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spk01: Good morning and welcome to Primaris REIT's fourth quarter 2021 financial results conference call. At this time, all lines have been placed on mute. After the prepared remarks, there will be a question and answer session. During this call, management of Primaris REIT may make statements containing forward-looking information within the meaning of applicable security legislations. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties. many of which are beyond Primaris REITs control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Primaris REITs filings with securities regulators. These filings are also available on Primaris REITs website at www.primarisreits.com. Your host for today's call will be Mr. Alex Avery, Chief Executive Officer of Primaris REIT. Mr. Avery, please go ahead.
spk05: Thank you, Operator, and good morning, everyone. It is with great pleasure that we join you today for Primaris REIT's inaugural financial results conference call. The team and I are very excited to be here today to discuss our strategy, results, and answer your questions. Joining me on the call are Patrick Sullivan, President and Chief Operating Officer, Rags DeVleur, Chief Financial Officer, and Wesley Bust, Senior Vice President, Finance. To begin today's call, I want to take a moment to discuss the recent evolution of the Canadian enclosed mall space and how we arrived at today's Primaris REIT. We are in the unique position of introducing the public markets to a new REIT with a 20-year track record of strong operating performance and an important inflection point in the industry. It has been nearly a decade since Canadian public equity investors have closely followed and evaluated a Canadian enclosed shopping centre focused REIT, a decade full of headwinds and challenging investment returns. In this regard, our timing is excellent. but also requires quite a bit of investor engagement and education on our part. The period between 2005 and 2015 was a robust expansionary time for enclosed shopping centres, characterised by retailers aggressively increasing store counts and pursuing top-line revenue growth, high occupancy and rising rents. During this period, investment enthusiasm for malls was strong and asset pricing was high. There was substantial capital invested into shopping centres, and their ownership in Canada consolidated with large institutional owners. In early 2015, this euphoric period for enclosed shopping centres ended when Target Canada declared bankruptcy and left Canada. This marked the beginning of an era of department store closures, with Sears Canada following suit in 2018, leaving only one conventional department store in Canada. Department store closures coincided with the onset of e-commerce headwinds. Retailers struggled to respond to the need for an e-commerce presence, leading most retailers to curtail expansion plans just as sizable former department store space became available, negatively impacting the performance of enclosed retail properties. The COVID-19 pandemic had a further profound impact on the already weakened Canadian enclosed shopping centre industry, with mandated closures in several jurisdictions and capacity constraints in others. While the immense human toll, economic impacts and disruption of societal norms are beyond debate, there were two significant ways in which the pandemic improved the outlook for enclosed shopping centres. Firstly, while retailer bankruptcies and store closures were costly for landlords, the resulting overall financial health of the remaining tenant base is the strongest witnessed in over a decade. Secondly, the pandemic sharply accelerated e-commerce adoption and market penetration. This acceleration coincided with a much more technologically savvy retail industry that had spent the prior five years learning about omnichannel retailing. Today, the collective learned experience of the retailing industry has concluded that bricks and mortar retail stores anchor a successful omnichannel retail platform. While we can't point to one single element, the reasons include customer acquisition, brand experience and brand loyalty last mile delivery and fulfillment and proximity to residential rooftops consumer-centric omni-channel retailing reveals a complementary relationship between bricks and mortar and e-commerce retailing supported by clear data showing effective offerings in each channel support stronger total sales Just last week, Target Corporation reported year-end results, including improving margins on their digital sales, which they attributed to having 95% of online sales fulfilled through their bricks-and-mortar stores. They went on to highlight that their consumer-centric omnichannel model is anchored by their store network and that they are committed to continuing to expand their store network, which, combined with their digital presence, results in higher sales across all channels. Following several years of industry headwinds, the current circumstances for mall ownership are very favorable. On fundamentals, occupancy remains depressed compared to historical levels. Rents have been adjusted downwards and property values have declined as market capitalization rates have risen. On the tenants, the pandemic eliminated many marginal retailers, offered the potential for others to restructure to become stronger, and resulted in an overall healthier tenant base that has accelerated omnichannel retailing adaptation. From a capital investment perspective, despite the fundamental outlook improving and tenants being healthier, changing investment changing investor property type preferences including rising allocations to multi-residential industrial life sciences office and data centers have led to very limited competition among institutions for enclosed shopping centers as institutions rebalance portfolios it is with a combination of significant recovery potential from depressed operating and financial performance modest asset pricing and limited competition for assets from institutional investors that we have created Primaris REIT. As early as 2018, management began the planning and design of Primaris REIT, starting from the enviable position of a blank slate. As the plan took shape, we had the opportunity to choose optimal characteristics consistent with industry best practices and investor preferences. Firstly, our financial model. Acknowledging both the clear preference public investors have for REITs with a conservative financial model and the headwinds that enclosed shopping centres have encountered in recent years, Primaris was designed with the lowest leverage among Canadian REITs, with 5.3 times debt to EBITDA and 28% debt to total assets, as well as a low 45-50% target FFO payout ratio. This highly differentiated financial model allows the REIT to reinvest $60 million a year back into the business after paying distributions and funding ordinary leasing and capital maintenance costs on a leverage-neutral basis. And as was announced on Friday by DBRS Morningstar, we are very proud to have been assigned an issuer rating of BBB with a stable trend, which Rags will discuss in more detail shortly. Secondly, on scale. both operational and as a public company. The acquisition of the six additional shopping centers for $800 million concurrent with the formation of the REIT enabled Primaris to achieve critical mass of 3.2 billion of assets, aggregating 11.5 million square feet of gross leaseable area. The enclosed mall business is a scale business for a variety of reasons. Pat will get into the specialized operational skill set we have at Primaris, but at a high level, enclosed shopping centers require very specific industry experience and relationships to leverage those economies of scale. As a publicly traded entity, reaching institutional scale provides sufficient equity market capitalization, permitting index inclusion and trading liquidity that allows institutions to invest. Finally, sufficient scale supports an investment-grade credit rating, allowing access to the unsecured debt market, providing strategic flexibility to the REITs capital structure, while also improving our cost of capital. Primaris has already achieved critical scale to enjoy these benefits. From a governance perspective, in keeping with the theme of best practices and investor preferences, Primaris was performed with all non-management trustees being independent each of whom was carefully selected for their specific skill sets and expertise relevant to our business. Our board is truly remarkable and represents a tremendous strategic resource to management and unit holders. Finally, the core of our business is our robust, fully internal property and asset management platform. We inherited our exceptional platform with nearly 20 years of operating history, a deep bench of long-tenured professionals, and a unique and scarce management capability tailored specifically to enclosed shopping centres. We plan to leverage this rare capability and take advantage of current shopping centre landscape features. At Primaris, we have no shortage of capital allocation opportunities. Large Canadian institutions own more than 50 billion of Canadian enclosed shopping centres that represent outsized weightings within the real estate portfolio allocations. We believe many of these properties may be available for purchase over the next few years as portfolio rebalancing initiatives make room for data centres, life sciences, multi-residential and industrial property exposures. This opportunity could be very large and Primaris stands alone as a potential buyer having achieved institutional scale as the third largest owner-operator of enclosed shopping centres in Canada and with a differentiated financial model and a mandate for growth. Similarly, the mixed-use and multi-residential opportunity in our portfolio is significant, actionable, and highly attractive. Our flagship development site, Dufferin Grove, comprising four acres of the 21 acres at our Dufferin Mall, is located steps from the Dufferin TTC subway station and is one of the most attractive development sites in central Toronto and arguably the country. Several of our other shopping centers have near-term economically compelling intensification opportunities that can be executed on directly through joint ventures or severed and sold. However, our measure of success is growth in value per unit and cashflow per unit. And as it stands today, our most attractive use of capital bar none is buying back units, a deep discount to net asset value per unit on a leverage neutral basis. We believe that demonstrating disciplined capital allocation and a commitment to delivering per unit growth is essential to building confidence among investors. Our near-term priorities include increasing awareness of investors about the compelling characteristics of an investment in Primaris REIT units, the opportunity in Canadian enclosed shopping centres, and on delivering on the business plan we have laid out. Operationally, we expect to deliver rising occupancy over the next few years into the 94% to 96% occupancy range as shoppers continue to demonstrate strong interest in returning to in-person shopping. Primaris REIT is exceptionally well positioned to participate in the recovery of the Canadian enclosed shopping centre industry with a differentiated financial model, gold standard governance, a fully internal specialized management platform, and a portfolio of well-maintained, well-located shopping centers across Canada with significant occupancy improvement potential. And with that, I'll turn the call over to Pat to discuss our platform operating and leasing results. Pat? Thank you, Alex, and good morning.
spk06: The enclosed shopping center business requires specialized management best achieved through a large-scale, fully internalized, vertically integrated property and asset management capability. This asset class is a specialized business, different than operating an office or industrial building due to the complexity of the leases, multiple tenant locations, and the importance of merchandise mix. Over the past decade, Primaris has built an in-house platform to oversee all operational requirements. Our people are the core strength of Primaris. We are experienced and excel at acquiring, integrating, and operating enclosed shopping centres. On January 1st, we integrated six new shopping centres into our portfolio, as well as 80 people employed at these properties. Our teams have spent the past 60 days reviewing and identifying opportunities to increase value in these new centres. Specifically, we target lowering costs to align with the core focus of Primaris, providing affordable space for our retail partners, increasing occupancy by leveraging our relationships with retailers, and the identification of development opportunities on excess lands. With the addition of six shopping centres, our merchandise mix has evolved to reflect the higher concentration of credit-worthy, needs-based retailers. Our top three tenants, Canadian Tire, Walmart and Loblaws, now represent 14% of our annual minimum rent. Canada's last remaining department store, HPC, is now our 14th largest tenant, representing 1.4% of annual minimum rent. Over the past 10 years, we've been focused on growing exposure to large format fashion users such as winners, and the Gap's Old Navy banner, now our fourth and eighth largest tenant by annual minimum rent, reducing the footprint allocated to small shop fashion tenants while increasing exposure to health and beauty and electronics tenants, which generate higher sales per square foot, which enables them to pay higher rents. In the past six months, leasing activity has increased noticeably. American-based retailers have been actively pursuing expansion opportunities with Canadian retailers becoming more active following the reopening of enclosed malls in the summer of 2021. In Q4 of 2021, we completed the highest number of new deals since Q4 of 2016, and we expect this trend to continue given the strong rebound in sales productivity. Renewal rents were modestly lower in the quarter due to continued focus to maintain occupancy as tenants rebound from pandemic-related restrictions and extended mall closure periods. With sales increasing and positive absorption, we expect metrics to improve. Another differentiator for our asset class is tenant sales. Tenant sales reporting is an important metric for a business, and it's typically only done so by tenants operating in closed malls. Analysis of tenant sales enables proactive management of merchandising, the identification of trends, and potential tenant failures in advance of any formal corporate disclosures. As Alex mentioned, the pandemic resulted in the acceleration of tenant failures, and as a result, the overall health of the retail business is much stronger. Our properties reported tenant sales during Q4, which were generally between 90% and 110% of pre-pandemic figures, with Ontario malls at the lower end of this range. Generally, our Ontario malls were closed for 120 to 150 days during the year, negatively impacting both sales and any revenue that is directly tied to sales productivity. With malls now reopened and fully operational, we anticipate our Ontario property sales productivity will rebound in line with the remainder of our portfolio, and this will in turn positively benefit revenue. Tenant sales across all categories within our properties continue to show growth, and we expect this to continue throughout the year. In-place occupancy for the combined portfolio was 86% as at the end of December 2021, with the original Primaris portfolio at 87.5% and the six acquisition properties at 83.2%. The original Primaris occupancy figure is relatively flat compared to Q3 2021 and Q4 2020, and includes Northland Village Shopping Centre, which is being considered for conversion to an open-air centre. If we exclude Northland Village from the occupancy statistics, the original Primaris in-place occupancy would have been 90% as of Q4 2021 compared to 88.8% in Q3 2021 and Q4 of 2020. As well, committed occupancy would have been 92.1% as compared to 91.8% the prior quarter and 90.7% Q4 of 2020. Primaris properties are located on more than 900 acres of land, typically located on main commercial thoroughfares and proximate to public transit. With the closure of Sears and Target, many site control and development restrictions at our property have been removed, enabling densification opportunities. We've received approval at Dufferin Mall in Toronto to construct approximately 1,200 residential units as part of the redevelopment of the four-acre parcel, primarily used for parking at the north end of the property. we are considering options to develop or monetize all or a portion of this land. Northland Village in Calgary is scheduled for redevelopment with plans to demolish the interior mall later this year and convert the property into a mixed-use open-air retail center. Approximately two acres of land was recently severed and sold to a residential developer for $5.8 million. The developer has commenced construction of 240 residential units, which are anticipated to be ready for occupancy Q1 2023. Redevelopment plans for the shopping center are conditional on pre-leasing efforts, and we will provide further details in the near future. In addition, we have commenced feasibility studies pertaining to the development of excess land at seven other properties in our portfolio. Given the broad zoning typically afforded to shopping center sites, we have the potential to add more than residential to our shopping center properties, and we are considering additional uses such as self-storage, freestanding retail, and hotels. we will consider entering to land leases, land sales, or entering into traditional lease scenarios. And lastly, omnichannel. Primaris really is a key piece of our retailer's tenant omnichannel strategies. The last mile is driving store growth in Primaris trade areas as our malls are an integral piece of the solution. Our properties are the largest, property in its respective trade area, providing tenants with distribution hubs in close proximity to residential rooftops for in-store pickup or delivery. To facilitate this, Primaris has established a proprietary e-commerce integration technology platform, Primarché, offering customers a one-stop shop destination to shop multiple participating malls and direct-to-consumer brands anywhere in Canada at any time. Unlike retailer-owned e-commerce platforms, Primarché connects the shopper to the retailer and the mall. Shoppers essentially shop the mall online, select their delivery preference, and smart order routing allocates the order for in-store fulfillment with this efficient order consolidation and dispatch for delivery or curbside pickup. The platform was launched in late 2021, and we now have 27 brands under contract across five properties. Our intention is to add three centres per quarter. Primaris captures retail sales at the mall and receives a percentage of marketplace sales. And with that, I'll turn the call over to Reg to discuss our financing philosophy and financial results.
spk02: Thank you, Pat. Good morning, everyone. I'm glad to be back in the public domain and the opportunity to work with Patrick and Alex and crew. Primaris capital structure and financing strategies are built on the belief that flexibility, optionality, and liquidity are essential, enabling us to minimize our cost of capital while maximizing investor risk-adjusted returns. Our best-in-class structure was intentionally created to give Primaris the foundation it needs to grow and operate effectively in today's retail environment. We have a wide breadth of attractive investment opportunities, spanning everything from acquisitions of enclosed shopping centers in the direct property market to intensifying our existing portfolio with mixed-use to multi-residential uses, enhancing our shopping centers through renovations, expansions, and repositionings to the repayment of debt, increasing distributions, and buying back units. A differentiated financial model provides excess retained cash flow to allow for internally funded growth and reduce our reliance on external capital sources. We believe the structure should support a reasonable cost and access to capital. As Alex mentioned today, clearly our most attractive use of capital is buying back units at a deep discount for an asset value per unit on a leverage neutral basis. Our NCIB is now approved and will commence on March 9th, where we intend to begin to buy back units. Our financing strategy, built upon our differentiated loan leverage balance sheet, is based on the approach of disconnecting the right side of the balance sheet from the left through the use of unsecured debt. This allows us flexibility to complete dispositions, produce a well-ladded debt maturity profile, and optimize our cost of capital. This strategy, combined with our scale, has enabled the achievement of an investment-grade credit rating, BBB, with a stable trend assigned by DBRS Morningstar on Friday. DBRS Morningstar stated the rating is supported by a strong balance sheet with relatively low leverage and financial flexibility, asset portfolio of quality, well-maintained centers, well-laddered lease maturity profile, diverse tenant roster, and primary robust market position within our well-defined niche as one of the largest owner-operators of enclosed shopping centers nationally. We are very proud of what we have achieved in such a short period of time. On our financial results, our financial results for the year ended December 31, 2021 and 2020 were prepared on a continuity of interest basis based on the transfer of the existing business from the former parent. The continuing operations represent the 27 retail properties contributed from H&R and the costs related with managing the properties, including the interest expense on debt and G&A costs. Set another way, our balance sheet and balance sheet metrics are representative of Primaris REAP's total 35-property portfolio, where the income statement and operating results account for the original 27 properties defined as the Primaris properties in our disclosure, which were owned during the quarter and the year. In order to give additional clarity and information on the combined portfolio results, we produced a supplemental including a 2020 and 2021 pro forma for the combined property portfolio, including the occupancy steps. If you have not done so already, we encourage you to review this document in addition to our report to unit holders. In our MD&A, we restated the financial forecast that was published in the Management Information Circular in the fall to account for the reclassification of internal property management fees with no change to forecasted net income for the 2022 year. Primaris assets were appraised prior to the creation of the REIT by a third-party appraiser. The appraisals were conservatively instructed to value the properties assuming vacant anchor space remained. By doing this, we were essentially assuming a negative carry as we built in the additional operating costs without any corresponding income. Given this conservative approach, we're very confident in our valuation and our valuation methodology. Based on the appraised value of our assets, we ended the quarter with a NAV of $22.07 per unit and debt to total assets of 28.4%. On a combined basis, 2021 pro forma net operating income would have been $181.8 million And after taking into account G&A, interest expense, and leasing costs, results in pro forma net income and funds from operations of $134.6 million or $1.32 per unit diluted. This results in an FFO payout ratio of 61%, slightly above our target range of 45% to 50%. We expect this payout ratio to normalize as we move through 2022 and 2023 as we capitalize on the occupancy improvement in the portfolio. We are committed to our differentiated financial model, enabling Primaris to self-fund its growth. We target the following capital metrics. Debt to EBITDA in the range of four to six times. We are well positioned to operate within this range, given our strong balance sheet and significant retained cash flow. Debt to total assets at 25% to 35%. Within this range, we will set up a staggered and long-dated debt maturity profile to mitigate refinancing and interest rate risk. An FFO payout ratio is targeted at 45% to 50%. The REIT is expected to generate approximately $60 million annually of free cash flow, enabling optionality and flexibility to reinvest in that growth. This conservative payout ratio allows us the capacity to maintain and upgrade our centers, freeze up capital for acquisitions, development, NCIB, and support pandemic recovery investments where necessary. And finally, secured debt to total debt below 40%. This strategy will enable us to transition to unsecured borrowing as their term mortgages mature. We expect to meet this threshold in Q2. As we mentioned earlier in the call, there are many benefits to starting with a clean slate. As we move through the year, we will continue to build on our financial and operating disclosure, and we'll include metrics such as AFFL and debt to EBITDA, to name a few. We welcome your feedback on our disclosure and endeavor to provide you with the information you require to assess and value our business and progress. With that, I'll turn it back to Alex.
spk05: Thank you, Reince. To wrap up today's call, we anticipate a number of opportunities in the near term to enhance investor confidence. These include continuing to build out our comprehensive reporting and disclosure package, reporting successive quarters of financial and operating performance, executing an inaugural unsecured debenture financing following our investment grade credit rating assignment that was announced on Friday, We plan to support broader research coverage and investor awareness. We look forward to demonstrating disciplined capital allocation and capital recycling unit repurchases under our normal course issuer bid. We're working on building out and communicating our ESG strategy, and we're supporting our retail partners as they optimize omnichannel business models. We look forward to a continued normalization of consumer behavior as pandemic constraints fade. And we believe there is a great opportunity to deliver compelling investment returns to investors. And we look forward to delivering on that potential. We'd now be pleased to answer any questions from call participants. Operator, please open the line for questions.
spk01: Thank you. If you'd like to ask a question during this time, simply press Start, followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, press Start 2. We'll pause for just a moment to compile the Q&A roster. Our first question for today comes from Sam Damiani of TD Securities. Sam, your line is now open.
spk04: Thanks and good morning. And Alex, I'm going to direct the first question to you since you're on the other side of the phone this morning for the first time. You know, you've announced this spin out, I guess, four odd months ago. You've basically executed the spinoff as intended, reported initial results. How do you look at the REIT today? as far as the consolidation opportunity that is there for Primaris, and what are you hearing from market participants, I guess, in terms of specific opportunities that might be on the table today?
spk05: Thanks, Sam, and good morning. You know, I think there are a lot of opportunities that we're focused on. First and foremost, the opportunity inside of our portfolio to drive higher occupancy. We think it's pretty actionable and something that we can execute on over the next couple of years. And that has a fairly high impact on our per unit cash flow and and metrics dropping our leverage, all sorts of positive things as that occupancy recovery takes place. And as that occupancy recovery takes place, we're expecting to gain more leverage in negotiations with tenants as well, which is sort of a standard thing in the shopping centre business. Secondly, I think there's a big opportunity in terms of increasing awareness with investors. We're spending a lot of time on meeting with investors and working on our disclosure package. We think that's a big opportunity. As you noted, there is an enormous opportunity for consolidation in our slide deck. We have a slide that has two bubbles, one showing $50 billion of enclosed shopping centres and just to the bottom left of that there's a tiny dot that represents Primaris in relation to the size of that giant bubble. It is a truly enormous opportunity. We do think that there are actionable opportunities to acquire shopping centres. We know there are actionable opportunities because we've had lots of inbound interest, and we are evaluating those opportunities. But our first order of business is to execute on our operating plan on our internal portfolio, and secondly, to raise awareness and hopefully create value for unit holders and see the stock price trade closer to NAV.
spk04: That's great for sure. Two more questions and then I'll turn it back if that's all right. When we look at the occupancy and it was detailed in the opening remarks, the impact of Northland isn't insignificant. in terms of the impact, you know, otherwise occupancy, you know, is going up nicely. You know, what left is there to occur in 2022 or perhaps 2023 as Northland continues to prepare itself for demalling? What's the impact on NOI and occupancy still to come?
spk06: I think with Northland... The interior mall is empty now. We've been working towards this for a number of years, waiting for tenant leases to expire. And our recovery ratio with regard to additional rents is fairly low, given there's no tenants in the interior of the mall. Demolishing the mall will have an immediate impact to NOI, as we'll stop spending money on the interior portion of the shopping centre. And then we'll just move to our pre-leasing efforts. And the opportunity at that mall is, As we move towards, say, building an outdoor centre, we can just build it as the opportunities arise. There's no push to do anything all at once. It'll happen over time. And as the tenants step forward and increase the demand, we'll build the buildings.
spk04: Okay, thank you. And last one for me on the percent rent in lieu, which is about $3 million on the quarter. What is the corresponding base rent on those leases? How much higher would revenue be if those leases were back to their base rent? And, you know, I guess what was that number pre-pandemic? And what's the timing, I guess, on most of those leases reverting back to their original structure?
spk06: Yeah, percentage rent in Lew is basically double what it was pre-pandemic. And a lot of that is tied to the restructuring of leases that were – that were tenants that filed CCAA for the most part, and our focus was maintaining occupancy. So we really did focus on reworking the tenant leases to keep them in the shopping centres, with the belief that if they ever closed, it might be difficult to have them come back if everybody had capital constraints moving forward. We're in the process of renegotiating a lot of those leases now. The deals we did were short-term in duration. Where it really shows through is on the recovery side. The tenants have reverted to percentage rent. Really, that falls right into revenue. On the recovery side, that's where we're lagging, and that's the opportunity to pick up on the NOI is get them back to paying normalized CAM and tax amounts.
spk04: So just to follow up there, so the percent rent in lieu that you're receiving from those, I guess, those tenants that you renegotiated with, they're not paying very much recoveries on top of what you see on the revenue line there?
spk06: We capture the entire amount in the revenue line.
spk04: Okay. Thank you. I'll turn it back.
spk01: Thank you. Our next question comes from Samaya Syed of CIBC. Samaya, your line is now open.
spk00: Thanks. Good morning. And firstly, congrats on getting the first quarter going. My first question, I guess, is around the, as you integrate the WHO portfolio, and if there's any easy wins or lower-hanging fruit from an operational standpoint there that you could point to.
spk06: I think the opportunity lies with the amount of vacancy in the shopping centres. Our focus has always been on maintaining costs and creating affordable real estate for our retail partners, and I think we're actively pursuing means to get the cost lower in those shopping centres and make them more appealing for retailers. We do have a very large portfolio across Canada, and by adding these centres, we've certainly increased our leverage with retailers. And that just means we have a lot more opportunities to talk to them about, and I'm optimistic that we'll see good occupancy gains in these properties over the next 6 to 12 months.
spk00: Okay, thanks for the color. I had a couple of questions on... is the forecast conservative based on what's changed from the time that you initially struck the forecast and now we're deep into Q1? And on the flip side, at this point in time, if there's anything that could hinder your ability to meet the forecast?
spk05: Samaya, you raise a good point. I mean, we did create that forecast six, nine months ago as we were preparing for the announcement of the spin and the publication of the circular. As we were putting together that forecast, we were mindful of the the numerous potential paths we could have gone through between then and the end of 2022. Certainly Omicron was not really a feature or a factor that we were contemplating, but we certainly, in a general sense, contemplated what potential paths we could end up coming through. There have been some restrictions that were put on malls in the last part of 2021 and in the beginning of 2022. They have not had a material impact on our business, but I would say it's safe to assume that we've been conservative. And to Pat's point about capturing some of the upside in our portfolio, we're highly confident that there is upside in the portfolio and that we will be able to capture it. But as far as the financial forecast goes, we didn't want to put too much of that in the forecast because it takes time to capitalize on these things. It takes time to sign new leases. It takes time for those leases to have the space fit out and then for the tenants to take occupancy and then start paying rent. So, you know, we're looking forward to driving things higher than the forecast. bottom line NOI perspective, aside from the reclassification of the internal G&A costs.
spk00: Right. Okay. And then on the disclosure side, the supplemental was helpful. And I think, Greg, you mentioned that you were looking to expand the disclosure. So just wondering if going forward those would include leasing spreads and productivity data for the full portfolio?
spk02: Yeah, that would be our intention. We'd be looking to add leasing spreads, sales data. Part of the problem with the sales data is everything is kind of skewed because of COVID. But, yeah, we would look to enhance the disclosure. We just felt that at this point, between COVID and the fact that the portfolio isn't comparable, it didn't make sense. But going forward, we'll start to add that disclosure during the year.
spk00: Thank you. I'll turn it back.
spk01: Thank you. As a reminder, if you'd like to ask a question, it's star 1 on your telephone keypad. Our next question is a follow-up question from Sam Damiani of TD Securities. Sam, your line is now open.
spk04: Thanks. Just on the – I think there's four remaining questions. vacant former Sears spaces in the portfolio. Any updated thoughts or plans with respect to any of those, particularly the ones that you've inherited from the HOOP portfolio?
spk06: Yeah, so there is a – at Quincy Mall, there's a 90,000-foot Sears box. 30,000 of it's been leased to Tenet. We're going to start Tenet fit out in the next 30, 60 days or so, and then we're going to tear down the balance of the spaces. about 60,000 feet gets demolished, and that'll create opportunities for out parcel development. In Kingston, we're starting to re-demise part of this space, so we've got one tenant signed for 15,000 feet. We've got another of our other tenants we're talking to, but we're really just going to work on demising the existing box as the opportunities come up. The other two, Lethbridge, we've got a number of tenants we've talked to, but we haven't progressed any further. And preliminary plans in Devonshire are likely that we're going to tear down the box, which is a two-level Sears box with a full basement, tear it down. And that will allow us to rework the entrance. There's a bunch of vacancy down at that end of the mall. We'll be able to better manage the leasing of that. But what we'll be left with is essentially 10 acres of land that really is unencumbered by any of the restrictions at the property itself. The Sears box in Devonshire was essentially, it was owned by Sears. and it was purchased by Hoop a couple of years back. So it's a fabulous opportunity for us to reshape 10 acres of that site.
spk04: That's great. Thanks very much.
spk05: Thanks, Aaron.
spk01: Thank you. Our next question comes from Glenn Campbell, who is a private investor. Glenn, your line is now open.
spk03: Thanks very much and congratulations on the spin-off. A couple of quick ones. Could you give us a sense of when the revenues in NOI are likely to start turning up on a quarterly basis? I had the sense from your comments that Q2 would be up, but I wonder if you could confirm that.
spk06: I mean, we're comparing against last year and there was, you know, all of our Ontario malls were essentially closed between 120 to 150 days. which was impairing all of our transient, our seasonal revenue in terms of special leasing. It mitigated our percentage rent, our percentage rent in lieu. And also, you know, we did work with our retail partners to give them rent concessions during the closure period. So trustfully, with all the malls open and operating this year on a regular basis, we'll see good comp numbers against last year, and we'll start to see a steady rise in NOI throughout the remainder of this year.
spk03: Okay, that's great. Thanks. And can you give us any color on the run rate on the portfolio?
spk06: I think it's early days for us. We're still delving into the properties themselves, and some of that has to do with the way that the recovery models were built. So I think we need a little bit more time to formulate a re-forecast. We're working on a re-forecast for next quarter, and we'll be able to do a little better guidance.
spk05: In terms of a ballpark, within our $180 million of original guidance in the management information circular in the fall, and I guess the $187.5 in Section 16 of the MD&A, ballpark numbers, the legacy Primaris portfolio was $140 of the $180 or $143 of the $187. and the remainder would be the HOOP portfolio, so $40 or $43 million.
spk02: Yeah, on a trailing basis, when we look back at last year, it was around $40 million.
spk03: Okay, that's great. Thanks very much. And one last one, if I might. On the NAV figure you've given us, you gave us a little bit of color on some of the operating assumptions there with the vacancies on some of the stores. But could you talk about any other kind of key assumptions there, how much? is being allocated to proceed development upside and cap rates, if you might. Thank you.
spk05: When we went through the process, we were engaged in discussions with FOOP as we were putting the deal together. And I think on both sides, there was no desire to either inflate or depress the valuations. We basically... you know, agreed to a process where we had a fully independent third party go through the appraisal process without us interfering in it. And the ambition was to have independent appraisals done on both portfolios so that we could have a comparable valuation that wasn't, you know, there was no intent to influence the valuations. It was a desire just to have an independent valuation so we could merge the two portfolios together. And as you noted, we previously flagged that, for instance, on the Sears boxes, we assumed that there was no leasing that took place. Similarly, as they went through the appraisal process, there was no credit given for deals that were not done So, you know, if you had a negotiation going on with a tenant, we didn't assume that that lease was done. We didn't assume that there was a capital cost associated with putting that in place. So it was quite a conservative process all around. And, again, the desire was to have a reasonable and independent third-party valuation completed.
spk02: On the finding value to development assets, The only one that was significant was Dufferin Grove, where $180 million of value was assigned to that parcel of land, given where we were in the entitlement process.
spk03: Okay, very good. Thank you.
spk01: Thank you. We have no further questions, so I will hand back to Alex Avery for any closing remarks.
spk05: Thank you, operator. With no further questions, we'll close the call. On behalf of the Primaris team, we thank you all for participating in today's call. We look forward to speaking to you again following our first quarter. So thank you and goodbye.
spk01: Thank you for joining today's call. You may now disconnect.
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