First Capital, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the First Capitol REIT Q2 2023 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star one on your device's keypad. I would now like to turn the conference over to Alison. Please proceed with your presentation.

Thank you, and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. A summary of these underlying assumptions, risks, and uncertainties is contained in our securities filing including our q2 mdna our mdna for the year ended december 31st 2022 and our current aif which are available on cedar and our website these forward-looking statements are made as of today's date and except as required by securities law we undertake no obligation to publicly update or revise any such statements During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be considered as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call. I'll now turn the call over to Adam.

Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us for our conference call. Starting with the quarter, our results were in line with our expectations and were underpinned by continued strength in leasing across our high-quality growth re-anchored portfolio. Same property NOI grew once again, and lease renewal lifts were the second highest we've had on record. Now a quarter doesn't make a trend, but the fundamentals underpinning leasing demand are very solid and poised to persist for the foreseeable future. Significant population growth, a strong labor market, virtually no new supply, Higher replacement costs, strong top line sales growth and margin protection from our tenant base have all reinforced these fundamentals. This is very beneficial as we look ahead with respect to demand and rental rate growth for our portfolio. Owning such high quality assets helps us to attract the best people. Our leasing personnel have never been more talented and they are armed with new tools from our technology investments. We're working on some very exciting transactions in our leasing department that we look forward to sharing soon. This is particularly important given the tenant turnover opportunities we're working on as well, which is a normal part of our business and an important one for the growth that it provides. As we've communicated prior, after a nice increase in Q1, our occupancy dipped in Q2 as a result of two specific spaces. one with a Walmart location paying only a single-digit gross rent per square foot, and accordingly, the repositioning of the space is an opportunity for FCR. Walmart vacated in June, and our leasing team was able to backfill half of the space during the same month with a short-term tenant that will allow us to collect a little bit of rent while we work through several permanent prospective tenant options. The other contributor was our single Nordstrom Rack location at Yonge and Bloor in Toronto. Now, there are several very exciting opportunities at play at this property. I had mentioned last quarter that we were surprised by the news of Nordstrom's departure, given the productivity of the single location we had. I'm pleased to report that leasing demand has been very strong. I'll spend the balance of my remarks today on our top strategic priority, which is our enhanced capital allocation and portfolio optimization plan. Following the plan announcement in the latter part of last year, feedback was overwhelmingly positive that this is the right plan for FCR. Alongside that affirmative feedback was also a degree of skepticism related to whether the plan could be successfully executed given macro factors. We certainly recognized the environment at the time. However, given the quality of our assets and the capability of our team, we had conviction in our ability to execute. We are now several months into the plan and notwithstanding the macro environment has certainly not improved, we've made a lot of progress. Part of our plan is designed to surface unrecognized value that we have created in numerous low-yielding assets. None of the assets identified for sale are multi-tenant grocery and retail properties. Most of them represent density that has been zoned by FCR. And all of them have seen our short to medium-term value enhancing goals achieved. The plan includes the sale of a billion dollars of these assets by the end of 2024. The capital raised is being redeployed into more impactful uses. When we announced the plan, our expected allocation of the proceeds was roughly $400 million to reduce debt, $400 million into development, and $200 million into other uses, including NCIB repurchases and near-term value creating investments that are consistent with our real estate strategy. Today, we expect debt to be reduced by more than $400 million and development expenditures to come in less than $400 million. In terms of the remaining $200 million, part of it has been redeployed to accretively buyback units, and we also made an exemplary acquisition in Q2 that Jordi will speak about. The sale of the properties under our plan has the rare and impactful effect of improving both our balance sheet and our earnings for FFO per unit at the same time. Over the last few months, we have made great progress with roughly $460 million of announced sales, equal to 46% of our target. And pricing has been strong, representative of a 17% average premium to IFRS NAV. So our optimization plan remains well on track which will continue to deliver higher FFO with less debt.