Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Choice Properties Real Estate Investment Trust fourth quarter results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. I would now like to turn the call over to Kim Lee, Vice President, Investor Relations. Please go ahead.
Thank you, Michelle. Good morning and welcome to the Choice Properties REIT fourth quarter 2016 conference call. This call is also being webcast simultaneously on our website at choicereit.ca, where you will also find a copy of our Q4 summary information package that we will be referring to on this call. I'm joined here this morning by John Morrison, President and Chief Executive Officer, and Bart Munn, Chief Financial Officer. Before we begin today's call, I want 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 concerning Choice Properties' objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlooks, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations 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 our actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that could impact our actual results and the estimates and assumptions we apply to making these statements can be found in the Choice Properties 2016 Annual Report and management's discussion and analysis related thereto, together with our annual information form that are all available on our website and on SEDAR. With that, I'll turn it over to John.
Thank you, Kim, and good morning, everyone, and thank you for joining our conference call. Q4 was another successful quarter for Choice Properties. With the team making significant progress on key strategic initiatives and focused on delivering results, we maintained our track record of reporting year-over-year growth for our key performance metrics. This quarter marks our tenth consecutive quarter of improving occupancy rates, increasing net operating income, and growing funds from operations. As a result, for 2016, we delivered growth in FFO and AFFO per unit of 3.5% and 3.6%, respectively. Now, let me provide you with more details of our achievements. During the quarter, as previously announced, we acquired a portfolio of five properties from Loblaw. In December, we acquired two additional properties, each from third-party vendors. These third-party acquisitions are strategically located adjacent to existing Choice sites, one in Beaverton, Ontario, and the other in Courtenay, British Columbia.
They were both immediately accretive at a combined purchase price of approximately CAD 13.6 million and an implied capitalization rate of approximately 6.6%. For the year, acquisition activity added 16 properties to our portfolio at a total purchase price of CAD 192 million. On slide five of our summary information package, we highlight the 232,000 square feet of new gross leasable area we constructed in the fourth quarter from tenant possessions. This new GLA added 51 new retail spaces, a 50,000 square foot expansion to our industrial property in Mississauga, Ontario, and included a 29,000 square foot Loblaw-bannered food store in Edmonton, Alberta, as well as a 16,000 square foot Shoppers Drug Mart in Regina, Saskatchewan. For 2016, we finished 21 projects totaling 763,000 square feet, including the 81,000 square feet constructed last year. The investment for these projects totaled CAD 227.1 million for a weighted average return of 8%.
In total, for the year, we constructed 807,000 square feet of new gross leasable area, which included almost a half a million square feet built for our principal tenant, Loblaw. The total GLA we constructed this year also includes 146,000 square feet of new GLA for projects targeted for completion in 2017 and are ready for tenant possession. For 2017, we expect to complete projects totaling 337,000 square feet of new gross leasable area with a total investment of CAD 119 million with expected yields that range from 6% to 9%. Turning to leasing, activity during the fourth quarter resulted in commitments for approximately 416,000 square feet of GLA. This includes approximately 112,000 square feet of renewals, representing a renewal rate of 65.4%, for which we obtained an average rent increase of 7%. In 2016, the occupancy rate for ancillary space increased to 90% from 87.5% at the end of 2015.
Overall, we continued to maintain our total portfolio's high occupancy rate, which stood at 98.9% at the end of 2016. With that, I will turn the call over to Bart to provide you with a review of the financials for the quarter.
Thanks, John, and good morning, everyone. I refer you to slide nine of our presentation, where you'll find selected financial results for the fourth quarter. As of December 31st, 2016, Choice Properties' portfolio comprised 535 properties with a total gross leasable area of 43.6 million square feet. Under IFRS, our investment properties were valued at approximately CAD 9.1 billion, based on a weighted average cap rate of 6.12%, compared with a 6.17% cap rate at the end of 2015. For the quarter, rental revenue was CAD 197.7 million, and net operating income was CAD 139.7 million, 3.5% and 5.8% higher than in Q4 2015, respectively. The increases were primarily due to acquisitions, which contributed CAD 4.5 million in incremental revenue and CAD 2.8 million in incremental NOI. On a same property, same GLA, or same store basis, NOI increased to CAD 133 million, or 1%, from CAD 131.6 million in Q4 2015.
The increase in same store NOI was primarily driven by higher capital recoveries. For the full year, rental revenue was CAD 783.6 million, and NOI was CAD 546.8 million, 5.4% and 6.3% better than 2015, respectively. On a same store basis, NOI increased 1.8% to CAD 507.7 million from CAD 498.8 million in 2015, driven by the same factors I mentioned before. General and Administration Expenses for the quarter, excluding the impact of unit-based compensation and internal expenses for leasing, were CAD 5.9 million compared to CAD 4.1 million for Q4 2015. G&A expenses on the similar basis for the full year were CAD 21.7 million, or 2.8% of revenue, compared to CAD 19.1 million, or 2.6% of revenue last year. For 2017, we expect to maintain our G&A run rate as a percentage of revenue, with the amount being approximately 2.5%.
Funds from Operations for the quarter was CAD 103.1 million, or CAD 0.251 per unit, compared to CAD 100.5 million, or CAD 0.247 per unit in Q4 2015. The improvement of FFO over the comparative period was largely due to income from operations offset by interest and other financing charges and higher G&A expenses. For 2016, FFO was CAD 410.1 million, or CAD 1.00 per unit, a 5.4% improvement over 2015. The main drivers of the growth in FFO was the improvement in income from operations, interest, and other financing charges, and G&A expenses. AFFO for Q4 was CAD 81.8 million, or CAD 0.199 on a per unit basis, compared to CAD 82 million, or CAD 0.201 in the comparative period. For the year, AFFO was CAD 330.2 million, or CAD 0.805 per unit, compared with CAD 312.9 million and CAD 0.777 per unit last year.
With two increases to our distribution in 2016, our AFFO payout ratio increased to 85.7%, compared to 83.7% in 2015. On an annualized basis, we increased our distributions by 9.2% in 2016. In Q4, we expanded our operating lines with an additional CAD 250 million senior unsecured committed revolving credit facility. The addition of this credit facility provides us with increased financial flexibility and reduces our refinancing and liquidity risk. Subsequent to the quarter, we redeemed the CAD 200 million Series 6 debentures. We currently have approximately CAD 300 million of the liquidity available on our credit facilities. With strong liquidity and a solid balance sheet, we have the capacity and financial flexibility to meet ongoing obligations and invest for future growth. Our debt service coverage ratio is 3.5 times, and our weighted average term to maturity is 5.2 years. Let me now turn it over to John to provide closing remarks.
Thank you, Bart. During 2016, our second full year as a fully internalized business, we continued to execute on our growth strategy through our three main levers, acquisitions, development, and active management. We had a solid year. Our results reflect the team's commitment and focus on performance and to provide our unitholders with stable, secure, and growing distributions. I'm very proud of the progress that the team delivered in 2016. We'd like to take this opportunity to thank them for their passion and dedication, and congratulate them on another successful year. Now, operator, we would be pleased to take questions.
If anybody would like to ask a question, please press star one on your telephone keypad. You have a question from Troy MacLean from BMO Capital Markets. Your line is open.
Good morning.
Morning.
I understand it's early in the process, just on Golden Mile, do you still expect 2018 to be the start of the project?
Yes, we do.
Is any spend included in the development schedule for 2018 or 2019 on that project?
Pre-development dollars, but nothing material.
Just on the ancillary occupancy, it ticked up quite nicely quarter-over-quarter, and you're now at 90%. You've guided before in the past that you think that could reach the low nineties. Given the increase in Q4, do you expect a further increase in kind of the first half of 2017, or is it going to take a couple of years to kind of get to your target?
It's going to take a little bit longer, Troy. We don't see it moving that quickly in terms of mid-year 2017. We're certainly active in terms of increasing the occupancy on the balance of the space, but it's going to take us a little bit longer.
You completed two third-party acquisitions in Q4. What's the outlook for 2017? The properties you've bought so far primarily have been adjacent sites to existing properties. Would you look at buying something maybe a little bigger that wasn't near one of your current properties?
We would. We're looking for assets that fit within our core strategy, and we look for assets where there's a value-add opportunity. They don't necessarily have to be adjacent sites. The adjacent sites give us the ability for bigger development opportunities down the road. If we see something that comes along that we think we can add value to, we'll certainly take a very strong look at it.
Are you seeing many opportunities in the third-party market?
We are actively looking. We see opportunities that come available on a weekly basis, if you will, and we do pay attention to them. We haven't seen anything yet, obviously, that's caught our attention, but we're actively looking.
Perfect. I'll turn it back. Thank you.
Thank you.
I have no further questions. Thank you. I turn the call back over to the presenters for closing remarks.
Thank you, operator. Thank you all for joining our conference call today. We look forward to speaking with you in April to report on our Q1 results. Have a great day.
Thank you, everyone. This concludes today's conference call. You may now disconnect.