Good morning. I'd like to welcome everyone to the Plaza Retail REIT Second 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'd like to advise everyone that this conference is being recorded. I'll 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 Q2 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 discussion of these risk factors. We continue to be very positive about our prospects as we grow our business across our geography. As a very active developer, we at times find ourselves in what we call the development lull, created by, one, our development program, whereby we invest but do not see any revenues until a project comes online. Two, our asset sales program, whereby we recycle capital as we sell non-core assets, lose NOI, invest in new developments, and then gain back the NOI and more from new developments that become income producing.
We anticipate strong growth in Q4 and throughout 2020 as a number of projects start to contribute to our NOI. As we move through the middle of 2019 and reflect upon the state of our business, we are in excellent shape. We have strong growth in normalized FFO per unit in our forecast, higher occupancy, strong leasing spreads for our strips, our core business, more than enough available capital to pursue our developments. We have taken advantage of new project financing and existing property refinancing opportunities to lock in low rates for long periods. We have a robust pipeline. On today's call, we're going to try something a little different for us. We have included some before and after photos of various new redevelopment projects on our website. You can open the presentation by going to our website. I'll ask you if you want to follow. Go to www.plaza.ca.
I'm going to go through this slowly. Click on the Investor Relations section, click on Financial Reports, scroll down to Presentations and click on Analyst Conference Call August 2019 Development Pictures. I'll give you a moment for those wishing to follow this photo narrative. Moving from east to west, we start in Halifax, Nova Scotia, where we have redeveloped the former Home Outfitters space into a new Giant Tiger and Canada Computers stores. We proceed to New Minas, Nova Scotia. The before slide shows a photo of the former Future Shop. We took an early termination payment for the cancellation of the lease. The after photo shows the new easyhome and Dollarama. We cross over to Saint John, New Brunswick, where we replaced Cleve's Source for Sports, that's the first photo, with a new Dollarama.
Next, we see the before in Montmagny and after of a small transformation in Montmagny, Quebec, where again, we replaced a Videotron video store with a Bulk Barn, downsized a florist, and brought in an audio clinic. The next slide shows the empty Sears in Chicoutimi, Quebec, that we acquired at the end of 2017. We have a recent drone photo showing the new storefronts under construction. The property is 90% leased, and tenants will open in Q4 2019 and Q1 and Q2 2020. Next, we move to Sherbrooke, Quebec, and you will see a before photo of an empty Réno-Dépôt store. The next slide shows the property in its present state with new Value Village and Yves stores that are open and the SAIL outdoor store under construction. We move to the Montreal suburb of Saint Léonard. The before photo shows a typical KFC.
We demolished the old building and replaced it with a new A&W that opened last month. We move to Brockville, Ontario, where you see an empty Sears store. We acquired this property in early 2018. The next slide shows a current photo of the former Sears building that has been leased to Planet Fitness, Dollarama, The Source, easyhome, Bell, and Treasure Hunt. All of the former Sears frontage is now leased. We move to Scarborough, Ontario. This was a former KEYreit asset that was in very poor condition. The next slide shows its present state with a shiny new Tim Hortons, a downsized and new KFC, and renovated M&M and Pizza Hut outlets. I trust that these illustrations will help you to better understand our business.
These very recent photos go a long way to telling the story of some of our redevelopment successes and give you a sense of how active we are day in, day out. We continue to see opportunities where others do not. An active developer such as Plaza has a true advantage as we are constantly interacting with retailers and adjusting to changes in retail real estate. We are very active in pursuing opportunities such as the redevelopment of challenged enclosed mall, 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. In addition, we continue to be very proactive landlord. We do not hesitate to initiate change in order to keep up or build value within our existing portfolio, whether it is making leasing and tenant changes or physical improvements to the properties.
Our properties are typically smaller and very community-centric, attracting customers on a regular basis as they conduct their pre and post-work routines. Plaza tenant lineup features value, specialty, and necessity-based retailers who require a local physical presence. We are confident that our value-add business model is poised to take advantage of current retail trends and will create significant value for our unit holders. I will now turn the call over to Floriana Cipollone, Plaza's Chief Financial Officer.
Thanks, Michael. At a high level, Plaza's results for the quarter and year to date were impacted by two significant lease buyout transactions concluded in the first quarter of this year and the resulting vacancies that they caused. The first was done to replace an empty mid-box with one that would drive more traffic to the center. The second was a full present value buyout of a store that we are confident in our ability to retenant. Excluding the impact of the lease buyouts and other similar items that are considered to be non-recurring in nature, funds from operations per unit were up versus the prior year. Almost 3% for the quarter and 0.4% for the year to date. This is notwithstanding a decrease in net property operating income due to disposals of non-core properties.
Net property operating income on a same asset basis was also up compared to the prior year, excluding the impact of the lease buyouts. 1.3% for both the quarter and year to date. In March of this year, Plaza entered into an automatic securities repurchase plan in order to facilitate repurchases of units under our normal course issuer bid. To June 30, 2019, 348,000 units were repurchased. We continue to repurchase units. We believe that this is a desirable use of funds and in the best interest of unit holders at the current trading price. We've sold approximately CAD 17.5 million of non-core properties to the end of the second quarter at values above our IFRS values, generating approximately CAD 8.9 million in cash. CAD 11.1 million of the sales were former KEYreit properties that had an underwritten value of CAD 10.1 million, generating almost CAD 0.01 in net asset value creation.
In terms of Plaza's IFRS values, we recorded another meaningful fair value gain on investment properties during the quarter due to a further decrease in capitalization rates in the quarter, largely stemming from higher values on a number of appraisals received on properties during the quarter. Total fair value gains for the quarter and year to date were CAD 11.5 million and CAD 18.1 million, respectively. Both the sales at higher values and the higher appraisals confirm that there is value within our existing portfolio that doesn't necessarily come out through internal valuation processes done for financial statement purposes. Finally, we continued our major refinancing program where we are rolling mortgages at historically low rates and generating funds for our business.
To today's date, we have closed on approximately CAD 116 million of financings at 100% on new developments, as well as refinancing of existing mortgages for longer terms, better amortization with a generally lower rate and generating approximately CAD 25 million of cash for Plaza. These funds have been used to reduce our operating line of credit, thereby reducing operating line of credit interest in future quarters. We are currently working on approximately CAD 64 million of financing at 100% on new developments and refinancing of existing mortgages. This should generate an additional approximately CAD 7 million of cash for Plaza. We continue to review our mortgage portfolio for early refinancing opportunities that make sense in terms of cash flow savings to Plaza. Those are the key points relating to our financial results for the quarter and year to date. With that, we'll now proceed to open up 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 star key followed by the number one on your touchtone 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. Our first question comes from Kyle Stanley with Desjardins Capital. Your line's open.
Good morning, everyone.
Good morning.
I was just taking a look at your fee income earned on the co-owned properties, and it looks like it has been pretty elevated the past two quarters. I am just wondering, could you talk a bit about that and maybe how you expect that income stream to trend into the back half of the year?
Obviously, we've got a lot of developments on the go and a lot of refinancings as well. The fee income is up from both financing fees that we charge on co-owned properties, as well as development fees on a number of JV developments. I would expect that it's going to continue to be elevated for the back half of this year and probably the first half of 2020, just because we continue to have more development and leasing fees being charged.
Okay, great. That's helpful.
It really reflects our level of activity, and that a lot of this activity is done in a joint venture environment, so therefore we are earning fee income.
Okay. That's helpful. I guess my second question, it looks like you're earning pretty healthy leasing spreads on renewal. Just wondering if you could speak about the current leasing environment in your markets and maybe how that's changed over the past 12 months.
I don't know if it changed. The real basic real estate is going well, and I think I mentioned it last call that for some reason, a bunch of our chronic vacancy is being leased. For a variety of reasons, I can't always explain, space is moving. If you're in the fashion and mall, I don't think that's the same reality. For the basic strip shopping center, there's demand for space, and it's coming from a bunch of different areas. It's coming from the value guys, the pet category, the QSR, the fitness, the specialty guys. There is activity despite all the negative headlines about retail. There's a surprising amount of activity.
Okay, great. I guess one more from me, and it's kind of along those lines. Just having seen your before and after pictures that you highlighted earlier, I'm wondering if many of the new tenants in your after pictures, are they new to market, or are they just typically moving from an existing space into new or better space that you're providing?
I'd say they're mostly new to market.
Okay.
Probably it's two-thirds to three-quarters new to market, then a quarter to one-third upgrading.
Okay, great. That's really helpful. Thanks very much. I'll turn it back.
Ladies and gentlemen, if there are any additional questions at this time, please press star followed by the one. As a reminder, if you are using a speakerphone, please lift the handset before pressing the keys. Sumaiya Hafiz with CIBC, your line's open for the next question.
Thanks. Morning.
Good morning.
Morning.
Michael, in your commentary, you noted stronger NOI growth coming in Q4 and through 2020. Just from an organic growth point of view, should that be stronger than what you're seeing in 2019? Or do you see any offsets to that, bankruptcies, strategic vacancies, that could sort of hamper that NOI growth expectation?
No, I think there's real growth in the tail end of 2019 and obviously in 2020. You can see it through the pictures because you see a lot of tenants that will be starting to pay rent in the end of the year or into 2020 as their stores open. I don't think that there's going to be real impediments to that growth, I guess, unless there's some bankruptcy that we don't foresee. No, we think it's baked into the system right now.
Okay. Thank you. I just sort of have a bit of a nitpicky question on the G&A. It looks like it was a little bit higher on some non-occurring fees, but I think Q2 tends to be a little higher. I guess, Floriana, can you just go over why it tends to spike up a little bit in Q2?
Well, Q2 is, we do our payroll bonuses and pay increases on a different cycle than probably most people do. Most people do a calendar year, but we pay our bonuses and do our salary increases in Q2. That's typically why Q2 spikes. Obviously, we had some other sort of non-recurring fees happening this quarter as well.
Okay. That's helpful. Thank you.
No problem.
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 our focus on very accretive developments and redevelopments. Plaza does not buy finished product from third-party developers or from related parties at low cap rates, as we are fully internalized and able to develop new retail properties using in-house resources. Plaza locks in consistent long-term returns by financing with long-term debt generally matched to lease maturities. We have consistently demonstrated our entrepreneurial abilities by adapting to changing market conditions in order to grow our business. Insiders hold an important ownership position and look forward to creating 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.