All participants, thank you for standing by. Your conference is ready to begin. Ladies and gentlemen, thank you for standing by. Welcome to the First Capital Realty Q2 2017 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 in your telephone keypad. I would now like to turn the conference over to Adam Paul. Please proceed with your presentation.
Okay. Thank you very much, Vincent. As usual, we'll start with the typical cautionary comments. Please note that forward-looking statements may be made during today's conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control. These statements 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 Management's Discussion and Analysis for the quarter ended June 30th, 2017, and our current annual information form, which are available on SEDAR and on our website. These forward-looking statements are made as of today's date. Except as required by securities law, we undertake no obligation to publicly update or revise any such statements. Okay.
With me today are several members of our executive team, including Kay Brekken, Jordy Robbins, Jodi Shpigel, and Carm Francella. The consistent performance of our business extended in the second quarter. In short, our Q2 results continued to deliver meaningful growth in same property NOI, lease renewal rate increases, occupancy, OFFO per share, and NAV per share. More importantly, we are very well-positioned to continue delivering growth into the future. We believe there are profound differences between the sound fundamentals of the First Capital business model and the generalized commentary about the broader retail environment. As I mentioned last quarter, history shows that as retail changes, there are always winners and losers. Future business performance will likely be different across the retail real estate universe. In this regard, First Capital is and continues to be very well-positioned.
Notwithstanding the impact of technology, e-commerce, and various other shifts occurring in retail, demand for well-located, well-designed retail space in Canada's largest urban growth markets is and should continue to be very solid. These are the most dense locations in Canada, with the most robust population growth and where the greatest amount of retail spending takes place. These are also the markets that have the highest barriers to entry for new retail supply and where assembling functional, well-designed space is the most complex. These are also the markets where retail sales continue to increase at the highest rate, and consequently, where the greatest rental rate growth potential exists. Because of the proactive work we started many years ago to reposition the portfolio, it is where over 90% of our rent is generated today.
We've said that the most successful retailers of the future will require both a strong physical and digital presence. We believe this is true for many of our retail tenant categories, including our largest, which is grocery stores. Since our last conference call, Amazon agreed to acquire Whole Foods for a cash equity value of $13.7 billion. There are many ways to analyze this transaction, and while it's too early to make a well-informed assessment on Amazon's strategy, it seems obvious that the transaction further validates the value of well-located retail locations in urban markets with strong demographics. As Canada's leading necessity-based landlord of urban retail properties, supermarkets are our largest tenants. We reviewed a lot of good news for FCR regarding the grocery segment on our last conference call.
Since then, we continued to do new lease deals with four more supermarket locations in Toronto and Calgary. Grocery stores are an important part of our shopping centers. Naturally, we spend a lot of time reviewing and analyzing these stores and the business they conduct in our space. We also allocate resources to further improve our properties and the sales our tenants achieve in them, whether it be by adding new access points, traffic lights, parking spaces, loading docks, the right new tenant or use, and so on. When you couple this proactive approach with our long-term focus on only high-quality locations with robust demographic profiles, it serves our grocery tenants very well. I'll explain further. First, a quick look at the demographic profile of our portfolio.
On average, our properties have over 208,000 people within a five-kilometer radius, with average household income that exceeds CAD 106,000. As you can see on slide five, these demographics are industry-leading in Canada, especially the density number, which we lead by a very wide margin. It's no surprise that the grocery stores in our portfolio are significantly more productive than the grocery industry average. In total, 81 of our grocery store locations report sales. The average sales of these stores in 2016 was CAD 680 per square foot. This is an exceptionally strong sales figure, much higher than average, which speaks to the strength of our real estate. The trends continue to be positive. Notwithstanding deflation faced by the grocery segment last year, the grocery stores in our portfolio reported 2016 sales that were 3.3% higher than the prior year. Again, a very strong figure.
The bottom line is that our properties are situated in very dense locations. We invest our expertise and our capital to constantly improve functionality, merchandising mix, and so on. This results in higher sales per square foot with higher growth rates, and consequently, higher rents over time, which we have and continue to achieve. Before I pass things over to Kay, I'll touch on our major active developments, where we continued to make meaningful progress during the quarter. For clarity, the major active projects I'm referring to include 3080 Yonge at the corner of Yonge Street and Lawrence, Yorkville Village, and King High Line, all in Toronto, the Brewery District in Edmonton, and Mount Royal Village in Calgary. We reviewed the significant progress we've made in these development projects at our AGM in May.
For those of you who were not able to attend, the webcast is still posted on our website. Since last quarter, we made further progress, which I will quickly talk about today, starting in Yorkville. First, SoulCycle, who just opened their second Canadian location in our property. The balance of the year has a lot in store for the mall, with many new tenants opening, including the first Canadian boutiques of both Belstaff and Eleventy, Palm Lane Restaurant by the Chase Hospitality Group, Jean-Paul Fortin’s latest footwear boutique, and a very exciting deal that was just signed in the last couple of weeks, Galerie de Bellefeuille, one of Canada’s most recognized, independently run art galleries, who will expand for the first time in almost four decades from Montreal and open a 5,000 sq ft gallery in our mall later this year.
This is great news, not only for our mall, but for the Yorkville area in general. As you can see on slide six, there is a lot of activity on our street front assets. A couple of weeks ago, we commenced demolition of 102, 104, 106, and 108 Yorkville to make room for new buildings that will advance the transformation underway on Yorkville Avenue. This neighboring set of properties beside our upcoming Chanel store will be the future home of several new-to-market retailers, such as Jimmy Choo and a still confidential luxury retailer. We have also entered into a lease for the entire third level, including a spacious outdoor terrace, with Her Majesty’s Pleasure, who will expand from King West and is a great fit for the Yorkville neighborhood.
Referring to slide eight, during the quarter, we formed part of a group that acquired Toronto Fashion Week, which is being relaunched and naturally relocated to Yorkville. Toronto Fashion Week will occur twice per year, with the first event taking place this fall immediately before TIFF. A road closure permit has been obtained so the runway and events can take place directly on Yorkville Avenue in front of our mall. Jean Paul Gaultier and Derek Blasberg from CNN Style will be featured, as well as a Salvador Dalí-themed art and fashion exposition named Dalí X Yorkville Village. There are many more new components of the relaunch of Toronto Fashion Week in Yorkville Village. This is another good example of the many innovative initiatives we are pursuing to enhance the experience in our properties and to elevate them as vibrant retail environments with a strong sense of place.
Before moving on from the Yorkville area, I refer you to slide nine, where we also announced that we have entered into a lease with McEwan, who have leased the entire concourse level of One Bloor Street East, which is under development at the corner of Yonge and Bloor. The new 18,000 sq ft gourmet store will include both a significant prepared food offering as well as a grocery offering. Subsequent to last quarter, we also announced our two anchor tenants for the retail component of our mixed-use King High Line development in Liberty Village, as you can see on slide 10. We have signed leases with Longo’s for a 30,000 sq ft grocery store and Canadian Tire for a 42,000 sq ft space. Both retailers are scheduled to open in the second half of 2018.
In total, these 5 large active developments will be substantially complete by the end of next year. These 5 projects total 1.3 million sq ft with a total cost of roughly CAD 1 billion. Individually, each of these are exceptional pieces of real estate, with an NOI growth profile well above average. It is the collective effect that will be most impactful. This CAD 1 billion group of properties will further strengthen our presence in our core urban markets, and they will significantly increase the bar on our weighted average asset quality, which is already very high. In addition to the foregoing, our development pipeline will further progress, or will further this progress, which stands at over 14 million sq ft of incremental density, including the former Christie Cookie site, which will be another very substantial marquee urban asset for First Capital.
With that, I'll now pass things over to Kay to review our second quarter results in detail.
Thank you, Adam. Good afternoon, everyone, and thank you for joining us on our call today. As Adam mentioned, we were pleased with our overall results for the quarter. We generated solid growth in Same-Property NOI, which was up 2.8%. In Operating FFO, which was up 4% over the prior year period. Additionally, as expected, and as we indicated on our prior call, our portfolio occupancy rate improved by 50 basis points over Q1. Starting on slide 12 of our conference call deck. Our Operating FFO for the second quarter increased 4%, or CAD 0.01 on a per share basis, and 9.8%, or CAD 6.3 million versus the prior year period. The growth in Operating FFO per share was primarily due to Same-Property NOI growth of CAD 2.5 million.
This was driven by higher rental rates and also by a CAD 2.3 million increase in interest and other income as a result of higher loans and deposits outstanding over the prior year period. This includes the deposit we made on the forward purchase of One Bloor, which is expected to close in the fourth quarter of this year. Moving to slide 13. Our Q2 Same-Property NOI increased by 2.8% versus the prior year period, primarily due to rent escalations, lifts on renewals, and reduced operating cost. On slide 12, we continued to achieve solid lifts on our lease renewals. Our Q2 Same-Property lease renewal lift was 9.6% on 345,000 sq ft of renewals. Our Q2 total portfolio lease renewal lift was 8.6% on 387,000 sq ft of renewals. Slightly lower due to leases renewed in properties currently undergoing or slated for redevelopment. Moving to slide 15.
Our average net rental rate grew 2.3%, or CAD 0.43 over the past 12 months to CAD 19.39 per square foot, primarily due to rent escalations and lifts on renewals. In the second quarter, we transferred 18,000 square feet of new GLA from development to income-producing properties, bringing our year-to-date development completions to 62,000 square feet of new GLA with an invested cost of CAD 44.8 million. The majority of this space is leased at an average rental rate of CAD 33.30 per square foot, 72% higher than the average rental rate for our portfolio. On slide 16, our total portfolio occupancy rate increased by 50 basis points since Q1 as higher-performing retailers paying higher rents took possession during the quarter of 105,000 square feet of space at two of our properties that had increased vacancy in the prior quarter.
At quarter end, we were holding 0.8% of our portfolio intentionally vacant for redevelopment. Slide 17 highlights our five largest developments that accounted for the majority of the CAD 38.3 million in development and redevelopment spend in the quarter. Our development pipeline at quarter end totals 14 million square feet of additional density, including 2.8 million square feet of retail density and 11.3 million square feet of residential density, with 555,000 square feet currently under active development. I also want to touch on the growth in NAV per share during the quarter. Our NAV increased by CAD 1.12 per share, or 5.5%, during the quarter. Approximately 40% of this growth was due to higher rents and NOI, with the remainder due to lower Cap rates on assets primarily located in Toronto as a result of an external appraisal on a major Toronto asset and recent market activity.
Slide 18 shows the factors driving the growth in operating FFO during the quarter and the year-to-date period. This slide also highlights our year-to-date operating FFO payout ratio, which improved to 75.4% from 78.2% in the first half of last year. Slide 19 summarizes our new ACFO metric. As discussed on our last call, effective Q1, we adopted the ACFO cash flow metric as defined by RealPAC to replace AFFO, our prior cash flow metric. Our ACFO working capital adjustments primarily relate to prepaid and accrued realty taxes due to seasonal variances in these items over the course of the year. Our CapEx deduction is actual maintenance CapEx spend in the quarter, which includes both revenue-sustaining and recoverable CapEx. Our Q2 ACFO was down CAD 5.1 million, or 7.9%, versus the prior year period, primarily related to higher maintenance CapEx spend in the quarter.
This was due to the timing of the spend this year versus last year. We expect our full year spend for 2017 to be consistent with our average spend for maintenance CapEx over the past two years, which was CAD 28 million. Slide 20 touches on our other gains, losses, and expenses. We had minimal other gains and losses during the quarter. In the prior year period, we recognized CAD 3.2 million in Target proceeds related to the 2015 closure of two Target stores in our portfolio. Excluding these proceeds, our Q2 FFO per diluted share was up 6.3% over the prior year period. Information on our recent financing activities is on slide 21. Post quarter end, we issued CAD 300 million of Series U 10-year unsecured debentures at an effective interest rate of 3.7% and redeemed in cash CAD 51 million of Series I convertible debentures with an effective interest rate of 6.2%.
Slide 22 summarizes the size of our operating credit facility and our unencumbered asset pool, as well as our key financial ratios. During the second quarter, we extended the term of our CAD 800 million operating facility by one year to remain at a five-year term. Our net debt to total asset ratio improved by 60 basis points since Q2 of last year to 42.5%, while our unencumbered asset pool grew by CAD 1.1 billion to CAD 7.2 billion or 74% of our total assets over the same time period. Slide 23 shows our 10-year debt ladder post our new CAD 300 million unsecured debenture offering in July. Our weighted average interest rate has declined to 4.4%, and our weighted average term has increased to 5.6 years. We continue to have future opportunity for interest rate roll down in our near-term maturities.
We have CAD 175 million in remaining 2017 debt maturities with a weighted average interest rate of 5.4%. Overall, we are pleased with our strong financial position and our solid results for the quarter and the year-to-date period. At this time, we would be pleased to take any questions you have. Vincent, can you please open the call for questions?
You there, Vincent?
Yes, thank you. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Sam Damiani. Please go ahead.
Thank you. Good afternoon. Adam, the comments you made on the grocery stores were quite impressive. I think you mentioned there were 81 stores that were represented by that CAD 680 sales figure. Is that right?
That's right.
What % of the total store count would that be for the company?
As of Q2, we had 132 grocery stores, it's roughly 60% of the total.
Okay. Do you have sales figures for other categories of retail besides groceries?
No. Look, in the unenclosed retail format where we operate, as you probably know, it's not typical to receive reported sales from tenants generally. Going back many years, we made a concerted effort to try and include that. There's a lot of categories like grocery, where even without reported sales, we can generally get a good sense of where they are by walking the stores, utilizing our expertise. A lot of people in our company came from the grocery industry, talking to people within our company, within the grocers themselves, and that's the same for other retailers. We do put more emphasis on the grocery segment in terms of a barometer of how much traffic is generated in the properties and how healthy things are. Grocery would be the category where we actually receive the most formal reporting of sales of any other tenant category.
Okay. Would you want to add any color in terms of the groc ratio or the rent that these grocers are paying in terms of any indication, in terms of uptick to market as these leases roll over in the future?
Yeah. What I would say is, if you look at our average in-place rent, which is just under CAD 20, given the grocers are anchors for a lot of these properties, the average for our grocers is less than the average in our portfolio. You very quickly, linking together the net rent and generally what the additional rents are in the properties, you get to a range of where they're paying relative to the CAD 680 a foot. The grocs are exceptionally healthy on average, and clearly there's, over time, a lot of runway in terms of at least what their ability to pay is, notwithstanding where market is relative to in-place rents.
I think you mentioned you did four grocery deals since last quarter, I think. Does that include a TransCanada Centre in Calgary? Has that been finalized?
That one has been finalized. That one is included, yes.
Just switching over to guidance. I think it was introduced at the beginning of the year for low single digit, quote unquote, OFFO growth. What is your sort of outlook today, given half the year is under your belt at about 4% growth so far year-to-date?
Sam, we were pleased with our year-to-date operating FFO growth of 3.8%, which came in at the high end of our guidance range. We expect this solid performance to continue in the second half of the year, and that our full-year results will also come in at the high end of our guidance range.
That's helpful. Is there any specific impact from One Bloor East, how that asset is going to either contribute in the third and fourth quarter and just timing of cash flows?
Sam, we would expect upon closing that a portion of the space will remain under development as we continue our work to improve the functionality and the presentation of the space. We would expect this work to take us the next several months to complete, and we also expect that a portion of the space will be ready for tenant possession, and at closing will become part of our IPP portfolio.
Closing is October?
Yeah, that's where we're tracking. Based on what Kay said, there should not be a material impact, positively or negatively, in the fourth quarter. We think once we complete the redevelopment of part of the space and the lease up, that there certainly is the opportunity for a positive impact, but it will not be in the fourth quarter of this year. It'll be sometime later than that.
Great. Thank you.
Okay. Thanks, Sam.
Thank you. The next question is from Pammi Bir. Please go ahead.
Thanks. Good afternoon. Just maybe sticking with One Bloor. Just based on the McEwan lease, where does that put you, I guess, in terms of what you were targeting, from an unlevered yield standpoint?
I don't think we've talked about publicly where we were targeting from an unlevered yield basis. What I can tell you is that the McEwan lease rates are at the high end of what we had underwritten for the space. We're hoping to do better than that, because to the extent that they do exceptionally well, which we believe they will, we would have a participation factor in that as well.
Okay. I guess can you just remind us how much of that space is left to address at this stage?
Yeah. It's Jordan. It's about 27,000 square feet of space is remaining.
How are the prospects for the rest of that?
Well, I have to say, we're really pleased. After the announcement of McEwan, the response has been overwhelming, in fact. We're, I would say, in active discussions with a number of retail tenants today, in a variety of uses.
Okay. Just maybe, in another way, if you look at the return that's being earned on the deposit, I guess once it's all said and done, would you expect to be ahead of that once it's all leased?
Yeah. When we entered into the transaction, Pammi, we had indicated that we believe under kind of our worst realistic case scenario, that's where we would end up. We still feel that way now. I'd be very surprised if we ended up there and not better. Really until the last 27,000 square feet is left, we won't know for sure. Certainly our thesis going into the investment has played out the way we expected or slightly better. Look, at the end of the day, this is Yonge and Bloor. We knew going in, there was never a question to us whether we could lease the space. It was how much rent can we generate from the space. We don't have a lot of space left. We understand the value of the space. It's very high for all the reasons it should be.
We're going to be selective on who we ultimately complete transactions with and what the lease rates are.
Got it. Maybe just switching gears. Kay, I think your comments earlier with respect to the increase in the NAV. You referenced one of your major Toronto assets. Can you be a little more specific? Also, are you open to sharing the cap rate that was applied to that asset?
Yeah. As I said, Pammi, the fair value change in the quarter, 40% of it really related to stabilized NOI growth rate within the portfolio. The remainder, the cap rate compression. We saw a number of data points in the market that supported that. Certainly, the appraisal on a very large asset in Toronto was part of that. We don't disclose individual cap rates on our assets.
Okay. What was the compression in the cap rate? I'm just curious. You don't have to give the specific, absolute number for the cap rate, but just curious how many basis points you brought it down.
Sure. 25 basis points on that asset in Toronto.
Okay. Just switching gears, just going back to the 62,000 sq ft of development that was completed. Am I correct that roughly that, in terms of the lease rate and the occupied space, you're basically looking at about CAD 2 million of NOI?
Yeah, you can simply do the math on it, Pammi, in terms of the square footage times the average rental rate.
At CAD 45 million in terms of the cost that was transferred. Is that roughly, again, sort of looking at a four-and-a-half yield?
You have to be careful on taking that formula in any one specific quarter because it's very hard to allocate costs and various components of the development specifically to leasable area. You're going to get some quarters like this one where you look at the cost per sq ft and it's higher than the overall development, notwithstanding the rents may not be. I would strongly encourage you, Pammi, to take that metric over several quarters if you're trying to figure out development yields. We disclose the development yields on the portfolio of active developments every quarter. That's generally where they're coming in. I think looking at it on a single-quarter basis, you just got to be careful because it can be a bit lumpy.
Sure. Generally speaking, you expect, based on the commentary, to sort of get into that five range, the low fives, on a stabilized basis.
Yeah. That's the weighted average that we're expecting for the properties that we've disclosed that are under active development.
Okay. Thanks very much.
Okay. Thank you.
Thank you. The next question is from Michael Smith. Please go ahead.
Thank you, and good afternoon. You've had some nice fair value marks in Q1 and Q2. Do you expect that trend to continue?
Michael, that's really dependent on leasing activity within our portfolio and if we have additional improvement in NOI that wasn't reflected in our valuation models at the end of the quarter. Additionally, any new market activity, which would indicate changes to cap rate assumptions that are necessary.
What's your sense of cap rates?
In terms of?
Like, direction.
Well, there's a number of other factors that go into that, like interest rates and a bunch of other things that I'm not sure are opinion. I wouldn't put a lot of weight in our opinion personally on that. What we have noticed over the years is for urban retail real estate like we own, the correlation between, let's say, moves in interest rates is less so than it used to be. We have more foreign capital that's investing in this type of real estate, and in some cases, especially the European capital, they have a different set of fundamentals that drive what yields they view value in and are prepared to accept. It certainly seems stickier in terms of cap rates. Look, we've talked about this before.
There are inherent limitations in IFRS valuations with respect to cap rates that we're working on providing better tools for investors to see through that and to be able to determine value, in our view, more appropriately. It's tough to call where cap rates are going, Michael. Where we're focusing more is where NOI is going, and that's what's a lot more in our control, and we're encouraged with the activity that we're seeing in the business.
Okay, good. Just switching gears. I know it's early going, but any color on Christie Cookie site, what activity you're doing, how that's going?
Well, we can tell you, we're very encouraged, and have a lot of conviction in the fact that given the opportunity to bring everything we've learned in urban development into a massive site where we have full control, that will be one of our marquee assets, undoubtedly, and I think we're going to make a lot of money through the process. In terms of exactly where we're at now, I'll have Jodi let you know where we're at in terms of the overall process.
Hi, Michael. Just to add to Adam's comments, that we spent the last year, since we bought the property, meeting with various rate payer groups and resident groups and, of course, the City of Toronto, key people at Metrolinx as well. These are all the stakeholders that we're working with to try to advancing to the advanced discussions. This is a complex project. There's a lot of things that will go in. We're trying to bring our experience and also working along, with the municipality and other governments to advance things. That's how I expect things will continue over the next while, before we have anything further to announce.
You're happy with the way things are going?
Yes, I am.
Okay, good. Just lastly, just to clarify on the per-share FFO guidance. It seems like it's coming in at the high end of the range. Is the range low single digit or low to mid single digit for the full year?
It's still at low single digits, Michael.
Okay. All right. Thanks.
Thank you.
Thank you. The next question is from Dean Wilkinson. Please go ahead.
Thanks. Afternoon, everyone. Kay, just wanted to make sure that I understood what you said around that increase in the fair market value during the quarter. 40% of about the CAD 172 million was from stabilized NOI growth. Is that correct?
That is correct.
I would say that the other CAD 100 is just mark-to-market gains against the appraisal or other assets within the portfolio.
That is correct.
Okay, perfect. I think that the asset under appraisal, Adam had disclosed in Q1 that that was Liberty Village. That is correct. Correct?
That is the one.
That's the one. Perfect. Could you tell me, shot in the dark here, of that CAD 100 million mark, how much of that was related to Liberty Village?
We don't disclose that.
Fair enough. I thought I'd try. Last one for me, a real small one. On the McKenzie Towne Centre, in Calgary, was there a large amount of excess land associated with that acquisition?
No.
No.
No.
Okay. The price is more a strategic acquisition relative to it being in proximity to something you already own?
Yeah, McKenzie has been one of our most successful assets and developments, and we're pretty much out of development space there. Naturally, when the Scotiabank property was available for purchase, it was one of the only things in the shopping center we didn't own.
Right.
Certainly, we would have a strong desire to do it, and we were able to buy it at a reasonable price, yeah, clearly it made a lot of sense for us. That was the rationale behind it.
Okay. Makes sense. That's it. Thanks, I'll hand it back.
Okay. Thank you, Dean.
Thank you. Once again, please press *1 on your telephone keypad if you have any questions. The next question is from Matt Kornack. Please go ahead.
Hi, guys. Just wondering, in your view, would Christie Cookie be the next large development that you'll pursue within the portfolio? Or are there others that you're currently looking at that haven't been identified as such currently?
I'm going to let Jodi answer that, but I mentioned that we really have five major, active projects underway right now, and they wrap up or get substantially complete by the end of the year. We've done a lot of work, and Jodi's group has done a lot of work, to analyze the portfolio. We will undoubtedly start other projects before Christie Cookie. We've got a lot of pre-physical construction work to do on Christie Cookie before we actually do that. With that, I'll pass it over to Jodi.
Thanks, Adam. Hi, Matt. As you know from our disclosure art, we have a very deep development pipeline. With the exception of Christie Cookie, most of the properties that are in our development pipeline are income-producing shopping centers, which gives us the ability to manage the timing that's most suitable. What we're doing is we're looking at the best properties that will have the lowest risk profile and the highest returns to develop, and then we'll manage the timeline, when we want to start the development or the redevelopment of those properties. I do actually have a list of, there's about 10 that we're going through the process of identifying now. They are strong candidates for the next round of developments. The first one's already been touched on, is 102 to 108 Yorkville.
As you saw from the photos, we started in this quarter, and we've demolished the existing buildings. Also in Yorkville, 101 Yorkville that we purchased a year ago, will be a future development. 1071 King, which is in Liberty Village, will be another one. Humbertown Shopping Centre, most people are familiar with that. Rutherford Marketplace, we have a piece of land that's slated for residential development. That'll be next year. Royal Orchard Shopping Center, which is in Thornhill, is a future redevelopment. Parkway Shopping Center, at the northeast end of Toronto, is in phase 1 of a development now, and phase 2, which is more substantial, will be next year. Wilderton Shopping Center, which is in Montreal, also is a next year project. Semiahmoo, which is in South Surrey, is also a future project.
Finally, in North Vancouver, we have a property, called 200 Esplanade, and that will be a future redevelopment. Of those 10, we are doing our analyses and assessing which ones we'll bring forward.
For the most part, in all of those projects, it would involve taking down existing structures that are leased, or is it on adjacent land that you'd be doing that?
Depending on the situation, some of them are redevelopments. The case of Royal Orchard would be a redevelopment. In other cases, it's intensification. It really does depend on the actual property.
Okay. In terms of timing, with regards to disclosing potentially which of those are going to be prioritized, is that something you'd expect sort of by next year, or will they just be announced as they start?
Yeah, look, once we have clarity and we feel that the disclosure is appropriate and at the right time, then obviously that's the point where we'll come forward with it. I would expect it to be done piecemeal, like we did this quarter. We included 102, 104, 106, 108 Yorkville for the first time. As we make decisions on others and commit to moving forward, then we'll include them in the disclosure at that time.
Okay. Fair enough. Just switching topics, with regards to occupancy, Ontario, Alberta, B.C., all in the 95%-97% range. Quebec has fallen off, but sequentially was fairly strong. Is there anything, do you see Quebec getting back up into the 94%-95% range, or is that vacancy going to stay in and around the 8% area for a while here?
Yeah, look, as you've seen last quarter and this quarter, the occupancy can bump around quite a bit. Especially when you take sub-portfolios, notwithstanding our overall portfolio is pretty substantial. When you take sub-portfolios, it doesn't take a lot of square footage to move the needle. Basically, we expect to get back to where we were. We don't think we're staying 8% vacant in the East, or in Quebec. There's a number of deals that I know Carm is working on that's slated to come through the pipeline over the next several quarters.
That presumably will drive aggregate numbers positively as well. I think Quebec probably contributed a little quarter to the sequential increase. Finally, with regards to the credit facility, you've drawn more on it, which I think is a good thing because it's a cheaper cost of capital. In terms of reducing that over time, do you foresee using the unsecured market, mortgages, equity, or how are you looking at that at this point?
We had it drawn at the end of the quarter, we subsequently did the CAD 300 million unsecured, which immediately paid it down. The way we view the credit facility is a certain amount, which is less than half, we expect to generally draw, not on a long-term basis, but to keep room for when an unsecured may make sense or other forms of capital that may be coming into the business. It's a good place to draw on. I'd say close to half is really there as almost an insurance backstop. We have a robust development program. We have wonderful urban assets that we're investing capital in.
Inevitably, at some point, there will be a major economic situation that could impact the cost and availability of capital, we don't want to put ourselves into a short-term position where that drives decision-making at the real estate level. That gives us a lot of comfort that we can get through a reasonable period of time, where things are very unfavorable on the capital side and still progress our real estate projects, the way they should progress, keeping the long-term nature in mind. That's how we view the credit facility.
Okay. That's great. Thanks, guys.
Okay. Thank you, Matt.
Thank you. The next question is from Sam Damiani. Please go ahead.
Thanks. Just wanted to touch on a couple things. First off, on the banks. It's been topical for about a year in terms of the prospect of branch closures and whatnot. I'm just wondering what you're seeing in terms of your locations. Obviously, given the higher quality urban nature, I'm just curious what you're seeing in that regard, and then I have a follow-up.
Well, we're still a little surprised because I would've guessed that we would have seen a reduction in our bank branch totals right now, that has not played out. We still believe that will play out. I think we signed three new bank deals either this quarter or the last two quarters. They still make, obviously, great tenants for the right real estate and while the size of the branches are a little different in the way that they're building them out and the activities that are taking place in them are evolving, there still seems to be pretty strong demand from the banks for a lot of our real estate.
It's pretty obvious to us, speaking to some of the bank CEOs and executives, that there will be a reduced store count in the future, it's going to be a more gradual and slower transition than I think we probably initially thought.
You would expect to, given the strong locations, as you say, the rents that you could get from another retailer category would be comparable or better in those cases?
Yeah, that's the idea. For banks that have been there for a while, paying rental rates that were negotiated five or 10 years ago, a number of them are well under market. We have done a lot of work in anticipation of potentially getting a lot of the bank space back. In many cases, restaurants actually make for a great repurposing of the space in locations where the banks are in pads, which is in a lot of spots in our portfolio. They have drive-throughs, so they're great for quick-serve food retailers. Oftentimes, they're on end caps in some of our multi-tenant buildings, with great unutilized patio potential. Restaurants is an expanding category in the urban centers. They do pay strong rents. We don't see an issue in the event that we end up turning over a bunch of bank branches over time.
We don't see an issue in terms of rental rates rolling down. In fact, we believe the opposite will happen.
Thank you. I just wanted to also touch on the completions of the major projects next year, how they phase sort of out of construction into IPP and the timing versus interest expense no longer being capitalized and the NOI eventually ramping up to stabilized levels. Is there some downtime that we should be modeling? And if, Kay, if you have any ability to quantify that at this point, that would be helpful.
Yeah. We lay that all out in the MD&A, Sam, in terms of the expected completion dates of everything that's under development. I wouldn't be modeling some specific downtime into that. I think we're tracking well up against what we've disclosed in terms of those target completion dates.
The lag between interest expense coming on and NOI reaching stabilization, would you say, is typically a quarter, two quarters?
Yeah. I think that's a fair assumption.
Okay. Thank you.
Okay. Thanks, Sam.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Adam.
Okay. Well, thank you very much everyone for your interest in First Capital and for attending the Q2 conference call. Have a great afternoon. Enjoy the rest of your summer. Bye-bye.
Thank you. Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you now disconnect your-