Welcome to the First Capital REIT's Q1 Results Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. I would now like to turn the conference over to Alison. Please proceed with your presentation.
Thank you. Good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions During today's call, we may make forward looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our Q1 MD and A, our MD and A for the year ended December 31, 2020 and our current AIF, which are available on SEDAR and on our website.
These forward looking statements are made as of today's date and except as required by securities law, we undertake no obligation to publicly update or revise any such statements. During today's call, we will also be referencing certain financial measures that are non IFRS measures. You do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non IFRS measures are further defined and discussed in our MD and A, which should be read in conjunction with this conference call.
I will now turn the call over to Adam.
Thanks very much, Allison. Good afternoon, everyone, and thank you for joining us today for our Q1 conference call. In addition to Alison, with me today are several members of the FCR team, including Jordi Robbins and Neil Downey, both of whom you will hear from shortly. It feels like Neil has been here a while, but it is his first conference call or at least the first one answering questions instead of asking them. So welcome, Neil.
It's been great to have you on board. Now turning to the quarter. It's safe to say that the environment from an operating perspective over the past year has been far from normal and has been subject to restrictions that have been more frequent and long lasting than we initially expected back in the spring of 2020. That being said, our Q1 results continue to demonstrate the stability and resiliency of our portfolio during a quarter in which we had the most Severe and longest lasting restrictions imposed on our tenants and their customers since the pandemic began. Yet same property NOI and FFO per unit were marginally positive on a year over year basis for the first time since the pandemic started.
These results were supported by continued leasing momentum, which Neel will touch on. Despite the lockdowns, Our rent collections have been fairly stable over the last three quarters, tracking in the mid-ninety percent range. Focusing on this quarter specifically, we have collected 95% of Q1 gross rent to date, notwithstanding a less favorable operating environment for many of our tenants to start the year. Similarly, our collection rate on amounts that we have Previously agreed to defer has also tracked in the mid-ninety percent range. Our acquisition efforts continue to be opportunistic and strategic.
Our Q1 acquisitions were small properties, which expand existing positions we had already established in these neighborhoods. Despite their size, the addition of these parcels will enhance and improve these future redevelopments. FCR's conviction in our super urban strategy, which is focused on established high growth neighborhoods situated in Canada's largest cities is based on the multi century evolution of cities as the principal place of preference for the majority of people to live, work, socialize, educate and so on. Our portfolio is exceptionally well positioned in this regard, offering significant benefits and opportunities ahead for both FCR and the neighborhoods in which we operate. We continue to make progress on our ESG mandate, further embedding environmental, social and governance principles into our business and culture.
Last quarter, we reviewed various milestones we had met And recognitions received, so I won't repeat those, but we'll add another. Our very own Michelle Walcow, SVP of Brand and Culture was recently presented with the Best Executive Award from the report on business. Each year, 10 awards are made to non CEO executives in 5 different functional job categories. Congratulations, Michelle, on this well deserved honor. From a people and social perspective, We remain focused on fostering a culture that ensures equal opportunity and well-being for all employees, And our team has been one of our key strengths during these unusual times.
Last quarter, we discussed our Equity, Diversity and Inclusion Council. At FCR, equity, inclusion and diversity are at the core of our values. Our ED and I Council is the engine That will drive these matters forward at FCR. Part of their mandate is to create meaningful actions that foster awareness and advocacy. Our employee led council has identified the key pillars of focus, which includes building our foundation for lifelong progress, Education, awareness and community outreach in the key neighborhoods we operate.
This council is staffed with a diverse group of employees across departments and geographic locations. One trait that each of its 24 members have in common is their intense passion for ED and I. They've been very busy. And I'm so proud and thrilled with their progress because it will clearly lead to meaningful improvement at FCR. More on that to come.
In conclusion, although the last year has been dominated by the pandemic and related lockdowns and restrictions, Our focus is now clearly set beyond the pandemic. We expect a strong reopening for many impacted FCR tenants. We also believe we will enter that reopening phase from a solid position. These are some of the reasons why. Great locations maintaining strong occupancy.
Rising rental rates for both renewal And new space leasing owing to the desirability of these great locations. Growing same property NOI. A strong and improving tenant base as turnover has provided opportunities which were previously prevented by lease contracts. Our density pipeline is exceptionally deep with material progress and NAV creation expected from it over the short, medium and long term. This together with other factors such as the incremental retained cash flow from the distribution cut We'll also contribute to strengthening our balance sheet.
Our demographic profile is also the best it has ever With over 300,000 people on average now living within 5 kilometers of FCR properties, making us the clear and distant leader amongst our peers. To close, FCR represents the best opportunity to invest in a super urban strategy and for the time being at a material discount to our net asset value. And with this platform, our development team is working tirelessly to advance our current projects and planning our new neighborhoods. More to come on that. So with that, I will now pass things over to you, Neil.
Neil? Thank you, Adam. And for those joining today, we do have a webcast conference call slide deck And that slide deck has also been posted to our website. So I'll jump right into the numbers on Slide 7. 1st quarter of 2021 FFO was $55,000,000 or $0.25 a unit, representing an increase of 2% over last year's $53,900,000 or $0.24 a unit.
Working from the top down, Total net operating income of $101,000,000 decreased by $2,000,000 or 2% year over year from $103,000,000 last year. Key driver of the decline is $2,200,000 of lower NOI due to property dispositions over the past 12 months. Net of lower interest expense that was primarily attributable to these dispositions, plus some interest rate roll down, FFO dilution from trailing 12 month asset sales was less than $0.01 per unit on an annualized basis. As Adam indicated, organic growth was slightly positive, which we believe is quite a favorable showing under the circumstances, And I'll provide a bit more color on that in a moment. Moving to interest and other income, where the contribution decreased by $800,000 year over year.
Decline was principally related to lower interest income on loans receivable, The balance of which was $84,000,000 at the end of the Q1 versus $132,000,000 1 year ago. Partially offsetting the decline in interest income was higher fee income. Year over year G and A and trust expenses increased by $1,100,000 in the Q1 of 2021. Of note, the quarter does include approximately $1,000,000 of And finally, our other gains, losses and expenses line is 3 point $6,000,000 favorable this year relative to last. The prior period included unrealized mark to market losses on marketable securities, A tag end of the 2019 REIT conversion expenses and some residential selling costs.
These non operating amounts are provided for you on Slide 8. While not detailed in the conference call deck specifically, I will provide several points of context regarding our Q1 'twenty one results relative to the Q4 of last
Dear. Firstly, as
I just indicated, the recent quarter did include about $1,000,000 of restructuring costs. But equally, the Q4 of last year in G and A expenses, there was a like amount reversal of a variable compensation accrual. So collectively, these two factors created a quarterly swing in G and A of about $2,000,000 or $0.01 per unit. Secondly, Q1 2021 variable revenues were $2,200,000 lower than the 4th quarter. Now the nature of our business is such that seasonality is not usually much of a factor.
In Q1 2021, however, The variable revenue decline is mostly due to the extended lockdowns in some of our bigger markets. And finally, again, relative to the Q4, there were Some other operating expense items that were higher in the Q1 mostly due to timing. Moving to Slide 9. The REIT's FFO payout ratio was 43% this year versus 88% last year. The key driver, of course, was the January 2021 distribution reduction.
This lower distribution rate provides FCR With $95,000,000 of annualized incremental retained cash, which we believe can propel FFO and NAV per unit growth from what it might otherwise be. The bottom part of this slide provides our ACFO derivation. In the Q1 of 2021, ACFO increased by approximately $4,000,000 or 10%, aided principally by lower capital expenditures. Our ACFO payout ratio is derived from trailing 12 months cash Distributed versus trailing 12 month ACFO. And as such, the ratio remains steady as at Q1 'twenty one versus Q1 20.
As our rolling 4 quarter data is incorporated into the calculation, we anticipate the ACFO payout ratio will also trend lower. Moving ahead to touch on some of our operating highlights. Q1 2021 same property NOI growth was $400,000 or 0.4 percent positive. So in the face of very restrictive lockdowns, We generated modest same property NOI growth and notably this was against what we would describe as a pre pandemic quarter. For those of you who do wish to isolate things like lease termination fees, they were $697,000 in the recent quarter versus 304,000 a year ago.
So the increase of about 400,000 did benefit same property NOI growth by coincidentally 0.4%. On the flip side, however, factors depressing Q1 2021 organic growth Included a year over year increase of $2,600,000 in our same property bad debt expense. On a standalone basis, this hurt organic growth by a sizable 2.7 percentage points. And As you might imagine under the circumstances of widespread lockdowns in the recent quarter, there was a decline year over year in variable revenues that also adversely impacted Q1 2021 same property NOI growth. So overall, I believe these statistics Truly reaffirm the resiliency of our business.
Moving ahead, Q1 leasing momentum remains solid. During the quarter, we had 547,000 square feet of expiries. We renewed 450,000 square feet of leases, generating an 8.4% rental uplift. Of note, within the Q1 2021 statistics, there were 2 large fixed flat rate lease renewals covering 186,000 square feet of area in total or about 40% of the renewed GLA. As indicated on Slide 11, I believe it is, Our average net rent per square foot rounded out the Q1 at $21.99 That's an increase of $0.10 per square foot from year end 2020 and that's principally a function of rent escalations.
On a year over year basis, net rent increased $0.48 per square foot or 2.2 percent from $21.51 That growth is generated quite equally between rent escalations, renewal lifts and an impact from some dispositions where we did sell properties with lower average net rents. Briefly on Slide 13, our Q1 year end occupancy was 95.8%. That's down 40 basis points from year end 2020 and down 60 basis points year over year. The Q1 of 2021 specifically 20 basis points of that impact was due to 97,000 square feet of closures exceeding 45,000 square feet of openings. Now placing the occupancy decline into context, Recall that a year ago, our occupancy was close to an all time high.
And if you look back over a decade At FCR's historical data, it does show that the portfolio is most frequently between 95% 96% occupancy. Moreover, owing in a large part to portfolio quality improvement over time, in the recent years leading up to 2020, Occupancy was 96% plus. Turning to Slide 14, during the Q1, we invested $44,000,000 into development, redevelopment and portfolio CapEx. Investment activity included development CapEx of CAD29 million where the bigger spends were our Leaside Village, Dundas and Auckland and Wilderton projects. Adding to this was portfolio sustaining and revenue enhancing of CapEx of $11,000,000 as well as approximately $4,000,000 invested into residential inventory.
And during the Q1, we did complete 2 small property acquisitions for an $8,000,000 investment at our share. Turning to our balance sheet and In this regard, I would refer you to Slides 15 through 17 of the deck. At the end of the Q1, total property assets at our share, Including residential inventory, our hotel and properties held for sale, they were $9,700,000,000 in total. This amount was unchanged from year end 2020 and on a year over year basis. Of note, within our MD and A disclosures, There are some enhancements with respect to our investment properties, their character, their valuations and their income generation potential.
We hope that you find these disclosure changes useful in understanding our business and the inherent value in our company. For 2021, property values have been in aggregate quite steady. Our March 31 overall weighted average Stabilized cap rate was 5.0 percent and that number is consistent with year end 2020. Within FCR's balance sheet, you will note that some property classification amounts have changed. Most notably held for sale properties are $254,000,000 at our share at the end of the first quarter, properties on an asset by asset basis.
I will note for you that there's 11 properties in this category. They are a mix of density value, income producing and development properties. And this is something you should be able to easily infer based upon the relatively modest NOI contribution from these assets in the Q1 of 2021. Our net debt rounded out Q1 at 4,700,000,000 Again, unchanged from year end 2020. So too is our net debt to total assets ratio of 47.3% unchanged.
Well, there was essentially no movement in the amount of debt over the last 3 months. There were some changes in our debt composition. We did carry over $100,000,000 of cash coming into Q1. On March 1, upon the We repaid $175,000,000 Series N unsecured debenture. We also funded $14,000,000 Mortgage maturities and amortization in the Q1.
These debt repayments along with Small acquisitions, maintenance CapEx, development CapEx are such that our cash balance rounded out the Q1 at $19,000,000 representing Approximately $108,000,000 on our credit facilities, including $104,000,000 on our revolvers and $5,000,000 on our construction facilities. At March 31, we had $720,000,000 of availability under our credit facilities and including our cash balances, This put total liquidity at $739,000,000 Today, our corporate liquidity is slightly higher at 745,000,000 And on Slide 17 specifically, you can see a graphical depiction of our term debt maturities. Those maturities are very modest this year. They include only $56,000,000 of mortgage maturities over the balance of the year and that's about 1% of our total debt. And so with significant FFO retention, expected asset sale proceeds as the year progresses, From these notes, it is very clear that First Capital is operating from a position of significant financial strength.
I'll now turn the call to FCR's Chief Operating Officer, Jordi Robbins, who will provide some further comments
Thanks, Neil, and good afternoon. In Q1, notwithstanding extensive lockdowns, we made meaningful progress both with our major construction projects and with our entitlement program. Given the nature of the work, all our major projects were exempted from the government mandated shutdowns. What's more, Our extraordinary construction team successfully managed both manpower and materials. As a result, we've not seen any material Back to our construction schedules or to our budgets.
In Montreal, the construction of the first phase of our Wilderton development located in Chote des Nege Continues to progress. The majority of the 110,000 square feet of retail space has been pre leased and we are nearing completion and expect to deliver possession to Metro and Pharmaprix in the Q2. With the progress we've made to date on the project, we're now in the process Selecting a residential development partner for the final phase consisting of a 200,000 square foot, 111 unit residential rental building that we plan to begin construction on next year. Moving to Toronto, in Q1, we received our occupancy permit for the 1st commercial floors Station Place, our newly named mixed use retail and rental residential project located at Dundas and Auckland abutting the Kipling transit hub. Leasing of the residential component will commence later this year.
Farm Boy took possession of their 26,000 square foot space in April is currently fixturing with a planned opening date in the second half of this year. Construction on the 70,000 square foot expansion to our Leaside Village in Toronto was also deemed essential given our new tenants operate in the healthcare sector. New development is 85% leased And the tenants in the primary building, including Shoppers Drug Mart, HetSmart and a collection of specialty medical office tenants Took possession of their respective premise in Q1 with a plan to open later this year. We know the addition of these new uses will broaden and enhance Consumer appeal to this geothermal open air center anchored by Alango Supermarket. By incorporating these new lands, it also provides our expanded retail Our 50 unit townhome joint venture development with Green Park adjacent to our Rutherford Marketplace is nearing completion as well.
The final units were sold in Q1 with the registration scheduled to occur in June and all closings to occur before the end of the year. At Humbertown, sales in Edenbridge, our 260,000 square foot retail condominium mixed use joint venture project with Tridel Purchasers are primarily owner occupants. LCVO has been relocated to the main site and demolition of their former premises is now complete. Considering what we're seeing both in our portfolio and in the marketplace, we retain a positive view towards mixed use in our super urban neighborhoods. Most of our 23,000,000 square foot development pipeline is residential.
And across the country and in Toronto specifically, where over half this density is located, there remains a housing supply shortage. This shortage coupled with low interest rates is driving residential demand and in turn pricing higher as evidenced by a number of residential high rise In Q1, we successfully launched the sales of our 400 King Street Development joint venture with PlazaCorp. Located on King Street West in Toronto, this 500,000 square foot mixed use retail condo was incredibly well received With over 3 50 or 60 percent of the units sold within the 1st 4 weeks of launch. The average price of these units is about $1400 per square Higher than our pre COVID pricing expectations. We anticipate the start of construction at 400 King in early 2022.
Turning to entitlements. We've had a very busy quarter with important progress on several of our active files. The most exciting of which relates to our 2,150 Lakeshore Deville. On April 22, after years of effort by our dedicated team, The Planning and Housing Committee at the City of Toronto recommended approval of the Christie Secondary Plan and Zoning By law, which governs our 28 acre development site. With this recommendation, we expect that Toronto City Council We'll approve the Christie secondary plan and bylaw at this week's City of Toronto Council meeting.
This draft zoning bylaw Recommended for approval by the Planning and Housing Committee contemplates permission for 7,500,000 square feet of total density on our property. This density is made up of 6,300,000 square feet of residential and a further 1,200,000 square feet of commercial density. The draft by law further contemplates approximately 7,500 new residential units with 15 tall towers ranging in height from 28 to 67 stories. The project will also incorporate a Metrolinx GO Station, 2 parks totaling 3 acres, Over an acre of privately owned public space, community center and 2 elementary schools. Once approved at Council this week, There are a few procedural steps for the zoning by law to become enacted and in full force, which we expect will occur by the end of this year.
As we've articulated in the past, 2,150 is a generational development property that will be transformative for FCR and for the City of Toronto. What's more, we carry $21.50 today at cost on our balance sheet. Moving to Vancouver, North Vancouver specifically, we're redeveloping our smallest property in the neighborhood with a residential partner that we have selected. Over the course of the last 15 months, we've been working on securing the required municipal approvals For proposed 70,000 square foot, 75 Unit Multifamily Residential Rental Development. Final approvals are now in place and demolition of the structure is currently underway with 1st phase occupancy expected in 2023.
We have an additional 11,000,000 square feet of entitlement submissions at various stages with municipalities across the And a further 9,000,000 square feet of incremental density where entitlements have yet to be submitted. COVID may have slowed the approval timeline slightly, but as demonstrated by our 2,150 Lakeshore application, it has not prevented our incredible development team from advancing these files. While we can't be specific given the sensitivities of discussions underway, we can say that over the course of the Q1, We made great strides in advancing negotiations for a number of these applications and look forward to sharing our progress with you over the next several quarters. Before we open it up for Q and A, it's important to point out that our entitlement program will continue into 2021 2022 with another 1,900,000 square feet of submissions in the queue. As these previous and future applications are approved, We will be able to create and realize meaningful value, but retain optionality by developing this incremental density ourselves
Okay. So that concludes the prepared remarks. Paul, if you could open up the line for questions, that would be wonderful.
Certainly, thank you very much. We will now take questions from the telephone lines. We have a first question from Tal Woolley. Please go ahead. Your line is open.
Hi, good afternoon.
Hello?
How are you doing, Tal? Okay. Sorry.
Just to start off with the Christy Cookie site. So, if the zoning comes through before the end of the year, and I think, Adam, we talked about this last quarter, Do you have a will all the transit piece be decided over the course of this year as well?
Hi, Tal, it's Jordi.
The answer to
your question is the transit piece will go along hand in hand. It may lag Slightly, but it is and will be resolved as part of the bylaw.
Okay. And fair to say you've had conversations about about partnership potential on that side already?
Yes. I mean, one of the things we've said from the beginning is that at an appropriate time, we felt that it was important for us to retain control over the master plan And the zoning process and retain certainly the upside of that and given our platform capabilities and our comfort level taking that on. We also said though that when it starts to shift towards a point in time where Physical construction would start taking place given the mass amount of construction and infrastructure that will take place. That's where we have long believed that there would be a significant benefit to bringing a strategic development partner to co develop it with us. And so certainly, as time has gone on, we have gotten a lot closer to that and that's something that's been Brought more to the forefront of our thinking.
And obviously, when I retain significant interest in this, are you looking to be like Leading the development of this? Or when you say strategic partner, do you mean you might let provide a managing interest to someone else in some phases of the project?
Yes. I mean, the site is so large and so complicated that when we look at it, there are elements where we feel we would be the logical platform to
lead the development. There Form
to lead the development. There are other elements of it where if we're successful in selecting the right partner, we think we can Bring in someone who is more even more well equipped to do those phases. So I would anticipate us playing various roles depending on the phase and components and elements of the project, and it will depend on the skill set of our partner ultimately When they're brought in. Okay. And then I just wanted to ask
a bit about King High Line. So there's still about I believe it's Just under 30,000 square feet you're completing. And I'm just wondering what parts of that is, like what's still left to kind of complete on the site? And if
Yes. Jordi will comment more on it, but It is all residential. So the retail is about 160,000 square feet. That's been fully leased For quite some time, all tenants in the commercial retail component are in occupancy and paying full rent. So the balance is some of the residual components of the residential that are nearing completion and likely in the next quarter or 2 We'll transfer.
In terms of and just so we're clear, was the other part of your question how the residential is going? Yes. Yes. Okay. So that's the part I'm going to turn it over to Geordie.
Okay. So We're just about 70% of the 50 6 units are leased today. Average rents are generally in line with our budget. As you and probably everyone else have seen with other purpose built rental property owners in the city and in the country, Residential rental has been a segment that has been certainly most impacted by COVID and King High Line, I would say, is no exception to that. And so It has certainly delayed our lease up period, but I do suggest you certainly if the last month Or month and a half is any indication that the trend is starting to move the other way.
And generally speaking, I would say we remain very bullish on Rental residential in particular, in particular in Toronto, in the case of King Hiline, it really benefits our Entire Liberty, Billage portfolio and frankly makes all of it better.
Okay. And then just lastly on the Rutherford Marketplace closing, Just like when I look at sort of the rough invested capital there, like that's maybe a couple pennies towards the back half of the year In terms of FFO, is that the right way to think about it?
Sorry, we're talking Rutherford or Leaside?
The Rutherford market the condo closing?
The closing of the townhomes? Yes.
Tal, I think as we indicated that's likely to be a Q3 closing and there will be some Development profits there that are effectively part of our income interest and other income line. So those will not be material in the context of our total FFO, but that's when you should be expecting them and where they will probably
Thank you. The next question is from Pammi Bir. Please go ahead. Your line is open.
Thanks, Zinta. Hi, everyone. Just with respect to the, I guess, the expected approval at Christy Cokie, how are you thinking about recording To get the incremental value created in terms of the process from zoning and or successful zoning. And then any comments On perhaps the potential magnitude and timing of that?
Yes. I mean, our process for writing up Land that's going through the development process is Generally, the first write up occurs when we have certainty or a high degree of certainty around zoning. We think we're within a quarter of achieving that on Christy Kooki. So unless something unfolds different than what we At this point, we think that likely in Q2, that milestone gets achieved and consequently, There would be an impact because there is we're not going to comment on the magnitude of it, but there is a meaningful delta between What is being carried on our balance sheet, which still represents historical costs and what the range of market value would be for a zone site.
Sorry, Adam. Can you maybe just remind us what it's carried on the balance sheet at?
No, we never disclose individual asset values that we're carrying it at, but we disclosed At the time of acquisition, what it cost to purchase, we've been working very hard on it. Lots of sweat equity invested, but also That's a meaningful capital as well. And so you'll be able to get in the ballpark, Pammi. But disclosing what we're carrying individual assets at Not something that we've historically done and are not planning to change that anytime soon.
Got it. Okay. And then just maybe going back to your comments on partners there. I guess, again, thinking about it as getting through the zoning process So successfully zone, whether it's next quarter or maybe shortly after, but is it maybe too early then to still think about monetizing any Portion of that value created or would that be under consideration this year?
There's look, one of these we're really excited about with Christy is the number of levers that it represents for us. And while the monetization of it is a portion of it's appealing to us, what's more important to us Securing the right partner because this is a multibillion dollar development that should have a very material amount profit in it for an extended period of time, mining and maximizing that profit In combination with delivering a state of the art from an ESG perspective neighborhood and delivering some of the social benefits we think And environmental benefits, we think it can. The right partner will be very, very important For us to achieve Christie's maximum potential in that regard, both financial and non financial. And so That's going to take priority over monetization. Obviously, they're both really important to us, but just so we're clear on where we're Focused in terms of priorities.
We think assembling the right development partnership group to complement our skills will be exceptionally valuable. And that may not mean that it goes to someone that's going to pay the highest price and that's just something we'll factor into the decision making.
Got it. Okay. And just maybe one last one for me. Coming back to just the overall disposition program and looking beyond, I guess, I think there's $275,000,000 out for sale. Is it fair to think that perhaps the bulk of what might be sold Beyond that amount and thinking about this year or even next year, it's fair to think that those would have similar attributes, Meaning minimal NOI and or do you see them see some additional more traditional income producing properties on deck for
the rest of this year?
Yes, it's a very good question, Pammi, and our disposition program has evolved in a very deliberate And we didn't necessarily take the easiest path forward. So we really started At focused on selling what we viewed as to be the tougher assets we would have to sell. And some of those went a lot better than we expected and Some of them were a bit tougher and all in all, we felt the business was much better off proceeding the way we did. They were the most Painful because they also carried the highest yields in place, which resulted in the most dilution from an FFO perspective. Then we said, okay, so we've kind of cleared the vast majority of those types of assets.
And so Then the composition started to change. And if you look at the transactions that we closed at the end of last year, they were different. The composition between density and IPP started to gravitate a bit, not materially, But the cap rate and the quality of the assets, the IPP portions were they're great assets, but they are In the bottom bucket of our portfolio, they would not have been in that same bottom bucket 2 or 3 years ago. So you see cap rates coming in. And then we've said, Aneel's comments in the in when he touched on this in his opening remarks would indicate that there's a much more balanced mix Between density and IPP and held for sale, that's definitely something that we see continuing as we progress through the current assets held for sale and others that we would contemplate adding in the future.
Okay. Thank you very much. I will turn it back.
Okay. Thank you very much, Pammi.
Thank you. The next question is from Dean Wilkinson. Please go ahead sir. Your line is open.
Thank you and good afternoon everyone.
Good afternoon, Dean.
First, I'd like to congratulate Michelle on her award. I think with Neil that puts 3 Humberview High School grads on this phone call.
I mean, you mentioned that. Michelle has also reminded me of the Humberview alumni connected.
Yes. There's got to be something with our English teachers there. My question is for Mr. Downey. Neil, you come into this role with a very unique And tenured skill set and have a lens, I would argue, unlike no other CFO in the space.
As you sort of looked over this and have started, do you see opportunities, And it's not to suggest that disclosure was lacking in any way, shape or form, but do you see opportunities to help bridge that disclosure gap On things like entitlements and excess density to narrow that $5 gap
Well, Dean, I don't recall that you were on the high school basketball team, but that sounds like a bit of a layup. You do see some changes, I hope, within the MD and A, specifically in the section entitled Valuation Of Investment Properties. And the objective here really was to try and add some clarity In terms of the components of value within FCR's portfolio and hopefully what you See from that on Page 13 of the MD and A in particular is that we generate the overwhelming Majority of our income off of $8,400,000,000 of generally stabilized same property assets. And then beyond that, we do have $1,100,000,000 of other assets, including major redevelopment, ground up developments, Properties under construction are held for sale bucket as we've already discussed. And those assets Characteristically, you can see are earning a fairly low NOI yield.
But for the most part, they're not their value is not in the NOI that's in place. In many cases, the value for instance is in The as of right density within these buckets, the fact that some of these assets are still in transition, etcetera, etcetera. I would say that we are hopeful that this will help readers of our disclosures maybe Bridge some of the gap that's been there in terms of understanding the components of value.
Yes, I guess it's a problem that's endemic within the space, right? The way we've always looked at NAVs, it's like a 1 year DCF and that's Not what the real world looks like. So, big job ahead of you, but I'm sure we'll all get there. That's all I had. I'll hand it back over.
Thanks.
Okay. Thank you very much, Dean.
Thank you. The next question is from Mark Rothschild. Please go ahead. Your line is open.
Thanks and good afternoon everyone. In regards to the releasing spreads, which I think were 8% in the quarter, just like a few questions on that. One, is that a good number to take? Obviously, it jumps down a little bit as a trend that you think you can operate around now. And in that context, do you think market rents have stabilized?
Is there good information now to know where rents are? Have they moved at all? And maybe you could also just expand on it. I'm not sure if you disclosed the
retention rate of leases that expired in the quarter. It might be in the
disclosure, I missed it. Retention rate of leases that expired in the quarter, it might be in disclosure and I missed it. What was the retention rate for the quarter?
Yes. So I'll start with your last point, Mark. So you're right. We haven't typically disclosed it because we don't actually place a whole lot of relevance on it. Higher is not better in our mind in terms of retention.
We have really benefited from the turnover of space over time and there's no shortage of instances where we get control of space and a tenant may want to renew and we're the ones that See a different opportunity for the space. This quarter, Neil did in his prepared remarks give you the elements of the retention rate, it was about 72%, I believe. We like it to be not much less than 70%, not as is 80 generally. That's generally where we've run. We have not seen much of a change to that With the exception of Q2 of 2020, where there were a couple of instances that we may have More compelled to take space back, but given the uncertainty in the world at the time, we chose to renew.
So it was one of our highest retention quarters ever actually. Market rents, you touched on a couple of things that would indicate perhaps they've moved around. We have not seen that. Market rents and in fact most of the leasing metrics, if not all of them is the one element of the business we have not seen evidence of Pandemic. And so we have not seen a softening of rents at all.
And on renewal rates, that's And pretty much the same thing. The current quarter was decent. It was way down by a couple of large Fixed flat rate renewals, so that would have taken it well through 10%. And our long term average has been around 9%. That's Probably a good place to assume in terms of looking forward.
Okay, great. And in regards to occupancy going forward, obviously, it's held up pretty well, but there has been some slip. 1 of your competitors just The other day on their earnings call expect confidence that it will recover, but it will be in 2022. Would you agree with that sentiment? Or do you think you can
Like many of our peers, we're probably not going to give you a whole lot of forward looking guidance with respect to things like same property NOI growth, etcetera. But to give you a bit of context, firstly, in my prepared remarks, I did talk about the historical band of occupancy and how the In the short term, so let's Stay through till mid year. We do not expect any significant occupancy change relative to the Q1 number that you'll see in our disclosures. A point of note is that earlier this year, Walmart did announce 6 store closures, I believe it was across Canada. And several individuals on this call did pick up the fact that 2 of those stores are within the FCR portfolio.
So as we look out to Q3 specifically, we do have an 87,000 Square Foot Walmart store in Calgary where the lease expires on September 15. So that will be vacant space In our Q3 statistics, that would represent 40 basis points to 45 basis points of future vacancy. So that's something we know. It's something you should keep in mind. As you're aware, these stores typically Have a very low rent and this location is no different.
Think mid single digit rents per square foot in terms of dollars per square foot. And while we carry this vacancy, you'll see it in the stats and there will be some lost FFO as we progress Through into year end 2021, but our experience with similar situations like this gives us very little doubt that upon This non renewal is in fact a positive NPV outcome for us. We'll just have
Okay, great. Thank you.
Okay. Thanks very much, Mark.
The next question is from Sam Damiani. Please go ahead. Your line is open.
Thanks and good afternoon everyone. I was wondering if we could just hear about the types of tenants that are expanding in your markets and in your portfolio in recent months and what you're expecting as the year plays out based on what you're hearing from your retailer tenants that you have?
Yes. Thanks for the question, Sam. We've got Carm with us who's closest to it of anyone in the room. And so he'll give you the details, but I mean the short answer is it's been the same types of tenants that we've had in the portfolio from the beginning. We See much less change than we thought was potentially the case a year ago.
It spans both Tenants that are deemed essential, non essential. And I think what you're going to hear from Carm is the broad view is that There's a very strong reopening recovery, economic recovery, whatever you want to call it pending. And What we're seeing are some preliminary signs of retail tenants specifically really being aggressive in their actions to Try and position themselves to take advantage of that recovery. But in terms of the specific types of categories and things like that, we'll let Karam speak to it.
Hi, Sam. The story is
really the tenants that were active pre COVID remained active during COVID. So you're seeing some categories like food, drug, pet, the discount retailers, QSR, home furnishing, Medical uses and office supplies really providing some strong demand. I think very recently You've seen we've seen some sit down restaurants trying to regain some traction in the marketplace. I view those tenants as Really, they're trying to gauge when the recovery is going to spark and they want to get in to the gate now and look for some key locations as well as apparel. It's not usually a big category for us, but some apparel tenants are starting to reengage with us and trying to space.
Okay. Thanks, Karam. Thanks, Adam. That's helpful. What about fitness and gyms?
Are they how are they holding up and what's your expectation over the medium term?
Yes. I mean, look, they've had a tough go. No question about that. We're feeling like we have a lot of confidence in that category now versus a year ago. And that source of confidence comes from the multiple reopenings that have occurred so far in Canada.
And In general, they've opened up exceptionally strong and recaptured a very high percentage of their sales volume. And probably more important than that is monitoring that industry in other countries that are much more advanced and are We fully reopened. And what we've seen is there's clear evidence that there's pent up demand. It continues to be a growing sector. While people maneuver through this so far through the pandemic, whether it be Peloton or etcetera, They do go back to the fitness clubs in big numbers and it will be an important element of our merchandising mix And we have actually done a small handful of new deals with fitness operators in our properties.
So I wouldn't call it a category that we've done the most number of deals with, but surprisingly, at least to us, we have done some. They're with entities that are reasonably well capitalized, established operators, strong operators. And we think we'll continue to do more. But they're at a stage now where they've gone through obviously a very, very tough time and Now cannot operate in several of the markets we're in, so that's obviously Problematic, but we haven't seen a spike in defaults or things like that like we did last spring. So we feel like the fitness tenants we have now are generally Holding in and we'll hold in to the other side.
And generally, the ones we've got, we're happy with them. We're going to try and support them to the other side. But Hopefully that gives you a little bit of color on what we're seeing from a fitness perspective.
Thank you. That's helpful. And my last Question is just on the distribution. It's been, I guess, 4 months now since the temporary distribution cut was put in place. With the 4 months now under your belt, how do you feel about the prospect for deleveraging and And ultimately restating the prior distribution?
We feel similarly To the way we did when we announced it. So we don't have anything new to say. We think it's a helpful tool. We still think it's a temporary tool, but there's other things that are going to be required for us We think it was a step in the right direction given the environment and our shorter and medium term goals. But Yes.
It's one element that we've looked to help us and we have the same views on that topic as we did when we made the announcement.
Thank you. And I'll just say the enhanced fair value disclosure is greatly appreciated. I'll turn it back.
It was my pleasure. Neil had nothing to do with it. I'd say that jokingly. Obviously, that was a Neil initiative. Okay.
Thank you, Sam.
Thank you. The next question is from Jenny Ma. Please go ahead.
Thanks and good afternoon. Hi, David. Just going back to the development Pipeline, I'm wondering if your thinking on apartments versus condos have shifted Over the last while, given that there's so many moving parts, it seems like at least with 4 100 King, you're getting some pretty strong pricing. But when you try to balance out Some of the short term challenges and potential risks with regulation around multifamily ownership And higher construction costs overall and the certainty of selling off condo projects, has that changed your thinking around how to balance your residential development?
Well, it actually extends beyond that because our changing has evolved a bit. And another element in addition to the ones you mentioned was the fact that as a public company, Condo investments are not treated in the most ideal fashion by the capital markets. And what I mean by that is, you go through the development of a condominium And you take on debt while you're going through that and the market fully factors in that debt into the business. But then when you realize the profits, they can be meaningful, but the market also discounts those as More one time items and non recurring. And so you kind of get the full you live with the full Headwind of the debt through the development, but then you kind of fall short of full credit for the profit.
So It's not the most natural fit in our view. And so Jordi went through a few condos that we have under development right now. And I think what you'll see going forward for First Capital is that, we will do less condo development. We will focus on Neighborhoods that are highly strategic for us, where the economics are quite compelling and where often where there's another benefit beyond The sole profitability of the single condo. So we will we're spread a little wider now than I We would be in the future on condo development.
Look, every project we've underwritten, the condo pro form a looks better than the rental pro form a. But we know over time, you have to make your condo profits on completion. That's not the case with residential rental if you hold it. And we've seen wonderful value appreciation. Most people don't know, we actually built our own first residential property.
I think it was over 10 years ago now in So it's not entirely new to us. And the rents that we're renting that project for now, I think are double what they were even 10 years ago. So there's been a lot of value appreciation over that time period, but it didn't all occur on the day it was Completed. So we definitely have a bias towards rental. It is more challenging in some places given the condo profitability.
And so in some cases where that's the type of profile that sits in our Density pipeline, that's a good example of some things that would make logical sense for us to monetize and recycle that Capital into things that can generate a more recurring permanent income stream.
Thank you. That's great color. With regards to the variable revenue component, I'm just wondering if you could talk a little bit more detail about what makes that up like In terms of balance, how much of it is the hotel versus temporary rentals and parking? Just how should we think about that piece, Which is not big, but it's there's a materiality to it. So anything would be helpful there.
Yes, Jenny. It's Neil. You have, I think, in essence, identified the components. It would be the hotels. It would be parking revenue.
And believe it or not, there is a small amount of percentage rents in the business that have tended to be consistent from year to year. So You did identify the 3 primary sources. Obviously, it's very difficult for a hotel to be profitable when things are pretty much in Full lockdown and occupancy is close to 0. So that would certainly be a big part as to why the Q1 was impacted in that regard.
Okay. So if I'm hearing you correctly, there was basically no contribution from the hotel and perhaps you should look at some Pre pandemic quarter, so look at the magnitude of that and factoring for the change in ownership. So I guess in Q1 then it's Primarily the parking and the percentage rents?
Q1 versus Q4, yes.
Okay. And how would you differentiate the percentage rents in that bucket versus the actual line item for percentage rents?
I don't quite catch the nature of the question, but if you want, we can look at it offline.
Sure, sure. We can do that. I'll follow-up with you. And my last question is with regards to the Held for sale, how should we think about the timing of these deals? Are these mostly one Properties or is there a small portfolio in there that might take a little bit more time to close?
There's a bit of a mixed bag in terms of what's in there. I think one of the rules with held for sale, you have to expect to transact within a year. So we definitely expect to transact within a year. We usually don't make any formal disclosure until a minimum of when transactions are firm, In some cases, when they close. And so we haven't reached that point on a material amount of it or you will expect to see that.
So yes, inside of a year, Jenny, and generally those assets that are in there Have identified buyers and are subject to conditional agreements at this point.
Okay, great.
Thank you very much. I'll turn it back.
Okay. Thanks, Jenny. Thank you. There are no further questions registered
Thank you everyone for joining us today, for taking the time to listen and participate in our Q1 conference call and for your interest In First Capital, have a great afternoon. Thank you.