First Capital Realty's (FCRGF) CEO Adam Paul on Q4 2015 Results - Earnings Call Transcript

| About: First Capital (FCRGF)

First Capital Realty Inc. (OTC:FCRGF) Q4 2015 Earnings Conference Call February 18, 2016 2:00 PM ET

Executives

Roger Chouinard - Chief Legal Officer

Adam Paul - President and Chief Executive Officer

Kay Brekken - Executive Vice President and Chief Financial Officer

Jodi Shpigel - Senior Vice President, Development

Analysts

Mark Rothschild - Canaccord

Alex Avery - CIBC World Markets

Sam Damiani - TD Securities

Matt Kornack - National Bank Financial

Michael Smith - RBC Capital Markets

Operator

Welcome to the First Capital Realty announcing Q4 and Year End Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Roger. Please proceed with your presentation.

Roger Chouinard

Thank you, Patrick. Please note that forward-looking statements may be made during today’s conference call. Certain material assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in our management’s discussion and analysis for the quarter and year ended December 31, 2015 as well as in our current Annual Information Form, both of which are available on SEDAR and on our website. These forward-looking statements are made as of today’s date and except as required by securities law we undertake no obligation to publicly update or revise any such statements.

With us here today are our President and CEO, Adam Paul, as well as our senior executives, Kay Brekken, Greg Menzies and Jodi Shpigel. I will now turn over the call to Adam.

Adam Paul

Thank you, Roger and good afternoon everyone. I would like to start by first thanking the research analysts that cover us for the work that you have done and the time that you have taken to understand First Capital and our strategy. It’s also nice to have been recently recognized in such ways as a Dividend All Star, a Best Idea and a Top Pick. And while First Capital’s next chapter is still in its early days, we look forward to delivering on what is expected of us. So, I would like to thank everyone who has supported us, not only over the last few weeks, but since I joined First Capital a year ago.

Okay. Now, let’s talk about our performance. Real estate is a long-term business. So, it has always seemed unfitting to me for a real estate company’s performance to be assessed every three months. Given this is also our year end call I will focus on the 2015 year versus the quarter. After I joined the company last year, I shared my observation that while First Capital is exceptionally well-positioned to deliver long-term growth, some of the decisions that put us in such a great long-term position had limited our short-term growth in a meaningful way. When it comes to decisions regarding capital allocation, the balance sheet and at the property level, striking the right balance between both the short and long-term impact is even more critical for a company that is publicly listed.

I suspect I will be speaking about this concept many times in the coming years by referencing specific examples of things we do and why we made the decisions we made. As First Capital’s new President and CEO, I spent my first few months entirely dedicated to getting to know our real estate and our people. In hindsight, I wouldn’t have spent those first few months any other way as our properties and our people makeup the core of what and who we are. Early on, I noted that we would be reviewing all aspects of our business, and accordingly, 2015 would be a transitional year for our company. I also said that I expected operating FFO for 2015 would be comparable to 2014. Throughout the year, our portfolio continued to perform well with same-property NOI growth coming in at a solid 3.7% notwithstanding lower occupancy.

We extended our track record of very healthy leasing spreads on renewals, which came in at 8.6% on 1.8 million square feet of lease renewal activity. And it’s worth noting, as always, this is a pure number. It includes all renewals including anchor tenants who exercise fixed rate renewal options with no increase in rent, which occurred in 2015. It also includes renewals of properties that we intend to redevelop, so we are not prepared to make long-term commitments and sometimes renew tenants on a percentage rent structure. Erring on the side of conservatism, we include these renewals at a rental rate of zero for the purpose of this calculation, which also occurred in 2015. All in all, we finished the year with operating FFO at $1.05 per share or $0.01 above 2014.

In 2015, we made huge progress in our development program as you heard on last quarter’s conference call when I reviewed our largest active projects. In total, we invested $373 million in properties, primarily through development, and to a lesser extent, acquisitions. It’s not so much the quantum of these investments that is meaningful, but more so the quality of them. Together, with the proactive portfolio repositioning activities that we have undertaken over the last 5 years, we have significantly improved the demographic profile of our urban necessity-based retail portfolio. By example, in 2009, the population within a 5-kilometer radius of our properties averaged 134,000 people. That’s a lot of people. But today, that number is 40% higher at over 186,000. We also look at household income. In 2009, the average household income within 5 kilometers of our properties was $76,000. We are now 27% higher at over $96,000, which is much greater than the Canadian average.

One of our long-term competitive advantages is how well positioned we are to benefit from the demographic tailwinds occurring in Canada’s major urban markets. This is something we spend a lot of time on and we’ll continue to do so in order to ensure our long-term success is more determined by internal factors such as how well we execute and less dependent on external factors. In 2015, we also made a lot of progress on strengthening several balance sheet metrics that Kay will get into. As you know, we undertook an organizational restructuring, which is never easy, but was clearly in our best interest as a company. And finally, we deepened our management group by adding additional senior executives that will each make a meaningful contribution to our business and performance in the future. So all in all, I am very pleased with the progress we made in 2015. I believe, we laid some important groundwork to maximize our success in the future.

2016 has been shaping up to be just as busy. On the transaction side, we are off to an active start. On February 1, we acquired a 171,000 square foot shopping center on 11.4 acres of land in South Surrey, British Columbia for $78 million. Vancouver’s lower mainland has always been a more difficult place to acquire great real estate. So we are particularly excited to add this one. While we have an acceptable going-in return, like everything we buy, we also see an opportunity to considerably enhance that return over the medium to long term by applying the deep capabilities of our platform.

I have talked previously about partnerships representing an opportunity for First Capital. You saw us act upon that last year through the strategic joint venture with CAPREIT on the residential portion of our King High Line development. And this year, on the same day we closed the South Surrey acquisition, we also sold a 50% non-managing interest in a 3-property portfolio in the Greater Montréal area for a sale price of $71 million to an institutional partner. As you may recall, in 2014, First Capital acquired its previous partner’s interest in the largest shopping center in this portfolio. We decided at the time and reconfirmed last year, based on our views and analysis, the right capital allocation decision for these properties was to complete this transaction. So, we are pleased with our outcome as well as our new partner. First Capital will retain the remaining 50% interest in all three properties and will earn market fees for asset management, leasing and property management.

Before I provide more commentary on 2016, I will turn things over to Kay to review our Q4 and 2015 results. Kay?

Kay Brekken

Thank you, Adam. Good afternoon, everyone, and thank you for joining us on our conference call. Starting on Slide 6 of our conference call deck, early in 2015, we indicated that we expected the year to be a year of transition and our operating FFO to be relatively consistent with 2014. Our actual 2015 operating FFO per share grew 1% or $0.01 per share versus the prior year. The growth was driven by a $12.8 million increase in same-property NOI and an $11.7 million decrease in interest expense. Approximately 40% of the growth in same-property NOI was due to rent escalations. We also experienced higher lease surrender fees primarily during the second quarter, higher CAM and tax recoveries and higher percentage rent and miscellaneous income from temporary tenants. The $11.7 million decline in interest expense was due to refinancing higher-rate maturing debt and utilizing lower-rate credit facilities to support our short-term funding requirements. For the fourth quarter, our operating FFO increased 1.4% in dollar terms and declined $0.01 versus Q4 of 2014.

Moving to Slide 7, we continue to deliver on our strong track record of generating growth from our same-property portfolio with same-property NOI growth of 3.7% for the year. As expected, our Q4 same-property NOI growth of 1% was lower than our historical norm due to the impact of 2 large tenant closures that we discussed on prior conference calls: the Q2 closure of 1 Target store in the same-property portfolio, which remains in our same-property portfolio and the Q3 closure of a Canadian Tire location in Edmonton. The majority of these spaces have been released at substantially higher lease rates.

We expect to recognize higher-than-normal leasing CapEx costs in 2016 associated with re-tenanting these two spaces. We expect our same-property NOI, which is calculated on a cash basis, to continue to be negatively impacted during the first half of 2016 until our new tenants begin to pay cash rent. Additionally, in the second quarter, we do not expect to be able to comp the $3 million in higher than normal lease termination fees we received from two tenants in 2015. We expect to experience stronger same-property NOI growth during the second half of 2016 as our new committed tenants begin to pay cash rent and we are no longer comping against higher than average lease termination fees.

On Slide 8, our 2015 same property lease renewal rate increase was a solid 9.2% on 1.6 million square feet of renewals during the year. Our total portfolio lease renewal rate increase was slightly lower at 8.6% on 1.8 million square feet of lease renewals. Our Q4 total portfolio lease renewal lift was 7.6% on 327,000 square feet of lease renewals.

On Slide 9, our average net rental rate grew 2.3% or $0.42 over the prior year to $18.84 per square foot. The majority of the growth in rental rates was due to rent escalations and less on renewals with the remainder due to new tenant openings and developments coming online. During the year, we brought online 248,000 square feet of GLA with an invested cost of $168 million, primarily in our major redevelopment and ground-up development properties. In the fourth quarter, two grocery stores took possession of the majority of the 102,000 square feet we delivered during the quarter. We achieved rental rates of $28.72 per square foot, 52% above our portfolio average rental rate on the space delivered over the course of the year.

On Slide 10, total same property occupancy and total portfolio occupancy rates were both up slightly over Q3. For the year, our total portfolio occupancy rate was down 1.2% from Q4 of last year, primarily due to the closure of two Target stores in the second quarter and the closure of a Canadian Tire location in the third quarter, which already mentioned. At quarter end, we were holding 0.5% of our portfolio intentionally vacant for redevelopment.

On Slide 11, our NOI run-rate grew by $8 million over the course of the year and by $4 million versus the prior quarter. The growth over the prior quarter was due to rent escalations, higher occupancy levels and acquisitions completed in the fourth quarter.

A summary of our portfolio by property category is provided on Slide 12. This table also includes the related occupancies and rates per square foot for each property category. Our same-property portfolio, now valued at $6.4 billion, represents 84% of the NOI run-rate from our total portfolio.

Slide 13 highlights the properties with the highest development spend during the year. We invested $200 million on development, $76 million on CapEx and another $97 million to acquire 10 income producing assets and 2 development assets, all of which were adjacent to our existing properties across the country. We disposed of $23 million of non-core income producing properties over the course of the year.

Slide 14 gives the details on the factors driving the growth and operating FFO and the related movements over the prior year period, which I have already touched on. Slide 15 summarizes our operating AFFO performance compared to the same prior year period. Slide 16 touches on our other gains, losses and expenses. Our other expenses were up year-over-year due to the organizational restructure undertaken during the third quarter.

Turning to our financing summary, information on our key financing activities for the year can be found on Slide 17. Over the course of the year, we raised $168 million of equity. We refinanced $219 million of maturing mortgage debt with $202 million of new term debt with an average term of 10.3 years and an average interest rate of 3.6%. The interest rate on the new debt was 130 basis points below the average rate on the maturing debt. We expect to continue to take advantage of the low interest rate environment by refinancing $155 million of term debt maturing in 2016, which carries an average interest rate of 4%.

Slide 18 shows some of our key financial ratios. Our unencumbered asset pool grew by $800 million over the course of the year to $5.8 billion. 70% of our assets are now unencumbered. This large, unencumbered asset pool, combined with over $800 million operating credit facility, gives us significant liquidity and financial flexibility to fund our future growth.

Slide 19 summarizes our term debt maturity chart as at year end. We have a well-staggered maturity profile with approximately 10% of our debt coming due this year. The maturities of the unsecured debentures in 2022 are spaced 11 months apart within that year. All of our term debt is fixed rate debt, which helps to mitigate the impact of any rise in interest rates. The weighted average interest rate on this debt, totaling $3.3 billion, declined 10 basis points since the start of the year to 4.7%.

This concludes my comments on the financial results. I will now turn the call back over to Adam.

Adam Paul

Thank you very much, Kay. As you know, there were a number of store closures throughout the year in Canada with the most well known being Target. In general, store closures cause short-term income disruption. However, given the quality and prime locations of our shopping centers, turnover of long-term, below market leases often provide the opportunity to enhance the financial performance of the property over the medium and long-term by not only increasing the income earned on the vacant space, but also from other spaces in the property as a result of improving the tenant mix. Often, the quickest and easiest short-term decision is to backfill the space with retailers that may pay rent quickly, but bring very little to the overall property. However, we put a lot of thought into each of these opportunities to ensure that we add retailers to our properties that are the best fit and will have the most impact over the longer term.

Now is a great time to talk about this because our same-property portfolio had 4 large spaces vacated under this scenario last year totaling 250,000 square feet that are shared, which includes 1 Target store. Our leasing efforts on these vacancies have been fruitful. We have now leased the majority of this space at rents that are significantly higher than the rents in place with the vacating tenants. Just as important, we have also improved the merchandising mix in these assets. Some of the replacement tenants include the first Whole Foods in Edmonton, a new Loblaws store and 2 GoodLife Fitness clubs. So, these tenant commitments are from strong covenant retailers and put us in great shape looking forward.

Given the state of transition of this space and the fact that rents commencement dates occur throughout the year, 2016 will be a tale of two halves. For the full year, I expect low single-digit growth in our operating FFO per share. However, this growth will be lumpy. During the first six months of 2016, we expect lower than typical and likely negative same-property NOI growth and flat to negative operating FFO per share results. However, the second half of the year should look much different as a result of our value enhancing initiatives to this anchor space that will become income producing later this year based on the leasing that is in place today. In the second half of 2016, we expect better than typical growth both in same-property NOI and operating FFO per share. So based on where we are today, this should net out to low single-digit operating FFO growth for the full 2016 year.

While we remain focused on creating value over the long-term, it’s important that we demonstrate we are heading in the right direction in the short-term and I certainly believe we are. 2015 is well known to be a transitional year for First Capital and we accomplished an awful lot, but it will be closer to the end of 2016 before this organization’s transition is complete. For example, we had two new senior executives join us in January of this year and we still have one remaining role that is open. While each of them will make a meaningful difference to our organization, it will take some time to see the impact of their contributions in our results. The growth we expect in 2016 is better growth than we have delivered on average over the last few years. It also happens to be consistent with the long-term average for Canadian publicly listed real estate companies and it’s worth noting that we are in a more challenging than average environment.

So, let’s talk about the environment for a moment. There is no shortage of negative press about the commercial real estate environment and retail specifically. The broader economy in Canada is facing some notable headwinds at least in the short-term. And retail trends continue to evolve at a faster pace than we have ever seen. But this environment also brings about a number of opportunities. For example, the tempered growth outlook for the Canadian economy has resulted in First Capital continuing to secure long-term debt at interest rates that are the lowest in our history. But to be clear, I would certainly prefer an environment where the cost of debt was slightly higher if it came with a booming economy. My only point is that there are some offsets that are rarely broadcasted.

I mentioned earlier that we are continuing to position this business in a manner that makes our results more dependent on internal factors that are within our control and less on external factors and this comes back to retail trends. For many years now, we have been proud of our track record of proactively being ahead of the curve on many retail trends and that remains more true today than ever.

We continue to focus on our real estate. One constant in retail over multiple decades is change. Several of the strongest retailers in Canada 25 years ago either don’t exist today or have fallen on tough times. And many of the strongest retailers in the country today either weren’t here back then or weren’t relevant. The other constant over that period of time is demand, but only for strong locations. Location matters a lot. And for high-quality retail space that is well located in Canada’s major urban markets, demand has never been stronger and based on the demographic trends and barriers to entry for new products, it is positioned to only become more in demand. It’s true that retailers are more selective than ever, but it’s also true they are more focused than ever on quality locations where they can more easily attract their core customer base and where the real estate becomes an important part of their omni-channel strategy. And when they find that product, they are prepared to pay rents that continue to set new highs, supported by the revenues these retailers can generate from these specific locations.

We own a lot of this space. It’s the reason that we continue to do new incremental lease deals with existing First Capital tenants in 2015 and year-to-date in 2016, including Loblaws, Whole Foods, Canadian Tire, West Elm, GoodLife and many others. It’s also the reason we entered into some very impactful leases with new retailers to our portfolio in the last few months, including Chanel and Yorkville, Mountain Equipment Co-op in Edmonton and IKEA at our Fairview shopping center.

A challenging retail market should also present the opportunity for us to gain access to space where long-term value creation initiatives have been hindered as a result of leases that encumber the property. So, this is a type of retail real estate we will continue to focus on by investing in our existing assets and in the development and redevelopment of new assets in our target urban markets. One change in emphasis going forward is how we allocate our capital to grow our business. We will now focus on larger assets with the goal of building critical mass and scale in our strongest markets. These are the types of assets that have the most promising profile for growth, it’s where talented personnel are most passionate about spending their time and creating value and it improves our competitive advantage in a big way.

We are well underway with a number of large development projects that are consistent with this strategy and our acquisition’s focus will be no different. Although the investment stood on its own merit, one of the factors that was appealing in our recent South Surrey acquisition is its close proximity to Semiahmoo Shopping Centre, which is a sizable asset on 20 acres of land we own in a market where we expect to undertake a major redevelopment over the short to medium term.

We have and continue to focus not on the past, but what is coming up ahead, which is particularly important in today’s fast changing retail world. The First Capital portfolio is regarded by many as the highest quality retail portfolio in Canada. Well over 90% of our income is earned in Canada’s largest urban markets from retailers that’s focused on providing necessity-based goods and services, which provide stability in both challenging and booming economic times. We have a fully integrated and proven platform to leverage as we continue to position our assets for success. And we have a strong and flexible balance sheet. It is for these reasons that our board, our executive team and our employee share my enthusiasm for our future.

I look forward to keeping you apprised of our progress in the years ahead. So thank you, again, for your time. We would now be pleased to answer any questions that you may have. So Patrick, if you can please open up the line.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question is from Mark Rothschild. Please go ahead.

Mark Rothschild

Thanks. Good afternoon. Adam, you spoke about the strategy of focusing on larger assets. I was curious are you seeing assets that trade that you could buy? Have there been deals that came up? And if so, what type of pricing as first cap rates are you seeing? And secondly, would that maybe change in strategy or focus, should we expect an increase in asset sales over this year?

Adam Paul

Good afternoon, Mark. Thank you for the question. So starting with pricing, as you know, the environment for acquisitions for quite some time now in the quality spectrum of where we have chosen to operate is very competitive. We have seen very little overall on the acquisition side of sizable assets. And what we have observed from certain assets that have at least piqued our interest is that the pricing has come in extremely strong. But if you have looked at where our activity has been, the majority of what we’ve done really the last couple of years has been more acquiring smaller assets that are either adjacent or form part of a largest position that we have currently established. And unless the environment changes, I would expect that to happen with the occasional acquisition like we found earlier this year in South Surrey.

In terms of dispositions, you know that we have sold a significant amount of real estate over the last few years. And when you combine that together with the new asset that we’ve added either through acquisition or development and you look at say the last 5 years, we have dramatically improved our portfolio quality. That being said, we are always proactively asset managing our portfolio. And I would say that all other things being equal, an appropriate run rate for disposition would be somewhere in the $100 million range. We were short of that last year. We came in around $30 million. We would have come in at around $100 million if the disposition that we closed earlier this month closed then. So I would expect higher than $100 million this year. Other than that, if we were fortunate to find significant amount of income producing acquisitions then that would have some impact on our disposition activity.

Mark Rothschild

Okay, thanks. And in regard to leverage, is there any plan on actually reducing the leverage this year or should we expect to stay fairly constant? And should I ask, will you be continuing to issue – I am sorry, you are using equity to pay on the convert, the dividend?

Kay Brekken

Hi, Mark. Regarding the convertible debentures, we have right to sell in shares or in cash. And given the volatility of financial markets, we will make the decision of which course to pursue at the time we intend to settle. In terms of leverage, our EBITDA interest coverage improved 20 basis points over the course of last year, our unencumbered asset pool grew by $800 million and our secured debt to total asset is now half of where it was in 2010. Our debt to assets did tick up as did our debt to EBITDA. They are still within a reasonable range for a business like ours, where over 80% of the revenues come from everyday essentials. Over the long-term though, it still remains our goal to bring our leverage down, but I wouldn’t expect that in the short-term.

Mark Rothschild

Okay, thank you.

Adam Paul

Thank you, Mark.

Operator

Thank you. The next question is from Alex Avery. Please go ahead.

Alex Avery

Thank you. Adam, on your – I guess, your comments on the outlook for 2016 and I guess roughly described us guidance, it sounds like you are striking perhaps a bit of a softer tone compared to what you have been previously sort of guiding for in 2016. 2015, I think, was pretty clearly a transition year and it sounds a little bit more like 2016 will be a little more of a transition year as well. Can you just I guess walk us through some of the items that will be gives and takes in there? I mean the restructuring that you executed in the fall would seem to suggest that there might be $0.02 to $0.03 per share of FFO contribution from that alone. Same-property NOI growth, if I heard you correctly, should be positive this year overall, but soft in the first half. And I guess interest cost savings would be another one. But just wondering what else it might be that might constrain some FFO growth?

Adam Paul

Yes, I mean, I think you hit on the highlights. There is nothing material driving it. Some of the portfolio is in transition as we talked about. So, there is certainly a drag from a vacancy perspective. And look overall, the reality is there are some challenges that the commercial real estate industry faces right now with a broader economy and we are not expecting to be immune from that. I think we are as well positioned as you can be, but we are not expecting to be immune from it.

Kay Brekken

And Alex, I would add we have the higher than normal lease termination fees last year. So, we wouldn’t be forecasting the same level, probably more typical in line with historical norm.

Alex Avery

Okay. And so I guess just sort of going back to the thematic discussions we have been having that would imply that perhaps 2017 would see a higher level of growth. I mean, it’s a long way out to be talking about that, but notionally, you would think that 2017 might be a higher growth year?

Adam Paul

We would certainly hope so. And I don’t know if I misunderstood you or not, but I took away from your initial comments that perhaps we had guided to something in 2016 that’s different than what we are seeing now, but the only year we have spoken about prior to today is the 2015 year.

Alex Avery

Yes – no, no, absolutely, and I didn’t mean to imply that. It’s just more the talk in the past, but a priority of focusing on FFO growth is something that would be, I think a priority over the next several years. So that answers my question. Just on the residential potential from last quarter, you have clearly increased the future residential potential that you see in your pipeline – or in your portfolio, the 10.6 million square feet up from 6 million. And with that disclosure, you have broken it down a little bit more into medium and longer term and I was just wondering if perhaps the change in the number is entirely due to the addition of longer term opportunities or if you are still finding more residential opportunities that you think you can execute on in the next 3 or 5 or 7 years?

Kay Brekken

Alex, there has been no change in the total really. We just wanted to make the disclosure more clear. So, the long-term potential wasn’t previously included in the table. It was in the language below the table. We have now put it in the table. So quarter-over-quarter, really no change in the total amount of residential density.

Alex Avery

Okay, okay. And then just on the developments, the disclosure around your expected development yields. I noted that the weighted average going in NOI yield of 5.6% last quarter have been amended to 5.3% this quarter and I was wondering if there have been maybe more residential in there or what had led to that change?

Kay Brekken

We adjust the yields every quarter based on the active projects, what moves in, what moves out as well as our latest assumptions on cost and revenue and it did result in a 30 basis point adjustment. I would reiterate that these are our year one going-in yields, which we do expect to improve over time.

Alex Avery

Okay, that’s great. Thank you very much.

Adam Paul

Okay, thanks Alex.

Operator

Thank you. The next question is from Sam Damiani. Please go ahead.

Sam Damiani

Thank you. Good afternoon. Just wanted to perhaps get into your outlook for the year in a little more detail, some other landlords have spoken about retailers closing up and reducing their store counts and whatnot. Are you expecting any impact on your occupancy over the course of this year as a result of weaker tenants closing up shop?

Adam Paul

Based on what we know today, nothing out of the ordinary. So, we haven’t seen anything that would indicate – obviously, that could change, but for – it’s something we monitor closely. We are in close contact with our tenants. We are constantly trying to understand how they are doing. Some reports sales, some do not, but obviously you can get a sense over the health of their locations in other means. But there is nothing that we have seen on the horizon that would indicate we should be concerned about store closures based on what we know today.

Sam Damiani

Okay, that’s helpful. And then I may have asked this last quarter, but just an update on – you have pretty good representation in both Calgary and Edmonton, any new signs of stress that you are seeing in those markets?

Adam Paul

Not yet. So far at least partly to my surprise, it’s been business as usual. So, we haven’t seen any deterioration on rental rates or demand. And in fact, our Alberta portfolio has, believe it or not, continued to demonstrate some of our strongest results including leasing progress that we’ve made on our Calgary development in Mount Royal Village and the Brewery District in Edmonton. And even with respect to lease renewal increases, it was well above our portfolio average in 2015 and in Q4 of 2015. So we haven’t seen anything yet. That being said, we don’t have our heads in the sand. We continue to position ourselves expecting to see some weakness. We have not seen it yet, Sam.

Sam Damiani

Okay. Just finally, the stats you gave at the beginning of the call now versus 2009 in terms of population and household income that was for the portfolio I guess then in place 5 years ago versus today. Any sense on how those growth rates were – would be on a same-property basis?

Adam Paul

No, we can get back to you on that, I don’t have that handy, but yes we could certainly do that.

Sam Damiani

Good. Thank you.

Adam Paul

Okay. Thanks, Sam.

Operator

Thank you. The next question is from Matt Kornack. Please go ahead.

Matt Kornack

Hi, guys. Adam, I may have missed it in your initial comments, but in terms of the asset sale in Québec, is that a partner that you have worked with in the past and is it someone you would potentially partner up with going forward as well?

Adam Paul

We have not worked with them in the past, but yes, certainly, we will be open to working with them again in the future.

Matt Kornack

And was that an unsolicited sale or are you looking market the asset?

Adam Paul

It was a targeted marketing process that we undertook.

Matt Kornack

And in terms of last quarter you disclosed that Chanel was going into one of your Yorkville assets and you mentioned that it was leading to some indication that there would be better interest in other Yorkville assets. Have you seen any of that come to fruition in this quarter or now?

Adam Paul

We have made progress. I am going to let Jodi speak to that.

Jodi Shpigel

Hi, Matt, it’s Jodi. So yes, with the Chanel deal that actually turned out to be the catalyst for the change that we are seeing that’s taking place in Yorkville. And following that deal, we know that there’s the new leases announced for other luxury brands coming to Yorkville and we are also in advanced discussions with even more luxury retailers coming. So, we are seeing this Yorkville continuously change and transform. And really, the catalyst is twofold on the residential side as there is a lot of condominiums that are coming into the market and under construction, and of course the Chanel deal and bringing that luxury brand to the neighborhood.

Matt Kornack

Okay, interesting. And as you look forward, I mean, you have to have the properties in place, but when you look at development, you have got a few projects that finish in ‘17 and ‘18. Does that impact when you start on other development properties or is it a function of when leasing is in place or you have got certain tenants that roll over?

Adam Paul

Yes, look, it’s largely a function of opportunity. One of the things that we are quite fortunate to have is a very, very deep pipeline of redevelopment land and the vast majority of it has holding income in place. So that allows us to carry a deep inventory of future redevelopment properties, largely triggered by opportunity, but not entirely because you could hit a point where the opportunities are very deep. But particularly in the context of our number one objective of growing our operating FFO, you can only take on a certain amount of development at any given time. And right now, I would say, we have a healthy amount of development on the go. We have some very large projects that should be completed over the next 2 years, so that allows for – it frees up at least a lot of capacity. That’s how we’d look at it.

Matt Kornack

Okay, great. Thanks, guys.

Adam Paul

Okay. Thank you, Matt.

Operator

Thank you. [Operator Instructions] The next question is from Michael Smith. Please go ahead.

Michael Smith

Thank you and good afternoon. I just had a clarification question on your major redevelopments. And I am trying to figure out for 3080 Yonge Street, I mean, it’s obviously an existing asset. You have some of it in some of that asset in properties under development, some money to spend. How much is that income producing? Like we have kind of backed into it, it looks like it’s about 60,000, 62,000, 63,000, is that about right?

Kay Brekken

So, if you look in our MD&A, we would have 245,000 square feet planned upon completion and 62,000 currently under development. I will let Jodi speak to the income producing portion.

Jodi Shpigel

So Michael, the building is actually a combination of active development as well as income producing as you have noted. Largely, it’s the first two floors that are the active development where we are going to be – we are under construction now for a retail unit including that Loblaws that we have announced previously. And the remaining floors above, from floors 3 through 6, are actually the existing office and that’s the income producing component of this property.

Michael Smith

Yes, I was trying to get a handle on like the dollar value, the dollar value that’s income producing. And then you have given the total amount that you spent already and the cost to complete. So, what would be in the IPP bucket in terms of dollar value?

Jodi Shpigel

Well, essentially, this one just moved in into the active developments in Q4. So, if you actually look at the MD&A that the estimated cost to complete really does represent the active development section since it’s just started.

Kay Brekken

The 183 would be the completed or existing IPP right now.

Jodi Shpigel

That’s right.

Michael Smith

Okay, great. Thank you. Can you give us an update on Yorkville Village?

Adam Paul

Yes.

Jodi Shpigel

Sure. In terms of leasing or in terms of the completion of the project?

Michael Smith

The whole. Yes, the whole.

Jodi Shpigel

The whole thing, okay. So, I will start with leasing. So we had another major milestone earlier this month, which was the Equinox opening, the fitness club. That is the anchor at the south end of our mall, which is our Phase 1. So that was a pretty big milestone. And what it does a few things. Of course, it’s a significant tenant that opened, but it also brings a draw to that whole south first phase of the mall, which is what we have been waiting to do. In addition, as others tenants opened Judith & Charles and Ofelia. And there are further tenants that are in fixturing that will be opening in the course of the next few months, which is Teatro Verde, that’s a key one. That’s a relocation off of the street, which then makes room for Chanel, also Maska and Sarah Pacini. So, these are new fashion retailers that are all going to be opening up soon. The social media, we are pleased to say, has also been following and picking upon on our completion of Phase 1 and the re-branding actually on Facebook as well as Instagram. And so Phase 1 is, I would say largely complete. We are still working on the entrance to the mall from Yorkville and we are making sure that it’s been keeping with the changes that are going through the neighborhood in terms of design. And then Phase 2 essentially starts now that the Equinox fitness club is opened and they have left their former space. We are continuing and we are estimating the completion of this into the first half of next year.

Adam Paul

It’s just amazing what’s going on in Yorkville now and you have got the demographic tailwind that’s coming from the number of higher end residential units that are either under construction or approved and that in itself is when it doubled the population of Yorkville over the next, call it, 5 years to 10 years. But what we are really excited about is how the retail is evolving. And it’s not just our properties. It’s what KingSett will be doing in the area and what some of the other landlords are doing. And the reality is, from our perspective, anything that is good that happens in Yorkville has a benefit to us and we see a lot of great things happening even beyond our property. And Jodi is right, since that Chanel deal was announced and we understood how significant it was, but it has changed the game. It has changed the retailers that are now doing deals there, but more importantly, the number of retailers and the quality of them that are in serious discussions with not only ourselves, but others and it’s going to be really fun to see how Yorkville unfolds over the next few years.

Michael Smith

And those new luxury retailers that are now a lot more interest because of Chanel that are talk – the ones that are talking to you, are they talking to you about Yorkville Village or your properties on Yorkville Ave.?

Adam Paul

The focus right now has been on the street front locations. And so those are the ones that will have the most immediate impact. But what I think is like Bloor-Yorkville has – is well known as one of Canada’s premier shopping districts. What’s happening in Yorkville, though I think is going to take the whole area to a new level. And we would expect, at a minimum, a noticeable direct benefit to the mall itself. But at this stage, the focus in terms of where the – what historically would have been strictly Bloor Street retailers are looking at is on the street right now.

Michael Smith

Okay. And thank you. And just switching gears, what’s the name of that property you bought in South Surrey?

Adam Paul

Peninsula Village.

Michael Smith

Peninsula Village and you said it’s close to Semiahmoo?

Adam Paul

Yes, it’s within 2 kilometers of Semiahmoo.

Michael Smith

Okay, good. Thank you.

Adam Paul

Okay. Thanks Michael.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Adam.

Adam Paul

Okay, thank you. Thank you, everyone for your continued interest in First Capital. Like always, if you have any follow-up questions, don’t hesitate to give Kay or myself a call at any time. Thank you and enjoy the rest of your day.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.

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