Choice Properties Real Estate Investment Trust (CPREIT) has announced robust financial and operational results for the fourth quarter of 2023, meeting its financial objectives and maintaining a market-leading portfolio. The company concluded $620 million in real estate transactions, adding 1.8 million square feet of space, and reported an increase in net asset value (NAV) and distributions. Despite concerns about higher borrowing costs, recession fears, and geopolitical threats, CPREIT remains positive about the future, citing strong supply-demand trends for their asset classes. The Board of Trustees has approved a distribution increase for March 2024, reflecting confidence in the company's growth trajectory. CPREIT ended the year with solid financials, including a 98% occupancy rate and a strong balance sheet.
Key Takeaways
- CPREIT achieved financial goals, including NAV and distribution growth.
- $620 million in real estate transactions completed, with 1.8 million square feet added.
- Q4 saw increases in same-asset cash NOI and FFO of 4.2% and 5.8%, respectively.
- Occupancy rates remained near full at 98%.
- The Board approved a distribution increase for March 2024.
- The company has $700 million in remaining debt maturities for 2024.
- A strong financial position with solid debt metrics and ample liquidity was maintained.
- Outlook for 2024 includes stable occupancy and 2.5% to 3% growth in same-asset NOI.
Company Outlook
- CPREIT anticipates stable occupancy and 2.5% to 3% year-over-year growth in same-asset NOI for 2024.
- FFO per unit diluted is projected to be between $1.02 to $1.03.
- The debt-to-EBITDA ratio is expected to be slightly below 7.5 times.
- The company plans to focus on commercial development.
Bearish Highlights
- The IFRS NAV was relatively flat with a slight decrease due to fair value losses on investment properties.
- Higher borrowing costs, recession fears, and geopolitical threats present uncertainties.
- Same-property NOI growth in 2024 is expected to be lower than in 2023, around 3% maximum.
- Concerns exist about certain big box retailers, particularly HBC.
Bullish Highlights
- The industrial portfolio's 2023 performance is expected to be repeatable in 2024.
- Strong demand for pre-leasing in development projects is anticipated to continue.
- The mark-to-market on expiring leases in 2024 is expected to be significant.
- The company plans to grow their industrial portfolio and execute on their mixed-use and residential pipeline.
Misses
- CPREIT experienced net fair value losses on investment properties due to cap rate expansions.
Q&A Highlights
- CEO Rael Diamond emphasized prudence in creating value with current land holdings.
- The company will push rents higher in a strong retail market for upside potential.
- There is no significant growth in the tenant risk list for the portfolio.
- CPREIT does not have exposure to retailers that may pose higher risks, such as those that expanded following Bed Bath & Beyond's bankruptcy.
By maintaining a strong balance sheet and focusing on strategic growth, CPREIT appears well-positioned to navigate the challenges and capitalize on opportunities in the year ahead.
InvestingPro Insights
As Choice Properties Real Estate Investment Trust (CPREIT) navigates a complex market landscape, certain metrics and insights from InvestingPro can provide additional context to their financial health and future prospects. According to InvestingPro, CPREIT is trading at a low earnings multiple, which could indicate that the company's stock is undervalued relative to its earnings potential. This aligns with CPREIT's own reported confidence in their growth trajectory and the Board's approved distribution increase for March 2024.
Another key metric from InvestingPro is that CPREIT is expected to see net income growth this year. This is a positive sign for investors, as it suggests that the company's profitability is on an upward trend, reinforcing the bullish highlights mentioned in their outlook. However, it's worth noting that, as per InvestingPro Tips, CPREIT's short-term obligations exceed its liquid assets, which could imply potential liquidity challenges in the near term.
For investors looking to delve deeper into the financial nuances of CPREIT, InvestingPro offers a more comprehensive set of InvestingPro Tips. For instance, there are additional tips available that highlight aspects such as analysts' profitability predictions and the company's performance over the last twelve months. To access these insights and enhance your investment strategy, consider subscribing to InvestingPro using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
InvestingPro Data:
- Trading at a low earnings multiple
- Net income growth expected this year
- Short-term obligations exceed liquid assets
InvestingPro Tips:
- Analysts predict the company will be profitable this year
- Profitable over the last twelve months
For those interested in a more granular analysis, there are a total of 5 additional InvestingPro Tips available for CPREIT at https://www.investing.com/pro/CHP_u, which could provide further guidance on the company's investment potential.
Full transcript - Choice Properties REIT (CHP-u) Q4 2023:
Operator: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to Choice Properties Real Estate Investment Trust Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Erin Johnston, Senior Vice President, Finance. Aaron, you have the floor.
Erin Johnston: Thank you. Good morning, and welcome to Choice Properties Q4 2023 conference call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer; Mario Barrafato, Chief Financial Officer; and Niall Collins, Chief Operating Officer. Rael will start the call today by providing a brief recap of our 2023 performance and cover the highlights of the fourth quarter. Mario will discuss our operational results and conclude the call with a review of our financial results before we open the lines for Q&A. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance or exceptions that are not historical fact. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying in making these statements can be found in our recently filed Q4 2023 financial statements and management discussion and analysis, which are available on our website and on SEDAR. And with that, I will turn the call over to Rael.
Rael Diamond: Thank you, Erin, and good morning, everyone. 2023 was an exceptional year for our business as we delivered strong financial and operating results. At the beginning of the year, we set out our financial goals of capital preservation generating stable and growing cash flow and delivering NAV and distribution growth over time. Our team successfully delivered on these goals by focusing on our three strategic priorities of maintaining our market-leading portfolio, sustaining operational excellence and delivering on our development pipeline. We maintain our market-leading portfolio by continuing to be one of the most active REITs in the transactions market. We further enhanced the quality of our portfolio by completing approximately $620 million in real estate transactions including $285 million of acquisitions and $335 million of dispositions. We also continue to deliver on our development pipeline by adding high-quality real estate to our portfolio. This included 1.8 million square feet of retail and industrial space along with a residential rental building named Element in Ottawa. Our investment of approximately $295 million was delivered at an average yield of 7.7%, resulting in significant NAV creation as the current fair value of these investments is over $425 million. Finally, we successfully met our 2023 outlook. We maintained near full occupancy rates through the year and achieved our same asset cash NOI and FFO growth targets. Turning to the operating and economic environment for a moment, we remain encouraged by the supply-demand trends that are supporting each of our asset classes. Specifically, our retail tenants continue to expand their store network and suburban trade areas continue to perform well. Despite headlines regarding the slowdown in industrial rent growth, there remains substantial and better growth within our existing portfolio as evidenced by the 60.6% rent spread we achieved this past quarter. While we are optimistic regarding underlying fundamentals of our asset classes, we acknowledge that significantly higher borrowing costs, recession repairs and geopolitical threats continue to cause uncertainty and overall market volatility. Nevertheless, I'm confident that choice remains in an enviable position and well prepared to navigate these uncertain times. The quality of our real estate, which includes grocery-anchored neighborhood centers, industrial properties with inherent brand growth and higher-quality residential properties, provides a strong buffer against potential economic impacts. Another source of confidence lies in our strong balance sheet and significant liquidity position. Real estate is a very capital-intensive business and having a strong balance sheet is a must. We've been disciplined in our strategy of maintaining loan leverage and over the past year, we have proven our commitment to a staggered debt maturity profile targeting a ten-year later. The strength of our balance sheet enables us to maintain consistency in our development activities. And importantly, we have the flexibility to be opportunistic. While the confidence that we have in our business to continue to deliver steady and growing cash flows, supported by a strong and stable foundation, our Board of Trustees has approved another distribution increase effective March 2024. This increase demonstrates our commitment to sharing our growth with our unitholders. Turning to our fourth quarter results, our momentum continued in the quarter. We delivered increases in same-asset cash NOI and FFO of 4.2% and 5.8%, respectively. Leasing activity continues to be strong as the portfolio remains near full occupancy at 98%, up 30 basis points compared to last quarter. We had strong rental rate growth with an average rent spread of 23% in the quarter, supported our strong fundamentals in each of our three strategic asset classes. During the quarter, we continued to execute on our capital recycling program, completing $239 million of transactions, including $83 million of acquisitions and $156 million of dispositions. We acquired two high-quality grocery anchored retail properties in Greater Montreal and one industrial property from Loblaw. The industrial property is a 425,000 square foot bolting in Calgary leased to Shoppers Drug Mart. This asset is in an established industrial mode and his 50 minutes from Calgary Airport. We obtained 15-year leases on these three properties with 2% annual rent steps. Included in $156 million of dispositions was $93 million related to selling a retail asset to industrial buildings and a noncore office building mentioned on the Q3 call, additional sales in the quarter included an industrial asset endowment for $7 million, two retail assets in Kamloops, BC for $50 million and a land parcel adjacent to a retail site in Edmonton, Alberta for $6 million. Turning to our developments. We delivered four retail units, two industrial projects and one purpose-built rental building during the quarter. Included in our industrial development transfers was approximately 930,000 square feet related to the first phase of our project at Choice Eastway Industrial Centre in East Gwillimbury, leased to Loblaw. This phase of the project was delivered with an expected stabilized yield of 7.8%. Also included in our transfers was 350,000 square feet at Choice Industrial Centre in British Columbia, which I spoke about on our Q3 call. This project was delivered with an expected stabilized yield of 10.2%, cash rents from both sites commenced in January of this year. We also delivered one residential development in Ottawa, in which we own a 50% interest. This development of 252 units offers a unique rental community in the vibrant Westboro village, one of Ottawa's most desirable neighborhoods. The building was delivered at an expected stabilized yield of 5.1%. There continues to be strong demand at the building, and it is now 44% occupied and 58% leased with stabilization expected in the second half of this year. With that, I'll hand it over to Mario to provide more color on our operational and financial results.
Mario Barrafato: Thank you, Rael, and good morning, everyone. As Rael mentioned, Q4 was another strong quarter operationally as our business continues to operate at a high level of occupancy and deliver strong same-asset NOI and FFO growth. Starting with funds from operations. Our reported FFO for the fourth quarter was $184.6 million or $0.255 per unit. Included in FFO in the quarter were net one-time items of $5.8 million including $5.7 million related to the cash portion of the Allied special distribution and a condo gain of $4.6 million related to our Mount Pleasant Village development where we sold our ownership interest in 94 of 142 condo units. This was offset by approximately $4.5 million of G&A from onetime payments. On a per unit diluted basis, our fourth quarter FFO of $0.255 per unit reflects an increase of approximately 5.8% from the fourth quarter of 2022. This was driven by strong same-asset NOI, higher interest income and one-time income, partially offset by higher interest expense from financings completed for the last year and higher G&A costs related to the growth and transformation of our platform. We ended the quarter with occupancy of 98%, an increase of 30 basis points from Q3. On a total portfolio basis, we had approximately 1.1 million square feet of leases expire. We had tenant retention of 85.8%, renewing one million square feet at an average spread of 23%. And we also completed 222,000 square feet of new leasing that commenced in the quarter. This activity resulted in positive absorption of 63,000 square feet, which is mainly driven by new leasing in our industrial segment in Alberta. In our necessity-based retail portfolio, which is the largest in Canada, occupancy remained relatively stable at 97.7%. We completed 600,000 square feet of retail renewals in the quarter, resulting in tenant retention of 78.7%. Renewals were completed at rents 14% above expiry. Occupancy in our industrial portfolio when compared to Q3 increased 70 basis points to 99%. We had 400,000 square feet of industrial leases across Canada expiring in the quarter. We renewed 395,000 square feet at rents approximately 60% above expiry, achieving tenant retention of 98.8%. This leasing activity contributed to same-asset cash NOI increasing by $9.6 million or 4.2% compared to the fourth quarter of 2022. By asset class, retail same asset cash NOI increased by $5.8 million or 3.2%. The increase was driven primarily by higher base rent on renewals, new leasing and contractual step rents, and higher capital and operating recoveries. Industrial same asset cash NOI increased by $3.1 million or 8.5%. This increase was primarily due to higher rental rates for both renewals and new leases completed, as well as higher recoveries. Mixed use and residential same asset cash NOI increased by approximately $700,000 or 9.3% and the increase was driven by higher recoveries and improved residential occupancy and other revenues. And one last word on performance before I move on to our balance sheet. At our Investor Day earlier this year, we shared how 2023 would be an important year for our business. Our efforts to improve portfolio quality, right size the balance sheet and invest in our development platform have now put us in a position to generate resilient and growing cash flows. We are extremely pleased that in 2023 we met or exceeded the financial targets reflected in our outlook and are once again able to increase our distribution to unitholders. Now, turning to our balance sheet, our IFRS NAV was relatively flat with a slight decrease of $14.2 million compared to the third quarter of 2023. The change was driven by $33.9 million increase in retained earnings and a fair value increase on our investment in Allied Properties of $26.6 million, where we were required under IFRS to mark-to-market this investment to its trading price as of December 31. And this was offset by net fair value losses of $73.3 million on investment properties. While our properties continued to generate strong cash flow growth, ongoing elevated interest rates continued to put upward pressure on cap rates. Our fair value loss in the quarter was largely driven by this as we reflect an expansion of cap rates within certain asset classes or market segments. In our retail portfolio, we recorded a small loss related to cap rate expansions on certain properties, primarily in Western Canada. In our industrial portfolio, we recorded a fair value loss primarily due to cap rate expansion on certain properties with limited near-term rental rate growth. And in our mixed use and residential portfolio, we recorded a small loss in the quarter driven by cap rate expansion and a change in lease up assumptions for the office portion of one of our mixed use developments. We ended the quarter and the year in solid financial position with strong debt metrics and ample liquidity. We received the proceeds from NOIs [ph] $200 million promissory note at the end of the quarter and subsequent to year-end, we used the proceeds to repay our $200 million dollar Series D debenture at 4.3% upon maturity. Our debt-to-EBITDA ratio net of this cash is 7 times and we now have $1.5 billion available on our facility. This is further supported by approximately $12.7 billion of unencumbered properties. Looking ahead, we have $700 million of remaining debt maturities for 2024 with a $550 million unsecured debenture, which is our largest debt maturity for the year not coming due until September. Once again, we’ve demonstrated the strength of our portfolio and the ability of our teams to deliver. We have confidence in our business to continue to deliver steady and growing cash flows to our unitholders. In addition to our fourth quarter and 2023 results, we have shared our 2024 outlook. And in 2024, we expect deliver stable occupancy with 2.5% to 3% year-over-year growth in same asset NOI. Annual FFO per unit diluted between $1.02 to $1.03 per unit, which reflects a 2% to 3% year-over-year growth and debt-to-EBITDA slightly below 7.5 times. And with that Rael, Niall, Erin and I would be glad to answer your questions.
Operator: All right. Thank you very much. [Operator Instructions] And it looks like our first question is from Mike Markidis with BMO Capital Markets. Mike, please go ahead.
Mike Markidis: Hi. Thank you. Good morning. Mario, maybe I'm missing something here, but I think you ended 7 times debt to EBITDA, and your outlook calls for slightly less than 7.5 times debt to EBITDA. Can you just walk us through the drivers of that increase better than the outlook, please?
Mario Barrafato: Sure. Yes. So right now we're at 7 times, and really the factor is that how dispositions come. And so we still have an acquisition plan, and if it's funded by dispositions, we'll be on the lower end of the range. But if we have to use debt to finance some of these acquisitions, then we'll get closer to 7.5. That's where the wild card got.
Mike Markidis: Okay, so within your guidance, what's the acquisition assumption or net acquisition assumption?
Mario Barrafato: So, right now we have a balanced capital recycling program, as Rael said. So we plan to grow by about $150 million to $200 million of acquisitions, and we have a disposition close at the end of this year that'll carry over. So we need about $150 million dispositions to fund that.
Mike Markidis: Got it. Okay. So then the increase in the debt to EBITDA seems you don't do any capital cycling, but you do execute on the assets that you want to acquire.
Mario Barrafato: Exactly. It's the one thing that's out of our control. And then in addition, we also have development of approximately $300 million that we have to incur as well.
Mike Markidis: Right. Of course. Okay. All right. Just sort of a higher level question here, you guys are clearly getting great returns on your retail and your industrial developments, and that looks set to continue over the next couple of years. I know Rael, I think it was last call you talked about perhaps maybe getting started on one of the larger mixed use urban projects that you have with a significant resi component. I guess rates are still bouncing around here. We've had some the enhanced GST rebate, the favorable financing from the CMAC. So with all that sort of into the mix, how are you guys thinking about risk and returns on the major mixed use projects going forward?
Rael Diamond: So, Mike, thanks for your question. For 2024, we're primarily going to be focused on commercial development. And it's not because we're not long-term bullish on residential. We actually don't have anything that we believe we can actually be truly shovel ready for to actually commence construction in 2024. So the earliest would likely be late 2024, early 2025. And as I said, long-term, we take a long-term view on residential and we are bullish. And Niall is with me on the phone and maybe he can just comment on what we’re seeing on the residential slide.
Niall Collins: Hi, Michael. How are you?
Mike Markidis: Perfect.
Niall Collins: We are seeing a change in construction costs and the productivity around that is improving as well. So we’re hoping that costs are going to come down to offset a little bit of that interest increase. But the PSD-GST rebate has done a lot to subsidize these projects, as well as try and accelerate projects ahead of the sunset date of 2030. So we are pushing ahead on a number of our key projects, both at our master plan sites and our standalone sites as well.
Mike Markidis: Okay. And last one for me before I turn it back. I guess, just in the case when you have an existing Loblaw lease, presumably with options to continue, how does that dynamic work? Would you have to sort of buy out or make a payment for development rights? Or does the lease get rewritten as the store gets rebuilt? Just trying to get a sense of the dynamics there going forward.
Rael Diamond: Yeah. So as you recall, we have a strategic alliance agreement, which sets out payments on a per foot basis that we owe Loblaw, depending if we’re doing rental or condo and depending on the market. So I guess the positive is that it’s pre-negotiated the amount we owe Loblaw, and both parties are incentivized to make it happen. The reality as well is that so many of our sites are large enough that we actually don’t need to close the existing store. So, for example, Golden Mile, Golden Mile we can actually start the first phase of construction without ever touching the store. We can actually do the second phase, which we plan to rebuild a new grocery store. So on Golden Mile, we never have to close. There’s another one in the GTA, which we’re actually working with Loblaw on the timing on, and we get great visibility into their plans when they’d be willing to close it. And then another one in Vancouver, as an example, in Coquitlam the same thing, they’ve actually closed the store. And we are busy planning a mixed use development on our North Road side. So I’d say in the short-term there’s nothing imminent. But generally, we just work together closely to plan our timing of it and make sure what makes sense for, obviously, both businesses. But as I said, our real competitive advantage is that so many of our sites are large enough that we actually don’t ever have to close the store.
Mike Markidis: Got it. Okay. And then the strategic alignment, pardon me, the payments within the Strategic Alliance Agreement, that's just with the density. There's no – there's no development rights necessarily embedded with that within the leases themselves, but are large enough. So not an issue, at least in the foreseeable future?
Rael Diamond: Well, generally, all tenants have controlled – sort of certain control rights over the properties. I would say that the choices in a phenomenal position opposite Loblaw or adjacent to Loblaw to work together and do what makes sense for the site.
Mike Markidis: Got it. Okay, great. Thanks very much and congrats on the strong 2023.
Rael Diamond: Thanks.
Operator: And our next question comes from the line of Lorne Kalmar with Desjardins. Lorne, go ahead.
Lorne Kalmar: Thank you very much. Good morning everybody. Maybe just flipping over to the industrial portfolio. Things seem to really accelerated. You talked a little bit about some of the slowdown we're seeing in the headlines you guys aren't really seeing in your portfolio. Do you think the performance achieved in 2023 is repeatable in 2024?
Rael Diamond: We do believe it's achievable. The first thing is, look, we acknowledge that there is a slowdown. Our total market vacancy rates are up slightly. It's still an exceptionally tight market. It's just the rent growth is slowing compared to what it previously grew at. But we still have healthy embedded rent growth in our portfolio. We're still getting strong demand on the pre-leasing side that we're looking at on our development. So, we do expect 2024 to continue. I don't know, Niall, if you want to add anything?
Niall Collins: Yes, those are in our renewal rates are quite low. So we are in a very good position.
Lorne Kalmar: Would you guys have an estimate of what the mark-to-market is on 2024 expiries?
Rael Diamond: It's going to be significant. Niall, back to you [ph].
Niall Collins: It's in the region of around 65 to north of 100-ish.
Lorne Kalmar: All right. Thank you Niall. That's – yes, that's up for good 2024. And then Mario, if I heard you correctly, I think you said retention in retail was 73%. I'm assuming that's excluding Loblaw. Is that correct?
Mario Barrafato: Yes, yes, for that quarter with Loblaw. I think for a Loblaw renewed that quarter, yes.
Lorne Kalmar: Yes. I was just wondering, if they're not – for tenant that aren't renewing, what type of tenant is and where do they do it? Are they closing? Are they relocating?
Mario Barrafato: We had – it was out Western Calgary, the biggest vacancy was a rental depot. So they were leaving and we've now basically demise the space, we've backfilled over half of it. So it's just an isolated incident nothing about a region or an area.
Lorne Kalmar: Okay. Okay. Okay. So it's just that one lease of Calgary. Thank you. And then maybe just lastly on the Mount Pleasant condos. What do you guys expect the cadence of the gains to be on those on the remainder? And I'm assuming, I won't assume, but is that factored into the guidance?
Rael Diamond: Yes. It's factored into the guidance because those units have been sold quite a few years ago. So it's really just closing on preexisting contracts. We don't see any real gain on them.
Mario Barrafato: Lorne, it’s about – it'll be reflected our Q1 numbers and it's about as small, it's a quarter of the rest of the condos. It's about $2 million.
Lorne Kalmar: Perfect. Thank you very much. I will turn it back.
Rael Diamond: All right. Thanks, Lorne.
Operator: [Operator Instructions] It looks like our next question is from the line of Sumayya [ph] Syed with CIBC. Sumayya, please go ahead.
Unidentified Analyst: Thanks. Good morning. Just firstly on the outlook, just wondering in terms of contribution by segment and just the different pieces, fair to say retail would be steady in the three-ish percentage range and maybe slightly lower contribution from industrial and mixed use compared to 2023?
Rael Diamond: Yes. That'd be a good way to look at it. Again with the retail 2% to 2.5%, I think it's a really good target. And again, we've always said industrial will be mid-single digits.
Unidentified Analyst: Okay. And then on industrial, and I guess specifically what you have underway in Caledon Park, obviously it's a fairly active node. What are you seeing there, Rael, in terms of tenant interest and lease up time frames?
Rael Diamond: So I'll start and Niall will just give additional color. So as we announced last quarter, we've leased a building that we're going to build on spec to a third party logistics firm. We have a lot of site works [ph] that we actually underway on the project right now and we're starting to market, call it the next phase of the project. We've had strong interest, but it's still quite a bit – still a way away.
Niall Collins: We are continuing to respond to RFPs and there is some very large users out there that are very interested in the site, especially with the momentum we've got from that [indiscernible] from that recent lease.
Unidentified Analyst: Okay. So should be able to meet your timing expectations. Thanks for that. And then the last question I had was just a broader one on strategy. Now that you've hit the milestone of exiting office, what should we view as the next upcoming milestone in the evolution of the REIT?
Rael Diamond: Look, I think we have a phenomenal operating plan where we're going to keep delivering on growing our industrial portfolio through the development Niall spoke about through capturing those embedded spreads on both the retail and industrial and then slowly executing on the mixed-use in residential pipeline. And as we've said earlier on the call, maintaining that strength in the balance sheet.
Unidentified Analyst: Okay. Sounds good. I'll turn it back.
Rael Diamond: Thank you.
Operator: All right. Thank you very much. And it looks like our final question today comes from Sam Damiani with TD Cowen. Sam, please go ahead.
Sam Damiani: Thanks, and good morning, everyone. And I'll echo the congratulations on the 2023 results. Maybe, Rael, for you on the Caledon, it's gotten a little bit of discussion here, but you've got the building A coming on later this year, building H, coming on early 2026. But there's kind of a hole in the completion with 2025. Is there a potential and are you striving for initiating construction on an industrial property that could be completed during 2021? Is there an opportunity for that?
Rael Diamond: Niall will answer the question better for Sam. Thanks.
Niall Collins: Sam, it's not likely for 2025. Like I said we are responding to some RFPs. They're very large demands, but that's – that time line is probably an 18-month building, so not 2025, most likely 2026.
Rael Diamond: Yes. And Sam, in the first – the land lease to Loblaw, I believe start commences rent in early 2025, so it's 2025 for then and 2026 is now set for the next one.
Sam Damiani: Right. Okay. Thank you. And then are you looking at acquiring more land – more industrial land in and around the GTA at this point?
Rael Diamond: Look, we acquired Caledon at an opportune time was during COVID when we used our balance sheet strength to acquire the large piece of land at very attractive pricing. Since we acquired that land, there was a massive run-up in what people paid for land. If some of those developers cannot hold on to their land, just given what's going on in the environment with higher carrying costs and a potential slowdown in just leasing velocity in industrial, I must say potential because speculating, obviously, there may be a window of opportunity, but we're going to remain very, very prudent and make sure that we can create value on any land purchases. And right now, we have more than enough on our plate to keep going.
Sam Damiani: Okay. Very clear. Thank you. And just on the guidance, what would be the key drivers that would cause same-property NOI growth in 2024 to be at 3% MAX versus last year's 4.5%. What would be the main drivers lowering the growth rates from what we saw last year.
Mario Barrafato: Sam – I think, first of all, though, the numbers are strong and they're coming off a strong 2023. So just because the number is a bit lower doesn't mean the quality of the portfolio is still not there. It's just really coming off higher in 2023. Really, let's come down to, as Rael said, the retail market is strong. And so to get upside we're just pushing rents a bit higher. And right now, it is strong, but we'll see what happens with the economy and the consumer strength and how retailers do. But again, with the visibility we have, we still think delivering a 2% for retail coming off a high base is a good number.
Sam Damiani: That's helpful. And last one for me, just on the sort of tenant watch list or risk list or whatever, however you don't want to call it. Has it grown through – for your portfolio in the last three to six months? And if so, what categories of retailers are you perhaps increasingly concerned about?
Rael Diamond: Look, I don't think it's grown for our portfolio. There are a few of the big boxes that – like I don't want to – a few of the big boxes that expanded when Bed Bath & Beyond went bankrupt that are under some pressure. And I think we don't have any exposure left to them, but HBC [ph] would be concerning.
Sam Damiani: More so now than maybe a couple of years ago. Rael is that something you would see more as more likely?
Rael Diamond: Again, we don't have great visibility, but we just hear anecdotally through our leasing people that their stores aren't doing well.
Sam Damiani: I’ll be back in the queue.
Operator: Okay. Thanks, Sam. And that does conclude our Q&A session. So I will now turn it back to CEO, Rael Diamond, for closing remarks. Rael, you have the floor.
Rael Diamond: Thank you, Greg. To summarize, we're very pleased with our fourth quarter and 2023 operating performance. Our business is strong and our team is well positioned to continue to execute on our strategy and deliver on our outlook in 2024. Thank you for your interest, your investment in Choice and for joining us this morning.
Operator: Thanks, Real. Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Have a great day, everyone.
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