RioCan Real Estate Investment (OTC:RIOCF) Trust (REIT) has reported strong leasing results for the second quarter of 2024, with a committed occupancy rate of 98.3% and a record leasing spread on new deals of 52.5%.
The company's leasing strategy, focusing on essential tenants, has led to a 19% increase in the average net rent of new leases compared to the average net rent. While prioritizing high-quality tenants for long-term growth, RioCan is also taking steps to reduce debt and strengthen its balance sheet, including pausing new project starts and selling properties.
The company announced that its Funds From Operations (FFO) for the quarter were $0.43 per unit, slightly down from $0.44 per unit in the prior year. Despite some challenges, including the impact of the COVID-19 pandemic on operations, RioCan remains confident in its portfolio and growth strategy.
Key Takeaways
- Committed occupancy rate reached 98.3% in Q2 2024.
- Record leasing spread on new deals at 52.5%.
- Average net rent of new leases increased by 19%.
- FFO for the quarter was $0.43 per unit, down from $0.44 per unit year-over-year.
- Organic NOI growth was 0.3%, or 2.6% excluding certain provisions.
- Net debt to EBITDA ratio decreased to 9.18 times.
- Successful launch of Wellington Market, a mixed-use development in Toronto.
- Sale of an underutilized retail site in Laval, Quebec, with proceeds 84% above carrying value.
Company Outlook
- RioCan aims for long-term growth with a focus on quality tenants.
- The company plans to reduce net debt and lower the debt to EBITDA ratio further.
- Development projects like Wellington Market in Toronto contribute to growth.
- RioCan expects condo revenues to aid debt reduction in the future.
Bearish Highlights
- Temporary downtime and reduction in same property NOI due to tenant prioritization.
- FFO per unit slightly decreased compared to the prior year's quarter.
- Impact of COVID-19 on operations and market dynamics.
- Softness in furniture, pet categories, and independent restaurants.
Bullish Highlights
- High demand for RioCan's portfolio in major Canadian markets.
- Successful leasing strategy focusing on essential tenants.
- Strong operating metrics and potential for sustainable distribution increases.
- Positive impact expected from The Well project on NOI and FFO upon stabilization.
Misses
- Leasing strategy may result in temporary downtime and reduced same property NOI.
- FFO per unit slightly lower than the previous year.
Q&A Highlights
- Discussion on the impact of Bad Boy spaces leases on 2023 NOI and the expected boost in 2025.
- The Well project's contribution to NOI and FFO expected to be positive next year.
- Rental market in Toronto expected to improve in 2025 and 2026.
- No intention to sell Georgian Mall and Oakville Place at present.
RioCan, with its ticker REI.UN on the Toronto Stock Exchange, has showcased resilience and strategic growth amidst a challenging market. Its focus on essential tenants and responsible financial management has positioned the company to navigate through market fluctuations and maintain a strong portfolio. The demand for RioCan's space, particularly from essential retailers, is expected to remain robust, supporting the company's optimistic outlook for the future.
InvestingPro Insights
RioCan Real Estate Investment Trust's recent performance in the market reflects a combination of strategic resilience and financial prudence. InvestingPro data indicates that RioCan (RIOCF) is trading at a high earnings multiple with a P/E ratio of 87.79, which is significantly reduced to 11.1 when adjusted for the last twelve months as of Q1 2024. This suggests that while the stock may seem expensive on a trailing basis, its earnings potential moving forward is perceived more favorably by the market.
The company's market capitalization stands at $3.84 billion, underlining its substantial size in the real estate investment sector. Furthermore, RioCan has maintained a commendable track record of dividend payments for 31 consecutive years, showcasing its commitment to returning value to shareholders. The current dividend yield is attractive at 6.35%, a figure that is particularly appealing for income-focused investors.
From an operational standpoint, the gross profit margin for the last twelve months as of Q1 2024 is robust at 63.29%, indicating effective cost management and a strong pricing power in its leasing activities. This aligns with the company's reported record leasing spread on new deals and an increase in average net rent in its latest quarterly results.
InvestingPro Tips for RioCan highlight that the company is expected to grow its net income this year and analysts predict profitability, which is consistent with the company's own optimistic outlook. However, a note of caution is provided by the fact that short-term obligations exceed liquid assets, which could indicate potential liquidity risks that need to be managed.
For readers interested in a deeper dive into RioCan's financial health and future prospects, InvestingPro offers additional insights and tips. There are currently 5 more InvestingPro Tips available for RioCan at https://www.investing.com/pro/RIOCF, providing a more comprehensive analysis for investors considering this REIT for their portfolio.
Full transcript - RioCan Real Estate Investment Trust (RIOCF) Q2 2024:
Operator: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust Second Quarter 2024 Conference Call and Webcast. As a reminder, this call is being recorded. I would now like to turn the conference over to Ms. Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary. Ms. Suess, you may begin.
Jennifer Suess: Thank you, and good morning, everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary of RioCan. Before we begin, I am required to read the following cautionary statement. In talking about our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan’s objectives, its strategies to achieve those objectives as well as statements with respect to management’s beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. In discussing our financial and operating performance and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP under IFRS. These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan’s performance, liquidity, cash flows and profitability. RioCan’s management uses these measures to aid in assessing the Trust’s underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we applied in making these forward-looking statements, together with details on our use of non-GAAP financial measures can be found in the financial statements for the period ended June 30, 2024, and management’s discussion and analysis related there to, as applicable, together with RioCan’s most recent annual information form that are all available on our website and at www.sedarplus.com.
Jonathan Gitlin: Thanks, Jennifer, and thank you all for joining RioCan’s senior management team. Today, I'll discuss our operational highlights for the quarter, focusing specifically on our outstanding leasing results. Riocan's portfolio and teams have successfully built upon sequential quarters of positive momentum, setting new records in leasing results this quarter. These results are a testament to the sustained demand and attractive growth prospects for RioCan’s high quality retail portfolio. Retail space is scarce and building new supply is currently at a standstill. Canada's major markets are witnessing substantial population growth. RioCan boasts a unique combination of a top tier team and ideal locations in Canada's six largest and most densely populated cities. This backdrop, coupled with our resilient tenant mix and persistent emphasis on portfolio quality are the ingredients for sustained demand and enable RioCan to preserve stability and fuel growth in the long-term. Three key elements drive our leasing results for the quarter. First, our portfolio has never been more desirable or more defensive. Within a 5 kilometer radius of RioCan assets, the average population is 273,000 people with an average household income of $148,000. In the last year alone each of these demographic statistics has improved by 5%. Since 2017 the average population and household income within a 5 kilometer radius of RioCan sites has increased by a staggering 77% and 45%, respectively. Second, our leasing strategy prioritizes strong and stable essential tenants who will drive traffic in any economic backdrop and attract similarly high quality tenants to our properties. Approximately 88% of RioCan's annualized net rent comes from strong and stable tenants. Third, the current market dynamics include population growth and retail scarcity. The scarcity is due to tight zoning regulations and the exorbitant cost to build. These conditions will not change. Our retail portfolio's committed occupancy increased to 98.3% in the second quarter, reflecting ongoing demand. We leased more than 1.15 million square feet of space in the second quarter, nearly 0.5 million of which were new leases. The strength of our portfolio, combined with robust market conditions, resulted in record breaking leasing spreads. The leasing spread on new deals reached an all-time high of 52.5% driving blended leasing spreads to 23.4%. Renewal spreads were also healthy at 10.7%. The average net rent of the new leases was $26.16 per square foot, a 19% increase over RioCan's average net rent. Alongside achieving record breaking leasing spreads and enhancing the resilience of our income, our Q2 leasing stands up for two reasons. Firstly, we preemptively leased a 135,000 square foot unit in the GTA to Canadian Tire (TSX:CTCa), which was set to become vacant later this year.
Bad Boy: While vacancies typically raise concerns, our defensive portfolio and leasing prowess turn temporary issues into opportunities for medium and long-term benefits with shopping center upgrades and space recycling with new tenants. As we recycle tenants, we purposefully and thoughtfully select retailers that enhance the cross shopping convenience of our centers.
Loblaw (TSX:L): Tenant upgrades lead to enduring organic growth as great retailers attract other great retailers. Building out spaces for these types of users takes more time than is required if we were to backfill with a lesser tenant. We've intentionally chosen to prioritize long-term quality and growth over short-term same property NOI. This decision results in temporary downtime, reducing SPNOI for the current year. Consequently, we've adjusted our commercial SPNOI guidance for 2024, excluding provision to 2% to 2.5%, while maintaining our long-term commercial SPNOI guidance of 3%. I'll briefly illustrate the sequence of this leasing cycle to demonstrate how it impacts our results. First, the space comes back, causing a decrease in occupancy and creating a drag on FFO and same property NOI. Second, we secure a high quality new tenant, which brings committed occupancy back up. Third, in recognition of the strength of this new tenancy, NAV improves and due to straight line rent, so does FFO. And fourth, the tenant moves in and the SPNOI improves. Choosing high quality tenants requires investing time and resources to build out the space to their standards, resulting in a longer gap between steps two and four. Simply put, replacing tenants with higher quality ones that offer better uses, as RioCan does, typically involves a cycle where there is an initial dip in some metrics, followed by stabilization and then significant improvements. RioCan's results this year showcase numerous examples of our strategic decisions in action. Last quarter, we saw a dip in occupancy and SPNOI, largely due to the vacancy of the 10 spaces I mentioned a moment ago. RioCan has signed leases for eight of the 10 spaces. We're now well into the second step of the process, doing the work to get all eight tenants in place. As a result, occupancy has increased. SPNOI, FFO and NAV impacts will follow as these tenants commence rent and open their doors, driving incremental traffic to our properties and said simply making them better. We made a conscious, thoughtful, and responsible long-term decision to focus on high quality tenancies to drive sustainable growth in FFO and NAV. Yes, the macroeconomic environment continues to show weakness and some volatility. However, our strategy is anchored in building a resilient portfolio that ensures steady growth. We have crafted a portfolio designed to absorb macroeconomic reverberations and intentionally focused on tenants who fare well in any economic environment. These tenants recognize the quality of our offering, and they are increasingly turning to RioCan to fortify their positions in the Canadian retail landscape. While RioCan remains focused on operations, our balance sheet is also a top priority, particularly within the current elevated interest rate environment. We're well equipped and are taking prudent steps to fortify our future and mitigate interest rate impacts. We're on track to achieve our adjusted net debt to EBITDA target range of 8 to 9 times. We've charted a clear roadmap to lower debt, including reducing construction spend by pausing new project starts and repatriating proceeds from inventory property sales. We've begun to recognize the benefits of our inventory portfolio. Looking ahead, inventory proceeds are expected to generate approximately $700 million in sales revenues and are earmarked for accretive uses such as debt repayment. We recognize that new sales of condominiums have slowed. Fortunately, we presold approximately 90% of the over 2500 units we will complete through 2026. The majority of these firm deals were secured before prices peaked. Additionally, for all units sold, meaningful purchase deposits mitigate risk as they motivate buyers to close or in the unlikely case of defaults, can be used to insulate margins on resale. On the other side of our deleveraging equation, we have the ramp up of EBITDA through a steady stream of diversified NOI from development deliveries such as The Well, our flagship mixed use development in Toronto's downtown West. On that note, the launch of the Wellington Market at The Well in May was a resounding success. Traffic to The Well has consistently been in the range of 200,000 visitors a week since Wellington Market opened. Fully licensed and with more than 35 diverse food and beverage merchants, Wellington Market has been celebrated for its contributions to advancing Toronto's food scene. The launch exceeded our expectations regarding traffic, which has remained consistently high since opening. Before I turn the call over to Dennis, I want to reinforce that beyond our secure plan to reduce net debt to EBITDA to 8 to 9 times our portfolio also has considerable development density and low cap rate property. These assets provide RioCan with incremental levers such as disposition to further enhance financial flexibility should attractive opportunities arise. A great example of this is our recent agreement to sell an underutilized portion of an open air retail site in Laval, Quebec. In this transaction, approximately half of the site will be sold to an industrial developer at a market capitalization rate that is in the low 3s based on current income. The sale results in net proceeds that are approximately 84% higher than IFRS carrying value. I will also emphasize that while we remain focused on our operations and balance sheet, we're committed to responsible growth. RioCan published its annual ESG report in June. I encourage you to read the report illustrating our significant advancements in sustainability, ethical governance and fostering a positive culture. I will summarize by reiterating that RioCan operates a top tier retail portfolio in the country's most desirable market. The dynamics of retail real estate are in our favor and create long-term demand for our product. Our approach is patient and strategic, negating the need for hasty asset sales, rush leases or developments under suboptimal conditions. Quality of our assets provides a foundation for growth and mitigates downside risk. We have numerous incremental levers to drive growth and we remain dedicated to prudent financial management backed by an exceptional team. Our consistency, vision and demonstrated commitment to responsible growth will continue to benefit our unitholders while ensuring the Trust's stability. And with that, I'll turn the call over to Dennis.
Dollarama (TSX:DOL): Tenant upgrades lead to enduring organic growth as great retailers attract other great retailers. Building out spaces for these types of users takes more time than is required if we were to backfill with a lesser tenant. We've intentionally chosen to prioritize long-term quality and growth over short-term same property NOI. This decision results in temporary downtime, reducing SPNOI for the current year. Consequently, we've adjusted our commercial SPNOI guidance for 2024, excluding provision to 2% to 2.5%, while maintaining our long-term commercial SPNOI guidance of 3%. I'll briefly illustrate the sequence of this leasing cycle to demonstrate how it impacts our results. First, the space comes back, causing a decrease in occupancy and creating a drag on FFO and same property NOI. Second, we secure a high quality new tenant, which brings committed occupancy back up. Third, in recognition of the strength of this new tenancy, NAV improves and due to straight line rent, so does FFO. And fourth, the tenant moves in and the SPNOI improves. Choosing high quality tenants requires investing time and resources to build out the space to their standards, resulting in a longer gap between steps two and four. Simply put, replacing tenants with higher quality ones that offer better uses, as RioCan does, typically involves a cycle where there is an initial dip in some metrics, followed by stabilization and then significant improvements. RioCan's results this year showcase numerous examples of our strategic decisions in action. Last quarter, we saw a dip in occupancy and SPNOI, largely due to the vacancy of the 10 spaces I mentioned a moment ago. RioCan has signed leases for eight of the 10 spaces. We're now well into the second step of the process, doing the work to get all eight tenants in place. As a result, occupancy has increased. SPNOI, FFO and NAV impacts will follow as these tenants commence rent and open their doors, driving incremental traffic to our properties and said simply making them better. We made a conscious, thoughtful, and responsible long-term decision to focus on high quality tenancies to drive sustainable growth in FFO and NAV. Yes, the macroeconomic environment continues to show weakness and some volatility. However, our strategy is anchored in building a resilient portfolio that ensures steady growth. We have crafted a portfolio designed to absorb macroeconomic reverberations and intentionally focused on tenants who fare well in any economic environment. These tenants recognize the quality of our offering, and they are increasingly turning to RioCan to fortify their positions in the Canadian retail landscape. While RioCan remains focused on operations, our balance sheet is also a top priority, particularly within the current elevated interest rate environment. We're well equipped and are taking prudent steps to fortify our future and mitigate interest rate impacts. We're on track to achieve our adjusted net debt to EBITDA target range of 8 to 9 times. We've charted a clear roadmap to lower debt, including reducing construction spend by pausing new project starts and repatriating proceeds from inventory property sales. We've begun to recognize the benefits of our inventory portfolio. Looking ahead, inventory proceeds are expected to generate approximately $700 million in sales revenues and are earmarked for accretive uses such as debt repayment. We recognize that new sales of condominiums have slowed. Fortunately, we presold approximately 90% of the over 2500 units we will complete through 2026. The majority of these firm deals were secured before prices peaked. Additionally, for all units sold, meaningful purchase deposits mitigate risk as they motivate buyers to close or in the unlikely case of defaults, can be used to insulate margins on resale. On the other side of our deleveraging equation, we have the ramp up of EBITDA through a steady stream of diversified NOI from development deliveries such as The Well, our flagship mixed use development in Toronto's downtown West. On that note, the launch of the Wellington Market at The Well in May was a resounding success. Traffic to The Well has consistently been in the range of 200,000 visitors a week since Wellington Market opened. Fully licensed and with more than 35 diverse food and beverage merchants, Wellington Market has been celebrated for its contributions to advancing Toronto's food scene. The launch exceeded our expectations regarding traffic, which has remained consistently high since opening. Before I turn the call over to Dennis, I want to reinforce that beyond our secure plan to reduce net debt to EBITDA to 8 to 9 times our portfolio also has considerable development density and low cap rate property. These assets provide RioCan with incremental levers such as disposition to further enhance financial flexibility should attractive opportunities arise. A great example of this is our recent agreement to sell an underutilized portion of an open air retail site in Laval, Quebec. In this transaction, approximately half of the site will be sold to an industrial developer at a market capitalization rate that is in the low 3s based on current income. The sale results in net proceeds that are approximately 84% higher than IFRS carrying value. I will also emphasize that while we remain focused on our operations and balance sheet, we're committed to responsible growth. RioCan published its annual ESG report in June. I encourage you to read the report illustrating our significant advancements in sustainability, ethical governance and fostering a positive culture. I will summarize by reiterating that RioCan operates a top tier retail portfolio in the country's most desirable market. The dynamics of retail real estate are in our favor and create long-term demand for our product. Our approach is patient and strategic, negating the need for hasty asset sales, rush leases or developments under suboptimal conditions. Quality of our assets provides a foundation for growth and mitigates downside risk. We have numerous incremental levers to drive growth and we remain dedicated to prudent financial management backed by an exceptional team. Our consistency, vision and demonstrated commitment to responsible growth will continue to benefit our unitholders while ensuring the Trust's stability. And with that, I'll turn the call over to Dennis.
Winters,: Tenant upgrades lead to enduring organic growth as great retailers attract other great retailers. Building out spaces for these types of users takes more time than is required if we were to backfill with a lesser tenant. We've intentionally chosen to prioritize long-term quality and growth over short-term same property NOI. This decision results in temporary downtime, reducing SPNOI for the current year. Consequently, we've adjusted our commercial SPNOI guidance for 2024, excluding provision to 2% to 2.5%, while maintaining our long-term commercial SPNOI guidance of 3%. I'll briefly illustrate the sequence of this leasing cycle to demonstrate how it impacts our results. First, the space comes back, causing a decrease in occupancy and creating a drag on FFO and same property NOI. Second, we secure a high quality new tenant, which brings committed occupancy back up. Third, in recognition of the strength of this new tenancy, NAV improves and due to straight line rent, so does FFO. And fourth, the tenant moves in and the SPNOI improves. Choosing high quality tenants requires investing time and resources to build out the space to their standards, resulting in a longer gap between steps two and four. Simply put, replacing tenants with higher quality ones that offer better uses, as RioCan does, typically involves a cycle where there is an initial dip in some metrics, followed by stabilization and then significant improvements. RioCan's results this year showcase numerous examples of our strategic decisions in action. Last quarter, we saw a dip in occupancy and SPNOI, largely due to the vacancy of the 10 spaces I mentioned a moment ago. RioCan has signed leases for eight of the 10 spaces. We're now well into the second step of the process, doing the work to get all eight tenants in place. As a result, occupancy has increased. SPNOI, FFO and NAV impacts will follow as these tenants commence rent and open their doors, driving incremental traffic to our properties and said simply making them better. We made a conscious, thoughtful, and responsible long-term decision to focus on high quality tenancies to drive sustainable growth in FFO and NAV. Yes, the macroeconomic environment continues to show weakness and some volatility. However, our strategy is anchored in building a resilient portfolio that ensures steady growth. We have crafted a portfolio designed to absorb macroeconomic reverberations and intentionally focused on tenants who fare well in any economic environment. These tenants recognize the quality of our offering, and they are increasingly turning to RioCan to fortify their positions in the Canadian retail landscape. While RioCan remains focused on operations, our balance sheet is also a top priority, particularly within the current elevated interest rate environment. We're well equipped and are taking prudent steps to fortify our future and mitigate interest rate impacts. We're on track to achieve our adjusted net debt to EBITDA target range of 8 to 9 times. We've charted a clear roadmap to lower debt, including reducing construction spend by pausing new project starts and repatriating proceeds from inventory property sales. We've begun to recognize the benefits of our inventory portfolio. Looking ahead, inventory proceeds are expected to generate approximately $700 million in sales revenues and are earmarked for accretive uses such as debt repayment. We recognize that new sales of condominiums have slowed. Fortunately, we presold approximately 90% of the over 2500 units we will complete through 2026. The majority of these firm deals were secured before prices peaked. Additionally, for all units sold, meaningful purchase deposits mitigate risk as they motivate buyers to close or in the unlikely case of defaults, can be used to insulate margins on resale. On the other side of our deleveraging equation, we have the ramp up of EBITDA through a steady stream of diversified NOI from development deliveries such as The Well, our flagship mixed use development in Toronto's downtown West. On that note, the launch of the Wellington Market at The Well in May was a resounding success. Traffic to The Well has consistently been in the range of 200,000 visitors a week since Wellington Market opened. Fully licensed and with more than 35 diverse food and beverage merchants, Wellington Market has been celebrated for its contributions to advancing Toronto's food scene. The launch exceeded our expectations regarding traffic, which has remained consistently high since opening. Before I turn the call over to Dennis, I want to reinforce that beyond our secure plan to reduce net debt to EBITDA to 8 to 9 times our portfolio also has considerable development density and low cap rate property. These assets provide RioCan with incremental levers such as disposition to further enhance financial flexibility should attractive opportunities arise. A great example of this is our recent agreement to sell an underutilized portion of an open air retail site in Laval, Quebec. In this transaction, approximately half of the site will be sold to an industrial developer at a market capitalization rate that is in the low 3s based on current income. The sale results in net proceeds that are approximately 84% higher than IFRS carrying value. I will also emphasize that while we remain focused on our operations and balance sheet, we're committed to responsible growth. RioCan published its annual ESG report in June. I encourage you to read the report illustrating our significant advancements in sustainability, ethical governance and fostering a positive culture. I will summarize by reiterating that RioCan operates a top tier retail portfolio in the country's most desirable market. The dynamics of retail real estate are in our favor and create long-term demand for our product. Our approach is patient and strategic, negating the need for hasty asset sales, rush leases or developments under suboptimal conditions. Quality of our assets provides a foundation for growth and mitigates downside risk. We have numerous incremental levers to drive growth and we remain dedicated to prudent financial management backed by an exceptional team. Our consistency, vision and demonstrated commitment to responsible growth will continue to benefit our unitholders while ensuring the Trust's stability. And with that, I'll turn the call over to Dennis.
Dennis Blasutti: Thank you, Jonathan and good morning to everyone on the call. Our results reflect the fundamental operating strength of our business as the supply and demand dynamics that we have highlighted for some time continues to bear fruits. This is seen across our operating metrics from record new leasing spreads to rapid rebound in our committed and in-place occupancy rates. Strong leasing with top quality tenants enhances long-term value as this improves portfolio quality and future growth potential. Our FFO for the second quarter was $0.43 per unit compared to $0.44 per unit in the prior year quarter. Organic NOI growth in our operations and the ramp up of developments continue to add to our earnings for combined positive impact of $0.02. Also benefiting FFO this quarter were higher inventory gains, an impact of $0.02, which included the sale of a non-core residential inventory property. This growth over the prior year quarter was partially offset by $0.01 due to a higher provision reversal last year as well as a $0.01 reduction relating to various other items that benefited the prior year quarter and did not recur. This provision variance also had an impact on same property NOI, resulting in muted same property NOI growth of 0.3%. Excluding the provision impact, same property NOI growth was 2.6%. The higher provision reversal amount in 2023 and resulting impact on variances in our financial metrics is a hangover from the pandemic, the impact of which we expect will be largely behind us after this year. Finally, higher interest expense net of higher interest income had an unfavorable impact of $0.03. Of this $0.03 approximately $0.01 is related to lower capitalized interest. A highlight this quarter was the construction completion of forfeit to The Well. This is a positive step forward, but comes with a temporary impact on results. Similar to all of our residential rental projects we ceased the capitalization of interest relating to this asset upon completion, while forfeit to The Well is in lease up. The NOI is positive but is not currently sufficient to cover interest expense. For the quarter this transitional lease up effect resulted in an FFO drag of approximately $1.5 million. We expect this property to reach stabilization by the end of this year and generate positive FFO for many years in the future. On a full year basis, we have reaffirmed our FFO predated guidance. In addition, our guidance for FFO payout ratio of 55% to 65% and mixed use development spending of $250 million to $300 million remain intact. Jonathan already discussed our revision to same property NOI guidance, which is due to downtime, while new exceptional tenants are fitting out this space. We have also reduced our expected spend on retail infill projects by $20 million to a range of $30 million to $40 million due to permitting delays. This spend will simply shift into 2025. Turning now to our balance sheet, net debt to EBITDA of 9.18 times is down from 9.28 times at the beginning of the year and 9.49 times at this time last year. This metric is essentially flat relative to the first quarter of this year as development spending at The Well continued during the second quarter. Spending on this major project will decelerate given that construction is essentially complete. We executed a number of financing activities over the course of this year, covering all major refinancing requirements for the year and extending our weighted average turn to maturity from three years at the beginning of the year to 3.6 years at the quarter end. We have an option to call our $300 million Series AI 3NC1 debentures at par on or after September 29 of this year. The interest rate on this debenture is approximately 6.5%. Based on today's pricing, we would expect to exercise the repayment option and refinance at a much lower rate while further extending the weighted average term to maturity of our debt. Jonathan reiterated that we are on track to achieve our 8 to 9 times net debt to EBITDA target, expecting to reach 9 times by the end of this year. We expect this to fall further to the lower end of our range based on the ramp up of EBITDA from operations development, slowdown of spending on major projects, and repatriation of a significant amount of capital from contracted condo sales. I'll walk through these key drivers. The growth and ramp up of EBITDA from our existing operations and development deliveries will have a combined impact of approximately half a turn. Importantly, as EBITDA from development deliveries ramps up, construction spending will diminish as projects are completed. The estimated cost to complete for projects currently under construction totaled $294 million of which $110 million is expected for the balance of this year, $151 million in 2025 and $33 million in 2026. This drops to zero in 2027 and beyond. We expect to allocate some capital toward the advancement of our development pipeline through the entitlement process and to additional resale infill opportunities should such opportunities arrive at rents or justify construction, noting that the capital requirements for such projects are much lower than for mixed use projects. The next driver of expected debt to EBITDA improvement is the impact of the $700 million condo revenues that we expect to receive. Given recent news regarding weakness in condo sales, this topic has been top of mind. Because of this, it is worthwhile to take a moment and break down our condo proceeds and the related impact on our balance sheet. Of the approximately $700 million of expected revenue approximately $600 million released to presold units where the average deposit received to date on these units is 19% of the purchase price. Think of these presold condo units as simply contracted zero cap rate asset sales. When the proceeds are received, they will recapitalize our balance sheet as follows. Funds will first be allocated to repaying construction loans. On a fully drawn basis construction loans associated with condo projects is expected to be approximately $420 million. This results in 1.4 times coverage of presold revenues over a construction loan balance. Given that there is no EBITDA currently associated with this debt, its repayment has an outsized impact on debt to EBITDA compared to the sale of income producing assets. Repaying these loans will improve our net debt to EBITDA ratio by approximately half a turn. The remaining presold proceeds will be repatriated to the corporate balance. As mentioned, the average deposit received to date on units presold is 19% of the purchase price, equating to an average of approximately $150,000 per unit sold. This is a meaningful amount and a strong return against buyers walking away from their investment. Combined with the fact that purchasers have a legal obligation to close, our assumption is that the vast majority of purchases will be completed on existing terms. In the event that some buyers default, our first option is to retain the deposit and put the unit back on the market. Based on current prices and factoring in sales proceeds combined with retained deposits, we would expect to achieve projected revenue. The impact of this element is approximately another quarter turn on net debt to EBITDA, bringing the total impact related to presold units to approximately 3 quarters of term.
U.C. Tower 3: Higher levels of new supply from product projects that are delivering now, which were started a number of years ago, will be absorbed. Ongoing supply shortages will worsen since there has been a low level of construction starts in the current environment. So there will be limited new supply as we move into late 2025 and 2026. If we see further interest rate cuts over the next year, as most economists predicted and which we have started to see recently, our ability to sell these units will be further improved. Given these dynamics, we are being patient and will continue to monitor the market ahead of the late 2025 completion of this project. As this illustrates, the condo revenues will serve as a reliable source for debt reduction in the future. To conclude my remarks, I want to reiterate that market fundamentals, the quality of our portfolio and our exceptional team have driven our current year operating metrics to levels that are as strong as we have seen over RioCan's 30-year history. This combined with our low payout ratio, disciplined approach to capital allocation and steadily improving balance sheet will support earnings growth and provide us with the opportunity for sustainable distribution increases for many years in the future. With that, I will pass the call to the operator for questions.
U.C. Tower 2: Higher levels of new supply from product projects that are delivering now, which were started a number of years ago, will be absorbed. Ongoing supply shortages will worsen since there has been a low level of construction starts in the current environment. So there will be limited new supply as we move into late 2025 and 2026. If we see further interest rate cuts over the next year, as most economists predicted and which we have started to see recently, our ability to sell these units will be further improved. Given these dynamics, we are being patient and will continue to monitor the market ahead of the late 2025 completion of this project. As this illustrates, the condo revenues will serve as a reliable source for debt reduction in the future. To conclude my remarks, I want to reiterate that market fundamentals, the quality of our portfolio and our exceptional team have driven our current year operating metrics to levels that are as strong as we have seen over RioCan's 30-year history. This combined with our low payout ratio, disciplined approach to capital allocation and steadily improving balance sheet will support earnings growth and provide us with the opportunity for sustainable distribution increases for many years in the future. With that, I will pass the call to the operator for questions.
U.C. Tower 3: Higher levels of new supply from product projects that are delivering now, which were started a number of years ago, will be absorbed. Ongoing supply shortages will worsen since there has been a low level of construction starts in the current environment. So there will be limited new supply as we move into late 2025 and 2026. If we see further interest rate cuts over the next year, as most economists predicted and which we have started to see recently, our ability to sell these units will be further improved. Given these dynamics, we are being patient and will continue to monitor the market ahead of the late 2025 completion of this project. As this illustrates, the condo revenues will serve as a reliable source for debt reduction in the future. To conclude my remarks, I want to reiterate that market fundamentals, the quality of our portfolio and our exceptional team have driven our current year operating metrics to levels that are as strong as we have seen over RioCan's 30-year history. This combined with our low payout ratio, disciplined approach to capital allocation and steadily improving balance sheet will support earnings growth and provide us with the opportunity for sustainable distribution increases for many years in the future. With that, I will pass the call to the operator for questions.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Mario Saric with Scotiabank (TSX:BNS).
Mario Saric: Hi, good morning and thank you for taking the questions. So the first one just on the impact on 2023 some-store NOI from the identified Bad Boy spaces leases, I apologize if this was provided earlier, but can you give us a sense of what that impact was on 2023 and the expected NOI boost on releasing the 10 spaces upon completion? I do recall in Q1 I think you mentioned that the grocery deals were done at 50% above expiring. I'm just wondering on the 10 in total, what your expectation is on why boost and the impact on the downtime in 2023.
Jonathan Gitlin: So the impact in 2024, first of all good morning. Yes, so for 2024, it's a drag on SPNOI because the leases are written, but the cash won't be coming in until the tenancies are finalized and open, so there is a drag. I can't quantify precisely what that drag is, but then the consequences that in 2025 there will be a tailwind as a result of those tenancies open for business and the tenants paying rent. We are reaffirming our 3% SPNOI guidance for 2025 and in that medium term and that's largely or partially a result of the impacts of these leases being rent paying. But I don't have a specific quantified amount for the impact for again, the drag in 2024 or the positive influence in 2025 for those 10 leases.
Dennis Blasutti: Yes, I would agree, Mario. We've disclosed it on kind of an aggregated basis. So it is one of the larger impacts on that, the change in our guidance for 2024. But we do expect a rebound in 2025 as Jonathan said.
Mario Saric: Okay. And then maybe a similar question on The Well, which I think Dennis you identified $0.05 or so or so in terms of the interest capitalization being removed, what and this maybe we'll take this offline as well, but what would you estimate the NOI and FFO upon stabilization of the combined retail and residential at The Well is that was not in your Q2 NOI and FFO? Just trying to understand the upside to both NOI and FFO upon stabilization of both.
Dennis Blasutti: We didn't, we don't disclose the total NOI for The Well. What we do disclose is our stabilized NOI for all of the projects that are delivering and we would expect that. So if you look at the projects that are MD&A that are delivered in 2023 and 2024, we're probably about 80% of that NOI will be ramped up this year and then pretty close to all of it, probably 95% into next year. And that give you a sense of the benefit we should see, like specifically tip 450 The Well stabilization at the end of this year, so we'd be seeing a normalized benefit next year. So revert from a, as you said, a half cent negative to a positive contributor.
Mario Saric: Okay. Is there any remaining interest capitalization on the residential at The Well or is that all? No offense.
Dennis Blasutti: No, that's done. Yes, our policy there, from an accounting perspective, is that once we're hotel ready, we stopped capitalizing altogether. So there's no more interest being capitalized there. So you would have seen a drop off in our capitalized interest relatively.
Mario Saric: Got it. And there's been a lot of discussion about maybe some pressure on market rents, residential market rents in Toronto at the high end. Can you talk about some of the trends that you're seeing at 450 relative to expectations?
Dennis Blasutti: The lease up still going according to plan and certainly in accordance with our pro forma. There's like with any market, there's ebbs and flows. Some weeks we get a lot more leases done than other weeks. But generally speaking, we're still tracking towards full lease up by the end of this year and the rents have held, as I said, generally in line with our pro forma expectations.
Jonathan Gitlin: Yes, I would just add to that, Mario. We're about 75% lease now. Based on the weekly rate of deals we're doing. We expect to be stabilized there by the end of October. Rents are holding up to perform, but we're actually very pleased with how some of the larger units are performing. Two to three bedrooms, we've had a lot of demand for those. So all in all, we're happy with the results there as well.
Dennis Blasutti: I think you are commenting a bit more broadly on the market in Toronto, and there has been some impact there. There's been an influx of condos coming onto the market this year, similar to some of our earlier commentary. That is not necessarily putting pressure on rents, but slowing the growth rate slightly and we've seen that throughout the market. But what we also see looking forward is that condo starts have stopped. This new supply is going to be absorbed and dry up and as we get into 2025, there'll be half as many condos as there is this year. And when we get to 2026, there'll be virtually no new supply coming onto the market. So lot of condo deliveries currently is putting a little bit of. It's creating a bit of a slowdown. We were seeing 25% market rent increases at one point that slowed down a bit, but still healthy.
Jonathan Gitlin: And the only other thing I'll add, Mario, and this is now specific to The Well, and it's me putting on my promotional hat, but I think I have to, is the fact is 450, The Well is part of an environment that has just taken off. I mean, the well itself, the retail there is now fully open to the public and it's really, really driving a ton of traffic and a lot of notice around The Well. And that is helping us lease up those units at a rapid pace at rents that I would say are above perhaps the competition, even in that same node, simply because you're part of this really vibrant community.
Mario Saric: Yes, that makes sense. I'm sure the addition of the Wellington market will help in that regard as well. My last question just on the Canadian Tire lease was the 135,000 square foot vacancy anticipated at the start of the year? And then secondly, when you look out over the next 12 months, are there any other large leases that you're aware of requiring to backfill?
Dennis Blasutti: So we had a sense that we would be getting back that space and I can't recall if precisely it was January 1 or before or after, but it was in that range. So, yes, it's something we've been working on for quite a bit of time in terms of other large vacancies similar to that. I mean, nothing of that scale in the short-term.
Jonathan Gitlin: I think what it does show is we have a number of units. We've talked about this before, legacy fixed rate type leases, that when they do expire, there is a big opportunity. We wouldn't expect that every quarter, but we will see more opportunities like this in the coming years.
Dennis Blasutti: Yes, I mean, we've got about 900,000 feet in the next five years of spaces over 20,000 peak coming due. So there's a lot of great opportunities similar to this is Dennis, Jess, but nothing of this scale in a single lease coming in the next 12 months or so.
Mario Saric: Got it. Are you able to share the expected rent uplift on the release?
Dennis Blasutti: On which, sorry, on which thing?
Mario Saric: I'm sorry, on the Canadian Tire. That's on the releasing of the 135,000 square feet.
Dennis Blasutti: The rent, we don't disclose it individually.
John Ballantyne: This is John Ballantyne again. I would say it was significant, Mario, and what you don't see in those numbers as well is just the impact on the rest of the center. In addition to being able to increase the rents fairly significantly, this was actually an old seller's lease that was bought by Target (NYSE:TGT), that was then bought by Lowe's (NYSE:LOW). Very low additional rent as well. So we were able to almost double our RioCan contribution there, which doesn't impact our bottom line so much. But what it does is it reduces the common expense on the rest of the tenants in that center by 40%. So there is a very tangible impact on rents as those tenants come do as well. So it's all a very good news story.
Mario Saric: Okay, thank you.
Jonathan Gitlin: Thanks, Mario.
Operator: Thank you. Our next question comes from the line of Matt Kornack with National Bank Financial. Matt, your line is now open.
Matt Kornack: Good morning, guys. Just continuing on that theme, obviously, this quarter you put up exceptionally strong new renewal, new leasing spreads, the blended figure. Can you give us a sense, like I think that this is anomalous, but just the trend line there. And then maybe in the context, you did a good job of explaining that your portfolio is pretty defensive. But in the context of maybe the retail sales print and a more challenging economic environment, are you still seeing tenants willing to kind of pay what they need to pay to stay in the space? I guess they are. But any comment there?
Jonathan Gitlin: Sure, I can start and happy to hand it over to John to fill in. In terms of the spreads, I mean, I think if you look at the last number of quarters, we've shown a pretty constant trajectory of enhanced combined spreads. I mean, if you look from 2020, where we started at 5%, and you now look all the way to 2024, where we're closer to 14.5%, and it's sort of an equal or a nice sustained growth over the course of the last few years, our sense is that that trend line is sustainable. We do agree this was a standout quarter, but we also, as we suggested to Mario in the last question, we are full of a lot of opportunities within our portfolio to bring our spaces to market. I mean, if you look at our average rent in the portfolio last quarter, relative to the average rent across the portfolio in general, there's a sizable mark-to-market there, and we extract those our great leasing team extracts, that every time we have an opportunity on a market renewal. So we are pretty confident that the leasing spreads that we have put together over the last number of quarters are sustainable and growing. And that's in relation to the next question you ask, which is, is this type of growth sustainable? And what I'd say is what we're doing is playing catch up to get to market. We've been, the retail industry over the last 10 years has been, I think, favorable for tenants. And now the pendulum has shifted a little bit, as we've been saying it will, largely because one, these tenants have reconciled that their stores are very strong profit makers and they're being used in different ways, and two, there's simply no supply for them. And those, the combination of those dynamics in our minds provides a pretty optimal outlook for the demand for our space and also keeping in mind that our portfolio is consistently getting better and better through either the advent of new developments or the disposition of some of our weaker properties. So we really do believe that in our portfolio. So I'm not talking about the broader, the broader consumer landscape or economic landscape, but in our portfolio, even in the face of some economic slowdowns in Canada, we do believe that the demand will be sustainable. And we also think that a lot of the tenants we cater to, I'm not going to say they're impervious to economic gyrations, but I certainly think they are defensive and that they will be looking to grow their footprints regardless of what the short-term economic state of affairs is. John, anything further to that?
John Ballantyne: Yes, I would just add to that the tenants that we're really doing deals with right now that are really demanding space are the essential based retailers that are benefiting from the increase in our population as well. So with the shortage of space in the market, the influx of population, retailers such as grocers, pharmacy providers, value providers, they're the ones who are really pushing demand, especially for our box space. Of the eight deals that we did in the 10 boxes, we showed growth there about 21%, which really highlights the demand for that space. And the six grocery deals we did came with growth of about 32% in rents. So that's where we're seeing the push. The pricing obviously is representative of the shortage of supply. And that high demand, I would say also active in the market is fitness still, and I would say it's both the high end fitness. We've obviously done deals with the sweat and tonics of the world and the Atlas (NYSE:ATCO), but also kind of the discounted fitness as well. We're seeing a lot of demand for, I wouldn't say there's softness, but where we're not seeing as much active deal making is in the furniture category, and even in the pet category, they're not suffering. But I would say they come off highs from the pandemic. Demand there has decreased a little bit and we're not seeing a huge push for space. And, if you're looking for, kind of watch list categories, I would say the one category that has a little bit of softness is the independent restaurant, very small, between the 1000 square foot to 1500 square footer, smaller run operations with one or two locations. We're seeing softness there just with changes in discretionary income from the consumer, they're getting hit a little bit.
Matt Kornack: That's great. I appreciate all that color. And so if I hear all of this, obviously this year, there's been a number of one-time items that have impacted your organic growth. But it sounds like you still have a 3% longer term view on where it should settle. But 2025 is probably going to be above that. But even with what you're saying, maybe that 3% is somewhat of a conservative figure for your portfolio. Is that a fair characterization?
Jonathan Gitlin: Well, I think it's measured. We wouldn't put it down unless we thought it was reasonably accurate. You're always going to have ebbs and flows, and the portfolio is going to generate some very good growth. The thing that, some of the things that hold us back, though are fixed term renewables, which we do have in our portfolio, it makes up quite a bit of our overall leases, and that will hamper growth a little bit. But weigh that against a lot of the space that is coming available. We think that 3% is a nice middle ground for that. The other thing that we're working on and we think will be a growth generator for SPNOI is ancillary revenue where we've got so many great standout locations that there's a lot of opportunity to bring in media, digital media opportunities and self-service opportunities and kiosk opportunities, things of that nature, which we think will add. But it's variable and it's not something that you can properly predict. And that's why we haven't really fortified that in terms of our SPNOI projections. So 3%, we think, is a good number to put out there for guidance. But look, if we do feel as, we're very, we do like to keep our unitholders apprised of where we think we're going, and if we do believe that there is, there was too much of a conservative approach there, we will come out with revised guidance.
Matt Kornack: Fair enough. And then just quickly, on the residential portfolio, I know it is a smaller portfolio overall, but generated almost 9% same-property NOI growth there. Notwithstanding Mario's comments on kind of some concerns around newer product, I think everybody knows that eventually these rent growth numbers are going to slow. But how should we think about that portfolio and why it's doing so well in the context of kind of maybe a little bit of concern about one bedroom concentrations of new condos coming on the market?
Jonathan Gitlin: Yes. I mean, I think the first thing too that I would highlight around why we think it is successful and why we think it's reasonably sustainable is the fact that our RioCan Living properties. One, they're all new, they're highly amenitized, but two, they form part of a mixed use community. And I raised this example with Mario that they are part of The Well, like at 450 of The Well. It's part of a much bigger environment, which is very dynamic. And people I think would make the choice to live there over a standalone residential building or even a residential building with limited retail at rate and so I think that does set us apart. If you look at some of our projects, both here in Ottawa and in Calgary, they're all part of bigger dynamic retail centers and they're all within close proximity to transit. So even if there is some softness in the overall residential rental market, which I'm not suggesting it will be, because it is a very supply constrained environment, we think that RioCan living buildings will see it last because I really do think that there is an enhanced opportunity for residents to be part of something a little bit bigger.
Matt Kornack: That makes sense. Thanks for the answers, guys.
Jonathan Gitlin: No problem. Thanks.
Operator: Thank you. Our next question comes from the line of Zemin Liu with Desjardins. Zemin, your line is now open.
Zemin Liu: Good morning, guys. So just a quick clarification on condos. I'm just wondering whether RioCan or any of your JV partners are seeing any issues on condo closings.
Jonathan Gitlin: So there is some softness. As we said in the market, there are a, we have spoken to not only our JV partners, but a lot of other condo developers who are delivering projects at this point in time. We don't have a lot of projects delivering right now in this market. But the feedback we're getting is that it's not as bad as perhaps the press is making it to be, particularly in condos. That are in great areas that are transit oriented, but there is some fallout, whether it's 5% or in that range. But keeping in mind too, that they just, they turn into a process where it doesn't necessarily mean if someone doesn't show up for closing, it doesn't mean that that's forever a default. Like, there are ways to work through these situations through a combination of perhaps a vendor take back mortgage or just a sort of staggered payment plan. But then again, in our case, if you do get the units back, which we're not suggesting we will, but if we do get any of these units back, as Dennis suggested in his speech, we've got an average of 19% deposits of revenue, 19% of revenue across the board, which is a sizable amount of money. I mean, on average, it's about $150,000 a unit. So one, if a purchaser is willing to walk away from that, then that's a sizable move for them. But two, if they do, that allows us to sell the unit at a fairly discounted rate and still be just fine or three, RioCan Living has the opportunity or the possibility of just putting it in this rental pool and leasing it out. So there's a lot of mitigants, but truthfully, I mean the crux of your question was around what we're seeing now, and it's not a great market, but it's also not as bad as the perception is in terms of the failure to close.
Zemin Liu: Yes, thanks. So the second question is that you talked about transforming previously open-air centers and you go through boosting and [indiscernible]. I'm just wondering whether [indiscernible] to results from any temporary compression or solely on the ROI side.
Jonathan Gitlin: So I missed part of that, but I think the main part of the question was around the market for open-air shopping centers at this point and if we're seeing cap rate compression, is that the crux of it?
Zemin Liu: Yes, like you talked about transforming previously open-air assets to grocery anchor centers, that would boost the net asset value. I was just wondering whether this benefit comes from any category compressions or solely on the ROI side.
Jonathan Gitlin: Yes, we think over time the overall value of our portfolio becomes enhanced with the more grocery anchored centers we have. I think there's definitely a view from the investment market that a grocery anchored shopping center is more valuable. So you will over time see cap rate compressions. Plus of course, NOI increases, which enhances our overall NAV as a result of the inclusion of grocery stores in our open-air centers. Andrew, any further color on?
Andrew Duncan: No, I think that's bang on, Jon. People in the market looking for these assets are predominantly looking for grocery anchored. That's what the preference is. So you will see some cap rate compression along with the state NOI increase.
Jonathan Gitlin: Just in terms of the core, though, I mean, our cap rates on average is flat. So we haven't, in this environment, haven't been taking any aggressive valuation adjustments. In aggregate, there's always sometimes plus and minuses in the portfolio. But our cap rate was held constant quarter-on-quarter at this point.
Zemin Liu: Okay, thanks. So lastly, I have question about some media reports about potential sales of Georgian Mall and Oakville Place. So I'm just wondering whether you have any added color or comment on that process.
Jonathan Gitlin: Yes, there was a report that was put out. I'm not sure where it came from. We are not aware of any process and we have no intention, I mean, at this point, we have no acute intention to sell those assets. That said, we are always looking at opportunities if the market warrants it to, for capital allocation decisions, selling, buying. But those are not listed, nor are they on the market informally for sale.
Zemin Liu: Okay, thanks. Yes, that's all. I'll turn it back. Thanks.
Jonathan Gitlin: Thank you.
Operator: Thank you. Our next question comes from the line of Sam Damiani with TD (TSX:TD) Cowen. Sam, your line is now open.
Sam Damiani: Thank you. Good morning, everyone. So I appreciated the commentary on debt to EBITDA impacts from various things, which I think added up to about one and a quarter turns. And I just want to be clear, I guess what the intention of that was to talk about the targeted debt to EBITDA for the REIT over the next two or three years. I know in the past you have sort of set some broad targets there, but if you could, if you're able to just clarify exactly what you're guiding to in terms of leverage over the next two or three years?
Dennis Blasutti: Yes. So I think where we expect to get and what we're trying to emphasize is we had a target range of 8 to 9 times net debt to EBITDA. We expect to be at the high end of that range or nine times at the end of this year, and we have a clear path to 8 times the lower end of that range. So that's what we're focused on right now. We think it's a clear and achievable path to get to that lower end of that target range.
Sam Damiani: And is that meant to occur only once these condo projects are reached completion? So in a couple of years’ time or…?
Dennis Blasutti: Yes. So in terms of timing, we have said that the, we think we can get to the lower end towards lower end in 2025. There is a bit of timing consideration there, depending on how some of those, the timing of some of those late 2025 condos shake out. But certainly as we get into 2026, we have a very high degree of confidence of being at that low end.
Jonathan Gitlin: And keep in mind, too, that that's right now under the normal course, Sam, that's everything that we have that's really contracted for. But we've got a number of other levers that if we decided that it was in our best interest to get more aggressive in that regard, there are asset sales, there are density sales, there are other things that we can do that we have not included in those prognostications around where we intend on being.
Sam Damiani: Okay, great. And just on the same property NOI, guidance for a change, for this year, just want to be clear, is that only to do with these 10 spaces and the work to release them and whatnot or other factors that drove that change guidance?
Jonathan Gitlin: No, I mean, we've got a big portfolio. We've got over 5000 individual tenancies. So it's not just those 10. I think those were, I think, a factor, and I think they were a good factor to highlight because it shows the short-term dilution, but then the long-term strength that it creates in the portfolio. But there's always, there are other things in the portfolio Sam, where we had some smaller vacancies or we had some lease up assumptions that haven't necessarily been fulfilled as quickly as we wanted. So there are a few other factors, but I think those are the ones that we've highlighted. It's a large portfolio, so there's always going to be more than just 10 leases.
Dennis Blasutti: That is the biggest driver overall. But in terms of the timing of that ramp up, but yes, Jonathan said there are obviously smaller pluses and minuses that go through.
Sam Damiani: Understood. And I just want to say congratulations on that Canadian Tire lease. I really couldn't imagine a better outcome for that particular shopping center, so congratulations.
Jonathan Gitlin: Thanks. I really appreciate it.
Operator: Thank you. Our next question comes from the line of Mike Markidis with BMO (TSX:BMO). Mike, your line is now open.
Michael Markidis: Hi. Thanks. Good morning, everybody. This has been great color. Thanks so much for all the comments this morning. I just want to make sure I had the numbers right. So I think for 450 to well, was it $0.015 this quarter? That was the drag, or was a $0.5? I just want to make sure I got clear on that.
Jonathan Gitlin: $0.5, $1.5 million, so which was equation $0.5 drag.
Michael Markidis: Okay, perfect. Yes, okay and just so obviously, that's the negative impact. And then just, what's the positive, like how should we think about the swing factors that stabilizes? Is it as a full penny swing the other direction or you get back to that on top of that?
Jonathan Gitlin: Yes, I mean, right now, as John mentioned earlier, Mike, we fully intend on having that fully stabilized by the end of this year, by in fact, even before that. And so assuming that happens, which we're confident based on the current weekly velocity that we're seeing, then, yes it should revert to positive for 2025. I don't know the exact number on that one, Dennis do you?
Dennis Blasutti: Yes. You're probably not that far off, but if it's a $0.5 drag, yes it's about that. It's a $0.5 drag this year. It's a $0.5 positive next year. So the net, yes the swing factor is 7. That's correct.
Michael Markidis: And that's -- and on a quarterly basis, not an annual basis.
Dennis Blasutti: That's correct. That 1.5 to one quarter.
Michael Markidis: Yes. Okay, great. So then just to, so the capitalization is done on 450. Is there any capitalized interest still on the commercial component of the well, or is that all done at this juncture?
Dennis Blasutti: There is still a small amount, although the vast majority has been transferred over, but there are still some units that are filing construction.
Jonathan Gitlin: But a lot of them are also now fully income producing, so it's not the same negative impact where in 450 a lot of the units have been filled yet.
Dennis Blasutti: That's right, yes. At the commercial side, they're effectively passed suite-by-suite as the units are filled up, so it's just a different accounting policy. We would expect that there'll be no capitalization remaining after this year as what we'd expect will be fully operational and complete, so next year it will be okay.
Michael Markidis: Thank you for that. And then just on the, I mean, I guess totally understand the ebbs and the flows on the same-property side. And you did rein in your expectation a little bit this year, but also kept your FFO guidance intact. So just curious, what if anything were the offsets there or is it just a function of that SPNOI is cash versus FFO?
Dennis Blasutti: That's the biggest factor there. You're right, Mike it's. We don't put straight line rent into the SPNOI, but it does go into the FFO. So the impact is more, much more muted on the FFO side.
Michael Markidis: Okay, great. Last one from me before I turn it back, just on the 400,000 and so new leases that were done this quarter. New leasing spread of 52.5%. How much did the Canadian Tire lease like, does that include the Canadian Tire lease? Because I think that one's probably a pretty significant healthy increase. And I suppose, I guess it would also include some of those Bad Boy rooms in space as leases at a significant lift as well?
Jonathan Gitlin: Yes, it's a combination. We didn't break it down specifically except how much influenced that one lease has on it. But even absent that, I can tell you that it's a very strong number. So I think that if you could view that one as anomalous, which I don't think it's anomalous because I think we have lots of these opportunities in our portfolio. But even if you did, we're still showing some very outsized spread leasing spreads over the quarter. But we didn't break it out specifically as to what the exact influence is of that one deal.
Dennis Blasutti: I think the other thing I would say, Mike, is that we have started disclosing at last 12 months leasing spread figure in our materials simply because there can be these, there can be anomalies in a given quarter and going to be a bit of a volatile number. So the 14.5% blended leases spread over the last 12 months gives you a sense of what that trend line starts to look like.
Michael Markidis: Totally now I understood. And what a great indicator, you said of the future upside on some of these legacy leases. That's all from me. Thanks so much.
Jonathan Gitlin: Great. Thanks Mike.
Operator: Thank you. I am showing no further questions at this time. I would now like to turn the conference back to President and CEO, Jonathan Gitlin.
Jonathan Gitlin: Thanks everyone for tuning in on Friday in the summer and have a great rest of your day everyone. Thank you.
Operator: That concludes today's call. Thank you for your participation. You may now disconnect your line.
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