All participants, thank you for standing by. Your conference is ready to begin. Welcome to the First Capital Realty Q4 2016 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, Anthony. 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 and year ended December 31, 2016, 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.
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.
Okay. Thank you, Roger. Good afternoon, everyone, thank you for taking the time to join us today for our fourth quarter and year-end conference call. It's hard to believe that this is my second year-end conference call with First Capital. It feels like yesterday that I was driving to Liberty Village on my very first day, a day I will surely never forget. That was a very busy two years ago. Notwithstanding the slow growth macro environment we continue to face, like always, we have focused our time and energy on the micro factors that are within our control, that continues to serve us very well. Before we get into the quarterly results, I'd like to share some of my observations as I reflected back on the last two years.
Shortly after I arrived, together with the executive team and with support from our board, we set some very ambitious goals as we focused on positioning First Capital for our next phase of growth. Since that time, our company has accomplished an awful lot. We've improved on virtually every relevant metric, but there are a handful of things that really stand out. First and foremost, I'll start with earnings. Over the last two years, we have increased our FFO from CAD 209 million in 2014 to CAD 262.5 million in 2016, an increase of CAD 53.5 million, or 25%. More importantly, our FFO on a per share basis has increased from CAD 0.98 in 2014 to CAD 1.11 in 2016, reflecting an increase of CAD 0.13 per share or 13%. We've also grown the overall size of our business.
Our enterprise value has increased from CAD 7.8 billion to CAD 9.2 billion over the last two years. Scale has become increasingly important in today's world, growing an enterprise is only helpful if the company gets better while it is growing, and it is our achievements in this regard that we are most proud. Our portfolio quality, demographic characteristics, and the overall net operating income growth profile of our business has improved significantly and has never been as good as it is today. This is likely our single biggest competitive advantage as I look ahead. Over the last two years, we've added roughly CAD 1 billion of new properties to our portfolio through acquisition and development completions. This includes properties heavily weighted in our core Toronto market, such as One Bloor, the Pusateri's Assembly, assets in Yorkville, and in Liberty Village.
We've also added properties in other target urban markets such as Griffintown and Carré Lucerne in Montreal, Mount Royal Village in downtown Calgary, Brewery District in downtown Edmonton, and Peninsula Village and Pemberton Plaza in the Greater Vancouver area. Pemberton Plaza is a property where we just completed the redevelopment of a portion of the asset. Notwithstanding the dilutive impact of dispositions, we also continued our discipline of reviewing our portfolio and divested CAD 160 million of properties. We successfully redeployed that capital into the new investments I just spoke of. We've also lowered the risk associated with the development side of our business by significantly progressing our large active development properties. In total, we invested CAD 350 million over the last two years, advancing the development of these multi-year projects and, at the same time, reducing the risk associated with the successful execution of these irreplaceable assets.
2016 was an important year in this regard. After going through a phase where we invested more in development than we completed, this reversed in 2016 as our annual development spend of CAD 146 million was less than the CAD 189 million we transferred to IPP from development. To be clear, this is not a result of a shrinking development pipeline. In fact, the opposite is true. One of the largest differentiating factors and a major competitive advantage for First Capital is the depth of redevelopment assets we now own. An ongoing initiative we continue to spend time on is enhancing the visibility of this pipeline. Based on the work we have done so far, we have disclosed that our pipeline has increased to 3 million sq ft of incremental retail density and 11 million sq ft of incremental residential density that can be added to our existing portfolio.
This is a very significant amount of incremental density in which we have a tremendous amount of flexibility to exploit. What I mean by tremendous flexibility relates to the fact that this density is generally in properties that are income-producing today. This important characteristic affords us the flexibility to manage when we move assets into redevelopment status. As a result of this in-place income, we are under no pressure to redevelop these assets as quickly as possible like we would be if these properties were raw land with no or very little income in place. We can therefore be more strategic around the timing of when we develop these properties by selecting those with the most compelling risk-return profiles at any given time.
The exception, meaning an asset without carrying income in place, is one of the most exciting acquisitions we've made, which is the 27-acre former Christie Cookie site in Toronto that we acquired last year, an investment that I believe will prove to be one of our best ever. This is by no means a short-term project, and our team has already done a lot of work as we progress through our pre-development planning stage. Hopefully, that gives you a sense of our focus and progress on the property side of things. It is the quality of our portfolio and the traction we continue to gain at the property level that is an important reason why our business has performed so well over the last two years, notwithstanding some short-term headwinds. This property-level progress has had a direct impact on our capital activities and shareholder returns.
Our equity market capitalization increased from CAD 4 billion at the end of 2014 to over CAD 5 billion at year-end. More importantly, total shareholder returns were equal to 21% over that two-year timeframe, handily exceeding the 12% total return delivered by the TSX Capped REIT Index. Going back to risk, our solid financial performance has allowed us to make meaningful progress, further strengthening our already solid balance sheet, highlighted by a significant increase to our industry-leading pool of unencumbered assets that has now grown by CAD 1.7 billion over the last two years and stands at CAD 6.6 billion, representing 72% of our total assets. On the platform side, we went through some significant changes as we reorganized many areas of our business to prepare for, and in fact, to facilitate our next phase of growth.
While we continue to gain traction and the impact of our decisions aren't fully reflected in our financial results, we now have the right people in the right roles and an exceptionally strong team led by an executive roster that I wouldn't trade with anyone. Perhaps our most aggressive objectives were set in relation to our information system platform, which Kay has talked about over several quarters. Our accomplishments to date in this area have been nothing short of remarkable, and I'd like to thank and recognize the dozens of employees and service providers who have made this happen. Phenomenal work by everyone. That only touches on the areas of focus and the progress that we have made over the last two years. This is a long-term business. The decisions we made and our strategy as a whole is squarely focused on that important point.
The First Capital business has been built to outperform, especially over long periods of time and with less volatility. We continue to be exceptionally well-positioned in that regard. In terms of 2016, we had a truly outstanding year. I'll now pass things over to Kay, who will speak to our fourth quarter and annual results in more detail. Following Kay's comments, we'd be pleased to take any questions. Kay?
Thank you, Adam. Good afternoon, everyone, and thank you for joining us for our call today. Overall, we were very pleased with our results for the fourth quarter and for the full year. The fourth quarter was a quieter quarter in terms of transaction activity, but there is one transaction I would like to highlight. During the quarter, we sold a 50% interest in a two-and-a-half-acre residential land parcel, which forms part of our Rutherford Shopping Centre, to Greenpark Homes. Greenpark is a well-known home builder that has been developing homes in the GTA for over 50 years. This land parcel is a residual piece of land at our Rutherford Shopping Centre, which is now fully developed as a retail center with 194,000 sq ft of retail space.
We have commenced pre-development activities on this project and determined its highest and best use to be for a residential development consisting of 46 townhomes, with completion expected in late 2018 and early 2019. This development will bring more customers to our shopping center and is consistent with our strategy to capitalize on the residential density potential of our existing assets in partnerships with qualified developers. As such, this project is now classified as residential inventory in our financial statements. Starting on slide six of our conference call deck. We generated solid growth in Operating FFO in the fourth quarter and in the full year. Our Operating FFO for the fourth quarter increased 13.4%, or CAD 7.8 million in dollar terms, and 5%, or CAD 0.01 on a per share basis versus the prior year period.
For 2016, we achieved Operating FFO growth of 10.4%, or CAD 24.6 million in dollar terms, and 4.7%, or CAD 0.05 on a per share basis. The primary driver of the growth in Operating FFO during the year was a CAD 12.3 million increase in NOI due to three key factors. First, growth in same property NOI of CAD 4.1 million, driven by rent escalations, improved occupancy levels, and lower non-recoverable operating costs as a result of the organizational restructure completed in 2015. Secondly, growth due to accretive acquisitions completed over the past 12 months, net of the impact of dispositions completed in the same time period.
Thirdly, growth in non-same property NOI, largely due to development completions in our Brewery District and phase one of our Yorkville Village properties over the past 12 months, net of space we've taken offline for redevelopment in 3080 Yonge, phase two of Yorkville Village, and some of the street front assets in Yorkville where we've commenced pre-development. Also contributing to the growth in Operating FFO in 2016 was a CAD 4.4 million year-over-year decline in interest expense, despite an increase in total debt outstanding. We have continued to take advantage of the low interest rate environment to refinance higher rate maturing debt with new 10-year debt. Additionally, our G&A declined by CAD 4.1 million year-over-year, primarily due to savings from 2015's restructure.
Moving to slide seven, our 2016 same property NOI increased 2%, excluding the impact of two significant lease termination fees we received in the second quarter of 2015, totaling CAD 3 million. The growth in same property NOI was driven by higher same property rental rates, which were up 1.7%, or CAD 0.31 year-over-year to CAD 18.93 per square foot. Higher same property occupancy levels, which were up 30 basis points year-over-year, and lower non-recoverable operating costs, as I mentioned earlier. Our Q4 same property NOI increased 2.2% versus the prior year period due to the same factors. On slide eight, we continued to achieve solid lifts on our lease renewals. Our Q4 same property lease renewal lift was 8.7% on 585,000 square feet of renewals.
Our Q4 total portfolio lease renewal lift was 8% on 635,000 square feet of renewals, slightly lower due to shorter term leases we've done in properties where we want to retain the flexibility to redevelop over the short to medium term. The full year lease renewal rate increase for the same property portfolio was 8.2% on 1.5 million square feet of renewals, and for the total portfolio was 7.5% on 1.6 million square feet of lease renewals. Moving to slide nine. During the year, we brought online 288,000 square feet of new GLA with an invested cost of CAD 165 million. This newly completed space was primarily in our Brewery District and Yorkville development projects.
Our average net rental rate for the total portfolio grew 2.9%, or CAD 0.55 over last year to CAD 19.39 per square foot, primarily due to rent escalations and new developments coming online, which carry a much higher rental rate per square foot. On slide 10, our total GLA increased by approximately 850,000 square feet over the course of the year due to development completions and new acquisitions, net of disposition activity. Our total same property portfolio occupancy rate increased 30 basis points from Q4 of last year, while our total portfolio occupancy rate increased 20 basis points. The year-over-year improvement in occupancy was primarily driven by re-leasing space vacated by the closure of two Target stores and a Canadian Tire location in 2015, both of which we've discussed on prior calls.
Our Q4 total portfolio occupancy rate remained unchanged from Q3. At year-end, we were holding 0.8% of our portfolio intentionally vacant for redevelopment. On slide 11, our NOI run rate increased by 4.7%, or CAD 20 million over the prior year, and by CAD 5 million over the prior quarter. The growth over the prior quarter was due to new tenants, rent escalations, as well as the acquisition of the Avenue Road and Lawrence Avenue assembly in Toronto. Slide 12 highlights the properties with the highest development spend during the year. We invested CAD 33 million in development and redevelopment activities in the quarter, bringing our total spend for the year to CAD 146 million.
Our development pipeline at quarter end totals approximately 14 million square feet of additional density, including 3 million square feet of retail density and 11 million square feet of residential density, with 550,000 square feet currently under active development at our interest. Slide 13 gives the details on the factors driving the growth in operating FFO and in FFO, and the related movements over the prior year periods. This slide also highlights our operating FFO payout ratio, which has improved to 78.2% for 2016 versus 81.9% for 2015. Slide 14 summarizes our operating AFFO and AFFO performance compared to the prior year periods. Our Q4 operating AFFO per share increased by CAD 0.02, or 7.7% per share, while our 2016 operating AFFO increased by CAD 0.05, or 4.4% per share. The growth in both periods was primarily driven by higher operating FFO.
Last month, REALPAC released a draft white paper with new definitions for 2 metrics, AFFO as an earnings metric, and ACFO, or adjusted cash flow from operations, as a cash flow metric. If REALPAC issues a final white paper, we would expect to replace our existing AFFO definition, which is a cash flow metric, with the new cash flow metric, ACFO, for our Q1 reporting. We expect to continue to report both operating FFO and AFFO in 2017, and to move only to FFO in 2018. Slide 15 touches on our other gains, losses, and expenses. For the year, we are reporting an other gain of CAD 1.8 million, primarily due to CAD 3.8 million of proceeds received from Target related to the 2015 closure of 2 stores in our portfolio, partially offset by restructuring costs of CAD 2 million.
Information on our key financing activities for the year can be found on slide 16. Over the course of what was a very busy year, we raised CAD 1 billion of capital to support our investment activities and to refinance maturing debt. We were able to take advantage of the low interest rate environment to raise new 10-year debt at historically low levels. Slide 17 summarizes our key financial ratios, the size of our operating credit facility, and the size of our unencumbered asset pool. I want to highlight that our net debt to total assets has improved by 30 basis points since the start of the year to 42.6%, and over this past 12 months, our unencumbered asset pool has grown by CAD 800 million to CAD 6.6 billion, or 72% of our total assets, giving us significant liquidity and financial flexibility to fund our growth.
Slide 18 shows our 10-year debt ladder as at quarter end. As you can see from this chart, we have future opportunity for interest rate roll down in our near-term maturities. I want to highlight specifically our remaining 2017 maturities totaling CAD 208 million, with an weighted average interest rate of 5.1%. In addition to the maturities shown here, we redeemed in January CAD 106 million of convertible debentures with a weighted average effective interest rate of 6.5%, and repaid CAD 125 million of maturing unsecured debentures with an effective interest rate of 6%. Looking forward, we expect our same property NOI growth for 2017 to be stronger than 2016, given we have largely backfilled the anchor space that was in transition from 2015 into 2016, and we will not be comping against unusually high lease termination fees received in the prior year.
We expect a small amount of space to be taken offline for development during the year, and expect to invest between CAD 150 million to CAD 200 million on development, and to complete and transfer to income-producing properties a similar amount, with the deliveries weighted to the back half of the year. We expect our G&A to increase given the restructure occurred in Q3 of 2015, and over the course of 2016, we filled a number of the vacant roles that resulted from the restructure and added to our executive team to support the overall growth of our business. Additionally, we would expect our amortization cost to increase given the new IT systems we launched in 2016. On our Q3 call, I spoke about one of our biggest initiatives for 2016, FCR Best. FCR Best stands for Business Excellence Strategic Transformation.
It includes the launch of a number of new IT systems and the end-to-end redesign of many of our key business processes to align with our new organizational structure and our new systems. I'm pleased to report that in the final weeks of 2016, we launched two additional systems, a newly designed website and a property budgeting system. This brings the total number of new systems we launched in 2016 to six systems. I want to again extend a huge thank you to each and every employee that played a role in the launch of these new systems and new processes. This was a massive undertaking and a tremendous success. We look forward to continuing to enhance our systems and core business processes in 2017.
In summary, we are very proud of the many accomplishments achieved by our team in 2016 and the solid growth in Operating FFO we generated. We look forward to continuing to deliver solid performance in the year ahead. This concludes my comments on the quarter and on the year. We would now be pleased to answer any questions you may have. Anthony, can you please open the line for questions?
Thank you. As a reminder, please press star one on your telephone keypad if you have a question. The first question is from Tammy Burr. Please go ahead.
Thanks. Good afternoon. Maybe going back to the guidance, it does seem a little bit low, at least relative to perhaps overall expectations. Can you maybe just elaborate on how you got to that range?
Hi, Tammy. It's Adam. Yeah. Look, it's a pretty simple model, which is obviously highly sensitive to assumptions, which we're not going to get into the specific assumptions. I would say we haven't baked in any good news. We haven't baked in any bad news. The reality is, when you own a portfolio in a business like ours, you tend to experience more good things than bad things over time. That was the case in 2016. If you look at where we thought we'd end up a year ago, it turned out to be a phenomenal year, better than we initially expected. In 2017, given current prices for the quality of real estate we own, and you've seen through our acquisition activities last year, quality is not something we're prepared to compromise on. At this stage, we've assumed no acquisitions. We have assumed dispositions.
As you heard from Kay, G&A and amortization expense is expected to grow. We've also been, what I think is realistic on our assumptions for construction costs and timing, which we now have a lot of experience on, given we're late in the development cycle for the majority of our large assets, many of which are in Toronto, which is an exceptionally hot market from a construction perspective. That's what I would say. Hopefully, that gives you some color on how we landed on our expectations at this stage for 2017.
I guess it sounds like perhaps there could be maybe a bit of upside. I guess acquisitions don't necessarily drive a lot of upside typically for you guys. Part of the drag it sounds like was or is from higher G&A going forward, and I guess developments as well as costs perhaps might be rising. I'm just trying to understand, with respect to the yields for developments that are coming online, are they coming in in line with your expectations, or are they coming in a bit lower?
We disclose this every quarter, what you've seen is we've held relatively firm over the last several quarters on where we expect the yields to be. Look, the bottom line is the business is in great shape. I think we've been realistic on the assumptions at this stage. Again, 2016 ended up to be better than we expected. Now we're also growing off a year where we had more growth than we expected. Look, like always, we hope there's upside that we can beat. When you have a realistic set of assumptions, you've got risk to the downside, and you've got opportunity to the upside.
Was there any change in terms of your assumptions for capital structure?
In terms of?
The capital structure, in terms of leverage or
No.
Okay. There's not a certain amount of deleveraging baked into that?
What you've seen over the short term is we've slowly, we ticked up in leverage, and then we've started to come down a bit. We've said that over time, our intention is to gradually continue to reduce leverage. I would not expect a big material move over the next 12 months.
Okay. Maybe just switching gears. If you look at the fee income in Q4, it looks like there was a sizable jump there over Q3 to maybe roughly about CAD 2 million. Can you just elaborate on that increase? Are those amounts recurring at all, or?
Hi, Tommy. We closed on the One Bloor transaction as a deposit, so we are earning interest income and have a full quarter of that income in the fourth quarter. Additionally, we did receive some development fees in the fourth quarter. With all of our development projects, those fees do move up and down. There was some fees included in the number in the fourth quarter.
Okay. Just maybe looking at Calgary for a minute, a bit of occupancy slippage there again over last quarter. Was that just a function of the space that was added, or was it a tenant departure? Maybe if you can provide just some overall comments about what you're seeing in Alberta overall.
In Calgary, again, coming back to the quality, it really is exceptional in Calgary, and that's been one of the toughest cities over the last decade to build meaningful scale at that quality. It's regular tenant churn, so I wouldn't read too much into what's going on quarter to quarter there. In terms of Alberta as a whole, the portfolio has held up exceptionally well relative to the macroeconomic backdrop. We've continued to get growth in NOI, rental rate lifts. We continue to lease space to new tenants. Clearly, there's been demand for high-quality space, and deals are certainly getting done in our Alberta assets. We've made some great progress on leasing in Alberta on the development side.
As you've seen, and people are starting to talk about, there are some preliminary and very preliminary signs of some firming up in terms of the Alberta economy. Real estate is certainly a lagging indicator, so by no means would I say we're in the clear yet. I would say, when you head into a recessionary environment like Alberta has seen, really, the best defense from that with respect to real estate is to own great real estate, and we do in that market.
Great. Thanks very much. I'll turn it back.
Okay. Thank you, Tammy.
Thank you. The next question is from Alex Avery. Please go ahead.
Thank you. Just on Yorkville Village, it'll come into income producing in the second half of this year. Can you give us, I guess, some of the parameters around that in terms of how we should expect it to come in initially? Is it going to be fully run rating, or is there some sort of a ramp period?
Hello, it's Jodi speaking. Yorkville Village, the mall, not the street asset, just to distinguish. We expect that to be completed in the latter half of this year. We are expecting to see that our leasing comes in as our expectations.
In terms of impact on FFO, if that's what you're getting at, Alex, that property and most of our development properties don't have property-specific debt. We're capitalizing at our weighted average cost of debt. That narrows the spread between the going and development yield. As a result, the impact of moving properties into IPP, in some cases, can have less of an impact than people may intuitively think. From our perspective, these are very accretive to the quality of the portfolio. Given our size, they typically don't move the needle on earnings right away, but they give us a growth profile that's just as good or better than what we have. For us, it's really more over the medium and long-term that we get a more significant benefit. That goes for most of our development projects.
We expect a bigger benefit to come from a stronger NOI growth profile over the medium term than we do on day one when it becomes income-producing.
Okay. That's quite helpful. Essentially, don't bake in a lot of per-unit growth from that coming in, or maybe even have it neutral. The stronger growth profile is really the appeal of that. Does that sound fair?
Yeah. I think when you run the math, that's the conclusion.
Okay. On your Yonge and Bloor property, have you made any progress on leasing there, or can you give us an update on that property?
Yeah. I'm gonna ask Jordi to respond to that.
Yeah. Hi, Alex. It's Jordi. Just by way of background, we spent the last, probably four months studying the as-built drawings, and we've been, I'll say, methodically making what we believe are the necessary amendments to improve the functionality, really, of the retail space. We've made a number of, what I think are meaningful changes that improve the connectivity, both on the street or to the street, and to the Yonge and Bloor subway. I would say we've been pleasantly surprised by the unsolicited interest from retailers for One Bloor, and we've been fielding a number of inbound calls. Until we finish, really, the redesign work, we don't want to formally initiate the marketing of the property for lease. That said, I would say we expect to be able to bring the space to market within the next 90 days.
In the meantime, the vendor is completing its required pre-closing works. In March of 2017, we'll actually commence moving in residential tenants into the sold-out 760-unit building.
Okay. Your closing on that, from a purchase perspective, is Q4 of this year, I think. Is that correct?
Yeah, that's what we expect. Again, recall that we've advanced the funds for closing and are earning a return on that as of Q4 of this past year.
I would imagine that, given there are no leases in place today, that it would be a stretch to imagine that you would have a rent-paying tenant on closing. It would probably move into properties under development for a short period?
that's likely, because there's some flexibility and some exceptions, but what likely triggers the technical closing is when the space is available for tenant turnover. We anticipate the earliest that will happen is in the fourth quarter of this year.
Okay. That wouldn't have much of an impact on FFO either, as you'd be capitalizing interest pretty close to what the return on the mortgage is?
Yeah. Where a real opportunity there is where we land on the final lease-up. As Jordi said, we've got about 46,000 sq ft to lease. The interest in the space is exceptional. The question is, where does the final NOI lie? We think the very low end is the return that we're earning now. We're quite confident we will do better than that. How much better remains to be seen, but if we end up at the top end of where we expect, it actually does have the ability to move the needle.
The flagship location, similar to Yorkville Village, would be presumably contributing to higher same-property NOI growth over time?
Yeah, I would expect that.
Okay. Then just one last question, you've had a relatively stable estimate of the average market rent for your portfolio, and this quarter you bumped it up a little bit. Was that some complex detailed analysis, or was that more of just a rough approximation?
Hi, Alex. All the analysis we do is complex and detailed. Actually, we did do some work in 2016 on this because we had not updated it in a bit of time. What we looked at is the rates we are seeing on new tenant openings, on renewals that are at market rents, new redevelopments and development openings, and budgeted new deals in our system. Based on that, we were quite comfortable with the move to CAD 25-CAD 27 per square foot for the portfolio at market.
Would that also be at least a little bit influenced by the addition of properties like Yorkville Village and One Bloor, where market rents would be substantially higher?
To the extent that they form part of the new tenant openings, new development openings, or any deals coming up for market rate renewals, they would factor in.
Okay. That's great. Thank you.
The reality, Alex, generally, our space is worth more from a rental rate perspective than it was a few years ago. We don't update those numbers. It's a pretty big exercise that we go through. We don't update it every quarter. This was just a case where we were catching up with it.
Okay. Yeah, that sounds fair. Thanks.
Okay, thanks, Alex.
Thank you. The next question is from Sam Damiani. Please go ahead.
Thanks. Good afternoon. Just on the G&A, I wonder if you could add a little more color as to what you're expecting for 2017 in terms of total G&A.
Hi, Sam. As I said, given the timing of the Q3 2015 restructure and coming out of that restructure with a number of vacant roles that we filled over the course of 2016. We added to our executive team as well, really positioning the company for future growth. We are past the savings that were expected from the restructure, we do see an increase next year. I would highlight that we would expect our G&A still to be lower than what it was in 2015.
Sorry, did you say lower than 2015?
That's correct.
Okay. When you look at corporate expenses, you've got a lower number for Operating FFO than FFO. Can you just explain what the difference is? I think it was about CAD 2 million this quarter.
I'm just checking on that. Let me come back to you on that, Sam.
Okay. Just finally, the NOI run rates, what sort of straight line rent do you have embedded in that number?
There wouldn't be any straight line rent embedded in that number.
That number does not include straight line rent?
That's correct.
It's a cash NOI run rate.
Okay. Just finally, I noticed a property traded in South Calgary called Auburn Bay, I think it was called, or Auburn something, Auburn Station. Did you guys look at it, and are you aware of what cap rate it might have traded at?
We did look at it. It's in a trade area that's in relatively close proximity to some of our other assets in Southeast Calgary. We couldn't get to the pricing. It was very aggressive pricing, as in sub 6% on a cap rate basis.
Okay. Thank you.
Thank you.
Thank you. As a reminder, please press star one on your telephone keypad if you have a question. The next question is from Michael Smith. Please go ahead.
Thank you, and good afternoon. Just wanted to switch back to your guidance. I think, Adam, you said you have some dispositions baked into your guidance, no acquisitions, but some dispositions. I think you have about just slightly over CAD 80 million of assets held for sale. I'm just wondering, are there other dispositions sort of baked into your guidance, but maybe those assets are not yet identified?
Yeah. Our expectation is that we would dispose of slightly higher than the CAD 80 million that's currently classified as held for sale.
Okay. Also baked into your guidance, same property NOI, was it fair to say it's around 1%-2% is what's baked in?
This year we came in just over 1%, again, there were some things that really held it back that we don't expect to encounter in 2017. We certainly think it'll be higher. I'd leave it at that, Michael.
Okay. Just switching gears to Alberta. Notwithstanding that aggressive cap rate for the property that just sold. When you went through your portfolio, did you adjust any of your Alberta assets values downwards? Like existing assets, not development assets.
I should clarify, in the context of aggressive cap rates, you can't, at least I can't, look at the cap rate in isolation. When you look at the rental rates, that's a new property that was referenced, and the rental rates are exceptionally high. It's in the context of very high rental rates coupled with the cap rate. We just couldn't get there. No, we have not decreased our values generally, and this is a general statement. Obviously, you have some that do go down, some that do go up. We haven't seen evidence that would indicate that cap rates for the type of retail assets that we own in Alberta have changed. In fact, if anything, we've seen comparable pricing that would indicate pricing is very strong still.
Okay. Would that be the same case for when you went to the market rate exercise across your portfolio for Alberta?
In general, there's obviously the exception where some of them may have come down. In general, I think our own portfolio is a good barometer. We've got about 5 million sq ft of space in Alberta. There's quite a bit of churn, just regular churn on the leasing front. We've done a lot of renewals. We've done a lot of new deals. I think we have a decent pulse of the market. Again, these are effectively all in two cities, Calgary and Edmonton. At least for the product we own, we have not seen a softening on rental rates in general.
Okay, good. Just lastly, switching gears over to the REALPAC white paper on AFFO and ACFO. Should that go through, okay, you suggested you're going to report ACFO, do you plan on reporting REALPAC AFFO as well?
No, we would make all of the disclosures as we currently do. That would give anybody the ability to calculate it based on that definition.
What's the thinking behind just going with the ACFO?
Any non-GAAP metric should be based on what management uses to run its business and what it focuses on internally. Our focus has always been on Operating FFO and AFFO defined as a cash flow metric and reconciled to operating cash flows.
Okay. Thank you.
Okay. Thanks, Michael.
Thank you. There are no further questions at this time. I would now like to turn the meeting back over to Adam Paul. Please go ahead.
That concludes our Q4 and year-end 2016 conference call. As always, thank you very much for attending. Have a wonderful afternoon.
Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you now disconnect your line.