CT Real Estate Investment Trust

Good morning. My name is Lateef, and I will be your conference operator today. At this time, I would like to welcome everyone to CT REIT's Q4 2024 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star one one on your telephone keypad. To withdraw your question, please press star 1-1. The speakers on the call today are Kevin Salzberg, President and Chief Executive Officer of CTREIT, Jody Spiegel, Senior Vice President, Real Estate, and Leslie Gibson, Chief Financial Officer. Today's discussion may include forward-looking statements. 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 CTREIT's public filings for a discussion of these risk factors, which are included in their 2024 Management Discussions and Analysis and 2024 Annual Information Form, which can be found on CTREIT's website and on CEDAR+. I will now turn the call over to Kevin Salzberg, President and Chief Executive Officer of CTREIT. Kevin.

Thank you, Lateef. Good morning, everyone, and welcome to CTREIT's fourth quarter investor conference call. In a world of heightened volatility and uncertainty, CTREIT continues to be a beacon of stability and resilience. Our relationship with Canadian Tire Corporation, Our near fully occupied portfolio of properties with its long weighted average lease term and embedded rent growth and our strong balance sheet form the bedrock upon which our durability, reliability, and growth are based. This solid foundation has once again this quarter allowed us to deliver growth in our key operating metrics and source new strategic investments, all while prudently managing risk. and ensuring we retain flexibility to capitalize on new opportunities in the future. In Q4, we achieved a 3.6% increase in net operating, 1.5% growth in same-store NOI, 2% growth in same-property NOI, and 1.7% growth in ASFO per unit. For the full year, we achieved a 4.3% increase in net operating income, 1.6% growth in same-store NOI, 2.4% growth in same property NOI, and an impressive 3% growth in AFFO per unit. This growth contributed to our ability to, yet again, increase our distributions last year, our 11th increase since our initial public offering in 2013. These increases represent over 42% in the amount paid to our unit holders since that time. In 2024, despite a challenging investment backdrop, we were pleased to be able to source and deliver just shy of 500,000 square feet of new gross leaseable area through our development and acquisition program at a total investment of just over $156 million. With respect to our balance sheet, we continue to maintain our leverage and coverage ratios at the more conservative end of our peer group. This strategy has allowed us to generate increasing free cash flow over time, as well as currently provides us with a great deal of flexibility to fund current, and potential future investment opportunities as they arise. Through the course of 2024, we also repurchased over 875,000 CT REIT units through our normal course issuer bid program at a weighted average purchase price of $13.50 per unit for a total cost of just under $12 million. As I reflect on the past year and the unpredictable nature of the world around us today, I am proud of our achievements. and hopeful and optimistic about what CTREIT can accomplish going forward. We have a robust development pipeline that is anticipated to add over 600,000 square feet of gross leaseable area to the portfolio in 2025 alone. We have ample liquidity and a balance sheet that will allow us to execute not only on this development program, but to also fund additional future investment opportunities as they arise. And we have a proven strategy that fits these times and allows us to continue to leverage our relationship with Canadian Tire. our largest tenant and majority unit holder, in order to surface value for all of our units. I'll now turn it over to Jody and Leslie to provide some additional details on the quarter, our results, and our investment leasing and development activities.

Jody? Thanks, Kevin, and good morning, everyone. As highlighted in our press release yesterday, we are pleased to announce three new investments this quarter. These new investments relate to the development of a new 186,000 square foot Canadian tire store in Kelowna, British Columbia, the expansion of a Canadian tire store located in Winnipeg, Manitoba, as well as the redevelopment of a vacant property in Lloydminster, Alberta. These new investments total $59 million, are expected to earn a going-in yield of 8.11%, and will add approximately 284,000 square feet of incremental GLA to our pipeline of projects and our high-quality portfolio. The fourth quarter was a busy period for CTREIT as we completed several previously disclosed projects, including the vending of a Canadian tire store in Winnipeg, Manitoba, and the vending of a property containing Canadian tire marks and Dollarama stores in Mont-Tremblant, Quebec. Additionally, CTREIT completed two Canadian tire store expansions in Kirkland, Quebec, and Martinsville, Saskatchewan. These investments totaled $103 million and added 322,000 square feet of incremental GLA to the portfolio. In the fourth quarter, C.T. Reid also sold a portion of a property in Orillia, Ontario for $4 million. Our development pipeline remains strong with 19 projects at various stages of development with approximately half of these expected to be completed this year and the remainder expected to be completed in 2026 and beyond. These developments represent a total committed investment of approximately $328 million on completion, $107 million of which has already been spent, and $156 million of which we anticipate will be spent in the next 12 months. Once built, these projects will add a total incremental GOA of approximately 881,000 square feet to the portfolio, approximately 90% of which has been pre-leased at quarter end. At the end of the quarter, CTREIT maintained its 99.4% occupancy rate, representing a portfolio that is substantially fully leased, a true indication of the quality and strength of our properties. For the full year, CTREIT completed four Canadian Tire store lease extensions, as well as a lease extension with Canadian Tire for its head office at Canada Square. For the full year, we also extended over 400,000 square feet of non-Canadian Tire store or head office leases at a blended 10.3% spread over expiring rents. As at the end of Q4, the weighted average lease term for our portfolio was 7.7 years, which remains one of the longest in the sector. With that, I will turn it over to Leslie to discuss our financial results. Leslie?

Thanks, Jodi, and good morning, everyone. As Kevin highlighted, we were pleased with the results delivered by the REIT again this quarter. Same-store NOI grew by 1.5% or $1.6 million. Drivers of the same-store NOI increase were contractual rent escalations of $1.4 million, primarily being the 1.5% average annual rent escalations included in the Canadian Tire leases, as well as an increase in property operating expense recoveries of $0.4 million and a quarter. Same-property NOI grew by 2.0% or $2.3 million compared to the prior year. This increase was primarily due to the increase in same-store NOI noted as well as an increase of $0.6 million from the intensifications, completed in 2023 and 2024. Overall, the fourth quarter NOI grew by a healthy 3.6% or $4 million, driven by the increase in same-property NOI, as well as the acquisitions and completion of development projects in 2023 and 2024. In the fourth quarter, excluding fair value adjustments, G&A expense as a percentage of property revenue was 2.9%. which was higher than the same period in the prior year of 2.6%. This increase was due to both an increase in the compensation expense as well as the timing of when expenses were incurred. The fair value adjustment of $54.8 million in the quarter was driven by changes to the underlying cash flow assumptions and investment metrics for certain retail properties based on recent market activity. For the full year, the fair value adjustment was an increase of $119 million, primarily driven by contractual rent increases, leasing activities in the portfolio, as well as changes to the underlying cash flow assumptions and investment metrics. Over the last year, we've seen little overall change in the portfolio investment metrics. In Q4, the portfolio terminal capitalization discount rates decreased by one basis point. In the quarter, diluted FFO per unit was up 1.2% to $0.334, compared to $0.330 in the fourth quarter of 2023. This growth can be primarily attributed to the acquisition intensification and developments completed in 23 and 24, partially offset by the higher interest costs related to the debentures issued in Q4 of 2023 and the Q2 interest rate reset for the Series 4 Class C units. For the full year, diluted FFO per unit was up 1.9% to $1.33. Growth in AFFO per unit on a diluted basis was strong for the same reasons, and with the inclusion of the cash increases in base rents and came in at 30.8 cents, up 1.7% compared to Q4 of 2023. On a full year basis, diluted AFFO per unit was up 3.0% to $1.23.9 per unit. Cash distributions paid in the quarter increased again by 3% compared to the same period in the previous year due to the 11th distribution increase in as many years that Kevin referred to earlier. AFFO payout ratio for Q4 was 75.0%, which is in line with the same period of last year's 74.3%. During the year, CTE bought back over 875,000 units at an average price of $13.50 per unit. In the fourth quarter, we renewed the NCIB facility for another year, allowing us to opportunistically purchase up to 1.875 million units through November of 2025. Now turning to the balance sheet, our interest coverage ratio was 3.52 times for the current quarter compared to 3.60 times in the comparable quarter of 2023, with a decrease mainly driven by the increase in interest expense related to the new financings mentioned earlier. In 2025, we anticipate refinancing certain maturing debts of higher interest rates, which will lead to an increased net interest expense compared to the previous year. Specifically, the $452 million of debt maturing in Q2 this year We subject to these higher rates, comprised of $252 million of Class C LP units at the end of May and $200 million of public unsecured debentures that are maturing in early June. The indebtedness of EBIT fair value ratio was 6.81 times for the quarter, stable compared to last year's ratio of 6.83 times. Our indebtedness ratio was 41.1% for the quarter, which is comparable to the indebtedness ratio from last year. our indebtedness ratio continues to be within our target range. Lastly, with respect to liquidity, we ended Q4 with $3 million of cash on hand and $295 million remains available through our committed credit facility. Approximately $200 million is also available under our uncommitted facility with Canadian Tire Corporation. And with that, I will turn the call back over to the operator for any questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. We ask that you please limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question. comes from the line of Loren Calmar of Desjardins Capital Markets. Your question, please, Loren.

Thank you very much. Good morning, everyone, and congrats on another solid quarter. I just wanted to focus in on the new projects announced this quarter. The going in yield was quite a bit higher than it has been, I guess, as it relates to the projects announced throughout the earlier parts of 2024. I was just wondering, is this just driven by the composition of these projects and perhaps the land lease, or is there an opportunity for the REIT to take advantage of some higher yielding opportunities going forward?

Good morning, Lauren. I think your supposition is correct. I mean, the land lease is driving a higher return based on the type of project it is. The redevelopment is also a little bit higher yielding than our average. So it's the combination of those two outweighing the store expansion, which would be more in line with our typical project yields. That's driving the plus 8% return.

Okay, so I guess going forward, this is the exception, not the norm, probably. You'd be back in that six to mid-six range for projects in 2025?

Assuming the composition of those projects is more in line with our conventional store expansion, new store development on freehold lands, yes. I think that's correct.

Okay, awesome. Thank you so much.

Thank you.

Thank you. Our next question. comes from the line of Juliano Thornhill of National Bank Financial. Your line is open, Juliano.

Hey, guys. Good morning. Just a question with acquisitions. Why do you guys like those markets and kind of why did you decide to do it?

Well, I mean, the only acquisition type project in the three we announced is Kelowna. Obviously, Kelowna is a really strong market for Canadian tire. They're investing by constructing a new store alongside the REIT. Great demographics, seasonal, obviously, in terms of what it has to offer from a tourist perspective. Also, a lot of people have been retiring and spending more time in markets like Kelowna. BC has been strong from a GDP growth perspective. We're very comfortable there. Canadian Tire has a track record of performing well in all markets, large and small. Typically, as long as we can work alongside them, secure a long-term lease, we have great comfort investing in all parts of the country, quite frankly.

The next one was just on the GLA under construction creeped up this quarter. What factors do you think need to happen to kind of reach that 2021 area where you guys had 1.3 million or so in your development pipeline? Is it just a function of the low rates? Is it a function of the related party? I was just curious about how we could maybe end up getting back to that level.

Yeah, I think it's probably more the related party. I mean, our development pipeline is probably 80% of the entire projects. The degree to which they're investing in their space and and the capital they're outlaying to bricks and mortar projects certainly influences that. I think in 2021, we also had a large industrial project in our pipeline, which would have skewed the total. So if you sort of normalize for the smaller retail footprints relative to industrial projects, we're actually kind of close to that larger total composition of projects. But certainly the pace, given consumer spending, given the uncertainty in the economy on new capital projects, even though we've had a bit of a robust go the last two quarters, is slowing. So, you know, the expectation on new development projects for the balance in here, I would say, is probably less than what we've announced this quarter and last. But we're very happy with where the settlement pipeline is today, and we're going to try to find opportunities to keep it at the current level. Thanks.

Thank you. Our next question comes from the line of Michael Markitis of BMO Capital Markets. Please go ahead, Michael.

Thank you. Good morning, everybody. Kevin, could you maybe just give us a little bit more color on the redevelopment in Lloyd Minister, what type of property that is and what it entails?

Sure. So I think it's an IPO property that was tenanted by Canadian Tire. A couple of years ago, like Kelowna, it's a productive market for Canadian Tire. They chose to relocate the store into a larger box, which CT REIT owns. We funded that development project. So in the context of them relocating, the property became vacant. We are now in the later stages of finalizing leases. We have conditional lease in place for an anchor tenant. We'll be demising the box for three tenancies and hopefully delivering that in the later part of this year.

Okay, great. That's helpful. So was that property... Was there any income residual even after the relocation, or was it dark from an NOI perspective?

There's a gas bar on site that remained operational that continued to pay rent besides that note.

Okay. So the 8.1 is then just the incremental over the gas bar rent, or does the gas bar stay? How does that work? Sorry, go ahead.

Yeah, it's just the incremental revenue or NOI over the cost.

Okay. Um, just with respect to, you know, the unsecured markets are really like, in my opinion, anyways, very favorable. Um, you guys are sub seven times that T, but obviously there's a pace with Canadian tire. That's, um, that's progressing. Um, I guess, how do you guys think about your cost of debt? And obviously you look around a blended cost of equity, but how do you look at maybe taking a leverage up, um, and, with respect to how you're seeing any third-party acquisition opportunities out there today.

Mike, it's Leslie. No, I think, as Kevin mentioned, our balance sheet does have the capacity to increase our debt levels. You know, we're at 41.1% levered right now. You know, could that be a couple of points if that's the route we chose and chose to define things, you know, through the unsecured market? I agree with you there. really healthier right now, you know, rates in the last week sort of assembled, especially the underlying GOCs have come down. So, you know, that definitely is going to sort of hopefully help some of those projects perhaps kickstart. But, yeah, we do have lots of flexibility. And I think for the right acquisition or the right development or the right, you know, opportunity for growth, you know, that would be something we would consider too.

Thank you. Our next question comes from the line of Sam Damiani of TD Securities. Your line is open, Sam.

Thank you. Can you hear me okay? Yeah, good morning, Sam. Oh, okay. Thank you. New phone. Good morning. And I just want to say congratulations on these two pretty interesting projects in Kelowna and Lloyd Minster. Clearly, Canadian Tire sees very good business there, and with a relocated store, an expanded store, offers the REIT the opportunity to backfill these former locations, which I'm just wondering, I guess you kind of talked about Lloyd Minster, but I was just thinking in Kelowna, how do you see that site being repurposed once Canadian Tire does relocate into the new store?

Yeah, I mean, we're working on that right now, Sam. I mean, the nice thing about Canadian tire stores is typically these boxes are easily demisable. They are more rectangular than square, and splitting them up provides opportunities for, you know, anchors or mid-box tenants to come in and find new space. We've talked a lot about the supply-demand imbalance in terms of no new or very little new retail GLA being built. So, We're in discussions with many of those types of retailers. Boyd Minster was great in terms of finding the right tenants and making the pro forma tumble for us. You'll recall we had a similar situation in Chilliwack where last year, mid-year, we actually sold that box because we got a very attractive offer to purchase. So I think our first and best option is always to purchase redevelop, but in certain markets, you know, there's a shortage of commercial property or commercial property that can be converted. And so we will always assess our various options and determine the best path.

Okay, great. Looking forward to hearing how that goes in Kelowna. And just on the pipeline, you know, as was discussed, it's gotten quite big. and there's a lot of delivery scheduled for later this year. But just for modeling purposes, of that 881,000 square feet, how much of that is currently producing NOI?

Our Winkler redevelopment would be the largest single project where there is some NOI being generated. Beyond that, I think everything is incremental. And in terms of 2025, the expectation inclusive of Winkler, which is about 140,000 square feet, is to deliver 600,000 square feet. So I'll give you a rough order of magnitude.

That's helpful. Thank you. Two more quick questions for me. Firstly, just on the The renewal leasing spreads, Jody, you mentioned, I apologize, I didn't quite catch exactly what you said. If I heard it was 400,000 square feet renewed in the quarter at a 10% spread, but I didn't get the mix between Canadian Tire versus non-Canadian Tire and sort of office versus retail.

No problem. Good morning, Sam. So our third-party renewals for the year were around 400,000 square feet. at the spread of 10.3%. And then beyond that, related party renewals would have a little north of 300,000 square feet for the year, and typical increases that you would expect.

Okay. Is it fair to say that the Canadian Tire renewals in Q4 were 20-year renewals? Did I see that correctly?

Typically, our renewals of Canadian Tire are five years.

Okay. That just looked like the expiry schedule. tweaked a bit in 2044. Okay. And so when we look at Canada Square, I know it doesn't get a lot of discussion with the LRT in limbo or whatever. I'd love to hear that it's actually going to open this year. If you have any, you know, intelligence on that, I'd be greatly appreciated as a resident nearby. But just thinking about, you know, phase one of that

Sam, are you there? You cut out.

It looks like we're going to the next question. Our next question comes from Sumaya Syed of CIBC World Markets. Your line is open.

Sumaya? Yes, thanks. Good morning. Just following up on the leasing activity on the third-party GLSI, just wondering, how are the spreads trending on deals done, let's say, post Q4 to date? And is that 10% spread range still holding on?

Yeah, you know, I would say it is. I mean, we're continuing to be in a supply constrained market, not a lot of new retail coming online. And so throughout the quarters of 2024, we were seeing that, you know, north of double digit spreads. And so I would expect that to continue. until such time as new retail development starts to take place.

I just had a question on the fair value gains. It looks like about half the gains for the year came in Q4. If you could just walk through the drivers, is there any sort of notable market activity?

This is Leslie. There were a number of, like, some of the development completions that come towards the end of the year, so that would have sort of skewed some of it. And as I mentioned, there was, you know, we did have a number of external appraisals, and we sort of had put that through the portfolio. Also, they sort of very small, but you have one basis point each year. decrease to the metrics are also pushing sort of the valuations through in that Q4, but probably the largest driver really was the rest of the sort of development completions that came online towards the end of the year. Okay, got it.

And then just lastly on the capital allocation side, how active do you expect to be on the NCIB note? And obviously the stock has moved up quite a bit from where you were buying back last year.

Yeah, I think we were quiet on the NCIV front in Q4. And when we look at where we want to play, I think the average price at which we were buying back through the course of 2024 being $13.50 would be kind of a good guiding principle in terms of where our heads are at. I mean, we've talked about in the past liquidity factor and trying not to reduce the slope overly, but trying to support the units and also send the signal to the market. So we'll just keep watching as long as it stays up in these current levels. I'm not expecting us to be allocating capital towards that, but there's so much going on right now and so much volatility that we're living day to day, not even week to week. So we'll see where it goes.

Thank you. I'll turn it back.

Thank you. Our next question comes from the line of Himanshu Gupta of Scotiabank. Your question, please, Himanshu.

Thank you, and good morning. So just to, you know, broad question, retail narrative has been good, you know, at least in getting better. Market trends are improving. Obviously, you're getting, you know, 10% kind of plus leasing spreads, maybe more in some cases. How is that translating into cap rate compression at all in your product? I mean, obviously, you know, for this year, it was flat, you know, discount rate, terminal cap rate as well. How do you see, you know, values evolving in the near term?

Yeah. It's a great question. I think it remains to be seen, quite honestly. I mean, investment volumes in Q4 and 2024 overall were quite low. Retail is certainly in demand. We're seeing that from the cap rate surveys and our experience in the market. I think the economy and rates and tariffs and all of these macro headlines are certainly influencing people's perception of the degree to which they want to allocate capital. into risk assets for 2025. So I think it's an evolving story to mention. I mean, it's hard to predict. I think the fundamentals of retail are still very strong. Anecdotally, I'm hearing of more institutional players who are looking at unenclosed retail as an asset class they want to get into to a greater extent. So I think that should bode well generally for our assets and our fair value, but, you know, things are changing so quickly, it's really hard to pin down.

That's fair enough. And then, you know, obviously adding the tariffs to the equation, are you having discussions with, you know, obviously CDC? Like, how does that impact the, you know, the expansion plans or the development plans there? And I see, you know, I think a couple of properties you removed, I think, in London, Ontario, and Orleans, Ontario. I think they were previously disclosed as intensification. They were removed as well. So just wondering that, is that also a reason for, you know, slowdown in development? A comment which you made.

The removal of those two projects had nothing to do with tariffs. I think that was changing priorities and capital allocation decision-making from Canadian Tire's perspective. Yes, we are in discussions with Canadian Tire about the changing landscape, but I think like CTR8, we're all just watching day-to-day in terms of how things evolve and are cautiously optimistic about the strength of the business, and certainly we're in a better spot today than we were a year ago. But at the same time, you know, managing the business to, you know, to plan for the unknown. So I think, you know, pre-tariff financements, capital deployment into new retail projects was already starting to slow a little. That was more based on where the economy was at, consumer spending and performance. You know, the degree to which that changes over time. I think it remains to be seen at this point.

Fair enough. Thank you. Totally understand a lot of unknowns here. So thank you for the question.

Yeah. Yeah, no problem.

Thank you. Our next question comes from the line of Pammy Burr of RBC Capital Markets. Your line is open, Pammy.

Thanks. Good morning. Can you maybe talk a little bit about just the Canadian Tire lease extension at the head office at Canada Square? Just any color on the square footage, the term, any changes in the rent, etc.?

Good morning, Tommy. It's Jody. So on Canada Square, it was a short-term lease renewal for Canadian Tire. As you know, this is a 50% property with us, but at 100%, it's a little over 200,000 square feet that got renewed. And really the short-term nature of it just gives them time to finalize their workplace strategy and, you know, set themselves up for the future.

Okay, so there's no change in the rent?

We're not going to comment on the rent, Pommy, but just what I'll say is, you know, we continue to work with Oxford and Canadian Tire on the future of Campus Square and Canadian Tire's involvement in the complex. And this renewal sort of, as Jody mentioned, sets us up to to hopefully finalize something this year for the longer term. And if and when that should come to pass, we'll obviously provide some additional color and details on where that lands.

Okay. Just last one for me, just on the Series B, I think that's coming due later, and as well the Class C units. Just thoughts on, maybe more so on the Class Bs, what you're thinking in terms of refinancing from a term standpoint and where you're seeing rates at this stage.

Tommy, yeah, for the public debentures coming due in June, You know, we're looking at a number of things. Obviously, the debt markets are, you know, very healthy right now. You know, we're probably looking more towards sort of the five-year versus some of the longer seven and ten years that we're doing, just given maybe the relative, you know, spread between those tenors. You know, right now, you know, a five-year, like five years would be just over 4% for us. So, We'll see where things are, but we're definitely taking a look at what those are, all the different options that are on the table in terms of how we're exactly going to refi those, and we'll have probably more plans to in the make-all.

Thanks very much, Leslie. I'll turn it back.

Thank you. Thank you. Our next question comes from the line of Sam Damiani of TD Securities. Your line is open, Sam.

Thank you. I apologize about that earlier. I was just going to ask about the Canada Square project. Just, I guess, any new thoughts as to the composition of Phase 1, which was to include some office space. Is there any reconsideration there, just given the overall kind of changing in the market and everything?

Welcome back, Sam. I guess what I would say, it depends on how you're describing phase one. For us, phase one is the determination and future plans as it relates to the existing buildings. So that is and will remain likely office as it relates to the first new construction, which is a little further away today. At one point, that was contemplated to be entirely office, and then that reverted to a scheme where there was less office, and I think it's moving to a scheme where there will be no office. So that's how we're thinking about it from a master planning perspective. I see.

Okay. That's helpful. And just to wrap up.

I'm sorry. Sam, I just wanted to say we have no further indication of when the LRT is going to open.

Yeah, yeah, yeah. That would be nice.

Oh, well.

Okay, thank you. And just last one, just on the topic of tariffs, I wonder if, Jodi, you could just tell us if you're hearing any change in the leasing markets as a result of the threat of tariffs. Are tenants starting to pull back on decision-making specifically related to the threat of tariffs?

Yeah, you know, I think it's a bit early days for that. So we're not seeing anything yet on that front, and Not sure if we will, actually. Tenants seem to be wanting to expand. And at the ICSE conference, there was a lot of people wanting to expand their network, do new deals, a lot of positive momentum, I would say. However, of course, an announcement today, tomorrow, next week, whenever, could change things or change the sentiment. But right now, I'd say it's the same as it was prior to the attention for terrorists coming.

That's helpful. Thank you very much, and I'll turn it back.

Thank you. Our next question comes from the line of Brad Sturgis of Raymond James. Please go ahead, Brad.

Hey, good morning. Just to go back to Canada Square for a second, and on the first phase, I think my understanding of it was you would kick off once you got the right level of pre-leasing done on the office side. I'm just curious, at this stage, kind of what activity levels you are seeing for the space you're looking to lease before you would commence that first phase.

I would say we are in active discussions and working on paper for the amount of pre-leasing we would require in order to move forward with the first phase.

At this point, it's probably a little bit too early to say, but are you still thinking about it as a project for 2025 or 2026?

I think the reality is we will be spending pre-development funds through the course of 2025, and then the actual construction will occur in 2026 at the end.

Okay. Thank you. I'll turn it back.

Thanks. Thank you. Our next question comes from Lauren Kamar of Desjardins Capital Markets. Please go ahead, Lauren.

Thanks. Just one quick follow-up. Obviously, you guys talked about, you know, tenants looking to expand still, and then you talked about the leasing environment, and I know we've heard from some of your open-air peers that they're getting more favorable terms as it relates to rent escalators. I was just wondering, do you expect to see any of that positive momentum, I suppose, on the CT leases, namely in the form of rent escalators above the 1.5%, or is that pretty much set in stone?

No, we've talked about this before, Lauren, in that for some time, obviously, especially as inflation was elevated, the appropriate level of escalation means um in those annual uh rent bumps uh and we've had lots of conversations with ctc lots of negotiations uh we have had success in negotiating higher rent escalations and certain lease renewals um specifically in more urban markets um so i think we will continue to push the envelope on on that as we can and as appropriate um you know to remind you We're still in the early days of lease renewals. If you think of our lease maturity chart and the sort of bell-shaped curve, we're at the forefront of it still currently. So even with the occasions where we are able to negotiate improved terms, on average, I think for some time, the average rent bumps in those leases will continue to be 1.5%. It will take some time to flow through the entirety of the portfolio if we are able to continue to successfully negotiate higher escalations. But yes, we are working through that, and there are occasions where we are able to negotiate higher than what happens.

Okay. Thanks for the reminder, Kevin. Appreciate it.

Thank you.

Thank you. Our next question comes from Mike Markitis of BMO Capital Markets. Please go ahead, Mike.

Thanks, Operator. Just a follow-up for me, Leslie. I think if I heard you correctly, you said just on if you were to do a financing, you're leaning more into five-year. Can you help us understand that logic? I mean, it's cheaper, yes. Is it on the view that the curve continues to steepen and five-year rates are going down, or is it based on a 50 basis point-ish advantage savings? And if so, how would that sort of compare to where term premiums would be historically?

I think you pointed, it's more to do, I think, with the steepness of the curve and the relative price between 5, 7 and 10 right now where things are. I mean, we obviously have different places when we're looking to sort of ladder out the maturities. And so that also works for us from that perspective. So, you know, the five year works out in things like that price right now.

Does the decline in your weighted average term to maturity factor into that discussion? I guess it's kind of come in over the past several years.

Yeah, I would say not overly. I mean, it is coming in, obviously, as we do start to do five-year renewals through the Canadian entire lease, the weighted average term will naturally, you know, start to, will continue to decline. I mean, yes, that matches, I guess, a shorter term, but I'd still say we do have a mix of playing in sort of the medium or longer term as well. So, You know, even if this one, if we do a five-year, you know, another one down the road could easily be a seven-year too.

Okay. Got it. Thanks.

Thank you. As there are no further questions at this time, I will turn the call over to Kevin Salzberg, President and CEO, for closing remarks.

Thank you, Lateef. And thank you all for joining us today. We look forward to speaking with you again in May after we release our Q1 results. Have a good day.

This concludes today's call. You may now disconnect.