Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT Q3 2022 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star one on your telephone keypad. I would like to turn the meeting over to Alison. Please proceed with your presentation.
Thank you and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of these underlying assumptions, risks, and uncertainties is contained in our various securities filings, including our Q3 MD&A, our MD&A for the year ended December 31, 2021, and our current AIF, which are available on SEDAR and our website. These forward-looking statements are made as of today's date, and except as required by securities law, we undertake no obligation to publicly update or revise any such statements.
During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call. I'll now turn the call over to Adam.
Okay. Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q3 Earnings Conference Call. In addition to Alison, with me today are several members of the FCR team, including Neil Downey and Jordan Robins, who you will hear from shortly. Before we get into the quarterly results, I'll start with commenting on some of the strategy work that the board and management team have recently announced. On September the 15th, we followed through with our promise to unit holders and announced the full restoration and doubling of our distribution. Going back to January of 2021, the board made the decision to reduce the distribution by 50%.
We were clear at the time that this would be temporary and was being done to provide the trust with additional financial flexibility in the face of new government-mandated COVID-related closures in several regions in which we operate. We were also clear that subject to the duration and ultimate economic impact of the pandemic, the board believed the reduction would be in place for a period spanning approximately two years. There were several factors behind our decision to restore the distribution last month. Firstly, the impact of COVID on our business is now behind us. This is supported by the fact that for several quarters now, we have reported strong and improving operating results. Second, and this may not be fully appreciated, given our tax profile, we have very little flexibility other than to restore our distribution without compromising our REIT status.
Finally, this announcement fulfilled the pledge that we made to unit holders nearly two years ago. Last month, we announced the details of our enhanced capital allocation and portfolio optimization plan. This plan is the outcome of months of work by management and the board on how best to unlock the value we have created over the past few years. Notwithstanding headwinds such as the pandemic, high inflation, and rapidly rising interest rates, FCR has delivered above average NAV per unit growth over the last number of years. This growth is a function of our best-in-class portfolio and operating platform that has continued to deliver peer-leading same property NOI, lease renewal lifts, and rental rate growth.
It is also the result of the strategic decisions that we made, including the sale of CAD 1.5 billion of specific assets from 2019 to 2021. Most of which were sold either because we chose to exit secondary markets or sold properties in which we felt we had maximized their value and chose to reallocate that capital to more productive uses. A major contributor to our strong NAV growth is our density pipeline. We have rezoned over 8 million sq ft of space with another 9 million sq ft currently underway in Canada's most desirable neighborhoods. While the contribution to net asset value has been strong, the cumulative impact of this industry-leading development pipeline creates a short to medium-term drag on EBITDA and FFO, while also adversely impacting our debt metrics. Which is why balance is so important in this regard.
As a result of the hard work and sweat equity of our team over the last few years, we now have an abundance of assets that are prime for either development or monetization. Executing our monetization plan will ensure our capital is allocated in ways that drive the most value for our unit holders over the short, medium, and long term. It will also rebalance FCR's portfolio to a higher proportion of income-producing assets that contribute to key metrics such as EBITDA, FFO, and our debt metrics. In summary, our portfolio composition today is overweight long-term development opportunities for a public company. The depth and scale of our development pipeline is massive by any standard. At 24 million sq ft, it is larger in size than our total existing GLA or built portfolio.
We are now in a position to utilize these assets to further enhance our short- to medium-term objectives while maintaining and to finance our attractive long-term trajectory. Our plan includes the monetization of more than CAD 1 billion of low- or no-yielding assets over the next two years. This is a large and impactful number, but it includes only a quarter of our density pipeline, leaving an opportunity with respect to more than 17 million sq ft of future space. A smaller portion of the assets we intend to monetize will not be development assets, but instead will be low-yielding income-producing properties in which our short- to medium-term value-enhancing goals have been achieved. The King High Line residential property sale is a great example. This recently completed development has a stabilized occupancy level, and it offers no additional intensification opportunities.
To be clear, this is a great asset in a great neighborhood, but that is not enough to keep our capital invested. Selling the property at a sub 3% cap rate and an attractive premium to IFRS NAV affords us the opportunity to reinvest that capital in significantly higher return endeavors, which today includes our NCIB. What is not in our billion-dollar monetization pool are stable cash flowing grocery-anchored assets, which we now own only in top-tier neighborhoods with the best demographics in the country. Therefore, as we execute this program, our weighting of these core assets will continue to increase. Our FFO more than covers our reinstated distribution, all maintenance CapEx, and all revenue-enhancing CapEx. Therefore, the entire billion-dollar plus of monetizations will be allocated to other, more productive uses.
Specifically, at least CAD 400 million to repay debt, with the balance allocated to both our NCIB and expected development investments through the end of 2024. Neil will walk through the details of the quarter, but to summarize, it's one of the strongest quarters we've had. I'm the first to say that a quarter does not make a trend. When stringing Q3 together with the operating results we have delivered for several quarters in a row now, it is clear that the hard work of our talented team, coupled with our strategic focus on high quality grocery anchored properties located within Canadian neighborhoods with the most compelling demographic profiles, continues to deliver solid operating results. Leasing is critical to our business, and it's been a bright spot for FCR through various economic cycles and world events.
The strength we've demonstrated for some time now continued in the Q3 , with nearly 750,000 sq ft of leasing across 170 transactions at very healthy rent increases. This contributed to solid same property NOI growth of 5.3% or 3.4% without bad debts and lease termination fees for those who prefer to exclude them. We also completed dispositions and made investments during the quarter to advance our real estate strategy and our development program specifically, which Jordan will review. We remain active on additional dispositions that are consistent with our enhanced capital allocation and portfolio optimization plan. Finally, I would like to provide an update on our ESG initiatives.
We recently released our 2021 ESG report, marking our 12th year in publishing our results, and I'm pleased with the progress we are making executing on our commitments. From a sustainability perspective, we exceeded our stated three-year target of a 9% decrease in greenhouse gas emissions, achieving a 12.7% reduction. We once again achieved a 4-star rating in the 2022 GRESB Real Estate Assessment. For the third consecutive year, we achieved prime status for corporate ESG performance by ISS. Across the portfolio, we continue to invest in sustainable infrastructure. We now have over 250 electric vehicle charging stations installed across 76 properties with a commitment to install an additional 200 next year.
Our head office building at 85 Hanna Avenue and our Brooklin Towne Centre were awarded the Outstanding Building of the Year award from BOMA Canada in their respective categories. Also at 85 Hanna, at the entrance to the shops at King Liberty, we recently installed our first indigenous art piece by celebrated Anishinaabe artist, Two Row, entitled Biindigin, which means welcome. This brings a total of 31 public art installations in our long-standing public art program. To close my remarks today, I would like to make a special mention of FCR's Thriving Neighbourhoods Foundation volunteer team, who hosted the first annual Commercial Real Estate Softball Classic Tournament in support of Kids Help Phone. Together with some of our real estate friends and partners, we raised over CAD 100,000 for this important charity focused on kids' mental health. It was a great day for a great cause.
Thank you to everyone who made this day happen. Overall, a very busy quarter with healthy and strengthening operating metrics. Before I pass it over to Neil, one thing I did want to say is that the board is committed to listening and responding appropriately to unitholders in accordance with its fiduciary duties and the best interest of all unitholders. As always, we strongly encourage constructive unitholder feedback and input. We believe the best forum for this is for unitholders to engage directly with management and the board. Since the purpose of today's quarterly call is to discuss our quarterly results, I respectfully request that questions in the Q&A period of this call focus on the quarter and our real estate strategy. With that, I will now pass things over to Neil.
Thanks, Adam, and good afternoon, everyone. For my prepared remarks today, I will be referring to our quarterly conference call presentation, which is available on the website at fcr.ca. The Q3 themes are simple. First Capital's operating metrics were solid and the bottom line earnings growth was very strong. Regarding the latter, Q3 2022 funds from operations of CAD 66.6 million increased by 13% from CAD 59 million in the prior year. FCR's weighted average unit count during the Q3 was 216 million units. Due principally to activity under the REIT's normal course issuer repurchase program, the unit count was 5 million units or 2% lower in Q3 versus the prior year.
As such, FFO on a per unit basis posted a growth rate of 15% to CAD 0.31 in the Q3 of this year versus CAD 0.27 in the Q3 of last year. In providing some context and highlights with respect to the Q3 results, let's walk through the FFO statement. Starting at the top of slide 6 of the conference call presentation. Q3 net operating income of CAD 109.5 million increased by CAD 5.4 million or 5% from CAD 104 million last year. Higher base rents from new and renewal leasing and higher contributions from variable revenue sources were the two most significant drivers of NOI growth. Also contributing was a CAD 1.1 million reduction in bad debt expense. Lost NOI related to disposition activity was CAD 2.2 million.
Lease termination receipts of CAD 407,000 in Q3 were consistent with the same amount in the prior year. Q3 same property NOI growth was CAD 5.1 million, equating to a strong 5.3% increase. The year-over-year growth was driven primarily by higher base rents and higher variable revenue contributions, as well as a CAD 1.8 million decrease in same property bad debt expense. Excluding the bad debt expense and the lease termination fees, Q3 same property NOI growth increased by a solid 3.4%. Taking a moment to look at sequential results. Q3 NOI was CAD 2.3 million or 2% higher than Q2's CAD 107 million. There are several key underlying factors. Higher variable revenues contributed CAD 2.6 million to NOI growth.
Lease termination fees increased by CAD 400,000 quarter-over-quarter, and these were partially offset by lost NOI related to disposition activity of CAD 600,000. Turning to interest and other income of CAD 4.9 million in the Q3 . This was an increase of 83% from CAD 2.7 million in Q3 of 2021. Within this number, fee and other income of CAD 1.3 million in the quarter was consistent with the prior year. However, interest and investment income of CAD 3.4 million tripled from CAD 1.1 million in Q3 of 2021.
The key drivers of the higher interest in investment income included higher loan balances at CAD 240 million at September 30th, 2022 versus CAD 180 million at September 30th of the prior year. As well as an increase in the loan book's weighted average interest rate to 6.7% this year, up from 5.5% last year. At September 30th, about 60% of the mortgages and loans receivables were at fixed interest rates and 40% were floating. By year-end this year, we currently estimate the scheduled repayments could result in our loans receivable balance declining by about 30% or CAD 70 million. We believe our mortgage and loan portfolio offers good protection against higher interest rates.
Based on last week's increase in the prime rate to 5.95%, and based upon the scheduled repayments and floating rate exposures, we currently estimate the weighted average interest rate could further increase to around 8% by early 2023. At the G&A expense line and below, there's a bit more noise in our Q3 results than is normally the case. To provide a bit of color, let's start with Q3 G&A expenses, which were CAD 10.9 million. This was an increase of CAD 3.1 million on a year-over-year basis, and CAD 2.2 million sequentially from Q2. The Q3 expense is higher than our quarterly run rate of approximately CAD 9 million, which is the number we formerly guided to. We're always seeking ways to streamline our processes and improve the efficiency of our operations.
In this regard, our Q3 corporate expenses did include approximately CAD 1.5 million in employee severance and restructuring costs. Below the G&A line in amortization expense, we also charged off about CAD 300,000 for software applications that had reached their useful life. The sum total of these costs, including the accelerated amortization, tallied to about a CAD 1.8 million charge to Q3 FFO. Going the other way, contributing to FFO, you will also see that we recorded a CAD 2.9 million credit to abandoned transaction costs. This line item is normally an expense in any given quarter. However, during Q3, we did take into income a purchaser deposit related to a property sale that was not completed. Bringing all these amounts together, there was a net contribution or benefit to FFO of approximately CAD 1.3 million during the quarter.
That's about 0.6 of one cent on a per unit basis. Turning to slide 7, you can see FCR's nine-month 2022 results and the prior year comparatives. I'll be brief with four points of note. Total net operating income of CAD 318 million increased by CAD 9 million or 3% year-over-year. This is despite CAD 6 million of lost income due to net asset sales and CAD 1 million lower lease termination fees. Therefore, growth was driven by an aggregate contribution of CAD 16 million from higher base rents, lower bad debt, and higher NOI from variable revenue sources. Secondly, the year-to-date interest and other income of CAD 15 million has doubled as the mortgage and loan book has grown, and we're now benefiting from higher interest rates.
Thirdly, interest expense of CAD 111 million is 4% lower year-over-year due to lower debt balances. However, the effect of higher interest rates as of Q3 in particular, they're now just starting to bite. Finally, our FFO, prior to other gains, losses, and expenses of CAD 193 million, it's CAD 20 million or 12% higher year-over-year. On this same basis, this drove the per unit results to CAD 0.88 cumulatively for the year, up CAD 0.10 per unit also equating to 12% growth. Moving through to some of our Q3 operating performance metrics on slide 9. Portfolio rounded out the quarter with an occupancy of 95.7%. This is consistent with 95.6% at the end of Q2 of 2022, and it's a modest 20 basis points lower on a year-over-year basis.
During the Q3 , pardon me, we had 162,000 sq ft of tenant possessions against 134,000 sq ft of closures. In addition, we had 34,000 sq ft of GLA subject to closures for redevelopment. Moving to slide 10, we turn to the subject of leasing velocity. On this front, the Q3 volume and spreads were strong. Q3 renewal leasing volumes of 556,000 sq ft were 19% higher than 466,000 sq ft in the Q3 of last year.
Q3 renewal leases were effected at an average increase of 10.4% when measuring the first year of the renewal rent of CAD 22.16 per sq ft relative to the CAD 20.08 per sq ft in the final year of the expiring leases. Now notably, the Q3 activity did include a 98,000 sq ft early renewal of a Walmart lease. Within our very good Q3 leasing renewal spread of 10.4%, about 19% of the total renewal volume was at a flat rental rate.
Including new leasing for future possession, total Q3 leasing velocity at FCR's share was 669,000 sq ft. On a platform basis, the total Q3 new and renewal leasing volume was 743,000 sq ft, bringing activity to 2.6 million sq ft for the first nine months. Also, as we referenced on slide 10, our average in-place portfolio net rent reached CAD 22.80 at September 30th. FCR's in-place net rent per square foot continues to make new highs. Growth during the Q3 was CAD 0.08 per square foot, and on a year-over-year basis, it was CAD 0.56 per square foot or 2.5%. Regarding the latter, rent escalations and renewal lifts provided 75% of the growth in rent per square foot. Slide 11 provides distribution payout ratio metrics on an FFO and AFFO basis.
Our Q3 2022 AFFO payout ratio was 57%. Due to the doubling of the monthly distribution in the month of September, this quarterly payout ratio increased by 12 percentage points from Q3 of 2021. On a go-forward basis, based upon the 86% annualized distribution per unit, you should expect our AFFO payout ratio to move towards upwards into the eighties. Advancing to slide 13, the REIT's net asset value per unit at September 30th was CAD 23.47. This was a decrease of CAD 0.99 per unit or approximately 4% relative to June 30th, and it places our net asset value approximately 3% lower from the beginning of the year. The change in the Q3 NAV had three major components. The first is a CAD 272 million fair value loss on investment properties.
This reduced our NAV by CAD 1.23 per unit. Second influential factor was our retained cash flow after paying our distribution, which added approximately CAD 36 million or CAD 0.16 to the Q3 NAV. The third factor was our NCIB activity, which added approximately CAD 0.05 per unit during the quarter. I might add CAD 0.24 per unit on a year-to-date basis. Turning back to the property revaluations for a moment. To disaggregate the Q3 fair value loss, I can frame the situation through three component parts. The first component relates to changes in individual asset-level cash flow estimates. During the Q3 , we updated or changed cash flow models for 81 individual properties, which resulted in a net fair value decrease of CAD 36 million.
Now, relative to CAD 9.1 billion of total investment properties, this valuation decrease is essentially a rounding error, and it signals that we see stability in the performance of our assets. Second element relates to the contracted sale of our 50% interest in the residential component King High Line. The CAD 149 million sale price was more than CAD 12 million above our Q2 IFRS value. Thirdly, we recorded a CAD 248 million net fair value loss related to changes in valuation assumptions, specifically higher stabilized cap rates, higher terminal cap rates, and higher discount rates. In contrast to our Q2 results, the valuation modeling assumption changes during Q3 were much more broad-brushed. In total, they impacted 120 properties, where stabilized cap rates on individual assets were typically increased between 25 and 50 basis points.
In our MD&A disclosures, you can see that the portfolio's stabilized weighted average cap rate increased to 5.1% at September 30th from 5.0% at June 30th. For those of you who really like the detail, if I take you beyond the one decimal place of rounding, the change in the Q3 stabilized cap rate during the quarter was actually an increase of 13 basis points. For those of you who like the shortcut valuation approach, the CAD 248 million fair value markdown arising from changes in valuation metrics, this equates to an increase of approximately 15 basis points on the portfolio's weighted average going in cap rate. Providing an update on capital deployment, as summarized on slide 14, we invested CAD 47 million into development, leasing, and residential development during Q3.
Most of this capital was invested into assets located in Toronto, Montreal, and Vancouver. Also in Q3, we invested CAD 21 million to repurchase approximately 1.4 million trust units under our NCIB, bringing year-to-date purchases to September 30th to CAD 91 million. On a nine-month-to-date basis, 2022 CapEx has totaled CAD 119 million, including CAD 70 million into development and residential inventory. Mostly due to project timing and commencement dates, we're now guiding towards full year 2022 development related CapEx of approximately CAD 100 million. All other capital expenditures, including revenue sustaining, revenue enhancing, and recoverable CapEx should be in the CAD 65 million to CAD 75 million range. Turning to slide 15, there was very little in the way of financing activity during Q3. On slide 16 of the presentation, you will see a summary of some of our debt metrics.
FCR continues to demonstrate stability and strength in key balance sheet metrics. As at September 30th, total liquidity was CAD 859 million. Excluding construction facilities, quarter-end general corporate facilities liquidity on our revolvers was CAD 625 million. The REIT ended the Q3 with a sizable $6.8 billion pool of unencumbered assets, albeit down from $7.1 billion at mid-year due to Q3 asset sales and fair value adjustments. On slide 17, you see a graphical depiction of FCR's staggered debt maturity profile. Looking through to year-end, I previously alluded to the capital that we expect to have returned from our loans and mortgages receivable over the coming months. In addition, we have CAD 149 million of gross proceeds or CAD 69 million of net proceeds coming from our King High Line residential sale.
Finally, we anticipate placing CAD 200 million or more of long-term fixed rate mortgages prior to year-end. Collectively, these capital sources will be applied to fund the CAD 250 million contractual maturity of our Series P senior unsecured debentures on December 5, and to recharge our credit lines. In this regard, we expect that our debt metrics and our liquidity position will further strengthen into year-end. This concludes my prepared remarks. I will now turn the call to FCR's Chief Operating Officer, Jordan Robins, to provide some commentary on property investments, operations, and development.
Thanks, Neil, and good afternoon. I am really pleased that the positive momentum in our business seen over the past several quarters continued into Q3. This positive momentum is no accident. It's a direct result of the strength of our high-quality grocery-anchored portfolio and the effectiveness of our dedicated team, who continue to perform at the highest level every day. To start with, Q3 was a very busy period for our investment team. We have sold or have a firm agreement in place to sell approximately CAD 250 million of assets at low cap rates. This quarter, we sold Bayview Lane Plaza, a strip center located in Markham, Ontario, for CAD 35 million. After our addition of a freestanding Starbucks pad, there was little more we could do to enhance its value.
We took the property to market and sold it to a private buyer for a price that was more than 50% above our IFRS value. This quarter, we also sold Porte Gatineau Centre, located in Gatineau, Quebec, to a private local buyer at a double-digit premium to our IFRS value. This asset does not form part of our CAD 1 billion enhanced capital allocation and portfolio optimization plan. It was a remnant center that was a geographic and qualitative outlier of our portfolio. We had explored its sale in the past, but it wasn't until recently that we were able to secure premium pricing, which we require to transact. As Adam touched on in his formal remarks last month, we entered into a binding agreement to sell our remaining 50% interest in our King High Line residential property for CAD 149 million.
This is a great asset in a great neighborhood, and we've retained ownership of the 155,000 sq ft of premium grocery anchored retail space. Notwithstanding our enhanced capital allocation plans, we remain opportunistic but selective with respect to acquiring assets. We have a proven track record in surfacing and unlocking value that others may not see or underwrite. A good example of this is our purchase of a 50% interest in Amberlea Shopping Centre, located in Pickering, Ontario. We purchased this 100,000 sq ft open air shopping center anchored by a high-performing Metro grocery store for only CAD 450 per square foot. This price is approximately 60% of its replacement cost. Its attractive market price relative to its replacement cost was only one of its compelling features. Amberlea is located only 1.4 km from FCR's Steeple Hill Shopping Centre.
As a result of its proximity, we have in-depth market knowledge and identified multiple levers to grow Amberlea's income by over 40% within the next several years. As we touched on in our last call, this quarter we also purchased a small but strategic asset on Montgomery Avenue in North Toronto that completes our 13-property assembly. We have already submitted our OPA and rezoning application for this property, and we'll update you on its progress next quarter. As set out in our disclosures, as at September 30th, we had CAD 320 million in assets held for sale. This includes the residential component of King High Line. We made good progress through the Q3 on the sale of these assets. We have also advanced several other identified disposition opportunities at premium pricing.
We expect to be able to share the details of this progress with you in coming months. Our development team continues to advance entitlements for the 24 million sq ft of incremental density in our pipeline. This past quarter, we filed an application for 895 Lawrence Avenue East. The application contemplates 412,000 sq ft mixed-use building, which will replace the existing 29,000 sq ft building. At Morningside Crossing in the east end of Toronto, we filed a rezoning application on a discrete portion of the site. The application contemplates the replacement of an existing 7,000 sq ft pad with a new 410,000 sq ft mixed-use building. Our development application at Yonge and Roselawn in central Toronto is also progressing very well.
Last quarter, we received our final zoning order, enshrining the approved density and built form and allowing the next phase of our development to begin. Rather than restrict access to the site over the summer while awaiting receipt of our shoring and excavation permit, we sponsored Fairgrounds, an on-site community-focused racket club. This temporary club has garnered tremendous goodwill and helped transform our site into a publicly accessible sports and social activation area. The club, which doesn't require membership, includes five pickleball courts and food and beverage facilities. Fairgrounds will continue operating through the fall, and our shoring and excavation will be completed as scheduled in spring 2023. Finally, at 2150 Lakeshore in South Etobicoke, our final zoning by-laws were approved by City Council, marking another important milestone on its path to redevelopment.
To date, we have submitted for entitlements on 17 million sq ft of incremental density, representing 71% of our 24 million sq ft pipeline. For the balance of 2022, we are gearing up to submit for another 400,000 sq ft of incremental density. To date, over 8.25 million sq ft of our development pipeline is now entitled, with a further 700,000 sq ft of approvals expected by year-end 2022. Even after the sale, the density contemplated in our enhanced capital allocation and portfolio optimization plan, we will still possess more than 17 million sq ft of incremental density in our residual pipeline. With this remaining density, we preserve our medium and our long-term optionality.
Specifically, we can sell a partial or a 100% interest in this density, we can develop it as part of our active development program, or we can simply wait and continue to benefit from the income in place. Regardless, the incremental density, once developed, will support the neighborhoods in which we have invested. Our active development program also progressed well through the quarter. At 200 Esplanade in North Vancouver, we are now 97% tendered on our 75-unit rental building, which is on schedule for late 2023 delivery. At Cedarbrae Mall in Toronto, the extensive renovation to the former Walmart store is well underway and on schedule for delivery in the second half of 2023.
Most of this large new format space will be tenanted by nationals, some of whom will be relocated from 3434 Lawrence, our 35,000 sq ft retail center located just across the road. You'll recall we have submitted a rezoning application contemplating approximately 485,000 square feet of density on the 3434 Lawrence property. In addition to improving the aesthetic and the merchandising mix at Cedarbrae by relocating tenants from 3434, we will simultaneously remove the lease encumbrances that would otherwise impact the ability to redevelop 3434 Lawrence. This will significantly increase the property's value. Concrete forming is now underway at Edenbridge, our 209-unit condominium development located on our Humbertown Shopping Centre lands. 88% of the units at Edenbridge are now sold.
Shoring and excavation at 400 King Street West, our 460,000 sq ft retail and residential condominium development in downtown Toronto is underway. 97% of the units there have been sold. Demolition of the existing structures on our 138 Yorkville development site is now complete, and we expect to commence shoring and excavation later this month. As I'd mentioned on our last call, we have insulated ourselves well on our active projects from the impact of rising costs. We have secured construction financing on all of our active high-rise projects. We have also awarded between 70% to 90% of the associated trade contracts and so have fixed a large portion of our costs.
We have also awarded 100% of the trade contracts on our two active retail projects at Stanley Park in Kitchener and Cedarbrae Mall in Toronto. In summary, Q3 was a very solid quarter, highlighted by strong quarter-over-quarter metrics, including same property NOI growth and leasing spreads. It was also a quarter where we initiated and successfully launched our CAD 1 billion enhanced capital allocation and portfolio optimization plan. Last, but certainly not least, we advanced our entitlement program and our active development program. With that operator, we can now open it up for questions.
Thank you. We'll now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. To cancel the question, please press star two. Please press star one at this time if you have a question. There will be a brief pause while participants register. Thank you for your patience. The first question is from Mario Saric. Please go ahead.
Hi, good morning, or sorry, good afternoon. Just the first question just on the CAD 248 million dollar fair value loss, attributable to the changes in valuation parameters that you cited said during the call.
I was curious if you can highlight how much of that would have been applied to the CAD 1 billion of identified dispositions as part of the strategic plan. Essentially, I'm wondering if the fair value loss was kind of proportionate across the portfolio, in the assets that you took the fair value loss on.
Hi, Mario, it's Neil. I think we have stated in the past that there are more than 30 assets circled in that CAD 1 billion pool that's part of the targeted monetization assets for the next two years. Of course, because our Q3 fair value adjustment did reflect adjustments to a very wide swath of properties, as I previously indicated, there were quite a number of adjustments specifically within that pool. In fact, I think it was more than half the assets were subject to some sort of Q3 fair value adjustment. I think what I can report to you, however, and hopefully this will give you a high level of comfort, is that in that pool, specifically, the net adjustment in its totality was actually plus CAD 2 million.
Perfect. Okay, that's great. Broadly speaking, just on the investment environment, can you discuss kind of what types of retail real estate in particular seem to be attracting the strongest buyer interest in the market today?
Hey, Mario, it's Adam. The buyer pool has evolved as the macroeconomic environment has evolved. We've been in the market all the time for several years now, both looking for investment opportunities as buyer, but especially as vendor. There's definitely been a shift over the last few months where the majority of the groups that we've been dealing with who are most active on the purchasing side are the private investors. That takes various forms, from private equity funds to high net worth individuals. But that's the buyer pool. In terms of the assets, as you know, we went through a period where we had a disposition program that was specifically targeted to improve the quality of our portfolio.
We sold assets that we thought were best not to own. That's not the case today. Our program's very different today given the composition of the portfolio. What we're seeing in terms of the assets we own is pretty strong demand across the board. For us, it's more selective around which assets fit the strategy we've laid out and for all the reasons that we've laid out.
Within that private buyer pool, like if we were to separate assets between kind of stabilized, limited residential upside over time, so higher yielding versus kind of, zoned residential upside in place already versus, approaching the zoning, is there one group more so than the other two that would stand out in terms of what the buyers are most interested in?
Not necessarily, but you get, you do get some variability. You know, if we were to take a stable cash flowing, grocery anchored asset, the buyer composition, I believe, would be different than something that's a development property that's just been zoned. We're not really in the market on development assets that have not been zoned. I mean, that's one area where we've been very successful creating value. Even in assets we've identified for disposition, there's a short to medium term value enhancing opportunity in assets that have rezoning potential. We plan to continue to take those through the rezoning, eliminate the zoning risk, and benefit from the value creation of that exercise.
Good. Okay. My last one is more of a housekeeping question. In terms of the targeted 4% FFO per unit CAGR, 2021 to 2024, can you just confirm that the base 2021 number is the CAD 1.14 that you disclosed in the statements? Or is it adjusted for something else?
Sorry, Mario. The base would be, I think I'd have to double-check. About CAD 1.075 seems to be the number that sticks in my mind. You know, we've often made reference to, you know, the variability in our O-G-L-E items. And collectively, in any given year, those have had the tendency to be a substantial contributors or detractors. We really look past that in terms of the growth line, the growth trend line rather.
Okay. If it's anything other than that, just, maybe shoot a separate email. That'd be great. Thank you.
Will do. Thank you, Mario.
Thank you. The next question is from Sam Damiani. Please go ahead.
Thanks, good afternoon. Just the first question is just on the occupancy, what are the biggest properties holding back occupancy from returning back to that pre-pandemic peak of 97%? Is that a goal of the company to get that occupancy back up?
Yeah. There's not specific properties that I can think of. It's more pockets. We've never been at 97%. Our all-time high, I guess you're rounding, Sam, but our all-time high is 96.9% in Q4 of 2019, and then we headed into the pandemic. This business has delivered occupancy that ranges from 95% to 96.9% over 20+ years. We view kind of anything in the range that we're in now as full occupancy. You know, we always have natural turnover. Sometimes that turnover interrupts cash flow, but it usually leads to higher cash flow down the road. You know, some of the Walmart we've repurposed is a very good example of that. If you take Deer Valley, you know, we have a Walmart that's vacated, so there's, but that's one space.
That's what it is more than a property that's got, you know, a chronic amount of vacancy. It is fairly broad-based, and we would view the portfolio in the, you know, mid- to high 90s% as somewhere in the range of full occupancy, depending on some of the movements that are occurring underneath.
Okay. That's helpful. Thank you. Just on the mixed-use rental residential pipeline, with King High Line leaving the portfolio, you know, that does reduce the collection of apartments in the portfolio. Is there a plan to replenish that? Is that a priority? How do you see that opportunity in the marketplace today? What sort of two or three projects would you see teeing up in the next couple of years to further that?
Yeah. For us, it was never a goal to, you know, get the portfolio to X% residential. As you know, we continue to be involved in it. It's an area where, you know, on the projects we've done, certainly in aggregate, we've made a lot of money on them. It's simply capital allocation decisions for us. Like we said, King High Line is a great asset, but we think we can make more for our investors by reallocating that capital elsewhere. We'll always continue to view where and how we invest through that lens. We've got active projects now that Jordan's gone through.
You know, some of the ones that, you know, we're looking at out the front window and are quite excited about are our Yonge and Roselawn project, our 1071 King project in Liberty Village, and a little bit further down the road, the development at Christie Cookie.
Okay. Just finally, on the NCIB, is there any activity post-September thirtieth? Are you looking at that differently today given the increased distribution going forward?
We've been in blackout from the quarterly results post-September 30th. Correct me if I'm wrong, Neil, but I do not believe we have any activity post-September 30th, on that basis.
It has been immaterial. I guess just more thematically, what I would say on that, Sam, is that, you know, we continue to view the repurchase of our units as one, if not the most attractive risk-adjusted return opportunities available to us. You know, our desire to continue to buy back units is high. You know, I think in this regard, I would simply reiterate comments that I think I've already consistently made in the past and that, you know, the repurchase of units, the cadence of those repurchases will be governed by the progress on monetizing assets under our enhanced capital allocation plan, you know, the progress, the timing, and the quantum. Obviously, secondly, you know, the unit price itself.
in terms of, you know, the bigger picture on the framework, you know, we are directionally very, very focused on achieving those balance sheet objectives, that we outlined back at the end of September in terms of key debt metrics and total debt levels, so.
Okay. That's helpful. Thank you. I'll turn it back.
Thanks very much, Sam.
Thank you. The next question is from Pammi Bir. Please go ahead.
Thanks. Hi, everyone. Neil, I think you touched on it a bit, but just with respect to the reorg and the severance costs, can you maybe just elaborate on, you know, what changes are being made and should we perhaps anticipate any further costs in the next few quarters?
Hi, Pammi. Good afternoon. You know, as I noted earlier, this was principally severance in terms of the charge. You know, we're just trying to continually find ways to be more efficient, to do things better, to empower our people to make faster, better decisions. You know, this was basically streamlining in that vein, if you will. I guess what I would say, maybe this is the part where you're sort of aiming towards, is that you know, we're mindful of the fact that we expect more travel and in-person and face-to-face business on a prospective basis. We're mindful of the fact that, you know, inflation has been high. Now, hopefully, that peaked back in June at an 8% print.
We do know that labor is a lagging indicator, and the labor market remains tight. You know, I think, FCR, like many companies, is facing higher G&A expenses overall. You know, the restructuring was part and parcel with that. You know, if you want to think about your modeling, because I'm kind of anticipating your question here, that as you look out to 2023, you know, probably at this point, pencil in a CAD 10 million run rate for G&A as opposed to where we have been running in the last 12 months. Quarterly run rate, of course.
Right. Yep. Okay. Got it. Just looking at the renewal spreads, again, they're pretty strong. As we do shift to, you know, lower gear in the broader economy, are you anticipating any moderation or anything in lease maturity mix next year that might bring some of these spreads down a bit?
Absolutely not. The counter to that is replacement cost to replace that space while in most markets we're in is theoretical, given the physical barriers to entry for new supply. The rents that would be required to replace the space are higher than they've ever been. Our focus is on driving those spreads higher, not maintaining or anticipating them being lowered. Given the locations that we're in and the quality of the tenants that we have and the productivity of the space, vis-à-vis the sales-generating capability of that space, yeah, we absolutely do not see a softening of the renewal spreads as we look forward. Again, I'm not talking about on a quarterly basis, but you know that my sense wasn't looking at a specific quarter in terms of what you were asking.
Right.
Hopefully that answers the question.
Yep. No, that's good color. Just, you know, as we do look to next year's maturities and the lease profile, is there any space that you're expecting, you know, any larger space you're expecting to perhaps get back, and should we be thinking about any downtime at all, or is it sort of just a routine year?
It is a routine year, but that doesn't mean we don't have any large spaces that we get back. We typically get some back every year. You know, Walmart have been a good example of that in terms of our ability to repurpose the space and come out well ahead from a value and NOI perspective, even factoring in obviously downtime, releasing costs, lost gross rent during the downtime, et cetera. We do have one out west that's that has been on our radar for a while, which is the Walmart in our Westmount center. I don't think there's any others. You know, we're looking around. We don't think there's any others that that are coming back next year that fall into the large space. Certainly, it's a normal year.
If there's any others we missed, we'll let you know directly, Pammi .
Got it. Just lastly, on the debenture maturity, I think, Neil, you mentioned that you're looking at or there's some CAD 200 million in mortgages that might be in the works. Where are you sensing that these may sort of price in or all-in in terms of the all-in costs, if this is something that you're planning to get done before year-end, I presume?
You can use a range of 5.5 to 6.0 as a reasonable band in terms of where those should be pegged.
Okay.
Certainly longer term. Think eight, nine, 10-year money.
Right. Okay. Thanks very much. I'll turn it back.
Thank you, Pammi.
Thank you. The next question is from Tal Woolley. Please go ahead.
Hi, good afternoon.
Hi, Tal.
The Ontario government came out with a revitalized housing plan. Just wondering if you guys have had any principal thoughts or opinions delivered to you, if you can put maybe some context about how you're thinking about how it might impact, how you look at development or maybe asset sales going forward?
Hi, it's Jordan. I think I'll take that one. You know, what was announced, I would say to you is a very good start. Frankly, I think we, at least internally, applaud the provincial government in taking what were, I'll say, meaningful steps to create more housing more quickly. I would say notwithstanding the what we anticipate to be a positive impact on supply, in other words, that it will create ultimately more housing, we think by virtue of the changes that they are contemplating to reduce both the time to and the cost of developments, it will ultimately have a positive impact on our development value. I would say generally speaking, we feel good about it, certainly indicative of what we learned thus far.
We think there's a lot of great things in it and you know, the devil will continue to be in the details, obviously.
Okay. Just looking at your development pipeline, you've got, I think, three condo projects sort of in the works, and they're sort of at various states of presale. I think like 138 Yorkville, I'm not even sure you've started marketing that one yet. As this environment has changed, you know, wondering if you can talk a little bit about presale or how you're thinking about selling strategy, the financing strategy for condos, and, you know, not that I'm trying to, like, speak anything to existence, but just like maybe contingency planning just in case the market does get a little bit rough and you have to start closing into maybe a tougher environment.
The two projects we have underway are well advanced, and they're largely presold, and they were presold in a market where, you know, the market value of the condos we sold continued to escalate after we sold them. We've also locked in substantially all of our costs on those two projects. At this stage, you know, we're comfortable that we're in good shape to see them through. 138 is a very different animal. It, you know, it's going to be a very, very high-end product that is geared towards a very, very small group of, you know, what we'll call the condo purchasing universe.
We also feel that that group is less sensitive to economic cycles in terms of what they are prepared to pay for that space and more geared towards what level of luxury is delivered, what standard of service is delivered. And we think that'll actually play a larger role in the price that the product gets sold at. Very different. We're not contemplating any other condominium starts at this point, in part because of our real estate strategy, also in part because of the macroeconomic backdrop that we see surrounding new condo starts today.
Okay. For the disposition or the new disposition program, you know, you've given some idea of where the proceeds might go. Is there any, like, leakage that might be in, you know, in that disposition number just from like taxes or things like that that we should be thinking about?
No.
No?
The short answer is no. No. You shouldn't be thinking about tax leakage in that program. No, the short answer to your question is no.
Okay. I don't know exactly how many, you know, how many deals you're looking at or disposition deals you're looking at right now. Are you finding the depth of the market is still roughly the same from where you were, say, like 18 to 24 months ago? Or are there certain kind of buyers maybe that are, you know, I would think maybe like the spec condo developer might not be in the market just as you were sort of sitting here saying like, "Hey, we're not gonna be green-lighting anything new." You know, has the depth of the market changed at all?
Yes, the depth of the market's certainly changed. It's shallower today than it was 18 months ago. We're focused on the one buyer that will buy our asset at premium pricing, and so we need one of those for each asset sale. While the pool is shallower, it's still constructive enough to achieve what we're trying to achieve. We've identified specific assets that we want to sell. We require premium pricing to transact. We have a number of transactions in progress beyond what's been announced, and we feel very confident today that the market is constructive enough for us to achieve what we're trying to achieve.
Okay. Just lastly, on the debt strategy, you know, you sort of talked about some mortgages with some serious term on it, eight to 10 years. I'm just wondering, like, have you thought, you know, like, given that the weighted average term of maturity has kind of started to come down a bit, but rates are rising. Like, do you think the right thing to do right now is to continue to, you know, to try and stretch that term? I'm just wondering if it's a different time, like, you know, the rate environment has changed, if how you're sort of thinking about the term on your balance sheet.
Yeah. No, Tal, it's an excellent question. You know, the flip side is with short rates being comparatively high versus long rates, there's also, I think, a strong rationale to really carry no debt on your overnight basis or on your revolvers today. You know, reaching for some term is always a risk mitigation strategy in real estate. You know, the longer-term money makes sense in that vein. It makes sense in the vein that your point being that our term to maturity has shortened over time, and that's principally rather been a function of us being a net seller of assets. You know, in short, we're going to maintain a very strong liquidity position.
We will probably be extending some term loans as well over the next six to 12 months. Then, you know, selectively we'll be placing mortgage longer term mortgage financing. It's about balance. It's about, you know, liquidity strength in the environment today.
Okay.
Yeah. The important point to note, Tal, which I know you're an advocate of, reduced leverage, which we have been doing. You know, it's easier to keep your ladder longer when you're refinancing debt. When you're paying off debt on it, when it comes to maturity, like we have been in many cases, you're inherently gonna shorten the ladder.
Got it. All right. Perfect. Thanks, gentlemen.
Thank you very much, Tal.
Thank you. The next question is from Dean Wilkinson. Please go ahead.
Thanks. Afternoon, everyone. Neil, on the CAD 1 billion that's been identified, should we be thinking of, you know, average size of that CAD 30 million, give or take, or is there a wide spectrum there and maybe some larger assets in that pool?
Well, Dean, as you know, when you talk about averages, invariably you spend your time above the average or below the average, even though there's such thing as an average. We did identify the fact that there's more than 30 assets. If you take CAD 1 billion and you divide it by 30-something, you're gonna get the average. Truth be told, there's a very wide range of individual assets in that pool in terms of their size. You know, some could be CAD 10 million, and some could be CAD 149 million.
Okay, fair enough. Are all of those free and clear of debt, or do you have some favorable debt that you could be sort of offering up in that sale process?
There are a very limited number that have property-specific financing or stated, alternately, so they're substantially free and clear.
Okay, great.
Yeah. We have options, Dean, on that. In some cases, where it's a relationship lender, we can port the loan.
Yeah.
In others, like the case of King High Line, the debt went with the purchase and obviously that's a factor in the valuation. In the case of King High Line, the mark-to-market was like inconsequential. As you probably know, we have interest rate hedges on that loan, which we retain those. We didn't sell those. It'll depend. If the debt goes with the property, we obviously value the debt and factor that into our decision-making in the context of looking for premium pricing for assets we're selling.
Got it. Makes sense. Maybe last one for Jordan. Of the CAD 254 million sort of cost to complete, how much of that would be at risk versus what you've got locked in on fixed price contracts? You know, maybe a secondary question, can you even get a fixed price contract today when you're looking at something, or has inflation just gone out of control?
I'm gonna have to get back to you on the first part of the question because I don't know it offhand. In terms of the second part, you know, it's a very good question. I would say it is certainly more difficult today to lock in fixed price contracts. We were lucky or I would say smart at the time to do it and take advantage of those contracts at the time. At the same time, you know, we do business with a lot of these contractors and so have a very deep relationship with them. I think that has proven and will prove to be helpful going forward as well.
Okay, great. I guess to Neil's point, the best fixed price contract you've got right now is CAD 15.83 a unit. Thanks, guys. I'll hand it back.
Okay. Thank you very much, Dean.
Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Adam.
Okay. Well, thank you very much. Thank you very much, everyone, for attending our Q3 E arnings Conference Call. We hope you have a wonderful afternoon. Bye-bye.
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