Good morning. I would like to welcome everyone to the Plaza Retail REIT fourth quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to advise everyone that this conference is being recorded. I will now turn the conference over to Mr. Michael Zakuta, Plaza's Chief Executive Officer. Please go ahead, Mr. Zakuta.
Thank you, operator. Good morning, thank you for joining us on our Q4 2019 results conference call. We are legally obliged to tell you that today's discussion includes forward-looking statements. We'd like to caution you that such statements are based on management's assumptions and beliefs. Please refer to Plaza's public filings for a discussion of these risk factors. We are very excited about our future prospects and our solid financial results of 2019.
Our success was driven by accretive growth without diluting unitholders. These results were generated through improved operating metrics, new development, and redevelopment projects across our geography. During 2019, Plaza realized outstanding returns from new development and redevelopment projects. We anticipate that this growth will continue into 2020 and beyond. During 2019, we recycled capital by selling non-core assets. The proceeds provided funding for higher-yielding projects.
We acquired low-cost capital to fund developments and redevelopments by placing a record amount of long-term mortgage financing at historically low interest rates. Plaza materially lowered its payout ratio as a result of FFO and AFFO growth. We continue to initiate joint venture projects with capital partners in order to preserve capital. Plaza's pipeline is robust.
We foresee additional growth and opportunity for redevelopments, new development projects, and acquisitions in 2020. We delivered 340,000 sq ft of new product in 2019. We anticipate delivering a similar amount of new product this year. Plaza possesses strong leasing and development infrastructure that enables us to meet the needs of tenants. Our niche of value, necessity, and specialty retail continues to perform. At the end of January, we attended the Whistler ICSC Convention. Our leasing team met with over 70 retailers or their brokers.
The retailers present at the conference were there to pursue deals, and we see continuing demand for space in our market niche. Today's growth-oriented retailers are looking for space in open-air style properties. Our portfolio is made up of 93% open-air properties divided into three types, strip centers, 60% of our business, single-use retail, typically a pharmacy or a Dollarama, 19% of our business, and QSRs, 7% of our business. Our leasing deal volume is solid, and we remain confident that these leasing activities will continue into 2020. We are very pleased with the traction that we are seeing for our core product and are confident that we continue to add properties to retailers who require a strong physical presence. During the last quarter, we continued to deliver new development space. For today's call, we've included some recent photos of new stores on our website.
You can open the presentation by going to our website, www.plaza.ca, click on the investor relations section, then click on financial reports and scroll down to presentations and click on Q4 analyst conference call February 2020 photos. The first section of the presentation shows new stores that opened in the fourth quarter in our Galway project in St. John's, Newfoundland. It also shows a new pad in Granby, Quebec, followed by our new Movati in Mississauga, Ontario.
The Q4 construction slides show projects under construction for Princess Auto, School of Rock, and Michaels in Galway, PetSmart in New Minas, Nova Scotia, our new façade for our Quispamsis strip center, our new Milestones in Moncton, New Brunswick, the transformation of our Sept-Îles, Quebec, KFC into an SQDC. That's a Quebec cannabis store. Our transformation project in Brampton, Ontario, our Smiths Falls redevelopment, and our Temiskaming Giant Tiger.
We trust that this illustrates that retail is still very much alive and that growth opportunities are available to real estate entrepreneurs. We continue to see opportunities where others do not. We are very active in pursuing opportunities such as redevelopment of challenged enclosed malls, recycling obsolete retail buildings, new developments following demolition of an existing building, or buildings and new developments following land assemblies based on demand from growth-oriented retailers.
We are also making a concentrated effort to extract more value from our existing portfolio and our current development projects through the sale or development of excess land. Plaza has the necessary capital to take advantage of acquisition and development opportunities. Our Capital Recycling and financing programs have allowed Plaza to fund its growth without dilution to unitholders. We are confident that we will continue to grow cash flow and net asset value across our geography as we develop and redevelop high-quality and necessity-based retail projects. I will now turn the call over to Jim Drake, Plaza's CFO. Jim, you're on.
Thank you, Michael. Overall, our results for the quarter and year were very positive due to our proactive management and ongoing development program. Committed occupancy remains strong, ending the year at 96.3%. We leased 1.2 million square feet during the year across our entire portfolio and realized healthy spreads on renewals for our core product being open-air centers. Total reported NOI for 2019 was up approximately 14% over last year, with Same-Asset Net Operating Income excluding non-recurring lease buyouts up 2.6% for the quarter and 1.8% for the year.
Also, excluding the impact of lease buyouts and other similar items, annual FFO and AFFO per unit were up 7.8% and 6.8% respectively, resulting in our annual payout ratios dropping to 71% of FFO and 80% of AFFO. In addition, other income, which generally represents fees billed to our partners on co-owned properties, including leasing development and financing fees on properties under development or redevelopment, is up notably over last year.
This is important as this signals that the related rental revenue from these additional developments and redevelopments will follow shortly. Our development program delivered 178,000 sq ft of new developments and redevelopments in 2019, resulting in CAD 38 million of fair value transferred to income-producing properties. In addition, we delivered 51,000 sq ft of new developments in our non-consolidated portfolio and acquired a 50% interest in a property in Keswick, Ontario at a cost of CAD 13 million, adding 115,000 sq ft of GLA. Under our capital recycling program, we sold CAD 20 million of non-core properties in 2019, generating CAD 12 million of net proceeds. These proceeds were reinvested in higher-yielding opportunities, including our redevelopment program. On fair value, we reported an CAD 18.7 million gain on investment properties for the year. Much of this increase was due to cap rate compression, including higher values from third-party appraisals.
We completed a major financing program in 2019, where we refinanced or placed new mortgages, locked in historically low rates for long terms, and generated capital for our business. During the year, we closed on CAD 200 million at 100% of long-term financing for longer terms and amortes and generally lower interest rates. This program generated CAD 34 million of cash for Plaza, which has been used to reduce our operating loan, thereby reducing operating loan interest going forward and increasing liquidity.
As the debt market and interest rates remain very attractive, we will continue to review our portfolio for financing and refinancing opportunities. Despite our strong performance, our units traded at a discount to NAV, and thus we continue to repurchase under our Normal Course Issuer Bid. To December 31st, 2019, we repurchased 722,000 units and continue to do so. We believe this is an attractive investment, is accretive, and in the best interest of unitholders. Those are the key points relating to our results for the quarter and year. We will now proceed to open the lines for any questions. Operator?
Thank you. Ladies and gentlemen, we will now conduct the question- and- answer session. If you have a question, please press the star key followed by one on your touch-tone phone. You will hear a one-tone prompt acknowledging your request. Your questions will be polled in the order they are received. If you would like to decline from the polling process, please press pound. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment, please, for your first question. Your first question is from the line of Jim Wilson with CIBC Wood Gundy.
Good morning, Mike.
Good morning, Jim. How are you?
I'm good. How are. Just a question. I know that last year you didn't raise dividends. You still continue to believe that buying back the shares is the best way to go. Now that you have a fairly low payout ratio, is a dividend increase a possibility?
I think our focus is to continue to lower our payout ratio before we consider distribution increases. At the same time, if we continue to buy back shares at a discount, we will do that.
Okay. All right. Thanks, Mike.
Thank you.
Your next question comes from the line of Sumayya Syed with CIBC.
Thanks. Good morning.
Good morning.
Michael, in your comments, you noted continued retailer demand for open-air style properties. Are you seeing any incremental demand from retailers that would have typically opted for wall space but are now increasingly choosing to be in open-air style centers?
I can't say that that's where the demand is coming from. I think it's coming from the traditional strip retailers, or there are retailers that would sometimes look at an enclosed mall and a strip and are clearly focused on strips only. I think most of the demand, and we've seen this evolution. This is not news. Evolution has taken place over the last 10 or 15 years where, and we've done this, where retailers that were typically in a mall, and I can tell you some examples where we moved people out, and they had never been outside.
We moved them out, and all of a sudden, sales went up, and rent went down because the mall operating costs were so high. Clearly, that was very good for our business model, and we were able to roll out stores with that particular retailer because of what happened. I don't think it's that guys are abandoning the malls to go into strips. I think some people are just abandoning the malls because they can't survive, period. We do see some rumblings, yeah, our core tenancy are the same guys that are looking at open-air centers and are not looking at malls.
Okay. No dynamic shift there.
No.
Just on acquisition, last year was relatively quiet. How is that pipeline looking for value add and redevelopment properties in 2020?
The pipeline is, if you look at the list, it's pretty full, and we have quite a bit of product under contract, though obviously not on our list yet because we haven't closed. It's quite strong. We're very happy with the pipeline as it stands. It's a pipeline that's going to produce some, we think, some really high-quality product.
Okay, great. Can you just remind us on the status of the leases that were bought out last year, and then what do you expect for same property growth this year?
A couple of leases were bought out last year, which were major transactions. Some of it is being filled, some of it will take a little bit longer, and we were paid to wait. Jim, correct me if I'm wrong, we're expecting some same asset growth in the 2% style range, which for our portfolio is, we think, a pretty good and fair number.
Yeah, absolutely. That's correct.
Okay, 2%. Okay, thanks. That was all from me. I'll turn it back.
Thank you.
Thank you.
Your next question comes from the line of Pammi Bir with RBC Capital Markets.
Thanks and good morning.
Good morning.
Just coming back to the development pipeline, it does remain pretty robust. Can you just provide some context around the outlook for spending in 2020? As well, perhaps for some clarity on how much you think you will actually transfer to income producing this year.
We're generally on track to transfer about CAD 40 million- CAD 50 million from development to income producing. We'd be on track in 2020 to deliver something similar. We think we can add more of an acquisition with hair style deal like we did in 2019, we'd have done in 2018. We have that type of stuff in our crosshairs. That would bump the number up a little bit.
I think in terms of the, I guess some of the land assemblies that are under contract, can you just comment on where these are and sort of, I guess, similar to the existing pipeline?
Most of the stuff is in Ontario, and some of it is grocery anchored, which is kind of interesting. We have some stuff in Quebec and stuff in Atlantic Canada as well in the pipeline. It's a mix of product.
These would be, if they're just land assemblies, I'm assuming there's very little income or no income on these sites.
There would be very little income in 2020.
Right. Okay.
Income will come in 2020 from stuff that's presently under construction or just came online at the end of 2019. You're going to see some of that. Then we have under contract, for example, a property that's producing income right away, but has a really interesting redevelopment opportunity attached to it. You'd see a little bump from that. The pipeline has some variety in it, which is interesting, both in terms of geography and product type.
Perfect. Jim, I think you mentioned, what was the fair value transfer between developments to income-producing properties in the year on the 178,000 sq ft you mentioned?
CAD 38 million.
Oh, okay. Sorry, that was the fair value, not the cost.
Correct. Everything's at fair value.
Right. Okay. Then just lastly, in terms of, I guess perhaps some additional capital recycling, what are your thoughts for the year ahead in terms of potential dispositions?
I think it's going to be modest, but it's there. I'm not sure that we'll hit the 2019 number. Again, it's our experience, it's been somewhat unpredictable. We do have some product that we've clearly identified for sale. Some of it's actually under contract to sell, and those deals will close. I expect it's a modest year. I don't know, Jim, you have any other color you'd like to add?
No, I agree with the assessment on being a modest year. We have a few that are flagged for sale throughout the year. It would be stuff that the hurdle rate is very low for us, so we'll proceed on those. Again, it may change depending on what pops up.
Great. Thank you. I will turn it back.
Ladies and gentlemen, if there are any additional questions at this time, please press the star followed by the one. As a reminder, if you're using a speakerphone, please lift the handset before pressing the keys. Mr. Zakuta, there are no further questions at this time.
Thank you. In conclusion, we continue to offer a very different real estate investment opportunity with a focus on very accretive developments and redevelopments. We are focused on growing our FFO per unit and our NAV. We'll continue to recycle capital in order to fund our developments and our per unit growth, which will drive down our payout ratios and strengthen our business. We've consistently demonstrated our entrepreneurial abilities by adapting to changing markets in order to grow our business. Insiders hold an important ownership position and are fully aligned with our unitholders. We look forward to continuing to create value for unitholders in the future. Thank you for participating in today's call.
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.