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Edited Transcript of CRR.UN.TO earnings conference call or presentation 7-Nov-19 2:00pm GMT

Q3 2019 Crombie Real Estate Investment Trust Earnings Call

STELLARTON Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Crombie Real Estate Investment Trust earnings conference call or presentation Thursday, November 7, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Clinton David Keay

Crombie Real Estate Investment Trust - CFO & Secretary

* Donald E. Clow

Crombie Real Estate Investment Trust - President, CEO & Trustee

* Glenn R. Hynes

Crombie Real Estate Investment Trust - COO & Executive VP

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Conference Call Participants

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* Dean Mark Wilkinson

CIBC Capital Markets, Research Division - Director of Institutional Equity Research

* Howard Leung

Veritas Investment Research Corporation - Investment Analyst

* Sam Damiani

TD Securities Equity Research - Analyst

* Tal Woolley

National Bank Financial, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Crombie REIT Third Quarter Fiscal 2019 Conference Call. (Operator Instructions) This call is being recorded on Thursday, November 7, 2019. And I would now like to turn the conference over to Clinton Keay. Please go ahead.

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Clinton David Keay, Crombie Real Estate Investment Trust - CFO & Secretary [2]

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Thank you, Joanna. Good day, everyone. And welcome to Crombie REIT's third quarter conference call and webcast. Thank you for joining us. This call is being recorded in live audio and is available on our website at www.crombiereit.com.

Slides to accompany today's call are available on the Investors section of our website under Presentations and Events.

On the call today are Don Clow, President and Chief Executive Officer; Glenn Hynes, Executive Vice President and Chief Operating Officer; and myself, Clinton Keay, Chief Financial Officer and Secretary.

Today's discussion includes forward-looking statements. As always, we want to caution you that such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see our public filings, including our annual information form for a discussion of these risk factors.

I will now turn the call over to Don, who will begin our discussion with comments on Crombie's overall strategy and outlook.

Glenn will follow with a development update and a review of Crombie's operating fundamentals and results, and I will conclude our remarks with a discussion of financial results, capital allocation and approach to funding.

Don?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [3]

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Thank you, Clinton. And good day, everyone. Last month we held our first Investor Day in Toronto. We were very pleased to see many of our analysts and investors in the room that day and to have the time to explain our strategy, showcase the strength and depth of our team, and share some exciting details about our major development pipeline. I want to pass on our thanks to those of you who were able to attend. If you missed it or if you'd like another look at that presentation you can find it in Investors section of our website.

Crombie's strategy is clear, we are relentless in our focus on accelerating AFFO and NAV growth by delivering solid fundamentals from our grocery-anchored retail portfolio, uniquely creating value from our relationships with Empire Company and Sobeys as well as driving extraordinary cash flow and NAV growth from our mixed-use development pipeline; all, while maintaining a strong financial condition with ample liquidity and multiple and innovative sources of capital.

We are very pleased with our solid fundamentals including our strong occupancy of 96.1% and 3.3% same asset NOI growth, and rental growth in Q3 renewals of 4.7%. These performance indicators show the strength of our grocery-anchored retail office and retail-related industrial portfolio.

Empire is one of Canada's strongest retailers and accounts for over 50% of Crombie's annual minimum rent. At our recent Investor Day, Michael Medline and Mike Vels shared that they are very confident that bricks and mortar will drive growth in grocery retail sales and profitability for years to come.

In addition to building the Voila par Sobeys' e-commerce platform, Empire recognizes the need to maintain and modernize the stores across the country. As their largest landlord, we are working together to align our strategies to capitalize on a wide range of strategic and accretive transactions. Modernizations and conversions to discount, drive AFFO and NAV growth, as well as enhance our portfolio quality.

Collaboration on land use intensification increase additional CRU opportunities and can lead to increases in NOI, NAV and weighted average lease terms. Our relationship also allows us to unlock major development opportunities, increased our presence in VECTOM and major markets. Further diversify our portfolio as residential and retail-related industrial real estate solutions like the Montreal Voila par IGA, CFC using the Ocado platform. This collaboration and strategic alignment with Empire enables us to unlock synergistic value creation in the short-, medium and long term.

Crombie is acutely focused on maximizing value creation through our development program. We have curated a 33 property development pipeline representing $4 billion to $5.8 billion of investment in potential mixed-use development. 19 of these sites are in Vancouver, Toronto and Montreal. These development opportunities have the potential to produce 1.3 million square feet of additional commercial area, 9.8 million square feet of residential space, and over 11,000 residential units in what are truly world-class cities. There is significant value embedded in our portfolio that is not recognized under IFRS.

Overall, we are very pleased with our execution and progress to date. One which Glenn will provide an update shortly. Construction continues on our 6 active developments, as we expect revenue will continue to ramp up and nicely increase in 2020. We are also pushing forward with our 7 projects in the preplanning phase. We expect to invest $150 million to $200 million in our development program annually with project completions accelerating over the next few years.

Crombie has embarked on a development journey from a position of financial strength. The cornerstone of our financial strategy is to effectively allocate capital to accelerate both NAV and AFFO per unit growth, while funding with multiple sources of equity, debt and debt financing through capital recycling, capital markets and joint ventures. In Q3, we have total gross sale proceeds of $342 million on assets in full or partial interests. Allowing us to redirect capital to our growth with Sobeys and our major mixed-use development pipeline.

These disposition transactions completed at value in line with or above IFRS fair value speak to the quality of our portfolio, our desirability as a partner, and provide ongoing validation of our NAV.

In the third quarter, dispositions included an 89% interest in a retail property in Charlottetown PEI, a 100% interest in a retail property in Grimsby, Ontario. And the transfer of air rights at our Davie Street property into our joint venture.

Subsequent to the quarter, on October 7th, Crombie closed our second tranche of property dispositions with Oak Street Real Estate Capital selling 89% non-managing interests in a 15 property portfolio for total proceeds of approximately $193 million, bringing our year-to-date total to $535 million. This transaction, once again, highlights our ability to creatively execute partial interest property dispositions, innovatively identify new and expanding sources of capital, and successfully prefund our major mixed-use development commitments well into 2020, all while aligning with our long-term funding strategy.

I have full confidence in our collective ability to continue to unlock value at Crombie for years to come. Our team values relationships and is committed to the long-term sustainable growth of Crombie and our stakeholders. Our solid operating fundamentals, entrepreneurial leasing, high occupancy rate and strong operation of our properties provide the foundation to enable us to create significant value from our relationship with Empire and Sobeys in our major development pipeline, as I said at the beginning of my comments.

We are relentless in our efforts to accelerate the growth of the ASFO and NAV and are very pleased to see our first major developments coming on line and beginning to produce high quality cash flow and recognize net asset value.

And with that, I will now turn the call over to Glenn, who will provide an update on our development and operational highlights.

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Glenn R. Hynes, Crombie Real Estate Investment Trust - COO & Executive VP [4]

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Thank you, Don. And good morning, everyone. Our sustainable competitive advantage with Empire and our substantial or major mixed-used development pipeline are vital to driving AFFO and NAV growth in the short, medium and long term. However, the core fundamentals of our 284 property portfolio must be emphasized. In fact, Crombie's solid fundamentals enabled by our needs-based space retail portfolio act as a wonderful platform and foundation to the successful execution of our strategy.

Our consistent and improving financial metrics that anchor us are driven by solid leasing activity. Q3 committed occupancy was 96.1%, an improvement from 95.9% at Q2 of this year. This includes new leasing, which has been impressive in Atlantic Canada and strong renewal activity, especially in the Halifax office market.

New leases and expansions increased our occupancy by 201,000 square feet at September 30th, at an average first year rate at $19.81 per square foot. We ended the quarter with 81,000 square feet of committed space at an average first year rent of $25.29 per square foot, which will boost future NOI growth.

A busy third quarter had 627,000 square feet of renewals completed, with a solid increase of 4.7% over expiring rental rates. As previously mentioned, what is particularly impressive, is the renewal activity in the Halifax office market; with 292,000 square foot executed in the quarter.

Notable deals include a 5-year renewal with the Department of Health and Wellness at Barrington Tower and a 10-year renewal of the Department of Education at Brunswick Place. Both Province of Nova Scotia leases are close to 100,000 square feet each, which helped increase their weighted average lease term to 8 years compared to the 2 to 3 years it was a few months ago.

Year-to-date, we have renewed 926,000 square feet at an increase of 3.9% over expiring in rent. During the first 9 months retail renewals were strong with 422,000 square feet renewed at rental increases of 5.9%.

Our core portfolio is performing very well. And our team is dedicated to ensuring our underlying business fundamentals and core portfolio remains solid as we build out our mixed-use development pipeline.

Strides were made during the quarter to bring the repurposing of certain properties to completion. Algonquin Avenue in North Bay, Ontario and Uptown Center in Fredericton, New Brunswick are catching up to the Sydney Shopping Center in Sydney, Nova Scotia with the backfilling of the former Target space. After Target's exit from Canada, repurposing of these 3 sites commenced and they were on strong returns.

HomeSense, at approximately 20,000 square feet, opened in North Bay bringing occupancy to 80%. Occupancy at Uptown Center in Fredericton is now at 94%, after the approximate 26,000 square foot Marshalls opened during the quarter.

Overall, we have more than replaced all the Target, Zellers and Sears' revenue that was lost a few years ago by backfilling with better tenants that are more suited to these markets.

Not all retail is created equal. Retailers that focus on providing value, convenience and experience will do well in the evolving digital economy. Discount, off price retailers with strong value focus lead the way.

Recognizing that, our needs-based properties are performing very well in the evolving retail landscape and are poised for future growth. The types of tenants frequenting our properties are growing and opening new stores, not shrinking. Examples of these tenants are Dollarama, Farm Boy, Giant Tiger and Marshalls Winners.

In 2018 and 2019, within our portfolio, we've had 4 new Dollaramas opened and 2 existing locations expanded. Two new Marshall Winners and 1 relocation to a new and larger space and 1 new Giant Tiger opened.

We're focused on fostering these relationships in our needs-based space, and by a wide margin, we're seeing more stores opening than closing.

A bit more importance, there are many retailers who are faced with store closures. Additional retailers with weak value propositions, aged and static merchandising plans and absence of omnichannel strategy fail to adapt to the evolving digital economy. Examples of these retailers are Payless Shoes, Gymboree, Forever 21, Bombay, Nine West. Crombie is very limited to no exposure to these retailers and categories.

As Donnie previously mentioned, to date, we're extremely pleased with the progress of our active development pipeline; having invested approximately $324 million, while remaining on track and on budget. We anticipate our active major development pipeline creating significant value for our unit holders, with estimated yields on costs for our first 6 projects in the range of 5.6% to 6%, which we expect will translate into $1 to $2 of net asset value per unit within the next 1 to 2 years. Assuming current market and cap REIT conditions continue.

Our estimated yields on costs are calculated using the expected full year NOI divided by the total cost of development. Rental rates used in the expected full year NOI are derived from market studies and validated on a regular basis.

Included in our development costs are construction costs, including hard and soft costs, tenant cost, capitalized interest and land at fair value.

Davie Street is our first active major mixed-use development for the potential NAV creation of $65 million to $81 million. The retail podium has been constructed and tower concrete is complete with residential glazing now being installed.

Safeway and ancillary retail space are expected to open in Q1 of next year, with 330 rental residential units opening in Q3 of next year.

Belmont Market is 80% tendered and has potential NAV creation of $17 million to $23 million. Construction of the final portion of the project totaling 23,000 square feet, in 3 buildings, should commence in early 2020. Currently, active preleasing is taking place with the deals pending on approximately 11,000 square feet of available space.

The approximate 50,000 square foot Thrifty Foods store and our first phase of retail and service tenants are in occupancy and paying rent.

Avalon Mall is estimated to have a yield on cost of 10.3% to 11% and the potential to create $33 million to $44 million of NAV.

During the quarter Winners-HomeSense opened in their new space and advanced discussions with other potential national anchor and CRU tenants continued. Occupancy of the new retail units is expected to continue into 2020.

In Montreal, our Le Duke project is estimated to have a yield on cost of 5.4% to 5.8%. Concrete work with a below-grade parking structure and retail level is now complete and the residential structure for our 390 units is well under way.

Completion of this project is expected to be in the first quarter of 2021. Le Duke estimated to have potential NAV creation of $21 million to $26 million.

The Bronte Village is 87% tendered and construction of 480 residential units in Oakville is actively progressing. Potential NAV creation for this development is approximately $51 million to $64 million.

Site work is well under way with construction to commence in early 2020 at Pointe-Claire in Montreal. The estimated yield on cost for this project is 6.1% to 6.4% with potential NAV creation of $19 million to $32 million.

Upon completion all these properties are expected to create significant NAV and AFFO growth. Increase our presence in the country's top urban markets, while diversifying and improving our overall portfolio quality and income stream.

And with that, I will now turn the call over to Clinton, who will highlight our third quarter financial results and discuss our capital and development program funding approach.

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Clinton David Keay, Crombie Real Estate Investment Trust - CFO & Secretary [5]

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Thank you, Glenn. The consistent stable and strong fundamental growth of Crombie REIT continues to deliver positive same asset NOI growth this quarter.

ON a cash basis, quarterly same asset NOI increased by 3.3% and 3.5% for the year-to-date. Quarter-to-date and year-to-date same asset NOI excluding the impact of IFRS 16 increased 2.8% and 3.1% respectively.

AFFO per unit decreased slightly to $0.24 from $0.25 for the same quarter last year. Our Q3 AFFO payout ratio was 92.7% versus the same quarter last year at 89%. FFO for the quarter decreased a $0.01 to $0.29 per unit and our FFO payout ratio was 77.8% versus 74.3% in Q3 2018.

Considering our significant disposition activity this year, reduction in leverage and our continued investment in our development pipeline, we are pleased with these results.

We're beginning to feel the effect of approximately $800 million in dispositions over the past 18 months. An investment of approximately $324 million of capital in major developments and no initial return. However, we will have projects emerging from our pipeline in 2020, which will begin contributing toward NAV and AFFO growth.

G&A as a percentage of property revenue for Q3 was 6.3% or $6.1 million up from Q3, '18 at 4.9% or $4.9 million. This increase was primarily driven by salaries and benefit costs, the majority of which is related to the impact of our significant unit price increase year-to-date, which has resulted in higher stock based compensation expense.

Excluding the impact of our unit price increase and asset dispositions, G&A would be at approximately 5.5% of property revenues for Q3 and 5.2% year-to-date.

Our debt to gross book value on a fair value basis improved to 48.9% at the end of Q3 compared to 49.2% in Q2 and 51% at the end of Q4 2018.

We ended the quarter with debt to trailing 12 month EBITDA at 8.35x an improvement compared to 8.66x at Q4 '18.

During the quarter, Crombie reissued a 7 year 200 million series F unsecured note bearing a desirable interest rate of 3.677%. Our unencumbered asset pool increased to $960 million from approximately $954 million at Q2. And our balance sheet remains flexible, with approximately $451 million of available liquidity.

During the quarter, our bilateral bank facility was extended and now expires June 30, 2023. And subsequent to the quarter end, we renewed our revolver for an additional year.

In the next 14 months, Crombie had approximately $300 million of mortgages maturing with a weighted average interest rate of 4.87%. Of the approximate $300 million in maturities $100 million is coming due prior to the end of 2019 and $153 million mortgage at Scotia Square in Halifax, Nova Scotia is coming due in February 2020.

As I noted at our Investor Day in October, there is substantial opportunity to harvest interest savings and extend our weighted average term to maturity.

We will continue to focus on reducing our total leverage over the medium term, while maintaining ample liquidity and our bank credit facilities. Crombie has long weighted average lease terms of approximately 10 years. And we believe in matching such leases with longer duration debt.

We plan to increase our weighted average term to maturity, while taking advantage of the current low interest rate environment.

Crombie's successful executing on our strategy to secure multiple sources of cost-effective capital, while prioritizing our investments to drive growth in both NAV and AFFO per unit.

A solid balance sheet, ample liquidity, access to multiple sources of capital and a strong, underlying fundamental support our robust development pipeline.

Lastly, Crombie anticipate that it will declare a special distribution to unitholders in the fourth quarter of 2019. As a result of the increase in taxable income generated by the capital recycling transactions completed during the 9 month period ending September 30, 2019. And those anticipated to be completed during the fourth quarter of 2019.

Crombie intends to make special distribution payable partially in cash and partially in units. To provide unitholders with cash to help fund any additional taxes that may arise associated with the special distribution.

While preserving most of the net cash proceeds generated by the sale of transaction for reinvestment in our value creation opportunities with Empire and other major developments in line with our strategy.

The amount of this special distribution is expected to be between $0.55 and $0.65 per unit based on the number of units outstanding as of the date hereof, which will be declared payable on or before December 31, 2019, to unitholders of record on the date the distribution becomes payable.

Thank you for listening and we're now happy to respond to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question is from Dean Wilkinson of CIBC.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [2]

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Donnie on -- just given the success of the development projects to date and the size of the pipeline, you've effectively delevered the balance sheet now down into probably post this transaction, sort of, mid/high 40-ish range. Where would you need to see the balance sheet vis-a-vis either debt or equity to ramp up that development process and maybe bring some of that development forward to try and capture a little more of that with some immediacy?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [3]

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We talked about having debt-to-GBV in the high 40s with the medium-term target to get it to the mid-40s. And so that's we've made progress on that front.

On the development, it is exceptionally high quality development pipeline, which we're very proud of. And as we've indicated, and I think, I did so in my remarks, we're looking to spend about $150 million to $200 million on the pipeline annually. We think is a good solid bit of progress on our development pipeline.

We're working very closely today with Sobeys in terms of, call it, a systematic approach to unlocking the value over time. We have a very good relationship, obviously, with their sister company, and we have a very good process. But in terms of increasing the pace, it is going to depend on a lot on their network planning and what they're planning to do.

So for, I guess the answer to your question, Dean, is we would like to ramp it up over time, but in the near term, I think that $150 million to $200 million estimate annual spending is something that's achievable. And again, it's also dependent, as you know, very much on what happens with the various communities and the cities and the individual projects.

So Sobeys the city's all the planning efforts. It's a pretty complicated process, but overall we think, we can hit those numbers in terms of rate of spending.

The big news with us is that we'll start to see completions on those big mixed-used developments. And as you know, when you have spending without completions, it's dilutive [indiscernible] we think materially impact our numbers.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [4]

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Right, the drag -- yes, the drag comes back in and what's your comfort level in terms of percentage of the balance sheet that you want to go to in terms of development? Is it 5%, 10% something in that range?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [5]

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Yes, it's in that range. Well, I'm comfortable with that given the quality of the developments. And obviously, given the fact that we're working on longer-term plans to sequence the developments over time, which I think again, the unique relationship we have with Sobeys should allow us to develop a 3-year to 5-year plan to unlock developments and therefore you can get sequencing and at scale.

And ultimately, the goal is to have consistency. And the consistency, we think, unitholders will like that and investors will like that because then people will be able to plan out what the growth rate improvement will be, I think more let out. So it's driving that consistency of the pipeline. I think it's one of the most critical things that we have is an opportunity and we're working very hard on that.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [6]

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Just a question for Clinton. On the same property NOI, do you have handy what that would have been without the lease termination income?

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Clinton David Keay, Crombie Real Estate Investment Trust - CFO & Secretary [7]

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Sure. So in the quarter, we had about 800,000 of lease termination income, but only half of that was for properties in same asset category. So 3.3% reported would adjust down to 2.6%. Just a quick comment, the 2 settlements in the quarter from Target, 1 was Fredericton, New Brunswick; Uptown, which is a redevelopment property. And I spoke of in my remarks. And the second one is City Nova Scotia, which is back in same assets. So short answer is 2.6% would be the adjusted same asset NOI for Q3.

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Operator [8]

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(Operator Instructions) And the next question is from Sam Damiani of TD.

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Sam Damiani, TD Securities Equity Research - Analyst [9]

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Just to start off on, I guess, on the leasing side, the portfolio are very resilient, occupancy rates are indicating that. But just wondering, if you're seeing any areas of weakness, you did have some of these termination fees in the quarter? And what your outlook is for 2020 bankruptcy season for the retail sector, generally?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [10]

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We feel pretty good. I think the lease termination income now is all in the quarter from Target. So that's just the last hangnail of that long journey with Target. So we're very pleased to get that money.

Now we're seeing conditions and I've said both, in my remarks today and on Investor Day, we really have to acknowledge that not all retail is created equal. We look at the deals we're doing with the Dollaramas and with [TGXs] and with Giant Tiger and others. We're finding the retail landscape pretty good. There was an article the other day, I think about the Lowes, for example. So Lowes, in the country, we have 2 locations. Actually, both I think, are quite strong in Nova Scotia that represents $0.5 million of annual minimum rent.

So the good news, if you look at our top 20 tenants, you'll see that they're all very vibrant, mostly investment grade, extremely strong dynamic tenants that are not going anywhere, but progressing forward. So losing a Lowes or Toys R Us in the market, we got 1 Toys R. Us in St. John's Newfoundland, which does quite well, as well.

So we feel very good. We can never expect the future. There's certain tenants out there that could go wayward and go out of business. But as we look at our tenant roster and the sites with tenants that we're pursuing across the country, we're very pleased. And success we've had in improving our occupancy has been doing deals upscale with the Giant Tiger's and the Dollaramas and those types of tenants.

And they've actually been very complementary, for the most part, to our grocery-anchored centers. And as we look to the west for example, as we're getting into FreshCo conversions, with the cooperation with Sobeys, some of the tenants that we're working there that are in the values space are extremely complementary to the FreshCo offering. So we're quite bullish, going forward, and can't really see anything in the 2020 offing that's concerning. And I know you watch the office space pretty closely. That place is an area where we're concerned. Halifax, for example, Sam, is about 80% occupancy. Our Scotia Square complex, I believe is around 93% occupied. So we're defining the marketplace.

And to get the two 100,000 square foot renewals done in the quarter was a big coup for us. One was a 5 year, as mentioned, one was 10. And the net effect effective rents were very strong. That just speaks to the excellent customer service that Terry Doran and the team provide. At Scotia Square tenants are extremely pleased there, we've got a new rejuvenated food court. We've got just a great offering both retail, mixed use and office. And with those tenant renewals done, we're very pleased. That was one risk factor as you well know that with in-place, but now that those renewals are in place for 5 and 10 years respectively, we're really on solid ground.

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Sam Damiani, TD Securities Equity Research - Analyst [11]

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And I was going to do you think there is an opportunity to up finance your office portfolio in Downtown, Halifax pull some extra liquidity out of those assets?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [12]

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Yes, I mean, certainly something we'll be looking at in terms of the options available. It's one of the many options we're looking at this time.

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Sam Damiani, TD Securities Equity Research - Analyst [13]

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Just lastly you do have a good pipeline of future developments in like 2 or 3 were highlighted on the Investors Day as potential next starts. Wonder if you could just give us a sense of the timing of the next 1 or 2 major mixed-use projects. When they could be started, if it's in 2020, '21 or '22?

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Glenn R. Hynes, Crombie Real Estate Investment Trust - COO & Executive VP [14]

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Sam again, our target spending is $150 million to $200 million. We've got 7 in preplanning. These things are sometimes longer processes than we would like. So I can't really tell you which one falls next. We're looking, I think very hard at Halifax, at our Westhill and Le Duke projects. Could be the next one but the others are again works in progress. So I would say we can't really give it -- our target spending, as I said is $150 million to $200 million. So we think that we can achieve those kinds of results.

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Operator [15]

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The next question is from Howard Leung from Veritas.

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Howard Leung, Veritas Investment Research Corporation - Investment Analyst [16]

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Just a quick one from me. The TIs for the revenue-enhancing CapEx this year, I saw it kind of stepped up this quarter, was that mainly to do with the office leasing?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [17]

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No. Actually, it probably had to do with some of the conversions to FreshCo that we are doing in Western Canada. Actually, the TIs on the office were extremely efficient we are very pleased with the effective rents on those. So the revenue-enhancing TIs would more likely be in Western Canada for some of the FreshCo conversions that we have invested in.

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Howard Leung, Veritas Investment Research Corporation - Investment Analyst [18]

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Okay, okay. That makes sense. And so I guess going forward because that is still ongoing you would expect that, we can expect it to continue at that pace or maybe just below that pace?

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Donald E. Clow, Crombie Real Estate Investment Trust - President, CEO & Trustee [19]

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Well, it varies, as Sobeys proceed with FreshCo conversions, if we are the owner of the store in question and they chose to use capital of Crombie, then yes. But we can't sort of look forward with great clarity that will just depend as the conversions occur.

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Operator [20]

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The next question is from Tal Woolley from National Bank.

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Tal Woolley, National Bank Financial, Inc., Research Division - Research Analyst [21]

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Just wanted to maybe try and understand the timing on just on cash flows through 2020. At what point do you see the impact of all the disposition work you have done being offset by the same property NOI growth and the completions on the FFO line?

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Clinton David Keay, Crombie Real Estate Investment Trust - CFO & Secretary [22]

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We do not want to give guidance on when things rebound but it is over the next couple of years it rebounds in our mind and improves. So obviously, you can do the math on the investment in our developments and we still got another $300 million to go, we have invested a little over $300 million to-date, $300 million to go on our first 6. And those will be, as we said, some completed in 2020, some completed in 2021. I think it's roughly half and half.

And so those things are on average 5.5% to 6% yield on costs. So that should give you kind of an estimate of the income coming in and offset to some degree obviously by the debt that's in place as well as the project debt and the long-term financing is put in place. So I can't really give you the exact number. But I can tell you there's going to be some decline as you have seen in our FFO and AFFO. And we expect to obviously that we wouldn't be doing this if we didn't expect it to rebound significantly. And obviously, then the higher quality cash flow as well (inaudible) over the long term.

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Glenn R. Hynes, Crombie Real Estate Investment Trust - COO & Executive VP [23]

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I think just to add to that, Tal, I think, we said 2020 will be a transitory year but the great news with -- as Clinton has noted with the amount of debt that's coming due at the end of this year and into the next year, at pretty high interest rate that's the other factor that is potential benefit for us. Our same asset NOI growth, we feel really good about. We can harvest some of this interest savings on both $300 million of debt that you've got interest rates in the mid to high 4's. And also then, with the cash flows coming forward as Don mentioned from the mixed use. We are getting ready to move forward with the aggressiveness. But 2020 is the year, where I think, things really, sort of, mature.

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Tal Woolley, National Bank Financial, Inc., Research Division - Research Analyst [24]

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So if I think about it this -- the stars sort of start to align in 2020. And 2021 is when we should see an improved kickoff.

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Glenn R. Hynes, Crombie Real Estate Investment Trust - COO & Executive VP [25]

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[Yes.]

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Operator [26]

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Thank you. There are no further questions at this time, I will now turn it back over to Clinton Keay for closing remarks.

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Clinton David Keay, Crombie Real Estate Investment Trust - CFO & Secretary [27]

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All right, well thank you all for joining us today. And we look forward to updating you on our progress on our Q4 call in the new year.

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Operator [28]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.