Good morning, welcome to Primaris REIT's fourth quarter and annual 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 will now turn the call over to Leslie Buist, Senior Vice President. Please go ahead.
Thank you, operator. During this call, management of Primaris REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Primaris REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions, risks, and uncertainties is contained in Primaris REIT's filings with securities regulators. These filings are also available on Primaris REIT's website at www.primarisreit.com. I'll now turn the call over to Alex Avery, Primaris' Chief Executive Officer. Alex?
Thanks, Leslie. Good morning, thank you for joining us today to discuss Primaris REIT's fourth quarter and annual 2022 results. On the call today with me are Patrick Sullivan, President and Chief Operating Officer, Rags Davloor, Chief Financial Officer, Leslie Buist, Senior Vice President, Finance, and Graham Procter, Senior Vice President, Asset Management. Our first full year as a standalone REIT was filled with notable firsts and significant accomplishments. It started with a bang with the spin-out and our first acquisition, a CAD 800 million six shopping center portfolio, both of which closed December thirty-first, 2021. The acquisition entailed onboarding about 100 employees and further hires to build out our public company financial analysis and reporting group.
Under the advice and oversight of our best-in-class board of trustees, we got off to a strong start in the first half of 2022, reporting our first set of statements, being awarded a strong BBB investment grade credit rating from DBRS Morningstar, completing our inaugural CAD 350 million two- tranche unsecured debenture offering, and our first AGM and strategy session with the board. By the fall, our financial and operating results had begun to demonstrate a discernible trend of growth with average same- property cash NOI growth trending above 10%, occupancy rising and positive leasing spreads. This demonstrated the resiliency and enduring value proposition of our business in the face of skepticism about the mall property type.
To close out the year, we announced an increase to our distributions of 2.5%, establishing an annual distribution increase policy, supported by the REIT's differentiated financial model of low leverage and a low payout ratio, supported by robust growth throughout 2022. Throughout the year and in 2023, we continued to prioritize our awareness campaign designed to educate investors and analysts about the opportunity at Primaris REIT. Our efforts proved fruitful last year, delivering a 22% total return to unitholders, dramatically stronger than any of our Canadian REIT peers while the S&P/TSX REIT Index delivered a - 17% total return. As we embark on our second year, we're excited about the opportunities ahead. We see significant NOI growth potential through increasing occupancy to stabilized levels.
In 2022, we made material progress, but the vast majority of this opportunity remains to be captured over the next few years. We're also focused on continuing to convert pandemic lease concessions to market rents. While tenant sales in our portfolio have reached all-time highs over the last 12 months, 2019 NOI was more than 10% higher than the NOI delivered in 2022, while 2019 average in-place occupancy was approximately 83%, suggesting substantial growth over the next few years, supported by our tenants' success. We enjoy several competitive advantages that should enhance our ability to capitalize on market opportunities. Our business is performing very well, with significant runway for internal growth over the next few years. Our scale provides us with a competitive advantage as we partner with retailers on multiple location leasing plans, building deeper and more collaborative relationships.
Our differentiated low leverage, low payout ratio financial model provides us with excellent access to capital and the financial flexibility to deliver growth per unit to our investors in the face of higher borrowing costs and many peers pursuing leverage reduction. Our best-in-class governance profile and high-quality independent board provide excellent oversight for our business and make us a preferred partner for institutions, institutional investors, and retailer partners alike. Our fully internal comprehensive full-scale management platform with a 20-year track record of success provides a particularly strong competitive advantage with very few competitive peers in Canada with comparable platforms and capabilities. Our goals for 2023 include the following. Number one, continuing to raise the awareness about Primaris REIT with investors through expanded research coverage, investor meetings and conferences, property tours, and investor days.
Number two, demonstrate Primaris' ability to transact on acquisitions and dispositions that are consistent with the REIT's strategy and enhance the value of Primaris REIT units. Number three, continue to execute on capturing the internal NOI growth opportunity through active management of our portfolio to increase occupancy, restore standard leasing terms among remaining pandemic amended leases, and through driving rental rates higher over time. Number four, achieve all of the above while acting in a manner consistent with the best-in-class profile we have created at Primaris, including ESG commitments, being a respected and sought-after partner and transaction counterparty, and a preferred place for employees to work. Primaris REIT completes its first year as a public company, but Primaris' underlying operating business celebrates 20 years of operating history.
Although I myself joined the company much more recently, Pat Sullivan, the REIT's President and Chief Operating Officer, along with many, many other long-tenured employees, have built a team of professionals who possess a unique and scarce management capability tailored specifically to enclosed shopping centers. This was evident to me upon joining the team. It was evident to me upon joining the team that this was a specialized, hardworking, and fun group of people. I'll turn the call over to Pat to continue to discuss our platform, operating, and leasing results, followed by Rags, who will discuss our financing, financial results, and provide you with an update on our ESG strategy and disclosure package.
Thank you, Alex. Good morning, everyone. In July of 2023, Primaris, as an operating company, turns 20 years old. Originally created by one of Canada's largest pension funds, OMERS, with six properties, including Dufferin Mall and Orchard Park being included in the original public offering. Primaris has assembled a highly specialized team focused on the acquisition, integration, and operation of enclosed malls. Primaris is one of the largest owners and managers of enclosed malls in Canada, with a fully internalized management platform. Given the challenges in owning and operating enclosed malls, we recognize our team members as a core strength of the company and take great pride in the average tenure of almost 50% of our employees being in excess of six years. It is the people in this organization that produce our strong operating and financial results.
Our NOI growth outperformance in the fourth quarter and throughout 2022 is coming from a number of sources. Rising occupancy, completion of remerchandising former anchor tenant premises, increasing tenant sales partially due to rising inflation, driving percentage rental income higher. Specialty leasing income is returning to pre-pandemic levels, and our recovery ratios are improving as we convert tenants on preferred rental terms provided to maintain occupancy during the pandemic back to net leases. During the fourth quarter, tenant sales averaged 109% as compared to the same period in 2019, with rolling 12-month sales averaging 104% of comparable pre-pandemic figures, which is an improvement from the 99% figure reported at the end of the third quarter.
Food courts, typically a barometer for mall traffic, continue to show rising sales activity, with fourth quarter sales being 101% compared to pre-pandemic figures, with 12-month tenant sales now averaging 93% as compared to 86% at the end of Q3. Our malls experienced strong tenant sales in the important holiday period in December. December, which typically represents approximately 15% of total annual sales. Tenant sales in December were 108% as compared to December of 2019. Western provinces and Maritimes continue to show the strongest growth in sales. We expect Q1 2023 sales to remain robust compared to 2021, 2022, which was negatively impacted by mall restrictions related to the Omicron variant of COVID-19.
We ended the year with committed occupancy of 91.5%, up 400 basis points from 2021 due to leasing and remerchandising, redemising activities. Same- property committed occupancy was 92.6% at quarter end, and the acquisition properties were 89.2%. The acquisition properties in place occupancy at the end of Q4 2022 grew by 5.2% from December 31, 2021. 3.7% of that is related to demolition of 60,000 sq ft of Sears space at Quinte Mall and the removal of 70,000 sq ft of second-floor space at New Sudbury Centre, which is not leasable.
The remaining 1.5% increase in occupancy is the result of our leasing team executing on the strategic plan for the portfolio that we developed at the start of 2022 when the properties were first integrated into the portfolio. Leasing activity is strong, continuing the trend from prior quarters. During 2022, our leasing team completed 88 new transactions comprising 239,600 sq ft and 538 total deals encompassing more than 1.8 million sq ft. The redevelopment program for space vacated by former anchor tenants is nearing completion. In 2022, projects were completed at four properties. Cineplex opened a 35,000 sq ft theater in December 2022 at Kildonan Place in Winnipeg, Manitoba.
At Orchard Park in Kelowna, Planet Fitness opened from 22,400 sq ft in May of 2022. Structube opened 9,400 sq ft in July 2022. L.L.Bean opened a 15,100 sq ft store in November 2022 at Cataraqui Centre in Kingston, Ontario. Sport Chek opened a 24,800 sq ft store in November 2022 at Lansdowne Place in Peterborough, Ontario. These five large format stores comprising just over 106,000 sq ft, will contribute significant income towards our 2023 NOI. Overall renewal rents were up 3.5% for the quarter and 1.8% for the year. With tenant sales continuing to rise, positive absorption and mall closures and restrictions behind us, we anticipate continued positive momentum in rental growth.
Not included in our renewal rent change is the increase in rent derived from converting tenants on preferred rental terms provided to maintain occupancy during COVID back to net leases. As at year-end, there were 335 tenants representing 15% of our tenant base on preferred rental structures. These leases are generally short-term in nature, and we expect to reduce this figure closer to 10% or more, or lower during 2023, which will have a significant positive impact on our NOI for 2023 and beyond. Redevelopment projects underway include Quinte Mall in Belleville, where 60,000 sq ft of the former Sears space was demolished in favor of future intensification opportunities, and the remaining 30,000 sq ft will be converted to a Winners store with an anticipated opening in spring 2023.
Projects also include finalizing the construction of a 35,000 sq ft FreshCo grocery store at Medicine Hat Mall in Medicine Hat, Alberta, which is expected to open in November of 2023, as well as the commencement of construction on a 16,000 sq ft bank pad at Lansdowne Place in Peterborough and a 5,300 sq ft bank pad at Kildonan Place in Winnipeg, Manitoba. Two former Sears spaces remain to be addressed. Park Place in Lethbridge, Alberta, where we are reviewing various options, and Devonshire Mall in Windsor, Ontario. At Devonshire, with the vacated Sears space plus the adjoining land comprise approximately 18 acres. We are designing plans for the entire area, which will likely include the demolition of the former Sears space. With that, I'll turn the call over to Rags to discuss our financial results.
Thanks, Pat. Good morning, everyone. Our differentiated financial model, including very low leverage, a low payout ratio, and significant retained cash flow, is a major strategic advantage for Primaris REIT. Keeping in line with best practices and transparency, we are reiterating our target balance sheet metrics for the upcoming year and announce our financial outlook for 2023, which can be found in Section 4 of our MD&A. We anticipate modest portfolio occupancy improvement of 0.8%-1%, with contractual rent steps of approximately $2.0 million, or approximately 1% of base rent. Straight-line rent is estimated to range between $1.8 million-$2.2 million. Growth in same- properties cash NOI is anticipated to be between 3%-5%, with G&A estimated to be approximately $30 million.
Based on historic performance, normalized average operating capital costs per sq ft are anticipated to be approximately CAD 2 per sq ft per year. Due to increased leasing activity, 2023 operating CapEx is anticipated to be in the range of CAD 27.7 million-CAD 31.7 million, or CAD 2.55-CAD 2.90 per sq ft, with redevelopment CapEx ranging from CAD 30 million-CAD 40 million. We also plan to renew the NCIB subject to TSX review and approval. 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.
As of yesterday, we have bought and canceled approximately 4.7 million units at an average price of CAD 14.10, translating to a 34.4% discount to our NAV per unit. NCIB activity in 2022 positively impacted NAV per unit outstanding by CAD 0.82 per unit. Our program is very accretive to unit holders. We announced a 2.5% distribution increase in the fall. We intend to increase distributions annually. Unsecured debt continued to grow as a percentage of total debt. We finished the year at 78.6%, with unencumbered assets increasing to CAD 2.9 billion on 92% of our total assets. Post-year-end, we entered into a CAD 85 million mortgage at Stone Road Mall at a rate of 5.516%.
The mortgage is interest only and has a term of eight years. This increases our liquidity and improves our debt maturity profile while keeping secured debt well under 40%. Looking ahead, we do not have any debt maturing in 2023, reducing refinancing risk and freeing up valuable resources to focus on managing the business and growth opportunities. We started the year with a weighted average term to maturity on our debt of 1.7 years. On a pro forma basis, after taking into account the recent mortgage refinancing, our weighted average term to maturity has been extended to 3.6 years.
With regards to our disclosure package, we decided to place information with regards to 2022 tenant sales as a percentage of 2019 sales in Section 4 of the MD&A, and have included total sales volume and sales productivity stats all in Section 8. ESG is an essential component of responsible governance. Earlier this year, Primaris completed its board-led ESG strategic plan that aligns with our mission, vision, and strategy and supports long-term value creation. Our ESG committee, led by Anne Fitzgerald and myself, identified Primaris' key ESG priorities, goals, actions, and performance measures. Supported by the materiality assessment completed in the fall, the plan aligns with the current investor-focused ESG standards and frameworks. Additional disclosure on our ESG strategy can be found in Section 5 of the MD&A. On to the financial results.
Same- property NOI was up 10.7% at the end of 2022, driven by strong rental growth, effective cost management at the property level, and recovery from prior year's property tax. The enclosed malls across our portfolio have experienced a significant rebound in sales growth, and our many operating metrics are improving substantially. FFO and AFFO per unit diluted for the quarter was $0.39 and $0.27 per unit, respectively, with $1.58 and $1.23 per unit for the year. For the quarter, the AFFO and the FFO payout ratios were 52.1% and 74.5% respectively, and we ended the year 50.7% and 65.4% respectively.
We are marginally above our payout ratio target of 45%-50% on FFO, but expect this to come back within the range during 2023. Given our outlook and excess free cash flow available after paying distributions, CapEx, and leasing costs, we intend to continue to allocate capital to future share buybacks. Primaris' fair value of investment properties was CAD 3.1 billion, with external valuations received for 10 properties with fair values totaling CAD 866 million during the quarter. On a portfolio basis, we incurred an unfavorable fair value adjustment of CAD 61.3 million for the quarter, driven mainly by the increase in the discount rate and terminal cap rate used in our valuation models and capital spending. During the quarter, our going-in cap rate increased 14 basis points to 6.91%.
The fair value decline was partially offset by cash flow increases due to improving NOI, which positively impacted the values by approximately CAD 55 million. Based on the value of our assets, we ended the year with a NAV of CAD 21.49 per unit, and debt to total assets, 31.5%. Average debt to EBITDA for the year was 5x . Primaris REIT's scale and highly differentiated financial model acknowledges both the clear preference public investors have for REITs with conservative financial models and the advantages of having one of the lowest leverages among Canadian REITs. We are committed to our differentiated financial model, enabling Primaris to self-fund its growth. We are very happy with our financial and operating results for 2022. Our KPIs are improving, including our leverage metrics.
Our capital structure was purposely designed to weather market turmoil, and we are in an excellent position to pursue our growth strategy. With that, I'll turn the call back to Alex.
Thank you, Rags. Our fourth consecutive quarter of strong results, reaffirmation of our capital structure targets, annual distribution increase policy, and 2023 guidance reflect the strong recovery and outlook in our business and our team's ability to capitalize on that opportunity. We continue to prioritize raising awareness around Primaris REIT, communicating our strategy, building a public track record of strong results with each quarter that goes by, and demonstrating disciplined capital allocation are key to building institutional support. Today, we initiated a board outreach program connecting members of our board directly with the investment community, which is considered a governance best practice but is rarely adopted. We are planning to raise awareness about our properties by hosting property tours in 2023 and beyond. Our properties look great and are performing well.
To see them is to appreciate why our results have been as strong as they have been this year. We see a long runway of growth opportunities spanning occupancy improvement, increasing rental rates, reinvesting to enhance select shopping centers, recycling capital, growing our portfolio through acquisitions, and compounding excess free cash flow to drive per unit cash flow and NAV. We'd be now pleased to answer any questions from call participants. Operator, please open the line for questions.
Thank you. If you'd like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star two. We'll pause just for a moment to compile the Q&A roster. Our first question for today comes from Sam Damiani from TD Securities. Sam, your line is now open. Please go ahead.
Thanks. Good morning, everyone. Congratulations on year number one under your belt.
Thanks Adam. First question, just on the bad debt expense in the fourth quarter, which I think was around CAD 1 million. Any context behind that, why that was booked in the fourth quarter, not earlier in the year? Was it any sign of some stress that maybe some of your tenants might be feeling in the current environment?
I'd say on that.
No.
Sorry. Go ahead, Rags.
Yeah, no. It was, part of it was just a complete scrub of the acquisition portfolio and just cleaning up, some of the bad debt that we felt we should book during, as we tried to work with tenants during the course of the year and felt prudent. You know, given the softness in the economy and a lot of predictions, we bumped our ECL, estimated credit losses, a little bit just to take into account the views in the market. So far, we're not seeing that softness, but we just felt it made sense to take a little bit of a provision to factor in economic conditions. Nothing specific.
Okay. In your 23 guidance, the same- property NOI growth, does that include any bad debt or reversals?
No, not at this point.
Okay. Just switching over to Dufferin Grove Village. How do you look at that today, as an asset that could be monetized or executed upon? Any thoughts on how, you know, what, I guess what you might do with that in the near term?
The asset is a fabulous asset. We are thrilled to own it. We had a lot of conversations in the first half of last year with potential suitors and we love the asset. We think there are partners that will love the asset as much as we do. Right now, the market for density and development sites is reflecting a fairly wide bid-ask spread. Given the quality and scale of that property, we're more inclined to wait for an ideal market to transact on that. That's not something that we'll be developing ourselves. We'll be looking for a partner. You know, we have a fabulous balance sheet. We're under no pressure to do anything.
We're gonna try to optimize pricing when we do transact on that. Yeah, I mean, that's, I guess that's where it stands.
That makes sense. I appreciate that. Last question for me is just on the leverage, obviously a very conservative balance sheet today. The target range of debt to EBITDA goes up to 6x. Is that a level you'd be comfortable or near that staying for a while? Or is that a number you'd be comfortable going to very temporarily and then quickly going back down to 5x?
Yeah, I think the latter. You know, we provided the range, so we had some flexibility. We just didn't wanna have a hard number. That's, the four to six. The six would be the upper end. Then we'd, we wanted to give ourselves some room to maneuver. Then we would look to bring it back down.
Okay, that's great. I'll turn it back for others. Thank you.
Thank you. Our next question comes from Mark Rothschild from Canaccord. Mark, your line is now open. Please go ahead.
Thanks. Good morning. Maybe just starting with IFRS values and cap rates. Obviously it's difficult in many property types right now, and your assets, generally, there's not many that trade in your markets, if at all. Can you just maybe give a little more color on how you feel comfortable with the cap rates you're using now, if you are at all, and how would you look at it? Maybe if you can even add on if there are any properties that are for sale or that are trading that you have some greater context with?
Mark, we're very comfortable with the numbers that we've published. I, you know, it is, as you've observed, a challenging exercise to go through, valuing assets where there's less transaction evidence to support values, but there have been transactions over the last 12 and 24 and 36 months. You know, I think as we go through the process, we're always keeping in mind that for IFRS fair value to be meaningful, it needs to be objective. We rely heavily on third party appraisals and support for our valuations from independent appraisers. I think for IFRS NAV to be meaningful, it also needs to be dynamic and reflective of changes in the market.
I mean, there's a, I think, a general hesitancy to change valuations, which is not something that we have a resistance to do because we have the opportunity to change it every 90 days. Each 90 days, we try to come up with our best understanding of market dynamics and pricing. You know, you should expect to continue to see our NAV be reflective of the most up-to-date and best understanding of market pricing.
Just to add to that, Mark, there's nothing specific that we can point to. As you mentioned, there isn't a lot of transaction activity. It really is driven from our conversations with the appraisers who obviously do a lot of appraisals for the pension funds, and they're doing their year-end process. They're doing a hard scrub, so to speak. That's really where the adjustments came from. It's just sizing up the tone of the market and our view of the market. It is, it's very difficult right now to pin that down.
Understood. Maybe just one more, and maybe this is for Pat. You know, there's definitely concern and some people have strong views on the economy slowing. To what extent are you seeing any shift in the way some of the different types of retailers are looking at space, whether it's negotiating terms or looking to open new stores? Maybe just comment a little bit more on the trends you're seeing for the future.
I think right now there's a differentiation between the U.S. retailers and the Canadian retailers. The Canadian retailers are a lot more bullish and optimistic and really looking at expanding their store count. The Americans are acting much like they did back in 2008, like there's issues on the horizon, and they're pushing back. The problem in Canada is there isn't actually a glut of space. We don't have an oversaturation of shopping centers. They're finding the landlords up here to be quite sticky. It's supported by their sales levels, which are still very strong. U.S. guys are grinding away a lot more than the Canadian guys, but I think at the end of the day, they're not getting any further than the Canadian retailers.
The Canadian retailers in general are performing very, very well, as are most retailers in general. It's been an interesting sales market to watch over the last 18 months as some tenants have risen and had peaks and valleys. Generally overall our sales reports are still showing positive growth.
Okay, great. That's helpful. Thanks so much.
Thank you. Our next question comes from Dean Wilkinson of CIBC. Dean, your line is now open. Please go ahead.
Thanks. Morning, everyone. Rags, you said that you expect that payout ratio to fall back within that target range. Can we take that to mean, like, materially sub 50% ? What's your thinking on where that's going to land on?
Yeah. We're looking more out to Q3, Q4. We expect to drop back, whether it's happens in Q3 or more likely Q4. That's how we look at it. For the year, we would expect. We're hoping to come in at 50%, but our expectation is, we would drop below the 50 by end of Q3, early Q4. That's how we look at it. You know.
Got it.
Are we expecting it to drop down to, like, 45? No.
No. Okay. That helps. Then maybe just for Pat, just when you're looking at retailer affordability and all of those great metrics, you had a target GROC ratio of sub 15%. What would that be right now? You know, will the move to having less percent rent tenants change that?
Good question. I think we're still in that same z one. Converting the tenants back to net leases from their preferred rent leases isn't gonna materially impact our GROC ratio, simply because a lot of those guys who are on the preferred deals are actually doing very, very well right now.
We really haven't done a lot of analysis around our target GROC in the last 12 months simply because there's been so much volatility in our sales and our rent roll with the preferred rent deals. I sense as that we stabilize that we're gonna stick in the sub 15%. We've managed to keep a lid on our op costs despite rising inflation, and we are seeing the benefit of our of our taxes falling in a lot of our shopping centers as the enclosed malls are reassessed by the cities at lower valuations.
Perfect. That's it. Thanks, guys.
Thanks, Dean.
Thank you. Our next question comes from Gaurav Mathur from iA Capital Markets. Gaurav, your line is now open. Please go ahead.
Thank you. Good morning, everyone. I noticed the uptick in G&A expense through this quarter, and I'm just wondering if you could provide some color there and if that run rate's been baked into your G&A guidance for 2023.
Yeah. Well, it has been. I mean, part of it is we have staffed up a bit during the course of the year. We're reflecting the full impact. There was a bit of a true-up on the bonuses, year-end bonuses. That had an impact and caused the bump in Q4. We've normalized that. We think we're pretty close to having a clean run rate going forward. We may still have to add one or two bodies here or there. For the most part we're, we're staffed up where we wanna be.
As we go through our first year and trying to nail down all our operating costs, there was some accruals made in Q4 just to sort of true everything up.
Okay, great. Yes, please go ahead.
I was just gonna say that we started a new unit-based compensation program this year, and it takes three years for it to mature into a run rate. That's one of the key drivers of growth in G&A. It's a non-cash expense.
Okay, great. Just switching gears here on your same- property, cash NOI guidance. We understand it's lower than 2022, I'm just wondering what those factors are that gets you to beat that guidance.
Well, I think the growth in sales has been strong. I think the main issue here is, will that sustain? So far this year, we've seen no pullback in sales. That's been strong. The conversion of the leases to net leases is a factor, and obviously the take-up of vacant space. Now, there's a bit of a lag, so be Q3, Q4, where you'll get the impact of that. Just pushing through the redevelopment plans and making sure that that's done on a timely basis. Those will be the main factors.
Okay. All right. Just lastly, on capital allocation, any change in how you're thinking about the NCIB versus acquisitions versus the development pipeline?
Yeah, I mean, we spend a lot of time looking at capital allocation. We wanna make sure that we're very thoughtful as we go through that process. The NCIB certainly during 2022 was, without question, the best use of capital. There were times during the year when every dollar that we invested generated a CAD 0.90 return immediately, which is pretty difficult to replicate in other investments. You know, currently at around CAD 15, the return is in the neighborhood of 40%-45% in terms of an immediate return. It's fairly low risk and we're quite confident that that continues to be the most attractive return from a quantitative perspective. We do have investments that we've been making. Northland Malls redevelopment is one.
We're hopeful that 2023 will be a busy year on transactions both on the buy and sell side. As Rags noted, our ambition is to stay, close to the center of our 4x-6x debt to EBITDA level. Well, we'll monitor the use of the NCIB in the context of other activities that we undertake. Ultimately, for excess free cash flow, which is, how we've been funding the NCIB, we haven't come across anything that delivers those type of returns.
I think you should expect us to continue to utilize the NCIB and until further, investment opportunities present themselves, that continues to be our preferred opportunity.
Great. Thank you for the color, everyone. I'll turn it back to the operator.
Thank you. As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. Our next question comes from Munish Garg from Laurentian Bank. Your line is now open. Please go ahead.
Hey, good morning, everyone, and congratulations on the great results.
Thanks, Munish.
Just on the redevelopment projects. J ust a quick question on the target yields. Are they still in the same range? Or are you seeing any pressure over there due to impacts of cost inflation?
The redevelopment costs are somewhat dependent at Northland. Northland's a fairly large project, and it's driven in some respects by leasing, so we might see the higher end of our redevelopment number if we progress leasing along, which is looking like it's probably the case. We're making actually really good headway in leasing. As far as cost increases, we are seeing cost increases on the larger projects. We built in contingencies into our into our pro formas. I suspect we're gonna be pushing the envelope of our contingencies as costs have gone up. What we've seen is that the price of materials is starting to level off, and in fact, some of them are starting to come down.
The price of labor is really the issue these days, and it has gone up quite a bit in the last six months. It too seems to be leveling off. You know, we'll see as we go through the year whether the escalations continue. We expect to be more or less on track at the moment in terms of where we're at, where we're headed.
Great. Thanks. Just, you guys talked a little bit on the same-store NOI cash growth guidance, but a bit more color on the occupancy. Any particular strong contributors? You guys have guided for a 0.8%-1% increase, but any particular strong contributors in terms of assets or geographies?
We've seen really good strong growth out of our properties in British Columbia. I think Orchard Park's always been a really strong asset. Highs treet, which is one that we got from HOOPP, had a significant amount of vacancy, and part of that was driven by.
Well above market operating costs, which we've brought down considerably, which is a great, a great job to our asset management team led by Graham in terms of reducing our op costs there. That's led to us getting a lot of traction on new deals. Devonshire Mall has a tremendous growth opportunity. There is more vacancy in a mall of that caliber than there should be, and we see tremendous runaway. We're gonna get going on the Sears redevelopment this year, and that'll lead to a significant absorption of space over the next 24 months. There's a number of positives in our portfolio.
A lot of the HOOPP portfolio had much lower occupancy than the Primaris portfolio, and our leasing team has been working over the last 12 months to make progress on those properties. There is a time factor that we just started working on them at the start of 2022, so it's taken us time to transact, and I'm very optimistic that the deals we did in the second half of last year, will start to materialize in terms of NOI growth this year and into next year.
Thank you.
One.
The last one-.
Point of clarity on that.
Yes.
Just one point of clarity on that. The 80 basis points to 100 basis points of occupancy growth that we're guiding for is lease up rather than demolition of space because we did see a lift last year on the basis of demolition of space. If we do demolish space in 2023, that would be above and beyond that 0.8%-1%.
Got it. Thank you so much. The last one for me, maybe I missed it. My line got cut out before. Just a quick update on the plans on the excess land on the balance sheet. Any timelines that you could provide over there?
Yeah. I mean, we did touch a little bit on that as it relates to Dufferin Grove. You know, certainly a trophy development site and we look at the market right now and the bid-ask spread on prime development sites is wider than ideal. We're not in a rush. We have a fabulous balance sheet. In addition to Dufferin Grove, we have numerous other sites. You know, we have been pursuing the proper zoning and entitlements for those sites to make sure that we're maximizing value. Those are a source of capital for us, and it's a fabulous source of capital in the sense that it doesn't generate any EBITDA at current for the excess lands.
You know, to the extent that we find uses for that capital, we'll pursue those sales. As it is right now, we don't have any land parcels on the market and are not gearing up for those sales in the immediate term.
All right. Thank you so much. I'll turn it back.
Thanks, Munish.
Thank you. There are no further questions at this time. Mr. Avery, I turn the call back over to you.
Thank you, operator. With no further questions, we will close today's call. On behalf of the Primaris team, we thank you all for participating in today's call, and we look forward to speaking with you again on our next call. Thank you and goodbye for now.
Thank you for joining today's call. You may now disconnect your lines.