Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT Q1 2023 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 Alison. Please proceed with your presentation.
Thank you. 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 Q1 MD&A, our MD&A for the year ended December 31st, 2022, and our current AIF, all of which are available on SEDAR and 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.
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.
Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us for our Q1 conference call. In addition to Alison, with me today are several members of the FCR team, including Jordy Robins and Neil Downey, both of whom you will hear from shortly. We were pleased with our first quarter operating results, which were underpinned by strength in leasing, occupancy, and NOI growth metrics. These translated into solid earnings growth that was offset by one-time costs associated with settling activist-related matters. As demonstrated, our leasing pipeline remains robust. This is important, especially during periods of more active tenant turnover, such as the next few quarters, as we've previously discussed.
Tenant turnover can be lumpy, but it's a normal and important part of our growth as we replace lower rent-paying tenants with new tenants who pay market rent and improve the merchandising mix and qualitative aspects of our property offering. A good example are very low, flat rent generating Walmart spaces. These turnovers typically increase the cash flow and property value once our new tenants are open and paying full rent. Following a period of cash flow interruption during the transition period, which in at least one case, is expected during the second half of this year. The depth and strength of our pipeline is important as we look ahead.
With significant population growth coupled with limited to no new supply, the fundamentals for grocery-anchored, open-air retail located in FCR's neighborhoods is very compelling to retailers, which is one of the reasons why our leasing pipeline remains so strong. Additionally, economic rents required for new construction far exceeds current market rents, not to mention the physical barriers to entry for new supply in our trade areas. With these solid fundamentals, the overall strength of our real estate portfolio has proven time and again its resilience, including through periods of economic turmoil, the rise of e-commerce, and a global pandemic. From a strategic perspective, successfully executing our enhanced capital allocation and portfolio optimization plan remains our top priority. Executing this plan ensures that our capital is allocated in ways that drive the most value for unit holders over the short, medium, and long term.
Over the past few years, our development and entitlements program has contributed meaningfully to FCR's above average NAV growth. This 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 sweat equity and expertise of our team over the past few years, we now have a growing abundance of these assets that are prime for either redevelopment or monetization. Monetizing some of these is rebalancing FCR's portfolio to a higher proportion of income-producing assets that contribute to key metrics such as EBITDA and FFO, and it will further strengthen our balance sheet, which remains of the utmost importance. Our annual operating cash flow more than covers our fully restored distribution.
Therefore, the entire $1 billion of monetizations is being allocated to a variety of other uses. Specifically, at least $ 400 million is earmarked to repay outstanding debt. This positively impacts our debt metrics, especially debt to EBITDA, given the relatively minimal amount of EBITDA being sold under our plan. Roughly another $ 400 million is anticipated to be invested in value-enhancing development assets over the next two years. Now that's a cumulative number, and at this stage, we believe it is more likely to go down than up. The remaining $ 200+ million will be allocated in the most optimal and impactful means, which is being assessed and determined as our sales progress. Options continue to be further debt reduction, NCIB purchases, opportunistic real estate investments consistent with our strategy, and other opportunities that we identify.
The two-year timeline that we laid out to fully execute our plan extends through 2024. We remain well on track. Our total dispositions under the plan, including those announced last month, are now $360 million, representing 36% of our two-year target. The weighted average run rate NOI yield of the property sold is less than 3%, and the average premium to IFRS carrying value is greater than 10%. None of the assets identified for sale under the plan are stable, cash flowing, multi-tenant, grocery-anchored properties, which we now own in only top-tier neighborhoods with the best demographics in the country. These represent the vast majority of our portfolio, and as we continue to execute our plan, our weighting of these core assets is increasing. The remaining assets to be sold are typically smaller in size.
Most are zone development sites. All of them are low or no yielding properties in which our short to medium term value enhancing objectives have been achieved. No sale or even the aggregate of the $1 billion pool materially changes the composition of our primarily grocery anchored portfolio, nor our long-term growth trajectory. They are expected to meaningfully impact the key metrics our plan is designed to deliver. We believe these sales make FCR more attractive to key stakeholders, particularly public market investors. The board and the management team share a deep conviction in this plan and believe its continued execution will narrow the gap between our intrinsic value or NAV and our trading price, all other things being equal. As I noted earlier, part of the unallocated $ 200 million of our expected proceeds could be used for opportunistic real estate investments.
Any investment in this regard needs to be a strong strategic fit from a real estate perspective and a situation where we can create value or alpha by applying our expertise. We had one such investment in Q1, which is very small in dollars but impactful, as Jordy will touch on. This quarter, we continued to advance our ESG priorities, further embedding environmental, social, and governance principles into our business and culture. That brings me to our ED&I work. We're in the middle of Mental Health Awareness Week, and our ED&I Council is raising awareness to promote mental health through inspiring keynote speakers and a special employee-led panel sharing real-life mental health stories and strategies that we can all learn from.
We continue to create a connected culture that is inclusive and supportive of all FCR team members, where they have a sense of belonging and an equal opportunity to thrive and grow their careers. The FCR Thriving Neighbourhoods Foundation continues to be busy raising money to support Kids Help Phone. More to come on this on future calls. Before I hand it over to Neil, I'd like to take this opportunity to welcome our summer interns who are listening to the call, some for the first time. We launched the internship program five years ago, and over that time, it has evolved and has become quite sought after. We received over 5,600 applications for 19 positions this year. I truly believe that what sets this program apart is the real-world experience the interns gain throughout the summer.
Importantly, the program has turned into a talent pipeline for FCR. We now have five full-time professionals that started as interns in our leasing, IT, and marketing departments. We look forward to providing more updates on ESG in the future. In the meantime, the ESG section of our website is regularly updated and has a wealth of information on our ESG activities. To summarize, our team remains laser-focused on continuing to deliver strong operating performance with robust leasing, high occupancy, and growing rents. Our optimization plan is our top strategic priority that is proceeding well on plan to continue delivering higher FFO with falling debt levels. I have full confidence in our portfolio and our team's ability to continue to deliver. With that, I will now pass things over to Neil.
Thanks, Adam, good afternoon to all of today's call participants. As is customary with my prepared remarks, I will be referring to the quarterly conference call presentation, which is available on our website at fcr.ca. Adam has already touched on some of the Q1 highlights, and with the results being quite straightforward, I'll jump right in, beginning with slide six. Q1 2023 funds from operations of $ 53.5 million increased by $ 1.3 million year-over-year. FFO per unit was $ 0.25 for the quarter, consistent with Q1 2022. These headline results do not capture the solid underlying performance and growth trends in the business, including the fact that most Q1 operating metrics were slightly ahead of our internal projections.
Touching upon the key components of FFO, Q1 2023 net operating income of $104.8 million increased by $3.3 million or 3.3% from $101.6 million in the prior year. There were three key components behind the growth in NOI. Firstly, contributing $4.2 million was higher base rents from new and renewal leasing, net of leases lost. Secondly, higher variable revenue sources contributed an incremental $2 million. Finally, offsetting these sources of NOI growth was approximately $2 million of lost NOI related to disposition activity from the prior 12 months. Notably, Q1 same property NOI increased by $3.8 million, equating to a solid 4% growth rate year-over-year.
Key drivers included higher base rents from contractual escalators, new and renewal leasing activity, and higher variable revenue contributions. Same property bad debt expense was $300,000 lower year-over-year, which really is not a consequential impact relative to $400 million of annualized same property NOI. Moving further down the FFO statement, interest and other income of $4.9 million declined by $1 million year-over-year due to loan repayments, partially offset by higher interest rates. FCR's loans and mortgages receivables totaled $130 million at March 31st, and these investments carried a weighted average interest rate of 7.9%. Comparatively, the mortgages and loans receivable book totaled $174 million at December 31st and $235 million at March 31st, 2022.
Net loan receivable repayments during the first quarter were $45 million. More than offsetting the net growth in NOI plus interest in other income was a $8.7 million increase year-over-year in corporate expenses. In this regard, Q1 corporate expenses included approximately $7 million or more than $0.03 per unit in non-recurring legal, advisory, and reimbursement costs related to unitholder activism. We expect no such costs in Q2 or beyond. During Q1 2023, other gains, losses, and expenses were essentially nil. This compared to other losses and expenses of $6.8 million in Q1 2022. The details behind these IFRS amounts can be found on slide seven of the conference call deck.
Providing a final piece of context to round out the first quarter FFO walkthrough, I'll note that prior to IFRS amounts and excluding the $7 million of non-recurring activist- related costs, Q1 FFO per unit was a little over $0.28 in the recent quarter, representing an increase of approximately 1% relative to a similarly derived figure from 2022. Before touching upon operating metrics, I will provide a bit of context on Q1 NOI relative to the fourth quarter of last year. On a sequential basis, Q1 NOI was $7.3 million or 6.5% lower than Q4's $112 million. The key factors underlying the change included lower lease termination receipts of $3.5 million and higher bad debt expense of $2.1 million, for a combined impact of $5.6 million.
Bad debt for Q1 was essentially nil. Recall in the fourth quarter of last year, we actually released $2.1 million of reserves. A second factor was lost NOI related to dispositions. That was about $1.7 million. Thirdly, there were lower Q1 variable revenue contributions to NOI of $1.2 million. Finally, these were offset partially by higher base rental income of $1.7 million. Moving to FCR's Q1 operating performance metrics and starting on slide eight. Portfolio occupancy rounded out Q1 at 96.2%. This was an increase of 40 basis points from the fourth quarter and an increase of 70 basis points year-over-year. Q1 occupancy was slightly ahead of our internal projections, reflecting the fact that there were several late in quarter tenant possessions that essentially pulled us forward from subsequent period expectations.
In this regard, Q1 had 155,000 sq ft of tenant possessions set against 114,000 sq ft of tenant closures. Moving to slide nine. Strong leasing activity has been a recurring theme for a number of successive quarters now, and recent activity is maintaining this momentum. Q1 renewal leasing volume was 650,000 sq ft. A strong cadence in its own right, even if it was below the 711,000 sq ft of renewals from the seasonally strong fourth quarter, as well as 838,000 sq ft of renewals signed in Q1 2022. As a reminder, the year ago Q1 leasing activity was notably elevated. It included approximately 250,000 sq ft of early Walmart renewals, each at fixed flat rents.
Q1 2023 renewal leases were affected at an average increase of 9.3% when measuring the first year renewal rents of $22.14 per sq ft, relative to a rent of $20.24 per sq ft in the final year of the expiring leases. Including new leasing for future possession, total leasing velocity at FCR share was 817,000 sq ft in Q1. As referenced on slide nine, the average in-place portfolio net rental rate reached $23.06 per sq ft at March 31st, up from $22.95 at December 31st. FCR's in-place net rent per square ftoo continues to make new highs. Rent growth during Q1 was $0.11 per square foot, and on a year-over-year basis, growth was $0.49 per square foot or 2.2%.
Rent escalations and renewal lifts provided approximately 85% of the growth in net rent per square foot year-over-year. Adding in new tenant openings versus closures, you can account for 90% of the year-over-year growth. Slides 10 and 11 provide distribution payout ratio metrics on an FFO, AFFO, and ACFO basis. These are largely for informational purposes to provide indications as to how we view and measure cash generation and sustaining capital expenditure requirements within the business. I will note the Q1 2023 AFFO payout ratio is elevated by approximately 14 percentage points due to the activist- related costs included in corporate expenses. Stated alternately, the Q1 AFFO payout ratio excluding the activist- related expenses would have been 91%. For calendar 2023, we currently expect approximately $40 million of sustaining capital expenditures, including leasing costs.
This compares to $37 million actually incurred in 2022. Advancing to slide 12, the REIT's net asset value per unit at March 31st, 2023 was $23.48, unchanged from December 31st. As it relates to the Q1 fair values, FCR recorded a net fair value increase of $8 million during the quarter, including $15 million on the hotel. The hotel re-revaluation, I note, is split approximately $4 million into the income statement and a $11 million amount that flows into equity through other comprehensive income. The quarterly revaluation process covered 121 individual assets with an aggregate value of about $4.7 billion that were subject to cash flow updates, yield changes, or a combination of both by our valuations team.
For added color, the major components of the Q1 fair value changes included the following: A net $38 million loss on revisions to capitalization rates and discount rates. A net $18 million gain on revisions to NOI assumptions and cash flow assumptions in the DCF models. Finally, with respect to our April 11th disposition announcement, there were four properties, including the hotel, as I just mentioned, where fair values were marked higher by $27 million in order to reflect their contracted sales prices. On the portfolio basis at March 31st, FCR's stabilized cap rate was 5.2%, essentially unchanged from December 31st, 2022. Providing an update on capital deployment as summarized on slide 14, we invested $34 million into development leasing, residential development, and other CapEx during Q1. Most of this capital was invested into assets located in Toronto and Vancouver.
We also completed a small but important tuck-in acquisition located at Bloor Street and Spadina Road, Toronto, for approximately $16 million. This purchase completes a significant site assembly at a very prominent intersection. As we look forward for the balance of this year, we currently anticipate calendar 2023 development related CapEx to fall within a range of $150 million-$175 million. We had formerly guided to a number of $200 million+. In providing some context, our currently active projects, the cadence of spend of our and our development budgets and timelines are largely intact. In contrast, we now assume a later 2023 commencement date for several new projects.
For 2023, we currently expect all other capital expenditures, including sustaining, revenue enhancing, leasing, recoverable CapEx and the like, to be in a range of $70 million-$80 million. Finally, on the theme of deploying capital, during Q1, we allocated nearly $20 million to repurchase approximately 1.3 million trust units at a weighted average price of $15.32 per unit. This price is 35% below the REIT's Q1 net asset value per unit. This activity brought the cumulative NCIB activity to March 31st to 7.5 million units for a total investment of $114 million. Turning to slide 14, we have summarized key financing activities.
During Q1, we repaid $289 million of debt, including $180 million of drawings on our revolving credit facilities and a $100 million maturing term loan. Key sources of funding in the quarter includes a new $150 million 32-month term loan that was secured at the end of March. Through cross-currency swaps, the effective rate on this loan was reduced to 6.1% on April 4th. In addition, and as discussed on our last quarterly conference call, we also funded a $234 million 10-year fixed rate mortgage financing package at the end of January. Due to usual Q1 working capital seasonality and the timing of investments versus disposition activity, FCR's net debt at March 31st was $4.25 billion, an increase of $52 million from year-end 2022.
On the heels of a large reduction in net debt in the fourth quarter of last year, we see this increase as a temporary phenomenon. We remain highly committed to our previously stated leverage objectives. We expect to end 2023 with a lower net debt balance than at the start of the year. On slide 15 of the presentation, you will see certain key debt metrics. Here I'll draw your attention to two items. The first is FCR's net debt to EBITDA multiple. It's reported at 10.4x for Q1, which is up from 10.2x at December 31st. Because we kept our expense categorization pure, this is now having a noticeable and adverse impact on our debt-to-EBITDA metric. In other words, we did not separate the current or any previous quarter's non-recurring activist costs to below the line.
For context, if we exclude the activist cost, the Q1 debt to EBITDA multiple is 10.2x at the end of Q1, unchanged from the fourth quarter and significantly lower than the 11.1x reported in Q1 of 2022. Debt to EBITDA is typically a lagging indicator of leverage, and as such, our progress over the next several quarters will carry the burden of these historical yet non-recurring costs. Second point I might leave you with relates to liquidity. At March 31st, FCR had $800 million of revolving credit facilities that were fully undrawn, and it had more than $80 million of cash. As such, total general corporate liquidity was approximately $880 million.
This was an increase of $226 million from year-end 2022, and an increase of $373 million from one year ago. In addition, we expect net cash proceeds from asset sales in the June through to September timeframe. This liquidity places the REIT in a position of exceptional strength as it relates to our only notable remaining 2023 debt maturity, which is our $300 million Series Q Senior Unsecured Debentures, which reach their term on October 30th of this year. This concludes my prepared remarks for the afternoon. I'll now turn the session to Jordy to provide some commentary on our optimization plan, our entitlements program, and development initiatives.
Thanks, Neil, and good afternoon. You've heard that our operating metrics remained strong in Q1, reflecting the depth and breadth of our portfolio and the continued performance of our tenants. Today, I'm gonna provide you with a brief update on investments, our enhanced capital allocation plan, the advancements we've made with our entitlement ladder, and our active development program. Let's begin with investments, as it's been a busy quarter in which we sold or we've entered into binding agreements to sell $184 million of assets, all identified as part of our enhanced capital allocation and portfolio optimization plan. The impact from these sales is consistent with our stated objectives. The total proceeds represent an 18% premium to our IFRS values and collectively generate approximately a 3% yield.
When you include the $149 million from the sale of our remaining 50% interest in our King High Line residential property, and our sale of a partial interest in our Yonge & Roselawn development, which both closed in Q4 2022. We will have monetized $360 million of the more than $1 billion targeted for disposition. We're pleased with this cadence, as framed differently. We've either sold or have binding agreements to sell over 1/3 of the value set out in our two-year optimization plan. Included amongst these properties is the Hazelton Hotel and our interest in the ONE Restaurant, which we've contracted to sell for $110 million.
We achieved very solid returns during the period of our ownership. The sale price per room equating to $1.3 million is amongst the highest per room price ever paid in North America. In addition to the obvious financial benefits realized from our ownership of the hotel, there were also several related benefits that we secured. The hotel is located adjacent to our Yorkville Village shopping center and our 138 Yorkville development site. We had assembled these contiguous assets to help enhance, both qualitatively and quantitatively, our development plan for 138 Yorkville. We were successful in this regard, as our approved plan for our 138 development takes advantage of efficiencies like shared loading and shared access. As a result of the adjacency, we were also able to secure 60,000 sq ft of additional density for our 138 project.
It is for all these reasons that the disposition of the hotel and the restaurant meet the objectives of our plan and our broader initiatives. A little further north in Toronto, we own an asset located at 5051 Yonge Street. It is a multi-level retail property situated within the transit-connected North York Centre. Considering the evolution of this neighborhood, low-density retail is no longer the site's highest and best use. However, in light of lease encumbrances that existed until recently, the site could not be redeveloped in the immediate term. We knew the transition of this site was inevitable. Despite the encumbrances, included 5051 Yonge Street as part of our 24.4 million sq ft entitlements program.
In December 2020, we submitted for an official plan amendment and rezoning to amend the site's use and intensity to accommodate its conversion into a high-rise development site. Shortly after submission, as a result of our deep relationships and our background and expertise in commercial redevelopments, we secured a means to remove the lease encumbrances without any associated cost. This work provided us an opportunity to expedite the monetization of the density value of the property, consistent with the objectives of our optimization plan. We subsequently engaged with several developers who we viewed as logical buyers of the property. Considering its location and the sweat equity we had invested after a brief period of negotiation, we entered into an unconditional agreement to sell this asset without discount to its own value.
In Q1, we also entered into an unconditional agreement to sell the Phase II lands of our Wilderton property in Montreal to an established local residential developer. You'll recall as part of the planned redevelopment, we had demolished the former shopping center. On a portion of the site, we constructed a new low-rise retail building and a second multi-level retail space anchored by a Metro grocery store at the base of a seniors housing tower. We had rezoned the remaining 1.5 acre northern portion of the site to accommodate the development of an additional 200,000 sq ft of primarily residential density as part of our planned second phase. We brought this approved density to market, originally seeking a joint venture partner.
Based on the depth of and the aggressive valuations from prospective purchasers, we concluded that in this neighborhood, rather than developing in partnership, we could sell the density for a premium and use the proceeds from the sale more impactfully. We subsequently entered into an unconditional agreement to sell the density with closing scheduled for Q3 of 2023. As part of our optimization plan, we had also identified Queen Mary as an asset that should be sold. It is a non-strategic small apartment building with ground floor retail located in Montreal. We had maximized its value through active asset management, including the renewal of a key retail lease and the completion of necessary facade upgrades. We felt that we could monetize this asset in accordance with objectives of the plan.
We brought Queen Mary to market after brief exposure, have a binding agreement to sell it with a closing scheduled for Q2 2023. As Neil touched on briefly, this past quarter we acquired a small tuck-in asset that completes the assembly of our 332 Bloor development site at Spadina here in Toronto. We have already submitted a rezoning application for this transit-connected development property. Our application contemplates replacing the existing 30,000 sq ft of predominantly single-story retail space with 336,000 sq ft of residential density. Once approved, this 300,000 sq ft of incremental residential density located adjacent to the Spadina station will deliver a significant increase in the IFRS value of this incredible assembly.
As part of our $1 billion portfolio optimization plan, we have identified 6 million sq ft and $ 400 million of value that we will generate from the sale of density in our portfolio. This value that we will crystallize is a direct result of our expertise and the time, energy, and capital we have invested in the entitlement program that we initiated just five short years ago. In summary, we've submitted for entitlements on over 16.7 million sq ft of incremental density, representing 70% of our 24.4 million sq ft pipeline. We expect to submit applications for an additional 1 million sq ft of incremental density in 2023. This past quarter, a further 379,000 sq ft of density was approved at Place Anjou on the island of Montreal.
Today, over 8.95 million sq ft of our pipeline is now entitled. We expect that the balance of this pipeline will be entitled on a staggered basis over the next several years. As set out in our disclosures, only 7.8 million sq ft of our 24.4 million sq ft pipeline is carried on our balance sheet at approximately $7 4 a ft. As our entitlement program advances, we believe it will translate into meaningful NAV growth on our balance sheet. A portion of this density will be sold, as set out in our optimization plan. However, even after its sale, we will still possess over 17 million sq ft of incremental density in our residual pipeline, leaving FCR with a very significant collection of long-term growth opportunities. Our program continues to advance as it relates to our active developments as well.
200 Esplanade in North Vancouver is now nearing completion. 97% of the costs have been awarded. We are on budget and schedule for a late 2023 delivery. Here in Toronto, shoring and excavation at 400 King Street West, our 460,000 sq ft retail and residential development in downtown Toronto is 80% complete. 97% of the units there have been sold. We are holding back the sale of the final units until the project is closer to completion. The P1 level is now complete and the ground level slab has been poured at Edenbridge, our 209 unit development located on our Humbertown Shopping Centre lands. 95% of the costs at Edenbridge have been awarded and almost 90% of the units sold.
At Cedarbrae in Toronto, the extensive renovation to the former Walmart store that will reposition the center is well underway and on schedule for phased delivery in the second half of 2023 and early 2024. 75,000 sq ft of the former Walmart box is leased and its new tenants include, amongst others, Winners, Dollarama, Healthy Planet, and Mark's Work Wearhouse. At Stanley Park in Kitchener, Ontario, we are nearing completion of our preparation work, and we expect to give Canadian Tire possession of their pad this week so they can begin the construction of their new store with a planned opening in the first half of 2024. To conclude, Q1 was solid on all fronts. As you've heard from Neil, it was highlighted by strong quarter-over-quarter metrics, including same-property NOI growth, leasing volume, and leasing spreads. We also advanced our entitlement program, our active development program, and our enhanced capital allocation plan. With that, operator, we can now open it up for questions.
Certainly. Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Lorne Kalmar with Desjardins. Please go ahead.
Thanks. Excuse me. Just on, the occupancy jump. Was wondering what type of tenants are you seeing most of the demand from? Where do you kind of expect occupancy to shake out at the end of the year?
Hi, Loren. Thanks very much for the question. If you go through the main tenant categories that we summarize in our investor deck, that's a good place to look for where the new tenants are coming from, and it's fairly broad-based across grocery, pharmacy, liquor, food and beverage in a variety of formats, medical, fitness, daycares, quick serve restaurants and the like. We're doing new deals with every category. I can't tell you that every single one of those hit our Q1 occupancy, but that's the group.
You know, we did see a spike and, you know, we've telegraphed previously that we expect about 40 basis points of occupancy erosion in the second half from a single Walmart location that packs a punch much greater in occupancy than NOI, given the very low lease rates. We've got a very good plan that, assuming we execute well as we've done before, will increase both the cash flow and value of that property, including all the costs to get there. There will be some occupancy erosion on that front. We've got some other things that will offset it to some degree. Some of those tenants took occupancy in Q1, so on a net basis, we expect to drift down a bit.
The other one to keep your eye on is the Nordstrom, which is about somewhere between 15 basis points- 20 basis points. We don't yet have control of that space. We've been dealing with prospective tenants to some degree, but don't have clarity. We will have clarity this quarter, though, in Q2.
Okay. That was very helpful. On the Nordstrom still early days. Maybe on the variable revenues, a little bit of a decline quarter-over-quarter. Could you maybe give some color on what happened there and sort of, you know, if that's a good run rate going forward for the year or if there was some nuances to the number?
Yeah. Well, there definitely are nuances to the number. That's why it's called variable revenue. You clearly should expect that number to on a year-over-year basis, be in a position where it's declining. That's principally due to the sale of the hotel and the restaurant, which will occur in Q2.
Okay, great. Last one, going back to One Bloor. I know you guys, I think you have a ballroom coming in there. When is that expected to come on stream? What about the quantum of the NOI impact?
Yeah. We did turn over possession of the entire formal McEwan space to the ballroom. Lorne, let us get back to you. We don't have it handy, and wanna give you the accurate info in terms of the most current estimated opening date and the balance of your question. We just don't have it handy, otherwise, we'd provide it right now. We will get back to you.
Appreciate it. Thank you so much for the color.
Thank you very much.
Thank you. The next question is from Dean Wilkinson with CIBC. Please go ahead.
Thanks. Afternoon, everybody. Question's probably for Neil. Given the distribution was largely all taxable income last year, Neil, do you think that the asset sales, which have got to be well above your tax basis, are gonna trigger anything, or do you have the ability to shelter those from regular income?
Yeah, hi, Dean. Good afternoon. Thank you. It's a valid question and something we're highly cognizant of. You'll note that we build this as a two-year plan. For tax purposes, we've maybe cheated a bit because we're spreading it over three tax years. I.e., we had some asset sales close in December of last year. There'll be further asset sales this year and into 2024. It's currently not our expectation that this program is going to result in special distributions that are of any consequence.
Fantastic. second, probably for you again, Neil. You've got a quite elevated cash balance, and that's probably only gonna get higher. What's the most immediate use for that? Is it gonna be more NCIB or just paying down the debt?
Your point on liquidity is one that I'm glad you've taken away because we've tried to emphasize liquidity in particular in the last three months, given what has been happening south of the border with the U.S. regional banks in particular, and the fact that we do have a $ 300 million debt maturity coming up at the end of October. You know, we simply wanna have, I'll say, lots of optionality in our favor. We are in an environment where in the short term, you know, carrying liquidity, frankly, has almost little to no penalty given that we can get about 5% overnight on our cash balances. I think that gives some good context behind why the liquidity position is where it is.
You know, at the end of the day, really our focus is upon executing the optimization plan and achieving the metrics in terms of both total net debt to EBITDA and other objectives that we laid out back in September.
Sounds good. Last one's probably for Adam, and I'll call it an ill-fated plan. City of Toronto is in the middle of a mayoral election. Parking spots have seemed to have had a bit of a target put on them. Have any of the, you know, potential candidates reached out to you and talked about this issue? Have you guys, like, sort of taken a look internally as to, you know, sort of, we'll call it an ill-fated plan, what that could mean?
Yeah. I can tell you none of the mayoral candidates have reached out to me directly. That being said, the topic is one that has moved from the front to back burner for a number of years now because it's not the first time that it's been raised. I know REALPAC, which I had just stepped off the board of last year, you know, it has done a lot of really good work on this to try and help the decision-makers understand the full implications, and in our view, some of the shortcomings of that approach. You know, we'll see how it shakes out. I think it's premature for us to be able to describe that today. Again, not a, not a new issue, though, so we'll see where it goes from here. Sorry, can't give you more clarity at this point.
Nah, let's just hope they're listening. I'll hand it back. Thanks, guys.
Thank you very much, Dean.
Thank you. The next question is from Sam Damiani with TD Cowen. Please go ahead.
Thanks. Good afternoon, everyone. Just on the disposition side, obviously nothing closed of any consequence so far this year. Can you give some guidance as to what should be closing in Q2 and Q3? Are you seeing any issues with buyers being able to finance their acquisitions?
Thanks, Sam. If you look at our held for sale balance, I think if you look at what we announced that's closing and where it's at at quarter end, it didn't quite double, but it was near doubling. We are making good progress. We obviously announced a bout $ 184 million of we'll call it new dispositions last month. Those close on a staggered basis, generally, in Q2 and Q3. If you want, like, more specifics, we'll have to get back to you. Well, I don't think, I know it's Q2 loaded, but some of them do drift beyond that. I feel like I'm missing a part of your question, but it escapes me if I have, so please remind me.
No, no, just I guess there's over $ 300 million held for sale, you've addressed $ 184, I mean, would all that $ 300 million and change in change be closed by the end of Q3, you think?
I don't know that it'll all be closed by the end of Q3. To meet the accounting definition of arriving in the held for sale bucket, there's a number of criteria. As you know, one of them is that the closing is expected within one year. Some of them. Most of them we've got identified buyers, not all of them, and so terms will still need to be settled and negotiated. Obviously, if we're entering into a transaction, we're keen to execute, to Neil's earlier point, he calls it cheating, I call it tax management. We are trying to manage our tax.
If we found ourselves in a situation where, you know, the success continues throughout the year, meaning we have a high volume of dispositions and, you know, we get towards the end of the year, you know, we would be incented to, you know, move the closing into early calendar 2024. At this stage, it, you know, we're not far enough advanced to be able to give you certainty on that.
Are you seeing buyers having a little bit of trouble gathering their financing together to close acquisitions right now? Or is that you're not seeing that right now?
No, we're not seeing that. We're seeing, at this stage, a very similar market to the one we saw last quarter and the quarter before. You know, which to reiterate, is dominated by private investors that are well-capitalized. You know, some of the large transactions we've done, are not being financed as far as we're aware. The cash buyer is really the most active buyer. Where leverage is being put on, you know, it's being done at conservative levels and, you know, with top-tier lenders without issue. The financing environment, while certainly if you read the headlines, is very choppy to achieve what we're trying to achieve, is still constructive enough, and we have not seen any meaningful change, over the last six months.
Okay. Yeah, just one quick one remaining. Just on the G&A, Neil, I wonder if you could just sort of confirm that adjusting out the $7 million from Q1 is a good run rate going forward.
The short answer is yes. If you do that, you would get about $ 10.4 million for the first quarter. For the balance of the year, yes, I would say anchor your quarterly expectations around the $ 10 million.
Thank you. I'll turn it back.
Thank you, Sam.
Thank you. The next question is from Gaurav Mathur with iA Capital Markets. Please go ahead.
Thank you. Good afternoon, everyone. Just looking at the strength in leasing activity this quarter, would this be a fair run rate for the year ahead, or are you anticipating any moderation?
Hi, Gaurav. Just so we're clear, are you referencing leasing volume?
Yes. Yes.
Yeah. Yeah. We think it's a pretty good run rate.
Okay, excellent. You know, just back on the dispositions front again, has the depth of the buyer pool increased or decreased when you're comparing this to same time last year?
Same time last year. I would say since May of 2022, the buyer pool, this hasn't changed in the last six months, but it did throughout the second half of last year. The buyer pool shallowed out a bit. You know, the institutional bid is largely on the sidelines. The high levered buyer is on the sidelines. The groups that we've been dealing with are private investors. This is a market where smaller transactions are better executed than larger ones. You know, we've mentioned literally every transaction we've done to date has been for a single property.
That being said, you know, it's demonstrated through the premium to IFRS NAV, we are getting very strong pricing. Notwithstanding that backdrop, we are getting premium pricing, and that is a function of the quality of the real estate. In these types of markets, there's greater bifurcation between really great real estate and not so great real estate. Fortunately, largely given the work we did from 2019 to 2021, high grading the portfolio, we're left with exceptional properties. It's not the quality that's driving the sale, it's capital allocation decision-making. That fortunately has resulted in buyers being drawn to these types of assets. You know, adequate pricing has fallen out of that.
Great. That leads into my next question. You know, just from an acquisitions viewpoint and the bifurcation in asset quality, are you seeing any distressed asset opportunities that could fit into your portfolio optimization plan at this point?
No, we're not seeing distressed opportunities. We don't expect to, given, you know, we're very focused on a specific level of quality, which is at the high end of the range. Those assets have been exceptionally resilient, they have generally been conservatively financed, and they're generally held by investors who are experienced, well-versed and well-capitalized. We do not expect distress there, although we have not seen distress even at the low end of the quality spectrum. Again, not assets we own, nor are we keen to acquire them, but we obviously monitor the market on a much broader basis than just the assets we own. We have not seen distress and don't expect to given the fundamentals of necessity-based retail in Canada.
Great. Thank you for the color. I'll turn it back to the operator.
Thank you very much.
Thank you. The next question is from Tal Woolley with National Bank Financial. Please go ahead.
Hi, good afternoon.
Hi, Tal.
Just a general question on sort of what's in the active pipeline. On the resi side, you've got mostly condo projects. What do you think at this point in time is gonna have to change in the market for you to get more interested in greenlighting apartments versus condos?
What is going to have to change? Well, I mean, we've mentioned this before, that there's more risk to development pro formas today than call it 12- 18 months ago, given the cost backdrop, coupled with some of the macroeconomic risks, and some of the activities and events that are unfolding in the banking sector. That being said, we also have an optimization plan that has specific objectives. We've got to be careful on, you know, how much we initiate in terms of multi-year development projects that add debt to the balance sheet without cash coming out and contributing to the key metrics for several years. The projects that we will start are highly strategic from a location and real estate perspective, given our strategy, where the financial returns are compelling.
Absent that, you know, it's moved some of the assets that we would have considered in a different time, where, you know, we've sold them. Fortunately, we have such a large abundance and a growing abundance of them that we have that luxury to be so selective.
I guess maybe, you know, like a different way of asking the question is, you know, I think when I've asked this question of other management teams, it's maybe focused more on seeing a decline in construction costs, or, you know, seeing, you know, some sort of changes to the tax regime. You know, we're seeing a little bit of that with like you know, the development charges going down in like Bill 23. I guess what I'm asking is, what do you think at this point is kind of like most likely to happen to help sort of break the logjam on, you know, getting these projects with more acceptable returns?
Yeah. I guess I'd answer it in a way that's less specific to FCR because we have some company-specific objectives that may impact our decision-making over others. I guess going back to the risks in the pro forma. Some of those risks need to come out of the system. Whether it's, you know, the fact that roughly one-third of a multi-res development is paid to the government in some way, shape, or form, you know, reducing that. Because the reality is it's been clear there's a shortage of housing in this country, and that's getting worse because the current environment is resulting in less housing being supplied, notwithstanding the benefits of Bill 23 and some of the other things that are being done.
I would expect that the government or various levels of government do things to bring that in and incent developers to continue to provide more supply. A decrease in construction costs, which we've seen a leveling off but not a decrease. So at least stability on that front, I think would go a long way. And, you know, there's still some risk. If you look at the apartment REITs, I believe that their unit prices have been, at least in part, continued to be impacted by this. There's some uncertainty around whether they will be negatively impacted from a tax perspective. The government has continued to kind of leave that door open, at least in their messaging.
I think some clarity around that to ensure that, you know, market dynamics will drive rental rates versus, you know, an intervening force. I think those are some of the things that would trigger new supply. Again, for us, we have other priorities that even with that, I don't think will have a meaningful impact on the projects we start over, say, the next 24 months.
Okay. You know, when you outlined the optimization program, you sort of talked about kind of 4% FFO per unit, being kind of the target on a compound basis between 2021 and 2024. As I'm thinking about this year specifically, just given that there's some tenant turnover to come, you know, is this likely to It would seem to me, you know, starting out kind of like closer to 1%, this might be a year where you're sort of a little bit under that 4% hurdle. Does that make sense financially?
Hi, Tal, it's Neil. I might phrase it as the following.
Yeah.
The 4% objective is in intact looking out to 2024, but we don't have to necessarily get there in a straight line.
Got it. Perfect. Then just lastly, I think most of the you had a $38 million transfer into properties under development this quarter. I'm assuming most of that's related to the Bloor Street West acquisitions. Do you have a sense of like what your invested cost per buildable square foot is on those assets now? I appreciate the $38 million is probably like a fair value number.
Yeah. That's what it relates to. Let us take the second part of your question offline. I just wanna make sure, number one, we don't have the exact number handy, and number two, I just wanna make sure it's information that we disclose historically, which I'm not certain on. We'll get back to you on that, Tal.
Is the right way to think about it, though, is that you're fair valuing that right now at, you know, given you're applying for about 330,000 sq ft, it's about, call it $110 a sq ft? It's kind of per buildable square foot. Is that a fair assessment of that?
Right now we're carrying it on our balance sheet at a level that effectively represents our invested cost, which on part is based on, you know. The first piece of real estate we bought there was an IPP property. As I believe you know, we do not mark up the developments and the density until zoning is secured or zoning risk is, at least from a practical perspective, eliminated. We don't view submitting the zoning application as achieving that objective. We expect a large markup in the future, but we have not taken any to date.
Okay. I got it. Thanks very much, gentlemen. I appreciate it.
Thank you very much, Tal.
Thank you. The next question is from Pammi Bir with RBC Capital Markets. Please go ahead.
Thanks. Just on the Walmart vacancy that's upcoming. Was that a function of store size or functionality and or maybe just other locations in that particular market? Just secondly, any comments you can share, in terms of the expressions of interest to date on that site?
It's a function of a couple things, but probably the biggest one is the lack of their ability to offer full food. We have a very successful food store in that property, and there are some rights that prevented that. That was one of the main reasons. Sorry, I didn't catch the second part of the question, Pammi. I caught interest rates, but I didn't hear the balance.
Oh, just, any expressions of interest yet on that, on that site?
Yeah. Yeah. We've got. It's gonna be demised, that's clear, 'cause we're dealing with multiple tenants. Fitness is probably the largest of the categories. Dollar store. That's it at this point.
Sorry, which location is this?
This is Westmount Shopping Centre in Edmonton.
Right. Okay. Just coming back to the Nordstrom Rack, at Bloor, you mentioned you'll get some clarity in Q2. You know, again, along the same lines, have you seen any or, anyone expressed interest in that site yet? Any chance perhaps that that lease is, assigned or sold?
Pammi, it's Jordy. How are you?
Good, thanks.
Good. So it's a good question. As Adam suggested, we don't control the space yet. It is certainly possible the lease can get assigned. If it is disclaimed, you know, we have been both approached by retailers and they have approached Nordstrom obviously directly during the period with respect to that space in particular. We will probably know better in the next 60- 90 days as to how that will play out and whether it'll be assigned or disclaimed and who are potential tenants who would occupy that space going forward.
Thanks very much. I'll turn it back.
Okay. Thank you.
Thank you. There are no further questions registered at this time. I would like to turn the meeting over to Adam.
Okay, thank you very much. Thank you very much for attending and for your interest in First Capital. I'm sure all our participants can join me in wishing our CFO a happy birthday. Happy birthday, Neil. With that concludes our quarterly call. Have a wonderful afternoon, everyone. Thank you.
Thank you. The conference has now ended. Please disconnect your lines.