Ladies and gentlemen, thank you for standing by. Welcome to the First Capital Realty Announces Q1 2019 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 those statements. A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our MD and A for the year ended December 31, 2018, as well as 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 such statements. During today's call, we will also be referencing certain financial measures that are non IFRS measures. These 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 company's performance. These non IFRS measures are further defined and discussed in our MD and A, which should be read in conjunction with the call this afternoon.
I'll now turn it over to Adam.
Thank you very much, Allison, and good afternoon, everyone, and thank you for joining us today. Over the last few months, we have made significant strides in our business. Quarterly calls like this typically touch on very near term matters, which we'll also cover today, but we are most focused and excited about the future a few years out, especially based on the groundwork that we continue to lay. But first, we'll start with the quarter. Operationally, we're off to a strong start to 2019.
Beginning with same property NOI, which totaled $94,900,000 in the quarter, reflecting a growth rate of 5.2%. This was aided by a $3,300,000 termination fee from Rexall in our Northgate property in Edmonton. In this case, the strength of our position assisted us in negotiating a payment equal to nearly 6 years of gross rent. We expect the space to be re leased imminently. Occupancy ended the quarter at 96.8%, which is another new record for us and one we're quite pleased with as we head into the second half of twenty nineteen where we will have an above typical amount of value enhancing space transitions with the most notable being 2 Walmart spaces that we have previously talked about.
Moving to lease renewals, it was a busier than typical Q1. We completed 138 lease renewals totaling 612,000 square feet. For context, in Q1 of last year, we did 110 renewals totaling 353,000 square feet. So 25% more deals this quarter, totaling 73% more square footage. Not only was the volume higher, so were the renewal rent increases.
The average net rent increase this Q1 was a very healthy 10.6% on year 1 renewal rates and 11.9% on the average rent during the renewal term. This contributed to FFO per share of $0.30 Excluding the one time impact of the Gazit transaction and REIT costs, FFO per share grew by 3%. On the development side, we've also had an active start to the year. At King High Line, our first residential tenants took occupancy in April and together with our residential partner CAPREIT, we're looking forward to the full lease up of all 50 6 residential units in this thriving neighborhood that embodies our evolved super urban strategy. In Calgary, Urban Fair, which is Savon's urban grocery banner, opened joining the new Canadian Tire at our Mount Royal West project.
In Toronto, Brunello Cucinelli opened their Canadian flagship boutique as our first tenant to open in our 102 to 108 Yorkville redevelopment. In Montreal, our former Wilderton Shopping Centre is a full on construction zone with major demolition and construction now taking place with the exception of the first small building which we have now completed. We're making very good progress on this mixed use project with Phase 1 including 132,000 square feet of modern format retail space anchored by Metro, Pharma Pre or Shoppers and SAQ. Phase 1 also has approximately 300 units of senior housing, which we have monetized through a sale to a very strong local operator. Given the strength of the market and consistent with our strategy, we are planning to initiate Phase 2, where we will expeditiously construct over 200 residential rental units.
With 620,000 people living within a 5 kilometer radius of this property, its direct connection to public transit and its close proximity to Mount Royal and the University of Montreal. This property fits FCR's evolved strategy very well. In total, 660,000 square feet will be built on this 5 acre site that had 112,000 square feet of space pre redevelopment. As we execute our super urban strategy, this will become a familiar script. Since the end of Q1, the Gazit transaction successfully closed, including our share repurchase component.
This marked a very significant milestone in the evolution of First Capital with numerous benefits that we have previously outlined. We were also very pleased with the positive response and support from the bank lending market that allowed us to improve the transaction funding split from an initially anticipated 50% mix of secured and unsecured debt to 100% unsecured. We recently spoke about the key to our long term success being our ability to evolve our strategy to capitalize on new opportunities in changing market conditions. We outlined the evolution of our super urban strategy. We also outlined metrics to guide our decision making and measure our progress.
In a world where urban has become a broadly used term with varying definitions, super urban is a more appropriate reflection of FCR's business today and the direction we continue to head. Population density is one of the key metrics that indicate the true urban nature of our portfolio. We outlined a goal to have 300,000 people on average within 5 kilometers of our properties. As of the end of Q1, we are at 260,000 people, up 10,000 from last quarter. We have long been a leader across our North American peers.
As we advance our super urban strategy with a heightened focus on neighborhood investing over asset class, our peer group will likely evolve, but our focus on population density will not change. As we look ahead, we are focused on the following four priorities. Number 1, deleveraging the balance sheet following the share repurchase by selling properties that are inconsistent with our evolved urban investment strategy. We're making meaningful progress on dispositions. In Q1, properties that met the accounting definition of held for sale increased by nearly $400,000,000 from Q4 to $469,000,000 in addition to the $23,000,000 sold in the quarter.
We're active on more than this level of dispositions and we look forward to providing updates quarterly. Our second priority is advancing the execution of our strategy by investing in selective super urban properties where value add opportunities exist. We have the raw material for numerous super urban properties today in the form of low density shopping centers or land with income in very dense high growth neighborhoods. We're doing a lot of work planning out the execution of this super urban pipeline over the next 5 to 10 years, including sources of capital and we look forward to providing more details as our work advances. It's clear that our existing neighborhood positions will keep us busy for a long time, which affords us the ability to be very selective in acquiring new properties.
Our third priority is somewhat tied to number 2, which is unlocking and surfacing unrecognized value in our very substantial and growing incremental density pipeline. Importantly, we are significantly advancing the predevelopment planning, including entitlement submissions for a substantial amount of our identified incremental density. This also forms part of the planning work that we are doing around the execution of this super urban pipeline over the next decade. A major objective for us over the next couple of years is to surface the value associated with this density, which is not in our IFRS NAV yet. Jordi, Jody and many others on the FCR team are deeply engaged in this and we look forward to updating you with details over the coming year.
We've had an increase to this pipeline of 550,000 square feet this quarter, primarily from our Panama property in Montreal. Construction is underway at the 1st REM station on Montreal South Shore from downtown Montreal directly adjacent to our site, which was a meaningful factor in the zoning we achieved. Historically, we had less than 100,000 square feet of leasable area on this 6 acre site. Given the major transit hub that's coming to our doorstep, we are now zoned for 1,000,000 square feet and we'll be selecting the most suitable residential partner later this year. We're fortunate to have many very capable groups proactively expressing strong interest already.
This site is situated very close to our Portobello Center, which is another land with income property that we own, a 500,000 square feet built on 40 acres. Compare that to our adjacent Panama site. Portobello's land area is over times larger, but currently has only half of Panama zone density. And 4th, lastly, completing the conversion to a REIT remains a priority we are focused on achieving over the coming year and we expect to have further updates for you shortly. So a full plate of priorities and while it continues to be a very busy time, we are making meaningful progress across all of these priorities and that's injected even more energy and more enthusiasm into our platform.
Looking out 5 years plus, which is a short timeframe in the real estate world, although I acknowledge as an eternity in the capital markets, we see an evolved and very advanced FCR. Fewer but more valuable properties in targeted high growth neighborhoods, more asset class diversity, dominant large positions that will get better and more profitable as the neighborhoods continue to mature. And in a nutshell, a super urban company that creates not just spaces, but places and places that are thriving where people want to be. With that, I will now pass things over to Kaye to cover more details on the quarter. Kaye?
Thank you, Adam. Good afternoon, everyone, and thank you for joining us today. As Adam mentioned, we've had a very busy start to the year with 3 significant strategic announcements. I would like to touch on the announcements we've made and then take you through the quarterly results in more detail. On February 28, we announced a reduction in Gazit's ownership of 31.3 percent to approximately 9.9% through a $36,000,000 share repurchase at a price of $20.60 per share for gross proceeds to Gazit of $742,000,000 and a bought deal secondary offering by GAZIT for 22,000,000 shares for gross proceeds of $453,000,000 dollars Completion of the transactions were cross conditional with the share repurchase subject to a shareholder vote.
The transaction received overwhelming shareholder approval on April 10. The bought deal offering closed on April 11 and the share repurchase closed on April 16. In February, we announced our evolved urban investment strategy and our objective to complete strategic dispositions of up to 10% of our portfolio in line with this strategy. Following the share repurchase, we set a goal to reduce leverage and improve our debt metrics to where they were at the end of 2018. As such, we have increased the amount of assets we are targeting for dispositions from up to 10% to up to 15% of our portfolio.
As of March 31, we had $469,000,000 of our portfolio classified as held for sale, of which approximately $183,000,000 is closing this month, resulting in current total year to date dispositions of 206,000,000 dollars Our REIT conversion project, which we also announced in February, continued to progress well during the quarter. As I mentioned last quarter, there are multiple ways to convert to a REIT and we are evaluating a number of approaches. Our evaluation work continued during the quarter and we expect to make the final determination of which approach we will follow during our Q2. We look forward to sharing more details with you once we finalize our decision. Our objective remains to convert within the next 9 months, and we continue to believe a REIT conversion will have a positive impact on shareholder value for all of the reasons we discussed last quarter.
Additionally, I would like to reiterate that we do not expect any of the potential structures we are considering to impact our current liquidity or leverage levels or to have a negative impact on any of our debt holders. Now turning to the quarterly results. On Slide 6 of our conference call deck, which is available on our website in the Investors section under Conference Call, we show the factors driving the growth in FFO. For the Q1 of 2019, FFO decreased by 2% or 0 point 0 $6 on a per share basis. FFO includes non recurring transaction cost of $3,400,000 related to Gazit's secondary offering and $200,000 related to REIT conversion costs.
Excluding these items, FFO increased by 3% to $0.31 per share. In dollar terms, FFO grew by $5,400,000 or 7.2%. The primary drivers of the growth in FFO were higher same property NOI of $4,700,000 and higher interest and other income of 4,100,000 dollars Moving to Slide 7. Our same property NOI increased 5.2% for the Q1 versus the prior year, driven by rent escalations, higher occupancy levels and lease termination fees. On Slide 8, we present our lease renewal activity for the quarter, which Adam previously covered.
Moving to Slide 9, our average net rental rate grew a healthy 2.7% or $0.54 over the prior year to $20.38 per square foot. The growth was primarily due to renewal lifts, rent escalations and development completions. During the quarter, we transferred 10,000 square feet of new GLA from development to income producing properties. We are expecting much higher completions over the next three quarters with full year completions to be in line with the prior year. On Slide 10, our total portfolio occupancy rate increased by 60 basis points over the prior year to an all time high of 96.8% due to significant leasing activity over the last 12 months.
Slide 11 highlights our 5 largest developments that accounted for the majority of the $35,000,000 in development and redevelopment spend in the quarter. These investments in dense high growth neighborhoods including Liberty Village, Yorkville Village and Yonge and Lawrence in Toronto, the Brewery District in Edmonton and Wilderton in Montreal are consistent with our evolved urban investment strategy. As of March 31, we had identified approximately 23,100,000 square feet of additional density within our portfolio. This represents a substantial opportunity relative to the size of our existing portfolio, which is approximately 24,000,000 square feet. Slide 12 shows the factors driving the growth in FFO and the related movements over the prior year period.
Slide 13 touches on our other gains, losses and expenses, which are included in FFO. For the Q1, we recognized other losses of $2,400,000 primarily due to $3,400,000 of transaction costs related to the bought deal secondary offering by Gazit and $200,000 of reconversion costs. These costs were partially offset by a 1 point $4,000,000 gain on marketable securities. We paid a portion of the underwriters fee on the Gazit secondary offering. Given the secondary offering was cross conditional with the share repurchase transaction, the $9,000,000 fee we paid was allocated pro rata to both the share repurchase and the secondary offering.
The 3,400,000 to the secondary offering was expensed in the quarter and the $5,600,000 amount allocated to the share repurchase was recorded in equity on closing of the share repurchase transaction in April along with all other transaction costs. Looking forward, we expect to continue to incur REIT conversion costs until completion of the project. We will be better able to estimate these costs once we finalize the convergence approach. We also expect our Q2 FFO per share to be lower than it was in Q2 of 2018 due to $5,400,000 of gains on marketable securities and residential projects we recognized in Q2 of 2018 as well as $1,200,000 of lease termination fees. Currently, we are not projecting any lease termination fees in Q2 of 2019.
Slide 14 summarizes our ACFO metric. We generated an additional $2,200,000 in adjusted cash flow from operations or a 4.3% increase over the prior year, primarily due to higher NOI. This increased cash flow resulted in an improvement in our ACFO payout ratio, which declined from 85.9% in the prior year to 79.8% this year. We expect this to decline further given we've repurchased and canceled 36,000,000 shares, which previously received $31,000,000 in annual dividends, which we will no longer pay. Slide 15 summarizes our financing activities.
During the quarter, we repaid at maturity a small mortgage with an effective interest rate of 7.1%. We also entered into a new $200,000,000 unsecured bank term loan with a fixed interest rate of 3.17% that was fully drawn at quarter end. Subsequent to the quarter, we completed an additional $650,000,000 of unsecured bank term loans to fund the share repurchase transaction and repayment of other outstanding debt. The majority of these unsecured bank term loans were swapped to fixed rates bearing a weighted average interest rate of 3.3 percent with a weighted average term to maturity of 5.8 years. The remaining loans are floating rate loans, which can be repaid at any time from disposition proceeds with no prepayment penalty.
Slide 16 summarizes the size of our operating credit facility and our unencumbered asset pool as well as our key financial ratios. Our unencumbered asset pool remains at 70 percent or $7,300,000,000 Our net debt to EBITDA and EBITDA interest coverage ratios both improved this quarter as a result of increased EBITDA. Post closing of the share repurchase transaction, our leverage has increased. As a result, and as I previously mentioned, we have increased the assets targeted for disposition from up to 10% of our portfolio to up to 15% of our portfolio and have a stated goal to improve our debt metrics to approximately where they were at the end of 2018. Slide 19 shows our term debt ladder.
In Q1 2019, our weighted average interest rate remained consistent at 4.2% and our weighted average term to maturity is now 5.2 years. Our remaining 2019 debt maturities totaling $371,000,000 have an average effective interest rate of 5.2%, much higher than the rates on the new debt we secured. Overall, we are very pleased with the results for the Q1 of 2019 as well as the progress we have made on our strategic initiatives. At this time, we would be happy to answer any questions you have. Operator, can you please open the call for questions?
Certainly. We will now take questions from the telephone The first question is from Pammi Bir. Please go ahead.
Thanks. Good afternoon. Just in terms of the deleveraging plan, you've got the $470,000,000 of assets held for sale. As you mentioned, Kay, dollars 180,000,000 closed this month, but how does pricing compare to your IFRS values? And then where are you in the process on the balance?
So thanks for the question, Pammi. So they've been very close. Some are a bit above, some are a bit below, but I would describe them as a group if you're looking at the amount in the held for sale category very in line with IFRS values. And can you just expand on what you mean by progress on the balance in terms of the balance beyond the 470 dollars?
Well, you mentioned $180,000,000 will close this month. I think one of them we already saw, I think it was $130,000,000 in terms of the I guess the roughly $300,000,000 or so that's still left in there once the $180,000,000 closes. Where are you in terms of the process for marketing those assets?
Generally, buyers have been identified and we're either under a binding or non binding agreement to sell them. So we just want to be a little bit cognizant of the fact that we are engaged in multiple negotiations on multiple property and portfolio transactions. And we've made it clear that we will be deleveraging and have a deleveraging plan through dispositions, but we're also cognizant of making sure that we retain appropriate leverage in those negotiations because we are not a distressed seller by any means. And so it's important for us that the leverage at that negotiating table remains balanced. And so we're that's the only caveat with us that's preventing us from not disclosing more.
But what I would tell you is in the held for sale category, those are all at the stage where buyers have been identified and we have agreed to terms either in a binding document or non binding document. And outside of that, there are active is an active process on other properties that haven't reached that point yet. And that's what I was referring to in my prepared remarks in the sense that we're active on more than just that category. And our intent is each quarter to provide updates accordingly in terms of how that's progressing. But we've been out there now for enough time that gives us a lot of comfort in terms of how the dispositions have progressed.
There's been lots of talk about a lot of retail for sale. We've always been believers that not all retail is created equally and not all pools of capital are pursuing the same amount of retail. I would say that's largely been validated because these are good properties. The markets they're in are well above average for what's available in the market. And so we're confident in our ability to execute the disposition plan to take our leverage back to a similar level as where it was.
And so that's how I would describe it, Pammi.
Thanks. No, that's really good color. And I think almost $500,000,000 done is very good progress overall.
Yes. Just to give it a word, so for us definition of done is money is in the bank. And so and the debt is off the balance sheet. So we're certainly not done. Until you're closed, you're not done.
But we're making good progress given that we're still at the initial stages of the process.
Right. What would you be satisfied with by the end of this year, in terms of what could actually get done by the end of this year? Where would you be? Where would you like to be?
I mean, it depends on a number of factors. And so we're balancing initially announced when we announced the deleveraging plan that we kind of laid out a 24 month timeframe and that's the timeframe that we would like people to stay focused on. How aggressive or not we are within that timeframe is going to be the result of a number of factors from how much we invest on development or strategic assets, how what the timing is around the reconversion and making sure that we dispose in the most efficient manner possible. So there's a not so we don't have a hard December 31, this is what has to get done. But I think given the change in the assets held for sale, it gives you a pretty good idea of where our head's at.
So we're obviously not thinking it's $200,000,000 right? So that hopefully you'll get some decent color and as things progress and we know more than obviously you'll know more as well.
That's great. Just in terms of the same property stable NOI, do you have a figure for that excluding the lease termination income from Rexall?
Yes. Look, we've said we generally are expecting a level that's similar above last year's. I do have a hard time excluding lease termination fees because those are not one time items. We have those every year And if we're going to pull out a lease termination fee like the one we had this quarter and ignore it, well, now there's no gross rent coming in on that space in Q2. So to me, the way I look at the business is it would seem inappropriate to pull out the lease termination payment in its entirety, but then look at same property NOI growth with that space vacant.
So we understand it's a little lumpier than certain other revenue streams, but to us it's not one time. One time is reconversion costs. Those are really one time because each transaction costs, those are one time. Lease termination fees, we always have. They're just lumpy.
So but overall, what we've said is that we expect similar level of same property NOI growth last year to slightly up.
Okay. Just last one for me. With respect to the loan at Yonge and Bloor, how much of that amount is due in September? And then give a sense of whether that's likely to get extended?
We're going to have to get back to you, Pammi, on the exact split. But one of the reasons we're not quite as fussed about it is there is an open prepayment right at any time without penalty. So based on what we know today, we think it's likely that that loan remains outstanding. But the borrower does have the right at any point to repay it. Great.
And my expectation our expectation is that the initial expiry this year based on what we know today could change this afternoon, but based on what we know today is that it will remain outstanding beyond that year. Period.
Got it. Thanks very much.
Okay. Thanks, Pammi.
Thank you. The following question is from Mark Rothschild. Please go
ahead. Thanks and good afternoon. Adam, in your comments, you mentioned something about the development projects and you mentioned what you're going to do in Montreal. Are there any major projects you anticipate starting in the next year? And do you guys have a budget for development for the next year or so?
Yes. Well, Jody can touch on some of the projects in the pipeline, but where we have a pretty high degree of visibility is really the next, say, 1 to 2 years. And the reason we do is because this takes a long time to plan and prepare for by the time you're investing significant capital. And so we've been investing generally around $150,000,000 to $200,000,000 a year in development. That's the level we expect in 2019 2020.
But as we mentioned, we are laying the foundation to get a certain number of projects ready. It doesn't mean we have to go forward, but we could if we chose to. And this is also part of our strategy to start surfacing some of the unrecognized value in the density pipeline. And so at the end of 2020, our expectation is that we have a meaningful amount of projects that are ready to go. Now we'll assess things closer to that time to decide whether we go forward on some, whether we bring in partners on some, whether we sell some outright.
And that's part of the work that we're doing. But to give you a sense of some of the more near term projects that we'll be spending money on this year and next year. Jody can touch on that.
Yes. Thanks, Adam. Hi, Mark. Yes, so as you know, what we have currently underdeveloped is in the MD and A. We are expecting a couple of more projects to start later this year in the 3rd and 4th quarters.
So that's about another 130 or so 1,000 square feet that's going to be under development. In addition, we'll have a number of pads that will also go into UD this year. And then into next year, if we pursue all the things that we're planning at this point, including Panama, which Adam touched on, Panama, as we mentioned, is about 1,000,000 square feet of density. We're going to we're looking to start that next year because we're going to be finding ourselves a JV partner later this year. Not all of that 1,000,000 square feet, of course, will be developed next year.
It will be in phases. But if you take that plus the other projects we're looking on, looking at in Northland and BC is one of them, the second phase of Wilburton in Montreal, as well as in Yorkville, there's another project and then our first phase of Humbertown. All that adds up to about 1,500,000 square feet that we expect to start next year in phases.
Okay, great. Thanks. And also in regards to the asset sales, can you just talk about your attitude towards selling partial interest versus selling an asset full out? Is there a difference in maybe where the asset is located or where you see the opportunity or is it also dependent on the pricing you can get?
It's less dependent on the pricing that we can get. It is more dependent on how consistent the property is with the evolved strategy that we laid out. And so if the property is inconsistent with that strategy, then we will look to sell 100% of it. If the property is consistent with the strategy, but perhaps is in a market where the property and given its status is more of what I'll call a stable state, then that's where we'll look to divest of a partial interest. And what that allows us to do as well is have available capital to effectively in theory double our size in the particular trade area without investing more capital.
So we get all the benefits of a larger portfolio and more control over the offering in the market and then enhancing our returns on invested capital through the fee income. But for properties and it's really neighborhoods that are very consistent with the evolve strategy, that's where there's no role at this stage for a partner.
Okay, thanks. Maybe just one more question for Kay. The $5,000,000 that you mentioned, the $5,000,000 or so maybe a little more, that regarding the Gazit transaction that hit in April, is that going to negatively impact Q2 FFO? Or is that capitalized? How does that work?
It seems related to the share repurchase transaction and therefore it's recorded to the equity account. So there will be no impact to Q2 from transaction costs related to this transaction overall.
Okay, great. Thanks.
Thank you, Mark.
Thank you. The following question is from Sam Damiani. Please go ahead.
Thanks. Good afternoon. Just on the held for sale, could you just, I guess, describe exactly how a property gets categorized as held for sale? Like if you just list it with a broker, does that put it on held for sale or does that have to be further down the road to qualify?
Well, I'll let Kate touch on it because it's really these are accounting rules that determine what's held for sale. And so we that's got a different definition in some cases than, let's say, what I would describe it as, but that's what we're balancing again. So you want to touch on, Kay?
Sure. So from an accounting definition, actively marketing with the intent to transact within 12 months?
So there's a little bit of judgment that's involved in this. And so we I would describe the approach we've taken as more on the conservative side. And so just because you're out in the market today doesn't necessarily mean you'll transact in the 12 months. So like I said, the assets that are in that category today, we've identified a buyer, a willing buyer and generally have major terms agreed to.
Okay. That's helpful. Thank you. And just on the completions in the quarter, 10,000 square feet, cost of $5,000,000 and the rent was almost $40 Are those numbers accurate?
They sound right.
It's a pretty healthy yield.
Yes. It was a healthy yield in the quarter.
Yes, yes. But and this goes back to other quarters where it looks not so healthy. This is not an exact science. And so when you're dealing with small square footage and you're dealing with space that's not leasable area that's expensive, you have to allocate it. And so that's where we turn you back to the MD and A and the overall project yields that are generally in that low to mid 5% range on the active ones.
So I wouldn't read into this quarter as a run rate. And similarly, there's other quarters where the yield looks light for the opposite reason. So there's a lot of costs that you got to allocate and it ends up being a little bit lumpy.
Thank you. And just on
the Walmarts coming up this year, is there going to be a lease termination fee or just an end to the lease? And can you I don't know if you can quantify the timing and the dollar impact on results?
Yes. There will not be a lease termination fee. There's a natural lease expiry for 1 at the end of June and the other in November. So we and they are planning around those dates. So we do not expect the lease termination fee.
In terms of the financial impact, is that what you're asking Sam, this financial impact?
Yes. Thank you. So from an FFO perspective Sam, would say an estimate of about $900,000 is the impact in 2019.
For calendar 2019?
Correct.
Okay. Thank you. Thank you very much, Sam.
Thank you. The following question is from Tal Woolley. Please go ahead.
Hi, good afternoon. Hi, Tal.
Just wanted to ask quickly about leasing. Are you finding any material difference like you mentioned in your reports that it's more competitive environment, but you're seeing such great spreads right now. And is the like are you still able to pretty much demand what you would like from retailers? Or are you finding that the asks when the retailers are getting a little bit different too? I'm just wondering if you could talk about how you've seen over time that shift?
Yes. I mean, Carm is closest to it of the people in the room. So we'll let him chat. But we demand stuff from retailers all the time. They don't seem to agree most of the time.
But so I wouldn't describe the environment as ever being so heavily weighted that we can do that, but it continues to be constructive. Bifurcation, we've talked about this in the past. From what we see out there and less so in our portfolio, given it's we operate in a very specific subsector from a retail perspective in very specific markets. And so we're not we say we're not a good barometer for all things retail by any stretch. But we do see bifurcation occurring in the market, bad real estate with bad fundamentals are going in the opposite direction of real estate with good fundamentals.
It's less about the asset class. It's more about the neighborhood and the trade area. And so from a macro level, things continue to be constructive in our business, I think. And I would never look at 1 quarter to draw a conclusion, but if you string together many quarters, I think there's strong evidence of that. Usually evidence in most quarters, but it's the trend that we're we pay more yes, you're closer to it on the ground.
And if there's anything to add, please go ahead. Sure. I'd just like to add that we are seeing a healthy pace of new entrants in the market and several tenants have announced expansions and this has provided us with an opportunity to improve our tenant mix and negotiate stronger rents. Overall, we think the market is active and tenants are very keen on securing urban locations.
Okay. And then this might be a little bit trickier to answer, but the tax consequences on disposing assets, is there anything material that we should be thinking about like pre and post reconversion? Like is it obviously does it make way more sense to do it before? Or does it make more sense to wait until after? Is there any sort of clear rule of thumb we can engage with there?
Yes. Look, all I would tell you right now is we're mindful of that based on the level of dispositions it appears we'll have the opportunity to do. And so just from a macro level, some of the things you'd want to be mindful of is cash taxes, if you go to a certain level pre reconversion and obviously post reconversion there's distributions that have to take place on all your taxable income. That's another thing that we're keeping our eyes on from our in terms of keeping it on the radar. So I'm not sure if that answers the question, Tal, but I could tell you those are things that are on our radar as we make decisions around how quickly we execute the disposition program.
Okay. So it sounds like
tax advisers.
I would say we're probably going to get nice baskets around the holidays from them this year. Okay, perfect. Thank you very much. Okay. Thank you.
Thank
you.
The following question is from Jenny Ma. Please go ahead. Thanks. Good afternoon.
Hi Jenny.
So with regards to the properties and held for sale and what you're currently working on, could you give us a little bit of color on whether or not these are one offs you're doing or if they're portfolios and generally the JV versus 100% mix?
Yes, that's a very good question. Again, the only reason why we're not going to name the shift some perceived leverage to the other side. But, shift some perceived leverage to the other side. But the one transaction that is public that was announced by the buyer is FIRM Capital that is a 50% purchase. The balance is a combination of portfolios and single property transactions and the balance are all 100% sales at this point.
100%, okay. And could you give us a little bit more on the buyer profile? And for some of the one offs, are they sort of in bite sized transactions that would be more amenable to smaller buyers out there?
Yes, those are definitely some of them. And so what we're looking for on the properties we've decided to sell is we're looking for buyers that are prepared to enter into the most attractive terms for us, which price is obviously a big one, reliability of execution is another. And so we expect to transact with private investors, institutional investors, small and medium sized pension fund investors, private REITs that would comprise the existing buyer group that we're engaged with right now.
Okay. Thanks for that. And then wanted some detail on the higher interest income from this quarter. I know it was a big swing from last year, but it was also a big swing from Q4. So just wanted to know what was driving that, if it's something one time.
It also looks like all the marketable securities have been sold, so they're gone from the balance sheet as of March 31. Could you confirm that? Hi, Jenny. Regarding marketable securities, I can confirm that is correct. There was no marketable securities on the balance sheet at the end of the quarter.
Regarding interest and other income, it is up $4,000,000 over last year. We did have an income distribution of $3,400,000 from our other investments. Distributions from these investments can be lumpy, so I wouldn't consider Q1 balance as representative of a run rate for the fiscal year. Is this distribution on something that you still currently hold? It is.
Okay. So can we think of it sort of like as on average once a year kind of occurrence? It really depends on the activity that's undertaken by the limited partnership that we've invested in. So I wouldn't say that it's necessarily predictable as a one time thing per year. It really depends on the projects that they're doing and when they complete or when they sell projects.
Okay. Okay. So this is really transaction driven? Correct.
Okay, great. Thank you very much. I'll turn it back.
Thank you, Jenny.
Thank
you. There are no further questions registered at this time. I'll turn the meeting back over to Mr. Paul.
Okay. Thank you very much and thank you everyone for your time this afternoon and your continued interest in First Capital. We will be providing further updates on our business at our Annual General Meeting, which is being held on June 4 at 10 am in our Yorkville Village property, and we hope to see you there. Thank you very much and have a great afternoon. Bye bye.
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