Ladies and gentlemen, thank you for standing by. Welcome to the First Capital Realty Q1 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 on your telephone keypad. I would now like to turn the conference over to Roger. Please proceed with your presentation.
Thank you, Mary. 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 discussion and analysis for the quarter ended March 31, 2017, and our current annual information form, which are available on SEDAR and our website. Except as required by securities law, we undertake no obligation to publicly update or revise any such statements.
With us here today are our President and CEO, Adam Paul, as well as our senior executives, Kay Brekken, Jordan Robins, Jodi Shpigel, and Carmine Francella. I will now turn over the call to Adam.
Thanks, Roger. Good afternoon, everyone. My take on Q1 is that it was a pretty good quarter. As I look at the fundamentals of our business and the talent of our team, I believe we should and we will deliver more. Before Kay reviews our quarterly results in more detail, I'd like to spend a few minutes reviewing some interesting facts about First Capital. If I could sum it up in one phrase, the strength of our business is above average growth with less volatility. One of our most compelling attributes is not only the stability of our cash flow, but the reliable growth in that cash flow. When you own strong locations, lease thoughtfully, have a talented team, a best-in-class operating platform, and a flexible balance sheet, you remain far more insulated from cyclical shifts.
There are profound differences between the sound fundamentals of the First Capital business model and the generalized commentary about the perceived challenges of the broader retail environment. Some view the evolving trends in retail as a threat to brick-and-mortar stores. History shows that as retail changes, there are always winners and there are losers. Clearly, those who cannot adapt will suffer, and those who can will prosper. That's how evolution works. A careful review of the First Capital portfolio shows a few things. First, 35% of our total income is now generated by uses that are e-commerce proof. These include medical clinics, restaurants and coffee shops, hair and nail salons, daycares and learning centers, and fitness clubs. This 35% number excludes grocery stores and pharmacies, which represents an additional 27% of our total income.
It also excludes the balance of our daily necessity tenant base, which is very resistant to the changes that are occurring. We have a track record of recognizing secular shifts and responding in a proactive way to create opportunities. Furthermore, we continue to improve the merchandising mix in our centers, while at the same time increasing rents, NOI, and NAV on a very consistent basis. In summary, our real estate focus is on urban market locations with strong demographic profiles, with tenants who provide necessity-based goods and services that match the local consumer profile. Our strategy is squarely built around a very specific subsector of retail, and it is that focus that has resulted in such strong fundamentals as we look ahead. Many of our investors are keen to talk about our higher profile developments, as are we.
While these developments and our development pipeline, in general, will have a materially positive impact on our business for many years to come, we can't lose sight of our core, the same property portfolio. Today, I'll use more of these properties as examples of what's occurring in FCR. Since the beginning of 2016, our NAV per share has increased by a solid 11.4%. Over half of this growth came from higher rents and NOI. The balance largely came from cap rate compression. Some of the cap rate compression was market-driven and was recognition of our high-quality assets. The balance, however, was a direct result of value creation by First Capital. We recently completed the repositioning and expansion of numerous properties, including Pemberton Plaza in Vancouver, Morningside Crossing in Toronto, and Carrefour LaSalle in Montreal, to name just a few.
In terms of the broader retail environment, First Capital has remained well-insulated from the majority of recent retailer bankruptcies and announced store closures. The health of our tenants is evidenced by recently announced store expansions, something that gets less attention than doom and gloom. As Canada's leading necessity-based retail landlord, grocery retailers have always been our largest tenant category. There's a lot of good news in profitability coming out of the grocery segment. I'll start with Loblaw. Loblaw just announced the planned opening of 30 new stores and the renovation of 500 stores. This is following the 50-store expansion they announced last year. Loblaw also noted trends in their shoppers' locations that we have also observed in our portfolio.
A clear distinction was made about the growth prospects being focused on urban markets versus suburban, given the foot traffic, growth in that foot traffic, and the consumer shopping patterns. They also said they're continuously looking for incremental locations in these markets, as are many other retailers. It is exactly these urban markets where virtually our entire 25 million sq ft portfolio is located. Not surprisingly, more Loblaw locations continue to open in our properties. Recently, Edmonton's first Loblaws City Market opened in 42,000 sq ft in the Brewery District, as did a new Shoppers. In our Carré Lucerne Center in Montreal, a new Provigo Le Marché store opened in 50,000 sq ft, and also a new Shoppers. In our Queenston Place Center in Hamilton, a new 38,000 sq ft No Frills is now operating. We have more Loblaw locations to come, including at 3080 Yonge in Toronto.
Another grocer who's also expanding in our portfolio is Metro. So far in 2017 alone, supported by strong sales per sq ft growth, two of our existing Metro stores are expanding their leasable area by an average of 13%. In Griffintown, Metro's Adonis banner opened a new store in 32,000 sq ft. Moving to a Western-focused grocer, we have a few things on the go with Overwaitea Food Group, the parent of Save-On-Foods. Last month, Overwaitea publicly expressed their desire to expand their grocery footprint in strong Western Canadian locations. Our Richmond Square property in Calgary has several of the typical First Capital uses, but it does not yet have a grocery store, which we have long believed would take this high-quality property to the next level.
It was only recently that we were able to get control of enough space to make this happen, which was not an easy task. This allowed us to sign a lease with Save-On-Foods, who will open a 41,000 sq ft grocery store. In our Mount Royal Village property in downtown Calgary, Overwaitea will open under their Urban Fare banner. Another major grocer is Sobeys Safeway. In Montreal, a very high performing IGA, which is a Sobeys banner store, is expanding by 10%. As well, we recently mentioned that the Safeway store in TransCanada Centre in Calgary would vacate later this year. Multiple grocery retailers have expressed strong interest in this site, we expect to announce a replacement grocer shortly. The success of our strategy and the strength of our real estate will again be demonstrated here.
This opportunity has resulted in us unlocking meaningful embedded value at TransCanada Centre. First, we now have the opportunity to develop a pad on a high exposure portion of the shopping center that was previously restricted by the Safeway lease. Second, more importantly, market rent for the 48,000 sq ft grocery store space has increased significantly since the Safeway lease was signed over 20 years ago. This situation is a good example of how good real estate gets better over time, which is why we have always had an unwavering focus on only high-quality locations. Outside of the grocers, there are a lot of other tenants that are growing with us. Winners/Marshalls continues an aggressive expansion in Canada, and we have recently added four locations, including Cedarbrae Mall in Toronto, Brewery District and Northgate Centre, both in Edmonton, and Griffintown in Montreal.
Dollarama, another First Capital tenant, has been one of the most successful Canadian retailers. They recently revised their growth targets with an objective to add several hundred more locations. With 53 stores in our portfolio today, First Capital will continue to benefit from Dollarama's success and the high foot traffic that they drive to our centers. We were one of the first landlords to have an aggressive push on coffee shops in our properties. As Starbucks largest landlord in Canada, we continue to work together by helping them grow in Canada's largest urban growth markets. I'm personally very impressed at how they specifically have adapted to technology in their business. We've taken the same approach with fitness clubs and many other First Capital tenants that are in expansion mode, which includes liquor stores, daycare centers, restaurants, and many others.
We also continue to attract strong retailers that are brand new to our portfolio, and in some cases, new to Canada. In Q1, Landwer Cafe opened in our Rutherford Marketplace Shopping Center. Landwer is a very successful Israeli-based restaurant serving breakfast, lunch, and dinner. They have over 60 locations, but this is their first of what is planned to be many Canadian restaurants. They selected a First Capital property as their entry into the Canadian market, where their sales are exceeding expectations. Last week, MEC, formerly Mountain Equipment Co-op, opened their first FCR location in our Edmonton Brewery District property, and this will be shortly followed by their second in our Fairway Plaza Center in Kitchener. There are many more examples I can provide, some of which we will cover at our upcoming AGM.
The specific examples that I have set forth today are each impactful on an individual basis, but collectively, I think they tell a bigger story about the fundamentals of our business. We all know that real estate is long-term in nature. Significant wealth can be created through attractive risk-adjusted returns in real estate, but a key ingredient is time. Take Liberty Village. What started out as a vision over 10 years ago has already, and will continue, to pay big dividends going forward from today. Recent leasing has demonstrated that market rents have more than doubled since the initial deals were done. Over the next couple of years, we have over 30,000 square feet of lease expiries where we will benefit from significant rental rate growth. Finally, a word on people and platform.
Over the past while, we made a number of changes designed to improve our business structure, culture, and systems. Our leadership team is deep and talented, and in my opinion, second to none. This is a fairly large, very busy company, so these changes take time to be implemented and even more time for the benefits to be fully realized. The traction and momentum from those changes are now clearly visible in our company, but the full impact on our financial results is still in its early days. In summary, our business continues to head in the right direction. We are exceptionally well-positioned. We have the right real estate, the right strategy, the right talent, and the right fundamentals to drive meaningful per-share growth in both NAV and earnings. We will do this with less volatility. I'll now pass things over to Kate, who will review our quarterly results.
Kay?
Thank you, Adam. Good afternoon, everyone, and thank you for joining us on our call today. Before I provide an overview of the financial results for the quarter, I would like to highlight some of the enhancements we've made to our MD&A to give readers additional insight into our results. Previously, we disclosed our gross leasable area, or GLA, at 100%. Effective this quarter, unless otherwise specified, all GLA, occupancy, and rental rates are now shown at our proportionate interest, as are the numbers for the comparable prior year periods. We continue to show our GLA at 100% in a few select areas, this information does remain available. We have added new disclosure on the average occupancy rate during the quarter, in addition to the quarter-end occupancy rates we have historically and continue to disclose.
We consolidated all of the disclosures on our non-IFRS financial measures into one section at the front of our MD&A. Additionally, we have adopted REALpac's new cash flow metric, ACFO, which replaces our previously disclosed AFFO metric. Starting on slide six of our conference call deck. Our operating FFO for the quarter increased 11.7%, or CAD 7.2 million in dollar terms and 3.7%, or CAD 0.01 on a per-share basis versus the prior year period. The growth in operating FFO per share was primarily due to same-property NOI growth of CAD 2.2 million as a result of higher rental rates. Also contributing to the growth in operating FFO was a CAD 1.7 million reduction in interest expense year-over-year, despite an increase in total debt outstanding.
Our interest expense has declined due to redemption of convertible debentures and repayments of maturing debt at rates well above current market rates for new 10-year debt. Moving to slide seven. Our Q1 same-property NOI increased 2.4% versus the prior year, primarily due to higher rental rates. Our same-property lease termination fees were down CAD 447,000 year-over-year. Excluding this change, our same-property NOI was up 3% for the quarter. On slide eight, we continued to achieve solid lifts on our lease renewals. Our Q1 same-property lease renewal lift was 8% on 228,000 square feet of renewals. Our Q1 total portfolio lease renewal lift was 6.2% on 303,000 square feet of renewals, slightly lower due to leases renewed and properties currently undergoing or slated for redevelopment. Moving to slide nine.
Our average net rental rate grew 1.5%, or CAD 0.28 over the last 12 months to CAD 19.36 per square foot, primarily due to higher rental rates. In the first quarter, we transferred 44,000 square feet of new GLA from development to income-producing properties with an invested cost of CAD 15.4 million and an average rental rate of CAD 29.65 per square foot, 53% higher than the average rental rate for our portfolio. On slide 10 Our total portfolio occupancy decreased 40 basis points since Q4 of 2016. The decrease in occupancy was due to tenant closures exceeding tenant openings by 111,000 square feet. We expect to fully recover this change in occupancy in the second quarter. Higher-performing retailers paying higher rents will take possession of approximately 108,000 square feet of space in the two properties that had the largest increase in available space during the quarter.
At quarter end, we were holding 0.7%, or 178,000 square feet of our portfolio intentionally vacant for redevelopment. Slide 11 highlights the five largest developments that accounted for the majority of the CAD 34.4 million in development and redevelopment spend in the quarter. Our development pipeline at quarter end totals 14.1 million square feet of additional density, including three million square feet of retail density and 11.1 million square feet of residential density, with 549,000 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 0.73 per share or 4% since Q4 of 2016. Approximately 55% of this growth was due to higher rents and NOI, with the remainder due to lower cap rates on assets primarily located in Vancouver and Toronto.
Slide 12 shows the factors driving the growth in operating FFO over Q1 of 2016, which I touched on earlier. This slide also highlights our operating FFO payout ratio, which improved to 76.8% for Q1 of 2017 versus 79.6% in Q1 2016. Slide 13 summarizes our new ACFO metric. 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 the seasonal variances in these items over the course of the year. Our CapEx deduction is actual spend in the quarter. Our Q1 ACFO was up CAD 2.6 million or 5.4% versus the prior year period. This increase was largely related to lower CapEx spend in the quarter due to the timing of spend this year versus last year.
OFFO continues to be our core earnings metric. Therefore, we are not disclosing the new AFFO metric, which is also an earnings metric. However, our MD&A contains all the information necessary to calculate AFFO in accordance with REALpac's new definition. Straight-line rent is disclosed in our NOI table, internal leasing costs are in our FFO reconciliation, and the CapEx deductions are in our ACFO table. Slide 14 touches on our other gains, losses, and expenses. Our Q1 other losses include a CAD 2.3 million non-cash loss related to the early redemption of our Series E and F convertible debentures, which carried interest rates well above current market rates. Excluding this non-cash charge, our FFO per share was up 3.3% versus the first quarter of 2016. Information on our key financing activities for the quarter is on slide 15.
We completed CAD 103 million of tenure mortgages at an average effective interest rate of 3.6%. On January 31st, we redeemed our Series E and Series F convertible debentures totaling CAD 106 million with an average effective interest rate of 6.5%. Also on January 31st, we repaid at maturity our Series H senior unsecured debentures totaling CAD 125 million with an effective interest rate of 6%. Slide 16 summarizes the size of our operating credit facility and our unencumbered asset pool, as well as our key financial ratios. I want to highlight that our debt-to-total-asset ratio has improved by 50 basis points since Q1 of last year to 43.1%, while our unencumbered asset pool grew by almost CAD 1 billion to CAD 6.8 billion or 72% of our total assets. Slide 17 shows our 10-year debt ladder at quarter end. We continue to have future opportunity for interest rate roll-down in our near-term maturities.
I want to specifically highlight our remaining 2017 maturities totaling CAD 207 million with a weighted average interest rate of 5.1%. Before I conclude, I would like to touch on a number of things we've been working on to drive our future performance. Over the past year and a half, we reorganized from a regional structure to a structure based on business function. We added significant new talent to our extended senior leadership team. We made substantial investments in improving our operating processes and in new IT systems, with more enhancements planned for 2017. We have begun to see the impact of this in our results, but it is still early days. We look forward to continuing to build on what we have achieved thus far to drive our results in future quarters. This concludes our comments on the quarter. Mary, can you please open the call for questions now?
Thank you. Please press star one at this time if you have a question. If you have a question and you're using a speakerphone, please lift your handset before pressing star one. There will be a brief pause while participants register. Thank you for your patience. The first question is from Mark Rothschild. Please go ahead.
Thanks. Good afternoon. Adam, you mentioned the increase in NAV over the past year. I was wondering if you can comment on the cap rate used, in that calculation of NAV and the process you go through, updating that, and to what extent do you view that NAV as realistic today?
Well, for most of your question, Kay is best suited to answer it. The only thing I'll comment on is there's an inherent issue in the restrictions imposed on how we calculate the fair values based on IFRS. I would say it impacts a lot of us. I don't think anyone more so than us, given the amount of incremental density that's sitting in our properties and the requirements to be able to reflect the value of that density in our internal NAV numbers. We've done a lot of work, over the last little while to help enhance the disclosure. We've now quantified the identified incremental density that we update every quarter. We're working right now on an exercise that would actually apply value to that and at least through disclosure purposes, show where we believe there's value outside of IFRS.
In terms of the process, Kay is best suited to answer that.
Sure. Our NAV at the end of Q1 was CAD 20.31 per share. This excludes any value for the operating platform and for any profit in development projects. It's simply assets less liabilities at the end of the quarter. We would update this on a regular basis.
You touched on, Mark, the cap rate range. At least I think that's what you were getting at. Again, we update that quarterly in our MD&A. You'll see that there was a slight decrease in the bottom end of the range, which was an asset in Vancouver that was externally appraised and that's where it came in. That's what pushed that one a little bit lower.
Yeah, I guess I'm also referring to the I think the average was maybe 5.5%. Is that something that you view as realistic today? If not, what do you think is realistic?
Look, again, under the requirements of IFRS, that's what we've said it is. The reality is if we actually went out and physically sold these assets, there would be a lot of them that we would sell at notably above the IFRS value.
Okay. On the residential development, you've quite a bit of potential for development, and you noted in the MD&A that a lot of them are medium-term projects. I think it was 4 million sq ft. Can you give any updates on specific projects you might be looking at, starting this year? Also, did the recent announcement by the Government of Ontario regarding rent control or other changes, lead you to review any projects or change the way you would go about some of the development?
Okay. The first part of your question, Mark, I'll tell you the properties that we're analyzing right now, and we will make a decision on which ones we move into active development to backfill the five large active projects that will be generally fully completed over the next 18-24 months. Wilderton in Montreal, prime candidate for redevelopment. Semiahmoo in South Surrey, clearly a candidate for some form of redevelopment. Humbertown has been on the board for quite some time, fully entitled. So we're revisiting that. We have an asset on Yonge Street in the north part of the city, which we call our Royal Orchard asset. There's a food store in there at a low single-digit net rent that expires in 2019. That is a prime candidate for redevelopment. We've got stuff on Yorkville, our street front assets that we intend to start redeveloping.
Rutherford, we had a little bit of excess land. We sold half of it to Greenpark. We're building 40 some odd townhomes together with them, which we deemed as the highest and best use. That gives you a sense for some of the things that we're analyzing. We're not going to go ahead on all the properties I just mentioned immediately behind the current ones, those are the ones that are under active analysis right now. In terms of the second part of your question on rent control, I think your question was what impact has that had on our decision-making. Is that fair?
Correct.
Okay. Look, at this stage, it's still a bit early to determine. We don't know the specific details of the changes that are being implemented. Until we understand the full details, we don't want to jump to conclusions. When we underwrite these residential rental developments, probably the most important key metric we look at is going in unleveraged yield on cost, in year one following completion. Based on what we've seen so far, it does not appear that the government changes will impact that specific metric. If you look at Liberty Village, which is the only place today we have active residential development in a meaningful way. The way we approached Liberty Village, we looked at the fundamentals for new residential development, a critical part of the process. The fundamentals are absolutely exceptional in this market.
To the extent the government changes curtail new development versus encourage it, which is one outcome that at least some people are saying will happen, that's going to cause a further imbalance between supply and demand. That should bode very well for a project like we have in Liberty Village that's going to lease up in the second half of next year. We'll see. At this stage, I would say we're still analyzing it, but no change to the approach at this point.
Great. Thank you very much.
Okay. Thanks, Mark.
Thank you. The following question is from Alex Avery. Please go ahead.
Thank you. Adam, you were talking a little bit about your appraisal process. You noted in the MD&A that, this year you've adopted a different approach. Could you just shed some light on how you came to that approach versus what you were doing previously and what the objectives are of the new approach?
I'll make some comments and Kay may have something to add. I do want to clarify, we should clearly separate the increase in net asset value, that we reported this quarter from any changes in our IFRS process. There is no linkage whatsoever. If we made no change to our process, our NAV as disclosed would've been the exact same number. I just want to make sure that's clear. In terms of the process, I'll let Kay speak to the rationale behind the changes, what the changes were.
Alex, we decided to bring this work in-house as we now have a qualified team in place that has significant knowledge of our business and our properties. We will still obtain external appraisals from time to time, as we did this quarter. Adam touched on one of those earlier that we undertook this quarter in North Vancouver, that did impact the lower end of our cap rate range for the Weston portfolio.
It was based on you having more in-house expertise, I guess. You think that you can provide a better perspective on valuation because of a greater understanding of the business, I guess? Is that what?
Yeah, greater understanding of the business, greater understanding of comparable trades or market data points that impact our portfolio. There are several other large, very reputable companies that do their internal valuations, as their source of IFRS values. For us, it's more efficient, and it was the appropriate time to make that shift. It's more efficient from a time perspective because instead of us getting external appraisals up to speed with our assets and our markets, we have that in-house. Secondly, there's a cost benefit because the cost for us, to staff internally with accredited appraisers is still lower than the cost to do external valuations. We still are doing them, just not in the same volume that we did before.
Yeah. I would add that sometimes it was taking our internal team longer to review the external appraisal than it would take them to do the appraisal themselves.
Okay. You mentioned the external appraisals. I would imagine that points in time when you're doing refinancings or other material changes to assets, that would be an occasion for an external appraisal. Are there any other logical times when you might have an external appraisal?
Sometimes with JV partners, it can be a typical requirement.
Yeah. Most commonly, Alex, yeah, it would be for financing or, like right now, for example, our investment in Liberty Village is significant, and for that reason and a couple of others, we've actually commissioned an external appraisal on Liberty Village. It's not financing related, it's obviously not JV partner related because we don't have a partner. We will make judgment calls from time to time, to do that, and we made that decision in Liberty Village. That appraisal's not complete, but it's in process.
I guess, maybe Yorkville Village, when that comes into income-producing, might be another occasion on which you would get one?
That's very possible.
Okay. I think that's it. Thank you.
Okay, thanks, Alex.
Thank you. The next question is from Sam Damiani. Please go ahead.
Thanks. Good afternoon. The information on the IFRS change is very helpful. Thank you. Just wondering if you could clarify if there's any value in your IFRS for the incremental density today, and if so, how much?
There is. It's a very small component of it. Typically, when sites are entitled for it, and zoned, that's typically the trigger point where we would reflect the value. I touched on Humbertown earlier. We obtained our full entitlements a little while ago, and so that specific asset would have the value included in it, but the majority would not.
Wilderton would not, anything you could do on Liberty Village would not be in there, et cetera?
Correct.
Okay. That's helpful. Thank you. Adam, your opening comments on the call today were to the effect of, the Q1 was kind of in line, you think the company, I think, quote, "Can and should do better." I'm not sure exactly what you said, I'm just wondering where you see improved results going forward relative to Q1.
Yeah, that's how I would describe it. I think we had a good quarter. I don't think we had a great quarter, I think given all the positive things occurring in the business that, and again, not on a quarter-to-quarter basis, but as a general statement, that I believe we will deliver better results. In terms of where, I think if you look at 2016, I think we had a very good year, it's a good indicator of where our growth will come from. In 2016, it was broad-based. We had contributions from various aspects of the business. It was at the property level, which is obviously the most important place to focus on, to drive value, and to move the needle.
Property-level performance, executing our investment program, primarily our development program, making our operations more efficient is an important place that we will look to. We're still getting the benefit of interest rate roll down on the debt that's maturing, like Kay touched on. Really, it's at the property level, and that's where I think we're best positioned, and we really made a lot of improvements to the platform to take it to the next level. It's an important part of our evolution, and our life cycle. We're constantly working our assets. We're constantly going out of our way to improve tenant positioning in the centers and improve functionality of the centers, either by adding new access points or putting tenants in more productive places, adding public art, and just being very proactive on the management side.
I think it's one of our competitive advantages, and I think it's an important contributor to our growth on a go-forward basis.
Okay, thanks. That's helpful. No specific comments on the FFO growth guidance that was set out last quarter? No change to that?
No, Q1 came in slightly better than our internal plan. Look, it's one quarter, and we're not at a stage right now where we're prepared to make any changes to what we said last quarter.
Just quickly before I turn it back, any update on One Bloor in terms of your discussions for the concourse level and any other discussions ongoing?
Yeah, I know Jordy is probably super keen to provide the update, but we're planning to provide an update at our AGM that will include that project. Be a little bit more patient with us. We're hoping to give you an update in a couple of weeks.
Look forward to that. Thank you.
Okay, thanks, Sam.
Thank you. The following question is from Armel Mawalik. Please go ahead.
Hi. Thank you for taking my question. You've mentioned Safeway not renewing their lease in the Calgary location. More generally, would it be possible to get a quick update on the Sobeys Safeway situation on what you've seen? More specifically, have you any further view compared to last quarter, any other location where you know Safeway is not going to renew their lease more specifically?
Okay. Well, thank you for the question. Sobeys has come out and laid out a restructuring plan very recently, so we've obviously taken note of that. Well, prior to that, we've done a lot of work to understand our Sobeys and our Safeway locations, and the bottom line is they occupy great real estate in our portfolio, generally at below-market rent. We'll continue to opportunistically review situations where we can unlock value like we are able to do at TransCanada Centre. At this stage, we're certainly not aware of any other locations that they would want to close or that they plan on closing, or anything else that would be material at this stage.
Okay. Well, thank you.
Thank you very much.
Thank you. The following question is from Michael Markidis. Please go ahead.
Thank you, and good afternoon. I wanted to get an update on your Yorkville assets. Phase 2 Yorkville Village. I was going to ask for an update on One Bloor, but I take it you're going to wait on that, but maybe you could give a few high-level comments as to whether you're pleased with your progress. Congratulations on landing Jimmy Choo. It's a good addition to the Chanel asset on Yorkville. I wonder what is that going to do for development.
Sorry, you broke up after you said, what is that going to do?
Yeah, I'm just wondering if that has any implications on your 101 redevelopment across the street, or if you're talking to any high-profile retailers of similar magnitude.
Yeah. Look, we are, and we in fact are doing more than talking to similar retailers. We have agreements signed with others, but we're bound by confidentiality at this point. Again, similar to One Bloor, we don't want to steal all the thunder from our annual shareholders meeting, but one of the focuses is providing an update on the activities that are occurring in the development program, and rest assured, Yorkville will be covered there. The bottom line is the street front assets, where we have merchandised them with luxury retailers like Chanel and Jimmy Choo has got a lot of traction. There are more of those types of retailers that are focused on opening up new boutiques in Toronto on Yorkville than there are available space. We're seeing it not only on our assets but in our neighbors as well.
That's a very good news story. We have made a decision to merchandise the enclosed mall portion with a different type of retail offering. There was a release recently that announced some of the new retailers that are opening in phase 2. They include Max Brenner, who's doing a new coffee shop called The Alternative Cafe, very cool, very strong offering that is intending to open this summer. On the back of the success that Equinox has had in the property now that they've been operating for a little over a year, we signed a lease agreement with them where they're introducing, on a standalone basis, the second SoulCycle in Toronto. That also opens over the next few months.
We've done a deal with the Chase Hospitality Group, to do a new concept, which is called Palm Lane, where it'll be a restaurant offering both quick serve and full sit-down service. They also open over the next few months. There's some additional fashion that's opening up, including, the first standalone boutique in Canada from Belstaff, Eleventy, which is an Italian company. CP410 out of Montreal, who runs the Ogilvy shoe department, amongst others, is opening a men's and women's shoe boutique in the mall. Those are some of the new retailers that are coming. We have some existing retailers like Philipp who, based on the success they're having, are opening up other brands as well in phase 2 in separate shops.
Is it fair to say that you're achieving your plan in terms of rents?
Hi, Michael, it's Jodi. I can answer that question for you. Yes, the global answer is yes. We are in line with our expectations on where this project is within its timeframe. We've structured many of the leases in such a manner that we can retain part of the upside that we expect, because we believe this is a new center. We believe in the growth of it, so we've structured our leases with a shorter initial term so that we can take advantage of growth that we expect. Most of our leases have a base rent with a percentage rent that can convert later, in a shorter timeframe. So yeah, we're pretty excited about it, Adam mentioned all the new tenants that are coming, plus the expansions of T&T and Rexall as well, so that underscores the success that we're seeing taking place.
Great. Thank you. That's it from me.
Okay. Thank you, Michael.
Thank you. The following question is from Pammi Bir. Please go ahead.
Thanks. Just maybe sticking with Yorkville Village for a minute. How would the current yield on that asset compare to the 5/3 that you've disclosed for your projects overall? Where do you see it stabilizing over the next, call it, couple years?
Well, Pammi, the current yield would be less than the 5/3. We still have significant portions of the property that are still in development. So if you take the in-place yield over that, yeah, we would definitely be below the 5/3. The initial going-in stabilized yield is expected to be not far off the 5/3. The thing that I'm most optimistic of is not where that stabilized yield starts, but the traction that that stabilized yield will have when you look out two, five, 10 years from now. It's funny because a lot of the lease negotiations we enter into when we talk about term, we're pushing for more term, tenants are pushing for less term.
The exact reverse situation is happening in Yorkville, where we're pushing for less term, so we have the right to reset rents and also retain control over as much space as possible to maximize the offering that we put in Yorkville because it continues to evolve, and our vision continues to evolve. We're going to end up somewhere in that low fives on a stabilized basis, but the growth profile, I strongly believe will move the needle in a meaningful way and be well above the industry average and even our own average.
maybe just comparing that to Liberty Village. Can you remind us how much the yield on that has expanded over the last, I guess, several years?
We'd be happy to give you that. I don't have that handy, though, Pammi, in terms of the specific yield, how it's grown over time. We can certainly talk to you about that offline.
Just going back to the projects, or I guess, the properties that you mentioned for potential residential density. How many of those properties are included in the, I guess, the uncommitted mid to longer-term density, the 11 million sq ft that you've disclosed in the MD&A? Would that be half of that? Would that be all of it? I'm just curious how that fits into that.
The properties that I mentioned earlier, all of them would be included in the 11 million sq ft.
Right. How much of the CAD 11 million would they represent?
Okay, I don't have our report that shows every single property, but anecdotally, it's a relatively small amount. The biggest single component of the 11 million square feet would be our Christie Cookie property. Again, we own half of it, so we'd only pick up our share, and it would be less than 10% at this stage.
Okay. All right. That helps.
My point is, it's fairly broad-based. The density isn't concentrated in a small number of properties. When you look at the way that our business has been built, our portfolio has been built, when you look at our properties, there's such a high percentage of them that, clearly when you look at them, there's a higher and better use in terms of density as you look out. The list is long in terms of number of properties, and there's no asset that would represent. Like I said, Christie Cookie is the biggest. It's about 10%.
Okay. Lastly, going back to your comments about perhaps some new disclosure coming on the upside, I guess, in value from this additional density. Can you maybe give us a bit of color as to how you're thinking about disclosing that?
Yeah. We're planning to disclose it in a similar way that we disclosed the density. We intend to break it into the same buckets, and we intend to apply a value or a range of values to each of those buckets. I think it's one of the most misunderstood or under-incorporated components of the value in our business. That's why it's an important exercise for us to undertake. As you can imagine, it's not a straightforward exercise. You take Liberty Village, which was mentioned earlier, when you look out of our head office here, you see 30, 40-story towers. Right in the middle of it, we have a 50,000 sq ft single-story food store, surface parking, single-story retail structures, and the market's here today. What's the value? There's a value if it was unencumbered.
This is a property where it would be worth more without any tenants than what we have today. There's tenants with term. These are the things we need to work through to provide the value that we think is misunderstood in our stock price.
Okay. Looking forward to that. Thanks very much.
Okay. Thanks, Pammi Bir.
Thank you. Once again, as a reminder, please press star one at this time if you have a question. The next question is from Matt Kornack. Please go ahead.
Hi, guys. Just a few granular quarter-specific questions. With regards to the leasing, it sounds like you have 111,000 square feet that was vacant this quarter, of which 108,000 square feet will be leased in Q2. Just wondering, what was the impact of that vacancy on Q1, and what will be the uptick into Q2? Is that 108,000 square feet, will that be cash rent paying, or is there a straight-line rent component?
Hi, Matt. As we said at the beginning, we started to disclose our average occupancy this quarter, if you look at the average occupancy versus Q1 of last year, it was relatively consistent. I wouldn't say that there was a big material impact in terms of that change in occupancy. In terms of the additional 108,000 coming in the second quarter, some of it has already come into possession, but some of it is later in the quarter. There are fixturing periods, there will be an impact to straight-line rent in the quarter, but not necessarily cash NOI across the board.
The order of magnitude higher in the rents, is it going to be material enough that we would see the impact?
Yeah, I think on some of it. Carm, you can speak to the two big ones, which I think is Portobello and then Northgate.
On Portobello, the incoming tenants are paying significantly more rent than what Target was previously paying.
Okay. Just with regards to, there were a few things. I think you mentioned the convert impact. Then there was also a non-recurring assignment fee earned by Main & Main. What was the value of that, and what is a good run rate for interest in other income? I know there's an aspect of how the underlying performs, but just generally, how should we normalize for that assignment fee?
The assignment fee, which is non-recurring for Main & Main, was CAD 500,000 in the quarter.
Okay.
In terms of our interest in other income for the full year, you should expect a material increase over last year, primarily due to higher loans and deposits outstanding.
Okay. No, that makes sense. We can run that. Finally, you mentioned in your commentary, I missed it, but with regards to the reserve on maintenance CapEx, how do you look at it? It sounds like you're taking actuals, but actuals for what exactly?
Actual spend in the quarter is what we're deducting, and we're deducting recoverable and revenue-sustaining CapEx. For the past two years, those have averaged a combined CAD 28 million, and we would expect our 2017 number to be in line with that average.
Okay. That's perfect. Thanks, guys.
Okay. Thanks, Matt.
Thank you. The next question is from Alex Avery. Please go ahead.
I had a follow-up question, but I figured it out myself.
Oh, perfect. We love those kind of questions.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to Adam Paul.
Thank you very much for your time this afternoon and your continued interest in First Capital. As a reminder, we are looking forward to welcoming you at our upcoming annual shareholders meeting. It is at a new venue this year, Yorkville Village, where, as I mentioned, among other things, we will provide an update on several activities, new activities, new achievements in our active development properties. We hope you can attend on May 30th, and we look forward to seeing you there. Until then, thank you and have a great afternoon. 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 lines.