Ladies and gentlemen, thank you for standing by, and welcome to the Choice Properties Real Estate Investment Trust Q4 Earnings Announcement Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Walsh, Vice President, General Counsel.
Thank you. Please go ahead, sir.
Thank you, Jason. Good morning, and welcome to Choice Properties' 4th quarter conference call. I'm joined here this morning by Rell Diamond, President and Chief Executive Officer and Mario Berafado, Chief Financial Officer. Before we begin today's call, I'd like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward looking statements.
Additional information on the material risks that can impact our financial results and estimates and assumptions that we applied in making these statements can be found in the recently filed 2019 annual report and management's discussion and analysis, together with Choice Properties' Annual Information Form, all of which are available on our website and on SEDAR. I will now turn the call over to Raul.
Thank you, Adam, and good morning, everyone. Thank you for taking the time to join our Q4 conference call. We are pleased with both the financial and operational results for the Q4. I'll start with an update on our operational results, and Mario will then provide you with detail on our financial performance. Our income producing portfolio is comprised of 708 properties and 65,800,000 square feet of GLA and represents a total income producing value of $15,000,000 The portfolio continues to produce consistent and stable results with same asset NOI growth of 3.1% for the quarter and year end occupancy of 97.7%.
Retail Real Estate represents the majority of our portfolio with a focus on grocery anchored properties and necessity based tenants. These retailers are far less sensitive to short term economic fluctuations and the ever changing retail environment. Our retail portfolio is well situated to deliver stability and growth. Occupancy in our retail portfolio was consistent quarter over quarter at 98%. We continue to successfully add to our retail portfolio both through acquisitions and development.
During the year, we acquired 4 retail assets for $70,000,000 representing approximately 300,000 square feet of GLA. Each of these assets is anchored either by Loblaw grocery store or Shoppers Drug Mart and were all acquired with long term leases in place. On the development front, we added to the retail portfolio through a mix of greenfield developments and intensifications. These development initiatives continue to provide us with the best opportunity to add high quality real estate to our portfolio at a reasonable cost. In total, we delivered 385,000 square feet of retail GLA at a total cost of $136,000,000 during 2019.
Included in the transfers for Q4 is a 33,000 square foot grocery store located on Coxwell Avenue, near Gerard Street in Toronto. This no frills store opened in December and is an exceptional urban retail asset that we've added to our income producing portfolio. Our industrial portfolio is concentrated in Canada's largest distribution markets. Apart from the small bay market in Alberta, industrial assets are operating under healthy fundamentals with low vacancy rates and increasing rent. Peridien occupancy was down 20 basis points to 97.9%, driven mostly by 100,000 square foot vacancy in Ontario.
There's tenant demand for the space and we expect to have this released shortly at higher rents than those historically in place. The acquisition environment for industrial properties continues to be extremely competitive. So we worked with our development partners to grow our industrial portfolio. In 2019, we completed and transferred a total of 7 68,000 square feet of industrial development at a cost of $78,000,000 Incrementally, our development partners continue to provide us opportunities to acquire their interest in stabilized assets. In 2019, we acquired 3 industrial assets from our development partners, representing 335,000 square feet at a total cost of $48,000,000 This includes our partners' 15% interest in our Peddie Road and James Snow Parkway assets in Milton, Ontario, which were acquired in the Q4.
These assets are new generation, large bay distribution facilities in the GTA West industrial node. We now own 100 percent of both of these properties. In addition to our development projects, we acquired 120,000 square foot industrial asset from Weston Foods in Q4. The property is located at Weston Road in Lawrence Avenue in Toronto and was acquired for a total cost of $13,000,000 We acquired the property with a short term lease in place and we will ultimately look to release the building long term. The asset is within walking distance to the Westin GO Station and Union Pearson Express Station stop and has great access to highways and a deep labor pool.
These transactions represent a wonderful opportunity to continue growing our industrial portfolio in strong distribution markets. Next is office portfolio. Our office portfolio is focused on large well located buildings in the downtown core of Canada's largest cities. Perid end occupancy of our total office portfolio was up slightly from the prior quarter to 93.3%, primarily due to positive absorption in our Vancouver and Calgary portfolio offset by some declines in Montreal. Our residential platform provides an opportunity to further diversify our portfolio.
Our focus has been on developing new rental residential assets primarily in the GTA. The rental market in the GTA is strong as limited new supply and robust demand has driven up rents. Our current residential platform includes 3 residential assets that are income producing and another 6 residential rental assets in various stages of development. To date, we are under vertical construction on 2 of these projects in the GTA and we expect to commence construction on 2 additional development projects in 2020, including one project in Brampton next to the Mount Pleasant GO Station and 1 in the Westborough neighborhood of Ottawa. We have invested approximately $120,000,000 into our residential developments to date with an additional $425,000,000 of additional spending planned on these 6 residential projects over the next few years.
Finally, I'd like to provide an update on our transaction activities. We continue to be active with capital recycling. In Q4, we completed 2 dispositions for total proceeds of $24,300,000 This included a standalone retail asset in Red Deer and a parcel of development land in Edmonton. Subsequent to the quarter end, we completed the sale of The Shops of Oak Brook for approximately $98,000,000 Oak Brook Plaza is in Chicago and the asset was not aligned with our long term strategic focus considering it was the only asset we owned in the United States. Each of these transactions represent a good opportunity for us to recycle capital into both future acquisitions and into our development program.
That concludes my comments. I'd now like to pass it over to Mario to provide an update on our financial performance for the quarter. Thank you.
Thank you, Raul. Good morning, everyone. I'll begin with a brief overview of our financial results, and then I'll comment on our balance sheet activity. Overall, our results for the Q4 and for the year ended 2019 were in line with our expectations and continue to reflect the stability that is inherent in our portfolio. Our reported funds from operations for the Q4 was $166,000,000 or $0.237 per unit diluted compared to $0.25 per unit at September 30.
The decrease in FFO was primarily due to two reasons. One is a $3,000,000 non recurring allowance for bad debts associated with a certain mortgage receivable and a $7,100,000 non recurring reimbursement of previously recognized contract revenue for certain solar rooftop leases. This reimbursement relates to revenue received over the last 7 years by choice in error that should have been received by Loblaw. Along with the reimbursement, Choice and Loblaw acknowledged that all future revenue and liabilities related to the solar rooftop leases and related rooftop repair costs belong to Loblaw. Excluding the impact of these non recurring items, FFO for the Q4 would have been $0.25 per unit diluted, which is consistent with the prior quarter.
Included in our Q4 performance was growth in same asset cash NOI of 3.1%. This growth reflects annual step rents embedded within the Loblaw forest of our portfolio as well as incremental cash generated from leasing activity and year end adjustments for recoveries and percentage rent. Quarter end occupancy remained strong at 97.7% with retail occupancy at 98%, industrial occupancy at 97.9% and office at 93.3%. We did have negative absorption of 49,000 square feet. However, as Raul mentioned, that figure includes a 100,000 square foot industrial vacancy in Milton that is expected to soon be released at rents higher than those that were in place.
This quarter caps off a strong operational performance year with consistently high occupancy, 403,000 square feet of positive absorption and annual same asset cash NOI growth of 2.6%. Now on to our balance sheet. In 2019, we've made significant progress in improving our property portfolio, our financial position and our risk profile. We improved our property portfolio through ongoing investment in our development program with $140,000,000 of spending during the year on intensification, greenfield and residential development projects. In 2019, we completed and transferred $256,000,000 of properties and development to income producing status, delivering 1,100,000 square feet of high quality GLA to our existing portfolio.
We also improved our portfolio through active capital recycling, disposing of $468,000,000 in assets in 2019, And the proceeds were utilized to facilitate $153,000,000 in acquisitions, including $133,000,000 of income producing properties and $20,000,000 of development properties. The balance of the proceeds from our capital recycling were utilized to repay debt. And when combined with the $395,000,000 of equity we raised in May 2019, we significantly improved our financial position and our risk profile. In 2019, we reduced our leverage ratio to 7.5 times debt to EBITDA from 8 times at the start of the year. We flattened out and extended our debt maturity ladder, and we maintained a strong liquidity position with $1,400,000,000 available on our credit facility and $11,800,000,000 pool of unencumbered properties.
So overall, we're extremely pleased with the improvements made to our property portfolio and our financial profile in 2019. Looking forward to 2020, we expect to have continued stability in our core operations and we will continue to improve our balance sheet as the opportunity arises. I'd now turn the call back to the operator for questions.
Your first question comes from the line of Himanshu Gupta from Scotiabank. Your line is open.
Thank you and good morning.
Good morning.
On the lease expiry in 2020, I think around 1,100,000 square feet of retail GLA is coming up for renewal and I think all of which is 3rd party. So what are your thoughts there? What kind of challenges or opportunities do you think
are there? Hey, Himansh, it's Raul. Thanks so much for your question. I think you have to really look by asset class and I don't have the numbers exactly handy. Just give me a second.
Look, I think generally what we're seeing across the portfolio, we don't have much rolling on office. We're seeing real positive absorption in Toronto. Montreal continues to be strong and Calgary continues to be weak. I think on the industrial side, again, Ontario is strong and Alberta, we're seeing some roll down, particularly on the small base space. And then this continues to be decent demand for space in our retail portfolio.
Sure. Okay. And you touched upon the industrial portfolio, obviously same store NOI was strong 3.9% in the quarter. Does that include the CREET industrial portfolio?
Yes, yes. Mary, is the 3.9% in the quarter including CREET? Yes. Yes, it includes both.
Sure. And maybe just on industrial, how much of your industrial portfolio is in Alberta as a percentage of NOI or asset values? And what are the trends in say Calgary or Edmonton markets?
So if you look at the non Loblaw assets, it's approximately 45%, I believe is in Alberta. Calgary is definitely stronger than Edmonton, but we are seeing weakness in the Calgary small Bay market, as we said. Having said that, we have quite a bit of potential expiry in Edmonton in 2020, which we expect from the middle large bay to retain all the tenants.
Sure. And actually, we are
seeing decent activity as well on our Great Plains. We have one building that is for lease that we are in discussion with the tenant to potentially take the whole space. So we actually we view that as very positive.
Sure. And maybe just switching gears on the fair value adjustment this quarter. I think the disclosure you mentioned increased fair value on Ontario residential development project. How much was the size of fair value adjustment? And I'm assuming it must be Dufferin Street or East Liberty?
Yes. The amount is approximately $8,000,000 And yes, it was on Dufferin. And so it's at a stage now where we've hit certain milestones on construction. And so we changed the fair value from cost to a modified cost to reflect the value today.
Sure. And maybe just last question from me on the capital budget or the maintenance program. So property capital in 2019 came in much lower compared to last year. Is that the new trend Or do we see capital budget going back up in 2020? Any color there?
Sure. No, we intentionally slowed down our capital spending this year on maintenance projects just to revise the process and how we evaluate, how we spend, where we spend, and we've added some additional resources, expertise to manage that. So it was lower this year intentionally. Next year, it will get back to levels around 2018 level.
Sure. Thank you. Thank you, guys. I'll turn it back.
Your next question comes from the line of Sumeya Syed from CIBC. Your line is open.
Thanks. Good morning. Just firstly, can you give us a bit more detail on the residential developments in Brampton and Ottawa? You mentioned in the outlook just how many units, any partners and just the scope of those projects?
Sure. The one in Brampton, we own the land in conjunction with Daniels. We would look to do 2 70 odd rental units and about 90 to 100 condo units, I believe. We actually build the condo units on spec and then look to sell them at a later date. We just think that the Brampton market is more suited to that strategy.
We basically have barely any land cost on the asset given we used to be a retail property or property that we were marking for retail development and we've actually sold some land at a gain. So we're actually very excited by the project Pierce given its location is actually very strong demand in that vicinity and we have a very, very good partner. On the asset in Ottawa, we currently own 100%, but we actually are in discussions to potentially bring in a 50% partner. But I guess once we finalize that, we will provide additional color. But we are potentially working with an existing partner.
We have a development manager in Ottawa who's going to assist us with the project and we'll provide you more color as we have it.
Okay.
And how many units sorry, so that one in Ottawa is about 250 units.
250. Okay, great. And then can you just go over, I guess, the potential for more major mixed use sites outside of Toronto, for example, Montreal, BC and how the scope there compares to what you've identified in Toronto so far?
So we will disclose projects as we start a rezoning process. We haven't really disclosed much outside of the GTA. In Vancouver, we've disclosed one project in Coquitlam and we actually have acquired some additional land which in our view gives us some additional density because it connects access to the site. But we are busy working through the zoning on that side and as soon as we have more color, we'll provide it. We don't have anything yet to report in Montreal at this time.
Okay, that's fair. And then this lastly for me, just on the, I guess, the Northwell store developed on Foxwell. Just how would the development yield there compare to what you would see in terms of market cap rates for similar assets?
So well in excess. We would have just north of a 7 yield on our cost on that asset. So in the GTA, an asset like that, market rents, 15 year lease would start with a low five, maybe even a high four.
That's great. I'll turn it back. Thank you.
Your next question comes from the line of Sam Damiani from TD Securities. Your line is open.
Thank you. Most of my big questions have been asked, but just run through some quick detailed ones. Just on the Chicago, first of all, congratulations there. Nice to see the nice successful sale there. How did that sale price compare to your IFRS for value in recent quarters?
So Sam, last quarter we actually we made some reference to some write downs on power sensors. We actually had decreased the asset value slightly. The U. S. Market is different to Canada.
That it's a very that was a very strong power center, but buyers of those assets definitely have a more negative outlook just given what's going on in the U. S. So we did actually it was at our carrying value in Q4, but in Q3 we did have a small write down.
What kind of cap rate did the 98,000,000 dollars reflect?
It was around a 6.
Interesting. Okay. And just on the property for $13,000,000 125,000 square feet, I think you said. Sorry, what was the address or what was the division or tenant that was in the building right now?
It's Weston Foods and it was 1965 Lawrence Avenue West.
Okay. And so that's going to stay as an industrial use for the foreseeable future?
Yes. And we like from our point of view, that's a spectacular asset. We view it, we're buying it on an industrial basis income reducing, but in the future, it has potential densification potential, but we intend to release it right now.
Right on. And the vacancy you referred to in Milton Industrial, which building is that? I'm just wondering if it would be one of the newly developed ones.
No, it's an older generation building. It's 89 Park, yes. Okay.
And Mario, you gave us some outlook for 2020 in your comments there, looking for some opportunities possibly to further improve the balance sheet. So if you had an opportunity to successfully dispose assets, I mean, where would you like to see the leverage go down to?
Well, I mean, we're pleased with our leverage right now. I mean, we made a lot of progress from last year. We got rid of a lot of the acquisition debt now in the range of the where the rating agencies kind of want us to be. So I mean, if we had opportunities, it's really going to be more asset based like as we sell Chicago and other assets, we have opportunities to recycle that capital, we will. But if we have the opportunity to pay down debt, we're more than happy with that too.
But there's no urgency right now to get our debt level lower.
Okay. That's helpful. And Rael, you did mention the outlook for retail in the U. S, obviously much worse and it's certainly a whole lot better in Canada. Nonetheless, are you looking at possibly lightening up on some of the legacy CREET retail properties in Canada as a way of capital recycling?
Sam, we're looking we go through a capital recycling process as Mario mentioned. As we have more to update, we will, but it gave me a combination of both legacy CREES and Choice assets.
And just for clarification, is there any exposure of any consequence to some recent retailers that have decided to close-up shop like Papyrus and Carlton Card, La Senza, Pier 1, whatnot?
There is some exposure primarily in the power center portfolio that we own, but I don't know the exact numbers, but not significant. Not
measurable. Okay. And just lastly, you mentioned a couple of residential projects starting this year and appreciate the detail there. What is the timing on 1050 Shepherd and Grosvenor?
Sam, 10.50 Sheppard, the rezoning process has taken us a bit longer. Why don't I get back to we hopeful that 10.50 we can have a lot of progress towards the end of 2020 and maybe commence construction, but likely next year. And Grove, we still will be going through the rezoning process. So as we have better timing, we'll give it to
Your next question comes from the line of Jenny Ma from BMO Capital Markets. Your line is open.
Thanks. Good morning. Rail, in the past, I guess, in Q1, we're going to start seeing the full contribution of the CREIT portfolio in the same property NOI number. The Choice legacy assets have sort of been running in that 2.5% to 3% range for the last 3 years or so. Any update or commentary on what you think the pro form a full portfolio SP NOI number maybe for 2020?
Hi, Jenny, it's Mario. I'll take that one. No, you're right. As you get to a bigger base, the impact of the step rents gets smaller. And so just by basis of math, rather than being in the high 2s, we'd probably be more in that 1.5% to 2% range.
And the what will impact that further is, as we have rollover, most of that is in the CRE portfolio or the X CRE portfolio. So you will have some temporary vacancies such as the industrial property we've talked about and some of the retail. So we think kind of in that 1.5 percent range is likely where we'll be. Half of it's by math, half of it's by more activity in the portfolio.
Great. That's helpful. With the Chicago disposition, I know in the past, during the CREED days, there was some tax implication around that sale. So in this instance, did you is there going to be a tax impact that will come in Q1 or was that sort of resolved in the last couple of years?
It was resolved. So basically there'll be no tax hit on that from that property.
Okay, great. And then my last question is, there were a couple of properties that were still in due diligence as part of the Oak Street portfolio transaction. I'm not sure if one of the 2 that were sold in Q4 was one of them, but do you have an update on where those two dispositions are at?
Yes. Jenny, those 2 never proceeded. There was small, I think, Oak Street was focused on other items and I think it just dragged out and eventually they said it was just too small to transact on.
Okay. Are you still in discussions with them about potential acquisition sorry, dispositions down the road?
Right now, we're not in discussions with that.
Okay, great. Thanks. I'll turn it back.
There are no further questions at this time. I turn the call back over to the presenters.
So thank you everyone for joining us this morning. Starting tomorrow, hopefully everyone enjoys the long weekend. Bye.
That concludes today's conference call. You may now disconnect.