Good morning. My name is Valerie, and I will be your conference operator today. At this time, we would like to welcome everyone to CT REIT's Q4 2022 Earnings Results Conference Call. 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 that time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star, then the number two. The speakers on the call today are Kevin Salsberg, President and CEO of CT REIT, Jodi Shpigel, the SVP in Real Estate of CT REIT, and Lesley Gibson, CFO 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 2022 MD&A and 2022 AIF, which can be found on CT REIT's website and on SEDAR. I will now turn the call over to Kevin Salsberg, President and CEO at CT REIT. Kevin?
Thank you, Valerie, good morning, everyone. We're very pleased to welcome you to CT REIT's Q4 2022 investor conference call. 2022 was a successful year for CT REIT, marked with many accomplishments and milestones. I'm very proud of the work and strong results delivered by our exceptional team, especially when considering the dynamic economic environment that we are currently operating within. Through the course of the last year, we were active on the growth front, acquiring 7 properties and completing the development of 19 new projects. We deployed approximately CAD 260 million and completed an ongoing acquisition and development activity and added nearly 1 million sq ft of GLA to the portfolio. We were also very pleased to announce and start the construction of our new net zero distribution center in Calgary that will be completed later this year.
Operationally, the REIT's portfolio remains in sound shape. Our occupancy rate has ended the last 3 years above 99%. The work that the team has done proactively managing our lease expiries has allowed us to maintain a weighted average lease term of 8.6 years for the portfolio, the same number that we ended 2021 at, and one of the longest in the sector. From a capital markets perspective, we started the year off by raising CAD 250 million through an unsecured debenture issuance in advance of interest rates starting their steep climb. We ended the year by announcing the establishment of the REIT's normal course issuer bid. We were also proud to announce our ninth distribution increase since going public in 2013.
We made great strides on the ESG front, launching property and corporate-level initiatives, issuing our inaugural ESG report, and obtaining our first public GRESB score. As we look to the future, we are fortunate to have great pipeline of projects. Our unique relationship with Canadian Tire continues to provide insights into real estate markets across Canada and new opportunities for growth as they continue to invest in their retail and supply chain networks. Additionally, we continue to look within our collective portfolios for longer-term opportunities at certain of our urban assets. Similar to the application filed on Canadian Tire-pr-owned property located at Yonge and Davenport last quarter, the REIT, on behalf of Canadian Tire, has now submitted a rezoning application for their property located at Main and Danforth.
As I mentioned on our last conference call, while this is only the first step in a long process, we are excited by the possibilities that this activity allows for. Namely, the potential for CTC to surface value from their asset, an opportunity to deliver an improved store experience in the future to their customers, and the possibility for CT REIT to potentially participate in the project. The REIT is also in the early stages of investigating properties within its own portfolio that may be suitable for higher and better uses, and the feasibility of submitting similar municipal applications in order to create further optionality and to potentially surface incremental value from our assets. We are also extremely pleased with the progress that Oxford Properties continues to make with respect to the future redevelopment of Canada Square, located at Yonge and Eglinton in Toronto.
Prior to year-end, Oxford submitted an updated master plan scheme for the project, which incorporates the feedback from the extensive community consultation process that has taken place over the last two years. This updated plan incorporates improvements to the public realm, including a significantly larger park space, provides additional amenity and community space, leverages existing infrastructure and buildings to reduce the environmental impacts of the project, all while maintaining the same amount of density on site. To remind our listeners, this multi-phase development project contemplates nearly 3 million sq ft of density, approximately two-thirds of which is planned for residential uses. Clearly, there is a lot to be optimistic about here at CT REIT, including our results for this most recent quarter that Lesley will discuss with you shortly.
Our stable and resilient net lease portfolio continues to perform well and is largely insulated from the impacts of escalating costs on operating margins. Our strong balance sheet and minimal near-term debt expiries help to insulate us from the current interest rate environment. Our development pipeline will drive further growth over the near to midterm, and our marquee longer-term projects have the potential to surface incremental value within our asset base and to deliver opportunities for CT REIT through our privileged relationship with Canadian Tire. With that, I will turn it over to Jodi and Lesley to walk you through an overview of our investment, leasing, and development activities, as well as our financial results. Jodi?
Thanks, Kevin, and good morning, everyone. As highlighted in our press release yesterday, we were pleased to announce four new Canadian Tire store expansion projects this quarter totaling CAD 31 million.
Once completed, these intensifications will add an incremental 109,000 sq ft of GLA to the portfolio at a weighted average cap rate of 6.11%. These four new investments are examples of low risk development opportunities that leverage our existing land base, improve our assets, and contribute to the growing pipeline that Kevin just referenced. In the Q4, we completed eight projects totaling CAD 73 million and added 291,000 sq ft of incremental GLA to the portfolio. These included the development of a new Canadian Tire store in Lloydminster, Alberta, as well as the expansion of four existing Canadian Tire stores in Welland, Ontario, Charlottetown, Prince Edward Island, Chicoutimi, Quebec, and in La Plaine, Quebec. In addition, we completed three pad developments at our existing properties in Alliston, Ontario, Halifax, Nova Scotia, and St. Paul, Alberta.
At the end of the Q4, CT REIT had 26 properties that were at various stages of development, with 11 projects currently expected to be completed by the end of 2023. The projects in our development pipeline represent a total committed investment of approximately $375 million upon completion. $130 million of which has already been spent, and $127 million of which we anticipate will be spent in the next 12 months. Upon completion, these projects will add a total incremental gross leasable area of nearly 1.3 million sq ft to the portfolio, 99.5% of which has been pre-leased at quarter end.
Over the course of the year, we completed 31 lease extensions with Canadian Tire, 12 of which were in the Q4, including the lease extension for Canadian Tire's head office at Canada Square in Toronto. In addition, we also completed approximately 200,000 sq ft of lease renewals with our non-Canadian Tire tenants in 2022, achieving an annual and average renewal spread of approximately 10% for the year. At 8.6 years, the weighted average lease term for our portfolio is one of the longest in the sector, and the portfolio remains 99.3% occupied, in line with last quarter. With that, I will turn it over to Lesley to discuss our financial results. Lesley?
Thanks, Jodi, and good morning, everyone. As Kevin highlighted, we were very pleased with the results delivered by the REIT this quarter to close out a strong year. AFFO per unit on a diluted basis was up a healthy 6.2% in the quarter to CAD 0.292, which was primarily driven by growth in net operating income, partially offset by higher net financing costs. On a full-year basis, diluted FFO per unit increased to CAD 1.147, representing growth of 3.9% versus 2021. Diluted FFO per unit in the quarter was CAD 0.322, up 4.5% compared to CAD 0.308 in the Q4 of 2021. For the full year, diluted FFO per unit was up 2.1% to CAD 1.264.
Net operating income was CAD 106.8 million for the quarter, an increase of 5.8% or CAD 5.8 million compared to Q4 of 2021. Same store NOI for the quarter grew by CAD 2.6 million or 2.6% as a result of contractual annual rent escalations contributing CAD 1.4 million, including the 1.5% average annual rent escalations included in the Canadian Tire leases. With the balance of the growth primarily from the continued recovery of capital expenditures and interest earned on the unrecovered balance, which contributed approximately CAD 1 million to NOI in the quarter.
Same-property NOI for the quarter grew by CAD 4.6 million or 4.7% as a result of an increase in NOI of CAD 2 million from the intensifications completed in 2022 and 2021, in addition to the same store NOI growth. On a full-year basis, NOI increased to CAD 419.8 million, representing growth of 4.7% versus 2021. As highlighted in our call last quarter, our Canada Square property is being managed in contemplation of its eventual redevelopment. Oxford has begun the process of marketing the newly available space at 2180 Yonge Street, as discussed last quarter. This vacancy is expected to negatively impact NOI in 2023.
Excluding fair value adjustments, G&A expense as a percentage of property revenue was 2.8% for the Q4, which was in line with the same period in the prior year of 2.9% and was 2.9% for the full year, a slight increase from the 2.6% in 2021 due to the increased personnel costs, including CEO transition costs earlier this year. The REIT recorded a small investment property fair value decrease of approximately CAD 900,000 for the Q4 of 2022, mainly driven by increases in investment metrics for certain REIT properties located in secondary and tertiary markets, largely offset by cash flow growth from the core portfolio, tenancy renewals, and the development completions during the quarter.
The discount and terminal cap rates for our retail assets increased by 2 basis points each, and the average rates used for industrial assets remained flat for the quarter. Distributions in the quarter grew 3.3% over the same period last year to CAD 0.217, resulting in an AFFO payout ratio of 74.3%. For the full year, distributions were up 4.1% over 2021, taking the AFFO payout ratio to 74.5%. Turning to the balance sheet. Our debt metrics continue to remain strong, with interest coverage ratio at 3.72 times in Q4 2022, which was stable for the Q4 of 2021. For the full year, interest coverage ratio was 3.67 times, ever so slightly down from 3.72 times in 2021.
CT REIT's indebtedness ratio of 40.7% was broadly in line with last quarter and down compared to 41.2% at the end of 2021. The decrease in the ratio compared to 2021 was primarily due to the REIT's 2022 acquisition intensification and development activities, as well as growth from the fair value adjustments made to the REIT's properties exceeding the growth of total indebtedness. The current interest rate environment remains elevated, as Kevin noted in his introductory remarks, we are pleased to be presently insulated from refinancing risk as we have no significant debt maturities scheduled to mature in 2024 and no public unsecured debentures coming due until 2025.
Our liquidity remains strong with CAD 195 million available through our committed credit facility and a further CAD 300 million available on our uncommitted facility with Canadian Tire Corporation. With that, I will turn back to the operator for any questions.
Thank you. Please press star one at this time if you have a question. We ask that you limit yourself to one question plus one follow-up question. There will be a brief pause while the participants register for questions. Thank you for your patience. Our first question is from Sam Damiani with TD Securities. Please go ahead.
Thanks, good morning, everyone, and congratulations on a great year, you know, finish to the year.
Thanks, Sam.
Yeah, I just wanted to maybe start off on the same-store and same-property NOI growth, which was quite strong in the quarter and just generally has been, you know, trending, you know, consistently a little bit higher over the last little while. If we look back over time, it is, you know, at a noticeably higher pace than a few years ago, adjusting for occupancy changes. Just wondering, you know, is this kind of new rate sustainable? Was there anything unusual driving same-store NOI growth in 2022 that may not continue going forward?
Sam, it's Lesley. No, I think we've had a strong year with development completions, intensifications, all generating the incremental NOI. I think the other thing that we briefly mentioned is, you know, we had stronger tailwinds with regard to the increase in the rate of inflation. You know, we do recover the sort of unamortized balance of sort of that sort of deferred capital, the roof and sort of parking lot work, that type of stuff.
Are able to charge at about prime plus 2% on that. With the run-up of rates throughout 2022, that has definitely increased that component of the NOI growth. Obviously, with the sort of gradual or perhaps not gradual run-up through 2022, when we look through 2023, actually there's more there as we comp over rates from Q1 and Q2 last year that are anticipated to be at higher rates. You know, that interest recovery will actually drive some of that NOI growth. The rest of it is really quite solid.
I mean, if we think about the, you know, the 1.5% coming from Canadian Tire leases, the other, you know, higher growth coming from the renewals of the CRU leases that Jodi spoke to. All those things factor into continued steady growth.
Mm-hmm. If prime, you know, falls back down 200-300 basis points over the next couple years, would that be a headwind for same store NOI growth at that time?
It could be a bit, although I don't think that 2 or 300 basis points is what I'm seeing coming in the near term if the banks and their forecasts are online.
Okay. If I may, just my follow-up then is just on the Bed Bath & Beyond. As far as I know, you guys just have one location, but I wanted to just clarify what your thoughts are on the prospect of backfilling that?
Hi, Sam. It's Jodi. We do have just the one location, as you noted, in a center in Collingwood, which has always performed very well. We are getting a lot of strong demand for backfill tenants. We believe we're in a very good position there. Also, the space is under 20,000 sq ft, we don't anticipate any issues on re-leasing.
Wonderful. I'll turn it back. Thank you.
Thanks.
Thank you. Once again, please press star one at this time if you have a question. Our next question is from Himanshu Gupta with Scotiabank. Please go ahead.
Thank you. Good morning.
Morning.
Just on the re-leasing on the Canadian Tire space, you know, that office property at 2180 Yonge Street, any update there? You know, we understand the impact is $1.8 million, I think, for the full year. Was there any impact in Q4, which was reflected in Q4?
Hey, Himanshu. Second question first. No impact in Q4. Canadian Tire's lease expired December 31st, so vacancy is as at January 1. In terms of next steps in re-leasing, it's about 90,000 sq ft. Oxford is our property and asset manager here, so they are running point on the re-leasing efforts, and they're just really launching that whole process. No specific update. You know, we are working on finding tenants for office space in Midtown Toronto. You know, our expectations around that are fairly conservative in that, we think it will take a little bit of time to find the right tenant. There are a couple of floors that were given back, so it could and will likely be released to multiple tenants.
Our assumption for this year is basically no rent until 2024.
Awesome. Thank you for that. Maybe just to follow up, you know, similar question regarding Canada Square. Again, you know, there will be some NOI impact for this year, and I think you guys have mentioned $3.8 million. Anything reflected in Q4? Also, you know, if I look at 2024 and beyond, do you think that impact will further increase from there?
Himanshu, it's Lesley. For that, we had noted really minimal, you know, impacts, a little bit perhaps at the end of 2022, really flowing more significantly into 2023. And again, you know, a lot of that space is in the building that was sort of at the southwest corner of Yonge and Eglinton, the 2200 Yonge building. You know, that is part of our phase one development. You know, I'm not expecting that we'll see more necessarily positive momentum on that. Obviously, as we head towards the development, that building is part of it. We will be sort of vacating that building up with all the tenants as we get to the beginning of the construction. Not expecting really to do any more perhaps active leasing in that building.
Got it. Thank you. That will be all from my side.
Thank you. Our next question is from Pammi Bir with RBC Capital Markets. Please go ahead.
Thanks. Good morning. Just coming back to your comments on servicing value in your portfolio and in, and in Canadian Tire. I'm just curious, how many properties are you currently looking at? And how many rezoning applications do you think you may file in the next 12 months or 1 to 2 years?
Pammi , it's Kevin . Like I said, these efforts are at their preliminary stages. I think right now we're in the feasibility stage of determining which properties may be appropriate. You know, we have approximately half of our portfolio in VECTOM markets. That doesn't mean we have 50% of our portfolio that's suitable for higher and better uses. Certainly within Toronto and Vancouver and Montreal, especially, there are a number of urban sites that are, you know, on transit corridors. You know, I don't think we have anything specific in terms of guidance on the number of applications for this year or beyond. I think right now we're just starting the work with our consultants and looking into official plans and zoning and optionality.
To remind you, each of these locations does have a Canadian Tire store in place with a long-term lease with options. Anything we do will be in collaboration with Canadian Tire in terms of the feasibility of actually creating that value once any entitlements may be received. I think this is a longer term process for us, a longer term project. It's just one we wanted to highlight that we're starting to think our way through. Again, today, the REIT does not have, you know, a residential development program or strategy. It's more, you know, creating value through entitlements we view as a low risk prospect, you know, that really delivers optionality for us in the future. What we decide to do with that optionality remains to be seen.
Got it. It sounds like, you know, certainly you can create value through the rezoning process, but not necessarily you may or may not participate in the actual development of some of these properties.
Yeah, it remains to be seen. I mean, we have a lot of work to do from here to there. I think, you know, as we go through the development application process, part of that will be some investigations on scenario planning and financial analysis and risk and discussions with both Canadian Tire and our board, just around the appetite to do so. As of right now, I would say it's more, let's take step one and then reevaluate before we get to any further steps in the future.
Okay. Got it. Just the last one. I think, Jodi, you mentioned the Canadian Tire head office lease extension. What was the term of that extension and any change in the economics in terms of the rent?
Go ahead.
Sure. Let's see. It was for a term of 30 months here as we approach the sort of development. That'll take us out to two and a half years. There were contractual amounts in that lease. You know, it was market rate for the area, but they'll be here for another two and a half years as we progress towards the development.
Thanks very much. I'll turn it back.
Thank you.
Thank you. Once again, please press star one at this time if you have a question. There are no further questions registered at this time. I would like to turn the meeting back over to you, Kevin.
Thank you, Valerie, and thank you all for joining us this morning. We look forward to speaking to you again in May after we release our Q1 results and welcome you to our AGM at that time. Thank you very much.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.