This conference is being recorded. Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT's Q2 2022 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press star one on your device's keypad. I would now like to turn the conference over to Alison. Please proceed with your presentation.
Thank you and 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 Q2 MD&A, our MD&A for the year ended December 31st, 2021, and our current AIF, which are available on SEDAR and 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. 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 REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this call. I'll now turn the call over to Adam.
Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q2 conference call. In addition to Alison, with me today are several members of the FCR team, including Jordan Robins and Neil Downey, who you will hear from shortly. The Q2 was another busy and productive period for FCR. The hard work of our talented team, coupled with our strategic focus on high quality, grocery-anchored, and mixed-use properties located within Canadian neighborhoods with the most compelling demographic profiles, continued to deliver solid operating results. Before we get into the quarter specifically, I'll spend a moment on our two-pronged real estate strategy that we had discussed last on our conference call a few months ago. Our roots are largely in grocery-anchored retail properties located in neighborhoods with superior demographics.
These assets are primarily merchandised with necessity-based retailers in urban and top-tier suburban markets. Examples include our properties in Vaughan, Mississauga, and Oakville, to use GTA examples. We remain focused on this type of real estate in all of our core markets. It is the largest component of our portfolio, representing roughly 70% of our asset base to date. We aim to continuously improve the value of these existing centers through merchandising mix enhancements, property improvements, redevelopment, and/or increasing rental rates through leasing activities. These assets typically provide a compelling combination of stability and growth, particularly with the benefit of FCR's platform. We have a proven track record over two decades of extracting maximum value from these types of properties.
It is our intent to apply our value add capabilities to more of these centers, and in fact have added a great one in the GTA subsequent to quarter end. The second part of our real estate strategy involves properties situated in Canada's most urban markets, or as we refer to them, super urban neighborhoods. These communities are the most transit connected and desirable in terms of where the majority of people want to live, work, and socialize. They are also the most dense. These super urban FCR assets are primarily grocery anchored, mixed-use properties. Examples include our portfolios in Yorkville and Liberty Village, two large positions that alone represent approximately 15% of FCR's total portfolio. Our 24 million sq ft development pipeline is also focused on properties within our super urban strategy.
Over time, these neighborhoods have produced the strongest population growth and have the greatest barriers to entry for new supply. As a result, retail sales per square foot in these neighborhoods have generally grown at the highest rates. In many cases, there exists an opportunity for intensification of low-density properties. In time, they can be redeveloped into multi-story mixed-use developments with meaningful amounts of both FCR type retail and much needed residential.
Besides Yorkville and Liberty Village, other examples of super urban properties are our Christie Cookie development site in Toronto, False Creek Village in Vancouver, Brewery District in Edmonton, Mount Royal Village in Calgary, and Griffintown in Montreal, among others. For both types of FCR's properties, so stable grocery-anchored centers, mainly in top-tier suburban neighborhoods, and primarily grocery-anchored mixed-use properties in super urban neighborhoods, supply is and will continue to be constrained given replacement costs are now well above market values. In addition, tenant sales are continuing to rise, and leasing demand from tenants remains elevated. This combination of factors should bode very well for future rent growth for both types of assets in our portfolio.
With the prospect of an economic slowdown higher today than last quarter, it's also important to note that our portfolio has demonstrated tremendous stability through previous recessions given our prime locations and necessity-based nature of our tenant base. With that strategic framework as a backdrop, we'll now move into the Q2 . We all know how critical leasing is to our business, and it's been a validating bright spot for FCR for a long time and through various economic cycles and world events. The strength we have demonstrated for quite some time now continued in the Q2 with over 800,000 sq ft of leasing at very healthy rent increases. This contributed to solid same-property NOI growth of 6% or 3.8% without bad debts and lease termination fees for those who prefer to exclude them.
It also contributed to our average in-place rental rate increasing to an all-time high for the 24th consecutive quarter. Our retail portfolio continued to see broad-based strength across geographies and property types. Last quarter, we noted the positive momentum that had started to surface in our new residential rental assets in Toronto. That momentum accelerated through the Q2 with rental rates and demand strengthening. In Toronto's Liberty Village, our King High Line residential property is fully stabilized, where market rents have increased by roughly 10% in the last three months alone and are continuing to rise. Our even newer Station Place asset is leasing up according to plan and is now roughly 70% leased with rent exceeding pro forma. We expect stabilization to occur in Q4 of this year.
We also made investments during the quarter to advance our real estate strategy and our development program specifically, which Jordie will review. While we didn't have substantial closings in the quarter, we advanced several dispositions that we remain active on. To take advantage of the large disconnect between our intrinsic value or NAV and our current trading price, we implemented an NCIB during the quarter and repurchased approximately 4.6 million FCR units for a total of CAD 71 million. The CAD 15.23 average price per unit represents an implied cap rate in the mid-6% range and a price per sq ft of approximately CAD 350, which is less than half of replacement cost. Today, repurchasing FCR units provides the best risk-adjusted opportunity that we have available to us, even if asset values modestly decline in the short term.
We will continue taking advantage of this to the extent the magnitude of the disconnect persists. This quarter, we continued to deliver on our ESG commitments outlined in our three-year ESG roadmap that can be found on our website. Fresh on the heels of last quarter's announcement as being recognized as one of Canada's greenest employers, we achieved our 127th LEED certification at our Cedarbrae Mall in Scarborough, Ontario. This brings our portfolio to 4.4 million sq ft of LEED-certified assets. In addition to this milestone, FCR received two certificates of excellence from BOMA Canada. One for our head office property at 85 Hanna, and the second for our Brooklin Town Centre. Thank you to our ESG and operations teams who passionately make our properties and our company better. While accolades are nice, it is clearly not why we do what we do.
We've discussed many times that our approach to ESG has many tentacles and that the philosophy is deeply ingrained in our culture. One priority in our ESG plan has been to foster biodiversity in our neighborhoods. As an example, we know bees play a critical role in a functioning ecosystem. We were pleased to add an additional five new beehives across the country, totaling 16 in our portfolio. We've installed our first urban farm at our head office in Liberty Village, which will yield approximately 300 lbs of vegetables that will be donated as fresh, organic produce to the Second Harvest Food Bank. Reducing the impact of climate change on our cities and neighborhoods takes all of us. Partnering with our tenants in mutually beneficial green lease agreements leads to higher performing buildings and healthier, more sustainable communities.
We're very pleased that FCR received the 2022 Green Lease Leader Gold Award issued by the Institute for Market Transformation and the U.S. Department of Energy's Better Buildings Alliance. We have been at the forefront of environmental best practices in the Canadian real estate industry for well over a decade, and I know our team appreciates this recognition. We'll provide more updates on ESG in the future, and in the meantime, the ESG section of our website is regularly updated and has a wealth of information on our activities. Overall, a busy and productive quarter with healthy and strengthening operating metrics. We are a real estate company first and foremost, and accordingly, we will continue to focus on our real estate and executing our strategy. With that, I will now pass things over to Neil.
Thank you, Adam, and good afternoon to all of our call participants. For my remarks today, I will begin by referring to slide six of the quarterly conference call deck that is available on our website at fcr.ca. Q2 funds from operations of CAD 61.2 million or CAD 0.28 per unit decreased by 20% from CAD 76.1 million and CAD 0.34 per unit in the prior year. As is often the case, our other gains, losses, and expenses, or OGLE for short, tend to cause variability in our quarterly results. This past quarter was no exception. As shown near the bottom of slide six, Q2 results included other aggregate losses and expenses of CAD 3.1 million versus other net gains of CAD 17.5 million in the Q2 of 2021.
This CAD 20.6 million year-over-year swing in OGLE adversely impacted FFO growth by more than CAD 0.09 per unit in Q2 of this year. For your reference purposes, there are more details provided on the OGLE amounts on slide eight of the deck. In short, substantially all of these amounts relate to a single listed security position, specifically the shares of Procore Technologies, Inc. For a bit more historical context, FCR made an investment of approximately CAD 6 million into a private company called Honest Buildings in 2018. This was part of the FCR Innovation Initiative. We invested in Honest Buildings because we were a user of the technology, and we saw its appeal. Subsequently, Honest Buildings was acquired by Procore, and in May of last year, Procore went public, which ultimately provided a liquidity opportunity.
Now, having monetized our shares, we know that this entrepreneurial investment yielded a profit of more than CAD 9 million, equating to a 32% IRR over FCR's 4-year hold period. Notably, having liquidated this position in full, we generally expect to see a lot less movement in our other gains and losses and expenses over the next few quarters. Focusing on the performance trend of our core real estate business, Q2 FFO prior to OGLE of CAD 64.4 million equated to CAD 0.29 per unit. This was a solid 10% increase from CAD 58.6 million or CAD 0.27 per unit in the Q2 of 2021.
Returning to the top of slide six, you can see that Q2 net operating income of CAD 107 million increased by CAD 3 million or 3% from CAD 104 million in the prior year. Lost NOI related to disposition activity was CAD 1.9 million in Q2, and lease termination receipts were only CAD 55,000 versus approximately CAD 300,000 in the prior year. Same property NOI growth was CAD 5.5 million, equating to a strong 6% increase. This growth was driven by higher base rents from contractual steps, new and renewal leasing, and higher variable revenue contributions to NOI, as well as lower bad debt expense, which was specifically CAD 2.2 million lower on a same property basis. A small detractor from Q2 same property NOI growth was the lower lease termination receipts that I previously mentioned.
Excluding the year-over-year change in lease termination fees and bad debt, Q2 same property NOI growth was a solid 3.8% positive. On a sequential basis, Q2 net operating income was approximately CAD 5.7 million higher than in Q1 of this year. There were three contributing factors. Firstly, higher variable revenue contributions to the tune of CAD 2.4 million to NOI. Higher base rents from steps, new and renewal leasing, including residential NOI, added CAD 1.8 million. There was some benefit from higher CAM recoveries equating to approximately CAD 1.5 million. Turning to interest and other income of CAD 4.3 million for the quarter. This roughly doubled from CAD 2.1 million last year.
Higher loan balances of CAD 189 million at June 30 of this year versus CAD 77 million at June 30th of last year was the key driver. Q2 G&A expenses of CAD 8.7 million increased by CAD 700,000 or 9% year-over-year. The Q2 expenses were consistent with the Q1 expenses of this year. Our business is relatively stable in terms of staff complement and business activity. At a high level, we continue to guide you towards a near-term run rate of approximately CAD 9 million per quarter. Turning to slide seven, you can see FCR's first half results and the comparatives. I'll be brief with two points. The rate generated solid organic growth of 4.1% in the first half.
Secondly, FFO, prior to other gains and losses and expenses of CAD 126 million or CAD 0.57 per unit, was an increase of 11% over CAD 114 million or CAD 0.51 per unit in the first half of last year. Moving on to our operating performance metrics on slide nine. The portfolio rounded out Q2 with an occupancy of 95.6%. This level is consistent with 95.5% at Q1 of this year and is 30 basis points lower on a year-over-year basis. During the Q2 , we had 52,000 sq ft of tenant possessions set against 112,000 sq ft of closures. In addition, we had 84,000 sq ft of leasable area subject to closures for redevelopment. Most of this, or 78,000 sq ft, was at Cedarbrae in Toronto.
Moving to slide 10, we turn to the subject of leasing velocity. On this front, the Q2 cadence was good, while the spreads were very good. Q2 renewal leasing volumes were 510,000 sq ft. This was down from an exceptional Q1, in which velocity was 838,000 sq ft. On the other hand, it was ahead of 452,000 sq ft of re-leasing activity in the Q4 of last year. Q2 renewal leases were at an average increase of 11% when measuring the first year renewal rent of CAD 21.12 per sq ft relative to CAD 19.02 per sq ft on the final year of the expiring lease. Including new leasing for future possession, total Q2 leasing velocity at FCR share was 691,000 sq ft.
On a platform basis, total Q2 new and renewal leasing volume was 818,000 sq ft, which is the number that Adam mentioned earlier. As referenced on slide 10, our average in-place portfolio net rent reached CAD 22.72 at June 30th of this year. FCR's in-place net rent per sq ft continues to make new highs. Growth during Q2 was CAD 0.17 per sq ft during the quarter, and on a year-over-year basis, it was CAD 0.63 per sq ft or 2.9%. The year-over-year growth was driven by rent escalations and renewal lifts, which provided 68% of the growth. If we add in the impact of new tenant openings net of closures, the total contribution to growth increased to more than 80% of the CAD 0.63. Slide 11 provides distribution payout metrics on an FFO and AFFO basis.
In Q2, our AFFO payout ratio adjusted for OGLE amounts was 44%, three percentage points lower than Q2 of last year. On page 12, we continue to provide our adjusted cash flow from operations measure. Recall, ACFO is calculated quarterly, but the payout ratio is derived on a trailing 12-month basis. Our Q2 ACFO was CAD 76 million. For the first half of the year, it was CAD 119 million. Both were higher than their prior year comparatives. With trailing Q4 ACFO of CAD 251 million relative to CAD 95 million of cash distributions, the ACFO payout ratio was 38%. This seems like an appropriate juncture at which to touch on the subject of net asset value. Our net asset value per unit at June 30th was CAD 24.46.
This was a decrease of CAD 0.09 per unit or 0.4% relative to March 31st. The change in Q2 NAV had three major components. The first is a CAD 109 million fair value loss on investment properties. I think it goes without saying, but to be totally clear, this reduced our NAV. The impact was CAD 0.49 per unit. Our Q2 valuation approach was property specific, as opposed to a more broad-based or blanket change in cap rates and discount rates. In the quarter, there were actually CAD 13 million of aggregate fair value increases on properties, but these were more than offset by CAD 122 million of gross fair value losses. The second influential factor behind the change in our Q2 NAV was our NCIB.
We believe that repurchasing our units at a deep discount offers compelling risk-adjusted returns, and the activity supported our NAV by CAD 0.19 per unit in the quarter. The third factor was our low payout ratio. Retained cash flow after paying our distributions, plus other gains, also added approximately CAD 47 million or CAD 0.21 to our Q2 NAV per unit. Providing an update on capital deployment, as summarized on slide 13, we invested CAD 38 million into development, leasing, and residential development during Q2. Most of this capital was invested into assets located in Toronto, Montreal, and Vancouver. Through the first half of the year, total CapEx was CAD 72 million, including CAD 45 million into development and residential inventory. We've previously discussed expectations for development expenditures, including investments into residential inventory, to be within the range of CAD 150 milllion- CAD 200 million for the year.
Mostly due to project timing, we are now guiding towards investments within the range of CAD 110 million-CAD 150 million this year. In addition to investing directly into real estate assets, of course, we also invested indirectly into real estate assets at what we see as a deep value investment through our normal course issuer bid. During Q2, we repurchased 4.6 million units for a total investment of CAD 71 million. Turning to financing activities on slide 14. During Q2, we arranged CAD 310 million of first mortgages secured by two properties. FCR's share of the loan balances was CAD 133 million. The loans include a CAD 160 million, 4.82%, 10-year fixed rate loan secured by Kings Club Residential. That was funded on June 9th.
We also secured a CAD 150 million, 4.96%, 2-year fixed rate loan against Station Place, funded on June seventeenth. FCR had previously hedged its interest rate exposure on 100% of the Kings Club residential financing at our share. That lowered the effective cost of the funding on the 10-year loan to approximately 2.9%. On slide 15 of the presentation, you'll see a summary of some of our key debt metrics. FCR continues to demonstrate stability and strength in key balance sheet metrics. At June thirtieth, total liquidity was CAD 818 million. Excluding construction facilities, quarter end general corporate liquidity was CAD 665 million.
The REIT ended Q2 with a sizable CAD 7.1 billion pool of unencumbered assets, albeit down from CAD 7.4 billion at year-end 2021, specifically due to the recent mortgage financings. These conclude my prepared remarks. I will now turn our call to FCR's Chief Operating Officer, Jordan Robins, to provide some commentary on property investments, operations, and development.
Thanks, Neil, and good afternoon. As you've heard, Q2 was a very solid quarter with meaningful core FFO growth, same property NOI growth, and lease renewal growth. The continued progress in these operating metrics, along with the advancements we've made with our development pipeline, highlight the strength of our high-quality grocery anchored portfolio and its prospect for growth as we look ahead. Let me start today discussing the results of our leasing program in Q2 as it's the best leading indicator for our business. In Q2, we completed 818,000 sq ft of leasing. This leased area is comprised of 628,000 sq ft of renewals and 190,000 sq ft of new deals at 100%. This represents a 100,000 sq ft increase in new deals over Q1.
Our focus is, as it always has been, on high grading and improving the merchandising mix in our centers. Some of the notable new large space deals we completed this quarter include a 60,000 sq ft Canadian Tire lease at Stanley Park in Kitchener. Canadian Tire will pay market rent with escalations through their term. They replaced the former 54,000 sq ft Walmart, who paid a flat and well below-market rent. We also completed a 17,000 sq ft lease with Ashley Furniture at Fairway Mall in Kitchener. Their presence at the center will support and strengthen the tenant mix and expand its geographic trade area. In the former Anthropologie space in Yorkville, we entered into a 14,000 sq ft lease deal with another renowned, to-be-announced, international fashion retailer.
This exceptional retailer chose Yorkville for its first Canadian location based upon the luxury brand co-tenants, including our recently announced Balenciaga deal that we brought to the market. Essential retail in our portfolio continues to outperform across the country in terms of the number of renewals and the percentage increase in average rents. During the quarter, we renewed six grocery stores and 37 medical, QSR, and personal service users. As Neil mentioned, the renewals we secured this quarter were strong at 11% and just under 13% if one excludes all fixed rate renewals. Our focus remains on increasing these spreads both in the 1st year of the lease and over the lease term of the leases. This strategy has resulted in an average rental rate growth over the term of these renewals in excess of 13% and almost 16% on all non-fixed renewals.
The quality of our assets, along with the broader impact of this strategy, have positively impacted our average rental rate per sq ft as well, which this quarter grew to a new all-time high of CAD 22.72. While our occupancy rate of 95.6% is below our Q4 2019 all-time high, it remains in line with our 95.8% ten-year average. More important, it of course does not account for committed deals or deals under negotiation. Specifically, we have a 1.2 million sq ft leasing pipeline made up of new and renewal lease agreements under negotiation and executed leases where the tenant is not yet in possession. In time, as this pipeline matures and converts, it should have a positive impact on both our occupancy and our FFO.
Turning to investments, it was a very quiet quarter in terms of completed transactions. We purchased a small but important CAD 3.5 million strategic or tuck-in asset that forms part of our assembly on Montgomery Avenue in North Toronto. We will complete the thirteenth property assembly when we close the final property in the Q4 this year. We also sold a 40,000 sq ft two-tenant property in Edmonton for CAD 10.25 million at a premium to our IFRS value. As set out in our disclosures, we still have CAD 243 million in assets held for resale. While closing on transactions this quarter were limited, we have been busy moving other disposition opportunities forward, and we'll share details with you on this work when appropriate. Finding compelling investment opportunities continues to form an important part of our business.
While always a challenge, we have an ability to surface and unlock value that others may not be able to see or to underwrite. We possess this ability because of the depth of our retail relationships and our experience. In 2021, for example, we purchased a single-tenant asset in central Toronto based on what some considered was an aggressive cap rate for the income in place. However, we viewed the rate for the lease, which was set to expire in 2025 as meaningfully below market. Given the site's proximity to a new LRT station, we also saw the near-term development potential of the site to the extent we didn't come to terms with the tenant on a new lease rate. This past quarter, we renewed this lease early, and effective April 1, 2022, the tenant began paying market rent.
Now, as a result of this early renewal, the unlevered yield on our investment increased by over 200 basis points. We're now working on executing other opportunities that we had identified to enhance the potential yield even further. It's this ability to find real growth and to create value that differentiates FCR. It's also why, in this environment, we remain opportunistic. Our development team has been very busy this past quarter as we continue to advance entitlements for the 24 million sq ft of incremental density in our pipeline. This density is primarily residential, and once approved and developed, it will support and grow the neighborhoods in which we've invested. The most compelling aspect of our development pipeline is the flexibility it affords us.
As density in our pipeline is approved, we can either crystallize its value by selling a partial or a 100% interest, develop the density as part of our active development program, or simply hold on to it and continue to benefit from the income in place. This optionality is even more important in the current environment. To date, we've submitted for entitlements on 16.4 million sq ft of incremental density, representing just over 70% of our pipeline. This quarter, we secured entitlements for 240,000 sq ft of primarily residential density at Old Oakville, directly adjacent to the Oakville GO station. This quarter, we also submitted an application for 236,000 sq ft of residential density on our Montgomery Avenue property in Toronto that I'd mentioned earlier.
This property sits adjacent to our approved 2-tower Yonge and Roselawn development property and will no doubt deliver synergies given its proximity. For the balance of 2022, we're gearing up to submit for another 1.3 million sq ft of principally residential density. To date, over 8 million sq ft of our development pipeline is now entitled, with a further 1.2 million sq ft of approvals expected by year-end 2022. Submitting for entitlements is only the first step. We've been able and continue to execute on our active development program. Specifically, 200 Esplanade, our 75-unit rental building in North Vancouver, is progressing and on schedule for a 2023 delivery. Construction of the former Walmart space is underway at Cedarbrae Mall in Toronto.
Excavation is nearing completion and concrete forming has begun at Edenbridge, our 209-unit condominium development located on our Humbertown Shopping Centre lands. 88% of these units at Edenbridge are sold. Shoring and excavation at 400 King Street West, our 460,000 sq ft retail and residential condominium development is underway, where 97% of the units have been sold. Demolition of the existing structures on our 138 Yorkville development site and our 510,000 sq ft retail and residential rental project at Yonge and Roselawn are also both underway. While significant in scope, we've insulated ourselves well on most of our projects from the impact of the current inflationary environment.
On our high-rise projects, we've secured construction financing and have already awarded 65%-90% of our trade contracts, and so have fixed a large portion of our costs.
We've also awarded 100% of the trade contracts on our two active retail projects at Stanley Park in Kitchener and Cedarbrae Mall in Toronto. We're further protected given the bulk of our pipeline is residential rental in Ontario and Vancouver. These markets are supply-constrained and seeing strong rental velocity and growth that serves as a hedge against the current cost inflation and as a safeguard for related development profit. In short, Q2 was a very solid quarter, highlighted by strong core FFO growth, same-property NOI growth, and leasing spreads. It was a quarter that once again demonstrated the strength of our portfolio and the strength of our team. With that operator, we can now open it up for questions.
Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please deafen your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. The first question is from Tal Woolley. Please go ahead.
Hi, good afternoon.
Tal.
Just wondering if we can talk first about CapEx. You've sort of scaled down your guidance for this year. If you're looking forward into 2023 and beyond, would you sort of expect that sort of CAD 100-CAD 150 million envelope to be the right amount? Or if we're thinking out further, we should think maybe sort of more in that CAD 200 million range?
Hi, Tal. It's Neil. I think you should probably anchor your midterm assumptions around that CAD 200 million number. You know, there's obviously a bit of push back in terms of the timing this year, but think about CAD 200 million annually as you look out to next year and beyond.
With the distribution going back up next year, I'm just wondering what sort of quantum of dispositions then should we be expecting then at that point on an annual basis?
Tal, great question. Again, at a very high level, I think it makes sense to think about the disposition program roughly matching the investment in development. What we do expect to generally shift over time, however, is, as you know, the character of those dispositions. You know, we spent a long time, or a number of years now gaining quite a menu of entitled properties from a density perspective. We would generally be expected to be mining more of that density value out of the portfolio over time.
Just on leasing costs, and I apologize, I haven't had time to sort of run the numbers myself here, so I'm asking maybe something that's relatively obvious. Just on leasing costs, like, has the cost of leasing changed at all, like, dramatically. Sorry, I shouldn't say dramatically, but has it changed much through COVID, you know, pre and post-COVID? Or has it remained pretty steady?
Hi, Tal. It's Geordie. I would say to you, it's remained pretty steady. We don't see any significant, in fact, really any differential from pre to post-COVID.
Okay. On the Amberlea acquisition, can you give an estimate of the price per square foot paid?
Yeah. It was around CAD 450 sq ft on a price per sq ft basis.
Fair to say there's some redevelopment plans along with that?
When we underwrote the asset, we identified multiple avenues to increase NOI and value. Redevelopment would be down the list in terms of the opportunities. We see there's some near-term stuff that we think we can execute, you know, well before any material redevelopment is required. I would say it's more of a long-term element of the transaction or the property. Yeah, I wouldn't expect anything material in the short term from a redevelopment perspective.
Okay. Just finally, you know, the weighted average term on your fixed cost debts, it sort of dipped below four years here. I appreciate, you know, the debt capital markets have provided. You know, we're asking you a lot of questions at this point. How are you sort of thinking about managing term right now versus costs when you're refinancing?
Yeah. No, another good question, Tal. You know, to put a bit of context to that shortening, of course, it's been largely a function of the company selling more assets than it's acquired. You know, that process has naturally resulted in us paying off debt and shortening the term. I would say we're at a point sort of where we don't anticipate that term will continue to shorten, and that we will be looking to do some financing before we approach year-end, and we'll probably be in the 7-10 year range on that financing would be our general expectation.
Okay. That's great. Thanks, gentlemen.
Thank you very much, Tal.
Thank you. The next question is from Dean Wilkinson. Please go ahead.
Thanks. Afternoon, everybody. This probably goes into Neil's wheelhouse. On the NAV, Neil, those components, how comfortable are you recognizing it was property specific, but the overall cap rate still at a 5. How comfortable are you with that number, sort of given where historical spreads are and given what we've seen in the bond market? Then the second part to that is of the CAD 109 million, that was the fair value write down. Was that portending some negative same property NOI, or was there some math around that 10 basis point increase in the discount rate?
Well, Dean, there was a lot of math in there. That's the way property valuations tend to work. Maybe to give you a little bit more context, firstly, you know, I did reference the fact that it was not a broad-based or blanket change. It was asset specific.
Mm-hmm.
I did mention that, on the downside, sort of the gross fair value markdowns were CAD 122 million. We won't talk about specific assets.
Right.
You know what I'll let you know is that you know 80-ish% of that CAD 122 million of fair value markdowns probably was attributable to 10 assets. And in those instances, some did have some cash flow revisions as it related to estimated, you know, stabilized rents or time to lease or, you know, capital to lease.
Right.
Along with some changes in discount rates and cap rates. Some were simply more cap rate and discount rate related in terms of the valuation changes.
Great. You're referencing those off of, I mean, there's an absence of transactions, so sort of how are you just sort of backing into the metrics that you used there?
Yeah. Obviously what you're pointing to is the great challenge of the hour.
Mm-hmm
For all real estate companies that report on a fair value basis. I think what we really did is we, you know, went through the portfolio with a critical eye, you know, understanding that it's a little more challenging today to be very precise about values in general. In doing so, as I indicated, there were 10 assets that accounted for the bulk of the adjustments.
All right. That's good. Just switching over to the debt side of things, and I guess you've sort of said, you know, given the current environment, the debenture market's not sort of, you know, in your future. How are you looking at sort of dealing with those debentures as they come up? I mean, you've got CAD 250, something like that at the end of the year, another CAD 300 next year. I mean, you can't put a single property mortgage there. Would you be looking to finance that off of sort of short-term credit facilities or terming out the debt on an individual property basis or doing some kind of cross-collateralized debt? Or, like, just how are you going to approach that?
Yeah. Principally two ways in the short term. Jordan made reference to our held-for-sale assets, so that's a meaningful source of capital.
Mm-hmm.
As indicated in our late May press release, we clearly indicated our preference for the mortgage market given the spreads in the unsecured debt market today. We were active in the mortgage market recently. We see very strong lender appetite for assets that are of the character and quality owned by FCR, i.e., principally food and drug anchored community shopping centers. It's our general anticipation that we will be into the market as we go through the back half of this year seeking some mortgage financing.
Those high 4s are still indicative of where you think you could put that debt on?
Yeah. Again, I'll give you some very high level indicative numbers. If we think about, you know, a five-year or a 10-year Government of Canada bond today, like the yield on the same is the same on both of them at about-
Yeah.
2.8%. You know, very roughly, and obviously this would end up being asset specific and LTV specific. Today we should be thinking probably about a spread of 175 for a five-year and maybe 200 basis points for a 10-year. You know, that gives you an indication as to where those mortgage rates would likely be.
Great. Well, it's cheaper than it was five weeks ago already. That's it. I will hand it back. Thanks, guys.
Thank you very much, Dean.
Thank you. The next question is from Victor Lazarovici. Please go ahead.
Hello. I wanted to drill into the large decline in property operating costs quarter-over-quarter. They were down like CAD 3.6 million quarter-over-quarter to CAD 71 million, of which CAD 1.1 can be explained by the prior year tenant recovery. Is the remaining CAD 2.5 million decline structural in nature, or is there timing of accruals we need to consider? Was there anything else that would be required to adjust?
Thanks very much for your question. I really apologize. We didn't fully get it on our end. Maybe if you don't mind repeating the question perhaps a touch more slowly.
Yeah, sure. I want to drill into the large decline in property operating costs quarter-over-quarter. They were down CAD 3.6 million to CAD 71 million, of which CAD 1.1 million can be explained by the prior year tenant recoveries. Is the remaining CAD 2.5 million decline structural in nature, or is there timing of accruals we need to consider? Was there anything else that would require us to adjust that figure on a run-rate basis?
Yeah. Okay. Thanks, Victor. It's Neil. I think we got that. The answer is there is nothing specific that you should think about adjusting. It's probably just you know, timing and accrual related. Having said that, you know, the CAD 1.2 million or whichever number that you referenced there, you're correct in that there was a prior period you know, adjustment as it relates to CAM. You can adjust for that.
Okay. Yeah. Thank you very much. Regarding your asset held for sale, I know you touched upon that a bit, but how would you characterize your appetite and ability to sell assets today versus three months ago? How market looks like now? When can we expect that these assets will be sold?
Yeah. Look, it's a very good and timely question. Our appetite remains the same. The environment is slightly less constructive today, but still constructive. You know, we've been very clear. We've gone through a major portfolio transition over the last three years. We've sold about CAD 1.5 billion of assets or 15% of the total portfolio, while at the same time adding about CAD 1 billion. We're a lot happier with the portfolio today, when we look ahead. Our pricing expectations are also very high. Our appetite remains the same. It'll be very important for us to achieve pricing that we're very happy with.
We think that's still possible, but we acknowledge it'll be slightly more challenging in this environment than, say, several months ago. Good news is we're still active on several files at price points that we're satisfied with, and so we'll continue to work on those and hope to get them done.
Got it. Yeah. Thank you. Lastly, in terms of your IFRS values, can you remind us of the magnitude of the difference between Q2 2022 NOI run rate and the NOI used in your IFRS values? Also, would your stabilized cap rates incorporate actual acquisition activity, or is it more nuanced than that?
In terms of the stabilized cap rate, no, it does not assume acquisitions. It's strictly limited to the portfolio that we have in place during the reporting period or at the end of the reporting period. The first part of the question, Neil, do you wanna take that?
Yeah. Sorry. Could you specifically repeat the first part of the question about NOI?
Yeah, sure. Can you remind us of the magnitude of the difference between Q2 2022 NOI run rate and the NOI used in your IFRS values?
I don't believe we've just specifically disclosed that difference in the past.
Got it. Okay. Yeah. Thank you very much. Hand it over to you.
Thank you for your questions.
Thank you. Once again, please press star one on your device's keypad if you have any questions. The next question is from Gordon Milne [Haverford]. Please go ahead.
Hi, everyone. Thanks for taking my question. I'm just talking on behalf of Sam from TD. On the NCIB, that was a fairly fast pace of repurchases during the month of June. If your trading price doesn't rise, is there anything holding you guys back from maintaining that pace? Is there any limit on the leverage impact you would allow?
Hi. It's Neil again. Thank you for the question. Look, I think standing back, what you should basically think about is it's a 3-variable equation in so far as firstly, we do have objectives in terms of, you know, maintaining a leverage ratio that we, you know, we described as being in the mid-40s% in terms of debt to assets. Within the construct of that, more asset sales versus fewer asset sales will result or are likely to result in more unit repurchases versus less. Then, of course, the other or third variable is the unit price itself. I think that's the sort of framework by which to think about it.
As you've all seen, we're making our monthly filings on our NCIB activity, so there will be a filing at this point within a matter of about 10 days.
Thanks. Just another question. On your 2022 zoning entitlements, just wondering if you had any reason for that delay. I believe last quarter it was expected to be around 2 million sq ft, and now it's about 1.4. Just hoping to get some color on that.
Sorry, Gordon. Ask your question again. I didn't quite hear the back end of it.
Just wondering if there is any reason in particular for the delay in the expected 2022 zoning entitlements. Last quarter, I believe it was expected to be CAD 2 million, and it's now at around CAD 1.4 million.
Well, I think the first part of the question is we had received some entitlements in Q1, so it would account for some of it. I have to double-check the number to be certain, but if there is in fact a delay, it would be as a result of a delay at the city in particular. There's one file in particular, York Mills, that our belief was going to get through actually this past quarter.
Okay. Thank you. Just my last question. In regards to your Q3 acquisition in Pickering, could you tell us the going cap rate and how you expect it to perform over the next couple years?
Yeah. I mean, look, we typically don't disclose cap rates on acquisitions. You know, it was a competitive process. Our understanding is there was a cluster of groups in and around a similar price based on conditionality and execution risk. We were selected as the successful purchaser due to our desire to allocate capital to our NCIB and for strategic reasons in hopes to grow a new partnership that we started. We did bring in a partner at that market cap rate. Our expectation is that over the next 10 years we can grow that yield by roughly 200 basis points on an unlevered basis without the requirement for any redevelopment or intensification, which we do feel the property has the opportunity to do so. Yeah.
That's the color that we can provide.
All right. Thanks for answering my questions.
Thank you very much.
Thank you. Once again, please press star one on your device's keypad if you have any question. There are no further questions as of this time. I would now like to turn the conference over to Adam.
Okay. Thank you, operator, and thank you, all of our participants for attending our conference call today and for your continued interest in First Capital. We continue to work hard, and we continue to look forward to updating you on our progress, in the months ahead. Thank you, and we hope you enjoy the rest of your day. Bye-bye.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you all for your participation.
Thank you.