Good morning, ladies and gentlemen, and welcome to Crombie REIT's First Quarter 2020 Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, May 7, 2020. I would now like to turn the conference over to your host, Claire Mahaney Lyon.
Please go ahead.
Thank you, Chris. Good day, everyone, and welcome to Crombie REIT's Q1 conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.combiereit.com. Slides to accompany today's call are available on the Investors section of our website under Presentations and Events.
On the call today are Don Clow, President and Chief Executive Officer Glenn Hines, Executive Vice President and Chief Operating Officer and Clinton Kaye, Chief Financial Officer and Secretary. Today's discussion includes forward looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our annual information form, for a discussion of these risk factors.
I will now turn the call over to Don, who will begin our our discussion with comments on Crombie's overall strategy and outlook. Glenn will follow with the development update and a review of Crombie's operating fundamentals and results. And Quentin will conclude our prepared remarks with a discussion of our financial results, capital allocation and approach to funding. Don?
Thank you, Claire, and good day, everyone. Crombie's long term strategy is to deliver strong risk adjusted returns by effectively allocating capital within our grocery and pharmacy anchored real estate portfolio to accelerate net asset value and AFFO growth per unit. This accomplished through maximizing the value creation of our strategic relationship with Empire and Sobeys as well as the development of 1 the strongest major market urban development pipelines in Canada. Our strategy is supported by ample cost effective capital, strong balance sheet and as well as one of the most talented real estate teams in the country. These past 2 months have been unlike any we've seen in our lifetimes with a global pandemic, a virtual shutdown of the global economy, the most rapid decline in global capital markets in history and the most significant government stimulus packages ever.
Truly, these events are unprecedented. In the face of all this turmoil, Crombie's long term strategy remains unchanged. Over the last 2 months, our team mobilized in a relentless manner to prioritize the health, safety and the well-being of our employees, tenants, communities and our business. It is this talented team in combination with Crombie's strong financial condition and high quality grocery and pharmacy anchored portfolio that positions us well to manage the uncertainty presented by this unprecedented event. Approximately 80% of Crombie's retail portfolio remains open as grocery stores and pharmacies are essential services, providing Canadians with food and vital products during this global pandemic.
Our largest tenant Sobeys and our strategic partner Empire are meeting the essential needs of Canadian customers exceptionally well. Crombie's finance team secured increased liquidity and have worked tirelessly with our operations accounting and leasing teams to build and implement our rent deferral program, Crombie Values Small Business. In mid March, we implemented a thank you program for our property employees who are doing the important work of maintaining our operations and in perm, ensuring the safety of those customers visiting our sites. We're incredibly proud of our team and the work they do, especially at a time like this. We extend our heartfelt sympathy to all of those who have lost loved ones to this virus and our gratitude to the frontline employees who work to keep our healthcare and essential services, including Sobeys stores operating.
Although we are facing unprecedented conditions, Crombie's long term strategy nevertheless continues to look promising. Through Q1, Crombie's strong fundamentals drove our same asset property cash NOI with record high committed occupancy and solid leasing. Our grocery and pharmacy anchored retail is robust and defensive. We're working in partnership with Empire to align our strategies to maximize value creation. They recognize a need to reinvest and renovate their current stores across and we will continue to work with them through modernizations, FreshCo conversions, the build out of their e commerce home delivery hub and spoke network, land use intensifications and the unlocking of major developments.
Our first six major developments continue to progress, albeit at a slower pace due to temporary delays caused by government required shutdowns, labor shortages or supply chain issues. Due to the shutdown of non essential construction in Quebec, our Leduc and Montreal CFC development projects are currently on hold with construction restart scheduled next week on May 11. British Columbia and Ontario deemed construction, including residential construction essential. Accordingly, our projects at Davie Street in Vancouver and Bronte Village in the GTA continue, albeit at a slower pace to ensure the safety of all individuals on-site. Belmont market in British Columbia is experiencing minimal delays.
Through 2020, we continue to expect to reach substantial completion on approximately $300,000,000 of construction on Davie Street, Belmont Market and Avalon Mall with a slightly delayed schedule. We will continue investing in Bronte, Leduc and the Voila Par IGA customer fulfillment center to complete those developments, totaling approximately $300,000,000 during 2021. We have another 7 projects in pre planning where we continue our work to improve and deliver valuing and value enhancing entitlements for each development. In summary, Crombie is resilient and nimble in the face of the fast changing and unprecedented macro environment, and we continue to work diligently to ensure our commitment to our stakeholders remains steadfast. With that, I'll now turn the call over to Glenn, who will provide an update on our developments and operational highlights.
Glenn?
Thank you, Don, and good day, everyone. I would like to begin with an overview of Crombie's response to this pandemic and to reassure you, our unitholders, that we are committed to delivering value through a business that remains strong despite the current economic reality. We enacted our business continuity plan to create optimal conditions for the safety of our tenants, customers, staff and properties. Our teams continue to carry out enhanced cleaning and sanitizing and physical distancing measures and thankfully are now proactively preparing critical plans for reopening of those tenants that were forced to close. Near the end of the quarter, we launched Crombie Value Small Business, a rent deferral program for small business tenants who have been impacted by business closures.
Crombie is well positioned with respect to the defensiveness of our annual minimum rent with 75% generated from grocery and pharmacy anchored properties, 67% from essential services and only 6% from small business. Our largest tenants are investment grade grocery stores, pharmacies, banks and government offices. Over the last few years, we've improved the quality of our portfolio by acquiring assets in Canada's top markets as well as recycling approximately $800,000,000 in assets, mostly in secondary and tertiary markets to reinvest in Crombie's urban major developments. The portfolio we have today is stronger and improves our positioning for future periods of uncertainty, such as what we are experiencing today with COVID-nineteen. During the month of April, 87% of gross rent was collected.
In addition to collected amounts, we have completed 2 month rent deferrals with certain tenants representing about 2% of monthly gross rent. The remaining 11% consists of approximately 2% who could qualify for deferral and approximately 9% representing other larger tenants, most of whom could and should have paid April rent, but chose not to. We are evaluating the implications of the recently announced close to 40% of Crombie's uncollected April rent was from one property, our enclosed shopping center, Avalon Mall, which has been effectively closed due to provincial government restrictions since the end of March. Our defensive portfolio is robust and our team is working with our tenants to ensure rent deferrals are provided where necessary and rent is collected. Strong fundamentals on our 285 property portfolio were demonstrated by record high committed occupancy of 96.2 percent in Q1.
New leases and expansions increased occupancy by 44,000 square feet at an average 1st year rate of $22.87 per square foot. We ended the quarter with 124,000 square feet of committed space at an average 1st year rent of $20.08 per square foot, boosting future NOI growth. During the quarter, 156,000 square feet of renewals were completed at a 4.5% increase over expiring rental rates. Same asset NOI growth was +1.7 percent and that was slowed by an approximate $500,000 bad debt provision, otherwise a more solid plus 2.6% same asset NOI result would have been posted. We continue to maneuver our necessity based portfolio through these uncertain times, our team is dedicated to ensuring our underlying business fundamentals and core portfolio remain resilient and strong.
Our development pipeline has been impacted by the repercussions of COVID-nineteen with minor adjustments to our timelines and related revenue commencements. At this time, we're not expecting significant changes to our cost to complete and are comfortable that our cost estimates, including contingencies, will be sufficient such that our published cost estimates should remain intact. In Vancouver, construction continues at our Davie Street project, although at a slower pace, driven by social distancing and a reduced workforce. The 45,000 square foot Safeway store is projected to open later this month and the 9,000 square feet of ancillary retail space should follow in Q2 and Q3. Construction of the 3 30 residential rental units are now scheduled to be complete in Q4 of this year.
This project is 100 percent tender. At Belmont Market in Langford, committed occupancy is 90% or the 137,000 square feet that's built and operational. The final phase of the development consists of 3 buildings totaling 23,000 additional square feet that is yet to be built. Construction will commence on the 1st building in Q2 of this year with the remaining 2 buildings slated for 2021 construction as we expect slower leasing due to COVID-nineteen. There has been significant consolidation in the retail industry such that regional malls such as Avalon Mall in St.
John's, Newfoundland and Labrador are dominant in their market. Avalon is the only regional mall in all of Newfoundland and Labrador, a province with 500,000 people and with sales over $700 a square foot and of course that is without an Apple store prior to COVID-nineteen. So we are confident it will survive this pandemic and reemerge once the economy reopens. That said, tenants at enclosed malls like Avalon Mall are nevertheless facing challenging times with significant retail closures. We are optimistic as Newfoundland and Labrador is successfully flattening the curve with very few cases of COVID daily over the last 2 weeks.
Construction of our expansion area is substantially complete as we have turned over certain of our mid box anchor spaces to our tenants. However, the grand opening will be delayed given the current state of emergency circumstances in the province, which will impact tenant fit up and opening schedules. In Quebec, construction was shut down on March 23 with site scheduled, as Donnie mentioned, to reopen on May 11. In Montreal, at our Leduc project, we've adjusted our expected completion date by 1 quarter to open now in Q3 of 2021, and we expect some cost increases due to these delays. The 25 storey mixed use tower with 26,000 square feet of commercial space and 390 residential rental units is currently constructed to the 19th floor and the project is 86% tendered.
We continue to monitor COVID-nineteen related events in the province for potential impact on our development activity. The launch of Voila Par IGA, the e commerce service for Quebec and the Ottawa area is still expected in 2021. Site work is complete and tendering is well underway with construction to commence this spring. The Bronte Village construction site remains open in Oshawa or in Oakville and has been marginally delayed due to the impact of a reduced workforce arising from COVID-nineteen. Now anticipate the 54,000 square feet of commercial and 480 residential rental units will be delayed 1 quarter and completed in Q4 of 2021.
Bronte is 96% tender. Upon completion, all these properties are expected to create significant net asset value and AFFO growth per unit, increase our presence in the country's top urban markets, while diversifying and improving our overall portfolio quality and income stream. And lastly and most importantly, we're not aware of a single COVID-nineteen infection to date on these 6 project construction sites. We are proud of the work that our partners, our contractors and our team have done in focusing on health and safety. And with that, I will now turn the call over to Clinton, who will highlight our Q1 financial results and discuss our capital and development program funding approach.
Thank you, Glen. During these challenging times, I'm pleased to report that Crombie's financial condition remains strong. Our unencumbered asset pool has grown and we have intentionally increased our allocation to unsecured debt allowing for future additional financing flexibility. We have steadily increased our liquidity and are consistently working to de risk our balance sheet. On a cash basis, same asset NOI increased by 1.7% demonstrating the consistency and stability of our portfolio.
AFFO per unit was $0.26 consistent with the same quarter last year. Considering our significant disposition activity throughout 2019, reduction in leverage and our continued investment in our development pipeline, we are pleased with this result. Our AFFO payout ratio was 87.4% versus the same quarter last year at 87.3%.
FFO for the quarter decreased
to $0.29 per unit from $0.30 for Q1 2019. And our FFO payout ratio was 76% versus 74.2% in the same quarter last year. We are feeling the effects of approximately $500,000,000 in dispositions executed in 2019 and the investment of approximately $400,000,000 dollars of capital in major developments with no initial return. G and A as a percentage of property revenue for Q1 was 3% or 3,000,000 dollars down from Q1 2019 at 5.5 percent or 5,800,000 bought deal basis. After the closing of the public offering and private placement, Empire continues to hold a 41.5 percent economic and voting interest in Crombie.
This was the first time Crombie has raised equity since 2016. Crombie is committed to increasing weighted average return to maturity of our debt, reducing leverage over the medium term and increasing our unencumbered asset pool. In the Q1, we repaid $158,000,000 mortgage with a weighted average interest rate of 5.61 percent, leaving $58,000,000 of mortgages maturing for the balance of the year. Our unencumbered asset pool increased to approximately $1,500,000,000 from $1,200,000,000 at Q4 and our balance sheet remains flexible with $500,000,000 of available liquidity as of today. Our debt net of cash to gross book value on a fair value basis was 48.8% at the end of Q1 compared to 48.9% at the end of 2019.
We ended the quarter with debt net of cash to trailing 12 month EBITDA at 8.44 times, an improvement compared to 8.52 times atq4 of 2019. Subsequent to the quarter end, Crombie completed a 16 year, dollars 118,000,000 mortgage financing on our Vaughan, Ontario distribution center at an interest rate of 3.88%. This transaction extends our weighted average turn to maturity on fixed rate mortgages from 4.2 years to 5.3 years. Proceeds from this transaction were used to repay $45,000,000 of the $120,000,000 unsecured non revolving credit facility with the remainder of the proceeds applied against bank debt outstanding. As we continue to progress through this difficult time, Crombie's grocery and pharmacy anchor portfolio of essential services will support our communities, businesses, tenants and employees while never losing sight of our long term strategy to effectively allocate capital to accelerate NAV and AFFO growth per unit delivering value.
That concludes our prepared remarks. We are now happy to answer your
Your first question comes from Howard Leung, Veritas Investment Research. Howard, please go ahead.
Thanks. Good morning. Good morning. Can you comment a little bit on what considerations you're looking at for the PCRA? And what some of the puts and takes are as you decide whether you want to apply for some of your smaller tenants?
Sure, Howard. It's Glenn Hynes. The good news is with the Crombie value small business program and the secret program and now there's some rumor that there may even be another program for the non essential services some of those larger retailers. It's good that there's options available. I think what Crombie wants to do is 1st and foremost focus on the success of our retailers and our office tenants.
But speaking about retailers to your question, getting to success is really what's vital. So we want to roll up our sleeves with our tenants and determine the best program. In fact, there's certain tenants that should just pay their rent that really have no need for support and we'd like them to do that. And then the category, there may be some where a couple of months of deferral from Crombie and then being repaid over say 12 months is the right recipe for their success. In other cases, it may be the secret program where for a 3 month program as we currently understand it, but the details are still not fully communicated, there'd be a 25% investment from us as landlord.
So for us, Howard, we want to get to success for our tenants and we want to roll up our sleeves and do what's best in each individual situation. And hopefully, if we have good transparency with our tenants and good dialogue, we'll get to the right successful conclusion in each case.
Right. So I guess because just thinking about the secret specifically because it's only lasting really for another month, I guess you would really only want to apply those returns that you believe could kind of could survive past that point and be able then to shoulder 100% of the rent going forward, right? Is that the right way to think about it?
Sort of. I think it is. But the other thing is we just don't know how long this whole pandemic is going to last. And I think what you want to do is be judicious. We'd all like to be supportive.
If success is the end game and unfortunately there may be some tenants where success won't be an option, and that's unfortunate. And I guess, we want to be careful not to invest significant resources if there's no end game for success. And that's part of the transparency and the open dialogue. But I think the reason why we want to get to the right solution. So for example, if some tenants should just pay their rent with no support, that gives us more resources to support other tenants where maybe there is need for more than a 2 month deferral.
The feds, of course, when they announced their 3 month program, they don't have a crystal ball as to how long they may need to provide support. Who knows, maybe there's a secret round 2 if this goes on too long. So the key thing for us as a landlord is to have a focus on success and to try to use our resources judiciously so we can continue to report good numbers to our unitholders, but also to be there to the best extent possible to get the success for our tenants.
Right. That makes sense. I guess for the 9% that you called out the large the larger tenants I guess that could and should pay. You mentioned I think 40% of them really came from Avalon Mall. For the remaining 60%, are those tenants, I guess, thinking maybe movie theaters, apparel, any QSRs in their franchisees?
Like is that kind of the tenants that have withheld rent?
Yes. I'm not going to name names, Howard, but certainly the QSR segment was a segment where there's a lot of receivables. And those ones are interesting because generally speaking, there's franchisees, local business people that you might on a day to day basis entertain a small business. But in some cases, there's a very strong franchise or covenant there. And in general terms, there's a way to look at those tenants that they're really not your typical small business, your mom and pop small business, if you will.
So, it's spread across. There are and the good news is by towards the end of April when we put a bit of pressure on some of those larger tenants who hadn't paid through default letters, we actually did get a positive response in some cases. So it is a mixed bag. But you're right, we have communicated that close to 40% of our remaining receivables are Avalon. Enclosed mall space is very tricky.
I think our collections at Avalon were just under 26% of gross rent. And as bad as that number is, that's actually a decent number in the enclosed mall space because we don't have a 200,000 square foot superstore or like a Walmart or a big grocery store at Avalon and we don't have an Apple store. So Avalon was tricky, but the balance is spread around. But yes, there is a material
It's just getting them to the right headspace and whether they didn't
pay because they're waiting to It's just getting them to the right headspace and whether they didn't pay because they're waiting to see what programs are in existence or they think it's an opportunistic opportunity, I can't speak for them. And that's why we're going to roll up our sleeves on a case by case basis and get our rent collected in a way that has both tenant success and REIT success optimized.
Howard, it's Donnie. I'm going to just jump in. One additional element is that when we're talking with these people, we often have known them for a very long time and have good relationships with them. But part of the exchange is, I'll call it real estate savvy, which is we're looking at opportunities elsewhere within our portfolio with these people. And so it's not just a, call it, credit issue or collection issue.
It's also about how do we maximize the benefits for both parties out of this and call it, create a partnership with them. And so we're working very hard. Each situation is unique and it's case by case, but it's important that people know we are asking for financial statements. We are working hard to collect all the information we need to make a good decision. And this isn't something that's done inappropriately.
So anyway, I think overall, we will come out of it exceptionally well.
Yes. And it looks like because of really the major exposure is the enclosed malls right now that don't have lower collections and Crombie doesn't have much of that. So that's pretty good. I guess, May collections, it's pretty early. It's just still just the 1st week.
But is it so far on par with the 1st week of past months, I guess, excluding Avalon?
I would say this, Howard, that May is not markedly different than April, at this point. And we'll obviously look forward to updating you in August on how it goes. But so far, May is very much aligned with April.
Great. And just one more for me. Some of your leases have the step ups and some of them are kind of fixed step ups. Have you had to kind of modify step ups on any of the leases maybe in negotiations with some of the tenants?
No, not at this point. So far our conversations have been more around what we've just been talking about the last few minutes. But no, in terms of renewals and regular step ups in rents, those are preprogrammed and we're not anticipating any change in that program. But if tenants need to talk about those things, I'm sure they will. But at this point, that has not been a conversation that's been active at all.
Okay, great. Thanks so much. That was a lot of good color. I'll turn it back. Thank you.
Thank
you. Your next question comes from Dean Wilkinson, CIBC. Dean, please go ahead.
Thanks. Hi, guys. Hi, Dean.
Afternoon. Donnie, maybe for you bigger question, sort of stepping back from the immediacy of the pandemic and as you look at the portfolio and the business, are there opportunities in this to refine or perhaps change the longer term view around some of the real estate and perhaps there's some opportunities that the market might be missing here? Or is it putting it in terms of say a prior life of yours more of maintaining that strong defense and running the A gap?
Our strategies, as I said in my remarks, our strategy remains unchanged. So it's been a focus on Sobeys, which we believe has, I think, unique opportunity. The relationship with unique opportunities, the relationship with a retailer to create value in real estate is I think unique and exceptional and only helped by call it, a few people in our industry. And we're really just getting started. I mean, we've really honestly been at it since Michael Medline was appointed as CEO of Sobeys.
And since that time, we've really taken it to another level. And so I think for us, it's really consistently investing in Sobeys and Sobeys related projects, including ultimately unlocking value in major development. So it's really those two things. And included in the major market mixed use is obviously residential. And we've I think forecasted out for people saying by the end of 2021, we'll be at about 8% residential.
And on a longer term basis over a decade, which a lot of people don't care about, but we do, we could see ourselves into that 15% to 20% range as we hopefully continue to build at a consistent pace. And so and as well the hub and spoke network for Sobeys, e commerce home delivery platform is retail related industrial. So building those 2 categories out, but doing so, I'll call it organically is I think very strategic for us. And it just shows the opportunity that's presented by the relationship with the retailer. And then pruning various parts of our portfolio over time where they're in the minority is something that we'll be thinking about.
But at this point, the properties that we have in that category generally are the strongest in their locale. And so those things are other than call it on a short term basis, we feel comfortable holding those assets and working them over time. So the opportunity is to stick to our knitting. Today, I think as someone I talked with the last week, we talked about over the last 10 years, what are the top metrics that people look at and it's really NAV growth, AFFO growth and NOI growth. But today, it's a liquidity, right?
And or the quality of your portfolio and how is it we're all on defense. And so for us, we feel like we have a very, very strong defensive portfolio that has a unique opportunity to go on offense. So it's really just about pacing ourselves and picking our spots on both whether it be for funding or whether it be for investment. And so we're quite pleased with where we sit today. And again, we don't believe it changes our strategy.
It really, for the moment, maybe slows it down clearly because of the level of uncertainty. But overall, we're focused on what we're focused on.
Great. And my second question, I don't know if it's Clinton or Glen. Just on the it looks like you're getting ahead on that allowance for the doubtful accounts related to some of this uncollected rent. Was that sort of best guess at a worst case or was that specific insight into stuff that you know you're probably not going to lack?
It was just a bit of a unique situation, Dean. It's Glenn. When you're doing allowance for doubtful accounts, you're using judgment about wherewithal of somebody to pay something. And you're making a judgment. And many cases, if you're looking forward and they're making the promises they've said that they'll pay you a certain amount by a certain time or there's a more positive backdrop, then you're less you're more comfortable with a smaller allowance.
As we got to Q1, we looked at the general situation and said, you know what, we should be a bit conservative here. And in aggregate, we took over $1,000,000 but property, the other $500,000 hit other properties. It was just us acknowledging that there could be difficulty here that's risk. So we thought it was proactive to take the charge in the quarter. I wouldn't say it has any indication how we'll be thinking about the allowance for doubtful accounts in Q2 and Q3 and beyond.
That's going to be obviously dependent on each individual situation. But we thought it was important to acknowledge at the end of Q1 that we did have some risk.
No, it's good to see you getting out in front of it and I think others will probably follow. That's it. I'll hand it back. Thanks guys.
Thank you, Dean.
Thank you, Dean.
Thank you. Your next question comes from Sam Damiani, TD. Sam, please go ahead.
Thanks and good afternoon everyone. First question, just on the development pipeline, maybe for you, Donnie. Obviously, the new build residential market is a growing one. The demand has been strong. But have you been chatting with your partners Westbank and PrinceDev on terms of how things how leasing has been going specifically in the last couple of months, has there been any impact from the pandemic on demand for newly built purpose built rental?
So I have. I talked with both of them last week and we have a great relationship and we're very fortunate to have outstanding partners that are very strong in their own right, both financially, but also operators and developers. And the indications are that things did take a brief pause in May to some degree, but that the leasing has come back towards in April and in May. So the leasing is continuous, just at a little bit of a slower pace. And we're, I think, quite fortunate when we budgeted our properties a number of years ago, we would have been conservative as we usually are.
And since that time, the rents have increased and not insignificantly in a couple of jurisdictions. And maybe they've come off just a little bit. I don't know. We'll see. The bottom line in most of the markets we're in is that we want to take our time, lease it up well, and they don't come on stream.
Davy Street will come on probably late, late this year or early next year. And by that time, the local markets basically any of the new projects are full. And in Bronte and Duke, they're well into 2021. And hopefully by that time, pandemic has ideally passed or in the latter stages of herd immunity. So we're hopeful that and again, we believe in these big markets, the strong markets, and there's a shortage of this type of housing.
So we're very comfortable with the projects and the quality of the work that our teams are doing and including our partners. They're terrific people. Thank you. That's helpful. 2nd and last question, just on your discussions with Sobeys on the idea of retrofits.
Does the pandemic change their sort of physical needs for their stores either in the inside the box or even the size of the box? Is there any discussion about increasingly wanting larger stores to accommodate a little more spacing between the aisles? It's I mean, there's right now, I think honestly, they've been so focused on maintaining the supply chain, keeping their stores open and most importantly the health and well-being of their staff and their customers. So those kinds of changes I think will be initiated. They may be already thinking about it, but we're not in any discussions with them at the moment of that type of change.
Where we are, though, however, in constant conversations with them, we've slowed down just a little on terms of our pipeline spending with Sobeys just because they were so focused on delivering those essential services. And so for us, it ends up with a slight delay on some of our modernizations where we haven't started, which just made sense. But we do still have plans to move forward with those. But how they ultimately take shape, as we've said, there's so many opportunities, whether it's via modernization or changing of the store, but can also be investing as we've done in the hub and then also now the new spokes, which will be sites that could be parts of stores that are basically where they transition the orders from the big trucks into small cube vans for local delivery. All of those hub and spoke pieces, especially in the major open markets are terrific investments for Crombie And we want to be a part of that with Sobeys.
So variety of circumstances, Sam, I guess, is the end game. And we just haven't seen at this stage, they just really haven't turned their minds to ultimately changing the size of the store. Great. Thanks very much. Okay.
Thank you.
Thank you. Your next question comes from Tal Woolley, National Bank. Tal, please go ahead.
Hi, good morning. Good morning, Tal. Good morning. Just on the following up on Sam's questions regarding Empire, any discussion on how they're viewing their e commerce business, they're piloting Monsanto. Do you think that once you sort of we've all emerged from this, is that an acceleration of that online business is likely something we're going to see?
Today, it makes up growth e commerce home delivery of groceries makes up 1.5% to 1% of overall groceries. And so the talk about accelerating it, there has been a lot of press about it and people are clearly ordering from home. And so it's a little too early to see whether there's significant cultural change, but the denominator is so small that I think overall impact even in the near term is limited to some degree. There's not a great infrastructure for home delivery for, call it, the largest competitors and delivering from stores is not profitable. Having somebody run around the store, a person run around the store is just not it's very suboptimal and not profitable.
So even though it's a stopgap and clearly helping consumers, it's not the ideal for ultimate long term profitability. That all said, clearly, there's going to be a continuous movement towards investing. I think Sobeys already, as you know, invested in both Toronto and in now in Montreal, it would be continuous movement towards that. I have not discussed any changes in terms of the pace. I think that's really up to Mr.
Medline and his team and we'll be clearly wanting to be part of that conversation and invest alongside with them as we are in Montreal. So again, it's too early to tell, I guess, at the end to answer
Okay. And then one of the other things after leadership changed at Empire that you had talked maybe more about doing was using leased locations at Sobeys in shopping centers as leverage to make acquisitions. And I'm wondering like, again, I'm not trying to get you to commit anything original that right now, but like does that kind of transaction get easier to effect in a tougher economic environment? Like some more corporate opportunities open up along that front?
Yes, exactly. So we did that with our Macoun and Ellesmere acquisition in 2016 and we've done it with a few other, I'll call it, smaller tuck ins. And we still have a few and we are working, I'll call it, continuously on those activities. I think we've said publicly there's 80 or 90 Sobeys leasehold interest that we're continuously looking at in the major urban markets. And so whether they get easier, a lot of the people who own those places are well capitalized and we're constantly working on it, but they're mostly well capitalized.
So the gap between the bid and the ask is relatively wide. So I'd say we're not really focused on it today as much as we were say 2 months ago, we're going to slow down a little, but we still have things that we're working on. So but we want to be very careful with our liquidity, focus on what we have to do and execute on our major developments, focus on Sobeys plan and part of that will be the odd transaction that fits that category. But it's an exceptional opportunity for us to backfill our major development pipeline as we complete our projects and also to do a number of other, call it, interesting type transactions. So we're quite excited about it.
Okay. And then obviously, late last fall you had sort of rolled out, I guess yesterday a longer term sort of growth guidance kind of longer term goals of like 3% to 5% NAV and AFFO growth. Obviously, you weren't saying 2020 would be the year that that was going to start to begin with. And clearly, given where we are, it's probably not going probably certainly not going to be now. But do you see anything possible that would really shift that longer term goal at all right now?
There? Well, you don't know what you don't know. And right now, that's about what kind of retailer fallout could take place over the next 3 to 6 months. And so but again, for us, we view it as ideally a short term, call it, transition stuff that we have to work through. But our investment thesis of Sobeys and major developments is pretty simple, straightforward and pretty strong on a risk adjusted basis.
And that's why we've said our strategy remains unchanged. Our investments may be a little lower this year. If we set $100,000,000 to $150,000,000 on Sobeys, we may be closer to that $100,000,000 range or a little less than that, just because of again slowing transactions down. And so that but in the long term, if that's the question, no, it doesn't change our target. And we're pretty comfortable if we can continue to invest in those programs that we will be in that best in class REIT category.
Okay. And then just lastly on the JV As it sounds like it's going to be early Q1 before it's really starting to get up and running. When should we expect you to bring that property out of PUB and into ITC, so just speaking get the numbers correctly?
Yes. Hi, Tal. It's Glenn. Initially, our expectation was to be substantially complete. In Q3 of this year, we'd have then full interest expense and the lease up would take place through Q4.
In fact, there'd be a drag on NOI or FFO and AFFO, I should say, in 2020. It now appears that we'll probably be substantially complete more like the end of the year late Q4 and we'll have that slight drag in lease up and full interest expense in early to mid-twenty 21. So in an odd way, it's probably going to slightly improve our results for 2020 because the net drag of having full interest expense and then the lease up of the rental over, say, 4 months, 6 months, wouldn't have a net net dragging effect. So not material, but nonetheless, a slight negative drag. So we would suggest that that reality will be in early 2021 and not late 2020.
Okay, perfect. Thanks very much. Thank you. Thank you.
There are no further questions at this time. Please proceed.
Okay. Thank you very much for joining us everybody and we'll look forward to talking to you next quarter. Have a great day.
Bye bye.
Thank you all.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.