Good morning, and welcome to Primaris REIT's second quarter 2022 results conference call. At this time, all lines have been placed on mute. After the prepared remarks, there will be a question and answer session. I would now like to hand the call over to our host, Alex Avery, to begin. Alex, over to you.
Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss Primaris REIT's second quarter 2022 results. Joining me on the call today are Patrick Sullivan, President and Chief Operating Officer, Raghunath Davloor, Chief Financial Officer, and Leslie Buist, Senior Vice President of Finance. Reflecting on our first six months as a public company, we are all thrilled with how the business is performing and the excellent financial and operating results. Pat and Rags will provide further details on our recent performance and our prospects over the remainder of 2022 in a moment, but I'll share a few thoughts before they get into it. Almost a year ago, as our plans for the spin-off were coming together, we began the process of building the 2022 budget. At the time, the Delta variant of COVID-19 was threatening to set the economy back yet again.
Many of our retailer tenants were still experiencing depressed sales volumes despite foot traffic having surged last summer. Primaris had many short-term modifications to leases in place, and the early signs of inflation were arriving. We were also about to grow our portfolio by a third. We were understandably cautious given the experience of the previous years. 2020 and 2021 were the two hardest years in the history of malls, and the next five hardest years were the five leading up to 2020. It's safe to say we are coming off of a low bottom in our business. Today, we can say that our business has produced exceptional results year to date. There is clear positive momentum in our business at the property level, with rental rates growing and continued strong leasing activity. This momentum is driving our results, and we see a long runway for continued growth.
Our tenants have seen rapid recoveries in sales in recent months, with many of our malls reaching all-time high sales productivity levels. We knew there was a lot of potential, but we have been able to capture some of that opportunity faster than we had anticipated. With six months of strong financial and operating results delivered, among internal priorities, the team continues to focus on building out our finance and reporting group and expanding and refining our disclosure package. Demonstrating disciplined capital allocation is a cornerstone of our strategy and how we make decisions. Our measurement of success is growth in value per unit and cash flow per unit while maintaining the defensive integrity of our balance sheet. Externally, we've begun to explore capital recycling opportunities, including both acquisitions and dispositions.
While the direct property markets for other property types may have become less liquid in recent months, the mall market has been thin for a number of years, and there are signs that some participants may be ready to transact. While we anticipate opportunities to recycle capital over the next year, today our greatest opportunity, bar none, is buying back our own units. We have bought back units every day since March ninth when we received TSX approval for our NCIB, reflecting the extraordinary value we see in our units. Because we fund this buyback activity from retained free cash flow, we can continue this buyback activity indefinitely on a leverage neutral basis. That is pretty remarkable. To date, our buyback activity has increased our FFO run rate by an annualized CAD 0.02 per unit, while our debt to EBITDA has actually fallen slightly.
The buyback has increased our NAV by CAD 0.31 per unit. We are compounding capital at a rapid pace. We continue to see significant internal growth potential, bringing our occupancy back to a more stabilized level in the low to mid 90% range over the next few years and capturing higher rents. This is consistent with the 2.8% increase to our 2022 NOI guidance we raised this quarter. Now I'll turn the call over to Pat to discuss our operating and leasing results, followed by Rags, who will discuss our financing, financial results, and provide you with an update on our disclosure package. Pat?
Thank you, Alex, and good morning. We continue to experience exceptional growth in our net operating income that exceeds our initial forecast. Our 2022 budgets and forecasts were started in the spring of 2021 and updated throughout the year while enclosed malls were either closed or had occupancy restrictions in place. As 2022 began, we started the year with Omicron and a reduced capacity in some malls. As we moved through 2022, enclosed malls across our portfolio have experienced a significant rebound in sales growth, and many of our operating metrics are showing material improvement. Our outperformance on NOI growth is coming from a number of sources, including rising occupancy, rising sales for those tenants on preferred rent deals, which include percentage rent. Strong tenant sales have pushed many tenants on net rent leases past their sales break point, and our percentage rent income is increasing as a result.
Specialty leasing income is returning to pre-pandemic levels. Non-recoverable expenses are falling due to lower bad debt, along with increased occupancy, specifically related to formerly vacant anchor premises. Our recovery ratios are improving as we convert tenants on preferred rental terms that provided to maintain occupancy during COVID back to net leases. During the second quarter, sales averaged 103% as compared to the same period in 2019, with 12 month rolling 12 month sales averaging 98% of comparable pre-pandemic figures. COVID sentiments were slower to ease in larger cities with sales slower to rebound vs. small urban centers. Food courts, typically a barometer for mall traffic, continue to show rising sales activity, with second quarter sales being 93% as compared to pre-pandemic figures. Q1 portfolio food court sales were 74%.
While overall mall productivity continues to increase in large part due to Ontario malls being closed during the second quarter of 2021, we are starting to see some tenant sales normalize following a period of rapid recovery, including junior fashion unisex tenants and select specialty apparel tenants who have reported significant sales increases over the past year, with many surpassing pre-pandemic sales volumes. Other categories, including food courts, health and beauty, and fashion related to work apparel, continue to show strength, and we expect this trend to continue. Several of our malls are reporting all-time highs in productivity as at June 30th, 2022, including Orchard Park in Kelowna at CAD 752 per sq ft, Park Place in Lethbridge at CAD 637 per sq ft, and Regent Mall in Fredericton at CAD 627 per sq ft.
Our Ontario properties, which experienced extended periods of closure in 2021, continue to show productivity gains each month. Total committed occupancy was 87.4%, with same properties sitting at 92%, and the acquisition properties or the H&R properties at 84.1%, representing significant opportunity for future internal growth. As at Q2 2021, same property occupancy was 91%. Leasing activity is strong, continuing the trend from prior quarters. Year to date, we've completed 46 new CRU transactions encompassing just over 100,000 sq ft. Overall, CRU renewal rents were up 0.8%. If we exclude five CRU tenant transactions totaling 6.8% of the total CRU square footage renewed during the quarter that were renewed at lower rents and on a short-term basis, CRU renewal rents would have increased by 3.9%.
With sales increasing and positive absorption, we expect metrics to continue to improve. Primaris properties are located on more than 900 acres of land, typically located on main commercial thoroughfares and proximate to public transit, and we continue to review options with regard to excess density. We have received conditional approval at Dufferin Mall in Toronto to construct approximately 1,200 residential units as part of a redevelopment of the 4 acre parcel primarily used for parking at the north end of the property. Approval is conditional on working through administrative process with the City of Toronto, and we anticipate unconditional approval of the project at the end of August 2022. We are considering options to develop or monetize all or a portion of this land.
The redevelopment of Northland Village in Calgary is proceeding, with the interior portion of the mall scheduled for demolition in Q3 2022. The property is being converted into a mixed-use open air retail center. Approximately 2 acres of land was recently severed and sold to a residential developer for CAD 5.8 million. The developer has commenced construction of 240 residential units, which are anticipated to be ready for occupancy Q1 2023. Redevelopment of the shopping center will be completed in phases over a three year period. Portions of the existing mall, including steel structure and foundations, will be reutilized to mitigate construction costs and new out parcel buildings will be constructed once pre-leased. At this time, the project is 89% leased. Project costs are estimated at CAD 76 million with an anticipated return of about 8%.
Additionally, we have commenced construction on several other development projects being the redevelopment of the former Sears store at Quinte Mall in Belleville. 30,000 sq ft has been leased to Winners at this project, and they are expected to open in Q1 2023. The remaining 60,000 sq ft of the store is being demolished in favor of constructing out parcel retail on the periphery of the property with pre-leasing efforts underway. At Cataraqui Centre in Kingston, we have commenced construction on the redevelopment of the Sears store, which will incorporate our first to market 15,000 sq ft L.L.Bean store. At Medicine Hat Mall, construction is commenced on a new 35,000 sq ft FreshCo store with an anticipated opening of Q2 2023.
At Devonshire Mall in Windsor, master planning for the Sears building that is vacant and the parcel that encompasses 18 acres is nearing completion. Included in the master plan is the demolition of the existing 200,000 sq ft three level Sears box and the redevelopment of an interior portion of the mall adjoining Sears that has significant vacancy. Finally, we are completing the redevelopment of the former Sears store at Lansdowne Place in Peterborough. Sport Chek is relocating, expanding into 24,000 sq ft and is expected to open in December 2022. We are in discussions with several large format retailers to lease the remaining 20,000 sq ft of space and anticipate announcing a transaction shortly. With that, I'll turn the call over to Rag to discuss our financing philosophy and financial results.
Thanks, Patrick, and good morning, everyone. Our financing strategy built upon our differentiated low leverage balance sheet is based on the approach of disconnecting the right side of the balance sheet from the left through the use of unsecured debt. This allows us to actively manage our property portfolio while providing maximum flexibility to produce a well-laddered debt maturity profile and optimize our cost of capital. Aligning to this strategy is a CAD 200 million unsecured 3.5 year non-revolving delayed draw term loan that we agreed upon with a syndicate of banks post quarter end. This facility, along with our existing revolving facilities, provides us with the funds to refinance expiring mortgage debt for the current year at very attractive terms. We have a stated debt as a percentage of total debt target of 40%. At Q2, this ratio stands at 57.6%.
With the new facility, we will be converting CAD 213 million of secured debt to unsecured debt. This will increase our unencumbered asset pool to CAD 2.7 billion from CAD 2.2 billion, and our secured debt to unsecured debt to below 30% by the end of the year. At that point, 85% of our portfolio will be unencumbered. At present, our most attractive use of capital is buying back units at a deep discount to net asset value per unit on a leverage neutral basis. Our automatic NCIB is in place, and we are buying back and canceling units daily.
During the quarter, we bought and canceled approximately 1.4 million units for CAD 20 million at an average price of CAD 14.04, translating to a 36.5% discount to our NAV per unit and half a penny of FFO per unit or CAD 0.02 annualized on a run rate basis. This program is very accretive to units. As our planning and analysis team has been built out, so has our continued expansion and refinement of our disclosure package. We intend to have a best-in-class reporting package with the goal of creating useful and insightful financial and operational information to help you understand and evaluate our business.
New disclosure additions for this quarter include details around our redevelopment and development projects, leasing activity, including rents, spreads, and maturity profiles by both CRU and large format tenants, tenant sales productivity, enhanced occupancy statistics, property valuation additions, and additional metrics describing our unencumbered asset and unsecured debt portfolios. Our financial forecast can be found in Section 14 of the MD&A. The original forecast published in late 2021 was done so at a time prior to Omicron, which led to further mandated mall closures. There has been a significant amount of unpredictable change and volatility in the last seven months. Tenants are performing well, and the recovery is now in full swing. We updated our financial forecast for the current year based on our outperformance this quarter and our outlook for the balance of the year.
To summarize, we have increased our forecast of net operating income by CAD 5.5 million. In order to give additional clarity and information on the total portfolio results, we have produced a supplemental where we benchmark Q2's actual results vs. 2021 pro forma of the combined property portfolio and have provided tenant sales and productivity data by mall and compare sales by province as a percentage of pre-pandemic sales produced in 2019. If you have not already done so, we encourage you to review this document in addition to our report to unitholders. Primaris believes that ESG is an essential component of responsible governance. The trust is in the process of transitioning beyond its continuing CSR initiatives to establishing an ESG framework that aligns to and enhances our strategy and responsiveness to the evolving needs of Primaris stakeholders.
We are currently in the first phases of developing the foundation for a robust board-led ESG strategy. We have formed an ESG committee led by Anne Fitzgerald and myself, and have just completed our materiality assessment that identifies the most material ESG factors that affect our business. These ESG risks and opportunities are prioritized and will inform our strategy and growth going forward. All right, now on to the financial results. Same-property NOI was up 15.4% in the quarter, comprised of 7.2% of post-pandemic recovery, higher rents and improving tenant sales, and 8.2% from recoveries of prior year property taxes and a decrease in bad debt expense. Our enclosed malls across our portfolio have seen a significant rebound in sales, and our many operating metrics are improving substantially.
Creation of Primaris as a standalone entity necessitated the addition of startup costs, including hiring key members and other public company costs. Also, salary and benefits for certain positions were historically paid by our former parents and are now costs of the REIT. G&A for the quarter was CAD 7.4 million. Consistent with the financial forecast published in the MD&A, we expect this number to grow modestly as we onboard key team members. FFO and AFFO per unit, average diluted was CAD 0.40 and CAD 0.33 respectively. Primaris' FFO and AFFO payout ratios were 50.1% and 60.2% respectively, marginally above our FFO payout ratio target of 45%-50%. We expect this payout ratio to normalize as we move through 2022 and 2023 and capitalize on the occupancy improvement opportunity in the portfolio.
Primaris fair value of investment properties was CAD 3.2 billion, with external valuations received for five properties in the quarter, with fair values totaling CAD 837 million or 26% of the portfolio. On a portfolio basis, we incurred an unfavorable fair value adjustment of CAD 36 million, mainly driven by the increase in the discount rate used in our valuation models. The fair value decline was partially offset by the impact of strong NOI growth. Based on the appraisal value of our assets, we ended the quarter with a NAV of CAD 22.16 per unit and debt to total assets of 28.8%.
Primaris REIT's scale and highly differentiated financial model acknowledges both the clear public preference, sorry, public investors have for investors with conservative financial models and the advantages of having the lowest leverage among our Canadian REIT peers. We are committed to our differentiated financial model enabling Primaris to self-fund its growth. We're happy with our financial and operating results for the first six months. Our KPIs are improving, including our leverage metrics even throughout the buyback program. Our capital structure was purposely designed to weather market turmoil and rising rates, and we are in an excellent position to pursue our growth strategy. In conclusion, we have a wide breadth of attractive investment opportunities. Our excess retained cash flow allows for internally funded growth and reduces our reliance on external capital sources.
We believe this structure should support a reasonable cost and access to capital. As we move through the balance of the year, we'll continue to build out our financial and operating disclosure and welcome your feedback. We endeavor to provide you with the information you require to assess and value our business and progress. With that, I'll turn the call back to Alex.
Thank you, Rags. In a very noisy capital markets environment, we continue to invest time and energy in raising awareness about Primaris REIT. Our story and strategy are resonating with investors, both in the public and private markets alike, and we get consistent positive feedback about our structure and strategy from institutional investors. We have multiple drivers of growth spanning occupancy improvement, converting modified leases back to conventional net lease structures, compounding excess free cash flow to drive per unit cash flow and NAV, and recycling capital opportunities. We expect the time we are investing in raising awareness will be rewarded over time with increased investor engagement and more research coverage. Our growing track record of strong financial and operating performance should create more investor confidence in our value proposition.
In summary, we are excited about what lies ahead and look forward to taking advantage of what we believe is an exceptional market opportunity. We'd now be pleased to answer any questions from the call participants. Operator, please open the line for questions.
Thank you. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Sam Damiani of TD Securities. Sam, your line is open.
Thanks. Good morning, everyone. Maybe just to start off with you know headlines about an economic slowdown around the corner, are you seeing any trends consistent with that emerging throughout your business in either leasing or foot traffic?
Hi, Sam. It's Pat. As I mentioned, our sales continue to show very good strength. We're seeing a good rebound in Ontario as you know, malls were closed last year during the second quarter. We're seeing a good bounce back in the sales numbers. We did get June sales numbers in. I mean, we published through May, but June showed very good strength. I was curious how it would show given the economic data that's out there. Continue to see strong sales, good growth. We have seen a plateauing in some tenants that have had remarkable growth over the last year, specifically, as I mentioned in the junior unisex.
There's still significant growth, specifically in the tenants related to people going back to work, like Sephora, men's apparel, women's apparel related to work wear, and so forth. Haven't seen anything yet. The food courts, which is a really good barometer of our traffic, continue to show growth. I mean, it was the laggard in our sales reports for the better part of the last year. It's been slow to bounce back, but we're now finally seeing it approaching a more normalized pre-pandemic figure.
That's great. I appreciate that. Not to sort of beat the drum here on a recession, but you know, with the tenants that are on a percentage rent in lieu, how would you think about an economic downturn on the impact on that line item, I guess, in the business if we were to go into a meaningful economic slowdown?
We've made really good progress at converting our tenants that are on percentage rent in lieu back to net rents. We're not getting a lot of pushback now because the sales warrant them being on net leases. A lot of those deals, you know, they haven't kicked in yet, so they will kick in going towards the tail end of the year and into 2023. Sales have rebounded very strong, and I think if there is a bit of a pullback in sales, we don't expect a material impact simply because the sales have trended above where a lot of these tenants were pre-pandemic. I think I'm not too concerned.
The next major event will be back to school, which is happening this month, and we'll get better insight as we move through July and into August sales.
That's great. Thank you. Just last question, just on Devonshire, it sounds like plans are being finalized coming together. Do you have a budget for what you're gonna do there and how the area on the site will be, you know, where the store and the parking there will be, you know, I guess, with how that land will be utilized?
We don't have a budget yet. It's really we've drawn up a master plan identifying where we wanna develop areas on the site and what we wanna do after we knock the Sears building down, which will include re-merchandising the ends of the property that butted up against the Sears, which have a lot of vacancy. That'll be phase one. We'll be knocking the Sears building down and re-merchandising that end. We'll proceed to build a number of outparcels, and we haven't quite identified exactly who those tenants are yet, although we do have a lot of demand to be on the site. That's Devonshire is an exceptional mall with very, very strong sales.
I didn't appreciate the strength of the mall until we really got the ownership of it and have watched the sales evolve over the first six months of the year. We're really excited about the opportunity at that property.
That's great. Thank you. I'll turn it back.
Thank you for your question, Sam. Our next question today comes from Sumayya Syed of CIBC. Sumayya, over to you.
Thanks. Good morning. Just firstly, wanted to touch on same property growth and the lease abatement have been wearing off. Just wondering if there's much left there to burn off, with the question being how to look at the 7%-8% same property growth you have done on a go-forward basis once these agreements sort of fade away.
Yeah, I mean, the agreements that are in place, obviously we had some that were a little longer in duration than others, related primarily to the number of tenants that went into CCAA that we really focused on maintaining for occupancy purposes. A number of those tenants have term until the latter part of this year and into 2023. We've actually already had the discussions with them. We're already well underway in transacting, converting those deals back to net leases. You know, it will take a little bit of time to get them off net leases or back to net leases.
You know, hi, it's Rags. On the issue of continuing same property growth, you know, the lag effect of the increased occupancy, you know, that should start to pick up some momentum. Between right now you're seeing a lot of the growth not being driven by the occupancy increase, but more through the increased sales and other factors. As the occupancy levels also increase, that'll add additional momentum for growth. We see a strong environment for the and a good runway for the next little while.
Fair enough. Alex, in your opening comments, you noted the opportunities created by market disruptions currently. Can you share what you're seeing in the direct markets in terms of opportunities and why you think activity might start to pick up now?
I guess thanks for the question. The simple answer to that is that we're seeing increased broker engagement and more discussions that are going on. We have seen you know some of the, I would say, smaller shopping centers trading in some primary markets, some in secondary markets. Over the past few years, you have seen a few transactions. We're you know based on the discussions we're seeing in the market, it seems like there could be you know the recovery in transaction volumes.
Okay, thanks for that. Lastly from me, I'm not sure if I missed it. I got dropped off. Just going back to the short term and percentage rent, noting the lease count went to 66 from 52 last quarter, I believe. Can you just talk a bit about the strategy there when it comes to using percentage rent leases?
During the pandemic, I mean, we really were struggling to keep occupancy in place, and we restructured leases as best we could to do that, and that included percentage rent in lieu leases. There's variations of that. Some are lower net rents with percentage rent in lieu as well. Others are straight percentage rent tenants. Straight percentage rent tenants are the ones we're focused on converting back to a net lease. We also have tenants that have breakpoints, natural breakpoints in their lease when they cross a certain threshold. A lot of tenants have, based on their sales, they've passed their breakpoint. Historically, percentage rent accounted for about 2% of our NOI, and during the pandemic, that really fell off considerably.
We're trending back to a historical number in that regard.
Okay. Thank you.
Thank you for your question. Again, if you would like to ask a question, press star, then number one on your telephone keypads. Our next question comes from Gaurav Mathur of Industrial Alliance. Gaurav, over to you.
Thank you, and good morning, everyone. First off, congratulations on the great results. I have a few questions of mine, but I'll begin with the first. Just, you know, talking about your portfolio and the opportunity set ahead. We have been hearing about cap rates expanding across various Canadian retail asset classes, and there is a period of price discovery in the direct asset market as well. Now, just from that perspective, how should investors think about your NAV and the overall portfolio over the next 12-18 months?
Yeah, I mean, I'll take an initial crack, and maybe Alex wants to supplement it. You know, when we did our valuations at June 30, there was very little data that we had, but it was so it was more driven off of sentiment. Talking to the appraisers, we did a little bit of a survey of appraisers. You know, we adjusted our cap rates on enclosed malls. Not the cap rate, sorry, the discount rate by 25 basis points, just in anticipation of a little bit of softening given the rate environment. Going into, you know, Q3 and Q4, it's very difficult to forecast where valuations are going because there has been limited trades. You know, we're just going to have to continue to monitor the market.
If there is a further adjustment required, we'll have to deal with it. Having said that, a lot of sort of the potential erosion in value from lowering cap rates, or sorry, increasing cap rates, are being offset significantly in our portfolio from the rising NOI. You know, all things being equal, if the NOI increased the value by CAD 20 million in the quarter to sort of bring back the or cushion the adjustment to the discount rate adjustment. We do have a natural offset in potential value adjustments on discount rates through the growth in NOI.
Yeah, just to add to that, Gaurav, you know, the mall market hasn't been that liquid. Made the comment about expecting it to perhaps pick up in terms of liquidity. What you have seen in the direct market in other property types is that particularly for private market transactions where the property type cap rates are higher, you've actually seen more continued liquidity than you've seen in some property types where you've got lower cap rates. I think the dynamic there is really related to positive cash flow leverage. If you're financing at, you know, 3.5%, and that 3.5% goes to 5%, if your cap rate was 3.5%, you're moving into negative cash flow leverage.
Our weighted average cap rate is closer to 6.5%, and financing still provides positive leverage. We think there's, you know, the potential for a slightly lesser impact. Obviously, discount rates affect values across all asset classes, but we do think there's a slightly lesser impact potential on our property type. The second notable thing is that across different property types and different asset classes, you have different cash flow durations, longer term and shorter term leases, and some lease structures allow for better or worse capture of inflation. With our portfolio continuing to have, you know, north of 10% vacancy, we have quite a considerable opportunity to capture market rents today.
We also have a significant portion of the portfolio that continues and has always had a percentage rent participation. Of course, as discussed earlier on the call, we still have a lot of these temporary lease modifications that are in place. Those you know in many cases are percentage rent in lieu, which is pretty much a direct drive on inflation and sales. We have a pretty good opportunity to capture inflation. Then within the realm of you know portfolios of real estate and REITs, our weighted average remaining lease term of about five years offers a regular opportunity for us to capture inflation. If inflation does persist and interest rates remain you know where they are or move higher, we're pretty well positioned to participate in that growth.
Okay. Thanks for the color, Alex, and Rags as well. Just staying on that line of thinking. Look, I understand the rent modifications that are coming in through your leases. When it comes to the tenant base and as you look ahead, what's, you know, in your view, what's working and more importantly, what's not been working so far and you know, how are you guys thinking around that?
I think, you know, just through the last eight years, we've reset a lot of our properties as we've had the Target and Sears experience, and we brought in a lot of junior boxes. As a result, we've reset our fashion component, really downsized our weighting towards small shop fashion. We've seen the remaining tenants that perform. They've performed very well. What has been working very well has been personal care services lately, but more so is health and beauty. We've been continuing to add more health and beauty to our shopping centers. What's been lagging, as I mentioned in the call, was food. The fast food, the food courts within the shopping centers, that's been lagging.
It is bouncing back significantly, but it's not there yet. It doesn't cause me concern. It's just a slow rebound. The junior unisex guys have had a tremendous run and, you know, as I mentioned in the call, they're plateauing, but they don't cause me any concern either. What has happened with a number of retailers is they've had issues with their inventory. There's been a number of reports out there of tenants experiencing, they've got excess inventory, and some actually have had supply issues where they couldn't get inventory. One national tenant specifically had a bad quarter simply because that they had delivery problems, weren't able to get the product they wanted.
If the supply issues continue, it might be a challenge for some retailers, but it seems to be abating.
Okay, great. Last question, and Alex, you spoke about this as well. Look, in terms of capital allocation, is there a point where you start to pare back from the NCIB and focus more on acquisitions and dispositions, or are we still in an early innings here on that?
I'm not sure what in the early innings means, but I guess from a philosophical perspective, you know, the exercise of capital allocation is one that has to contemplate all sources of capital and all uses of capital. The exercise is really trying to pair the lowest cost of capital with the highest return on invested capital. You know, where we're at today, the discount in our stock is so wide that it will be some time before alternative uses become, or perhaps not some time, some movement in the stock before we get to a point where alternative uses become, you know, really competitive. I would expect that we'll continue to buy back stock until the stock price moves dramatically higher.
As I noted in my opening comments, we're very fortunate to be in a position where we can do that indefinitely. It really does impact our per unit FFO and NAV, and does not impact our leverage because we're funding it out of retained free cash flow. It's you know almost a supercharger to the internal growth opportunity that we have in the business. Then you know from a broader perspective, you didn't really ask about it, but I guess the question would be, you know, do you accelerate the pace of NCIB activity substantially. You know as I noted in my opening remarks, we are looking at capital recycling opportunities, and those span all sources of capital and all uses of capital.
Okay. Thank you for the color, and thank you, everyone. I'll turn it back to the operator.
Thank you for your question. There are no further questions at this time. Mr. Avery, I turn the call back over to you.
Thank you very much, and thank you to everyone who dialed in today to hear about our Q2 results. We look forward to the next time we'll be speaking. Thanks.
Thank you. This concludes the call today. You may now disconnect your lines.