Earnings Call: Q1 2018

May 11, 2018

Good afternoon, ladies and gentlemen. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Artis REIT's First Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the meeting over to Mr. Armin Martins. Mr. Martins, please go ahead. Thank you, Joanna. Good day, everyone, and welcome to our Q1 conference call. Again, my name is Armin Martins, the President and CEO of Artis REIT. With me on this call is Jim Green, our CFO as well as Kim Ralli, our Senior Vice President of Investments. So to begin with, I'd like to advise all listeners again that during this call, we may at times be making forward looking statements and we therefore seek safe harbor. So please refer to our website as well as seek our filings such as our financial statements, our MD and A and our annual information form for full disclaimers as well as information on material risks pertaining to all of our disclosures. So again, thanks for joining us. I will now ask Jim Green to review our financial highlights and operational highlights, and then I'll wrap up with some market commentary, and we'll open the lines for questions after that. So go ahead, please, Jim. Thanks, Armin, and good afternoon, everyone. So this is a bit of an interesting quarter for Aetis, a few unusual things happening. So I will try and highlight a few of those as I go through my review. As we've said before, everyone's probably aware, ARTIS is a diversified commercial REIT. We have assets in 5 Canadian provinces and 6 U. S. States. We've done some calculations in the MD and A disclosure to show the impact of an adjustment for proportionate consolidation of our joint venture interests. And while it does turn those numbers into what are considered non GAAP numbers, in many cases, we feel adjusted numbers are more relevant. And where applicable, the resulting discussion is generally about the adjusted numbers for proportionate consolidation. Based on Q1 NOI, we had a 47% weighting in Western Canada, 11.9% weighted in Ontario and 41.1% in the United States. On an asset class basis, we're 53.4% weighted in office, 20.7% in retail and 25.9% in industrial. Specific focus for Artis since the oil prices collapsed in late 2014 has been to reduce our exposure to the province of Alberta and specifically to the Calgary office market. Looking back 3.5 years ago to Q3 'fourteen before the crash in oil prices, our geographic asset mix resulted in 38 0.9% of our NOI coming from the province of Alberta, and just over half of that or 19% 19.3% of the REIT's total NOI came from Calgary office properties. Based on Q1 2018, our total Alberta exposure is now down to 23%, and Calgary office is only 9.7%, even when including a substantial lease termination income received in the quarter. Calgary office would have been down to about 7.8% of total NOI if you exclude the lease termination. Just a bit more information on that termination was that it was a partial surrender from an ongoing tenant, and we have a new tenant coming in to lease the majority of the space that's been surrendered. As we mentioned in our year end call, we feel we fully executed on our commitment to diversify while continuing to sell at a good price in the current market. We have one further Calgary office building under an unconditional sales agreement scheduled to close in June. We currently have relatively manageable exposure to the Calgary office market in the near future with only 100 and 60,000 feet left to renew in 2018, only 147,000 feet in 2019 and only 47,000 feet in 2020. So as we've mentioned before, our acquisition and disposition activities have been increasing in recent years, focused primarily on capital recycling to further diversify and improve our portfolio. In this quarter, we completed the sale of 2 properties and acquired the remainder of an interest in 2 Denver office assets from 1 of our joint venture partners such that we now own 100 percent of those two buildings. Bit of an interesting one, we were able to complete the acquisition at our Q4 IFRS valuation for the real estate and also issued equity also at our Q4 IFRS valuation of $14.85 per unit. So some interesting accounting falls out of that combination in that we booked a gain on both the acquisition and the equity. Ardus continues to be active in new developments and redevelopment of our existing properties. We currently have around $70,000,000 invested to date in projects currently under development. During the quarter, we invested roughly $19,000,000 into the development projects and transferred $34,000,000 of properties from under development to completed properties. As detailed in MD and A, we have several new development projects that are just getting started, now including a new office a new apartment tower at 300 Main Street in Winnipeg, and new industrial space in Houston and Phoenix. As you tell in the MD and A, we also have several development projects in the planning stages where construction has not yet actively started. And these projects are all progressing well through the development stages. We did have a couple of nonrecurring items this quarter, including booking an adjustment to our pension liabilities of roughly $3,400,000 and a cost incurred to internalize several of our 3rd party property management contracts of $5,000,000 Pension adjustment relates to a future compensation payable at the end of some employment agreements and will be a onetime amount. We were pleased with the internalization of the management agreements, and the impact will definitely be accretive to our cash flow and income. And just for a little more color, we anticipated roughly a 10% return on a cash flow basis from that investment. However, not all of it hits our income statement because you're not allowed to pay yourself money and treat it as income. But on a cash flow basis, it will be a good savings for us. So we have presented some of our non GAAP metrics, including interest coverage ratios, FFO and AFFO, on the basis of excluding these two items. Couple of other highlights from the quarter included the issuance of a new series of preferred units and the issuance of a new unsecured debentures. Use of proceeds for the preferred was to redeem another series that was due for rate reset, and we achieved a better rate on the new series than we would have had if we had let the previous series reset its interest rate. The use of the debenture was just to pay off other indebtedness. So we have been able to continue to strengthen our balance sheet and improve our debt metrics, a slight improvement again this quarter with debt to GBV falling to 48.9% from 49.3% at the last year end, and our interest coverage ratio is remaining over 3x. The sales program we implemented through 2016 2017 to sell assets and use a portion of those proceeds to reduce debt has had a dilutive effect on our FFO. FFO came in at $0.33 this quarter after adjusting for a couple of for those nonrecurring items that I just mentioned versus $0.36 in the comparative quarter. There are some specific items impacting that drop, and I'll discuss in a little more detail the FFO in a minute. AFFO remained flat from Q4 at $0.25 However, this does result in our AFFO payout ratio being above 100%. AFFO was also impacted by some of the same items as FFO that I'll be discussing. So as we said at year end, our mission is to grow back into that distribution and get our payout ratio down, and we plan to work hard to achieve that. So on a couple of specific operating results, on the fair values of our investment properties, they're on our balance sheet at fair value. And this quarter, we recorded a relatively small decrease of about $4,400,000 We did provide for some further declines in the Calgary valuations, probably more to be conservative than based on actual transaction history, but it just seemed appropriate to do that. So we took a little write down in Calgary. It was largely offset by increases in value in the Toronto area, which continue to increase. At the present time, we're not really anticipating major changes for the rest of the year. However, we do expect we'll likely see further increases in our industrial valuations as recent market transactions have been at pretty low cap rates in the industrial space. We remain very comfortable with our debt to GBV ratio. As I mentioned, it was slightly down this quarter at 48.9% versus 49 point 3% at year end and secured debt to GBV is also declining as we're increasing our unsecured debt and correspondingly increasing our unencumbered asset pool. Unencumbered assets are slightly up this quarter at $1,690,000,000 up from $1,680,000,000 at Q4. On the credit side, Artis has a $500,000,000 unsecured revolving line of credit with a syndicate of lenders, and we also have 2 non revolving unsecured credit facilities in the aggregate amount of $300,000,000 And both of the non revolving facilities have been drawn in full, and we placed interest rate swaps to fix the rates as we expect they'll be outstanding for their full 5 year term. Looking at a couple of highlights from the results of operations. On the same property basis, results were fairly flat this quarter in functional currency, but showed a decline of 1.6% in Canadian dollars once foreign exchange was factored in. We also presented a stabilized same property calculation, which eliminates our properties planned for disposition or repurposing and also eliminates the entire Calgary office sector as it's hard to argue that's a stable sector. So on this basis, we had growth of 3.1% in functional currency, but down to 1% once foreign exchange was factored in. By asset class, the office segment in Canada was the weakest, led by a negative 9.4% in the Calgary office sector. And interestingly, retail in both Canada and the U. S. Was fairly strong, and we also had good results from the U. S. Industrial portfolio. By geography, the strongest performer once again was our portfolio in Wisconsin. Now we get to some of the fun stuff on the FFO and payout ratios. As I mentioned in my opening results, FFO year over year has declined with the largest driver being the dilutive effect of asset sales with the proceeds being used for debt reduction. Our FFO for the quarter on a diluted basis was $0.33 down $0.02 from last quarter and down $0.03 from the same quarter last year. The biggest decline year over year, of course, is the assets we have sold, but there were some several items impacted FFO resulting in the $0.02 decline this quarter. The biggest one was the issuance of the Series I preferred units on January 31 with the Series C not being redeemed until March 31. So we had a 2 month period of 2 Series outstanding. So in absolute dollars, FFO for the quarter after adjusting those 2 nonrecurring items was down roughly $1,600,000 $1,300,000 of that related to the additional distributions on deferred units. As we won't have both series next quarter, there will be an improvement in FFO just from lower preferred distributions. And if I compare quarter over quarter results instead of year over year, same property quarter over quarter in functional currency increased roughly $338,000 However, the impact of dispositions compared to acquisitions, again, in functional currency reduced NOI by roughly 718,000 dollars With a contribution from newly developed properties that are not part of the same property income group for a little over 20,000 dollars and the average exchange rate was relatively flat quarter over quarter. However, there was still a slight positive in translating back to Canadian dollars this quarter. So the net impact of all those changes is that property NOI declined around $400,000 And if you add that to the $1,300,000 from the preferred units, you've explained the majority of the variance in FFO. There's a couple of other differences that go both directions, but those 2 are the main ones. So despite the drop in FFO, we remain convinced that our strategy has been correct to improve our balance sheet in the current operating environments at the same time as we diversify away from Alberta. Those with those adjustments in, it gives us an FFO payout ratio of 81.8% for the quarter. On an AFFO basis, the AFFO is not quite impacted to the same degree. Normalized AFFO came in at $0.25 unchanged from last quarter, although it is down $0.02 from the same quarter last year, mainly due to dispositions. And as I mentioned in the discussion on FFO, the same items actually impact AFFO, so we would have reported an increase in AFFO exclusive of those items. Our AFFO payout ratio this quarter was 108%, the same as Q4 'seventeen. And as I mentioned, our mission is to go back into that distribution, and we anticipate the changes we're making in our portfolio and our development activity will over time bring this ratio back under 100%. We continue to evaluate all strategic initiatives we think could help us in that mission. Couple others, just quickly, we disclosed our EBITDA calculations in the MD and A. Main ratios we track are EBITDA interest coverage, currently at 3.31x, a slight improvement from Q4 'seventeen. Debt to EBITDA currently at 8.5x. One of the positives this quarter, reporting our investment properties at fair market value under IFRS, We can calculate our net asset value per trust unit, just simply taking our equity on the balance sheet plus the equity held by the preferred unitholders and dividing it by the number of common units outstanding. Net asset value was $15.03 per unit, up from $14.86 last quarter. Finishing the quarter, we ended up with $41,000,000 of cash on hand and $245,000,000 undrawn on our line of credit. There are several events detailed in the subsequent events note, which we continue to believe reflect our strategy of intelligent recycling of capital, and we plan to continue our focus on improving the balance sheet and the overall portfolio quality of the portfolio. So that completes the financial review. We feel it's a fairly solid quarter given the operating conditions in one of our major markets. We're pleased with the NAV growth, although obviously not so happy with the FFO decline, which I hope I explained. We look forward to demonstrating our results in future quarters, and I'll pass it back to Armin for a bit more discussion. Okay. Thanks, Jim. So folks, on balance, we feel that Ardis is progressing well this year. Our earnings, our balance sheet and our liquidity are in good shape, and we feel that our diversification and outlook is slowly but surely improving. Looking ahead, it continues to be our view that both the U. S. And Canadian economies will perform fair to good this year and next with the advantage going to the U. S. Economy. So last year, our capital recycling program concluded with about 500,000,000 dollars of deals done. And for this year, in 2018, the best guidance we can give is that we'll recycle between $200,000,000 to $300,000,000 of properties, so a little less. But as we accretively recycle our capital, you will, of course, notice that our Alberta footprint will continue to shrink in relation to our total NOI and that the diversity of our NOI will improve. In terms of the Calgary office market, as you can see by our same property there, it's not we're not out of the woods yet, but our visibility continues to improve, including sublease space vacancy rates are about 27% now, may climb a little higher before stabilizing, but this is the year that we hit stabilization. Oil and gas prices have stabilized. Keystone XL and Trans Mountain, we think we trust will eventually get done, And the OPEC deal continues to have good traction. So we feel we're bouncing along the bottom with respect to office leasing rates and the absorption. You would have noticed there was slightly positive absorption in Q1 this year, more in the suburbs, and I think the downtown was just a little negative. But we feel we're bouncing along the bottom there, and that's actually a good thing. Capital spending and job creation is slowly but surely increasing in Alberta, and we are seeing green shoots of economic and tenant activity. So it may be slow and protracted, but it is our view that the economic recovery is well underway in Alberta and will be sustained for many years thereafter. So looking ahead, we will continue to work hard to keep our buildings full whilst bringing the rents up to market and consistently improving our real estate portfolio because at the end of the day, the caliber of our real estate is the foundation of our REIT. For this year, we view our drivers of growth to be firstly more accretive recycling of capital and repositioning of our portfolio, working hard to increase our same property NOI in at least the majority of our markets. And as noted in our MD and A, our development pipeline is growing and slowly but surely on track to deliver us great results in this year and in the years ahead. So that's our report and commentary for this quarter, folks. I'll now turn the mic over to the moderator, to Johanna, and open the floor to mic up for questions. Johanna, please? And your first question is from Jonathan Kelcher from TD Securities. Jonathan, please go ahead. Thanks. Good afternoon. First question just on the lease termination, can you maybe give a little bit more color on that? Like how the new rent compared to the old? How much did you have to spend in the way of TIs to get that done? So the lease termination fee kind of covers the difference in both the rent and the tenant improvement numbers, But the new rent is at a lower rate than the expiring one. This was Heritage Square, right? Correct. On this one, Heritage Square, where we have AMEC Engineering and we were able to get a provincial government tenant to take some of their space, they're subleasing at a longer term. So we think we definitely did the right thing for that building. And we just and so we took a lease termination fee, negotiated 1 with AMEC Engineering and still in discussions with them about an early blend and extend on their lease as well. Needless to say, today's rents are lower than previous rents, but I don't have that rent off hand. It's still, we think, a fairly good rental rate we got. And suburban office markets, at least the South and the Beltline we're experiencing right now are slightly stronger than downtown. Okay. On the well, just sticking with Calgary, I the you took a small write down there, but you did sell an asset. Did you write like you said, you sold that asset at IFRS value. Was there a write down before that? Or was that sort of the Q4 IFRS value you sold at? That's Q4, I can. Yes. Yes, Q4. Okay. And then lastly, just on the termination of the management contract, you said that you expect about a 10% return on that, Jim? On a cash flow savings basis versus what we would have had to pay the 3rd party manager. But of course, if it's things like lease commissions and supervision fees on capital projects in the building, we unfortunately, it's a cash flow savings for us, but we can't pay ourselves that money and call it income. Right. So we won't really see it flow through the NOI or anything? You'll see some flow through the NOI because, for example, on property management fees, while our while the property management fee eliminates the recovery from the tenants. Okay. Thanks. I'll turn it back. Thank you. Your next question is from Howard Leung from Veritas. Howard, please go ahead. Good afternoon. I just wanted to also follow-up on the internalization. Is and you mentioned there'd be about, I guess, dollars 500,000 of cash flow savings. How does that flow through to FFO and AFFO? Will it just go straight to AFFO? The portion that comes from property management fee recovery from the tenants will go straight to AFFO. The portion that's a cash flow savings on supervision fees and leasing commissions, it will just result in less expenses being capitalized. Correct. And because I guess in AFFO, you're using amortization of leasing costs to account for the reserve. I guess that will it will still show up there or will there be savings? Trying to understand what happens. There will be savings there because you eliminate that portion. So in essence, you don't charge yourself a leasing commission. Right. Okay. And okay. No, that makes sense. And then just want to touch on some of the occupancies. It seems like retail and office same property occupancies are a little weaker compared to last year, but industrial is up. So just want to get some of your thoughts on those segments. Yes. I mean, in Canada, we still did the occupancy shift away. We lost a Sears. We had 1 Sears in total. We lost in Grand Prairie. So that's brought down our occupancy. Now our total same property NOI is still positive both in Canada and the U. S. For retail and industrial. The good news with that one series is, and we don't want to jinx ourselves, but we are in serious discussions and trading paper with the national tend to take all that serious space off our hands. So we're hoping we can announce good news by the end by the time we report again in August with our Q2 results. So that was the main driver in terms of occupancy levels for retail. Industrial is performing well. There's little tweaks here and there, but we're almost 99% occupied in the GTA with our industrial. We're about 97% in Winnipeg. I think we're in the 96%, 95%, 6% range for what we have left in Alberta. And the 1 industrial building in Vancouver is, of course, 100% leased. And down in the U. S, we're about 96% on average. We're seeing very good traction on all fronts. And not to get ahead of myself, but all of our greenfield developments looking ahead are now basically new generation industrial in the U. S. You'll see our Park Lucero, the last phase that we're just under construction within Phoenix lease up, it will be fully leased in no time based on the tenant action that we're getting and the paper that we're trading. And Houston will be starting Phase 2 there very soon, and we're getting a lot of interest. We're seeing a good momentum on both sides of the border and that we feel has legs for industrial absorption and increasing industrial rents. Okay. Thanks. And then you had a deal where I think you acquired the remaining 50% in partial exchange for units issued at evaluated at NAV. Is that particular to the to this only because you were buying out the other partner? Or is it something that you see doing for other deals as well? It's particular to this partnership. It was a fund with a lot of you might say retail investors in the fund that were happy to make the trade. And we said, look, if you want us to pay NAV, you've got to take our units at R NAV, and they eventually agreed to do that. And so we're always open to doing that with they call it an UPREIT transaction in the U. S. We might just call it an exchange. We're open to doing more of that. We pursued it at times, but we haven't been successful. We'll see. So we can't promise we'll be doing more of them. Right, right. And when you think about just in general issuing equity, what are your thoughts on that right now given where it's trading? Well, at the last that $14.85 was our last NAV. Now we're over $15,000,000 But we haven't raised new equity for over about 2 years now, and we're just getting close to 2 years. We shut down our DRIP about 1.5 years ago. So we're watching that very carefully. We don't want to dilute our common equity without a good reason. We're doing just fine on the liquidity front and then cash flow front with our development pipeline. We can always sell we still have some more non core assets in our radar screen to sell, but we could if we want to just make a profit, we can also sell and start recycling our new generation industrial as we develop it. We have a very good development pipeline that's growing. We can always take some money off the table there. But we can't we'll be raising equity at the and that's it starts at 13. Okay. Sounds good. Thanks. I'll turn it back. Thank you. Your next question is from Matt Kornack from National Bank. Matt, please go ahead. Hi, guys. Just a quick question on top tenants. I think Whiting Oil moved up a bit and that's the function of your purchase in Denver, a bit of a shorter lease term there. Do you have some visibility as to whether they would renew at the end of that term in that building? Yes, we're busy hugging each other, so to speak. We've been all over that tenant last fall already, and we're in close contact with them. We're having dinner with the new President, things like that. They have a history of being sticky. They've been in this building for about, 15 years now. When they first started as a junior oil company with about 5,000 square feet, we fully expect them to renew. We have a head start on them in the sense that if they were to go somewhere else, they'd be paying at least $10 a square foot more rent, and they're not the type of a tenant that wants to do that. They're not a wealth management tenant and they're not their status does not don't have that in their DNA to be spending that kind of money. So we think we've got a leg up. They like our building. They like our location. We've got a ton of parking available for them. The amenities have only improved and the buildings only improved. So it's not papered yet, but we're in discussion with them to renew, and we'll let you know as soon as it's done. And I guess it sounds like if that's the case, you may even get a rent uptick? With cost to get optimally. That's the plan, of course, to get at least some uptick. Right. Okay. And then with regards to TD Canada Trust, is that multiple different locations? Or is it an office tenancy somewhere in Canada? Well, they did one it's a move in an expansion here in Winnipeg across the street into our building. That's not in yet. Okay. This is just in multiple different locations. So that's bigger? Yes. Okay. Daniel, it's getting bigger. There are new tenants coming into the Winnipeg office building. So they'll move up on the list? Yes. Okay. That's fair. And then there have been a few been watching Urban Toronto, seen a few development proposals for 2 properties here, both residential. Is your goal to own those assets at the end of the day or has that developed at all? And I mean, which of the 2 or do you think both would go together or so sorry, go forward at the same time? Yes. So that does remain to be seen because it takes so long to get the entitlements of formal approval, right? We have 2 applications that are formally submitted, completely submitted. 1 is Concord on the Don Valley Parkway there for about 500 suites, almost 500,000 square feet of density. We're optimistic because the Eglinton line is coming soon. Within 2 more years, I think we'll have it there. It will be just 100 steps away from the outlook on LRT states, just 100 steps away. We're seeing positive traction, leasing momentum for the office buildings, and we think it will be good for any multifamily development there. So optimistic of obtaining that density and also at 4:15 younger application is in. That's going to take a little longer. There, it's for about it's 62 storey. It's about 350,000 square feet of density and about 300 suites. So we're optimistic about both, but it can take 1 to 2 years to get the full approval. And at that time, then we'll as we get closer to that D Day, so to speak, then we'll decide whether or not we cash in and sell the asset with the density or if we go ahead and develop it. If we develop it, do we develop it to partner with ourselves? So we've got time to think about that, but there's a lot of potential value that we value that we can create just by getting the density. That's our that's job 1. You'll see in Calgary, we're at the Stampede Station. The second phase there is approved for 300,000 square foot office building. We're just getting it reapproved for 300 suites of multifamily. And in by the end of this year, we feel we'll be applying for about 600 suites of density up in the GVRD in Pointe Coquitlam, Vancouver area on our Poco Place site where we've got additional room there. A great opportunity there as well that we'll be pursuing. So we'll keep everybody posted in our MD and A on that stuff. I think you're right. Historically, people haven't usually blended residential into a commercial REIT, but we are starting to see most of the REITs entertaining residential development as the densification of their properties. So we'll see how that plays out over time, whether people continue to hold those in commercial REITs or whether they sell them out. I'm sorry, go ahead. To that point, there comes a point where we might be too diversified into that 4th asset class. Once built, once completed and built, we may just sell at that low cap rate, the multifamily assets sell at and take the money and recycle into industrial or office, right? But that would be a nice problem to have. In the meantime, our densification opportunities, we want to maximize them. The highest and best use appears to be multifamily or it is multifamily right now. So we want to maximize that right now as best as we can to create the best value, most value. Then we'll decide if we keep them in our portfolio and enjoy the income or if we sell in cash in at a low cap rate. Okay. And the articles themselves, they referenced MarWest as being involved, but it's no longer related party for our business standpoint. But is that a cost relationship? Is it essentially just cost recovery between MarWest and ARTAS? Yes. This is a small fee, monthly fee, they get to do the work plus the cost involved. And then it's just the Phase 1, if you will, Phase 1 work, if you will, to get entitlements. There's a whole team of consultants a page long that get that are part of this team. It's not just MarWest, that's for sure. Okay. And then Artis would be responsible for the actual construction process? Yes. We're the owner developer. Okay. Thanks, guys. Thank you. Your next question is from Michael Smith from RBC Capital Markets. Michael, please go ahead. Thank you and good afternoon. Just following up on Concorde and 415 Young, are your applications in under the old regime or the new regime, the OMB or the new local planning authority? So Concord, for sure, under the new regime, the 415 is open for debate. But at the end of the day, we're working and through the Concord, for example, so far the reception we're getting from that planning team is very positive there very supportive. At 415 Young, Young Street is a little more controversial and there's a lot more height involved. So it's going to be a lot of the process, but we're working with the plan that's been assigned to us there to basically negotiate a positive report, positive recommendation. All that will this will take time, but that's the process we're in. But as I said, in both cases, applications are other non other non core bucket, I know you have, I guess, dollars 200,000,000 to $300,000,000 potentially for sale this year. What would be the rough value of, let's say, other non core assets beyond that, which you could potentially sell should you have a good use of cash for the proceeds? So that we're running out and that will depend on which Board member you talk to, I guess, but there's pretty much consensus on our Board that we don't have much more. But by example, when we get this 40 storey apartment underway here in Winnipeg, the 3 95 suites, in parallel with that, we expect to be able to lock in very attractive CMHC financing. Then we'll have a very large and significant mixed use asset here in Winnipeg with a 30 story office building, a 40 story apartment, 1,000 stall underground parkade along with 60,000 square feet of retail. So we will look at selling a 50% non managing interest in that complex as we get closer to rounding up to re identifying it and basically completing it. So that could in that sense, it could be it's a core asset, but we sell at 50% non managing interest. In that sense, it would be non core. But we don't have a lot more in terms of recycling after that. Okay. And for Seam Property NOI for the balance of the year in functional currency, What are you thinking? More of the same. I mean, in the U. S, we're up a little bit on the office, up a little bit in the retail, not bad in retail, but the smaller needle. Industrial is good. We're expecting positive. We think we had 3% in functional currency in the U. S. And then but Canada is what is. We've got a little we've got less Calgary office renewals ahead of us, so that should help. Retail continues to perform well. Industrial should pick up. There was a little we've got some vacancies in Saskatchewan that we're filling up now and one in Winnipeg. So we're optimistic it's positive. If you take Calgary office out, it's always positive. And with Calgary office, maybe it's flat in Canada, but positive in the U. S. But it's a little bit hard to predict. The good news is that, as I mentioned and as Jim mentioned, we don't have a lot of telegraphs of renewals coming up anymore this year and next year. It's a negative impact should be smaller. Okay. And just lastly, so there was a lot of moving parts in FFO this quarter. So I guess on a normalized, it's around $0.33 I mean, is that more or less what you're expecting for Q2? No. I would think there'll be a lift in Q2, just from nothing else from the second series of preferred units being taken out at the end of March. Okay. Okay. Thank you. That's it for me. Thank you. Thank you. Your next question is from Fred Blondeau from Echelon Lot Partners. Please go ahead. Thank you and good afternoon. I just had one high level question. Armen, you just mentioned you still have this sizable development pipeline. How did your expected returns evolved over the last year or so? And I guess in parallel, how did your appetite for development evolve as well? Should we expect or would you like the pipeline to grow further from here? Or you could become a bit more conservative? I feel we've hit all of our targeted yields for sure in the industrial. In some cases, we've invested a little bit more money, but the yield has always kept pace with the cost. And like all of our industrial just been has been excellent for us. The office development has been it starts at 7.5% cap rate, I think, became a 7.25% cap rate, but north of 7% and it's all new generation mills did. So we're really pleased with it. And as we move ahead, we still only have we have less than 2% of our GBV as in our development pipeline. We think it could get closer to 4%. And as long as we continue to achieve success, Fred, we won't it will be a wonderful thing. We're developing new generation real estate at higher levered yields than we could get by buying the yields. I'll start with a 7. It's going to be accretive for us. But more importantly, the exit cap rates start with a 5 in the U. S. And we can always take some money off the table and cash in on, say, 1 out of every 4 developments and then just keep making a profit and keep recycling that money as well. Okay. Perfect. No, that's fair. Thank you. I'll leave it there. Thank you. There are no further questions at this time. You may proceed. Well, thank you again, everyone, for joining us. And happy Friday to us all. I'm sure everyone is cheering for the Winnipeg Jets. Given that we're doing our best to keep playing hockey and representing Canada. I'm sure we're going to get a couple of upgrades for Artisys. As a trickle down effect, I can hardly wait. Anyways, thanks again, everyone, and have a good weekend. Ladies and gentlemen, this concludes today's conference call. We thank you for participating and we ask that you please disconnect your lines.