Good morning. My name is Alana, and I will be your conference operator today. At this time, I would like to welcome everyone to CT REIT's Q4 and full year 2020 earnings results conference call. All lines have been placed in mute to prevent any background noise. After the speakers remarks their will be a question and answer session. If you would like to ask a question during that time simply press star then number one on your telephone keypad. To withdraw your question press the pound key. The speakers on the call today are Ken Silver, Chief Executive Officer of CT REIT, Lesley Gibson, Chief Financial Officer of CT REIT, and Kevin Salsberg, Chief Operating Officer of CT REIT. Today's discussion may include forward-looking statements. 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 CT REIT's public filings for a discussion of these risk factors, which are included in their 2020 MD&A and AIF, which can be found on CT REIT's website and on SEDAR. I will now turn the call over to Ken Silver, Chief Executive Officer of CT REIT. Ken?
Thank you, operator, and good morning, everyone. Thank you all for joining us for CT REIT's fourth quarter 2020 investor conference call. 2020 was clearly not a year any of us expected or planned for. We have all been challenged to navigate the twists and turns, roadblocks, and U-turns that the pandemic has thrown us, both personally and professionally. The toll on our communities, our economy, and on countless individual lives has been immeasurable. Yet, we continue to work together to get through this, and we have much to be grateful for. Among the things I'm grateful for is the CT REIT team who have risen to the occasion to support one another, our tenants, and their communities to get the job done, no matter the obstacle. While daily case and death rates continue to dominate the headlines, we do see the light at the end of the tunnel.
Spring will come, and vaccines will eventually roll out. In that spirit, I'm pleased to report on the highlights of 2020. Since our IPO in 2013, we have used the tagline "growing, reliable, and durable" to describe CT REIT. While we have consistently delivered performance that supports that description, 2020 certainly provided a significant stress test. CT REIT once again delivered with healthy growth in AFFO per unit for the year, over CAD 200 million in new investments, occupancy and rent collections both slightly north of 99% in Q4, stronger debt and credit metrics, and two distribution increases for a total of seven since our IPO. This combination of growth and resilience is the hallmark of CT REIT. In Q4, we reached the milestones of 10 million square feet of GLA added to the portfolio or committed and CAD 2 billion invested since our IPO.
This growth in assets has delivered compound annual growth in AFFO per unit that has been amongst the strongest in the REIT sector. Our business model, focused on net lease assets with investment-grade tenants and long lease terms, combined with conservative financial management, provides a significant level of resilience to complement our growth. Our privileged relationship with Canadian Tire, our largest tenant and majority unitholder, provides strategic insight, growth opportunities, and a distinct competitive advantage. Our significant portfolio of low-risk assets is the platform upon which we can add special value-add opportunities. A case in point is our joint venture with Oxford Properties at Canada Square at Yonge and Eglinton in Toronto. In December 2020, Oxford submitted an exciting redevelopment application to the City of Toronto for this landmark nine-acre site on two subway lines in this growing node in midtown Toronto.
We look forward to the project obtaining the necessary approvals and proceeding to construction in the next couple of years. 2021 is off to a good start. In early January, we closed on our successful unsecured debenture offering launched in December 2020 and redeemed a series of maturing debentures, leaving no further maturities to refinance this year. I'm pleased we've hit the ground running with our newly announced investments and the disposition of one of our completed redevelopment projects. Last but not least, I'm delighted to congratulate Kevin Salsberg on his being named as President and Chief Operating Officer of CT REIT effective March 1st. His promotion is a reflection of the growth of the REIT and its evolving organizational needs. Of course, on Kevin's performance, his contribution to the REIT's evolution, and the leadership qualities he's shown since joining the REIT almost five years ago.
With that, I'll turn things over to Kevin and Lesley to discuss our results in more detail. Kevin?
Thanks, Ken, and good morning, everyone. As outlined in yesterday's press release, we are pleased to announce four new investments this quarter that will require an estimated CAD 65 million to complete. These new projects include the vend-in of a Canadian Tire store and Canadian Tire Gas+ gas bar in Quebec City, Quebec, the vend-in of a Canadian Tire store in Lower Sackville, Nova Scotia, and the expansion of an existing Canadian Tire store in Cochrane, Ontario. Also included is the expansion of the Canadian Tire Distribution Center in Côteau-du-Lac, Quebec, just outside Montreal. Upon completion
This industrial asset, which serves the Canadian Tire store network in Eastern Ontario, Quebec, and Atlantic Canada, will grow by over 320,000 sq ft to a total GLA of nearly 2 million square feet. When completed, these investments are expected to earn a weighted average cap rate of 6.41% and represent approximately 510,000 sq ft of incremental GLA.
With respect to previously announced investments, in the fourth quarter, CT REIT completed the third-party acquisition of three Canadian Tire stores in Drayton Valley and Leduc, Alberta, and Saint-Jean-sur-Richelieu, Quebec, acquired a property from a third party consisting of two freestanding buildings leased to Mark's and Tim Hortons in Yellowknife in Northwest Territories, completed the first phase of its development in Fort St. John, BC, consisting of new Canadian Tire and Mark's stores, completed phase I of the redevelopment of the Orillia Square Mall in Orillia, Ontario, which comprised the development of a new Canadian Tire store in the former vacant Target box, and completed the intensification of an existing Canadian Tire store in Buckingham, Quebec. The REIT invested approximately CAD 139 million in these previously announced projects, which added approximately 440,000 sq ft of incremental GLA in the quarter.
Subsequent to quarter end, CT REIT sold its Arnprior Mall property in Arnprior, Ontario for approximately CAD 21 million. After redeveloping this enclosed mall and bringing occupancy from 53% at the time it was acquired to 97% currently, and delivering a new store to Canadian Tire in the process, we received an unsolicited offer to purchase the property at a price that was equivalent to our IFRS value. The REIT continues to hone its focus on net lease assets, and it was determined that in line with our core strategy and based on the fact that we had successfully added value to this property, we would move forward with the sale. Highlighting our full-year activity, and despite an initial pullback in capital spending to preserve liquidity at the outset of the pandemic, CT REIT invested approximately CAD 209 million in 2020 and grew the portfolio by approximately 800,000 sq ft.
At the end of the fourth quarter, CT REIT had 16 properties that were at various stages of development. These projects represent a total committed investment of approximately CAD 191 million, CAD 57.9 million of which has been spent to date and CAD 32 million of which we anticipate will be spent in the next 12 months. Excluding the Canada Square redevelopment in Toronto, Ontario and the development lands that we own in Calgary, Alberta, these projects will add a total incremental gross leasable area of approximately 690,000 sq ft to the portfolio upon completion, over 93% of which has been pre-leased. As at year-end, CT REIT's occupancy rate was 99.3%, slightly better than the 2019 year-end occupancy rate of 99.1%, and an improvement over the occupancy as of Q3 2020 due to the lease up of the 11 Dufferin Place Southeast industrial property in Calgary, Alberta.
With respect to the impact of COVID-19 on our property operations, we are pleased to share that tenants representing approximately 99.4% of annual base minimum rent fulfill their January 2021 financial obligations to the REIT, a slight improvement relative to the 99.2% for December and November 2020 and the 99.1% received in October 2020. With that, I will turn it over to Lesley for her review of our financial results.
Thanks, Kevin, good morning, everyone. Despite challenges from the ongoing pandemic, we are very pleased with the strong Q4 and full-year results delivered by the REIT. In the quarter, we reported a diluted AFFO per unit of CAD 0.260, an increase of 3.2% compared to the CAD 0.252 per unit in Q4 of 2019. This brings the full-year reported diluted AFFO per unit to CAD 1.032, representing growth of 2.5% versus 2019. In the quarter, diluted FFO per unit increased 1% to CAD 0.296 versus the CAD 0.293 in the prior year. On a full-year basis, 2020 diluted FFO per unit increased by 0.5% to CAD 1.181. Net operating income was CAD 96.9 million, a 3.7% increase over the CAD 93.4 million in Q4 of 2019.
We break this headline growth into its components, being a 1.2% growth on a same-store basis, 1.8% growth on a same-property basis, and the balance as a result of net acquisition, disposition, and development activities. Full-year reported NOI was CAD 381.6 million, a 3.5% increase over the CAD 368.8 million in 2019. The 1.2% same store NOI for Q4 is the result of the contractual rent escalations contributing nearly CAD 1.8 million, which includes the 1.5 annual rent escalations on average contained within the Canadian Tire store leases, partially offset by the expected credit losses for tenants who were significantly impacted by the pandemic, including the bad debt expense related to the rental abatements. For Q4 2020, G&A expenses as a % of property revenue were 2.5%, which is in line with the 2.4% for Q4 2019.
Our AFFO payout ratio at the year-end was 76.8%, an increase of 2.1% from the same period in 2019 due to the increase in monthly distribution rate exceeding the increase in the AFFO per unit. Not affecting AFFO, but perhaps noteworthy, the REIT changed the valuation methodology that it had been using for its single-tenanted properties from the overall capitalization rate approach to the discounted cash flow approach. All properties are now valued on the discounted cash flow approach. This better allows for the updating of assumptions based on changing market conditions to be incorporated into the REIT's property valuations. In Q4, the REIT recorded a relatively small 0.9% in negative fair value adjustment, which reflects the resilience of our core portfolio despite continuing challenges from the broader retail sector. With respect to the balance sheet, the financial position continues to be strong and liquid.
The interest coverage ratio increased to 3.5x in Q4 compared to 3.44 for the fourth quarter of 2019. The increase in interest coverage ratio is primarily due to the growth in the EBITDA, excluding the growth in interest and other financing charges, despite the inclusion of the debenture prepayment costs in the Q4 financing charges. The quarter-over-quarter interest expense decreased primarily due to the rate reset of the Class C LP Units that took place in the second quarter of 2020. The continued resilience of our business model was put to the test in 2020, and the results underscore our continued belief that this is the right model for us. We maintained a conservative 76.8% AFFO payout ratio while increasing distributions and continued our trend of low debt to gross book value of 42.9%.
We have just under CAD 300 million available through our committed credit facilities and cash on hand, coupled with no debt maturities for the balance of 2021. CT REIT's CAD 6.2 billion assets are 97% unencumbered. With the redevelopment progression Ken mentioned on our Canada Square development, we moved phase I of that project into PUD at the end of Q4. In addition, as of December 31st, 2020, the REIT's book value per unit was CAD 14.62, which is slightly higher than our 2019 year-end value of CAD 14.61, primarily due to net income exceeding distributions. This is despite the negative fair value adjustment that is included in this year's net income as a result from the impacts of the pandemic. Before I pass it back to Ken, a brief remark on our debt profile.
As Ken mentioned, on January 6th this year, CT REIT successfully completed the issuance of CAD 115 million of unsecured debentures with a 10-year term at a coupon of 2.371%. The proceeds were then used to complete the early redemption of the CAD 150 million unsecured debentures originally set to mature on June 1st, 2021. With this early refinancing completed, we have no further debt maturities until Q2 of 2022. At the time of issuance, the interest rate on the new series of the unsecured debentures was the lowest ever interest rate on a 10-year bond issued by Canadian REIT. After these transactions, CT REIT's weighted average term to debt maturity has increased from 7.5 years- 8.1 years. With that, I'll turn things back to you, Ken.
Thank you, Lesley. While I'm proud of CT REIT's 2020 results, I'm sure you, like me, are glad to see 2020 in the rearview mirror. While 2021 continues to be challenging, we have cause for optimism and look forward to a return to normal life. I know it's a busy time for many of our listeners, I will turn the call back to the operator for any questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. The first question is from Himanshu Gupta with Scotiabank. Please go ahead.
Thank you and good morning.
Good morning.
Just on the new investments, it includes intensification of over 300,000 on the existing distribution center in Quebec. Just wondering how much are you looking to spend here on a CAD per foot basis, and what are the timelines there?
Hey, Himanshu, it's Kevin speaking. The investment in that particular intensification is just over CAD 30 million, and it will probably be spent in the early part of 2023. It's about CAD 100 a foot.
Got it. Do you see any more opportunities in the near term where Canadian Tire is looking to add or expand distribution centers?
We're definitely in dialogue with Canadian Tire and their real estate group on the supply chain needs and as well as the supply chain group within Canadian Tire. I think that's an evolving story as they continue to obviously benefit from increased sales related to the circumstances of the last year. Stay tuned on that one.
Fair enough. Just staying on the transaction activity, that disposition of Arnprior Mall for CAD 21 million. What was the cap rate on that property? I know you mentioned the sale price was in line with the IFRS value. Anything on the valuation there?
Yeah. We're not disclosing the actual cap rate, but I can indicate it was called a mid to high six cap.
Mid to high six cap. Okay, that's great. Just one more question on the lease expiries in 2021. I know it is very small, but there are some Canadian Tire leases also coming up for renewal. Do you know how the market rents compare to the Canadian Tire rents which are coming up for renewal? My question is just wondering how the market rents for Canadian Tire leases have performed over the last, say, five to seven years.
Sure, I can take that one, too. I think in 2021, we actually only have one Canadian Tire lease coming up that's expiring, and that was a property we acquired from a third party. I think the rent is actually preset for the extension term. More broadly, I think our belief is the Canadian Tire rents are at market.
Got it. Okay. Thank you. That's it from me, and congratulations to you, Ken. I'll turn it back.
Thank you very much.
Thank you. The next question is from Sam Damiani with TD Securities. Please go ahead.
Thank you. Good morning, everyone. I'd like to offer congratulations as well, Kevin. I'll keep the questioning at you as well. Just looking at the rent collections, which great to see them ticking higher and higher. Any impact from the recent lockdowns at all that you're seeing? Maybe any comment you can make on February to date? I know it's still early in the month.
Yeah, the trends we're seeing in February are pretty similar to January thus far. Obviously, there's a negative impact on retailers more broadly. Obviously, we have a high percentage of open and essential needs retailers, so that benefits our portfolio. We're starting to see the benefits of the CERS program come through, which is helping obviously from a rent collection perspective. One note I would make on CERS relative to CECRA is from a landlord's perspective, things have gotten a little bit more opaque. CECRA, which we were obviously the counterparty to make the application, and there was a lot more information sharing in order to make the necessary submissions, whereas CERS is entirely on the tenants to deal with those forms and application portals, and therefore the information flow we're seeing has slowed down a little bit.
It's a little bit more qualitative at this point in terms of the ongoing conversations we're having. Obviously, if somebody, for one reason or another, isn't receiving the benefit of a CERS payment or needs to come to us for additional rent relief, those are when we would have more access to information. Although CECRA administratively was not a great program, at least from a visibility perspective, as a landlord, we saw a little bit more.
That's helpful. The tenants that, I guess, benefited from the CECRA program, are they also benefiting from CERS in the sense that it hasn't had any negative impact on overall rent collections? It's perhaps been a positive impact of the switching program?
I think so. I think CERS is doing a better job than CECRA did supporting tenants in their ability to pay their rents.
Okay. That's helpful. Thank you. Maybe over to Ken. Looking at the distributions that were increased a little bit during the, I guess, the third quarter of last year, there was no follow-on distribution increase in 2020. When you look to 2021, is this a temporary sort of hold back on the sort of annual bumps with perhaps a catch-up sort of outsized bump maybe potentially later on in 2021, assuming everything starts to get back to normal in a meaningful way? Or how should we think about distribution bumps going forward?
Well, Sam, of course, we review the monthly distributions, and the board approves them every month. We were on a pretty regular cycle until the pandemic struck. Clearly we're monitoring both the REIT's financial situation, but also the external marketplace. Today, obviously, we're in a second wave of the pandemic, and lockdowns haven't been lifted, so it's a situation we'll continue to monitor into 2021.
Okay. I guess just looking out also on 2021, you resumed your investment activity a few months back. Do you anticipate maintaining that pace, and are you starting to see more third-party acquisition opportunities?
I'll take that, Sam. I think the pace has picked back up, and I think our expectation is it would continue. Obviously, there was some deferred projects and some delays and some of the stuff we were working on as the pandemic hit. I think you'll see hopefully some continued announcements from our part in the same course. Completions for 2021, though, obviously, will be a little quieter than in previous years. On the third-party front, I would say the year has started off slowly. I think there was some transaction volume heading into year-end that picked up off the strength of the late summer, early fall, and the reopenings of various businesses and health of some of the essential needs retailers. There's still lots of interest in grocery-anchored, essential needs-anchored retail.
We obviously got our Arnprior Mall property sold at the beginning of the year, which was great for us. I think there is still a bit of a bid-ask gap between buyers and sellers. A little bit of price discovery still going on. Low bond yields obviously supporting transactions more broadly in hard assets. I think there's an appetite, and there's a lot of cash on the sidelines waiting. It's, I think, finding the right product at the right price. That's the challenge right now.
Thanks. That's helpful. I'll turn it back.
Thank you. The next question is from Jenny Ma with BMO Capital Markets. Please go ahead.
Thank you, and good morning.
Good morning.
Kevin, congratulations on your promotion.
Thank you very much.
Quick question back to Arnprior Mall. Just wondering if you could share with us the rough profile of the buyer and whether or not you could comment on what you think their investment thesis or reasoning or interest in the property was?
The buyer was private, a private individual. I think their interest in the property was based on the strength of the underlying leases. As we've detailed, we bought the mall. It was half empty. We brought Canadian Tire in. We expanded the grocery store on-site. We were calling it an enclosed mall, but we pretty much eliminated the majority of the enclosed mall components of the property. I think 85% of the NOI was from investment-grade anchor tenants, and then there was a stub piece with some smaller tenants in it. All in all, a fairly stable property with long-term leases that, I guess, based on where bond yields are trading, the investor felt return was decent and being private, probably levered it up and got a nice levered IRR associated with the cash flow profile.
Was this a relatively local investor?
No, not a local investor.
Domestic?
Domestic, yes.
Okay. That's good to know. I wanted to turn to the change in the valuation methodology. What really led to that change in the approach? I see that the terminal cap rates have moved up a bit, and I'm not sure if that's due to a change in some of your assumptions or maybe it's just a weighting change, given that the majority of assets were under OCR. I'm not sure if it's just a formula-driven change or if there's a market condition change behind it.
Jenny, it's Lesley. I think the OCR approach for the majority of those in standalone, single-tenant properties, have been in use since IPO and appropriately so. As obviously we go down from a sort of an average 15-year term at IPO down to sort of nine, and it continues to shrink just as time goes forward, I think we really felt that the OCR wasn't necessarily the right approach as we continue to shrink and as things continue to get smaller. It's a bit tougher with that approach to put in changes. With changing the DCF and the changes in the metrics that you noted, are predominantly, I would say, market assumptions and changes. That there's still some continued pressures on some of the retail real estate.
When we move things over, we're also updating that now that there were a few transactions here and there in the marketplace. Obviously, with transactions being fairly sparse still, we're definitely looking at what that could be. Yeah, the transactions are really more market-driven, et cetera. That's really our ability to change the inputs and those assumptions is something that we think is going to be the right move for the rest of the years.
Okay. It looks like the hold period went up a bit from 10- 12 years, but you mentioned that the lease terms are kind of coming down. How do I reconcile those changes or the change in the hold period?
I think for the rest of the change in the hold period, I probably wouldn't read too much into that. I think we have pretty good visibility to the Canadian Tire stores and a high degree of confidence that those stores will continue to be there. I think just for modeling purposes, we'll be moving things over as we don't typically use a hold period if we have to have rollover and expiries in those ones. It could just really be as we moved and shifted the portfolio over to the DCF that that ticked up a little bit. I think the hold period, there's nothing sort of magic different about that other than that's sort of just what we looked at and probably had to move a few things around as we looked at what rolled over in year 10.
Okay. That's fair. Last question. With regards to the prepayment of the Series C debentures, there was a prepayment fee that was incurred in Q4. How much was that fee? I assume that it was all expensed in Q4, not expected to recur in Q1.
Yes, Jenny, the prepayment penalty on the Series C was about CAD 750,000, and that was all expensed in Q4.
Perfect. Thank you very much, and congrats on a strong year.
Great. Thanks, Jenny.
Thank you. The next question is from Pammi Bir with RBC Capital Markets. Please go ahead.
Thanks, and good morning. Just with respect to Canada Square, what can you share with us with respect to the first phase, what that will look like, when it may start, and I guess some of the potential costs that you expect for that phase?
Hi, Pammi. It's Ken. Pardon me. The first phase of the Canada Square redevelopment would be the north end of the site and would incorporate a mixed-use, commercial residential tower above a replaced bus depot that is currently operating on the site. It'll be relocated to the north end of the site. There will be some public amenities that will be included in that first phase as well above and beyond the bus depot, including the new transit entrances and some public green space. With respect to costs for that phase, we're still working through the costing exercise, or Oxford Properties is on our behalf. I don't have anything to share with you on that front at this point.
From a timing perspective, we continue to aim to start construction when we get the land that we would be building on, in essence, back from Crosslinx, which is the contractor developing the Eglinton Crosstown LRT. It's largely driven by. Firstly, the municipal approval process, and secondly, when the LRT is completed.
Got it. I guess, just on the mixed-use tower, would that be a condo, or would that be rental residential with retail or office? Just, sorry, some color there.
At this point, we're contemplating that it will be residential rental, with some retail at the base of the building.
Got it. Just one more. I guess looking at the development pipeline, Kevin, I think you mentioned that this year, or sorry, it might've been Ken, sorry. You mentioned this year will be kind of light. It looks like it's more heavily weighted toward 2022 in terms of the completions. As you think about the year ahead for this year, what are your thoughts with respect to putting capital to work, whether it's in acquisitions or overall development spending?
Yeah, Pammi, it's Kevin. We'll obviously look for third-party acquisition opportunities as we have in the past, which is basically opportunistically. If there's something out there that we feel suits our criteria and fits our strategy and is financially worthwhile, we'll pursue it. There is some activity that we are funding and working through some of our other development programs, our pad developments, our third-party developments, and a few Canadian Tire-related activities that will see completion in the year. We made a decision to preserve liquidity at the outset of the COVID-19 pandemic, and obviously, development has a longer lead time. We'll work a little harder on the organic growth side and look out for the opportunistic third-party deals as well.
Thanks very much, Kevin. I'll turn it back.
Thank you. The next question is from Tal Woolley with National Bank Financial. Please go ahead.
Hi, good morning. Can you hear me okay?
Yes, we can hear you great, Tal. Thank you.
Perfect. Maybe just to start, I guess it's probably best for Ken. Just from your perspective, from the CT REIT perspective, going through this past year with Pyre, has there been any sort of shift in your sense about how they're looking at their store base going forward?
I think it's a continuation, and with many pandemic impacts, we might see even an acceleration. I would say that the pressure that we had been seeing from Canadian Tire in recent years was to make the stores larger. We had already expanded or had approved expanding 50, 60 stores over the last number of years, and our recent announcements include further expansion. I think the impact of the pandemic has probably reinforced the importance of the store network in a multi-channel retail environment. Obviously, Canadian Tire, and we think the Canadian Tire store network is particularly well-placed, both in terms of the configuration of the stores and the location of the stores across the country, to work in a multi-channel distribution system.
I think it was Jenny's earlier questions just about the methodology change and the auditor language around that. The primary rationale for making this shift was that the maturity of the Canadian Tire leases was starting to shorten. Do I have that correct?
Tal, it's Lesley. Yes, that was. We've been looking at this sort of change for a little while, and that was sort of the primary driver, and I think also coupled with wanting to be able to make potential cash flow changes to models and put other assumptions in that the DCF was more suited to that.
Okay. From your perspective, because I know obviously doing a valuation change like this, there's lots of irritations that come along, frictional costs that sort of come along with it. Can you just sort of explain maybe why you think this is sort of the better approach going forward?
I think the better approach for us, I think it enables us to take a look at particular markets or make assumptions about a store, whether it's growing or shrinking or putting other things into there, applying a renewal probability, I think. Whereas the direct cap approach obviously was very linear in what it delivers. I think obviously in this pandemic, when we're taking a much more tighter view about every one of the assumptions in the models and what's going on in the marketplace, that reinforced our decision to move to the DCF method.
If I'm paraphrasing this correctly, it's that there's the fact of the pandemic and the volatility that it sort of creates, the fact that you sort of get this DCF allows you to kind of play with those interim years a little bit more. Not play with, but you're able to do a better job sort of forecasting the interim steps. Is that maybe a better way to think about it?
It would be for, I guess, the multi-tenant properties. Obviously, the vast majority of what we switched over from OCR is single-tenant Canadian Tire.
Yeah.
There's not a lot of moving parts in those leases, really until we get to the maturities and the rents even after that are fairly within bands and have floors and ceilings on them. Yes, we can play within those a little bit more easily. I think it was driven by the lease term was probably the primary driver. I think just the things in the pandemic made us solidify and really cement that decision.
Yeah. Okay.
It's Ken. I just would add that we contemplated doing this in advance of the pandemic. It wasn't as a result of the pandemic, and we just felt from a methodology perspective, it was more appropriate and flexible going forward. It just happened to coincide with the pandemic.
Okay. That's perfect. Thanks a lot. Sorry, go ahead, Kevin.
I was just going to add, it also aligns with the way we would underwrite our own investing strategy, where the longer the lease term, the more cap rate base we might look at something. As the lease term gets shorter and shorter, we would obviously have to start making some assumptions about what would happen on rollover and to the market rents and renewal probabilities and all that stuff. I think just that from a general investment valuations perspective, we're now just aligned more broadly across our spectrum of assets and the way we view them.
Okay, perfect. Thanks a lot, guys.
Thank you.
Thank you. Once again, in order to ask a question, please press star then the number one on your telephone keypad. The next question is a follow-up question from Sam Damiani with TD Securities. Please go ahead.
Thank you. Just a couple follow-ups for Lesley. Just on the IFRS, just to sort of make sure I understand this. The net result was a CAD 54 million provision in the fourth quarter. I mean, apples to apples, is it a result of a change in terminal cap rates and discount rates, or is it more a change of cash flows that you're forecasting? How should we think about that?
Sam, it was a little bit of both. When we moved the properties over to the DCF method, we did look at, as Kevin mentioned, about renewal probabilities, lease-up assumptions, downtime. There were changes to the cash flows. We also looked at the cap rates in the marketplace. A combination of both.
Okay. In the previous pool of assets that were valued on a DCF, did those metrics change materially, or was the bulk of the CAD 54 million as a result of the pool switching from OCR to DCF?
There were some changes made to all the assets, but I would say the bulk of the change related to the assets that were moved.
Okay. Just finally, I noticed that the REIT drew on the Canadian Tire credit facility, not the bank facility. Just curious, I guess, if there was a reason for that.
There's not a financial reason. Our terms of borrowing are equal under the same. It's more effective for us to borrow under the CTC facility.
Got it. Great. I'll turn it back. Thank you.
Thank you. As there are no further questions at this time, I will turn the call over to Ken Silver, CEO, for any closing remarks.
Thank you, operator, and thank you all for joining us today. We look forward to speaking with you in May. Have a good day.
Thank you. This concludes today's call. You may now disconnect.