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Operator
Good day, ladies and gentlemen, and welcome to the Rio Can Real Estate Investment Trust's fourth quarter 2022 conference call. At this time, all participants are in a listen-only mode. After management's presentation, there will be a question and answer session, and instructions will follow at that time. I would now like to hand the conference call over to Jennifer Seuss, Senior Vice President, General Counsel, ESG, and Corporate Secretary. You may begin.
Jennifer Seuss
Thank you and good morning, everyone. I'm Jennifer Seuss, Senior Vice President, General Counsel, ESG, and Corporate Secretary of RioCan. Before we begin, I would like to draw your attention to the presentation materials that we will refer to in today's call, which were posted together with the MD&A and financials on RioCan's website yesterday evening. Before turning the call over, I am required to read the following cautionary statement. In talking about our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. In discussing our financial and operating performance, and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP under IFRS. These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RIOCAN's performance, liquidity, cash flows, and profitability. RioCamp's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we apply to making these forward-looking statements together with details on our use of non-GAAP financial measures, can be found in the financial statements for the period ended December 31st, 2022, and management's discussion and analysis related thereto as applicable, together with RioCAN's most recent annual information form that are all available on our website and at www.cdar.com. I will now turn the call over to our President and CEO, Jonathan Dillon.
Jennifer Seuss
Thanks so much, Jennifer, and thanks to everyone that's taking the time to join us today. You've got RioCAN's senior management team around the table, and much like the rest of 2022, the fourth quarter demonstrated our portfolio's quality, our tenants' resilience, and our team's extraordinary depth and capability. By every measure, RioCAN's well-positioned assets, strong, stable tenant mix, and delivery of developments drove strong results in 2022. These results reflect our focus on the pillars that support our five-year plan, resilient retail, customer centrism, intelligent diversification, and responsible growth. And when I think about 2022, the word that comes to mind is significant. It was a year marked by significant challenges and disruption, including pandemic-related restrictions at its start and extreme inflation and interest rate increases as the year progressed. At the same time, it was a year of significant advancements for RioCan. At our February Investor Day last year, we introduced our strategic roadmap with five-year financial growth targets. We set ambitious goals and I'm pleased to share that despite ongoing economic turbulence, our 2022 performance has us on the right track to achieve our targets. Our major market necessity-based portfolio generated strong operating results. The results reflect years of prudent dispositions of lower growth assets and the strengthening and diversification of our portfolio and income. These moves have set us up for the delivery of sustainable growth as we progress into the next four years of our strategic plan. Our development program also had an unprecedented year of fueling growth. I'll speak more about this in a minute, but our program achieved a watershed moment with the value of projects we completed in 2022 outpacing what we spent. Let's first dive into our operating results, We're impressive in any conditions, but even more so in the face of 2022's market dynamics. Our commitment to resilient retail and customer centrism is yielding results. Rio Can's assets are located in Canada's major markets in densely populated areas with high average household incomes of $135,000 and an average population of 250,000 people within a five-kilometer radius. The portfolio has never been more defensive, with approximately 86.5 percent of our net rent generated from strong and stable tenants. Same property NOI for the year grew by 4.3 percent. We achieved the higher end of our guidance range with FFO per unit of $1.71, an increase of 7 percent. When we strip out restructuring expenses, FFO per unit was $1.73. New and renewed leases totaled 5 million square feet. We ended the year with retail committed occupancy of 97.9% and a renewal retention ratio of 91.5%. Tenant retention reached a new high of 93.5% in the fourth quarter. The blended leasing spread for the year was 9%. New leasing spreads of 12.3% bolstered this result. Rent per square foot for new leasing in the fourth quarter was $24.10, above the average net rent for the portfolio of just below $21. The combination of high retention, leasing spreads, and rising average net rent allows us to take tenant failures, such as was recently announced by Bed Bath & Beyond, in stride. I'm going to pause for a moment here to address some questions you'll likely have about the impact of Bed Bath & Beyond and its recent CCAA filing. First, I'll tell you that this outcome was very well forecast and we took proactive steps to mitigate and address it. I'll also tell you that it was factored in when we developed our 2023 guidance. RioCAN has 13 bed bath locations. Most are in conventional midsize boxes that are in high demand. Over the past several months, RioCAN has been in discussions with numerous tenants that have expressed interest in the spaces, all of whom serve as strong traffic drivers. Once there's clarity on the CCAA process, we expect to fill the vacated spaces quickly, and in most cases, at higher rents. In the interim, we have two mitigants against the immediate impact. First, we'll receive occupation rent through the liquidation process, which is expected to take eight to 12 weeks. We'll work towards finalizing new leases during this time, and in doing so, minimize downtime. And second, in addition to the mechanisms under the Canadian CCAA process, We also have an indemnity from the U.S. parent. We will pursue all remedies available to us with vigor. And moving back to the bigger picture, our results demonstrate that tenants value the space and service RioCan provides. They'll continue to covet our space, particularly in the supply-constrained environment. This allows us to be confident in our ability to find compelling replacement tenants that enhance the retail mix at our shopping centers, as we have always done. It also augurs well for RioCAN's long-term sustainable growth. We continue to see the transactional value of our portfolio. The hallmark of RioCAN's disposition program back in 2021 was raising efficient capital by opportunistically capitalizing on the clear disconnect between public and private market valuations. And in 2022, we shifted to strategically disposing assets to enhance the quality of the portfolio. RioCan raised close to $460 million in equity through asset sales in the year. The 2022 dispositions included secondary market assets and two enclosed centers, the sale of which improved our overall portfolio quality and generated capital that can be recycled into more productive uses. 2022 also saw significant advancements for RioCan Living's residential rental portfolio with the delivery of our Latitude and Strata buildings in the first quarter, the completion of Luma and Rhythm in Ottawa in the last half of the year, and the acquisition of Market Laval back in February. RioCan Living currently has approximately 2,200 completed purpose-built residential rental units. The units are spread across 10 buildings in Toronto, Montreal, Ottawa, and Calgary. Supply is constrained in these markets and there's an increase in demand due to the return to in-person studies, increased immigration, low unemployment, and cooling home sales. Leasing velocity continues to be excellent. Tenants are drawn to well-located, amenity-rich rental accommodations with easy access to transit. The eight RioCAN living buildings that have reached stabilization are 95.7% leased, and lease-up is progressing very well at LUMA and Rhythm. At the end of 2022, Rio Can Living also had 2,575 condominium and townhouse units under construction. Of the six active condo construction projects, 85% of the units have been presold, representing 95% of pro forma revenues. All presales have sizable deposits associated with them. Between 2023 and 2026, these projects are expected to generate combined sales revenue of over $860 million. Proceeds from selling condos and townhomes combined with capital repatriated from asset dispositions gives us the flexibility to self-fund higher-value mixed-use development projects, strengthen our balance sheet, and opportunistically repurchase REOCAN units at attractive levels with any excess proceeds. RioCan's intelligent diversification continues to progress as the development team executes numerous mixed-use projects in major markets across Canada. In the year, we completed 651,000 square feet of high-quality developments and two condo and townhouse projects with a combined value of over $688 million, outpacing our spending, which was approximately $427 million. We expect to deliver similar amounts of square footage and value in 2023. Now, in our press release, we highlighted five projects that we are focused on as part of our next wave of development, aptly called the Focus Five. These five projects are all large-scale, transit-oriented, mixed-use developments in the GTA. Each has scale that provides options to create value through development, partnerships, and air ride sales, which will drive growth for years to come. We also have a zone development pipeline of 15 million square feet and have submitted applications for an additional 8 million square feet of mixed-use developments, all in the GTA. We create value by advancing projects through the zoning process and take a disciplined approach to determine further investment once they're shovel-ready. We also made significant advancements in our commitment to responsible growth. Our balance sheet remains strong. We ended the year with $1.5 billion in liquidity and an $8.3 billion unencumbered asset pool. We tactically leveraged this unencumbered pool and refinanced with secured mortgages for the most cost-effective capital. We unveiled a new ESG strategy and a plan to introduce science-based targets for our operations. Other accomplishments in 2022 include ranking first among our Canadian peers in the 2022 Gresby Real Estate Assessment maintaining our first place rank among Canadian peers in the Gresby Public Disclosure Assessment with an A rating for a fourth consecutive year, and increasing the number of properties achieving BOMA-BEST certifications such that over 65% of the gross leaseable area of RioCAN's portfolio across Canada is now BOMA-BEST certified. We were also recognized as one of Greater Toronto's top employers and achieved outstanding engagement results of 90% in our annual employee engagement survey, something we are all very proud of. We continue to lead the way in integrating responsible growth and ESG best practices in everything we do. These efforts lead to immediate results and also serve to bolster sustainable success. Now, as I said when I started, RioCAN's 2022 performance was significant. It demonstrated our strengths, which allow us to look beyond short-term turbulence and focus on successful outcomes for the long term. We enter 2023 with signs pointing to an economic slowdown. However, we enter the year from a position of strength, well-positioned to overcome the current volatility while staying in the course of driving future growth and value creation. We're poised to succeed in any environment and to benefit from the favorable supply-demand dynamics within the Canadian retail real estate sector. At the same time, our established development platform continues to fuel future growth. Balancing heightened uncertainty with the strength of our foundation and continued demand for our prime locations, we expect our FFO per unit to range between $1.77 and $1.80 for 2023. This is in line with our five-year target compounded annual growth of 5 to 7 percent. We anticipate same property NOI growth of 3 percent and an FFO payout ratio of between 55 to 65 percent. Development spending for 2023 is expected to be between $400 million to $450 million. With reinforced confidence in our competitive advantage, I'm pleased to announce another distribution increase. RioCAN's Board of Trustees has approved a 6% increase to its monthly distributions to unit holders from $0.085 to $0.09 per unit, beginning with the distribution declared in February 2023 and payable in March of 2023, bringing RioCAN's annualized distribution to $1.08 per unit. This increase is aligned with the goal of delivering consistent, sustainable growth for our unit holders, which we communicated in our Investor Day last year. We face the future confident that we've strategically and responsibly managed every aspect of our business over which we have control. Our efforts over the years set RioCan up for success and our focus remains on the long term. We're confident in our growth trajectory and the ongoing demand for our scarce and high quality real estate. The objectives in our five year plan were established with purpose and conviction that in concert with RioCan's many differentiating attributes, are achievable in almost any environment. With that, I'm going to turn the call over to Dennis to take you through our balance sheet and provide insight into how it continues to support our quality and growth.
Jennifer
Thank you, Jonathan, and good morning to everyone on the call. 2022 was a year of excellent performance for RioCan. We drove strong results through consistent and focused execution of our strategy that we laid out at our investor day last year. This was made possible by an exceptional team that strives to maximize the value of our high-quality portfolio that is located in Canada's most attractive market. In my comments today, I'll provide additional detail on our 2022 results, our 2023 guidance, and highlight our balance sheet strength. Our 2022 FFO per unit of $1.71 was an increase of 11 cents or 7% over the prior year. This increase was driven by our core growth drivers, which are same property NOI growth and development deliveries. Same property NOI growth of 4% added $0.08 per unit. Development deliveries, including growth in our residential portfolio, added $0.05 per unit. Higher interest rates partially offset these increases. However, this impact was muted by our early refinancing and hedging activities as these measures resulted in an effective interest rate on our refinancing of our 2022 maturities of 3.3%, significantly below market. We also benefited from higher interest income on floating rate loan receivables. As a result, the net reduction caused by higher interest rates was only one cent per unit. Results were also impacted by reduced SFO associated with assets that were sold, but there was an offset here as well. The accretive impact of unit buybacks acquired using excess proceeds from our distribution The net FFO reduction related to assets sold was offset by the unit repurchases with a one cent per unit impact. Finally, our 2022 FFO included $4.3 million of restructuring costs that we do not expect to occur. Our Q4 2022 FFO was driven by the same factors as the portfolio results. We reported a decrease of four cents as compared to Q4 2021 due to the timing of inventory gains. as Q4 2021 included significant inventory gains. Excluding the impact of this variance, FFO per unit for Q4 2022 was two cents higher than Q4 2021. Looking ahead to 2023, we provided FFO guidance in the range of $1.77 to $1.80 per unit. In our five-year model from Investor Day, the target of 5% to 7% FFO growth CAGR assumed a normal business environment in each year. The reality is that there will be ups and downs across the years. We achieved the high end of the guidance range in 2022 and lower in 2023. The average across these two years remains on track. We reiterate our five-year expectations as strong NOI growth is expected to mitigate the impact of interest rate volatility. Similar to 2022, our core growth drivers will fuel our 2023 FFO increase. Plan targets 3% same property O&I growth from commercial properties, as strong leasing in 2022 will drive income in 2023. We also expect double-digit rental growth from our stabilized residential properties. We anticipate significant contributions from our 2022 and 2023 development deliveries, which total $1.2 billion in value transfer to income-producing properties. Stabilized NOI associated with these deliveries is expected to be approximately $52 million, which will ramp up over the course of 2023 and 2024. We also expect our G&A to be slightly lower in 2023 than 2022, as wage cost pressures were neutralized by the 2022 restructuring that I mentioned earlier. Two factors are expected to partially offset these positives. Interest rate expense will have an impact in 2023. This impact will be partially muted by the aforementioned 2022 refinancing and higher interest income. We have approximately $1 billion due in 2023, spaced throughout the year, which is currently at an average contractual interest rate of 3.75%. For our 2023 plan, we have assumed that these are refinanced at a blended interest rate of 5%. This is based on an assumed weighted average across secured mortgages, CMHC mortgages, bank loans, and unsecured ventures. We have already taken steps to de-risk this assumption. In January, we refinanced $200 million bank term loan with a three-year loan that was swapped to fixed at 4.9%. We also entered into a seven-year hedge relating to our planned $200 million April refinancing, locking in the underlying GOC component at 2.87%. We are not interest rate speculators. Rather, we saw the opportunity to lock in rates that were below the budget assumptions that support the guidance provided today, taking some risk off the table. The second offset to our FFO growth is that we disposed of $460 million worth of assets in 2022 at a weighted average cap rate of 7.74%. These assets sales, while at a higher yield, serve to improve our portfolio quality. For example, through our distribution program, we have reduced our enclosed mall exposure to only 4% of NAF. In isolation, 2022 dispositions will reduce 2023 FFO, but this will be partially offset as we redeploy disposition proceeds to higher return initiatives. $204 million of the distribution proceeds were allocated to buyback units on an accretive basis. $90 million was allocated allocated towards acquisitions with the balance allocated towards developments. Because there's a time lag between the investment and development and resulting income, we anticipate a small drag on short-term FFO. We believe that this is a small price to pay for divesting of lower quality, lower growth assets to invest in exceptionally high quality developments that will drive long-term growth. Finally, I want to emphasize that the guidance range provided accounts for the risk of a moderate recessionary environment in 2023, including the risk of tenants' failures, such as ZBAT and beyond, which Jonathan addressed earlier. With the 6% distribution increase we announced today, we expect to be around the midpoint of our FFO payout ratio target of 55% to 65%. As we illustrated at our investor day last year, with our target payout ratio level, RioCan's operating income covers what we refer to as our core priorities, namely our distribution, maintenance capex, revenue enhancing capex, and the majority of the equity required for our development program, with the balance being covered by residential inventory proceeds. Now, when you're executing that plan, we can demonstrate how we apply this approach. I would encourage you to review page 28 of our investor presentation, which shows the funding of our core priorities per our plan, as well as the allocation of distribution proceeds. With our payout ratio set at a level at which we can fund both our distribution and growth initiatives, we expect to sustainably increase our distribution for years to come. Turning to our balance sheet and starting with the equity component, our net book value per unit was $25.73 at the end of 2022, 19 cents per unit higher than the prior year. In 2022, we recorded fair value losses on investment properties of $241 million, which reduced our net book value. This loss was more than offset by three primary factors. First, as a result of our conservative payer ratio, we retain operating income after distributions, which allows us to compound value on our balance sheet. Second, there's a positive impact on net book value per unit resulting from our unit repurchases. And third, We recorded within equity $86 million of gains related to the hedges I discussed earlier. Turning to the fair value changes, we note that within the $240 million fair value loss, we had $409 million write-down related to higher cap rate assumptions. This is partially offset by $160 million of gains due to higher income, reflective of our strong leasing activities and improved portfolio. Our weighted average cap rate at the end of 2022 was 5.33%, compared to 5.29% at the end of 2021. It's worthwhile to unpack this 4 basis point increase. During 2022, we adjusted our cap rate assumptions, driving our cap rate up by 17 basis points. However, this was offset by an 11 basis point decrease due to the sale of higher than average cap rate assets and a two basis point decrease from the investment in lower than average cap rate developments and acquisitions. This is the continuation of a trend that has been driven by our ongoing improvement in portfolio quality. For example, our weighted average cap rate as at Q3 2018, when interest rates were much closer to today's levels, was 5.51%, 18 basis points higher than today. However, this difference includes a 34 basis point impact in the combination of dispositions of lower quality assets and investments in higher quality developments. Said another way, On a same property basis, our weighted average cap rate today is 16 basis points higher than it was back in 2018. The improvement in portfolio quality has led to the decrease in the headline cap rate. Clearly, when it comes to the value of real estate assets, the interest rate and cap rate environment is only part of the story. The continuous improvement in our portfolio quality and income growth over the last number of years has been a significant driver of value. Over the long term, we expect our cash flows will continue to drive growth in our equity value given our strong positioning of our high-quality portfolio that will benefit from supply and demand tailwinds. We also expect to unlock value over time for our future development pipeline, which is currently valued on our balance sheet at $14 per square foot. Finally, we continue to operate from a position of financial strength. We ended the year with $1.5 billion of available liquidity, This, combined with our well-laddered debt maturity profile and large unencumbered asset pool, ensures that we are able to manage financial risk and also take advantage of opportunities. Our net debt to EBITDA finished the year at 9.5 times. As we signaled last quarter, this is up slightly from Q3 2022 as high inventory gains in Q4 2021 rolled out of our four-quarter trailing EBITDA measure. We expect to continue the trend towards our target of nine times as EBITDA from development continues to ramp up and our income-producing properties continue to generate growth. With that, I will turn the call over to the operator for questions.
Operator
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the one key on your touchtone telephone. We ask that all callers limit their questions to two each. If your question has been answered or you wish to remove yourself from the queue, please dial star 2. We'll pause one moment for questions to queue. The first question is from the line of Mario Saric with Scotiabank. You may proceed.
Mario Saric
Hey, good morning, everyone. The first question is more of a broader question. If you had to pick kind of RioCAN's two top strategic priorities for 2023, that if you were to accomplish those, you'd consider 23 a successful year in your eyes, what would those two priorities be?
Jennifer Seuss
Well, if I'm looking at like sort of broader strategies, I think obviously the continuous delivery of our development finishes is key, and that includes finishing the well on time, because those really do, we saw this year, really do contribute a significant amount of growth, FFO growth, NAV growth, all of the key elements, and also, of course, once you stop paying for them, you don't have any more variable debt through the construction loans. So I would say that the continuous achievement and conclusion of those projects is critical for RioCAN. And then, of course, I can expand further on developments to say that we would like to also start the projects that are in our pipeline and continue moving the ones along that are in there. But to me, it's really about the completions and doing them on time. And then I would say the second is, look, we're always focused on FFO growth and really churning out a significant or as much productivity out of our existing portfolio as we can. And if I look back to our pillars of customer centrism and reimagining retail, I think we've done a very good job of allocating the appropriate amount of capital to improving our offering, both on the service level and at the property level, to make our properties worth the increased rent that we are seeking from our various tenants. So I would say that that is a continuous and very important priority for us. I would be remiss, though, in saying that we're not focused on our balance sheet and our debt reduction and net debt to EBITDA for us is critical, and we will continue to put a lot of emphasis behind achieving that nine times net debt to EBITDA, nine times or below. I know I gave you three there, Mario, but I couldn't help myself.
Mario Saric
Fair enough. That works. That's a couple of colors. Thank you. And then my second question, just coming back to the guidance and Bed Bath & Beyond specifically, thank you for the incremental color you provided at the onset. Can you just maybe give us a bit more sense of, again, within the guidance, how you're treating those 13 locations in terms of, I know you mentioned you expect to really sit at a higher rent, but just in terms of timing, on the release and how many stores you think you may have to release and so on and so forth. Sure.
Jennifer Seuss
I'm going to turn that question over to John Ballanton, our Chief Operating Officer, who can give you some good color on it. And I should also say, you know, I said 13, but it's technically 14 because we have a combined bed, bath, and buy-by-baby at Colossus. So I guess it could go either way. But anyways, John, why don't I turn it over to you?
John Ballanton
Yeah. Hey, Marianne. How's it going? Yeah. So we've got technically 13 locations. They are CCAA right now. We don't fully understand what that means. We assume it's going to be a full liquidation, and we'll get all of those stores back. But that process is going to get, they've actually just recently applied to extend the stay until May 1st. So we'll continue to receive occupation rents over that time. We've got our full February rents right now, and we'll continue to get those until they, if they disclaim the leases, They could very well be going through a process right now of trying to either sell stores or sell the entire portfolio of stores. We won't know that right away, but ultimately if they are doing that, they are going to have to come to the landlords. So in the meantime, we are working diligently to find backfill tenants. It's never good timing to get space back, but we actually feel that right now is a bit of a beneficial time for Rear Can for a number of reasons. First of all, as Jonathan noted, we have known these that have been coming back for quite some time or that Bed Bath would be filing. We have been speaking to retailers. We recently participated in the ICFC conference in Whistler in January. And quite frankly, a good handful of the retailers, their first questions were, can we talk about your Bed Bath boxes? Our retail occupancy is 98% right now. And there is a shortage of box space in the market. So I wouldn't say there's a feeding frenzy going on, but there is definitely interest from a lot of very interesting categories. The rents we have on our locations average about $17 a square foot, which we consider to be under market. It's well below our portfolio average of 2098. And if you look at the deals we did over the last quarter of 2022, you know, we were averaging $24 a square foot. So we believe there's room there. Also good timing just based on the reinvestment we put into a lot of our major market assets where these are located and our focus on customer centrism. We reorganized our leasing team last year and our tenant construction team to reposition them more as a tenant experience team. which is a going to provide a better product to put new tenants into, but also to have more of a white glove experience for the retailers that we're putting in place. Um, lastly, you know, if we do get those spaces back, we are shedding some, I would say difficult leases from a rather difficult us, uh, tenants. Um, they do have capped costs. They do have a lot of restrictions and an exclusive built into them, which has quite frankly impacted our ability to lease similar uses in a bunch of our centers. So all in all, of course not great news when we're losing a larger tenant, but I think we're in very good shape to backfill them relatively quickly, particularly given the strides we've taken so far and the length of the CCAA stay period.
Jennifer Seuss
And I'll just reemphasize, Mario, that this was, because we had a good sense about this, it was incorporated into the guidance in our 2023 business plan. And we do have the U.S. parent company, which, I mean, I'm not sure what happens there, but at least it's an extra step we can take.
Jennifer
Maybe I'll just wrap some numbers around that sensitivity analysis. So it's $8 million of revenue. As John mentioned, we've received February rents already and expect occupancy rents for another, it sounds like, two to three months, depending on the timing of the liquidation. So you take the $8 million, you back off at least a couple of million, two to three million from that. It gives you a sense of what the kind of downside scenario that we would take and sensitize through our budget. And that assumes, you know, if you had a downside scenario that assumes that we don't back sell any this year, which again is probably unlikely, it gives you a sense of, you know, we're really talking about, you know, $5 million or so as a bit of a worst case scenario. to give you that sense. So when we do our guidance ranges, that sensitivity analysis informs how we come up with the ranges.
John Ballanton
And I would just add, similar to what we went through with Target, it's the opportunity to make our portfolio better. A bunch of the interest we're getting early on is actually from grocery. As we all know, grocers are desperately looking for more space to increase their footprints in Canada. And quite frankly, we've got a bunch of centers that are currently not grocery anchored where they're willing to take, I would say, a little more unconventional space or, you know, potentially smaller space. In Q4 of 22, we finalized a metro deal at our Rio Can center in Kingston, which has never had that grocery component to it. And, you know, it just drives much better traffic to those sites and is, you know, an overnight increase to NASS.
Mario Saric
Okay, so just as a follow-up, it seems to me based on those numbers that the expectation that's built in within guidance is like most of the space will be leased up by year and not necessarily maybe cash rent paying, but the expectation is for substantial progress by the end of the year. Is that correct? Correct, yes. Okay, thank you, everyone. Those are my two.
Operator
Thanks, Mario. Thank you. The next question is from the line of Dean Wilkinson with CIBC. You may proceed.
Mario
Thanks. Morning, everybody. Question on the well. Did the retail leases have any form of a sort of co-tenancy clause or an out for the office component? Negative. Negative. Perfect. Easy. And for Dennis, Your provision for the doubtful accounts, and I know that this is like minutia in the weeds, it's still $13.4 million. Is that just really a hangover from sort of uncollected stuff from the pandemic? You didn't really add much in the course of the year. Is that just something we could expect as they burn off over the next couple of quarters, or is that sort of in line with, say, pre-pandemic expectations?
Jennifer
No, it's definitely the former. It's a hangover from the pandemic, and our team's been working tenant by tenant to work through that. I don't know if I could say that it would be a burn-off per se. I mean, some may end up as write-offs, or certainly some of them will end up as write-offs against the AR, but we also should collect stuff as well. So I think that's the way we look at it. We'll work through that balance over the course of this year.
spk01
Okay, great. That's it. Thanks, guys. Thanks, Steve.
Operator
Thank you. The next question is from the line of Pommy Beer with RBC Capital Markets. You may proceed.
Pommy Beer
Thanks. Good morning. Just, you know, last year certainly was active in terms of capital recycling and, you know, you made some great strides in terms of the portfolio quality. But what are your thoughts around this year? And also, how are you thinking about the NCIB at this stage?
Jennifer Seuss
So, I don't think this year will be nearly as active from a disposition process. I think, as I said, 2021, was characterized as a year where we were really taking advantage from a quantitative perspective of raising efficient capital. 2022, while we did raise capital, we did it really more as a qualitative measure, improving our portfolio. 2023, I don't think we need to do either, but there will probably be some dispositions over the course of the year, be they land dispositions, be they partial interest in certain properties, but it's not a focal point of our business plan for 2023. So I wouldn't lean into that too heavily. And with respect to the NCIB, as we articulated last year, Pommy, we did the NCIB on the backs of overachieving on our disposition program. And so we had, if you will, excess cash flow after we funded our core obligations, which is really, of course, our distribution and paying back some debt and funding our development pipelines. And we were in the fortunate position to have excess cash flow. And our unit price, we thought, was so well below NAV, and we took advantage of that, and we acquired through the NCIB program. So unless anything changes dramatically and we really ramp up the disposition program again, I don't think there's going to be a significant amount of NCIB for 2023.
Jennifer
Yeah, what I would add, Pommy, is that at this point, we're in, I think, a pretty great position that To fund what we're calling our core priorities, distributions, maintenance capex, and growth capex, we don't need to sell any assets. A combination of our retained cash flow and inventory proceeds over the next four years is going to fund our development program along with project-level debt. At this position, we don't have to sell anything. To Jonathan's point, unless we have you know, really good opportunities to sell assets and redeploy that capital and do, you know, better assets or other accretive initiatives. It's not something that we have to do in the base case, and it wouldn't necessarily push to do, you know, unless there's real compelling opportunities. So we could be flexible but don't need to rely on it.
Pommy Beer
Got it. No, that actually helps with my second question. But in terms of the FFO guidance, you know, what does the guidance incorporate from a development completion standpoint and also in terms of the anticipated residential gains?
Jennifer
So in terms of residential gains, meaning like condo inventory gains? Yeah, I would assume those are effectively flat to 2022 levels on that part. In terms of development deliveries, it's about 1.2 billion of IPP across 2022 and 2023, which then, you know, it's about 50 million of stabilized NOI against those. So if you just assume some ramp up against that, that probably gets you about there.
Pommy Beer
Great. Thanks very much. I'll turn it back.
Jennifer Seuss
Thanks, Tommy.
Operator
Thank you. The next question is from the line of Shalab Garg with Veritas Investment Research Corporation. You may proceed.
spk01
Shalab Garg Hi. Thank you, and good morning. My question is pretty simple. So, thanks for the color on dispositions might not be required in 2023 to fund your development, but you still have some assets for sale around $48 million. Are you seeing any decline in buyer activity because of the inadvertent impact of the foreign buyer tax? Sorry, the foreign land ban on properties.
Jennifer Seuss
The foreign buyers, sorry, you were speaking to the foreign buyers prohibition?
spk01
Yeah, so it has an inadvertent impact on commercial real estate deeds. So it's supposed to be meant for residentials, but then if a particular land is reasoned for mixed use or residential, then without having a single unit, you still apparently foreign buyers are
Jennifer Seuss
I don't think that will have any impact. That didn't inform our disposition strategy for 2023, whether that legislation existed or didn't. We're really not focused on selling a lot of residential land. And if we did, I mean, it's more likely we'd have domestic investors rather than foreign, as we've done in the past. So I don't think it has a significant impact on what we would do from a disposition program for this year.
spk01
Thank you. That's my question. Okay.
Jennifer
So I'm just going to clarify on that asset health for sale balance, it was an asset in Calgary that was conditional at year end and we closed it already this year. Okay.
Pommy Beer
Thank you.
Jennifer Seuss
Thank you.
Operator
Thank you. The next question is from the line of Sam Damiani with TD Securities. You may proceed.
Sam Damiani
Thanks. Good morning, everyone. Just a couple of quick ones. On the disposition activity expected for 2023, how should we think about the cap rate relative to what was achieved on the 2022 dispositions?
Jennifer Seuss
Well, again, I think 2023, as I suggested, was characterized by a qualitative improvement of our overall portfolio. And so we did get rid of some low growth assets, some enclosed malls, two of them to be precise. And I think that that's why the cap rate was obviously relatively high. But again, because we're not really proposing to do a substantial amount of dispositions in 2023, we don't really have a strategy for which kind of assets we would dispose. And, you know, if we were going to dispose of any assets now, we would certainly expect it would be reflective of the high quality of our remaining portfolios. So, you know, cap rates, I would suspect, would be lower. We simply don't have that much low growth asset anymore.
Jennifer
Yeah, so I think, Sam, when I refer to my commentary about the impact of asset sales on 2023, ffo it was just the carryover of the 2022 assets you got a partial year impact in the 2022 dispositions that then increases when you get into 2023 so that was that piece the you know the asset that we had as held for sale at the end of the year is about you know a little over 40 million dollars and it was a one asset in calgary that we sold um so it's not that it's not a large impact and there's nothing else uh contemplated for this year
Sam Damiani
No, I hear you. In modeling, obviously, I assume you want to end 2023 at or below the leverage that you end 2022 at, so I just want to make sure that I have that kind of factored in appropriately. Switching over to the well, what's the latest in terms of, I guess, the timeline in terms of completion, grand opening of the retail, etc.? How are you thinking about how the next few months are going to play out?
Jennifer Seuss
Yeah, I'm going to hand that question over to Oliver Harrison, who is in charge of leasing and tenant experience.
Oliver Harrison
Good morning, Sam. Can you hear me okay? Yep, I hear you fine. I think to describe it concisely, the well at the nearest completion, the scale of the opportunity is certainly more evident to retailers, which is continuing to drive significant interest in the project. And we're very optimistic that within the fourth quarter of this year, we will be significantly animated and ready to deliver the project in totality. We are expecting tenants to open in advance of Q4, though. I think first tenants are scheduled to open in the second quarter of 2023, and we're looking forward to that happening. But certainly, and I think you've been recently, as we bring tenants to the project, they can see the opportunity that's in front of them. They are extremely excited, and we're starting to certainly see the benefits of that from a leasing perspective.
Sam Damiani
Okay, great. And so some sort of like a grand opening? Is it looking like Q4 now? Or what do you think on that front?
Jennifer Seuss
Yeah, I think, Sam, there is going to be a grand opening, which is really just a date. And it's like a bit of a celebration. But it doesn't necessarily mean that that marks the date where income starts for the retail element of the well. We're going to have, as Oliver suggested, rolling openings. starting early in the year, like in Q2. But yeah, we are expecting to have a grand opening, and that's just now a logistical matter with respect to when some of the hoists come off the residential buildings and the hard landscaping is done. So really don't let the grand opening serve as a marker of significance. It's really just sort of a celebration. But yeah, I think you're going to see retailers opening and animated in short order.
John Ballanton
Dan, I would just add, Sam, as far as our residential component goes, the 600-unit building, we're going to start leasing, pre-leasing that at the end of March, and we expect to have residents start moving in between July and the beginning of August.
Sam Damiani
That's great for the update. Thank you very much.
spk03
You're welcome.
Operator
Thank you. There are no further questions at this time. I will now turn the call back to Mr. Gitlin for closing remarks.
Jennifer Seuss
Well, thanks, everyone, and we're looking forward to reporting back to you after Q1. Have a good day.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.
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