Q4 2024 First Capital Real Estate Investment Trust Earnings Call
This conference is being recorded.
So to close the homes that don't have as you see it.
Speaker Change: Good afternoon, and thank you for standing by welcome to the Q4 'twenty 'twenty four conference call. During the presentation, all participants will be in a listen only mode.
Speaker Change: Afterwards, we will conduct conduct a question and answer session at that time. If you have a question. Please press star one on your telephone keypad.
Speaker Change: I would now like to turn the conference over to Allison. Please proceed with your presentation.
Allison: Thank you and good afternoon.
Speaker Change: When discussing our financial and operating performance and then responding to your questions. During today's call. We may make forward looking statements. These statements are based on our current estimates and assumptions many of which are beyond our control.
Speaker Change: And are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements.
Speaker Change: A summary of these underlying assumptions risks and uncertainties is contained in our securities filings.
Speaker Change: Our MD&A for the year ended December 31, 'twenty 'twenty, four and our current Aif, which are available on SEDAR plus and our website.
Speaker Change: These forward looking statements are made as of today's date and except as required by Securities law, we undertake no obligation to publicly update or revise any such statements.
Speaker Change: During today's call. We will also be referencing certain non <unk> financial measures.
Speaker Change: These do not have standardized meanings prescribed by EIOPA or not and should not be construed as alternative that any.
Speaker Change: Our cash flow from operating activities determined in accordance with diet for us.
Speaker Change: Management provides speech as a complement to ifr S measures to aid in assessing the rates performance.
Speaker Change: She's not hire for US measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call I'll now turn the call over to.
Speaker Change: Okay. Thank you very much Alison and good afternoon, everyone. Thank you for joining us today for our year end 2024 conference call.
Speaker Change: I'll start by bringing you back to our Investor day, which we held in early 2024, and where we presented a three year strategic plan.
Speaker Change: This plant was designed to be transformative for first capital in several respects.
Speaker Change: Most importantly it.
Speaker Change: Contemplate significant reshaping of our balance sheet.
Speaker Change: To achieve this we've reduced the weighting and dollar amount of two key focus areas of our property portfolio.
Speaker Change: First.
Speaker Change: Non strategic low yielding properties.
Speaker Change: Properties with no way to come at all which are assets held in our property development pipeline.
Speaker Change: And in all cases, where we had achieved our value enhancing objectives for the properties to be sold.
Speaker Change: These reductions were to largely be achieved through a 1 billion dollar divestiture program over the course of the three year plan.
Speaker Change: The redeployment of the proceeds from the divestiture program over a three year timeframe or earmarked as.
Speaker Change: Roughly 40% towards overall debt reduction.
40%, 50% to be invested in our development program.
Speaker Change: The remaining 10% to 20% to be allocated opportunistically.
Speaker Change: Some examples of the opportunistic bucket, including potential further debt reduction compelling acquisitions, such as our purchase last year of the remaining half of gateway.
Speaker Change: Depending on the cadence of disposition and the price of SCR units repurchases of trust units under our in CIB.
Speaker Change: As we presented the three year plan for our investors in early 2024, we stress the importance of household growth during the timeframe of our plan.
Speaker Change: And over the long term.
Speaker Change: It is mission critical for our success.
Speaker Change: Our portfolio and ultimately our balance sheet overweighted in low and no new assets with impeding our ability to produce the <unk> growth targets that we were aiming to achieve.
Speaker Change: With these changes to our portfolio and consequently, our balance sheet all of the three year period, we would put first capital in a much better position to deliver the primary objectives that we set out to achieve for our investors.
Speaker Change: To reiterate.
Speaker Change: These objectives were again are quite simply.
Speaker Change: Wishing a very solid earnings base in recurring <unk> per unit.
Speaker Change: And delivering on a per unit basis.
Speaker Change: Growth in SSO.
Speaker Change: Growth in net asset value.
Speaker Change: And absolutely stable reliable monthly distributions to our investors with consistent growth in these distributions overtime.
Speaker Change: As we executed the plan, we anticipated that we would deliver SSL growth of at least 3% per annum on average over the three year period.
This is a very respectable number and importantly powerful when combined with the simultaneous improvement of our balance sheet.
Speaker Change: I'll now go through the results for the first year of the plan.
Speaker Change: As I do I will refer to <unk> or operating <unk>.
Speaker Change: Oh, that's helpful. Its funds from operation, excluding the impact of items and other gains losses and expenses.
Speaker Change: You will have noted that with our 2024 results not reported as the first year of the three year plan.
Speaker Change: Our OSI BOE came in at $1 36 per unit.
Speaker Change: This represented a year over year growth rate of 14, 9%.
Speaker Change: However, as I explained during last quarter's conference call.
Speaker Change: As reported included two unusual non recurring items in both 2023 and 2024.
Speaker Change: Excluding these four items is more representative of what occurred in the underlying business and by excluding these items are almost my fault growth rate in 2024 changes from 14, 9% to five 4%.
Speaker Change: The largest contributor to this older first overall by far with same property NOI growth.
Speaker Change: It increased by $17 $7 million or four 4% due to leasing activity throughout the year.
Speaker Change: The strong 2024, adjusted OIBDA growth rate of five 4% exceeded our targets for the year.
Speaker Change: This puts SCR in a strong position to achieve our objective of an average of at least 3% per annum over the three year plan period.
Speaker Change: Consistent <unk> growth is a critical component for long term success.
Speaker Change: We're off to a great start with our 2024 results.
Speaker Change: Another key focus our three year plan was to reduce our leverage ratio of debt to EBITDA to below <unk> by the end of 2024 and the low eights.
Speaker Change: Of 2026.
Speaker Change: In 2024, we were able to improve our debt to EBITDA by 120 basis points to eight seven times at year and nicely exceeding our first year target of a ratio in the low nines.
Speaker Change: The two unusual non recurring items I flagged earlier in our 2024, Oh Wow football also helped our 2020 for EBITDA and consequently, our debt to EBITDA ratio.
Speaker Change: If we adjust EBITDA to remove both the adjusted leverage ratio of changes to the low nines, which is very much in line with our objective for the year.
Yeah.
Speaker Change: Other benchmarks and targets that we discussed at our Investor Day included five additional metrics for the 2024 years that were embedded in our three year plan.
Speaker Change: One related to dispositions.
Speaker Change: And we had an active year on that front.
Speaker Change: In 2024, we completed our went for 15 divestiture transactions totaling approximately $320 million.
Speaker Change: They were consistent with our strategy. They collectively have an NOI yield of less than 3% and notably the assets were sold at an average premium to <unk> up more than 50%.
Speaker Change: Earlier I referred to the billion dollars of divestitures that we're targeting over the next three years, an average of approximately $333 million of dispositions per year.
Speaker Change: This is in line with the $320 million that we delivered in 2024.
Speaker Change: At our Investor Day, we said that we had actually hoped to deliver closer to $400 million in the first year of the three year plan.
Speaker Change: Overall, we were very happy with the 2024 results that we did achieve particularly the significant premium to net asset value.
Speaker Change: Okay.
Speaker Change: There were also four other 2024 metrics that we presented at our Investor day that were embedded in our plan.
Speaker Change: These were same property NOI growth.
Speaker Change: <unk> expenditures.
Speaker Change: Folio Capex and G&A expenses.
Speaker Change: I can now report that we met or exceeded the 'twenty 'twenty four targets that we presented an awful.
Speaker Change: Overall, we were very pleased with our 2024 results.
Speaker Change: Ethical growth was solid and above our internal forecast in fact, the dollar 26 per unit adjusted number was a new record.
Speaker Change: <unk> in 2019.
Speaker Change: Debt to EBITDA improved significantly, which meaningfully improves <unk> cost of debt capital.
Speaker Change: Same property NOI all came in better than planned.
Speaker Change: Lease renewal spreads were very healthy at 12, 5%.
Speaker Change: Occupancy improved by 60 basis points to 96, 8% at year end.
Speaker Change: It is now 10 basis points away from our all time high of.
Speaker Change: Of 2019, just before the start of the pandemic.
Speaker Change: And the average net rent in place of $24 set another all time high.
Speaker Change: Given our results Cigna.
Significant balance sheet strength and positive outlook.
Speaker Change: Board approved a 3% increase the SCR is mostly distribution effective with the January 2025 distribution that is payable in February.
Speaker Change: As we've discussed.
Speaker Change: Stability and growth and distributions is one of first capital key long term objectives.
Speaker Change: So this increase represents an important milestone.
Speaker Change: However, we do not look at 2024 in isolation, but in the context of our three year plan.
Speaker Change: As we start 2025, the second year of our plan we are in a strong position to remain on track.
Neil: And with that I will now pass things over to Neil Neil.
Neil: Thanks, Adam and good afternoon, everyone.
Neil: Consistent with our usual practice, we have a slide deck available on our website at SCR dossier.
Neil: And in my remarks today, I will make references to that presentation.
Neil: So starting with slide six.
Neil: SCR generated <unk> of $68 million in the fourth quarter.
Neil: This was consistent with the fourth quarter of 2023 and is equated to approximately 32 cents per unit in both periods.
Neil: Underlying the recent results were continued solid growth in same property NOI and total NOI.
Neil: Partially offset by higher trust and interest expenses.
Neil: To examine the numbers in more detail, let's move to some of the components of <unk>, starting with net operating income.
Neil: Q4, total NOI of $115 million increased by $5 million year over year.
Neil: Same property NOI, excluding lease termination fees and bad debt expense was $105 $5 million.
Neil: The increase of $3 $5 million or three 4%.
Neil: Higher base rents and improve recoveries were the key drivers.
Neil: On a same property basis bad debt expense was $223000 in Q4 2024 versus a recovery of $462000 in the fourth quarter of 2023.
Neil: Same property lease termination fees were approximately $500000 in each quarter.
Neil: Acquisition activities added $600000 to Q4, NOI on a year over year basis, well disposition activity accounted for a decrease in NOI growth of approximately $1 $4 million.
Neil: There were no acquisitions in the fourth quarter of 2024, well there were two notable dispositions. These.
Neil: These included 16 29 Queensway on November 12.
Neil: And our 50% interest in 200 West Esplanade Vancouver on December 19th.
Neil: Finally, other non same property NOI of $7 $1 million improved by $3 $1 billion year over year.
Here are the key growth driver with straight line rent from new leasing.
Neil: Moving further down the ethical statements Q4 interest and other income was $6 $4 million.
Neil: A decrease of $300000 year over year, mainly due to lower interest income on average cash balances.
Neil: Q4, corporate expenses were $10 7 million.
Neil: This was up year over year, but consistent with the prior quarter.
Neil: Full year G&A expenses were $43 $4 million, which was in line with our formerly stated expectations of $42 million to $44 million.
Interest expense was $42 2 million in Q4.
Neil: This was $1 million or 2% lower sequentially, but $3 $2 million or 8% higher year over a year.
Neil: Notably Q4, 2024 included $1 $7 million of nonrecurring costs related to early debt repayments.
Neil: So normalizing for this finance costs were down sequentially from Q3, while they increased by 4% year over year.
Neil: We had notable success in managing our interest rate roll up exposure and our overall debt maturity profile through 2024, and I'll discuss this in a bit more detail in a few minutes.
Neil: Turning to slide seven this summarizes our full year results.
Neil: Now recognizing that the only truly new information today as our fourth quarter results I will be brief here with two key points.
Neil: Firstly 2020 for same property NOI growth again, excluding lease termination fees and bad debt expense was three 3%.
Neil: This was consistent with the 3% or better outlook provided with our third quarter results and above the beginning of the year expectations of two to two 5% growth.
Neil: Leasing was strong all year long every business good as we thought it would be.
Neil: Secondly, then moving straight to the bottom line.
Neil: <unk> thousand 24, operating <unk> was $291 million equating to $1 36 per unit.
Neil: Excluding the Q2 assignment fee and the Q3 density bonus revenue, which collectively Italian tally nearly $21 billion.
Neil: If you normalized <unk> for the year at $270 million, which is a snick about $1 26 per unit.
So this was a solid growth rate over 2023, and it exceeded our beginning of the year internal projections, principally due to leasing but also due to capital allocation and debt management successes in the face of higher interest rates.
Neil: Slides eight and nine cover key operating metrics, most of which Adam touched upon already so I won't discuss these in more detail.
Neil: I will simply note that the themes remained consistent again through the fourth quarter with continued and broad strength across key metrics.
Neil: Slides 10, and 11 provide distribution payout ratio metrics.
Neil: These two are mostly for informational purposes, but the key takeaways are simple the business continues to benefit from solid cash retention.
Neil: In 2024, SCR generated $232 million of that though.
Neil: And $221 million of adjusted cash flow from operations.
Neil: This is relative to annual distributions equating to $183 million and that puts our <unk> and <unk> payout ratios at 80% and 83% respectively.
Neil: Advancing to slide 12.
Neil: <unk> December 31, net asset value per unit was $22.05.
Neil: This is relative to $21 92 at September 30th and $21 95.
Neil: One year prior.
Neil: As you can see the REIT NAV per unit has been quite stable over the last year.
Neil: During the fourth quarter most of the 13th <unk> per unit increase was from retained SFO as net fair value gains were only $4 million or <unk> <unk> per unit.
Neil: Occasionally with a full year view, the net change and that was about $20 million or 10 cents per unit.
Neil: Now this is a very small number in the context of more than $9 billion of total assets.
Neil: But we have a rigorous evaluation process and beneath the surface. There are several components to the increase.
Neil: The first small changes in cap rates and discount rates resulted in a $116 million fair value decrease during the year.
Neil: Secondly, we also recorded a $65 million fair value decrease related to development density in land values.
Neil: On a positive note cash flow model changes drove a $108 million fair value increase.
Neil: Unfortunately, as it relates to asset sales those that are closed or under firm contract.
Neil: Resulted in a $24 million fair value increase.
Neil: And finally, most of the balance of the net asset value growth related to retained U S. F O.
Neil: Turning next to capital investments on slide 13.
Neil: During the fourth quarter, SCR invested $58 million, including $25 million into the operating portfolio and $33 million into development activities.
Neil: For the year as a whole the business invested $223 million.
Neil: This included $117 million into developments and $73 million into portfolio Capex.
Neil: Early in the year in the first quarter, specifically, we also consolidated our consolidated our ownership interest in seeking gateway Calgary for $34 million.
Neil: 2024 is more significant development expenditures included $17 million at young Roselawn Toronto.
Neil: $13 million at Humber Town shopping center and the telco as.
As well as $27 million at Eden Ridge, condos and $18 million, that's 400 King Toronto.
Neil: Slide 14 summarizes key financing activities.
Neil: During the fourth quarter, we repaid $232 million of debt and originated 203 million of new debt.
Neil: Including the November 1st issuance of the series D unsecured debentures in the amount of $200 million.
Neil: These debentures had a five six year term to maturity.
Neil: A $4 four 7% effective interest rates and were issued at a spread of 143 basis points.
Neil: The proceeds were applied to the early repayment of term loans in the amount of $200 million.
Neil: While we did incur $1 $7 million of interest rate swap breakage costs on the early repayment of the term loans.
Neil: The annual savings of $1.3 million from the refinancing provides for a very quick payback.
Neil: And just as importantly, this financing reduced risks and added duration to our debt ladder.
Neil: Overall 2024 was a very successful year on the financing front.
Neil: As you can see we effectively repaid nearly $1 billion of debt at <unk>.
Neil: Originate is approximately 900 million of new debt.
Neil: Notwithstanding the higher rate environment, particularly in the first half of last year the financing efforts yielded no break rollout.
Neil: Moreover, as summarized on slides 15 and 16.
Neil: The financings and other activities allowed SCR to maintain a very strong liquidity position of more than $850 million into year end.
Neil: And through 'twenty 'twenty four we improved most key credit metrics.
Neil: Notably these financings also reduced our 2025 and 2026 cumulative debt maturities by about $450 million or more than 25% fixed.
Neil: They extended our debt ladder to three seven years of term from three three years of term at the beginning of the year.
Neil: We believe these are all great outcomes.
Neil: Now before turning the call majority I will make a few comments related to our 2025 expectations.
Neil: Okay.
Neil: We achieved or exceeded key 2024 objectives, and we continue to track towards our three year targets.
Neil: True straight line rents recognition the strong 2024 results effectively pulled forth some growth from 2025.
Neil: And therefore, our progress this year may be more level.
Neil: And what we expect to be more meaningful improvements again in 2026.
Neil: Also during the first half of 2025, there are several factors that may suppress <unk> per unit growth.
Neil: For instance, our.
Neil: Our year end liquidity position, probably met or exceeded your expectations.
Neil: In part this was due to the earlier than planned receipt of a $25 million double digit interest rate loan receivable in December.
Neil: We also expect another similar size higher rate loan repayment to occur in the first half of this year.
Neil: And finally, our disclosure show that the $131 million of debt due in the first half of 2025 carries a low three 3% weighted average interest rates.
Neil: So I just wanted to highlight these factors for those of you who model Scr's near term earnings in detail.
Neil: In terms of other expectations for 2025, I will outline for you.
Neil: Firstly.
Neil: We believe same property NOI growth should be approximately 4%.
Neil: For clarity this growth rate excludes potential lease termination fees and bad debt expense or recovery.
As many of you will recall for almost a year now and as stated at our February Investor day, with our three year plan.
Neil: We've been expecting that 2025 would be a year of stronger organic growth.
Neil: Our view towards the improvement is predicated in part by leases that are already signed.
Neil: So.
Neil: Notwithstanding the 2020 for strong results the 2025 expectation remains intact.
Neil: I will now however, highlight that 2025 cash NOI growth should exceed <unk> growth NOI growth due to the conversion of straight line rent into cash rent.
Neil: And remember.
Neil: F. R. S. NOI flows through to SSO, while cash NOI flows through to <unk>.
Neil: Turning to development.
Neil: We expect 2025 expenditures within a range of $130 million to $160 million.
Neil: Key projects include phase two of our Humber Town shopping center redevelopment, which has recently commenced.
While our 10 71, King and younger Roselawn purpose built rental mixed use projects are also good.
<unk>.
Neil: Thirdly, we expect portfolio operational capex to be generally consistent with the $73 million incurred in 2024.
Neil: Internal leasing costs should also also will be roughly the same as the $8 million incurred last year.
Neil: And finally, we expect normal inflationary type growth in general and administrative expenses.
Neil: This concludes my prepared remarks, I'm now pleased to turn the session to Jordi for his update principally related to development activities.
Okay.
Jordi: Thank you Neil and good afternoon.
Speaker Change: As Adam and you'll have already taken you through the details of our investment program for the quarter any ear today I'm going to focus my update on our development redevelopment and entitlement activities.
Speaker Change: Construction of our 10 71 key streets West development approaches and Liberty village, it's progressing very well.
Speaker Change: It's a unique flatiron building located in a high growth neighborhood.
Speaker Change: You'll recall, we own 25% is 298 unit 225000 square foot purpose built residential rental approach it which includes 6000 square feet at grade retail space.
Speaker Change: The building is targeting net zero carbon vehicles and has achieved tier two of the Toronto Green standards.
Speaker Change: Geothermal drilling and excavation for the projects have been completed underground waterproofing and formed work currently underway with 70, 70% of the cost for it.
Speaker Change: And young in Roseland, we're also progressing on schedule.
Speaker Change: Construction of the underground structure is well underway with the P. Two parking level nearing completion.
Speaker Change: We own 50% of this property and served as its development yet.
Speaker Change: This project is also targeting net zero T G S tier two and legal.
Speaker Change: It is a 636 unit mixed use purpose built residential rental building with 65000 square feet of retail space.
Speaker Change: Powertrain both tower cranes are installed and 72% of course are awarded.
Speaker Change: Well, it's still several years from occupancy.
Speaker Change: We received significant inbound interest from retailers in the 65000 square feet of at rate and second floor large and smaller format retail space.
Speaker Change: After years of robust arguably unsustainable.
Speaker Change: <unk> residential market has softened this past year.
Speaker Change: As a result, there've been almost no new construction starts are multifamily projects.
Speaker Change: Given this reduction in the number of new starts essentially no new supply will be deliver what our programs are completed in 2027 and 28.
Speaker Change: This should certainly bode well for SCR at that time upon commencement of our Lisa.
Speaker Change: Over the past number of months, our executive team asset strategy team developed and construction team and a red team comprised of operations and leasing have collectively spent a lot of time together I was gonna field touring our properties.
Speaker Change: Based upon the location and the productivity of our assets and the increased demand and rising rents from retail tenants.
Speaker Change: We believe we can re merchandize redesign or redeveloped, a number of our properties with compelling returns.
Speaker Change: For clarity I'm, referring to what we had outlined at our Investor day with respect to the attractive investment opportunities that exist in the core value add component of our portfolio.
Speaker Change: This opportunity is driven by the strong fundamentals of our properties. It is further supported by the store growth requirements of many of our retail tenants in this environment with virtually no new retail construction.
Speaker Change: This shortage in supply as a result of the significant gap that exists today between the economic rents required to justify newbuild retail space and the current market rent for that same space.
Speaker Change: The cost of redesigning space to accommodate the retailer's requirement at meaningfully less than the cost of building a new shopping center.
Speaker Change: As a result, we can enhance and expand existing space and select SCR centers. We can lease this improved modern format space to these retailers, who will pay a significant premium to our in place rents.
Speaker Change: Considering this growing opportunity and we can invest capital in our own properties at very attractive risk adjusted returns on that capital.
Speaker Change: We've identified a number of very exciting opportunities and if he got our planning and mobilization.
Speaker Change: We look forward to sharing the details of these plans with you shortly.
Speaker Change: Our redevelopment of hungry town shopping centre in Toronto now well underway is a great example of this type of investment opportunity.
Speaker Change: In 2024, we transferred the 26500 square feet of space in Phase one.
Speaker Change: Into ICP.
Speaker Change: Part of the first phase of the redevelopment we removed the interior common area of the center.
Speaker Change: We also modernized exterior facing entrances, we read of my existing commercial retail units with more functional dimensions, we upgraded and redesign the facade and we created a new retail agrees with.
Speaker Change: Average rents in this space have doubled those in place prior to the redevelopment in Q4, we also entered into a new long term lease with <unk> for a large store.
Speaker Change: This enabled us to commence the second phase of the redevelopment in January of 2025 phase three of the redevelopment, which will include a new larger format 20000 square foot shoppers drug Mart, and new TD Bank and Scotiabank branches amongst other tenants will commence later in 2025.
Speaker Change: Our completion of our work well, we will have reclaimed or removed always closed common area of the center and in so doing improved and grown the gross leasable area of hungry town shopping center by 17000 square feet.
Speaker Change: More important.
Speaker Change: And then the expansion area is that our completion. This 150000 square foot center will generate significantly more income and will be far more value.
Speaker Change: In total we expect to invest $45 million from the redevelopment of hunger tab, which will generate very compelling returns.
Speaker Change: With respect to entitle is this past quarter, we were successful securing approval for 660000 square feet of retail and residential density at our Avenue and Lawrence property here in Toronto.
Speaker Change: This eight properties three eight anchor assembly situated in the neighborhood is one of the highest income demographics in the country.
Speaker Change: Disapproved density gives us a real optionality as the property maybe developed or maybe so.
Speaker Change: In total during 2024, we received approvals for 2 million square feet of incremental density on our properties.
Speaker Change: Also during the fourth quarter, we submitted entitlement applications at four properties.
Speaker Change: To date, we've submitted for entitlement on over 18 million square feet of incremental debt net.
Speaker Change: Netting out the density that we've already sold this represents 77% of our 23 million square foot.
Speaker Change: In conclusion I want to reiterate that we remain focused on the delivery of results that are reflective of our successful execution of our objectives.
Speaker Change: Thank you for your attention and thank you for your continued support and with that operator, we can now open it up to questions.
Speaker Change: Thank you very much. Please press star one at this time, if you have a question there will be a pause ball participants register for questions. Thank you for your patience.
Speaker Change: Yeah.
Dean Wilkinson: First question is from Dean Wilkinson from CIBC. Your line is open go ahead.
Dean Wilkinson: Thanks afternoon, everyone.
Speaker Change:
Speaker Change: I'm sure there's a lot of questions. So I'll just keep it to one with two parts, maybe Neil just on the leverage ex items out your low nines it looks like you're heading to two somewhere probably in the mid eights.
Speaker Change: Next year as you approach that target level would that have you be a little more selective about the assets that youre looking to perhaps divest of it and maybe tap the brakes, a little on that and the second part of the question would be and counter to that would that have you perhaps look at ramping up some of the development activities too.
Speaker Change: To bring a little more of the.
Speaker Change: EBITDA lineup.
Speaker Change: Yeah.
Speaker Change: I E.
Speaker Change: Good afternoon.
Speaker Change: So when you say next year, I think you'd probably be like this year I E 2020.
Speaker Change: Yeah I do.
Speaker Change: I won't opine on your projections. All you really do is reiterate that our three year plan and low nines by the end of 2020 for which we achieved at a low eight times debt to EBITDA by 2026, and we believe that we're on track to meet those objectives.
Speaker Change: And then I'll I'll ask Adam I'll, just expand on that so one safe assumption beyond the three year plan, given the breadth and depth of the density that we currently have entitled and what's in the pipeline are safe assumption would be that for many many years certainly over the foreseeable decade, we will be a <unk>.
Speaker Change: <unk> monetize or of the density and the value that we've created.
Speaker Change: What will change over time is the use of proceeds and so you know I went through the use of proceeds over the current $1 billion target and is a meaningful component earmark for debt reduction.
Speaker Change: As we look beyond the three year plan, we will make an evaluation, whether there's a benefit to our investors further allocating capital to debt reduction and there's a strong possibility that we say no. We're happy with the balance sheet, we don't see those incremental benefits going to our investors relative to what else, we can do with that cash.
Speaker Change: <unk> and so.
Speaker Change: What one one option beyond that playing not to get too far ahead of ourselves is we started investing more of the proceeds into <unk>.
Speaker Change: Call core grocery anchored shopping centers.
Speaker Change: Maybe a little more in development, but certainly we'd be keen to grow the core portfolio of grocery anchored shopping centers.
Speaker Change: No that's great. Thanks, I'll hand, it back thanks, guys.
Speaker Change: Thank you very much Steve.
Speaker Change: Thank you.
Speaker Change: Next question is from Lorne Kalmar from D. Jardine. Your line is open go ahead.
Lorne Kalmar: Thanks, Good afternoon.
Lorne Kalmar: Just wanted to focus in on the dispositions you.
Speaker Change: You guys, obviously had a pretty good year in 2024.
Speaker Change: A lot of moving pieces at a macro level and heading into 2025 or I guess in 2025.
Speaker Change: Is there any concern or indication that some of this broader macro uncertainty would impact the pace of dispositions.
Speaker Change: Yeah.
Charlie: Hi, it's Charlie.
Charlie: I would say you know given that broader market uncertainty.
Charlie: You know they just built market uncertainty remains what I'll say is challenged but I would say all at the same time it remains constructive I mean.
Charlie: We're in discussions on a number of properties now we're progressing forward.
Charlie: On those properties and we still feel.
Charlie: We are in line with.
Charlie: The $1 billion of dispositions, we had set out as part of our objectives over three years.
Speaker Change: And just to expand on that Lauren we don't know what the future holds.
Speaker Change: Well, we do know as we've been at this for a little over two years. When you look at the timeframe since we launched the optimization plan, which as you know it was replaced with our three year plan about a year ago.
And.
Speaker Change: The market if you look at it over the last two years has.
Speaker Change: Said pleasantly less than ideal it's been less than ideal.
Speaker Change: But joining and the investments group has done an exceptional job we've sold during that timeframe a little over $800 million of this real estate at an average yield of less than 3% and an average premium to net asset value of about 20% those are exceptional resulting in a strong market let alone a more challenging one.
Speaker Change: When do you expect it to remain challenging.
Speaker Change: We also expect to achieve the objectives, we've laid out it's not easy, but we've got good real estate, we've got talented people.
Speaker Change: And I you know for some of them certainly look back in hindsight, saying we were Lucky. We've got started when we did you look at the sale of Kim highlighted at that price or sub 3% cap rate.
Speaker Change: You know probably no chance, we could replicate that transaction to date majority and his team are working on a bunch of things that we.
Speaker Change: We do think we'll get done and they're working hard to make sure that happens and it will be great. Great outcome. You know, we're very focused on premium pricing the assets, while not a good fit and ftr's portfolio and the volume we hold them, they're still good assets and we should command a premium price. So hopefully that gives you a sense of how we approach. It we're taking a focus but disciplined approach in.
Speaker Change: While your comments on the macro are well taken.
Speaker Change: I think that you know as I've already noted the market's constructive enough for us to continue to make progress.
Speaker Change: If it does prove to be more challenging than maybe we expect right now or you guys expect right now would there be any appetite to maybe take a hit a bit on pricing to get things over the line like do we see maybe that ire for its premium come down a bit.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: It's difficult for us to sit here and start speculating on situations like that.
Speaker Change: Well, we'll have to revisit in the in the context of a lot of different moving parts in the business and make a decision at that time it would be premature for us at this stage to tell you that that's what we're contemplating.
Speaker Change: Fair enough and then just one last quick one for Juruti I guess can you maybe remind us what type of returns you would need to see to move forward with a retail redevelopment.
Speaker Change: Yeah.
Speaker Change: Well.
Speaker Change: It's hard I'm, not juruti, but I would agree with me the stuff in the pipeline is in the mid to high single digit Unlevered development yields.
Speaker Change: So okay.
Speaker Change:
Speaker Change: A little more complicated than that and we think about some of those we will get that but we also think over and above that it actually changes the cap rate on certain properties meeting lowers, though slash decreases the value per dollar of NOI, but.
Speaker Change: But to give you a rough range you know mid to high single digit Unlevered returns on the invested capital.
Speaker Change: Alright, Thank you very much that's very helpful.
Lauren: Thanks, very much Lauren.
Speaker Change: Thank you.
Speaker Change: The next question is from Mike market and from BMO capital markets. Your line is open go ahead.
Speaker Change: Okay.
Mike: Thanks, operator, good afternoon. That's your team I'm just on the dispositions I guess next spring 20 million completed in and agreements in place I think that's at around $200 million.
Speaker Change: This quarter, so that leaves $1 20.
Speaker Change: What else is in the terms of the agreements I assume their perm I think shirt and pluses in there and I think it was 95 large west was mentioned last quarter is there anything else that's meaningful enough in that pool.
Neal: Hey, Mike It's Neal.
Speaker Change: The two assets that are.
Speaker Change: You've identified are slated for closing late in the first quarter.
Speaker Change: Okay, and that would that be roughly 120 million meal or is it less than that.
It's in the 70 70 or 72 million I believe is the number.
Speaker Change: Okay.
Speaker Change: Got it. So then with what's Sheridan Plaza, just looking at the outset Wal Mart anchored grocery anchored is that an asset that has density is that a was that in the.
Speaker Change: Density bucket is it or just a non density and noncore transactional.
Speaker Change: No Mike It's surety was not a part of the density pipeline. It was a actually a property we had identified at our Hilton property disposition as some time ago. It's a good asset, but we didn't think it was going to contribute to the objectives, we set out in.
Speaker Change: In the plan and what we're trying to deliver for our investors.
Okay. So I guess the yield on that one would maybe be a little to steer them sub 3%.
Speaker Change: Yeah.
Speaker Change: Yeah, that's a good assumption okay just for modeling purposes. Thank you.
Speaker Change:
Speaker Change: Neil or everybody I guess at the end of the day.
Speaker Change: So the 1.7 million charge, you didn't normalize for that but if we strip that out on the swap charge. That's because you guys 33 sensors.
Speaker Change: Exit run rate.
Speaker Change: And I know you mentioned some headwinds rapid growth in 2025.
Speaker Change: At what point, you know where I'm going with that is if I annualize that I'm going to get to a rate that would get you to sort of the.
Speaker Change: 3% by 2026, so I guess, what would you need to see to increase your 3% <unk> growth.
Speaker Change: It'll.
Speaker Change: 2020, your three year plan.
Speaker Change: Well, if you've ever like we said three we said 3% or greater.
Speaker Change: So I suppose if we had significant confidence that that was 4% or greater or 5% or greater.
Speaker Change: At some point might feel inclined to say that but I think where we stand today, there's uncertainty in the world I pointed out some of the factors that presents.
Speaker Change: You know, it's a challenge for <unk> growth in the short term as it relates to low cost of debt coming due and some other factors. So.
Speaker Change: Yeah as it stands today, we are comfortable in stating greater than 3% annualized.
Speaker Change: Okay, and just last one before I turn it back and Q4 you noted the you know the one of the factors you noted on the kindred and stuff with Oak Brook, just being the straight line rent that's come on and the difference between cash and straight line, but with most of the income from one floor now be in the Q4.
Speaker Change: That's F one number.
Speaker Change: Sure. The short answer is yes, it's in the U S. But both of them are that's I think all of it yeah. That's the key point right. So you got to almost $2 $5 billion of straight line rent in that Q4 number and that that begins to convert pretty quickly to cash rents.
Speaker Change: So stated as an alternate way the straight line rent number is going to decline fairly significantly in 2025 versus 2024.
Speaker Change: Okay, but recognizing that there's no there's a lot of uncertainty in the world et cetera, et cetera, If let's say you know theres.
Speaker Change: The black Swan scenario doesn't happen once that normalizes once we sort of lap Q4, a knife rest basis should I press equal cash roughly.
Speaker Change: Once we get to do so.
Speaker Change: Yes. So the answer is the two are likely to become more closely linked but they won't necessarily equate to one another because.
Speaker Change: It's always possible that we continue to sign leases have rental steps right. So that actually that continues to build your straight line rent.
Speaker Change: Yeah.
Speaker Change: No that's fair okay.
Speaker Change: Yes, they are disproportionately linked to over the last 12 months, specifically because of one floor.
Speaker Change: Yes, the fixed drinker it.
Speaker Change: Yes.
Speaker Change: Thanks, so much for the color.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: The next question is from Sam D M. Many from T. D. At Cowen. Your line is open go ahead.
Speaker Change: Thanks, and good afternoon, everyone. First question for me Neal is just I think in your comments you said growth would be more meaningful in 2026 and 2025 did you were you referencing same property NOI F. A forward both and I Wonder if you could just sort of add some color as to how the factors behind that.
Speaker Change: Right.
Neal: Yeah. So I think what we're referring to our Sam is in general that progress.
Neal: Towards our key objectives, which are debt to EBITDA improvement in <unk> per unit growth. So as you know we took a pretty sizable step function in both of those in 2024.
Neal: And.
Neal: We don't think it's going to be quite significant in 2025 is what I was really indicating.
Neal: Yeah.
Neal: Okay.
Speaker Change: And last one for me just kind of a couple of clarifications just with the sale of Sheridan Plaza, obviously, a different disposition and what we've seen from FCA are over the last couple of years.
Speaker Change: This is a change intact or are there going to be more sort of I P. P assets grocery anchored IPP assets disposed in the next year or two than perhaps was contemplated a year ago.
Speaker Change: Okay.
Speaker Change: No no. The short answer is Sheraton has been on our disposition list for.
Speaker Change: A number of years.
Speaker Change: We recently renewed the food store and got them to a market rent.
Walmart is a typical Walmart lease which is a flat rent was slippage for a time frame that.
Speaker Change: But it doesn't feel dissimilar to forever.
Speaker Change: And we've got very little CRE, you and given the demographics of the neighborhood the residential density value.
Speaker Change: You don't see residential development in the neighborhood. There's a reason so when you look at it to George's point, we've we've looked at it said there was some upside on the food store, we've now been able to deal with that and in terms of delivering the objectives that we've laid out for our investors. We don't think it contributes we think we can do better with the capital and that's why it's so.
Speaker Change: So besides typical grocery anchored shopping center by SCR standards in terms of the merchandising mix. The depth of see are you in complementary uses the demographic quality the neighborhood et cetera.
Speaker Change: So yeah, it maybe a little bit different but I'm, not saying, we don't have any others, but it would certainly be a one off and the timing of it was strictly a function of getting the lift in the food store deal is done and now is the right time.
Speaker Change: That's great color and totally makes sense and just lastly, Adam in your comments you.
Speaker Change: Referenced a premium to iron Forest NAV I, just wanted to confirm that.
Speaker Change: Mean, I have breast asset value because obviously, there's a difference when looking at our gross debt or net debt.
Speaker Change: Okay.
Speaker Change: Yeah, Yeah, so for clarity.
Speaker Change: Yeah, I was referencing the sale price is a premium to the IRS will call at carrying value, which is the gross gross value gross of debt not factoring in any day.
Speaker Change: Perfect. Thank you I'll turn it back.
Speaker Change: Thanks very much then.
Speaker Change: Thank you.
Speaker Change: The next question is from Matt Korn from National Bank Financial Your line is open glad.
Speaker Change: I guess I'm just wanted to quickly go back to the conversation with Mike around the straight line rent Neil if you could.
Speaker Change: Can you give kind of a.
Speaker Change: By quarter, how you would expect that conversion will take place.
Speaker Change: Kind of a million and a half to convert over two quarters or.
Speaker Change: Just it would be helpful for them at that stuff overseas today as opposed to that point.
Speaker Change: Yeah Okay.
Speaker Change: Really getting into the fine details on that.
Speaker Change: Cause that to that million should begin to decay pretty rapidly through the first half.
Speaker Change: Of 2025, so at a very high level, Okay very high level, we had $7 3 million I believe it was a straight line rent in.
Speaker Change: In 2024.
Speaker Change: You can probably penciling at this juncture $2 million or less for 2025. So you can see the effect.
Speaker Change: Snapshot.
Speaker Change: Yeah, that's $5 billion Delta is two to three cents.
Speaker Change: Per unit.
Speaker Change: Right, Okay, no that makes sense and then on an interest income.
Speaker Change: You guys provide the schedule I guess annually in terms of the receipts and you have $77 million at 8.8%, but historically, you've kind of replace some of the loans receivable or interest generating our accounts there.
Speaker Change: Is the is the idea that you'll you'll not replacement in that 77 million goes away early in the year. So you should think about modeling it.
Speaker Change: Yeah, I think I've got to say, we won't replace it but we're not rushing to replace it wont be selective with the opportunities that can be a bit spotty. So what neal was trying to get at in his remarks is that there would be a bit of a drag from those specific loans relative to the income in <unk>. They contributed in 'twenty four.
Speaker Change: Okay. Okay.
Speaker Change: And the swap I guess and then I guess, if if you'd turn to kind of your lease maturity profile 'twenty 'twenty fives, a pretty muted year or normal year, but over the next five years, there's kind of a ramp up in terms of the amount of space.
Speaker Change: You have coming up can you give us and them.
Speaker Change: How how we should think about the the leasing dynamics in terms of leasing spreads and retention and your confidence in that.
Speaker Change: Increasing our maturity profile may actually be a growth of generating opportunity.
Speaker Change: Yeah.
Speaker Change: It's not uncommon for us to be looking out two or three or four years and see.
Speaker Change: You know some spikes in the expiry profile, but what what inevitably happens is you end up doing early renewals with tenants to smooth it out.
Speaker Change: We would expect rethink the core metrics that we've delivered over really the last year or two it's probably a decent place to look at it in terms of future expectations and as things evolve if we have more.
Speaker Change: More color more conviction that things will be different one way or the other we would talk about it but at this stage.
Speaker Change: We think kind of what we've seen you know double digit lease renewal spreads likely to continue.
Speaker Change: So hopefully that answers your question Matt.
Speaker Change: No that's helpful and then maybe lastly.
Speaker Change: Have you seen any regional disparities in kind of the operating performance and a.
Speaker Change: General demand dynamics across the country I know.
Speaker Change: Favorable for for necessity based retail.
Speaker Change: Population growth is changing in some.
Speaker Change: Some areas have been impacted more so than others I just just interested in kind of your sense as to how things are going.
Speaker Change: Across the provinces.
Speaker Change: Yeah. So.
Speaker Change: Just to keep it short there is a remarkably high degree of consistency and we'll call. It the six cities that we operate so the short answer is.
Speaker Change: No regional disparities that are visible in our and what we're seeing.
Speaker Change: Perfect that's great.
Matt Korn: Okay. Thank you very much Matt.
Speaker Change: Thank you.
Speaker Change: Next question is from Mario <unk> from Scotia Bank. Your line is open go ahead.
Speaker Change: Alright. Thank you for taking the question. The first one I'm not sure if I missed it on matts question, but on the on the target 4% same property NOI growth in 2025.
Speaker Change: Do you expect this contractual annual rent escalators.
Speaker Change: That figure are you expecting what you delivered in the second half of this year or two.
Speaker Change: Just.
Speaker Change: Yeah, I don't think we've Neil didn't provided that type of expectation, but what we would say is.
Speaker Change: We expect to be to see a high degree of similarity in the activity that we complete this year as we did last year.
Speaker Change: Understood. Okay, and then just maybe switching over to the dispositions once again I think people.
Speaker Change: I have stated in there where the my read of kind of macro conditions, including potential U S tariffs, but election Susquehanna quantum are good.
Speaker Change: Certainly over the magnitude of future rate cuts so when you.
Speaker Change: When you think about your $1 billion disposition target granted it's a three year target.
Speaker Change: What do you view as being the biggest impediment towards executing on that in the near term based on what your counterparty dripping today.
Speaker Change: Yes, I'll remove any reference to our Counterparties are saying, we'll speak solely about what what we see and believe.
Speaker Change: So they are a potential obstacles are all the things you referenced Barry.
Speaker Change:
Speaker Change: So depending on how those unfold.
Speaker Change: Well, well will impact or you know how hard or how are successful we will be what we can tell you that today, we continue to have active transaction veterinarian stages of the transaction process.
Speaker Change: And at prices that we are comfortable transacting at so we will continue to work hard and try and get those done.
Speaker Change: Okay, and then I can't recall, if you provided it before but how should we think about the geographic mix of the target $1 billion and disposition is a fairly consistent with the broader portfolio mix today.
Speaker Change: Yeah.
It's a little different similar but a little different construct has a lot of there's a much heavier weighting of density and development assets and.
Speaker Change: The density that we've entitled and created have.
Speaker Change: Have a heavier weighting to the Toronto market. So so we would expect to continue to see the density monetization occur Oh.
Speaker Change: A little more waiting trial, but not a lot more weight.
Speaker Change: Okay and is it is it your view that.
Speaker Change: Because there's still a decent amount of Toronto condo completions anticipated for 2025 do you feel that.
Speaker Change: Those deliveries to clear before you see tangible improvement in the residential end markets to Trump.
Speaker Change: Oh, Yeah, we'll see we'll see we're fortunate that our cargo completions don't start till 2026.
Speaker Change: But yeah, but we're looking at the same data you're looking at so we'll have to see how it unfolds.
Speaker Change: Going back to your earlier point the sales are weighted to draw on them also Montreal, a little bit of Vancouver.
Speaker Change: Nothing in Alberta.
Speaker Change: Okay. Thanks for the color.
Speaker Change: Thank you Mario.
Speaker Change: Thank you.
Speaker Change: Next question is from Penny Berger from RBC capital markets. Your line is open go ahead.
Speaker Change: Okay. It looks like I have a minute to get these in.
Speaker Change: Just coming back to all of this all of this commentary around the uncertainty out there are you seeing any changes in terms of any sort of tenant behavior through the early weeks of this year, you know any delays in decision, making or pushback on rent growth I mean your guidance for 4% same property I would suggest that that's not the case, but.
Just curious what you're keeping an eye on that makes that might.
Speaker Change: Indicate the opposite.
Speaker Change: Yeah, but we're all we're always keeping our eye on anything that's changing the short answer pardon me is at this point and you've got hundreds of negotiations underway today, we have seen absolutely no change in the depth and breadth in demand or the way leases are being negotiated.
Speaker Change: Again, I think part of it relates to the fact that most of these tenants are making multi decade real estate decisions real estate like SCR owns and has historically been tough to secure tenants know that theyre going to operate through various cycles various macro events, but the short answer is Fortunately, we continue to see very strong.
Speaker Change: Off demand and don't change from last month or last quarter or six months ago.
Speaker Change: That's helpful. And then just no theres no large known vacancies or any tenants of note on the watch list at this stage.
Speaker Change: Yeah. So in terms of a large trials upcoming vacancies I know certainly nothing out of the norm on the watch list Neal.
Speaker Change: Yeah.
Speaker Change: There actually is I would say today at a short one.
Speaker Change: <unk> list.
Speaker Change: They include several tenants all of which by the way actually are current on their rent and we think that situations where tenants specific as opposed to indicative of any sort of challenges within a particular merchandize category.
You know in totality, we're probably talking about five to seven locations across the SCR portfolio and I'd say also by the way. The fact that there's you know a very short list of tenants.
Speaker Change: Tenants on watch.
Speaker Change: More of a normal condition.
Speaker Change: For our retail real estate business versus say the past 12 months to 18 months, where we've essentially had.
Speaker Change: Go watch list that it's basically been nil for the most part.
Speaker Change: Got it.
Speaker Change: Last one just wanted to come back to you clarify your comment.
Speaker Change: That I think he said 2025 should be more level in terms of <unk> with 2024 before resuming growth in 'twenty six just if you could just clarify that.
Speaker Change: Well, we had a pretty steep growth rates.
Speaker Change: You will in 2024.
Speaker Change: Depending on how you slice things to normalize them, it's kind of up to five between five and 6% and what we indicated is that our objective is to deliver a 3% or better on an average basis over three years. So.
Speaker Change: I hope that puts by my comments into context.
Speaker Change: Got it in the OSV, you're referring to was the Buck 26 stripping out the I think it was the $20 million of nonrecurring income in.
Speaker Change: 21 billion and 10 minutes of use that's correct got it okay I'll turn it back thanks, so much.
Bob: Thank you Bob.
Speaker Change: Thank you there are no further questions registered at this time I'd like now to turn the meeting back over to Alison.
Speaker Change: Okay. Thank you very much. Thank you everyone for participating in our conference call for your interest in first capital. We look forward to working hard and updating you on our results in the future have a good afternoon.
Speaker Change: Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.
Speaker Change: This conference is no longer being recorded.
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