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Edited Transcript of CUF.UN.TO earnings conference call or presentation 6-May-19 3:00pm GMT

Q1 2019 Cominar REIT Earnings Call

QUEBEC Jun 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Cominar REIT earnings conference call or presentation Monday, May 6, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Heather C. Kirk

Cominar Real Estate Investment Trust - Executive VP & CFO

* Marie-Andrée Boutin

Cominar Real Estate Investment Trust - Executive VP of Retail Strategy & Operations

* Sylvain Cossette

Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee

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Conference Call Participants

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* Bradley Sturges

Industrial Alliance Securities Inc., Research Division - Equity Research Analyst

* Frederic Blondeau

Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research

* Jenny Ma

BMO Capital Markets Equity Research - Analyst

* Jonathan Kelcher

TD Securities Equity Research - Analyst

* Matt Kornack

National Bank Financial, Inc., Research Division - Analyst

* Matt Logan

RBC Capital Markets, LLC, Research Division - Senior Associate

* Michael Markidis

Desjardins Securities Inc., Research Division - Real Estate Analyst

* Pammi Bir

Scotiabank Global Banking and Markets, Research Division - Analyst

* Sumayya Hussain

CIBC Capital Markets, Research Division - Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Cominar Q1 Earnings Announcement Conference Call. (Operator Instructions) Also note that this call is being recorded on Monday, May 6, 2019.

I now would like to turn the conference over to Sylvain Cossette.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [2]

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Thank you, Cindy. Good morning and welcome to today's conference call, where we will be discussing our financial results and highlights for the first quarter of 2019. The presentation for this call is posted in both English and French in the conference call section of our website.

In line with our disclosure principles, access to this call is open to financial analysts, investors, the public and the media. The question period will be open to financial analysts.

Before I begin, I would like to draw everyone's attention to the notice concerning forward-looking statements on Page 2 of the presentation. With me today is our CFO, Heather Kirk. Members of our executive management team, Alain Dallaire; Marie-Andrée Boutin; Michael Racine; Jean Laramée; and Wally Commisso are also here with us.

Recent initiatives to improve the efficiency of our platform had a positive effect in the first quarter with in-place occupancy increasing, renewal rents accelerating, organic growth at the top end of guidance and capital expenditures declining. Our efforts remain focused on creating value for unitholders through initiatives to position Cominar for long-term growth.

Q1 2019 highlights. Same-property NOI growth of 1.9% is at the top end of our guidance range and continues the trend of improvement over the last several quarters. The momentum built in 2018 was maintained in the first quarter, and we remain focused on continuing to improve our growth profile through revenue maximization and expense optimization initiatives and an enhanced sales culture.

Our committed and in-place occupancy rates increased to 93.8% and 89.7%, respectively. Committed occupancy is now 30 basis points above our historical average occupancy of 93.5% and is at its highest level since Q1 2015. We remain focused on converting committed occupancy to rent-paying occupancy.

In Q1 2019, we completed $74 million of dispositions at an average stabilized cap rate of 6.4% at pricing in line with our IFRS values. We continue to be targeting 2019 dispositions of approximately $300 million.

Our focus on cost controls and discipline with respect to capital allocation drove a material 47% decline in capital expenditures versus last year's comparable period to $29.9 million for Q1 2019.

I will now move on to an update of our leasing activities. Firstly, on Page 5, our committed occupancy rate improved to 93.8%, up 90 basis points year-over-year and 20 basis points since December 31, 2018. The in-place occupancy also rose, increasing 280 basis points year-over-year to 89.7% as at March 31, 2019. During the first quarter of 2019, we improved our retention rate to 49.3% from 43.9% for the first quarter of 2018. We renewed 2.5 million square feet of expiring leases, and in addition, we signed a significant 1 million square feet of new leases. Taken together, we completed renewals and new leases totaling 3.5 million square feet, which represents 70% of our leasable area maturing in 2019.

Moving on to Page 7. The industrial segment recorded the highest occupancy at 95%, essentially flat to the corresponding quarter in 2018, followed by retail at 93.5%, up 50 basis points year-over-year, and office at 92.3%, up a significant 230 basis points year-over-year.

Our in-place occupancy wrote to 89.7% in the first quarter, an increase of 50 basis points over Q4 2018 and an increase of 280 basis points year-over-year. The in-place occupancy of our office portfolio was up by 130 basis points over Q4, while industrial increased by 30 basis points, and retail was down by 10 basis points.

By region, our Québec City portfolio remained strong and steady at 95% committed occupancy, while the Montréal portfolio was 93.5% leased, 120 basis points higher than in Q1 2018. The most significant improvement has been in our Ottawa portfolio, which is now 92.3% leased, a material 190 basis points improvement year-over-year.

Moving on to Page 9. In the first quarter of 2019, our average net rental rate on renewals increased by 3% led by a solid 8.6% increase in the industrial portfolio, with a 9.6% increase in the Québec City market and 8.2% in the Montréal market. In the office portfolio, rents on renewals increased 2.1%, with an equal increase of 2.4% in the Montréal and Québec City markets and a 0.6% increase in the Ottawa market. Although retail rents continue to be affected by a more challenging leasing environment, we recorded an increase in rents on renewals of 0.4% in our retail portfolio, with increases of 6% and 5.5% in the Québec City and Ottawa markets, partially offset by a 3% decrease in the Montréal market.

Moving on to Page 10. With respect to our 7 Sears locations, 6 stores and 1 warehouse, which total approximately 670,000 square feet, we have signed leases on 125,000 square feet or 19% of the total area and 38% of the previous rent. We are in advanced discussions on 186,000 square feet or 28% of the total area, with another 190,000 square feet under discussion. Over the last 2 months, we have increased our space under advanced or preliminary discussions by 43,000 square feet and reduced space not subject to discussions by 54,000 square feet. We remain focused on converting our leasing discussions and negotiations into signed leases.

On Page 11, our investment properties held for sale decreased to $135 million at Q1 2019 and totaled approximately 900,000 square feet, of which 73% is retail and 27% is office. During the quarter, we sold properties for gross proceeds of $74 million. Post quarter, we completed the sale of a further $8.8 million of properties. Our current target remains selling approximately $300 million of properties in 2019, with proceeds going to fund the repayment of our unsecured debenture maturities.

Moving on to Page 12. At 800 Palladium Drive in Ottawa, Ford Canada will be the lead tenant for 55% of a 100,000-square-foot office development, which will house its research and development center for autonomous driving vehicles. The project, which is expected to be completed by fall 2020, is budgeted to cost approximately $24 million, with a targeted yield on cost of approximately 10%. Although we are not prioritizing development spending at this point in time, this expansion for a current tenant into our Palladium campus project ensures we are meeting our tenant's expansion needs while maintaining occupancy.

With respect to our 500,000-square-foot Îlot Mendel development project located on Highway 40 in Québec City, adjacent to the new IKEA store, we have commenced construction for the 50,000-square-foot Decathlon stores scheduled to open in the fall of 2019. We are exploring densification and rezoning opportunities for other property types other than retail, seeking the highest and best use for this asset.

Heather will now discuss our financial results.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [3]

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Thank you, Sylvain.

On Page 13, operating revenues of $181.9 million for the first quarter of 2019 decreased by 12.9% compared to the first quarter of 2018. Net operating income of $86.7 million decreased by 13.8% year-over-year. This decrease is the result of an increase of 1.9% in our same-property NOI, combined with a decrease of $29.9 million in NOI related to properties sold in 2018 and 2019.

FFO for the quarter decreased by $6.8 million year-over-year to $46.9 million. This decrease was mainly due to the decrease in NOI, resulting from the sale of a portfolio of 95 noncore properties in March 2018, partially offset by a $7.1 million decrease in finance charges.

On a per unit basis, FFO for the quarter decreased $0.03 to $0.26 and $0.29 for Q1 2018. Excluding a $1 million severance allowance paid in Q1 2019 following the departure of an executive officer, FFO would have been $47.9 million and FFO per unit would have stayed the same.

AFFO for the quarter decreased by $8.8 million year-over-year due to the decrease in FFO, a $1.3 million increase in the provision for leasing costs and a $1.1 million increase in maintenance capital expenditures. On a per unit basis, AFFO for the quarter decreased $0.05, to $0.18 compared to $0.23 for Q1 2018.

Excluding the severance allowance paid in 2019, AFFO would have been $34.6 million and AFFO per unit would have been $0.19, which implies an AFFO payout ratio of 94.7%, an improvement from 108.7% a year ago.

Moving on to Pages 14 and 15. For the first quarter, our same-property NOI increased by 1.9% to $88.4 million. We are pleased to have continued to accelerate our organic growth in Q1 2019 and continue to be focused on driving stronger operating performance.

First quarter growth in same-property NOI was driven by a strong 8% increase for the industrial and flex portfolio, supported by a 2.2% increase for the office portfolio, which was partially offset by a 2.3% decrease for retail. The increase reflects an increase in same-property occupancy of 230 basis points. The increase was for all property types, including 320 basis points for the industrial and flex portfolio, 150 basis points for the office portfolio and 190 basis points for retail.

Moving on to Page 16. Our debt ratio was 54.7% at the end of the quarter, down from 55.3% at the end of 2018 and up from 51.8% at the end of Q1 2018. Our debt-to-EBITDA ratio was 10.6x at the end of Q1 2019, up from 10.3 at year-end and 8.6x at the end of Q1 2018.

The year-over-year change in our debt ratio and our debt-to-EBITDA ratio was affected by the Q1 2018 sale of $1.1 billion of properties. Our interest coverage ratio was 2.35:1. Our unencumbered asset pool stood at $2.8 billion, representing 1.53x our unsecured indebtedness. The unencumbered asset ratio was unchanged from year-end but down from 1.68x a year ago.

On Page 17, we have no material mortgages maturing in 2019 and only $81 million of mortgages maturing in 2020. We have a staggered maturity profile with an average of 16% of our debt stack maturing annually in the next 5 fiscal years. We have $600 million of unsecured debentures maturing in 2019, with 1 tranche of $300 million maturing in late June and a second tranche in early December, which we will be repaying with a combination of new mortgages, proceeds from dispositions and draws on our credit line.

At quarter end, we had liquidity of $371 million, with $11 million of cash on hand and an undrawn amount of $360 million on our credit line. Subsequent to the quarter end, we have closed on $8.8 million of dispositions and $100 million of mortgages, which increase our liquidity position to $505 million.

On Page 18, our financing plans remain on track. We are pleased with our progress on our refinancing plan for $600 million of unsecured debentures maturities this year. Post quarter, we received credit approval from our lead lenders for an unsecured credit line of $400 million to replace our existing facility and an optional secured line of up to $300 million, for total credit capacity of up to $700 million.

On the mortgage front, post quarter, we put in place a 10-year $100 million mortgage financing of Centre Laval shopping center at a coupon of 3.7%. We're also about to close a $25 million 5-year financing on a Québec City industrial portfolio at a spread of 180 basis points over the 5-year GOC.

Regarding our broader 2019 mortgage financing program, we have received proposals from a number of lenders, and we are negotiating term sheets for financing proceeds in excess of $200 million that we anticipate will be funded through staggered closing dates through the third quarter. We expect to use proceeds from mortgage financing as well as availability on our credit line, which is currently fully undrawn, and disposition proceeds to fund our unsecured debenture maturities.

We are also very pleased to announce that we have strengthened our finance team with the hiring this quarter of Antoine Tronquoy as Executive Director of Capital Markets. Many of you may have crossed paths with him in his former role as CFO of Inovalis REIT. Antoine brings significant depth in real estate financing and REIT capital markets, and we are delighted that he has joined the team.

And finally, moving on to Slide 19. Our Q1 2019 capital expenditures were $29.9 million, down 47% versus Q1 2018. All of our capital expenditure items decreased, except for our maintenance expenses, where we are taking a more conservative approach to reserves.

I'll now pass the mic back to Sylvain.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [4]

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Thank you, Heather.

I would like to take this opportunity to thank all of our employees as well as our trustees for their contribution over the last quarter.

I will now turn the mic over to the operator for the question period.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will be from Fred Blondeau at Echelon Wealth Partners.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [2]

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Maybe a question for Heather to start. It looks like things have turned in terms of the same-property NOI. What are your expectations for the rest of the year and, if you can, maybe for next year?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [3]

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I would say that we're still -- we just have heightened confidence that we'll be able to deliver same-property NOI in the range that we've previously discussed, which is 1% to 2%.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [4]

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Okay. That's fair. And can you give us a bit more details in terms of your expectations in regards to the retail segment in terms of same-store NOI?

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Marie-Andrée Boutin, Cominar Real Estate Investment Trust - Executive VP of Retail Strategy & Operations [5]

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Yes, this is Marie-Andrée calling -- speaking, sorry. As far as retail is concerned, we are expecting to maintain the range that Heather just discussed, which is between 1% and 2% NOI.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [6]

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Yes. For retail, if we can get to flat by the end of the year, I think that would be realistic. We're trying not to get too far over our skis in terms of expectations. It was a good quarter, we think. Still negative, but better than we have been budgeting. So that gives us some confidence. But I think we have to be realistic in terms of the operating environment. We'll be watching that closely, though.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [7]

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Absolutely. And in terms of the value creation through intensification and development opportunities that you mentioned in the MD&A, I can see asset sales. But is it fair to say that new development is probably out of the question for the next -- at least next 12, 18 months?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [8]

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Yes, Fred, that's correct. We are currently going through a detailed analysis of intensification opportunities to see which air rights we can dispose of, but we are very mindful of not embarking in development.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [9]

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Right. And lastly, in terms of the restructuring and operations, how far are you in the process at this point? And was there onetime items in Q1 other than that $1 million severance allowance?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [10]

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No onetime items aside from the severance.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [11]

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Should we expect anything during the rest of the year? Or you're pretty much done at this point?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [12]

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No, I think you can expect further items throughout the year. We are going through an optimization process currently with all our costs, and that includes costs of all natures, including human capital.

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Operator [13]

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Next question will be from Jonathan Kelcher at TD.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [14]

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Just on the disposition side. On the $134 million that you have held for sale, would that be similar sort of cap rates to the $74 million you've sold so far this year?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [15]

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Our expectation is that they might be a little bit higher than that. But yes, I would say a little bit north of what we delivered this quarter.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [16]

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Okay. And in terms of timing on closing for those, sort of Q2, Q3?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [17]

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Yes. I would say -- we'll do some of it in Q2 for sure, and we're advancing negotiations for that. But I would say that the $135 million would be partially -- like if you put half of it in -- $50 million to $100 million in Q2 with the balance coming in Q3, I think that's a realistic expectation.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [18]

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Okay. And then larger picture, when you're done with the $300 million for this year, would it be fair to say that's the end of sort of targeted dispositions?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [19]

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No. We continue to look at our portfolio. We -- as I mentioned just earlier in the question period, we are looking to dispose of air rights, so there could be disposals of air rights as we go along. And we are also looking at other assets, how we can lock in value or create value. It could be a combination of selling outright or JVs. But we were -- we're looking at further dispositions as we go along, mostly going into 2020.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [20]

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Okay. And would that be similar in size to 2019?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [21]

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I think that's premature at this stage to get into size. That's -- we're currently going through that analysis, so I wouldn't -- I could not tell you if it would be significant or in line with the $300 million.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [22]

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Okay. And then just on the lease renewals. Do you expect similar levels over the balance of the year on what you have coming up? Like, how is the market compared to...

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [23]

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Are you talking about the increases in rents or on the percentage of the total space that (inaudible)?

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Jonathan Kelcher, TD Securities Equity Research - Analyst [24]

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Increase in rents.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [25]

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I think we'll be in the same range, and I think you'll see the same kind of drivers, where you're getting a significantly higher gain on the industrial front.

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Operator [26]

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Next question will be from Matt Logan at RBC Capital Markets.

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Matt Logan, RBC Capital Markets, LLC, Research Division - Senior Associate [27]

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Just on your disposition program, as the REIT looks to shrink its exposures to retail, do you have any targets for the portfolio by segment or geography?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [28]

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Not specifically. I think we're taking a more asset-by-asset approach. For sure, we'd like to see it come down. I think some of the assets we want to make sure that we've stabilized them before we consider putting anything on the market. But we're not approaching it from a slice up the pie in a specific allocation perspective. It's more taking a look at the broader portfolio and identifying the assets that we think have the most upside to keep and taking a look at some where it's time to either to crystallize gains or move on.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [29]

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If we can lighten up a bit on retail, it's something we will look at. As Heather mentioned, it's on an asset-by-asset basis.

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Matt Logan, RBC Capital Markets, LLC, Research Division - Senior Associate [30]

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Makes sense to me. And in terms of your air rights sales, can you give us any examples of kind of which properties you're looking at and kind of how we might see that evolving?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [31]

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Well, the nature of the properties, which are more favorable or predisposed for that type of activity would be those, for example, that are in proximity to a rent stations. So if you look at...

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [32]

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Mail Champlain.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [33]

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Mail Champlain is one, Gare Centrale is another. In addition, we have shopping centers like Rockland, which we are currently discussing zoning variances with the city, but we would like to see what we can do there. So it's either our high-end malls or assets which are in proximity to the REM, or in other cities, the equivalent.

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Matt Logan, RBC Capital Markets, LLC, Research Division - Senior Associate [34]

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And for some of those malls, would this be just kind of a corner of the parking lot? Or would this be something that might require some demolition to the center?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [35]

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It varies. Some are corner of the parking lot and others are just putting a superstructure over what's existing.

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Matt Logan, RBC Capital Markets, LLC, Research Division - Senior Associate [36]

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And just, can you remind us what the exposure in the retail segment is to those enclosed malls?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [37]

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The percentage of -- oh, I'd have to get back to you with a specific number. In terms of enclosed malls versus total retail?

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Matt Logan, RBC Capital Markets, LLC, Research Division - Senior Associate [38]

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Yes. Or just as a percentage of the overall portfolio, either/or.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [39]

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I'd have to pull -- rather than giving you a number that's off, I'll slip you an e-mail with the math.

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Operator [40]

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Next question will be from Jenny Ma at BMO.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [41]

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With regards to the assets held for sale, I just wanted to confirm that there's very little mortgages on it at this time.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [42]

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Correct.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [43]

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Okay. And so you've got $75 million done and about $135 million on the books. So I'm just wondering, that difference to the $300 million for the rest of this year, is it a matter of you haven't really looked over where you want to put in as held for sale? Or do you have an idea what that composition of the balance of assets held for sale may look like?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [44]

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We have a firm idea of what that is. It's just there's specific triggers that we have to beat sort of further down the road in terms of hiring brokers or things like that before they can officially be added to the held for sale on the balance sheet.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [45]

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Okay. So it's fair to say that for the 2019 goal, at least, you poured through the portfolio as far as what you want to do for this year, and then there'll be another tranche for 2020?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [46]

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Correct.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [47]

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Correct.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [48]

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Okay, great. And I wanted to ask about the $16 million of annual NOI that's set to commence. That number just seems to be rolling, and I see you've had some leases begin, and then there are new signed leases adding to it. I just want to get a sense of how that NOI might come in, if it's relatively smooth over the next 5 quarters, or is there any sense of lumpiness to that number?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [49]

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All right. If you look at, sort of I guess, what we're expecting -- again, as I mentioned on the last call, I'm more focused on the net number, which is the same-property NOI. And I think if you look at our total forecast for same-property NOI to the end of the year, in terms of the staging, you will -- our expectation is you do see a bit of a pickup in Q4, and that's where you see the most pickup.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [50]

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Okay. All right. And then with regards to the increase in the maintenance CapEx reserve that you took, a couple of questions. Number one is, is that sort of $5 million range a decent run rate going forward? And then number two, just a little bit more color on some details and what drove you to sort of make a more conservative estimate on the maintenance CapEx, given that it's running at a little bit of a higher rate compared to last year?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [51]

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Just looking at the type of work that we're doing and can we justify having that be in value-add and, yes, I think I've taken a bit of a more conservative approach. And I think it's going to depend quarter-to-quarter on the nature of the spending that we do. So for what we spent this quarter, that was what we felt was the right number. So I think that's a reasonable expectation to have it be in that kind of range. Maybe you do see it tick up a little bit as we roll forward.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [52]

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Okay. And was that change really driven by certain asset classes? Or was it more across the board?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [53]

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No, just across the board. Just taking a look at really assessing the spend and what the nature of the expenditure was and whether it makes sense to consider that maintenance. As you know, there's a lot of room for interpretation there, so we're just trying to make sure that we're being conservative.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [54]

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Okay. And then last question is with regards to mortgages, so it looks like you've got another $200-something million that you're working on. Is there a view to, I guess, increase that volume given where we're at in the debt cycle and the kind of favorable rates that we're getting? Because I guess, you're using the at credit facility to pay down part of the June debentures, but just trying to balance using that temporarily versus locking in some 10-year debt at some really favorable rates.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [55]

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It's a good question, and I think the issue is when you add mortgages at favorable rates, you lever up unless you're paying something else off, and unfortunately, we don't have a significant amount of mortgages that are coming due, and then it's a trade-off with buying in bonds and paying that kind of premium. So what it does is if we work to be -- the short answer is, to be able to do more mortgages at -- and accelerate that at attractive prices, the pricing gets a little bit less attractive because we would have to pay a penalty to buy in future series of debentures. So it's something we look at in terms of what that friction point is. But right now, I think we're comfortable where we are, given that we don't have any draws on the credit line.

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Jenny Ma, BMO Capital Markets Equity Research - Analyst [56]

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Okay. And any sense on the rate on the new credit line?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [57]

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Probably not. Actually, it's slightly better than in terms of spread than what we were getting before, but not a material difference.

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Operator [58]

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Next question will be from Mike Markidis at Desjardins.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [59]

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Heather, I think last quarter, you had sort of set out a $185 million to $200 million all-in CapEx, probably excluding development for the year. I was just curious if you had an outlook or update [to the deal] for that number for this year.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [60]

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No. We're keeping it the same for now. So same thing, about a 25% to 30% decline and the numbers that you quoted. That being said, we are down materially year-over-year, and we're also slightly inside of our budget, so we'll be watching, but I think that's still the number.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [61]

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Okay. 800 Palladium, which is in your call presentation, and if I missed -- unless I missed it, it's not in the disclosures on the MD&A under development. So is that something that's under construction yet, or sits in PUD, or where would that asset be asset traded?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [62]

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We will be commencing construction this summer on that asset.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [63]

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Okay. And then last one from me, just on your in-place versus committed occupancy number. You've got 719,000 that is shown as being under redevelopment. I was just curious if you can you give us some more color on what exactly that relates to.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [64]

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Primarily Sears space.

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Operator [65]

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Next question will be from Pammi Bir at Scotia Capital.

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Pammi Bir, Scotiabank Global Banking and Markets, Research Division - Analyst [66]

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Just coming back to the [office] sales again for a minute. I'm just curious, what types of buyers are you seeing? And how will you describe the appetite?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [67]

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So far, we've been keeping the portfolio size -- the assets we're selling into a smaller bundle. So we're driving liquidity on the buy side through that, and we're seeing a reasonable appetite on the buy side. So I think the key is not having oversized portfolios put up for sale.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [68]

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So it's a lot of private players, some of them local, some of them outside of Québec as well. It's sort of the composition.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [69]

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It varies. I could be a local, purely regional to the region of the asset, and some are just more provincial. It's a good cross-section.

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Pammi Bir, Scotiabank Global Banking and Markets, Research Division - Analyst [70]

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And has the appetite changed at all over the last, well, I guess, over the first few months of this year relative to last year just given where debt costs have gone?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [71]

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I think it's pretty stable and unchanged. I wouldn't say that there's been a dramatic change in the appetite.

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Pammi Bir, Scotiabank Global Banking and Markets, Research Division - Analyst [72]

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Okay. Just looking at the balance sheet, making some progress here. But do you see yourselves getting below 50% within the next couple years, say, by the end of next year or 2020 versus where do you expect to be by the end of 2019?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [73]

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I don't think that we'll be under 50% by the end of 2020. That would be great if we could. By the end of this year, I think we'll see some with the dispositions that we have in the works, we'll see a few basis points -- a couple hundred basis points of decline. But I'd say, 53% might be in the ballpark. I think that's more realistic. And then the forecast for 2020, as Sylvain mentioned earlier, we haven't put a pin in what our disposition program is. So clearly, that's going to be a big part of driving that debt to gross book value number.

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Pammi Bir, Scotiabank Global Banking and Markets, Research Division - Analyst [74]

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Right. Okay. And just coming back to the questions on in-place versus committed. What are your thoughts on where that ends by the end of this year?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [75]

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No change from what we were talking about last quarter, so in the sort of low $300 millions. And a lot of that is going to be coming from -- actually, across the board, I think you'll see that we've been, by the end of year, we've seen a lot of it happen already with industrial, but that's sort of the ballpark.

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Pammi Bir, Scotiabank Global Banking and Markets, Research Division - Analyst [76]

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Okay. That's helpful. Just one last one. I don't want to get into the weeds much, but I think in terms of the straight-line rent last quarter, I think you mentioned $1.8 million as an annualized amount for the year, but Q1 seems to be running lower than that. Any update there for what that number will look like?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [77]

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We had a bit of a reversal in Q1. So let me just double check here. I think we'll be maybe a little bit -- hold on, a little bit lower, maybe run with $1.5 million, and that's more realistic than the $1.8 million given the lighter quarter this quarter.

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Pammi Bir, Scotiabank Global Banking and Markets, Research Division - Analyst [78]

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And that's where you sort of -- that's the 2019? Or is that -- so the $1.5 million is an annualized run rate?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [79]

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Yes. So for the total for the year, $1.5 million.

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Operator [80]

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Next question will be from Sumayya Hussain at CIBC.

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Sumayya Hussain, CIBC Capital Markets, Research Division - Associate [81]

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Firstly, just noting the sort of new presentation of the in-place and committed occupancy. And just want to confirm for comparability, have you guys changed at all how you measured committed occupancy? And if so, how was that ratio being calculated previously?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [82]

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No, we haven't changed anything in terms of how it's calculated. We just wanted to clarify how it was calculated, so there's been no change.

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Sumayya Hussain, CIBC Capital Markets, Research Division - Associate [83]

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Okay, still the same. And then just secondly, a question on portfolio optimization. You've mentioned in the MD&A that you want to focus on properties with the highest growth potential. Is that referring to organic growth, or more so development potential? And if you could potentially give an example of the type of asset which you think is absolutely core to the REIT given your definition of what high growth is.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [84]

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Yes, it would be organic growth which remains the major thrust on management's part. And if we dispose of air rights and intensify sites, we're looking to the extra traffic in those, for example, in those shopping centers, to help us enhance sales per square foot and, thus, rental rates. So we look at the intensification as being complementary in fueling our ability to drive organic growth.

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Sumayya Hussain, CIBC Capital Markets, Research Division - Associate [85]

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Okay. And then just lastly on TIs. You mentioned previously they're going to be a little bit elevated. But just beyond that, any color on where the capital is going? Is it mostly office or mostly retail, or is it just sort of evenly balanced?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [86]

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It's pretty balanced. I mean, clearly, industrial doesn't -- isn't really costing a lot of anything, but it would be office and retail, is I think ...

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [87]

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As we go forward, I'd see, as we repurpose the Sears space, you're going to have more leasing costs associated to that. Our goal is to have Sears behind us by Q1 2021. And on the office side, we continue to work -- have the assets with higher vacancy, for example, Place Laval. So as we move through those assets, you'll see leasing costs targeted to those assets.

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Operator [88]

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(Operator Instructions) And your next question will be from Matt Kornack at National Bank Financial.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [89]

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With regards to the Centre Laval, does the mortgage that you put in place there impact sort of the future development of that site or sale of it? That's one question. Then also, Centre Laval, I assume it's one of the larger assets in your portfolio. Could you speak to what the encumbrance is of sort of your top 10 largest properties and what that would make up in terms of the total portfolio size?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [90]

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Okay. So starting with the first part of the question...

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [91]

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I'll take the first part one while Heather reflects on the second part. In terms of the development of Centre Laval, we have a series of no-builds currently. So in the short term, it doesn't really affect anything. We do have a shadowbox, which is the [bay box] there, too, so time will tell us how that box moves or doesn't. But we currently are constrained by no-builds.

The asset that we -- in proximity to Centre Laval where we have the same type of intensification or development opportunity is more (inaudible) Laval, so I think that would be an asset, which would be more readily available for intensification. I don't think, Heather, we have handy the...

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [92]

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In terms of the stuff that would have bigger, more moves on it, it would be the bigger assets, so things like [Sienne], McGill College, like Alexis Nihon, those would be the bigger chunkier mortgage -- mortgages.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [93]

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And sorry, I'm just -- I'm thinking, in terms of the ease of putting financing on some of the larger assets should you want to use those to sort of get some funds out. So are there larger, chunkier assets that are unencumbered at this point? Or is it a lot of the smaller properties that you...

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [94]

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There's none of the really sort of top significant assets are unencumbered. But we are, as we mentioned, doing stuff with respect to moving some mortgages around and things like that. So there are opportunities to transfer mortgages from some smaller properties, to larger properties where we can enhance the LTV on our existing assets. So that's more what we're looking at. And because we don't have a significant amount of -- really any mortgages coming due this year, we're not really doing a lot of financing.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [95]

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Okay. Then in Centre Laval, what was the LTV on that mortgage?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [96]

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In the range of 65%.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [97]

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65%?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [98]

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Yes, and that's something that we've been very happy with in terms of the negotiations we're having right now, good LTVs. So very pleased with how that's moving along.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [99]

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Okay. 65% the retail asset, low interest rate, that's positive. With regards to efficiencies, I think there is a view that you could get some savings, obviously, in G&A as well as maybe in operating costs within the portfolio. Wondering if you've seen any of that come through in Q1. I don't know how it would be easy or difficult to quantify it. And then your outlook going forward, in terms of the potential to get some savings. And also margins this quarter, year-over-year, it looks like they were pretty stable and they've been in a downward trend for a while, so that's positive. But do you think margins start to improve as you get that in-place occupancy number up?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [100]

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I think, yes, on the margin question. As we get more revenues from a lower base and lower occupancy, that will be helpful on the margin front. In terms of the G&A, if you strip out the severance costs this quarter, we definitely had lower G&A than we might have forecast. And I still think the 2.5% of revenue is a reasonable expectation. But I think we are definitely starting to see and making some cuts that you'll start to see flowing through the quarters. And once we kind of finalize where that shakes out, we'll be happy to give you a more specific number.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [101]

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Fair enough. On the development front, do you know what the total current active development is just in terms of dollar value? And when it comes online and a yield on that, other than the $24 million for the Ottawa asset?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [102]

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Well, the 2 assets we are currently just on which falls under development is the Decathlon store and 800 Palladium.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [103]

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Okay. So that totals -- so it's about $30 million or $40 million, is that...

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [104]

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About that, including capitalized costs, yes.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [105]

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Yes.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [106]

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Okay. And then on the same-property NOI growth, I think, if I remember correctly from the last call, you had indicated that, that was contemplating, was it a 90% in-place occupancy level by the end of this year, you're at 89.7%. So essentially, you're assuming flat occupancy for the year?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [107]

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Yes, we came in, in terms of the in-place, stronger than we expected to be at, at this point in the year. So not wanting to count our chickens before they're hatched, yes, I think we're assuming that, that's kind of the range of where we'll end up. Maybe a snick higher, sort of a little bit north of -- I think that the strength of the in-place occupancy in Q1 makes us more confident that we can push beyond the 90% level. So maybe 90.5%.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [108]

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And is there anything material coming off that you know of at this point? Or is it just a question you're 70% through 2019, you still have a few quarters left? It's just a question of getting that remainder or renewing some of those existing leases?

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [109]

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You mean, as leasing coming off, we have 110 O'Connor, which we mentioned on an earlier call, which has roughly 189,000 square feet, and that comes off end of November. So we are just in re-leasing on that, but that comes off at year-end.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [110]

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And that was the federal government that was maybe going to stay, but any repositioning opportunity as well there or...

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [111]

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Yes, we're going through the analysis of what that building can support in terms of we keep it as a B building, a B+ or an A-, we're trying to see what we need to do to drive the best rental rate and leasing velocity. We are having discussions currently on space on that building, so we're just trying to land on the standard for the building.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [112]

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Okay. And if you do redevelop it, Heather, would you potentially take that out of your same-property numbers? I know that some REITs do that. Or would it be in your forecast at this point?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [113]

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No, it would come out like it's a full-scale redevelopment of the whole building from scratch. So it's not quite a ground-up development, but it's immaterial, so it would go into development income out of SP NOI.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [114]

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And then the last question from me. You mentioned the 6% plus stabilized cap rate on some of the asset sales. But was one of those assets not vacant and for a fairly sizable amount of it? Or was it just that, that was a low cap rate relative to some higher ones that you sold for smaller assets?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [115]

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No, that definitely had an impact. So if you looked at the blend, it did take the blend down relative to what it would have been without that 1 vacant industrial building.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [116]

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Okay. And I assume there aren't too many more Picassos, as the article that was in the press, stated out there?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [117]

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We're still looking for them.

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Operator [118]

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Next question will be from Brad Sturges at IA Securities.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [119]

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Hi there. Just with the 1% to 2% same-property growth and the release renewal rate or spread of 3%, is that something you're baking in terms of being able to maintain or even improve?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [120]

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Sorry, I'm not sure I understood the question.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [121]

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In terms of renewal rates on your leasing spreads right now, 3% during the quarter, I just wanted to get a sense of expectations of is that the trend you can maintain, I guess, for looking out to these opportunities to re-lease the rest of the year.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [122]

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Yes, I think industrial, we expect to remain very strong and we're showing the same type of movement on office. And as Marie-Andrée said, she's working through the retail side with optimism, so we expect that trend to try to continue through the year.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [123]

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With the $200 million of mortgage financing, looking at your post-quarter, is that a similar type of LTV of around 65% for that mortgage portfolio? And then what type of average interest rate would you be looking to obtain for 5- to 10-year money with that pool of assets or mortgages?

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [124]

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In terms of the interest rate, it's always hard to tell because we don't fix the rate until we're close to closing. So if you can tell me what the final yields are going to do, I'd be able to give you a closer idea. But I think you'll see that the spreads are in the same range as what we've achieved on the mortgages that we've announced, so ranging in that $180 million to $200 million kind of range. And I think I may be forgetting some other parts...

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [125]

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The LTV.

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Heather C. Kirk, Cominar Real Estate Investment Trust - Executive VP & CFO [126]

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The LTV, yes, I think we'll be -- we are doing well on the LTV, and part of it has been we've chosen to -- we've put out a very large pool of financing opportunities, and we're definitely picking those that tick the boxes that are important to us, and one of them is loan-to-value. So I think you should see that in that -- in a similar kind of 60% to 65% range.

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Operator [127]

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And at this time, Mr. Cossette, we have no other questions. So I would like to turn the call back over to you.

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Sylvain Cossette, Cominar Real Estate Investment Trust - President, CEO & Non-Independent Trustee [128]

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Thank you, and I look forward to speaking to each one of you at our next conference call for the next quarter. So thank you very much, and have a nice day.

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Operator [129]

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Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.