is a positive step forward, but comes with a temporary impact on results.
Speaker Change: Similar to all of our residential rental projects, we ceased the capitalization of interest relating to this asset upon depletion.
Jonathan Gitlin: Holy license, and with more than 35 diverse food and beverage merchants, Wellington Market has been celebrated for its contributions to advancing Toronto's food seat. The launch exceeded our expectations regarding traffic, which has remained consistently high since opening.
Speaker Change: While a forfeit to the well is in lease up, the NOI is positive but is not currently sufficient to cover interest expense.
Speaker Change: For the quarter, this transitional lease of effect resulted in an FFO drag of approximately $1.5 million.
Jonathan Gitlin: Before I turn the call over to Dennis, I want to reinforce that beyond our secure plan to reduce net debt to EBITDA's eight to nine times, our portfolio also has considerable development density and low cap rate property. These assets provide Rio-Can with incremental levers, such as this position, to further enhance financial flexibility to the tracks of opportunity to arise.
Speaker Change: We expect this property to reach stabilization by the end of this year and generate positive FFO for many years to come.
Dennis: On a four-year basis, we have reaffirmed our FFO three-unit guidance. In addition, our guidance for the FFO payout ratio of 55 to 65% and mixed-use development spending of $250 to $300 million remain intact. Jonathan has already discussed our revision to same property NOI guidance, which is due to downtime while new exceptional tenants are fitting out their space. We have also reduced our expected spend on retail infill projects by $20 million to a range of $30 to $40 million due to permitting delays. This gun will simply shift into 2025.
Speaker Change: On a 4-year basis, we have reaffirmed our FFO 3-unit guidance.
Speaker Change: In addition, our guidance for FFO payout ratio of 55% to 65% and MIECHS's development spending of $250 million to $300 million remain intact.
Jonathan Gitlin: A great example of this is our recent agreement to sell an underutilized portion of an open-air retail site in La Valle Quebec. In this transaction, approximately half of the site will be sold to an industrial developer at a market capitalization rate that is in the low-three based on current income. The sale results and net proceeds that are approximately 84% higher than IFRS carrying value.
Speaker Change: Jonathan already discussed our revision to same property NOI guidance which is due to downtime while new exceptional tenants are fitting out their space.
Speaker Change: We have also reduced our expected spend on retail infill projects by $20 million to a range of $30 to $40 million due to permitting delays. This spend will simply shift into 2025.
Jonathan Gitlin: I will also emphasize the while we remain focused on our operations and balance sheets were committed to responsible growth.
Dennis: Turning now to our balance, Net debt to EBITDA of 9.18 times is down from 9.28 times at the beginning of the year and 9.49 times at this time last year. However, this metric is essentially flat relative to the first quarter of this year as development spending at the well continued during the second quarter. Spending on this major project will decelerate given that construction is essentially complete. We executed a number of financing activities over the course of this year, covering all major refinancing requirements for the year and extending our weighted average terms of maturity from three years at the beginning of the year to 3.6 years at the quarter end.
Speaker Change: Turning now to our balance sheet.
Jonathan Gitlin: Rio-Can published its annual ESG reporting in June. I encourage you to read the report, illustrating our significant advancements, its state of ability, ethical governance, and fostering a positive call.
Speaker Change: Net debt to EBITDA of 9.18 times is down from 9.28 times at the beginning of the year and 9.49 times at this time last year.
Speaker Change: This metric is essentially flat relative to the first quarter of this year as development spending at the well continued during the second quarter.
Jonathan Gitlin: I will summarize by reiterating that RioCan operates a top tier retail portfolio in the country's most desirable market. The dynamics of retail real estate are in our favor and create long-term demand for our products.
Speaker Change: Spending on this major project will decelerate given that construction is essentially complete.
Speaker Change: We've executed a number of financing activities over the course of this year, covering all major refinancing requirements for the year, and extending our weighted average terms of maturity from three years at the beginning of the year to 3.6 years at the quarter end.
Jonathan Gitlin: Our approach is patient and strategic, negating the need for hasty asset sales, rush leases, or development under sub-optimal conditions. Quality of our assets provides a foundation of growth and mitigates downside risk. We have numerous incremental levers to drive growth and we remain dedicated to prudent financial management facts by an exceptional team.
Dennis: We have an option to call our $300 million Series A.I. 3 MC1 ventures at PAR on or after September 29th of this year. The interest rate on this venture is approximately 6.5%. Based on today's pricing, we would expect to exercise the repayment option and refinance at a much lower rate while further extending the weighted average term to maturity of our debt. Jonathan reiterated that we are on track to achieve our eight to nine times net debt to EBITDA target, expecting to reach nine times by the end of this year.
Speaker Change: We have an option to call our $300 million Series A.I. 3MC1 Ventures at PAR on or after September 29th of this year.
Speaker Change: The interest rate on this debenture is approximately 6.5%.
Jonathan Gitlin: Our consistency, vision, and demonstrated commitment to responsible growth will continue to benefit our unit holders while ensuring the trust stability.
Speaker Change: Based on today's pricing, we would expect to exercise the repayment option and refinance at a much lower rate while further extending the weighted average term to maturity of our debt.
Dennis Blasutti: And with that, I'll turn the call over to Dennis.
Dennis Blasutti: Thank you, Jonathan, and good morning to everyone on the call. Our results reflect the fundamental operating strength of our business as the supply, demand, and dynamics that we have highlighted for some time continue to bear fruits. This is seen across our operating measures from record newly expressed to rapid rebound in our committed and input occupancy rates.
Speaker Change: Jonathan reiterated that we are on track to achieve our eight to nine times net debt to EBITDA target, expecting to reach nine times by the end of this year.
Dennis: We expect this to fall further to the lower end of our range based on the ramp-up of EBITDA from operations development, a slowdown of spending on major projects, and repatriation of a significant amount of capital from contracted condo sales. I'll walk through these key drivers.
Speaker Change: We expect this to fall further to the lower end of our range based on the ramp up of EBITDA from operations development, slow down of spending on major projects, and repatriation of a significant amount of capital from contracted condo sales.
Dennis Blasutti: Strongly seen with top quality tenants enhances long-term value as it improves portfolio quality and future growth potential. Our FFO for the second quarter was 43 cents per unit compared to 44 cents per unit in the prior year quarter. Organic and a wide growth in our operation and the random development continued to add to our earnings for combined positive impact of two cents. Also benefiting FFO this quarter were higher inventory gains and impact of two cents, which included the sale of a non-core residential inventory.
Dennis: The growth and ramp-up of EBITDA from our existing operations and development deliveries will have a combined impact of approximately half a chart. Importantly, as evidence of development deliveries ramps up, construction spending will diminish as projects are completed. The estimated cost to complete for projects currently under construction totals $294 million, of which $110 million is expected for the balance of this year, $151 million in 2025, and $33 million in 2026. This trust is zero in 2027 and beyond.
Speaker Change: I'll walk through these key drivers.
Speaker Change: The growth and ramp-up of EBITDA from our existing operations and development deliveries will have a combined impact of approximately half a chart.
Speaker Change: Importantly, as EBITDA for development deliveries ramps up, construction spending will diminish as projects are completed.
Speaker Change: The estimated cost to complete for projects currently under construction totals $294 million, of which $110 million is expected for the balance of this year, $151 million in 2025, and $33 million in 2026. This trust is zero in 2027 and beyond.
Dennis Blasutti: This growth over the prior year quarter was partially upset by one cent due to a higher provision reversal last year, as well as a one-set reduction related to various other items that benefited the prior year quarter and did not recur. This provision variance also had an impact on the same property and a lot resulting in muted same property and a lot growth of 0.3%. Excluding the provision impact, the property and a wide growth was 2.6%.
Dennis: We expect to allocate some capital toward the advancement of our development pipeline through the entitlement process and to additional retail installation opportunities should such opportunities arrive at rents that justify construction, although noting that the capital requirements for such projects are much lower than for mixed-use projects.
Speaker Change: We expect to allocate some capital toward the advancement of our development pipeline through the entitlement process and to additional retail infill opportunities should such opportunities arrive at rents that justify construction, noting that the capital requirements for such projects are much lower than for mixed-use projects.
Dennis: The next driver of expected debt to even improve their situation is the impact of the $700 million of causal revenues that we expect to receive. Given recent news regarding weakness in condo sales, this topic has been top of mind. Because of this, it's worthwhile to take a moment and break down our control proceeds and the related impact on our balance. Out of the approximately $700 million of expected revenue, approximately $600 million relates to pre-sold units, where the average deposit received to date on these units is 19% of the purchase price.
Speaker Change: The next driver of expected debt to you with their improvement is the impact of the 700 million of condo revenues that we expect to receive.
Dennis Blasutti: The higher provision reversal amount in 2023 and resulting impact on variance in our financial metrics is a hang on from the pandemic, the impact of which we expect will be largely behind us after this year. Finally, higher interest expense that a higher interest income had an unfavorable impact of three cents. Of this three cents, approximately one cent is related to lower capitalized interest.
Speaker Change: Given recent news regarding weakness in condo sales, this topic has been top of mind.
Speaker Change: Because of this, it is worthwhile to take a moment and break down our Cono proceeds and the related impact on our balance sheet.
Speaker Change: Of the approximately $700 million of expected revenue, approximately $600 million relates to pre-sold units, where the average deposit received to date on these units is 19% of the purchase price.
Dennis: Think of these pre-sold condo units as simply contracted zero cap rate assets. When the proceeds are received, they will recapitalize our balance sheet as follows: funds will first be allocated to repaying construction. On a fully drawn basis, construction loans associated with condo projects are expected to be approximately $420 million. This results in 1.4 times coverage of pre-sold revenues over a construction loan balance. Given that there is no EBITDA currently associated with this debt, if repayment has an outsized impact on debt-to-EBITDA compared to the sale of income-producing assets, repaying these loans will improve our net debt to EBITDA ratio by approximately half a chart.
Dennis Blasutti: A highlight this quarter was the construction completion of 450 the wealth. This is a positive step forward, but comes with a temporary impact on results. Similar to all of our residential rental projects, we see the capitalization of interest relating to this asset upon completion. While 450 the wealth then leads up. The NOI is positive but is not currently sufficient to cover interest expense. For the quarter, this transitional lethal fact resulted in an ethical drag of approximately $1.5 million.
Speaker Change: Think of these pre-sold condo units as simply contracted zero-cap rate asset sales.
Speaker Change: When the proceeds are received, they will re-capitalize our balance sheet as follows.
Speaker Change: Funds will first be allocated to repaying construction loans.
Speaker Change: On a fully drawn basis, construction loans associated with Congo Project is expected to be approximately $420 million.
Speaker Change: This results in 1.4 times coverage of pre-sold revenues over a construction loan balance.
Speaker Change: Given that there is no EBITDA currently associated with this debt, its repayment has an outsized impact on debt-to-EBITDA compared to the sale of income-producing assets.
Dennis Blasutti: We expect this property to restabilization by the end of this year and generate positive ethical for many years of future. On a full year basis, we have reaffirmed our ethical for unit guidance. In addition, our guidance for ethical payout ratio of 55 to 55% and mixes development spending of $258 to $300 million for maintenance tax. Jonathan already discussed our revision to save property and a lie guidance, which is due to downtime, while new exceptional tenants are fitting out their space. We have also reduced our expected spend on retail infill projects by $20 million to a range of $30 to $40 million due to permitting the rate. This spend will simply shift into 2025.
Speaker Change: Repaying these loans will improve our net debt to EBITDA ratio by approximately half a chart.
Dennis: The remaining pre-sold proceeds will be repatriated to the corporate balance. As mentioned, the average deposit received today on units pre-sold is 19% of the purchase price, according to an average of approximately $150,000 per unit sold. This is a meaningful amount and a strong deterrent against buyers walking away from their investment. Combined with the fact that purchasers have a legal obligation to close, our assumption is that the vast majority of purchases will be completed on existing terms.
Speaker Change: The remaining pre-sold proceeds will be repatriated to the corporate balance sheet.
Speaker Change: As mentioned, the average deposit received to date on units pre-sold is 19% of the purchase price.
Speaker Change: according to an average of approximately $150,000 per unit sold.
Speaker Change: This is a meaningful amount and a strong deterrent against buyers walking away from their investment.
Speaker Change: Combined with the fact that purchasers have a legal obligation to close, our assumption is that the vast majority of purchases will be completed on existing terms.
Dennis: In the event that some buyers default, our first option is to retain the deposit and put the unit back on the market. Based on current prices and factoring in sales proceeds combined with retained deposits, we would expect to achieve projected revenue. The impact of this element is approximately another quarter turn on net debt to EBITDA, bringing the total impact related to pre-sold units to approximately three quarters of a turn. Finally, we are left with a balance of approximately $100 million of unsold proceeds. We acknowledge that sales are very slow in this market.
Speaker Change: In the event that some buyers default, our first option is to retain the deposit and put the unit back on the market.
Dennis Blasutti: Turning now to our balance sheet. Net debt to eaves out of 9.18 times is down from 9.28 times at the beginning of the year and 9.49 times at this time last year. This metric is essentially flat relative to the first quarter of this year, a development spending at the well continued during the second quarter. Spending on this major product will be celery given that construction is essentially complete. We executed a number of financing activities over the course of this year covering all major refinements or requirements for the year and extending our weighted average terms of maturity from three years at the beginning of the year to 3.6 years at the quarter end.
Speaker Change: Based on current prices and factoring in sales proceeds combined with retained deposits, we would expect to achieve projected revenue.
Speaker Change: The impact of this element is approximately another quarter turn on net debt to EBITDA, bringing the total impact related to pre-sold units to approximately three quarters of a turn.
Speaker Change: Finally, we are left with a balance of approximately $100 million of unsold proceeds.
Dennis: We note that approximately 80% of the unsold proceeds relate to one building, which is our UC Tower 3 project. We should also point out that the financing of this project is combined with UC Tower 2, and the combined pre-sold revenues from the two towers provide 1.3 times coverage over the construction loan. We further note that completion of UC Tower 3 is scheduled for late 2025 and into the first half of 2026, but new condo supply is expected to be low.
Speaker Change: We acknowledge that sales are very slow in this market.
Speaker Change: We note that approximately 80% of the unsold proceeds relate to one building, which is our UC Tower 3 project.
Speaker Change: We should also point out that the financing of this project is combined with UC Tower 2, and the combined pre-sold revenues from the two towers provide 1.3 times coverage over the construction loan.
Dennis Blasutti: We have an option to call our $300 million Series AI 3MT1 to ventures at par on after September 29 of this year. The interest rate on this adventure is approximately 6.5%. Based on today's pricing, we would expect to exercise the repayment option and refinance at a much lower rate while further extending the weighted average terms of maturity of our debt. Jonathan reiterated that we are on track to achieve our 8 to 9 times net debt to e-budget target expecting to reach 9 times by the end of this year.
Speaker Change: We further note that completion of UC Tower 3 is scheduled for late 2025 and into the first half of 2026, but new condo stock is expected to be low.
Dennis: There is a housing shortage in Canada with population-driven demand outpacing supply. Higher levels of new supply of product projects that are delivering now, which were started a number of years ago, will be absorbed. Ongoing supply shortages will worsen since there has been a low level of construction starts in the current environment, so there will be limited new supply as we move into late 2025 and 2026. However, if we see further interest rate cuts over the next year, as most economists predict and which we have started to see recently, our ability to sell these units will be further improved.
Speaker Change: There is a housing shortage in Canada, with population driven demand outpacing supply.
Speaker Change: Higher levels of new supplies of product projects that are delivering now, which were started a number of years ago, will be absorbed.
Speaker Change: Ongoing supply shortages will worsen since there has been a low level of construction starts in the current environment, so there will be limited new supply as we move into late 2025 and 2026.
Dennis Blasutti: We expected to fall further to the lower end of our range based on the ramp of the eaves out from operations development, slow down of spending on major projects and repatriation of a significant amount of capital from contracted cargo sales.
Speaker Change: If we see further interest rate cuts over the next year, as most economists predict, and which we have started to see recently, our ability to sell these units will be further improved.
Dennis: Given these dynamics, we are being patient and will continue to monitor the market ahead of the late 2025 completion of this project. As this illustrates, common revenues will serve as a reliable source for debt reduction in the future. To conclude my remarks, I want to reiterate that market fundamentals, the quality of our portfolio, and our exceptional team have driven our current year operating metrics to levels that are as strong as we have seen over RioCan's 30 year history.
Dennis Blasutti: I'll walk through these key drivers. The growth and ramp up of e-budget from resisting operations and development deliveries will have a combined impact that approximately half a chart. Importantly, as e-budget from development deliveries ramped up, construction spending was diminished as projects are completed. The estimated cost to complete for projects currently in the construction total 294 million, of which 110 million is expected for the bounds of this year, 151 million at 2025 and 33 million in 2026.
Speaker Change: Given these dynamics, we are being patient and will continue to monitor the market ahead of the late 2025 completion of this project.
Speaker Change: As this illustrates, the common revenues will serve as a reliable source for debt reduction in the future.
Speaker Change: To conclude my remarks, I want to reiterate that Market Fundamentals, the quality of our portfolio, and our exceptional team have driven our current year operating metrics to levels that are as strong as we have seen over RioCan's 30-year history.
Dennis Blasutti: This trust is zero in 2027 and beyond. We expect to allocate some capital toward the advancement of a development pipeline through the entire process and to additional result in the opportunity should such opportunities arrive at rent that just like instruction. Noting that the capital requirements for such projects are much lower than for mixed use projects.
Speaker Change: This, combined with our low payout ratio, disciplined approach to capital allocation, and steadily improving balance sheet, will support earnings growth and provide us with the opportunity for sustainable distribution increases for many years in the future.
Dennis: This, combined with our low payout ratio, disciplined approach to capital allocation, and steadily improving balance sheet, will support earnings growth and provide us with the opportunity for sustainable distribution increases for many years in the future. With that, I will pass the call to the operator for questions.
Speaker Change: With that, I will pass the call to the operator for questions.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered, or you wish to remove your question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. We will pause here briefly if questions are registered. Our first question comes from the line of Mario Saric, with Scotiabank.
Dennis Blasutti: The next drive on our expected death eve of their improvement is the impact of the 700 million causal revenues that we expect to receive. Given recent news regarding weakness in condo sales, this topic has been top of mind because of this is worthwhile to take a moment and break down our causal proceeds and related insights on our balance sheet. I'll be approximately 700 million dollars of expected revenue, approximately 600 million relief to pre-sold units, where the average deposit received to date on these units is 19% of the purchase price.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad.
Speaker Change: If your question has been answered or you wish to remove your question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. We will pause here briefly if questions are registered.
Speaker Change: Our first question comes from the line of Mario Saric.
Mario Saric: Hi, good morning, and thank you for taking the question. So the first one is just on the impact on 23 St. Stern NOI from the identified bad boy spaces leases. I apologize if this was provided earlier, but can you give us a sense of what that impact was on 23 and the expected NOI boost on leasing the 10 spaces upon completion? I do recall in Q1, you mentioned that the grocery deals were done at 50% above, expiring. I'm just wondering on the 10 in total, what your expectation is for the NY boost and the impact on the downtime in 2020?
Mario Sarek: with Scotiabank.
Dennis Blasutti: Think of these pre-sold condo units as simply contracted zero caprate assets in. When the proceeds are received, they will recapitalize or vouchy this fall. Funds will first be allocated to repaying construction loans. On a fully drawn basis, construction loans associated with causal projects is expected to be approximately 420 million dollars. This results in 1.4 times coverage of pre-sold revenues over a construction loan balance. Given that there is no evadec currently associated with this debt, its repayment has an outsized impact on debt to evadec compared to the sale of income-producing assets.
Mario Saric: Hi, good morning and thank you for taking the questions. So the first one just on the impact on 23 St. Cyrano I from the identified bad boy spaces.
Lisa: Oh, Lisa.
Mario Saric: I apologize if this was provided earlier, but can you give us a sense of what that impact was on 23 and the expected NOI boost on releasing the 10 spaces upon completion? I do recall in Q1, I think you mentioned that the grocery deals were done at 50% above
Mario Saric: expiring. I'm just wondering on the 10 in total what your expectation is on the unwide roost and then the impact on the downtime in 2023.
Unknown Executive: So the impact in 24 hours there. First of all, good morning.
Dennis Blasutti: Repayment loans will improve our net debt fee for the ratio by approximately half a chart. The remaining pre-sold proceeds will be repatriated to the corporate balance sheet. As mentioned, the average deposit received to date on units pre-sold is 19% of the purchase price, according to an average of approximately $150,000 per unit sold. This is a meaningful amount as strong attorney gets buyers walking away from their investment. Combined with the fact that purchaseers have a legal obligation to close, our assumption is that the vast majority of purchases will be completed on existing terms.
Speaker Change: So the impact in 24 there. First of all, good morning.
Unknown Executive: Yeah, so for 24, there's a drag on SP&OI because the leases are written, but the cash won't be coming in until the tenancies are finalized and open. So, there's a drag. I can't quantify precisely what that drag is, but then the consequences are that, in 2025, there will be a tailwind as a result of those tenancies being open for business and the tenants paying rent. We are reaffirming our 3% SP&OI guidance for 25 and, you know, in that medium term, and that's largely or partially a result of the impact of these leases being, being rent-paying Five to those who are [inaudible]
Speaker Change: Yeah, so for 24, there's, it's a drag on us, because the leases are written, but the
Speaker Change: of the cash.
Speaker Change: won't be coming in until the tenancies are finalized and open.
Speaker Change: So there's a drag. I can't quantify precisely what that drag is, but then the consequence is that in 2025, there will be a tailwind as a result of those tenancies open for business and the tenants paying rent.
Dennis Blasutti: In the event that some buyers default, our first option is to retain it upon it and put the unit back on the market. Based on current prices and factoring in sales proceeds combined with retained deposits, we would expect to achieve projected revenues. The invite of this element is approximately another quarter turn on net debt to evadec, bringing the total impact related to pre-sold units to approximately three-quarters of terms. Finally, we are left with the balance of approximately $100 million of unsold proceeds.
Speaker Change: We are reaffirming our 3% SP&OI guidance for 2025 and, you know, in that in that medium term, and that's largely or partially a result of the impacts of these leases being
Speaker Change: being rent-paying, but I don't have a specific quantified amount for the impact for, again, the DRAG in 2024 or the positive influence in 2025 for those 10 reasons.
Unknown Executive: Yeah, I would agree Mario, we've disclosed it on kind of an aggregated basis. So it is one of the larger impacts on that, you know, the change in our guidance for 24. But we do expect a rebound in 25, as Jonathan said.
Speaker Change: Yeah, I would agree, Mario. We've disclosed it on kind of an aggregated basis, so it is one of the larger impacts on that, you know, the change in our guidance for 24, but we do expect a rebound in 25, as Jonathan said.
Dennis Blasutti: We acknowledge that sales are very slow in this market. We note that approximately 80% of the unsold proceeds relate to one building, which is our UC Tower 3 project. We should also point out that the financing of this project is combined with UC Tower 2 and to combine pre-sold revenues from the two towers provided 1.3 times coverage over the construction load. We further note that completion of the UC Tower 3 is scheduled for late 2025 and into the first half of 2016, but new condo stock is expected to be low.
Unknown Executive: Okay, and then maybe a similar question on the well, which I think Dennis identified about half a cent or so in terms of the interest capitalization being removed. What Do we Maybe we'll take this offline as well. But what would you estimate the NOI and FFO upon stabilization of the combined retail and residential at the well, is that not in your Q2 NOI and FFO when we're trying to understand the upside to both NOI and FFO? Upon Stabilization of the Bulk.
Speaker Change: Okay, and then maybe a similar question on the well, which I think Dennis identified about a half a cent or so, in terms of the...
Dennis: The interest capitalization has been removed.
Speaker Change: This may take us offline as well, but what would you estimate the NOI and FFO upon stabilization of the combined retail and residential at the well?
Dennis Blasutti: There is a housing shortage in Canada with population driven demand outgaking supply. Higher levels of new supplies of product projects that are delivering now, which were started a number of years ago, will be absorbed. On going supply shortages will worsen if there has been a low level of construction starts in the current environment, so there would be limited new supply as we move into late 2025 and 2026. If we see further entry costs over the next year as most economists predict, and which we have started to see recently, our ability to sell these units will be further approved. Given the dynamics, we are being patient and will continue to monitor the market ad of the late 2025 completion of this project.
Speaker Change: is, but was not in your Q2 NOI and FFO memory, just trying to understand the upside to both NOI and FFO upon stabilization of both.
Unknown Executive: We don't disclose the total NOI for the well. What we do disclose is our stabilized NOI for all of the projects that are delivering, and we would expect that. So, if you look at the projects that are MD&A that have been delivered in 2023 and 2024, we're probably about 80% of that NOI will be ramped up this year and then pretty close to all of it, probably 95% into next year. That'll give you a sense of the benefit.
Speaker Change: We don't disclose the total NNY for the well. What we do disclose is our stabilized...
Speaker Change: I know why for all of the projects that are delivering and we would expect that.
Speaker Change: So if you look at the projects that are at our MD&A.
Speaker Change: Delivered in 23 and 24. We're probably about
Speaker Change: 80% of that NOI will be ramped up this year, and then pretty close to all of it, probably 95% into next year that I'll give you.
Unknown Executive: We should see, like specifically to 450, the well stabilization at the end of this year. So, we'd see a normalized benefit next year. And it would revert from, as you said, a half cent negative to a positive contributor.
Speaker Change: of the benefit. We should see, like specifically, to hit 450 to well stabilization at the end of this year. So we'd be seeing a normalized benefit next year. So it would refer from, as you said, a half cent negative to a positive.
Dennis Blasutti: As it illustrates, the common revenues will serve as a reliable source for debt reduction in the future.
Dennis Blasutti: To conclude by remarks, I want to reiterate that market fundamentals, the quality of our portfolio and our exceptional team have driven our current year operating metrics to levels that are as strong as we have seen over RioCan's 30 year history. This combined with our low payout ratio, discipline approach to capital allocation and steadily improving value sheet will support earnings growth and provide us with the opportunity for sustainable distribution increases for many years in the future.
Unknown Executive: Okay. Is there any remaining interest capitalization on the residential at the lower end at all?
Speaker Change: contributor.
Speaker Change: Okay, is there any remaining interest capitalization on the residential at the lower is at all?
Unknown Executive: No, no, that's done. Yeah, our policy there from an accounting perspective is that once we're hotel ready, we stop capitalizing altogether. So it is, there's no more interest being capitalized there. So you would have seen a drop off in our capital.
Speaker Change: No, that's done. Yeah, our policy there on from an accounting perspective is that once we're hotel ready, we stop capitalizing altogether. So it is, there's no more interest being capitalized there. So you, you would have seen a drop off in our capitalized interest.
Unknown Executive: With that, I will pass the call to the operator of the questions. Thank you.
Unknown Executive: And there's been a lot of discussion about maybe some pressure on market rents, residential market rents in Toronto at the high end. Can you talk about some of the trends that you're seeing at 450 relative to expectations?
Speaker Change: Thank you. Thank you.
Speaker Change: And there's been a lot of discussion about maybe some pressure on market rents, residential market rents in Toronto at the high end. Can you talk about some of the trends that you're seeing at 450 relative to expectations?
Unknown Executive: We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to move your question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speaker phone, please pick up your handset before asking your question.
Unknown Executive: We will pause here briefly as questions are registered.
Unknown Executive: The lease up is still going according to plan and certainly in accordance with our pro forma. Like with any market, there are ebbs and flows. Some weeks we get a lot more leases done than other weeks. But generally speaking, we're still tracking towards a full lease up by the end of this year. And the rents have held, as I said, generally in line with our pro forma expectations.
Speaker Change: The lease is still going according to plan and certainly in accordance with our with our pro forma.
Speaker Change: Like with any market, there's ebbs and flows. Some weeks we get a lot more leases done than other weeks, but generally speaking, we're still tracking towards a full lease up by the end of this year.
Mario Saric: Our first question comes from the line of Mario Sarah. We just go to bank. Good morning and thank you for taking the questions. So the first one, just on the impact on 23 Sanctuary and Y from the identified bad boy spaces. Lisa, apologize if this was provided earlier, but maybe give us a sense of what that impact was on 23 and the expected NOI boost on releasing the 10 spaces on completion.
Speaker Change: And the rents have held, as I said, generally in line with our pro forma expectations.
Unknown Executive: Yeah, I would just add to that, Mario. We're about 75% leased now. Based on the weekly rate of deals we're doing, we expect to be stabilized there by the end of October. Rents are holding up to perform, but we're actually very pleased with how some of the larger units are performing. Two to three bedrooms; we've had a lot of demand for those. So, all in all, we're happy with the results there at this level.
Speaker Change: Yeah, I would just add to that, Mario, we're about 75% leased now. Based on the weekly rate of deals we're doing, we expect to be stabilized there by the end of October .
Speaker Change: rents are holding up to perform but we're actually very pleased with how some of the larger units are performing two to three bedrooms we've had a lot of demand for those so all in all we're happy with the results there as well
Unknown Executive: I think you are commenting a bit more broadly on the market in Toronto, and there has been some impact there. There's been an influx of condos coming onto the market this year, similar to some of our earlier commentary. That is not necessarily putting pressure on rents but slowing the growth rate slightly. We've seen that throughout the market. But what we also see looking forward is that condo starts have stopped. This new supply is going to be absorbed and dry up.
Speaker Change: I think you are commenting a bit more broadly on the market in Toronto, and there has been some impact there. There's been an influx of...
Mario Saric: So the impact is in 24 there, first of all, good morning. Yeah, so for 24, it's a drag on that span of life because the the leases are written, but the the cash won't be coming in until the the tendencies are finalized and open. So there's there's a drag I can't quantify it precisely what that drag is, but then the the consequences that in 2025 there will be tailwind as a result of those those tendencies open for business and the tennis paying rent.
Speaker Change: Condos coming onto the market this year, similar to some of our earlier commentary. That is not necessarily putting pressure on rents, but slowing the growth rate.
Speaker Change: slightly. And we've seen that throughout the market. But what we also see looking forward is that condo starts have stopped.
Unknown Executive: And as we get into 2025, there'll be half as many condos as there are this year. And when we get to 2026, there'll be virtually no new supply coming onto the market. So a lot of condo deliveries currently are creating a bit of a slowdown. We were seeing, you know, 25% market rent increases at one point that slowed down a bit, but still.
Speaker Change: This new supply is going to be absorbed and dry up and as we get into 2025, there'll be, you know, half as many condos as there is this year. And when we get to 2026, there'll be virtually no new supply coming onto the market. So that's a lot of condo deliveries.
Speaker Change: currently is putting a little bit of a, you know, it's creating a bit of a slowdown. We were seeing, you know, 25% market rent increases at one point that slowed down a bit, but still healthy.
Mario Saric: We are reaffirming our 3% S piano like guidance for 25 and you know in that in that medium term, and that's largely or partially a result of the impacts of these leases being being rent paying, but I don't have a specific quantified amount for the impact for again the drag in 24 or the positive influence in 2025 for those. Yeah, I would agree, Mario, we've disclosed it on kind of an aggregate basis, so it is one of the larger impacts on that, you know, the change in our guidance for 24, but we do expect to rebound to in 25, as John said.
Unknown Executive: And the only other thing I'll add, Mario, and this is now specific to the well, and it's me putting on my promotional hat, but I think I have to, is the fact that 450 The Well is part of an environment that has just taken off. I mean, the well itself, the retail there is now fully open to the public, and it's really, really driving a ton of traffic and a lot of notice around the well.
Speaker Change: And the only other thing I'll add, Mario, and this is now specific to the well and it's me putting on my promotional hat, but I think I have to, is the fact that 450 The Well is part of an environment that has just taken off. I mean, the well itself, the retail there is now fully open to the public and it's really, really driving a ton of traffic and a lot of notice around the well. And that is helping us lease up those units at a rapid pace at rents that I would say are above the competition, even in that same node, simply because you're part of this really vibrant community.
Unknown Executive: And that is helping us lease up those units at a rapid pace at rents that I would say are above perhaps the competition, even in that same node, simply because you're part of this really vibrant community.
Unknown Executive: Yeah, that makes sense. I'm sure the addition of the long-term market will help in that regard as well. My last question, just on the Canadian Tire lease, was the 135,000 square foot vacancy anticipated at the start of the year? And then, secondly, when you look out over the next 12 months, are there any other large leases that you're aware of requiring backfill?
Mario: That makes sense. I'm sure the addition of the Walton Market will help in that regard as well. My last question, just on the Canadian Tire lease.
Unknown Executive: Okay, and then maybe a similar question on the well. To identify the both half of center, so in terms of the. The interest capital of the. And what. This maybe take us offline as well, but what would you estimate the NOI and Appleful upon stabilization of the combined retail residents, what the well. Is that was not in the Q2 and a lie and that for when we just trying to understand the upside to both NOI and Appleful upon stabilization both.
Speaker Change: Was the 135,000 square foot vacancy anticipated at the start of the year and then secondly, when you look out over the next 12 months, are there any other large leases that you're aware of requiring to backfill?
Unknown Executive: So we had a sense that we would be getting back that space. So, and I can't recall precisely if it was January 1st or before or after, but it was in that range. So yes, it's something we've been working on for quite a bit of time. In terms of other large vacancies similar to that, I mean, nothing of that scale in the short term.
Speaker Change: So we had a sense that we would be getting back that space, and I can't recall precisely if it was January 1st or before or after, but it was in that range. So yes, it's something we've been working on for quite a bit of time. In terms of other large vacancies similar to that, I mean nothing of that scale in the short term.
Unknown Executive: I think what it does show is we have a number of, as we've talked about this before, legacy fixed-rate type leases that when they do expire, there is a big opportunity. We wouldn't expect that every quarter, but we will see more opportunities like this in the coming years. Yeah, I mean, we've got about 900,000 feet in the next five years of spaces over 20,000 feet coming due. So there are a lot of great opportunities similar to this, as Dennis suggests, but nothing of this scale in a single lease coming in the next 12 months.
Unknown Executive: We didn't we don't disclose the the total and a lie for the well, but we do disclose is our stabilized NOI for all of the projects that are delivering and we would expect that. So if you look at the projects in our MDNA that delivered in 23 and 24, we're probably about 80% of that NOI will be ramped up this year and then pretty close to all of it, probably 95%. And to next year, I'll give you a sense of the benefit we should see like it specifically to have 450 the well stabilization at the end of this year, so we'd be seeing normalized benefit. Next year, so from a, as you said, a half set negative to to a positive contributor.
Speaker Change: I think what it does show is we have a number of
Speaker Change: Yes, we've talked about this before, legacy.
Speaker Change: you know, fixed rate, uh,
Speaker Change: type leases.
Speaker Change: that when they do expire, there is a big opportunity. We wouldn't expect that every quarter. But we will see more opportunities like this in the coming years. Yeah, I mean, we've got about 900,000 feet in the next five years of space is over 20,000 feet.
Speaker Change: coming due. So there's a lot of great opportunities similar to this as Dennis suggests, but nothing of this scale in a single lease coming in the next 12 months or so.
Unknown Executive: Got it. Are you able to share the expected rent uplift on the release?
Speaker Change: yeah
Speaker Change: Got it. Now, are you able to share the expected rent uplift on the release?
Unknown Executive: Okay. Is there any remaining interest capitalization on the residential at the lower is that all? No, that's done. Yeah, our policy there on the county perspective is that once we're hotel ready, we stop capitalizing altogether. So it is that no more interest being capitalized there. So you would have seen a drop off in our capitalized interest. And there's been a lot of discussion about maybe some pressure on market rights or residential market rights control on the high end.
Unknown Executive: The on on which on sorry on which?
Speaker Change: On which, on, sorry, on which thing?
Unknown Executive: The Convocation Party Sorry, I'm a Canadian tire. $135,000. Oh, the rent. We don't disclose it individually.
Speaker Change: The Totality Entire
Speaker Change: I'm sorry, on the Canadian Tire, like on the releasing of the...
Unknown Executive: Hi, this is John Ballantyne again. I would say it was significant, Mario. And you know, what you don't see in those numbers as well is just the impact on the rest of the center, you know, in addition to being able to increase the rents fairly significantly. This was actually an old seller's lease that was bought by Target that was then bought by Lowe's. Very low additional rent as well. So, you know, we were able to almost double our CAM contribution there, which doesn't impact our bottom line so much, but what it does is it reduces the common area expense on the rest of the tenants in that center by 40%. So there is a very tangible impact on rents, as those tenants can do as well. So it's all a very good news story.
Speaker Change: Oh, the rent. We don't disclose it individually.
Speaker Change: This is John Belden again. I would say it was significant, Muriel.
Speaker Change: And, you know, what you don't see in those numbers as well is just the impact on the rest of the center, you know, in addition to being able to increase the rents fairly significantly. This was actually an old seller's lease that was bought by Target that was then bought by Lowe's.
Unknown Executive: I can talk about some of the trends that you're seeing at 450 relative to expectations. Lisa still going according to plan and certainly an accordance with our with our performance. There's like with any market there's hasn't flowed some weeks. We get a lot more leases done than other weeks, but generally speaking, we're still tracking towards fully sub by the end of this year. And the rent has held, as I said, generally in line with our performance expectations.
Speaker Change: Very low additional rec as well. So, you know, we were able to almost double our CAM contribution there.
Speaker Change: which, you know, it doesn't impact our bottom line so much, but what it does is it reduces the common area expense on the rest of the tenants in that center by 40%.
Speaker Change: So there is a very tangible impact on rents as those tenants can do as well, so it's all a very good news story.
Unknown Executive: Yeah, I would just ask that Mary, we're about 75% lease now. Based on the weekly rate of deals we're doing, we expect to be stabilized there by but the end of October. Rents are holding up to perform, but we're actually very pleased with how some of the larger units are performing the two to three bedrooms. We've had a lot of demand for those. So also know what we're happy with the results are as well.
Unknown Executive: Okay, thank you.
Speaker Change: Okay, thank you.
Unknown Executive: Thank you. Our next question comes from the line of Matt Kornack with National Bank Financial. Matt, your line is now open.
Maria: Thanks, Mario.
Speaker Change: Thank you. Our next question comes from the line of Matt Kornack with National Bank Financial. Matt, your line is now open.
Matt Kornack: Good morning, guys. Just continuing on that theme, obviously, this quarter, you put up exceptionally strong new renewal and new leasing spreads. The blended figure can give us a sense of, I think that this is anomalous, but just the trend line there. And then maybe, in the context, you did a good job of explaining that your portfolio is pretty defensive. But in the context of maybe the retail sales print and a more challenging economic environment, are you still seeing tenants willing to kind of pay what they need to pay to stay in the space? I guess they are. But any comment there?
Matt Pornak: Good morning, guys. Just continuing on that theme, obviously, this quarter, you put up exceptionally strong new renewal
Unknown Executive: I think you are commenting a bit more broadly on on the market in Toronto and there has been some impact there. There's been an influx of condos coming on to the market this year. Similar to some of our earlier commentary. That is not necessarily putting pressure on rents, but slowing the growth rate slightly. And we've seen that throughout the market. But what we also see looking forward is that condos starts have stopped.
Unknown Executive: This new supply is going to be absorbed and dry up. And as we get into 25, there'll be, you know, happens many condos as there is this year. And when we get to 26, there'll be virtually no new supply coming on to the market. So that that lot of condo deliveries currently is putting a little bit of, you know, it's creating a bit of a slowdown. We were seeing, you know, 25% market rent increases at one point that slowed down a bit, but still healthy.
Speaker Change: New leasing spreads, the blended figure.
Matt Pornak: Can you give us a sense, like, I think that this is anomalous, but just
Speaker Change: the trend line there. And then maybe in the context, you did a good job of explaining that your portfolio is pretty defensive, but in the context of maybe the retail sales print and a more challenging economic environment, are you still seeing tenants willing to kind of pay what they need to pay to stay in the space? I guess they are, but any comment there?
Unknown Executive: Sure, I can start and would be happy to hand it over to John to fill in. In terms of the spreads, I mean, I think if you look at the last number of quarters, we've shown a pretty constant trajectory of enhanced combined spread. I mean, if you look from 2020, where we started at 5%, and we now look all the way to 2024, where we're close to 14.5%, and it's sort of an equal or nice sustained growth over the course of the last few years.
Speaker Change: Sure, I can start and happy to hand it over to John to fill in. In terms of the spreads, I mean, I think if you look at the last
John Belden: A number of quarters, we've shown a pretty constant trajectory of enhanced combined spread.
John Belden: I mean, if you look from 2020, where we started at 5%, and you now look all the way to 2024, where we're close to 14.5%, and it's sort of an equal or a nice sustained growth over the course of the last few years.
Unknown Executive: And the only other thing I'll add, Mary, on this is now specific to the well, and it's me putting on my promotional half. But I think I have to is the fact is 450, the well as part of an environment that is just taken off. I mean, the well itself, the retail there is now fully open to the public and it's really, really driving a ton of traffic. A lot of notice around the well.
Unknown Executive: Our sense is that that trend line is sustainable. We do agree this was a standout quarter, but we also, as we suggested to Mario in the last question, we are full of a lot of opportunities within our portfolio to bring our spaces to market. I mean, if you look at our average rent in the portfolio last quarter, relative to the average rent across the portfolio in general, there's a sizable mark to market there, and we extract those.
Unknown Executive: And that is helping us lease up those units at a rapid pace at rents that I would say are above perhaps the competition even in that same node. Simply because you're part of this really vibrant community.
John Belden: Our sense is that that trend line is sustainable. We do agree this was a standout quarter, but we also, as we suggested,
John Belden: to Mario in the last question.
Speaker Change: We are full of a lot of opportunities within our portfolio to bring our spaces to market. If you look at our average rent in the portfolio last quarter relative to the average rent across the portfolio in general, there's a sizable mark to market there and we extract those, our great leasing team extracts that every time we have an opportunity on a market renewal.
Unknown Executive: Yeah, well, make sense. I'm sure the addition of the want to market will help in that regard as well.
Mario Saric: My last question just on the Canadian tire release was the 135,000 square foot they can see anticipated at the start of the year. And then secondly, when you look out over the next 12 months, are there any other large releases that you're aware of requiring the backfill. So we had a sense that we would be getting back that space. So and I can't recall if it precisely was January 1st or before or after, but it was in that range.
Unknown Executive: Our great leasing team extracts that every time we have an opportunity for a market renewal. So, we are pretty confident that the leasing spreads that we have put together over the last number of quarters are sustainable and growing. And that's in relation to the next question you ask, which is, is this type of growth sustainable?
Speaker Change: So, we are pretty confident that the leasing spread that we have
Speaker Change: put together over the last number of quarters are sustainable and growing.
Speaker Change: That's in relation to the next question you asked, which is, is this type of growth sustainable? And what I'd say is what we're doing is playing catch up to get to market. We've been, you know, the retail industry over the last 10 years has been, I think, favorable for tenants. And now the pendulum has shifted a little bit, as we've been saying it will, largely because, one, these tenants have reconciled that their stores are very strong profit makers.
Unknown Executive: And what I'd say is, what we're doing is playing catch-up to get to market. The retail industry in the last 10 years has been, I think, favorable for tenants, and now the pendulum has shifted a little bit, as we've been saying it will, largely because, one, these tenants have reconciled that their stores are very strong profit makers and they're being used in different ways. And two, there's simply no supply for them.
Mario Saric: So yes, it's something we've been working on for quite a bit at the time. In terms of other large vacancies similar to that, I mean, nothing of that scale in the short term. I think what it does show is is we have a number of units who've talked about this before legacy, you know, fixed rate type releases that when they do expire, there is a big opportunity. We wouldn't expect that every quarter, but we will see more opportunities like this in the coming years.
Unknown Executive: And the combination of those dynamics, in our mind, provides a pretty optimal outlook for the demand for our space, while also keeping in mind that our portfolio is consistently getting better and better through either the advent of new developments or the disposition of some of our weaker properties. So, we really do believe that in our portfolio, so I'm not talking about the broader consumer landscape or the economic landscape, but in our portfolio, even in the face of some economic slowdowns in Canada, we do believe that demand will be sustainable.
Speaker Change: and they're being used in different ways. And two, there's simply no supply for them. And the combination of those dynamics...
Speaker Change: and our mind provides a pretty optimal outlook for the demand for our space and also keeping a line that our portfolio is consistently getting better and better through either the advent of new developments or the disposition of some of our weaker properties.
Mario Saric: Yeah, we've got about 900,000 feet in the next five years of space is over 20,000 feet coming news. So there's a lot of a lot of great opportunities similar to this event, but nothing of this scale in a single lease coming in the next 12 months or so.
Speaker Change: So we really do believe that in our portfolios, I'm not talking about the broader, the broader
Speaker Change: Consumer Landscape or Economic Landscape. But in our portfolio, even in the face of some economic slowdowns in Canada, we do believe that the demand will be sustainable. And we also think that a lot of the tenants we cater to, I'm not going to say they're impervious to economic gyrations, but I certainly think they are defensive, and that they will be looking to grow their footprints regardless of what the short term economic state of affairs is.
Unknown Executive: And we also think that a lot of the tenants we cater to, I'm not going to say they're impervious to economic gyrations, but I certainly think they are defensive, and that they will be looking to grow their footprints regardless of what the short-term economic state of affairs is going to be. John, anything further to add?
Mario Saric: God, are you able to share the expected rent up with on the release? The on which on, sorry, on which thing? The cut out of the entire three on the Canadian tire that's on the releasing of the 135 times. We don't disclose it individually. I would say it was significant, Mario, and you know, what you don't see in those numbers as well. It's just the impact on the rest of the center, you know, in addition to being able to increase the rent experience.
Unknown Executive: Yeah, I would just add to that, you know, the tenants that we're really doing deals with right now that are really demanding space are the essential base retailers that are benefiting from the increase in our population as well. So, with the shortage of space in the market, the influx of population, retailers, such as grocers, pharmacy providers, value providers, they're the ones who are really pushing the boundaries, especially for our box space.
Speaker Change: John , anything further to add? Yeah, I would just add to that, you know, the tenants that we're really doing deals with right now that are really demanding space are the essential base retailers that are benefiting from the increase in our population as well. So.
John Belden: With the shortage of space in the market, the influx of population, retailers such as grocers, pharmacy providers, value providers, they're the ones who are really pushing the demand, especially for a box space.
Mario Saric: This was actually no dollars lease that was bought by target that was then bought by those very low additional rent as well. So, you know, we're able to almost double our cam contribution there, which, you know, it doesn't impact our bottom line so much, but what it does is it reduces the common air expense on the rest of the 10th and that center. 40%. So there is a very tangible impact on rent and those tennis can do as well. So it's all a very good news story.
Unknown Executive: Of the eight deals that we did in the 10 boxes, we showed growth there of about 21%, which really highlights the demand for that space. And the six grocery deals we did showed growth of about 32%. So, you know, that's where we're seeing the push. The pricing is obviously representative of the shortage of supply and that high demand. I would say also active in the market is fitness. And I would say it's both the high-end fitness, we've obviously done deals with the Sweat & Tonics of the world and the Altiyahs, but also kind of the discounted fitness as well.
Speaker Change: Of the 8 deals that we did in the 10 boxes, we showed growth there of about 21%, which really highlights the demand for that space. And the 6 grocery deals we did came with growth of about 32% in round.
Unknown Executive: Okay. Thank you. Thanks, Mario.
Speaker Change: So, you know, that's where we're seeing the push. The pricing obviously is representative of the shortage of supply and that high demand.
Unknown Executive: Thank you.
Speaker Change: I would say also active in the market is fitness still, and I would say it's both the high-end fitness
Speaker Change: We've obviously done deals with the Sweat & Tonics of the world and the Altiyahs.
Unknown Executive: We're seeing a lot of demand for, I wouldn't say there's softness, but where we're not seeing as much active deal making is in the furniture category. And even in the pet category, they're not suffering, but I would say they are coming off highs from the pandemic.
Matt Kornack: Our next question comes from the line of Matt Pornack with National Bank Financial Matt. Your line is now open. Good morning, guys. Just continuing on that theme, obviously this quarter, you put up exceptionally strong new all renewal, new leasing spreads the blended figure can give us a sense, like, I think that this is anomalous, but just the trend line there. And then maybe in the context, you did a good job of explaining that your portfolio is pretty defensive, but in the context of maybe the retail sales print and a more challenging economic environment.
Speaker Change: but also kind of the discounted fitness as well. We're seeing a lot of demand for. I wouldn't say there's softness, but where we're not seeing as much active dealmaking is in the furniture category.
Speaker Change: And even in the pet category, they're not suffering, but I would say they've come off highs from the pandemic. Demand there has decreased a little bit, and we're not seeing a huge push for space.
Unknown Executive: Demand there has decreased a little bit, and we're not seeing a huge push for space. And, you know, if you're looking for, you know, kind of watch list categories, I would say the one category that has a little bit of softness is the independent restaurant. Very small, between the 1,000 and 1,500 square feet or smaller, run operations with one or two locations. We're seeing softness there just with, you know, just with changes in discretionary income from the consumer. They're getting hit a little bit.
Speaker Change: And, you know, if you're looking for, you know, kind of watch list categories, I would say the one category that has a little bit of softness is the independent restaurant.
Speaker Change: Very small, between 1,000 and 1,500 square foot, or smaller run operations with one or two locations. We're seeing softness there, just with, you know, just with changes in discretionary income from the consumer, they're getting hit a little bit.
Matt Kornack: Are you still seeing tenants willing to kind of pay what they need to pay the space, I guess they are, but any any comment there. Sure, I can start and have it handed over to John to fill in. In terms of the spreads, I mean, I think if you look at the last number of quarters, we've shown a pretty constant trajectory of enhanced from buying spreads. I mean, if you look from 2020 where we started at 5%, we now look all the way to 2024 when we're close to 14.5%, and it's sort of an equal or a nice sustained growth over the course of the last few years.
Unknown Executive: That's great. I appreciate all that color.
Speaker Change: That's great, I appreciate all that Teller. And so if I if I hear all of this...
Unknown Executive: And so if I hear all of this Obviously, this year, there's been a number of one-time items that have impacted your organic growth, but it sounds like you still have a 3% longer-term view on where it should settle, but 2025 is probably going to be above that. But even with what you're saying, maybe that 3% is somewhat of a conservative figure for your portfolio, a fair characterization? Well, I mean, it's measured; we wouldn't put it down unless we thought it was reasonably accurate.
Speaker Change: Obviously, this year, there's been a number of one-time items that have impacted your organic growth, but it sounds like...
Speaker Change: You still have a 3% longer term view on where it should settle, but 2025 is probably going to be above that. But even with what you're saying, maybe that 3% is somewhat of a conservative figure for your portfolio.
Matt Kornack: Our sense is that that trend line is sustainable. We do agree this was a standout quarter, but we also, as we suggested to Mario in the last question, we are full of a lot of opportunities within our portfolio to bring our spaces to market. And if you look at our average rent in the portfolio last quarter, relative to the average rent across the portfolio in general, there's a sizeable mark to market there.
Speaker Change: A fair characterization? Well, I mean, it's measured. We wouldn't put it down unless we thought it was reasonably accurate. You're always going to have essence flows.
Matt Kornack: And we extract those, our great leasing team extracts that every time we have an opportunity on a market renewal. So we are pretty confident that the leasing spreads that we have put together over the last number of quarters are sustainable and growing. And that's in relation to the next question you ask, which is, is this type of growth sustainable? And what I'd say is what we're doing is playing catch up to get to market.
Unknown Executive: You're always going to have some flows, and the portfolio is going to generate some very good growth. The thing that, you know, some of the things that hold us back are fixed-term renewables, which we do have in our portfolio. They make up quite a bit of our overall leases. And that will hamper growth a little bit, but that, you know, way down against a lot of the space that is becoming available.
Speaker Change: The portfolio is going to generate some very good growth. Some of the things that hold us back, though, are fixed-term renewables, which we do have in our portfolio. It makes up quite a bit of our overall leases, and that will hamper growth a little bit, but way down against a lot of the space that is coming available. We think that 3% is a nice sort of middle ground for that. The other thing that we're working on and we think will be a growth generator for SP&OI is ancillary revenue, where we've got so many great standout locations that there's a lot of opportunity to bring in media, digital media opportunities and self-service opportunities.
Unknown Executive: We think that 3% is a nice sort of middle ground for that. The other thing that we're working on, and we think will be a growth generator for SP&OI, is ancillary revenue, where we've got so many great standout locations that there's a lot of opportunity to bring in media, digital media opportunities, self-service opportunities, and kiosk opportunities, things of that nature, which we think will add, but it's volatile, and it's not something that you can properly predict.
Matt Kornack: We've been, you know, the retail industry over the last 10 years has been, I think, favorable for tenants. And now the pendulum has shifted a little bit as we've been saying it will, largely because one, these tenants have reconciled that their stores are very strong profit makers, and they're being used in different ways. And two, there's simply no supply for them. And those, the combination of those dynamics in our minds provides a pretty optimal outlook for the demand for our space.
Speaker Change: and Dr. Smith.
Speaker Change: kiosk opportunities, things of that nature, which we think we'll add, but it's, it's variable. And it's not, it's not something that you can properly predict. And that's why we haven't really
Unknown Executive: And that's why we haven't really fortified that in terms of our SP&OI projections. So 3%, we think, is a good number to put out there for guidance. But look, if we do feel, as you know, we're very, we do like to keep our unit holders apprised of where we think we're going. And if we do believe that there is, there was too much of a conservative approach there, we will come out with revised guidance.
Speaker Change: Fortify that in terms of our SP&Y projections. So, 3% we think is is a good number to put out there for guidance. But look, if we do feel as you know, we're very... we do like to keep our unit holders a prize of where we think we're going and if we do believe that there is
Speaker Change: There was too much of a conservative approach there. We will come out with revised guidance.
Unknown Executive: Good enough, fair enough. And then just quickly on the residential portfolio, I know it is a smaller portfolio overall, but it generated almost 9% of the same property NOI growth there, notwithstanding Mario's comments on kind of some concerns around newer products. I think everybody knows that eventually these rent growth numbers are going to slow, but how should we think about that portfolio and why it's doing so well in the context of kind of maybe a little bit of concern about one-bedroom concentrations of new condos coming?
Matt Kornack: And also giving a line that our portfolio is consistently getting better and better through either the advent of new developments or the disposition of some of our weaker properties. So we really do believe that in our portfolio. So I'm not talking about the broader, the broader consumer landscape or economic landscape. But in our portfolio, even in the face of some economic flowdowns in Canada, we do believe that the demand will be sustainable.
Speaker Change: Not fair enough. And then just quickly on the residential portfolio, I know it is a smaller portfolio overall, but generated almost 9% the same property NOI growth there, notwithstanding Mario's comments on kind of some concerns around newer products.
Speaker Change: I think everybody knows that eventually these rent growth numbers are going to slow, but how should we think about that portfolio and why it's doing so well in the context of kind of maybe a little bit of concern about one bedroom concentrations of new condos coming on the market.
Matt Kornack: And we also think that a lot of the tenants we cater to, I'm not going to say they're impervious to economic durations, but I certainly think they are defensive. And that they will be looking to grow their footprints regardless of what the short term economic state of affairs is. I don't need anything further that. Yeah, I would just add to that, you know, the tenants have a really good deal with right now that are really demanding space are the essential base retailers that are benefiting from the increase in our population as well.
Unknown Executive: Yeah, I mean, the first thing that I would highlight about why we think it is successful and why we think it's reasonably sustainable is the fact that our RioCan Living properties are all new, they're highly amenitized, but two, they form part of a mixed-use community. And I raised this example with Mario that they are part of the well, like a 450, the well, it's part of a much bigger environment, which is very dynamic, and people, I think, would make the choice to live there over a standalone residential building or even a residential building with limited retail at grade.
Speaker Change: Yeah, I mean, I think the first thing to that I would highlight around why we think it is it is successful and why we think it's
Speaker Change: reasonably sustainable is the fact that our RioCan Living properties, one, they're all new, they're highly amenitized, but two, they form part of a mixed-use community. And I raised this example with Mario that they are part of the well, like a 450, the well, it's part of a much bigger environment, which is very dynamic and people, I think, would make the choice to live there over a standalone residential building or even a residential building with limited retail at grade. And so I think that does set us apart. If you look at some of our projects, both here in Ottawa and in Calgary, they're all part of bigger dynamic retail centers and they're all within close proximity to transit. So even if there is some softness in the overall residential
Matt Kornack: So with the shortage of space in the market, the influx of population, retailers such as grocers, pharmacy providers, value providers. They're the ones who are really pushing the demand, especially for a box space of the eight deals that we did in the 10 boxes, we showed growth there about 21%, which really highlights the demand for that space. And the six grocery deals we did came with growth of about 32% in rents.
Unknown Executive: And so I think that does set us apart. If you look at some of our projects, both here in Ottawa and in Calgary, they're all part of bigger, dynamic retail centers, and they're all within close proximity to transit. So even if there is some softness in the overall residential rental market, which I'm not suggesting it will be because it is a very supply-constrained environment, we think that RioCan Living buildings will see it last because I really do think that there is an enhanced opportunity for residents to be part of something a little bit bigger.
Matt Kornack: So, you know, that's where we're seeing the push, the pricing obviously is representative of the shortage of supply and that high demand. I would say also active in the market is fitness still. And I would say it's both the high end fitness. We've obviously done deals with the sweat and tonics of the world. But also kind of discounted fitness as well. We're seeing a lot of demand for. I wouldn't say there's softness, but what we're not seeing is much active deal making is in the furniture category.
Speaker Change: and Steph Van Den Hoegh- react to that.
Unknown Executive: That makes sense. Thanks for the answers, guys.
Speaker Change: That makes sense. Thanks for the answers, guys.
Unknown Executive: Thank you. Our next question comes from the line of Zemin Liu with Desjardins. Zemin, your line is now open.
Speaker Change: No problem. Thanks.
Speaker Change: Thank you. Our next question comes from the line of Zemin Liu with Desjardins. Zemin, your line is now open.
Zemin Liu: Good morning, guys. So just a quick clarification on condos. I'm just wondering whether RioCan or any of your JV partners are seeing any issues with condo clothing?
Matt Kornack: And even in the pet category, they're not suffering, but I would say they come off highs from the pandemic demand there has decreased a little bit and we're not seeing a huge push for space. And, you know, if you're looking for, you know, kind of watch less categories, I would say the one category that has a little bit of softness is the independent restaurant. Very small between the 1500 square footer, smaller run operations with one or two locations.
Zemin Liu: Good morning, guys. So just a quick clarification on condos.
Zemin Liu: I'm just wondering whether RioCan or any of your JV partners are seeing any issues on condo closings?
Unknown Executive: So, there is some softness, as we said, in the market. There are, you know, we have spoken to not only our JV partners but a lot of other condo developers who are delivering projects at this point in time. We don't have a lot of products delivered right now in this market, but the feedback we're getting is that it's not as bad as perhaps the press is making it out to be, particularly in condos that are in great areas that are transit-oriented.
Speaker Change: So there is some softness, as we said, in the market. We have spoken to not only our JV partners, but a lot of other condo developers who are delivering projects at this point in time. We don't have a lot of projects delivered right now in this market, but the feedback we're getting is that it's not as bad as perhaps the press is making it out to be, particularly in condos that are in.
Matt Kornack: We're seeing softness there just with, you know, just with changes in the discretionary income from the consumer. We're getting kind of a little bit. That's great, appreciate all that color. And so if I hear all of this, obviously this year there's been a number of one-time items that have been talked to your organic growth, but it sounds like you still have a 3% longer term view on where it should settle, but 2025 is probably going to be above that.
Unknown Executive: But there is some fallout, you know, whether it's 5% or in that range, but keeping in mind, too, that they just turn into a process where it doesn't necessarily mean if someone doesn't show up for closing, it doesn't mean that that's forever a default.
Speaker Change: Great areas that are transit oriented, but there is some fallout you know, whether it's 5% or in that range but keeping in mind too that they just
Unknown Executive: Like, there are ways to work through these situations through a combination of perhaps a vendor take-back mortgage or a, you know, just a sort of staggered payment plan. But then again, in our case, if you do get the units back, which we're not suggesting we will, but if we do get any of these units back, as Dennis suggested in his in his speech, we've got an average of 19% deposits of revenue, 19% of revenue across the board, which is a sizable amount of money.
Matt Kornack: But even with what you're saying, maybe that 3% is somewhat of a conservative figure for your portfolio. A fair characterization. I mean, it's measured. We wouldn't put it down unless we thought it was reasonably accurate. You're always going to have as and flows. And the portfolio is going to generate some very good growth. So some of the things that hold us back, though, are fixed term renewables, which we do have in our portfolio.
Speaker Change: They turn into a process where it doesn't necessarily mean, if someone doesn't show up for closing, it doesn't mean that that's forever a default. There are ways to work through these.
Speaker Change: of these situations through a combination of perhaps a bend-to-take-back mortgage or just a sort of staggered payment plan. But then again, in our case, if you do get the units back, which we're not suggesting we will, but if we do get any of these units back, as Dennis suggested in his speech.
Matt Kornack: It makes up quite a bit of our overall leases and that will hamper growth a little bit, but that way that against a lot of the space that is coming available, we think that 3% is a nice sort of middle ground for that. The other thing that we're working on, and we think will be a growth generator for us, PNLI is ancillary revenue where we've got so many great standout locations that there's a lot of opportunity to bring in digital media opportunities and cell service opportunities.
Dennis: We've got an average of 19% deposits of revenue, 19% of revenue across the board, which is a sizable amount of money. I mean, on average, it's about $150,000 a unit. So one, if a purchaser is willing to walk away from that, then, you know, that's a sizable move for them. But two, if they do, that allows us to sell the unit at a fairly discounted rate and still be just fine.
Unknown Executive: I mean, on average, it's about a hundred and fifty thousand dollars a unit. So 1, if a purchaser is willing to walk away from that, then, you know, that's a sizable move for them. But 2, if they do that allows us to sell the unit at a fairly discounted rate and still be just fine, or 3 real estate living has the opportunity or the possibility of just putting it in this rental pool and leasing it out.
Dennis: or three, RioCan Living, has the opportunity or the possibility of just putting it in this rental pool and leasing it.
Matt Kornack: And he asked opportunities things of that nature, which we think will add, but it's it's variable, and it's not it's not something that you can properly predict. And that's why we haven't really fortified that in terms of our S PNLI projections. So 3% we think is is a good number to put out there for guns, but like if we do feel as you know, we're very. We do like to keep our unit holders surprised of where we think we're going.
Unknown Executive: So there's a lot of mitigants, but truthfully, I mean, the crux of your question was around what we're seeing now, and it's, it's not a great market, but it's also not as bad as the perception is in terms of the failure to close.
Dennis: So there's a lot of mitigants, but truthfully, I mean, the crux of your question was around what we're seeing now, and it's not a great market, but it's also not as bad as the perception is in terms of the failure to close.
Unknown Executive: Yes, thanks. So, the second question is, you talked about transforming previously open-air centers into built-in SLRs. I'm just wondering whether we benefit from any capillary compression or solely on the SLR side.
Speaker Change: Yes, thanks.
Speaker Change: So, the second question I have is, you talked about transforming previously open-air centers, and if you go through your slide.
Matt Kornack: And if we do believe that there is, there was too much for conservative approach there, we will come out with revised guidance. Fair enough. And then just quickly on the residential portfolio, I know it is a smaller portfolio overall, but generated almost 9% the same property and why growth there notwithstanding Mario's comments on some kind of some concerns around your product. But I think everybody knows that eventually these rent growth numbers are going to slow, but how should we think about that portfolio and why it's doing so well in the context of kind of maybe a little bit of concern about one bedroom concentrations of new condos coming on the market.
Speaker Change: I'm just wondering whether we benefit from any capital compression or solely on the ROI side.
Unknown Executive: So I missed part of that. But I think the main part of the question was around the market for open-air shopping centers at this point. And if we're seeing cap rate compression, is that the crux of it?
Speaker Change: So I missed part of that, but I think the main part of the question was around the market for open air shopping centers at this point. And if we're seeing cap rate compression, is that the crux of it?
Unknown Executive: Yeah, like you talked about the transformation of previously open access to grocery anchor centers that would boost the net asset value. I was just wondering whether this benefit comes from any cap rate compressions or solely from the LOYD. Yeah, we think over time that the overall value of our portfolio becomes enhanced.
Speaker Change: Yeah, like you talked about the transforming previously open access to grocery anchor centers that would boost the net asset value. I'm just wondering whether this benefit comes from any cap rate compressions or solely on the ROI side.
Matt Kornack: Yeah, I mean, I think the first thing to that are highlight around why we think it is successful and why we think it's reasonably sustainable is the fact that our real can living properties, one, they're all new, they're highly monetized. But to the form part of a mix use community and I raised this example with Mario that they are part of the well, like a 450 the well. It's part of a much bigger environment, which is very dynamic in people.
Unknown Executive: Yeah, we think over time that the overall value of our portfolio becomes enhanced with the more grocery-anchored centers we have. I think there's definitely a view from the investment market that a grocery-anchored shopping center is more valuable. So you will, over time, see cap rate compressions, plus, of course, NOI increases, which enhances our overall NAP as a result of the inclusion of grocery stores in our open air centers. Andrew, any further comments? No, I think that's bang on, John.
Speaker Change: Yeah, we think over time that the overall value of our portfolio becomes enhanced with the more grocery-anchored centers we have. I think there's definitely a view from the investment market that a grocery-anchored shopping center is more valuable. So you will over time
Speaker Change: seat calibrate compressions, plus of course
Matt Kornack: I think would make the choice to live there over a standalone residential building or even a residential building with limited retail like great. And so I think that does set us apart if you look at some of our projects both here in an auto and in Calgary, they're all part of bigger dynamic retail centers and they are all within close proximity to transit. So even if there is some softness in the overall residential rental market, which I'm not suggesting will be because it is a very supply constrained environment. We think that real can living buildings will see it last because I really do think that there is an enhanced opportunity for residents to be part of something a little bit bigger. Thank you.
Andrew: NOY increases which enhances our overall NAB as a result of the inclusion of grocery stores in our open-air centers. Andrew, any further comment? No, I think that's bang on, John .
Andrew: People in the market looking for these assets are predominantly looking for grocery anchored. That's what the preference is. So you will see some copyright compression along with the state dental line group.
Unknown Executive: Just in terms of the core, though, I mean, our cap rates are flat on average. So we haven't, in this environment, haven't been taking any aggressive valuation adjustments. In aggregate, there's always sometimes pluses and minuses in the portfolio, but our cap rate was helped constant quarter on quarter.
Andrew: Just in terms of the core though, I mean, where our cap rates on average is flat, so we haven't
Andrew: in this environment haven't been taken any aggressive.
Andrew: valuation adjustments in aggregate. There's always sometimes plus and minuses in the portfolio, but our cap rate was helped constant quarter on quarter.
Unknown Executive: Okay, thanks. So lastly, I have a question about the media reports about the potential sales of Georgia Mall and Oakville Place. So I'm just wondering whether you have any other color or comment on that process.
Speaker Change: Okay, wow, thanks.
Zemin Liu: Our next question comes from the line of Zemin Liu with Desjardins. Zemin your line is now open. Good morning, guys. So just a quick clarification on condos. I'm just wondering whether you can or any of your JB partners are seeing any issues on condo code. So there is some softness, as we said, in the market. There are, you know, we have spoken to not only our JB partners, but a lot of other condo developers who are delivering projects at this point in time.
Speaker Change #100: So lastly, I have a question about the media reports about potential sales of Georgia Mall and Oakville Place. So I'm just wondering whether you have any added color or comment on that process.
Unknown Executive: Yeah, there was a report that was put out. I'm not sure where it came from.
Unknown Executive: We are not aware of any process, and we have no intention. I mean, at this point, we have no acute intention to sell those assets. That said, we are always looking at opportunities if the market warrants it for capital allocation, decisions, selling, and buying, but those are not, those are not listed, nor are they on the market informally first.
Speaker Change #101: Yeah, there was a report that was put out. I'm not sure where it came from. We are not aware of any process.
Speaker Change #102: And we have no intention. I mean, at this point, we have no acute intention to sell those assets. That said, we are always looking at opportunities if, you know, if the market warrants it to for capital allocation, decisions, selling, buying, but those are not, those are not listed, nor are they on the market informally for sale.
Zemin Liu: We don't have a lot of products delivered right now in this market, but the feedback we're getting is that it's not as bad as perhaps the press is making it has to be particularly in condos that are in great areas that are transit oriented. But there is some fall of, you know, whether it's 5% or not range, but keeping in mind, too, that they just, they turn into a process where it doesn't necessarily mean if someone doesn't show up for closing, it doesn't mean that that's forever.
Unknown Executive: Okay, thanks. Yeah, that's all. I'll turn it back on. Thanks.
Speaker Change #103: Okay, thanks. Yeah, that's all. I'll turn it back, thanks.
Sam Damiani: Thank you. Our next question comes from the line of Sam Damiani with TD Cowen. Sam, your line is now open.
Speaker Change #103: Thank you.
Speaker Change #104: Thank you. Our next question comes from the line of Sam Damiani with TD Cowen. Sam, your line is now open.
Unknown Executive: Thank you. Good morning, everyone.
Sam Damiani: Thank you. Good morning, everyone. So I appreciated the commentary on, you know, debt to EBITDA impacts from various things, which I think added up to about one and a quarter turns.
Unknown Executive: So I appreciated the commentary on debt to EBITDA impacts from various things, which I think added up to about one and a quarter turns. And I just want to be clear, I guess what the intention of that was, was to talk about the targeted debt EBITDA for the REIT over the next two or three years. I know in the past, you've sort of set some, some broad targets there, but, if you could, if you're able to, just clarify exactly what you're aiming for in terms of leverage over the next year.
Zemin Liu: Or a default like there, there are ways to work through these, these, these situations through a combination of perhaps a then to take back mortgage or a, you know, just a sort of stagger payments plan. But then again, in our case, if you do get the units back, which we're not suggesting we will, but if we do get any of these units back as Dennis suggested in his, you know, in his speech, we've got an average of 19% deposits of revenue, 19% of revenue across the board, which is a sizeable amount of money.
Sam Damiani: And I just want to be clear, I guess, what the intention of that was, was to talk about the targeted debt to EBITDA for the REIT over the next two or three years. I know in the past you have sort of set some, some broad targets there, but.
Speaker Change #106: if you could, if you're able to be just clarify exactly what you're guiding to in terms of leverage over the next two or three years.
Unknown Executive: Yeah, so I think where we expect to get and what we're trying to emphasize is, we had a target range of eight to nine times net debt to EBIT. We expect to be at the high end of that range, at nine times at the end of this year, and we have a clear path to eight times at the lower end of that range. So that's what we're focused on right now. We think it's a clear and achievable path to get to the lower end of that target range. And is that it?
Speaker Change #106: Yeah, so I think where we where we expect to get and what we're trying to emphasize is
Speaker Change #107: We had a target range of eight to nine times.
Zemin Liu: I mean, on average, it's about $150,000 a unit. So one, if a purchaser is willing to walk away from that, then, you know, that's, that's a sizeable move for them. But two, if they do, that allows us to sell the unit at a fairly discounted rate and still be just fine. Or three, Rio can living has the opportunity or the possibility of just putting it in this rental pool and leasing it out.
Speaker Change #108: Net debt to EBIT debt. We expect to be at the high end of that range, so at nine times at the end of this year, and we have a clear path to eight times, so the lower end of that range.
Speaker Change #108: So that's what we're focused on right now. We think it's a clear and achievable path to get to that lower end of that target range.
Unknown Executive: And is that meant to occur, you know, only once these conduct projects are reached completion? So in a
Speaker Change #108: And is that is that meant to occur, you know, only, you know, once these condo projects are reached completion so in a couple years time or?
Zemin Liu: So there's a lot of mitigants, but truthfully, I mean, the question was around what we're seeing now. And it's, it's not a great market, but it's also not as bad as the perception is in terms of the failure to close.
Unknown Executive: Yeah, so in terms of timing, we have said that the you know, we think we can get to the lower end towards the lower end in 2025. There is a bit of timing consideration there, depending on how some of those timing of some of those late-2020 condos shake out. But certainly, as we get into 2026, we have a very high degree of confidence of being at that low end. And keep in mind, too, that right now, under the normal course, Sam, that's everything that we have that's really contracted for.
Speaker Change #108: Yeah, so in terms of timing, we have said that we think we can get to the lower end, towards the lower end, in 2025.
Zemin Liu: And yeah, thanks. So the second question, how do you see that? You talked about so many previously open air centers. If you go through, I'm just wondering what they were saying to me. I was also from any type of compression was fully on the other side. So I miss part of that, but I think the main part of the question was around the market for open air shopping centers at this point.
Speaker Change #108: There is a bit of timing consideration there, depending on how some of those, the timing of some of those late.
Speaker Change #109: 25 Condo Shakeout, but certainly as we get into 2026, we have a very high degree of confidence of being at that low end.
Unknown Executive: But we've got a number of other levers that if we decide that it is in our best interest to get more aggressive in that regard, there are asset sales, there are density sales, there are other things that we can do that we have not included in those prognostications around where we intend on being.
Speaker Change #110: And keep in mind, too, that that's right now under the normal course, Sam. That's everything that we have that's really contracted for. But we've got a number of other levers that if we decided that it was in our best interest to to get more aggressive in that regard. There are asset sales, there are density.
Zemin Liu: And if we're seeing cap rate compression, is that the crux of it? Yeah, like you talked about the transforming previously open air SS to grocery anchor centers. That would boost the net as a value. I was just wondering whether this benefit comes from any cap rate compression or story on the ROI. Yeah, we think over time the overall value of our portfolio becomes enhanced with the more grocery anchored centers we have.
Speaker Change #110: There are other things that we can do that we have not included in those prognostications around where we intend on being.
Unknown Executive: Okay, great. And just on the same property analyte guidance for a change this year, just want to be clear: is that only to do with these 10 spaces and the work to release them and whatnot, or other other factors that drove that change guidance?
Speaker Change #111: Okay, great. And just on the same property analog guidance for a change for this year, I just want to be clear, is that only to do with these 10 spaces and the work to release them and whatnot, or are there other factors that drove that change guidance?
Unknown Executive: No, I mean, we've got a big portfolio; we've got over 5000 individual tenancies. So it's not just those 10.
Zemin Liu: I think there's definitely a view from the investment market that a grocery anchored shopping center is more valuable. So you will over time seek cap rate compressions, plus of course, NOI increases, which enhances our overall map as a result of the inclusion of grocery stores in our open-air centers. Andrew, any further column? No, I think that's bang aren't you? People in the market looking for these assets, our predominant looking for grocery anchored.
Speaker Change #112: No, I mean, we've got a big portfolio. We've got over 5,000 individual tenancies. So it's not just those 10. I think those were, I think, a factor. And I think they were a good factor to highlight because it shows the short-term
Unknown Executive: I think those were, I think, a factor. And I think they were a good factor to highlight because it shows the short-term dilution but then the long-term strength that it creates in the portfolio. But there's always other things in the portfolio, Sam, where, you know, we had some smaller vacancies or we had some lease-up assumptions that weren't necessarily fulfilled as quickly as we wanted. So there's a few other factors.
Speaker Change #113: dilution, but then the long-term strength that it creates in the portfolio. But there's always, there's other things in the portfolio, Sam, where, you know, we had some smaller vacancies, or we had some lease-up assumptions that haven't necessarily been fulfilled as quickly as we wanted. So there's a few other factors, but I think those are the ones that we've highlighted. It's a very, it's a large portfolio, so there's always going to be more than just 10 leases.
Unknown Executive: But I think those are the ones that we've highlighted. It's a, you know, it's a very, it's a large portfolio. So there's always going to be more than just 10 leases. That is the biggest driver, you know, overall, but in terms of the timing of that ramp-up, but yes, Jonathan said, there's, there are obviously smaller pluses and minuses that go through
Zemin Liu: That's what the preference is. So you will see some cap rate compression along with the state dental line groups. Just in terms of that core though, I mean our cap rate on average is flat. So we haven't, and this environment haven't been taking any aggressive valuation adjustments. In aggregate, there's always sometimes plus and minuses in the portfolio, but our cap rate was was helped costing quarter on quarter at this point.
Speaker Change #114: That is the biggest driver, you know, overall, but in terms of the timing of that ramp-up, but yeah, as Jonathan said, there are obviously smaller pluses and minuses that go through.
Unknown Executive: I just want to say congratulations on that Canadian Tire lease. I really couldn't imagine a better outcome for that particular shopping center. So, congratulations.
Speaker Change #115: Understood, and I just want to say congratulations on that Canadian Tire lease. I really couldn't imagine a better outcome for that particular shopping centre, so congratulations.
Unknown Executive: Thanks, I really appreciate it.
Zemin Liu: So lastly, I have a question about some media reports about potential sales of Georgia more and also your place. So I'm just wondering whether you have any at the color or comment on that process? Yeah, there was a report that was put out. I'm not sure where it came from. We are not aware of any process and we have no intention. I mean at this point we've no acute intention to sell those assets. That said we are always looking at opportunities if the market warranted to, for capital allocation, decision selling, buying, but those are not listed nor are they on the market importantly for sale. Okay, thanks.
Mike Markidis: Thank you. Our next question comes from the line of Mike Markidis with BMO. My queue line is now open.
Speaker Change #116: Thanks, everyone. I appreciate it.
Moderator: Thank you. Our next question comes from the line of Mike Marquez with BMO.
Unknown Executive: Hi, thanks. Good morning, everybody. This has been great, caller. Thanks so much for all the comments this morning. I just want to make sure I had the numbers right. So I think for 450, to well, was it one and a half cents this quarter that was the drag, or was it half a cent? I just want to make sure I understood that.
Speaker Change #117: My queue line is now open.
Speaker Change #119: Hi, thanks. Good morning, everybody. This has been great, Collar. Thanks so much for all the comments this morning. I just want to make sure I had the numbers right. So I think for $4.50, the well, was it one and a half cents this quarter that was the drag or was it a half cent? I just want to make sure I got clear on that.
Unknown Executive: Asked at 1.5 million dollars, which equates to a half a cent drag half a cent per year. Okay, perfect.
Speaker Change #120: offset 1.5 million dollars so which it was equates to a half a cent drag half a cent okay perfect
Unknown Executive: Okay, and just so obviously, that's the negative impact. And then just what is the positive? Like, what? How should we think about the swing factors that stabilize? Is it as a full penny swing in the other direction, or do you get back on top of them?
Speaker Change #120: Yeah.
Speaker Change #121: Okay, so obviously that's the negative impact, and then just what's the, what's the, is the positive, like how should we think about the swing factors that stabilizes, is it a full, can you swing the other direction, or?
Unknown Executive: Yeah, that's all. I'll turn it back. Thanks. Thank you.
Sam Damiani: Our next question comes from the line of Sam Damionnees with TD Cowan. Sam, your line is now open. Thank you. Good morning, everyone. So I appreciated the commentary on debt deba.impacts from various things, which I think added up to about one and a quarter turns. And I just want to be clear, I guess with the intention of that was to talk about the targeted debt deba.d for the reap over the next two or three years.
Unknown Executive: Yeah, I mean, right now, as John mentioned earlier, Mike, we fully intend on having that fully stabilized by the end of this year, in fact, even before that. And so assuming that happens, which we're confident based on the current weekly velocity that we're seeing, then yeah, it should revert to positive for 2025. I don't know the exact number on that one, Dennis, do you?
Speaker Change #121: You get back on top of them.
Mike Marquez: Yeah, I mean, right now, as John mentioned earlier, Mike, we fully intend on having that fully stabilized by the end of this year, by, in fact, even before that. And so, assuming that happens, which we're confident, based on the current weekly velocity that we're seeing, then, yeah, it should revert to a positive for 2025. I don't know the exact number on that one, Dennis, you.
Unknown Executive: Yeah, you're probably not that far off if it's a half cent drag. It's about that.
Sam Damiani: I know in the past you have sort of set some broad targets there, but if you could, if you're able to be just clarifying exactly what you're guiding to in terms of leverage over the next two or three years. Yeah, so I think where we expect to get and what we're trying to emphasize is we had a target range of eight to nine times net debt deba.de, but we expect to be in the hind of that range at nine times at the end of this year.
Speaker Change #123: Yeah, you're probably not that far off, but if it's a half cent drag.
Unknown Executive: It's a half set drag this year. It's a half set positive next year. So the net, the swing factor is
Speaker Change #124: Yeah, it's about that. It's a half set drag this year, it's a half set positive next year, so the net, the swing factor is set.
Unknown Executive: That's correct, and that's on a quarterly basis, not on an annual basis.
Speaker Change #125: That's correct. And that's on a quarterly basis, not an annual basis.
Unknown Executive: That's correct. That's 1.5 to one quarter.
Unknown Executive: Yeah, okay, great. So, just to clarify, the capitalization is done on 450. Is there any capitalized interest still on the commercial component of the well, or is that all done?
Speaker Change #126: That's correct, that 1.5 to 1 quarter.
Speaker Change #127: So the capitalization is done on 450. Is there any capitalized interest still on the commercial component of the well, or is that all done at this juncture?
Sam Damiani: And we have a clear path to eight times to the lower end of that range. So that's what we're focused on right now. We think it's a clear and achievable path to get to that lower end of that target range. And is that meant to occur only once these condo projects are reach completion? So in a couple years time, more? Yeah, so in terms of timing, we have said that we think we can get to the lower end, towards lower end in 2025.
Unknown Executive: There is still a small amount, although the vast majority has been transferred over. But there's still some units that are filed as
Speaker Change #128: There is still a small amount, although the vast majority has been transferred over, but there are still some units that are under construction.
Unknown Executive: But a lot of them are also now fully occupied. That's right. So it's not the same negative impact where, at 450, a lot of the units haven't been filled yet. That's right. Yeah.
Speaker Change #128: But a lot of them are also now fully compromised, so it's not the same negative impact we're in.
Unknown Executive: On the commercial side, they're effectively passed suite by suite as the units are filled up. So it's a bit of a different accounting policy. We would expect that there'll be no capitalization remaining after. That's what we'd expect; we'd be fully operational. So next year, it'll be okay.
Speaker Change #129: 1450, a lot of the unions haven't been filled yet. That's right. Yeah, at the commercial side, they're effectively passed sweet by sweet as the units are tilled up, so it's a different county policy. We would expect that, so there'll be no capitalization remaining after this year.
Sam Damiani: There is a bit of timing consideration there depending on how some of those timing of some of those late 25 condos shake out, but certainly as we get into 2026, we have a very high degree of confidence of being at that lower end. And keep in mind, too, that's right now under the normal force. Sam, that's everything that we have that's really contracted for, but we've got a number of other levers that if we decided that it was in our best interest to get more aggressive in our regard, there are assets sales, there are density sales, there are other things that we can do.
Speaker Change #130: That's what we'd expect, we'd be fully operational and complete.
Speaker Change #130: So next year it'll be okay.
Unknown Executive: Thank you for that. And then just on the, I mean, I guess, so you totally understand the ebbs and flows on the same property side, and you did rein in your expectations a little bit this year, but also kept your FFO guidance intact. So just curious what, if anything, were the offsets there? Or is it just a function of that CPNOI is cash versus FFO?
Speaker Change #130: Thank you.
Speaker Change #131: Thank you for that. And then just on the, I mean, I guess so you totally understand the ebbs and the flows on the same property side, and you did rein in your expectation a little bit this year, but also kept your FFO guidance intact. So just curious what, if anything, were the offsets there, or is it just a function of that CPNOI is cash versus FFO?
Unknown Executive: That's the biggest factor there. You're right, Mike. We don't put straight-line rent into the SP&OI, but it does go into the FFO. So the impact is much more muted on the FFO side.
Sam Damiani: So, that we have not included in those provocations around where we tend on being. Okay, great. And just on the same property and a lot of guidance for a change for this year, it's going to be clear, is that only to do with these 10 spaces and the work to release them and whatnot, or other other factors that drove that change guidance? No, we've got a big portfolio, we've got over 5,000 individual tenancies, so it's not just those 10, I think those were, I think a factor, and I think that they were a good factor to highlight because it shows the short term dilution, but then the long term strength that it creates in the portfolio.
Speaker Change #132: That's the biggest factor there. You're right, Mike. We don't put straight-line rent into the SP&OI, but it does go into the FFO. So the impact is much more muted on the FFO side.
Unknown Executive: Okay, great. Last one for me before I turn it back on the 400,000 and so new leases that were done this quarter, a great new leasing spread of 52.5%. How much did the Canadian Tire lease cost? Like, does that include the Canadian Tire lease? Because I think that one's probably a pretty significant health increase. And I suppose I guess it would also include some of those bad boys in rooms and spaces, but it's a significant lift as well.
Speaker Change #133: Okay, great. Last one for me before I turn it back.
Speaker Change #134: The $400,000 and so new leases that were done this quarter, great new leasing spread of 52.5%. How much did the Canadian Tire lease, like does that include the Canadian Tire lease? Because I think that one's probably a pretty significant healthy.
Speaker Change #134: increase, and I suppose I guess it would also include some of those bad boy in rooms and spaces. Lisa said a significant lift as well.
Unknown Executive: Yeah, it's a combination. We didn't break it down specifically. It's like how much influence that one lease has on it. But even absent that, I can tell you that it's a very strong number. So I think that if you could view that one as anomalous, which I don't think it's anomalous because I think we have lots of these opportunities in our portfolio, but even if you did, we're still showing some very outsized spreads, leasing spreads over the quarter. But we didn't break it out specifically as to what the exact influence of that one deal is.
Speaker Change #135: Yeah, it's a combination. We didn't break it down
Sam Damiani: But there's always, there's other things in the portfolio, Sam, where we had some smaller vacancies, or we had some lease up assumptions that haven't necessarily been fulfilled as quickly as we wanted. So, there's a few other factors, but I think those are the ones that we've highlighted. It's a large portfolio, so there's always going to be more than just 10. That is the biggest driver, you know, overall, but during the time of that ramp up, but yes, Jonathan, that there's, there are obviously smaller plus the monitor that go through.
Speaker Change #136: One lease has on it, but even absent that I can tell you that it's a very strong number. So I think that.
Speaker Change #137: You know, if you could view that one as anomalous, which I don't think it's anomalous because I think we have lots of these opportunities in our portfolio, but even if you did, we're still showing some very outsized spread, leasing spreads.
Speaker Change #137: over the quarter, but we didn't break it out specifically as to what the exact influences of that one deal.
Unknown Executive: I think the other thing I would say, Mike, is that we have started disclosing a last 12 months leasing spread figure in our materials, simply because there can be these, you know, there can be anomalies in a given quarter. It's going to be a bit of a volatile number. So 14.5% blended leasing spread over the last 12 months gives you kind of a sense of what that trend line starts to look like.
Speaker Change #138: I think the other thing I would say, Mike, is that we have started disclosing our last 12 months leasing spread.
Unknown Executive: Understood, and I just want to say congratulations on that Kennedy entirely, so I really couldn't imagine a better outcome for that particular shopping center, so congratulations. Thanks, I really appreciate it.
Speaker Change #139: figure in our materials, simply because there can be these, you know, there can be anomalies in a given quarter and going to be a bit of a volatile number. So 14 and a half percent
Mike Marcus: Thank you. Our next question comes from the line of Mike Marcus with BMW. Mike, your line is not open. Hi, thanks. Good morning, everybody. This has been great color. Thanks so much for all the comments this morning.
Speaker Change #140: London leases spread over the last 12 months gives you kind of a sense of what that trend line starts to look like.
Unknown Executive: Totally, no, understood. And what a great indicator, as you said, of the future upside on some of these legacy leases. That's all for me. Thanks so much.
Unknown Executive: No, Anders.
Speaker Change #141: Totally, no, understood and what a great indicator you said of the future upside on some of these legacy leases. That's all for me, thanks so much.
Mike Marcus: I just want to make sure I had the numbers right, so I think for 450 to well, was it one and a half cents this quarter that was the drag or was a half cents? I just want to make sure I got clear on that. $1.5 million, so it was placed to a half a cent drag. Half a cent for the next year. Okay, so obviously that's the negative impact, and then just what's the, what's the, what's the, is the positive like, how should we think about the swing factors that stabilizes as a full penny swing the other direction or.
Jonathan Gitlin: I am showing no further questions at this time. I would now like to turn the conference back to President and CEO, Jonathan Gitlin.
Dennis: Great, Dennis. Thanks, Mike.
Dennis: Thank you. I am showing no further questions at this time. I would now like to turn the conference back to President and CEO , Jonathan Gitlin.
Operator: Thanks, everyone, for tuning in on Friday in the summer. Have a great rest of your day, everyone. Thank you.
Jonathan Gitlin: Thanks everyone for tuning in on a Friday in the summer and have a great rest of your day everyone. Thank you.
Operator: That concludes today's call. Thank you for your participation. You may now disconnect your line.
Speaker Change #143: That concludes today's call. Thank you for your participation. You may now disconnect your line.
Speaker Change #143: [inaudible]
Mike Marcus: Yeah, I mean, right now is John mentioned earlier, we fully intend on having that fully stabilized by the end of this year by 1815 before that, and so assuming that happens, which we're confident based on the current weekly velocity that we're seeing, then, yeah, it should revert to to positive for 2025. 5, I don't know the exact number on that one doesn't suit. Yeah, you're probably not that far off, but if it's a half cent drag, yeah, it's about that.
Mike Marcus: If it's a half cent drag this year, it's a half cent positive next year, so the net, the swing factor is set. That's correct. And that's on the court and on a quarterly basis, not an annual basis. That's correct. That 1.5 is a one quarter. Yeah, okay, great.
Mike Marcus: So then just so the capitalization is done on 450. Is there any capitalized interest still on the commercial phone and other well, or is that all done on this country? There is still still a small amount, although the vast majority has been has been tracked for over, but there is still some yet that are following destruction. But a lot of them are also now pulling on, okay, that's right. So it's not the same night moving back, we're in 450, a lot of the news haven't been filled yet.
Mike Marcus: That's right. Yeah, at the commercial side, they're effectively passed sweet by sweet as the units are filled up. So it's just different, different county policy. We would expect that so there will be no capitalization remaining after after this year, as will we expect will be fully operational and complete. So next year, it'll be okay. Thank you for that.
Mike Marcus: And then just on the, I mean, I guess you totally understand the ebbs and the flows on the same property side and you did rain in your expectation a little bit this year, but also kept your FFO guidance intact. So just curious what, if anything, were the offsets there was it just a function out of that CPN OIs cash versus FFO. That's the biggest factor there. You're right, Mike. It's, we don't put straight line rent into the SPN OI, but it does go into the FFO so that the impact more much more needed on the FFO set.
Mike Marcus: Okay, great last one for me for turn it back just on the 400,000 and so new leases that were done this quarter. Great new leasing spread of 52.5%. How much did the Canadian tire lease like does that include the Canadian tire lease because I think that one's probably a pretty significant healthy increase and I suppose I guess it would also include some of those bad boy in rooms and spaces leases that the significant left as well.
Mike Marcus: Yeah, it's combination. We didn't break it down specifically. It's like how much influence the that one lease has on it, but even absent that I can tell you that it's a very strong number. So I think that, you know, if you could view that one as anomalous, which I don't think it's anomalous, because I think we have lots of these opportunities in the portfolio, but even if you did, we're still we're still showing some very outside spread leasing spreads over the quarter, but we didn't break it.
Mike Marcus: It out specifically as to what the exact influences of that one deal. I think the other thing I would say is that we have started disclosing in the last 12 months leasing spread figure in our materials, simply because there can be these, you know, there can be anomalies in the given core and going to be a bit of a volatile number. So 14.5% blunt at least has spread over the last 12 months, it's a kind of a sense of what that trend lines are going to look like. Totally no understand what a great indicator just said of the future upside on some of these legacy leases that's all for me. Thanks so much. Great. Thank you.
Unknown Executive: I am showing no further questions at this time.
Jonathan Gitlin: I would now like to turn the conference back to President and CEO Jonathan Gitlin. Thanks everyone for tuning in on Friday and the summer and have a great rest of your day everyone. Thank you.
Unknown Executive: That concludes today's call. Thank you for your participation.
Unknown Executive: You may now disconnect your line.