Q1 2025 First Capital Real Estate Investment Trust Earnings Call
Speaker Change: This conference is being recorded. Cette conférence est enregistrée. Good afternoon. Thank you for standing by. Welcome to the Q1 2025 conference call. During the presentation, all participants will be in a listen-only mode.
Speaker Change: Thank you and good afternoon.
Speaker Change: In discussing our financial and operating performance and responding to your questions. During today's call. We may make forward looking statements.
Speaker Change: These statements are based on our current estimates and assumptions many of which are beyond our control 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: Or any of these underlying assumptions risks and uncertainties is contained in our securities filings, including our MD&A for Q1 and for the year ended December 31, 2024, and our current Aif, which are available on SEDAR Pos to be on our website.
Speaker Change: These forward looking statements are made as of today's date and except as required by law. We undertake no obligation to publicly update or revise any such statements.
Speaker Change: During today's call. We will also be reference to certain non <unk> financial measures.
Speaker Change: You do not have standardized meanings prescribed by <unk> and should not be construed as alternative to net income or cash flows from operating activities determined in accordance with di for us.
Speaker Change: Management provides be used as a complement to iff's measures to aid in assessing the reach performance.
Speaker Change: One I ever as measures are further defined as discussed in our MD&A, which should be read in conjunction with this call I'll now turn it over to him.
Speaker Change: Okay.
Speaker Change: Thank you very much Alison and good afternoon, everyone and thank you for joining us today for our Q1 2025 conference call.
Speaker Change: We're really pleased with how the euro started.
Speaker Change: Our first quarter financial results were characterized by continued strength in our operating performance, which was driven by robust leasing activity and the execution of our capital allocation strategy.
Speaker Change: These results demonstrate how our grocery anchored retail properties provide insulation from today's macroeconomic uncertainty.
Speaker Change: Same property cash NOI grew by a very strong five 3% before factoring in lease termination fees.
Speaker Change: Our debt expense, which had a very small.
Speaker Change: This growth was primarily driven by higher rates.
Q1 occupancy matched an all time high of 96, 9% loss in Q4 of 2019.
Speaker Change: However, rents in place are notably higher today than they were then.
Speaker Change: In Q1, we surpassed our previous all time high setting a new record with an average net rents in place of $24.23 per square foot.
Speaker Change: During Q1, we renewed just over 500000 square feet across 98 spaces.
Renewal rental rates in year, one of the renewal term averaged $24 91 per square foot, representing a year one renewal rent increase of 13, 6%, which is once again above our long term average.
Speaker Change: This included six fixed rate renewals, which if excluded increases our year, one renewal with roughly 17%.
Speaker Change: We also extended our track record of securing meaningful contractual rent escalations to take effect during the renewal terms.
Speaker Change: In Q1.
Speaker Change: 74% of our renewed leases included contractual rent escalations, resulting in a region of nearly 19% when comparing net rents in the last year of the expiring term.
Speaker Change: Average net rent during the renewal term.
Speaker Change: And in addition to renewal leasing we also completed approximately 90000 square feet of new leasing across 42 spaces carrying an average year, one rent of approximately $32 per square foot.
Speaker Change: In short we see activity continues to be very strong.
Speaker Change: We see a long runway for rental given that economic rents remain well in excess of both market rents and in place rents.
Speaker Change: As most of you know we are now almost halfway into a three year strategic plan that we presented to our investors at the beginning of 2024.
Speaker Change: And it's hard.
Speaker Change: Our plan is focused on delivering our primary objectives.
Speaker Change: These primary objectives are quite simply so.
Speaker Change: Leverage on a per unit basis.
Speaker Change: Stability and consistent growth in SSO.
Speaker Change: Growth in net asset value.
Speaker Change: And absolutely stable reliable monthly cash distributions to our investors and growth in those distributions overtime.
Speaker Change: Yeah.
Speaker Change: The three year plan that we outlined for investors was designed to deliver on two key metrics.
Speaker Change: The first is delivering operating <unk> per unit growth of at least 3% on average over the three year timeframe.
Speaker Change: The second key metric is achieving a net debt to adjusted EBITDA ratio is in the low eight times range by the end of 2026.
Speaker Change: I'm pleased to say that we remain on track to deliver full targets.
Speaker Change: Yeah.
Speaker Change: But at least the surface there are several things that contribute to the achievement of these two key metrics.
Speaker Change: Most of the assumptions are consistent with those provided at our Investor day.
Speaker Change: However, there are two assumptions that we have updated this quarter.
Speaker Change: First.
Speaker Change: Over the three year timeframe development completions are now expected to be $300 billion in total versus $200 million previously.
Speaker Change: This is a result of us tracking yeah.
Speaker Change: The expected.
Speaker Change: It's changed positively impacts achieving our key metrics and debt to EBITDA specifically.
Speaker Change: Second.
Speaker Change: Dispositions are now expected to be in the range of $750 million in total over the three year period versus a $1 billion previously.
Speaker Change: So why don't we make this change.
Speaker Change: Well given the increased macro uncertainty.
Speaker Change: More appropriate assumption is that it may take a little bit longer to achieve the initial $1 billion.
Speaker Change: Positions, so we reduced to $750 million.
Speaker Change: The business continues to perform exceptionally well.
Speaker Change: And we remain on track to achieve the operating <unk> per unit growth and the debt to EBITDA metrics.
Speaker Change: Core premise of our three year plan.
Speaker Change: Through the first 15 months of the plan, our operating <unk> per unit.
Speaker Change: Excluding several positive nonrecurring items is approximately 5%.
Speaker Change: Our debt to EBITDA has improved to eight nine times or the low nines adjusting for some of those same nonrecurring items.
So needless to say, we're very pleased with our results to date.
Neil: And with that I will pass things over to Neil.
Neil: Thanks, Adam and good afternoon to all of our call participants.
Neil: Consistent with our usual practices, we have a slide deck available on our website <unk> CA.
Neil: And in my remarks today, I will make reference to that presentation.
Neil: So let's start with slide six.
Neil: SCR generated operating <unk> of $69 million in the first quarter.
Neil: This was up slightly from $68 million in the fourth quarter of 2024.
And down from $78 million in the first quarter of last year.
Neil: On a per unit basis, Q1, <unk> was $32 one.
Up slightly from 31, 6% in Q4.
Neil: Down from 36 in Q.
Neil: Q1, 'twenty 'twenty four.
Neil: And providing context to the year over year decline recall that our Q1 2024 results included a $9 $5 million of assignment fee interest and other income.
Neil: Well the accounting standards required us to include this amount income.
Neil: In substance.
Neil: Being more akin to property disposition proceeds.
Neil: Excluding this fee from the Q1 results last year will equate to $32 one.
Neil: <unk> per unit or.
Neil: Or a flat growth rate year over year.
Neil: First quarter results from last year also included an abnormally large.
Neil: $5 million lease termination fee.
Neil: Now lease termination income, which is a normal part of our business.
Neil: Well it is exceptional.
Neil: If you further adjust for the termination fee OSF over even last year with $29.05 per unit.
Elevating this year's growth rate to 9%.
Neil: Let's dig a bit further into the results.
At the core of STR performance in Q1 with same property NOI rose with <unk>.
Neil: Lease termination fees and bad debt expense was five 3% or approximately $5 million.
Neil: This exceeded our internal business plan, but the key drivers being higher base rents and improvements in operating cost recoveries.
Neil: This strong Q1 print reinforces our confidence in <unk> ability to deliver same property NOI growth of approximately 4% on a full year basis.
Neil: The year over year NOI impact from acquisitions.
Neil: Physicians and the non same property pool was essentially nil on a net basis.
Neil: Now in terms of the NOI run rate I will highlight several property transactions from the quarter.
Neil: Firstly on February 3rd we acquired 15, 14th Avenue Road trial for $22 million.
Neil: This was the final property to complete our large scale development and assembly.
Neil: Secondly, we completed two Toronto property sales during the last week of March, including 895, Lawrence Avenue, Westin and Sheraton Plaza.
Neil: Gross proceeds were $72 million and the assets were sold free and clear.
Neil: Both properties were fully leased with salt and the NOI yield on the aggregate selling price was in the mid to high fours.
Therefore, as we move into the second quarter, you should expect to see a small amount of NOI dilution related to the timing and the nature of the Q1 acquisition and disposition activity.
Neil: Moving down to the rest of the <unk> statements.
Neil: Q1, 2025 interest and other income included about a half a million dollars of nonrecurring income.
Neil: If you adjust for this and the $9 5 million assignment fee earned a year ago in Q1 interest and other income was generally consistent on a year over year basis.
Neil: Further down the page interest expense general and administrative expenses and other expenses were also fairly consistent year over year.
Neil: Slides seven and eight cover key operating metrics, some of which Adam already touched upon.
Neil: And in short the scheme really remains consistent again through the first quarter.
Neil: <unk> and broad strength across key occupancy lease.
Neil: Leasing velocity leasing spreads.
Neil: Rental rate metrics.
Neil: Slide 10 provides the distribution payout ratio metrics.
Commencing with the month of January SCR its distribution per unit was increased by 3% to an annualized rate of 89 cents.
Neil: Results for the first quarter of 2025 show. The SCR is payout ratio was 69% O F F O basis.
Neil: And in the mid 80% range when measured on either an <unk> or a CFO basis.
Neil: Advancing to slide 11.
Neil: The March 31, net asset value was $22.06 per unit.
Neil: This was consistent with $22.05 per unit at December 31.
Neil: And little changed from $22.10 per unit, one year ago.
Neil: During Q1 fair value gains on investment properties for $2 $5 million.
Neil: This of course is a net number so I'll provide a bit more color on the two largest components.
Neil: Firstly, we recorded upward valuation marks a $39 million related mostly to higher NOI assumptions in the DCF models.
Neil: With strong leasing results over the past several years now up revaluations related to cash flow modeling has been a recurring theme.
Secondly, the biggest offsetting factor in the quarter was $26 million fair value markdowns related principally to Toronto development sites.
Neil: On the second point I expect that some of our more avid readers logos at the carrying value of <unk>.
Neil: <unk> density and development land was $429 million at March 31.
Neil: This is an increase of $52 million from year end 2024.
Neil: And there's four major items that contribute to this net increase.
Neil: The first two I've touched upon.
Neil: They include the purchase of 15 49 Avenue Road, which of course is in addition to the value and then there's the fair value adjustments going the other way.
Neil: The third component relates to property categorization changes.
Neil: During Q1, we added two properties to the density and development land category, while we also removed one property.
The first edition relates to the out of New Awards Assembly, which is a $3 seven acre site situated on a call it mid quarter and endorsed Toronto neighborhood with fantastic demographics.
Neil: Okay.
Neil: I've mentioned the assembly was completed during Q1.
Neil: This followed the approval of our official plan by the O L. T. In the fourth quarter of 2024, whereby we secured 660000 square feet of total density.
Neil: Currently the assembly has approximately 61000 square feet of existing built or acquired.
Neil: Nine separate properties.
Neil: At least generate a run rate NOI yield of little under 3% on total value.
Neil: Previously some of the properties were classified as income properties as several as development land.
Neil: As of March 31, all nine properties were uniformly categorized as a single development site in our disclosures.
Neil: The second edition relates to a property located on the island as Montreal.
Neil: During Q1, we were successful in removing certain lease encumbrances.
Neil: As such the value of this site more appropriately reflects its intensification of potential versus income potential.
Neil: Hence the property was re categorized your density and development land from stable same property previously.
And the third reclassification relates to a greater Vancouver area property, whereas the change went the other way from density and developed land to stable same property.
Neil: This is a good news story.
Neil: For many years. This property has generated steady rental yields, but our view has been that its intrinsic value principally related to its future residential and densification potential.
Neil: However, with significant growth in retail market rents over time.
Neil: Recently signed a long term lease with a national grocer for this property.
Neil: And I might add we did so at a rental rate and with escalators that we would not have ambitions a few years ago.
Neil: Well, the new grocer lease will not take effect for approximately two years, the timing of which is actually aligned with the current tenants lease expiry.
Now clear that the property's value most appropriately reflected by the capitalized income.
Neil: Hence the reclassification.
Neil: Turning next to capital investments as outlined on slide 12.
Neil: During Q1 $72 million of capital was invested into the business.
Neil: This includes the $22 million acquisition I mentioned, a few minutes ago.
Neil: Along with $15 million into the operating portfolio.
Neil: $35 million into development.
Neil: Activities.
Neil: The most significant development spend during the quarter related to our younger roselawn developments.
Neil: The hometown shopping center redevelopment for phases, two and three are now underway as.
Neil: As well as advancing our small number of active condominium projects.
Neil: Okay.
Neil: Slide 13 summarizes key financing activities.
Neil: There were no significant financings in the quarter, but SCR discontinued to carry sizable cash balances totaling $152 million.
Neil: You should expect to see this cash drawn down over the next three months.
Neil: For instance on April 14th we used $75 million to repay our maturing term loan has an interest rate of 335%.
Neil: On June 2nd we also expect to pay out $56 million maturing mortgage that carries an interest rate of $3 two 6%.
Neil: And so with the yield curve once again upward sloping.
Neil: Unlikely to carry the same sort of substantial cash balances and through much of the last two years.
Neil: To wrap up slides 14, 15, and 16 summarized some of <unk> key credit metrics and the debt maturity profile.
Neil: <unk> is in a strong financial position.
Neil: The re ended Q1 with more than $800 million of liquidity in the form of cash and our Undrawn revolvers.
Neil: SCR unencumbered asset pool at a total value of $6 $3 billion, representing nearly 70% of total assets.
Neil: The recent secured debt to total asset ratio remained low at 16%.
Neil: Moreover, floating rate debt with only 3% of total.
Neil: The debt to EBITDA multiple continues to trend lower.
Neil: And SCR is only one sizeable refinancing to address through the balance of this year with our $300 billion series S. Senior unsecured debenture matures during the third quarter.
Jordan: This concludes my remarks, and I'm now pleased to turn the session over to Jordan <unk> for his comments.
Jordan: Thank you Neil and good afternoon.
Speaker Change: Today I'm going to provide you with a brief update on our investment development and entitlement activities.
Speaker Change: In his remarks, Neil mentioned, our sale of two trial properties, including 895, Lawrence Avenue West a 30000 square foot anchored income producing retail center and Sheridan plus 170000 square foot center located in a gene in the us.
Speaker Change: I would add to his comments by noting that the aggregate selling price of these assets weights to more than a 20% premium <unk> carrying values.
Speaker Change: With respect to new transactions subsequent to the quarter, we entered into a binding agreement to sell the property located on the island and Montreal for approximately $33 million.
Speaker Change: Well pursuant to our agreement certain details about this residential development site are still subject to confidentiality.
Speaker Change: We can see that the sale price equates to a mid 2% yield based on the current income in place and it represents more than a 25% premium to our Q1 2025 I FRS nine.
Speaker Change: The deal is now firm and slated for a June 2025 closed.
Speaker Change: I should also note that we're actively working on several other transactions that are similarly, consistent with our strategy.
Speaker Change: I look forward to updating you on this activity in the future.
Speaker Change: We're busy advancing our two active mixed use developments as well at young roselawn, we remain on schedule and on budget.
Speaker Change: At the end of Q1 with project checking had been installed in preparation for the first floor slab.
Speaker Change: We own 50% of the 636 unit residential rental buildings with 65000 square feet of retail space and serve as the development of <unk> 70.
Speaker Change: 75% of the project costs are awarded with a further 12% being tender or under negotiation.
Speaker Change: This past quarter City planning issued the revised notice of approval conditions permitting an additional four stores that are 24, and 30 storey tower plants now constantly.
Speaker Change: Well, it's still several years from occupancy we have very strong demand for the 65000 square feet of large and smaller format retail space.
Speaker Change: Construction of our $10 71, King Street West Development project and Liberty village is also on schedule and on budget.
Speaker Change: Youll recall, we own 25% of this 298 unit 225000 square foot purpose built residential rental project, which includes 6000 square feet of at Great retail space today, 81% of the project costs have been awarded and the structure has now reached great.
Speaker Change: Moving to retail Redeveloped.
Speaker Change: Last quarter I touched on the large gap between economic rents and market rents for Newbuild commercial retail space, specifically the required rent to rationalize the construction of ground up retail space is significantly higher than current market rent.
Speaker Change: This continues to limit supply of new retail space at the same time. However, it's created an opportunity for SCR to invest capital into the redevelopment of our existing retail properties and achieve very attractive returns.
These redevelopments take many forms.
Speaker Change: The ongoing redevelopment of Hubbard town shopping centre in Toronto is a tremendous example of this type of investment opportunity.
Speaker Change: In the fourth quarter of 2020 after completing the projects first phase we entered entered into a new long term market rent fully net lease with loved ones.
Speaker Change: It will remain on site and enlarge premises that we have created by consolidating their former space with 13000 square feet of contiguous Cru's space.
Speaker Change: This expanded love us to assist in the second phase of our redevelopment, which commenced this past quarter phase III is the final phase of the refill.
Speaker Change: These statements, which includes our newly created 20000 square foot shoppers drug Mart at TD Bank and as Scotiabank amongst other tenants also commenced this quarter.
Speaker Change: Completion of the redevelopment expected in 2026.
Speaker Change: Have removed or converted to least of all all of the enclosed common area of the center.
Speaker Change: In so doing we will have grown the gross leasable area of <unk> shopping center by 17000 square feet and much of the existing leasable area will become much more valuable as a result of our improvements in total we will invest $47 million in the redevelopment of Hummer town.
Speaker Change: And we'll benefit from Unlevered returns exceeding 7% on this invested capital.
Speaker Change: Another smaller, but impactful example of our execution of this growing opportunity set is cliff crest Plaza.
Speaker Change: Chris Craft is an 80000 square foot center located at Kingston Road in Macau and in Toronto.
Speaker Change: Center of the shoppers drug Mart L. C. B O N a dollar M along with select other smaller national and local tenants.
Speaker Change: A notable absence in terms of merchandising mix for the center was of groceries.
Speaker Change: And that changed last quarter, we entered into a long term lease with la Luz for urban DAU growth, we were able to accomplish this my first securing control 10000 square feet of contiguous Tru space in the center.
Speaker Change: No real store opened in Q1 of this year the gross rental rate they pay us at market, which is 70% higher than the former in place rent also unlike the former tenants.
Speaker Change: That's a no frills has replaced the new La Luz lease is fully net and includes annual escalators.
Speaker Change: Moving west and Staples low even burden within the greater Vancouver area Staples occupied 27000 of the 30000 square foot Center.
Speaker Change: Their lease expires in 2027 with no options to extend the term.
Speaker Change: Given the population growth increasing density on the surrounding properties and its proximity to the Skytrain. We believed high density residential was the highest and best use.
So a number of years ago, we cemented our rezoning application for me at 470000 square feet of residential dense.
Well it is more of a density remains a valuable in burnaby over the last several years, there's been a significant growth in market rents for retail space in the note today based upon the rent that we can secure the site is more valuable as a retail developments.
Accordingly, and as Neil had mentioned in his formal remarks. This quarter, we entered into a long term unconditional leased with love us for the entire property coinciding.
Speaker Change: Coinciding with Staples expiry, the new piece will not take effect until 2027. However, this recently categorized stable same property asset, we'll see meaningful income growth over the contractual rental period of the new La Luz lease what's more the discounted value of this new law Budge income stream is gray.
Speaker Change: Then the value of the site as high density residential.
Speaker Change: Another example of a retail redevelopment that we've undertaken as a property located in a very attractive neighborhood called Brisling very close to downtown Calgary.
Speaker Change: We knew this half acre site and medium term redevelopment potential and purchased it with that view in 2018.
Speaker Change: At the time of purchase it was tended to by Molson own brew pub.
Speaker Change: With Molson baking a site on the exploration of Italy, we were able to enter into a long term lease with shoppers drug Mart chicken to construct a new 18000 square foot store.
Speaker Change: Demolition of the former building commenced in the first quarter and we expect to provide shoppers possession of its new premises in the next 12 months.
Speaker Change: With respect to entitlements in 2024, we secured approvals for 2 million square feet of incremental density on our properties. In 2025, we anticipate we will receive approvals for an additional one 8 million square feet of incremental debt.
Speaker Change: During this year, we also expect to submit rezoning applications for further 1 million square feet of Incrementals density.
Speaker Change: To date, netting out the density we've already so we have submitted for entitlements on approximately 18 million square feet of incremental density disk.
Speaker Change: This represents 77% of our 23 million square foot Python, one zoning permissions are secured St provide SCR with great Optionality.
Speaker Change: As I think it's clear we remain focused on the successful execution of our objectives.
Speaker Change: Thank you all for your time today and your continued support of SCR and with that operator, we can now open it up to questions.
Speaker Change: Thank you.
Speaker Change: We will now take questions from the telephone lines.
Speaker Change: If you have a question please press star one.
Speaker Change: You may get some of your questions at any time by pressing star two.
Speaker Change: Please press star one at this time, if you have any question that there'll be small small participants register for questions. We thank you for your patience.
My first question is from noncash Kalmar from dish All day. Please go ahead.
noncash Kalmar: Thank you and good afternoon.
noncash Kalmar: Just quickly on the disposition target I'll be setting, it's pretty understandable getting revised down but the market for land.
noncash Kalmar: Not exactly been hot.
noncash Kalmar: Based on what you guys are seeing and what you know do you think there's any risk of it getting revised down further by by a material amount or are you fairly confident that this seven.
noncash Kalmar: 750 by 2026 are achievable.
noncash Kalmar: They worry about them so.
noncash Kalmar: Hello, where we're fresh hot off the presses with the 750, so we're going to we're going to stick with that for now but there are.
noncash Kalmar: But there are several points.
noncash Kalmar: And I think are worth making with respect to the change in our disposition assumption.
noncash Kalmar: And I know you've got a keen interest in it so.
noncash Kalmar: I'll make a couple of points.
noncash Kalmar: First the world has changed over the last year and a half when we made our initial assumptions, but particularly over the last quarter.
noncash Kalmar: And macro uncertainty and volatility are clearly up we recognize the macro and the macro environment is something that has an impact on our disposition program and also happens to be out of our control and so all we really wanted to do is be realistic.
noncash Kalmar: But it may take a little longer to achieve the $1 billion of dispositions.
noncash Kalmar: Second the impact strictly timing like I really want to stress that.
noncash Kalmar: We're very confident in our ability to monetize properties over time and that premium pricing levels and we've established a pretty solid track record in doing so we just think it may take a bit longer given the macro environment and third and this is the most relevant point.
noncash Kalmar: Is that the impact of this change in assumptions on the two key metrics and to your point you know.
noncash Kalmar: This is all going to keep in mind.
noncash Kalmar: The assumptions change down the road, which at this stage, we're saying, it's 750 750, but if they do change it was really important to keep in mind that the change. We just made on the two key metrics from our disposition program.
noncash Kalmar: Along with other activities. All of these are designed to achieve two things operating F. F. OHL objectives that we laid out and on that front very little impact from the change that we've made all of which was entirely offset by strong operating results and the second is our debt to EBITDA.
noncash Kalmar: And that's that the change in dispositions has a more pronounced impact on debt to EBITDA, but we left that unchanged too and that's because.
noncash Kalmar: The change the dispositions has been largely offset by both strong operating results and our expectations around the acceleration of development completions and so the bottom line or it is that we're very pleased with our just disposition progress to date, most importantly, and this is ware.
noncash Kalmar: I think those who view this change to our dispositions assumptions negative we have missed the mark is that we believe that we will achieve the two key objectives of our plan being operating episodes per unit growth in debt to EBITDA with less dispositions and a three year timeframe and we think that's a good thing.
noncash Kalmar: Okay.
noncash Kalmar: That's fair enough and kind of tough to disagree with you there.
noncash Kalmar: Maybe I'll switch over to.
noncash Kalmar: To the operating side of things. Obviously, you guys are constantly talking to tenants that have you noticed any changes in behaviors or leasing timelines as a result of the broader macro uncertainty.
noncash Kalmar: Yeah, that's a very good question and something as a management group, we have a heightened sensitivity to and so what that means is we've been speaking.
noncash Kalmar: Our frontline B C stack.
<unk> more frequently.
noncash Kalmar: And the good news is we can tell you from their perspective, they see absolutely no change.
noncash Kalmar: Took the depth of demand the way lease negotiations are progressing the type of interest we have no change from three months ago six months ago 12 months ago and as you know that's a good thing because demand has been very robust. So certainly something we're paying close attention to and Fortunately what we can tell you certainly as of today.
noncash Kalmar: We've seen absolutely no indication of any change on that front as a result of the increased macro uncertainty.
noncash Kalmar: Okay, that's great to hear thank you very much.
Laura: Thank you very much Laura.
Laura: Thank you.
Speaker Change: Once again, please press star one at this time for any questions or comments.
Speaker Change: Our following question is from God of Martin <unk> from Green Street. Please go ahead.
Speaker Change: Thank you and good afternoon, everyone I'm just in terms of the market that you're in are you somehow seeing any cracks amongst the retail tenants currently just given the broader macroeconomic uncertainty.
Speaker Change: Hi, there thanks very much for further question. So so firstly no we're not seeing any any cracks from the macro uncertainty.
And two we're seeing remarkable consistency across geographic markets and neighborhoods that we're in there's no discernible difference to how our properties are performing from whether it's in Vancouver, Edmonton, or Calgary, Montreal, and Toronto or Ottawa actually remarkable consistency.
Speaker Change: And it's actually been that way for many many years, but to your point, we're not in a normal environment now, but we can tell you that from that perspective, we are seeing that consistency to remain in place.
Speaker Change: Okay, and then I guess, if you're looking at a weighted average lease terms for on renewals.
Speaker Change: Believe in the past that you've alluded you mentioned the fact that there.
Speaker Change: It was leased homes are increasing as you're signing on tenants given the demand is that something that's expected to happen.
Over the rest of the yard as well.
Speaker Change: Yeah, Yeah. It's a good question. The short answer is we're not sure so our long term <unk>.
Speaker Change: Average was somewhere in the range of five years in terms of your typical renewal term.
Speaker Change: The last two quarters and I wouldn't necessarily say two quarters makes a trend, but it's been two quarters now where that's been closer to six years or about a year or longer.
Speaker Change: We're okay with that because we're comfortable with the rents in place and as you you've seen from one of the two renewal less metrics, we disclose we're getting.
Speaker Change: Above average contractual rent growth so from our perspective, we see the same things as our tastes great fundamentals our real estate is.
Speaker Change: We expect it to become more and more valuable over time market rents are expected to grow and so you know obviously the longer you walk in and lease term the longer it will take you to reset rents to market. So that that's something we're certainly cognizant of but if we ever re tenant in place with the right starting rent and escalators throughout the renewal.
Term, we're happy with we've been happy to move from a you know a five year, a typical turn to something that six or six and a half years, but in terms of all the balance starting negotiations, though I would say, it's something that we typically don't guide to them and to be Frank we remain flexible on.
Speaker Change: Because it's very case specific.
Speaker Change: Okay, great well, thank you for that I'll turn it back to the off trade.
Speaker Change: Thank you for your question.
Sunday Biyani: Thank you I'm. Following question is from Sunday Biyani from P. D. Cohen. Please go ahead.
Speaker Change: Thanks. Good afternoon, just wondering what your thoughts are about the boat sort of pending economic slowdown if it happens and how it might impact the tenant base. This time around if you compare it to past slowdowns or recessions just wondering if you see a different.
Sunday Biyani: The mix of the impact between larger national retailers versus smaller local ones.
Sunday Biyani: And are you seeing any any of your any categories of your tenant base starting to feel the pressure of no less confidence or less consumer spending.
Sunday Biyani: Yeah, Yeah, very good question, saying, it's something that we've talked a lot about at the management groups. Because we do think there is clearly a heightened risk of of an economic slowdown.
Sunday Biyani: The short answer is today and we're seeing no impact at the property level, whether it's large national or local tenants.
Sunday Biyani: And we take some comfort in the fact that previous downturns.
Sunday Biyani: How have demonstrated <unk> resiliency, there's very little correlation with previous recessions in our key operating metrics. For example, the last recession. We got in Canada was in the 2008 2009 period 2019 same property NOI growth for SCR was north of 5% renewable lives, we're well into the double digit.
Sunday Biyani: That's an occupancy held in around 96% so.
Sunday Biyani: That being said.
Sunday Biyani: You know every downturn is different and this one certainly has its unique characteristics.
Sunday Biyani: Something also you know it was.
Sunday Biyani: Become pretty evident to the management group is that the local tenant base across our portfolio today is the strongest local tenant base. We've ever had we went through a bit of a quick closing in the second quarter of 2020.
Sunday Biyani: Covid really flushed through any of the marginal.
Speaker Change: Local operators.
Speaker Change: In many cases, we replace them with local operators for merchandising mix purposes, but the ones that we're leasing space at that time were very very strong established businesses, well capitalized really well run operations and so.
Speaker Change: We're feeling pretty good about the tenant base today, notwithstanding we do we do think there is you know obviously the risk for an economic downturn materializes.
Those usually that usually hits discretionary retail the most and as you know that's a segment of retail that is not I'm not a bump in darkness abundant in our business by any stretch we are focused on the necessity end of the spectrum and in Canada getting that type of space has been very tough.
Speaker Change: Our tenants are planning years and decades in advance and so we're we're quite optimistic that even if a downturn materializes that our operating metrics will continue to hold in very strongly.
Speaker Change: No. That's helpful. Thank you and last one for me just on the Yorkville No. Just wondering if there's any updates to share on.
Leasing activity or investment plans in the cluster of properties in the near term.
Speaker Change: Yeah without leasing has been pretty good and so we've had a little bit of a churn. You know we were we were able to one of our tenants wishes versace terminated their lease early with a payment of first capital while we simultaneously.
Speaker Change: At least that space to the adjacent retailer on a new blend and extend that created a lot of value for the property, we're dealing with a number of other new tenants in the node, but yorkville is in a very good spot as a no from a demand perspective.
Speaker Change: Relative to the last few years so.
Speaker Change: Not much more to report there, but in terms of of our investment activity that you've touched on.
Speaker Change: We think there's a likelihood that some of the properties we own in Yorkville over let's say the course of our three year plan will be ready for sale.
Speaker Change: And so you shouldnt be surprised if we monetize some of them great real estate, we need a big price.
Speaker Change: And if we can get back then we think it's in our investors' best interest to do that and reallocate the capital.
Speaker Change: Great. Thank you and I'll turn it back.
Sam: Thank you Sam.
Speaker Change: Thank you. Our following question is from Brad Sturges from Raymond James. Please go ahead.
Oh, Hey, there.
Brad Sturges: You touched on it already but I'm, just curious to get some more thoughts on it.
Brad Sturges: You've talked about you're running ahead of plan on on the three year objectives, and you've made a change to your disposition program I guess the question is.
Brad Sturges: You know what kind of cushion do you think you still have to hit your sort of episodes per units growth objectives and your debt to EBITDA. If in fact you.
Brad Sturges: I think it's prudent or necessary to further reduce the disposition cadence or let's say leasing fundamentals moderate a bit from here.
Brad Sturges: Yeah look we I.
I mean, you referenced you know Cushing, we're telling you what we think the realistic outcome is based on our forecast today. So I wouldn't read into that that there is a cushion that's what we expect to happen.
Brad Sturges: Lot of moving parts.
Brad Sturges: Our expectations change in the future we will certainly let you know, but this is our best guess today and overall the business is performing very well and we're a lot less festival with disposition volume, we're really focused on driving operating ethically per unit growth that exceeds 3%.
Brad Sturges: And we are very focused on continuing to improve our debt to EBITDA down to the low eight times that that's what will determine success for us not disposition volume not development completions not several of the other supporting metrics, but we do think it's important to articulate our current expectations in couples of change.
Brad Sturges: This quarter and so if that happens in the future. We will certainly let you know.
Speaker Change: I appreciate that and just I guess thinking about.
Speaker Change: The current environment for asset sales, just what youre seeing in the private market in terms of the.
Speaker Change: The depth of the buyer pool the composition of that.
Speaker Change: Potentially changed I guess in the last month or so since liberation day.
Speaker Change: Yeah, it's become a bit tougher that's what resulted in us taking our expectation down, but we didn't take it down to zero. So.
Speaker Change: Hopefully, Georgia gave you the sense that we are still active because we are still active in.
Speaker Change: Post quarter end, we've got a great deal over the line.
Speaker Change: Which is not Montreal development site.
Speaker Change: There are others that.
Speaker Change: Georgia has got good traction on and his team have good traction on we hope they materialize, but look this has been a tough environment. Since we started and we've had a lot of success and we've sold assets that.
Speaker Change: Fit the criteria of what we said we would sell in a big prices.
Speaker Change: But we're just concerned with the state of the world today that it just may take a little bit longer but the market is not dead. It's just not as good as it was.
Speaker Change: So.
Speaker Change: Sure.
Speaker Change: The comments I will turn it back.
Speaker Change: Thank you. Thank you.
Speaker Change: Our following question is from <unk> <unk> from RBC capital markets. Please go ahead.
Speaker Change: Thanks, everyone just on the $300 million of development completions can you remind us.
Speaker Change: What range of yield do you expect and.
How does that how does that yield.
Speaker Change: The spread to acquisitions, how would that compare.
Speaker Change: Yes.
Speaker Change: Hi, Neil.
Speaker Change: It's a good question and maybe I should have addressed that business.
Speaker Change: Friends, So two things.
Speaker Change: I guess firstly the change in the assumption that the expectation rather.
Speaker Change: At our February 2024, Investor day and subsequently.
Speaker Change: The $200 million of expected development completions included approximately $100 million of income property development and Redevelopments coming online.
Speaker Change: And in 2026, specifically is included is included the delivery of Eaton Bridge condos at Umber town.
Speaker Change: And so I see our 50% share of the estimated gross proceeds from the Enbridge closings should be just over $100 million.
Speaker Change: Now as many of you know we also have a 35% interest in the 400 King Street condos in Toronto.
Speaker Change: And for purposes of the three year plan, we had been assuming that those condo closings would occur in early 2027.
Speaker Change: Now the project is continuing to advance quite nicely on time and on budget and so we've now assumed that STR will receive approximately 60% of the total proceeds from those closings in late 2026 with.
Speaker Change: With the balance still falling into 2020 and stuff. So that's the lion's share.
Speaker Change: Well actually by a very wide margin of the increase in development deliveries to $300 million from $200 million previously.
Speaker Change: Now more specifically your question related to the yields on IPP.
Speaker Change: Developments and Redevelopments.
Speaker Change: In round numbers, that's about a 7% yield.
Speaker Change: Okay. So the 7% yield I think was what you had expected at the beginning of last year, we were at the Investor day. So the change really really just is an.
On the condos at 400 King so.
Speaker Change: On 400, King and Eden bridge, how much of the.
Speaker Change: What sort of what sort of gains or residential gains through do you expect to that for that to contribute to our EBITDA.
Speaker Change: Yes, so as you know probably we talked about this at our Investor day as well.
Speaker Change: We have specifically excluded those from our baseline.
Speaker Change: Oh, that's peso per unit objective of growing by at least 3% on average over the three year timeframe.
Speaker Change: Actually not quantify specifically, what the prop future profits from.
Speaker Change: Deliveries are at this point.
Speaker Change: But there.
Speaker Change: They are included in your debt to EBITDA metric, though.
Speaker Change: He will be including the profits and EBITDA.
Speaker Change: Yes. They are included in EBITDA.
Speaker Change: I'd say relative to our call at $430 million run rate.
Speaker Change: We're not.
Speaker Change: They're not that sizable.
Speaker Change: Got it.
Speaker Change:
Speaker Change: That's it for me thanks very much.
Speaker Change: Thank you Bobby.
Speaker Change: Thank you well following question is from Matt <unk> from National Bank Financial. Please go ahead.
Speaker Change: Good afternoon guys.
Matt: Just wondering if the uncertainty in the market do you think that will flush out any potential opportunities for you guys are that you wouldn't have otherwise thought you'd be able to get access to or are these assets a pretty precious to the cardholders in them.
Matt: Yeah look if we're talking grocery anchored retail that certainly.
Matt: Asset type bag, certainly on a relative basis has.
Become more attractive to investors so.
Matt: And when you look at the owners of the majority of the types of assets.
Matt: We own.
Matt: It's hard you know there hasn't been much that's traded especially since interest rates started rising in 2022. So the fundamentals are really strong and all of us at all of these types of assets understand that so.
Matt: Hard to imagine, but we'll see we'll see what unfolds.
Fair enough.
Speaker Change: And then just on occupancy you mentioned, that's an all time high is there is there any more room to move that or is there some structural aspect to it or strategic aspect to the vacancy.
Speaker Change: Yeah, I'd say, it's more strategic so we've we've always been a more proactive and.
Speaker Change: Changing our tenant mix maximizing the merchandising mix, making sure we've got the best operators within a desired used categories. So.
Speaker Change: We've said this is not a portfolio that one should expect 99% occupancy if we do that we're missing on rent growth opportunities. So.
Speaker Change: We're pretty full today, but look the environment is really strong and you know, we'll see hopefully and maybe we can get pushed through the current 96, 9% of all time highs.
Speaker Change: Fair enough thanks, guys.
Speaker Change: Thank you.
Ed: That's all the time, we have left for questions I would now like to turn the meeting back over to Ed.
Ed: Thanks, everyone for attending the meeting we appreciate your support good afternoon.
Ed: Thank you.
Ed: The conference has now ended.
Ed: Disconnect your lines at this time and we thank you for your participation.
This conference is no longer being recorded.
Speaker Change: Please also as you see.
Speaker Change: Hum.
Speaker Change: Okay.