First Capital Real Estate Investment Trust

Alex Correia - Corporate Administrator Adam Paul - President, Chief Executive Officer Kay Brekken - Executive Vice President, Chief Financial Officer Brian Kozak - Executive Vice President, Western Canada

Mark Rothschild - Canaccord Pammi Bir - Scotia Capital Michael Smith - RBC Capital Markets Alex Avery - CIBC Heather Kirk - BMO Capital Markets Matt Kornack - NBF

Thank you, Melanie. Please note that forward-looking statements may be made during today's conference call.

Certain material assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements.

A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our management's discussion and analysis for the year ended December 31, 2014 and our current annual information form, which are available on SEDAR and on our website. These statements are made at today's date and except as required by securities law, we undertake no obligation to publicly update or revise any such statements.

I will now turn over the call over to Adam.

Okay. Thank you very much, Alex and good afternoon, everyone.

Thank you for joining us today for our second quarter conference call. Once again, from an operational perspective, it was another great quarter for First Capital.

Kay will run through the financial metrics in more detail shortly, but from a macro level, same property NOI came in higher than we expected, primarily as a result of two significant lease termination fees. But excluding the impact of these fees, we still recorded very solid same property NOI growth of 4% for the quarter and 4.2% year-to-date in 2015.

Our operating FFO per share was generally in line with our expectation and on a full year basis, we continue to expect operating FFO per share to be consistent with 2014. So we had a very busy quarter and achieved some significant construction and leasing milestones in a number of our development projects.

Before I pass things over to Kay, I would like to spend a few minutes on some of these properties. When I was in Calgary two weeks ago, I spent some time with our Calgary personnel as well as our Mount Royal Village Assembly in the Beltline District of downtown Calgary.

Things have really moved along since my last visit. Our East phase of this redevelopment is now almost complete.

During my trip, Brian and I were toured through the new Good Life Fitness Center that had just opened and they did a great job on this phase. After seeing it, it's no surprise they are registering members at a faster pace than they expected.

One of our last tenants to open in this phase, which will happen in less than a month, is West Elm. West Elm selected our property for their first and likely their only store in central Calgary.

Now with this progress, we have now turned our attention to our next phase, which we refer to as Mount Royal Village West. Here we entered into an agreement to sell a portion of the site to a well-respected and experienced condominium developer who will develop a 34 story condo tower with 222 units, the majority of which have now been pre-sold.

Directly adjacent and connected to this tower, First Capital will develop a three-story, 90,000 square foot retail and commercial property situated on three levels of below-grade parking. We have now entered into a lease with Urban Fare, who will be our grocery anchor, occupying one full floor of Mount Royal Village West.

And this week, we concluded negotiations with a national Canadian retailer to occupy another full floor. So based on this high level of pre-leasing in place to strong covenant retailers, we will commence construction of this retail property this year with an expected completion date in 2017.

When I step back and look at this assembly, I appreciate how much time, effort and skill it takes to create the 370,000 square feet of urban retail space we will have, a major accomplishment for our group in the west. Turning to our Brewery District development in Central Edmonton, construction is well underway of approximately 190,000 square feet of retail space comprising Phase 1.

Here our anchor tenants include a Loblaws City Market grocery store, a Good Life Fitness Center and a Shoppers Drug Mart. And we had some big news earlier this week in Edmonton.

We entered into a lease with a major Canadian retailer who will occupy a new two-level building comprising 40,000 square feet of rental area in this urban development. Adding this particular tenant is very exciting news for us.

However the retailer has requested we keep their name confidential as they are planning a public announcement regarding this store. So overall, despite the softer economy in Alberta, our Calgary and Edmonton assets continue to attract best-in-class retail tenants.

This is a testament to the high quality nature of our portfolio as well as our leasing and development teams. Returning east to downtown Toronto, construction of our King High Line mixed use project is moving along.

We are now at ground level on top of four levels of below-grade parking. This project includes 160,000 square feet of retail space and 506 residential rental suites.

Yesterday, we announced that we entered into an agreement with CAPREIT to acquire one-third interest in the residential component only of the King High Line project. CAPREIT will manage the residential property and be responsible for the initial and ongoing leasing of the residential suites we are constructing.

CAPREIT is one of the most experienced and qualified managers of residential rental real estate in Canada and we are very happy to have them join the King High Line team as a future equity investor and manager of the residential component. The retail position First Capital has assembled and developed on King Street over the last decade is rare.

On completion of King High Line and including our Liberty Village assets, we will own 470,000 square feet of retail and commercial space plus 506 residential suites, all in Liberty Village. Staying in Toronto, at another property I visit weekly to see our progress is Yorkville Village, where great things are happening.

Construction of the new Yorkville entrance is underway and so is the expansion and the new facade on Avenue Road and we just started on our improvements to our parking facility. In Phase 1, we just started installing some of the interior finishings.

Phase 1 is 165,000 square feet of rentable area and our leasing team has been busy. We are now 90% leased on this phase.

And lastly, I would like to touch on our Carre Lucerne Project in the Mount Royal District of Montreal. The initial buildings of our redevelopment are open including a Pharmaprix, otherwise known as Shoppers Drug Mart outside of Quebec and 480,000 square foot Provigo Le Marche is well under construction and scheduled to open in Q2 of 2016.

The final phase of the project is scheduled to commence later this year and we have now sold the air rates on this phase to a well-established condominium developer who will construct 120 units, the majority of which have been pre-sold. So a lot of exciting progress during the quarter on some terrific development assets, which will continue to be one of our growth drivers as I look ahead.

I will now turn things over to Kay to provide a closer look at our Q2 results. Kay?

Thank you, Adam. Good afternoon, everyone and thank you for joining us on our conference call.

During the past quarter, we continued to execute on our strategy by creating value through generating growth in operating FFO, investing in our development projects and through selective acquisitions of adjacent properties. Starting on slide five of our conference call deck.

Operating FFO for the second quarter increased 10% to CAD60.9 million from CAD55.4 million in the same quarter last year. On a per share basis, operating FFO increased 3.8% or CAD0.1 per share to CAD0.27 per share.

The growth in operating FFO per share was impacted by lower leverage as a result of the equity issuances completed in the past 12 months, which increased the weighted average share count. The second table on this slide summarizes the major contributors to the increase in operating FFO for the quarter and the year-to-date period.

The primary driver of the increase in operating FFO in the quarter and year-to-date was higher NOI generated by our same property portfolio. Turning to slide six.

Same property NOI was up a strong 4% for the quarter and 4.2% year-to-date excluding two lease termination fees totaling CAD3 million. Same property NOI growth was driven by higher rental rates compared to last year and improved overall recoveries.

Both of the locations for which we received lease termination fees have been re-leased and we expect our new tenants to open early next year. Including these termination fees, our same property NOI was up 7.6% for the quarter and 6% year-to-date.

On slide seven. Our total portfolio occupancy rate was 94.7% at June 30, 2015, down slightly from last year, mainly due to the closures of two Target locations during the quarter, which we discussed on our last conference call.

We are in negotiations with a number of tenants for one of these locations. The second location is within a property we have slated for major redevelopment.

Had Target not closed, our occupancy would have been 95.7%. At quarter-end, we had 1.1% of our portfolio intentionally being held vacant for redevelopment.

We are well underway in reconfiguring the Target space within our same property portfolio as well as the two spaces for which we have received lease termination fees. However we do expect a short-term impact on our same property NOI growth as a result of the downtime before our new tenants open.

Our net rental rates were up 5% per square foot on 642,000 square feet of lease renewals during the quarter. This included a flat rate renewal option exercised by an anchor tenant on 151,000 square feet of space.

Excluding this renewal, the increase would have been higher at 5.6%. Our renewal rate increase varies quarter-by-quarter based on the mix and number of tenants coming up for renewal each quarter.

It is influenced by the percentage of fixed rate renewals, anchor tenant renewals and short-term deals we do in development properties where we are unwilling to commit to longer-term leases. During the quarter, we had a number of short-term deals we completed in our major redevelopment properties which negatively impacted our renewal list.

As we have always said, our lease renewal rate increase is a metric that is more meaningful to look at over a longer time period than on a quarter-to-quarter basis. Over the past 10 years, our average lease renewal rate increase has been 10%.

The renewals combined with lease step-ups in the quarter contributed to a 3.1% or CAD0.57 increase over last year in our average net rental rate, which is now CAD18.70 per square foot. Finally, we developed and brought online 78,000 square feet of GLA, primarily in Montreal and in Calgary, leasing 76,000 of this space at CAD30.90 per square foot, well above the average rate for our portfolio.

These improvements led to an improved NOI run rate of CAD349 million for the same property portfolio as shown on slide eight, an increase of CAD4 million over Q1 of this year. Our total portfolio NOI run rate increased CAD2 million versus Q1 despite the impact of the Target closures.

This increase is due to the higher rental rates I mentioned previously and acquisitions completed during the quarter. A summary of our portfolio by property category is provided on slide nine, which also includes related occupancies and rates per square foot for each property category.

Comparative NOI by property category for the quarter and year-to-date periods is provided on slide 10. The solid growth in same property NOI was partially offset by a loss of NOI from prior period dispositions as expected.

Slide 11 highlights the properties with the largest respective development spend. During the quarter, we invested a total of CAD107 million, including CAD74 million in development and property improvements and another CAD33 million to acquire two income producing properties in Mount Royal Village in Calgary and in Liberty Village in Toronto as well as two land parcels, all of which were adjacent to existing properties.

Moving to slide 12. This slide summarizes the components of operating FFO and FFO and the related movements over the prior year period, which I have already touched on.

Slide 13 summarizes AFFO results compared to the same prior year period. Our other gains, losses and expenses are detailed on slide 14.

Turning to our financing details. Information on our key financing activities for the six months ended June 30, 2015 can be found on slide 15.

During the quarter, we redeemed by issuing equity, the remaining CAD39 million on our Series D 5.7% convertible debenture. Additionally, we closed on a CAD73 million, 10-year mortgage at a rate of 3.2% and repaid CAD104 million of maturing mortgages with a much higher average interest rate of 5%.

In this favorable interest rate environment, we were able to extend our CAD800 million credit facility by three years to make it a five year facility maturing in 2020 with no change to the terms and conditions including the pricing. We utilized the line during the quarter which continues to give us the flexibility we need to manage our short-term cash needs between our long-term financing activities.

Slide 16 shows the continued improvement in our weighted average interest rate, which is reflected in our results this quarter with a CAD3 million drop in interest expense from Q2 of last year to Q2 of this year. It also shows our strengthening financial ratios including our net debt to total assets, which has improved by 50 basis points since the start of the year to 41.7%.

Our unencumbered asset pool has grown to CAD5.4 billion and now comprises 67% of our total assets at quarter-end. This large unencumbered asset pool combined with our CAD800 million five year operating facility, gives us significant liquidity and financial flexibility to fund our growth going forward.

Slide 17 summarizes our debt maturity chart as at quarter-end. As you can see, we have a well staggered maturity profile with approximately 10% of our debt coming due each year.

The maturities of the unsecured debentures in 2022 are spaced 11 months apart within that year and all of our term debt is fixed rate debt. We continued to make improvements to our MD&A disclosures this quarter, including the section on properties under development which starts on page 20 of the MD&A.

During the quarter, we undertook an exercise to quantify the future potential residential density within our portfolio. Through this exercise, we identified 5.9 million square feet of potential future residential density in addition to the approximately 300,000 square feet of active residential development in our King High Line project.

We will assess our intended course of action with respect to this future 5.9 million square feet of density on a case-by-case basis, given the specifics of each property. Our course of action may include selling the residential density rights, selling the property, joint venturing with a partner to develop the property or in a small number of cases, we may undertake the development on our own.

The majority of this density is for development commencement over the medium term, which we define as approximately seven years. This concludes my comments on the financial results and the MD&A.

I will now turn the call back over to Adam.

Thank you very much, Kay. As most of you know, I joined First Capital in February of this year and as you can appreciate, I have a deeper understanding of our assets and our business today than I did on our last call, which is something I am sure I will say on our next call as well.

When I look forward, I strongly believe our strategy of focusing on urban retail assets that cater to daily necessity retail is a strategy that will continue to serve us well. Our biggest risk relates to the macroeconomic environment in Canada.

Sluggish growth is the best-case scenario we can expect in the short-term but regardless, I believe our business has been built to perform well, both in strong economic times but also in weak times. The stability of our tenant base, the quality of our assets, the strength of our balance sheet and the capabilities of our platform position us very well, whichever environment we find ourselves in.

Now, there's always ways to become better. So together with our executive leadership team, we continue to review our business with that objective in mind.

I am squarely focused on ensuring this company translates our strong same property NOI growth into operating FFO growth per share. It's my single biggest priority.

It's what our shareholders want. It's what our Board wants.

It's what our executive team wants and it's one of the main reasons I joined this company to begin with. I have been here long enough to know that we can do it, but also that we will need to make some changes in how we do things.

There are many areas of our business that are being assessed right now and it wouldn't be appropriate for me to provide more detail on this until we complete that review. What won't change is our core strategy of focusing on high quality, urban retail assets.

That has and will continue to serve us well, but how we execute that strategy will be fine-tuned to ensure we deliver operating FFO per share growth. Thank you for your time and attention today.

We would now be pleased to answer any questions you may have. So the operator, if you could please open up the line for questions.

Hi. Good afternoon.

Maybe in regards to the Yorkville project, is there any way you can quantify for us the FFO impact, when the project comes online next year?

Because there are a lot of moving targets on it, I don't have that number handy, Mark.

And we do make disclosure within the MD&A, Mark, on the average yields we expect. So an approximation, you can use the average yield.

Okay. Fine.

I will leave it at that. And for the Brewery District, it sounds like you have some more leasing you have done recently, but I think I noticed that there was some delay in the timing of when this project will be completed.

Does that have to do with that one new tenant? Or did something change there?

No. It didn't have to do with that new tenant.

The latest numbers that I have seen since I have been here, we have not delayed. But Brian, maybe you can shed some more light on what Mark's referencing.

Yes, I am not sure, Mark. I do know that we have had a couple months, two to three month delay in terms of possession, but that would be the size of it.

So there's some impact there but it's not significant.

Okay. I will double check.

I think in the MD&A, the expected completion date changed but maybe I am wrong on that. And then just lastly, in the G&A, the salaries rose.

Is there anything unusual in the quarter? And then maybe you could just give us some guidance on what you expect a good run rate to be on an annual basis?

Sure, Mark. In terms of G&A, two factors driving the increase year-to-date, higher compensation and staff turnover cost, as well as Main and Main.

So I will touch on the Main and Main. Main and Main became an asset manager when we completed the transaction last fall.

So they no longer directly own any of the real estate. So we do now recognize their G&A as well as asset management fees, which is new in this quarter versus the prior year quarter.

I see. Okay.

Thanks a lot.

Thanks, Mark.

Thanks. Adam, can you maybe just provide some context around what stage you are at with the review?

And perhaps a sense of timing of when you think it will be complete?

So I would say we are near part way or halfway through and our hope and my hope is that we would be able to add more color at our next conference call.

And just, I know you are a little reluctant to provide a lot more info, but is there any particular area of focus that you have seen that kind of sticks out as maybe low hanging fruit that can be addressed sooner rather than later?

Yes. Look, I wouldn't describe this as a broken company by any means.

So I want to make sure my comments aren't misunderstood. The foundation and the core business is exceptionally well positioned.

That being said, there is some low hanging fruit and I think when you have a new person come in, in my role and some of that low hanging fruit becomes more apparent and beyond that, I do believe it's premature to shed a lot more color.

Okay. Just turning maybe to King High Line, there is some disclosure in the MD&A in terms of cost, but can you provide some maybe breakdown between the cost for the residential development component?

And what's the returns we should expect there? And then maybe a bit of context around the decision to bring in CAP as a managing partner?

When we look at our numbers on the project, given our interest is similar across the board and you get into an allocation issue where there's a lot of judgment involved in how you allocate cost. So we don't look at it in detail by separating it.

We did it for the CAPREIT transaction just for our own purposes. And from our perspective, there's a profit in the CAPREIT transaction, as there should be.

But in terms of the yields, we have looked at them on a blended basis and haven't broken them out separately in our MD&A. In terms of the CAPREIT transaction, we are now developing our first substantial residential rental property and it's a very different skill set.

It's a different skill set in terms of how it's managed, how it's leased. And it's a skill set that we don't have well developed internally.

And when I look at all that we do have on the go and all the development projects and the complexity, the inherent complexity in urban development, from my perspective, I don't want us to take our eye off the ball for one second on what we do very well. And to start either developing a platform to manage that residential component, I believe, would be a distraction for us.

So from my perspective, we are best served by bringing in a partner who brings that expertise into the partnership and that was the primary driver for the transaction. On an economic basis, it's not material.

From a strategic perspective, I think it's very material.

Okay. And just in terms of the rents that you would need to achieve to hit your returns, what does that look like?

I mean, they are the rents that you would see similar in the area. There is a lot of new condominium projects that are situated in Liberty Village.

There's literally no vacancy but there is turnover and a lot of those condominium units have formed the rental stock for this area. And we obviously live here.

This is where our head office is located and it's clear to us that it's a very strong rental market. And the owners of this rental stock are typically private investors who own two, three or four units.

So these are not purpose-built buildings for rental. And so we looked at it and saw a wonderful opportunity to have a professionally managed building with amenities that are designed specifically for the product that we are developing.

And what we expect is that we would obtain a premium in terms of rental rates. But they are not materially different than what's being achieved in the market today.

The rents generally are in the mid to high CAD2 a square foot range per month.

Okay. And then just one last one on the 5.9 million square feet that you identified for the residential intensification opportunity.

Is that a complete review of the portfolio? Or is it ongoing?

No. It's ongoing and we haven't identified incremental density that -- either because the properties are unencumbered with long-term leases or for other reasons beyond what we defined as medium term development commencement.

And so we have excluded those. So those are the ones that, based on a review of our entire portfolio and based on our review, these are not necessarily zoned, but based on official plan designations or area structure plan designations we believe that density is achievable.

But it is comprehensive in terms of what we view our portfolio to be like today.

Great. Thank you.

Okay. Thanks, Pammi.

Thank you and good afternoon. I was wondering if you could, in light of your very clear goal of getting operating FFO per share, getting some growth there, wondering if you could just give us your thoughts on acquisitions and dispositions going forward and how it might be different than the past?

Well, I can tell you certainly what it's like in the future. I think we are in a very competitive acquisitions environment if we are looking at properties that fit our acquisition criteria that are effectively complete and stabilized.

So I don't expect anything significant in that regard. If you have looked at what we have done over the last quarter or two, we have found smaller properties that, I would say, are more strategic in nature given that they are either adjacent or in close proximity to existing major assets we own.

I would hope that we will continue to find opportunities on a sporadic basis where well situated sites that are improved with dysfunctional real estate will surface and we can apply our development and redevelopment capabilities to those assets, which is a less crowded space. Still competitive, but less crowded.

So where I expect us to apply most of our focus from a growth perspective is on what we own today, Michael. And we have got lots on the go.

If we don't acquire another property for several years, we will still be very busy and we will still add some exceptional real estate to the portfolio. So that's the outlook from an acquisitions perspective.

And dispositions?

So dispositions, the team led by Dori was very aggressive the last three years or so, selling over CAD800 million of non-core property. So the pool of non-core property is significantly smaller.

Now, we will always have non-core properties in a business of our size. Core properties become non-core over time and I would expect that we will regularly cull the portfolio.

It won't be to the same magnitude that we have in the past, but we will continue to sell. We will continue to sell non-core land positions and so you have started to see a little bit of that.

Land that's held for the long-term is obviously not a great fit for a public company that pays regular dividends. And so we do have and it's small, it's not material but we do have some small land positions that are no longer core, no longer fit our criteria.

And so we would expect to see those transact over the next several quarters.

Okay. And just switching gears over to the King High Line.

What would the average size per unit be for those 506 units?

So we are about 650 square feet on average and it's actually a wide mix. One thing that we noticed and through our research that we conducted when we were planning the building, which was actually further validated by CAPREIT, because when CAPREIT analyzed this property, they analyzed both the suite mix, the amenities and the finishings in the suite.

And we didn't end up amending any of the suite mix sizes, but we do have some family style suites and I think we will be very successful on those. The majority of the condominium product that's been developed in this market in the last few years has really focused on the smaller size units.

And the demographic in this area, as you know, is a younger demographic. And what you are starting to see now are more strollers.

So younger people have moved into the area. Some of them have gotten married.

Now they have started to have kids. They really like the lifestyle here.

It's unlikely they would move out of the area. And so we are going to provide a unit size that is a rare commodity in Liberty Village today.

But on average, it's about 650 square feet.

And of the four levels of underground parking, how much goes to the residential and how many stalls roughly?

So it's evenly split. So the first two levels are allocated to the retail commercial and the lower two levels are allocated to the residential.

And how many stalls would there be for the residential?

So do you have that? It's about 400?

About 400.

Yes. 400 stalls for residential.

400 stalls. Okay, good.

Thank you. And just last question.

For your Target, not the Bourassa redevelopment, but the one in Hamilton, what kind of tenants are you talking to? Or in what category, if you don't want to give away names?

We are in a number of discussions with several tenants. We mentioned on the last call.

Fitness is one of the prospective tenants. And so we are in discussions with that area.

And at this point, we are in discussions with other ones but we be able to provide some more details on the next call.

So the retail category.

The retail category. All right.

But so the Fitness seems like it's coming, it's progressing. No change from last call.

Yes, we said in the last quarter we had three offers from Fitness. We actually are in active negotiations, but I think Jodi doesn't want to compromise those negotiations right now.

Okay. All right.

Thank you.

Thanks. Just on the King High Line transaction with CAPREIT, can you, I guess, describe how we should expect that to hit the financials?

As you noted, there's some sort of a gain involved, but the closing date it sounds like isn't until substantial construction is completed and that could be several years away. So when do you expect to recognize it?

And how should we expect it to come into the financials?

Well, I will speak briefly to the structure and then Kay will shed some light on how it's reflected in the financials. But we are obviously under active construction.

A lot of our costs have been awarded and we have created some value in the project. And so the transaction structure is that we will deliver a completed product to CAPREIT at a fixed price from a construction perspective.

But we will be shoulder-to-shoulder from a leasing risk perspective. So the trigger for closing is substantial completion of units and it can be a split closing.

So as groups of units are completed, the closing will be triggered, cash will be exchanged and CAPREIT is responsible for leasing. So whether they are leased or not, the closing gets triggered at the same price.

In terms of when we recognize our gain, given we are plus or minus two-and-a-half years away from substantial completion, I would expect that it gets deferred until that point. But Kay?

That's correct. We would recognize gain on closing of the transaction and given this is IPP, the rental revenue will flow in as we start to lease up the units.

Okay. And at this point, between now and then, how involved will CAPREIT be in the progress or in the project?

Yes. They have been very involved.

They will continue to be very involved. We hold regular meetings on the project with our partner.

They have been attending those meetings and they will continue to attend those meetings. But from my perspective, I would expect them to act like a partner that's invested today and I believe that's how they will be approaching it as well.

Okay. And then just tying this back to, I guess, the internal review that you have noted is ongoing and you don't really want to get into too many details, but just looking at this and I would say the bringing in of CAPREIT is perhaps a subtle change in terms of your residential strategy.

Is that, I guess, indicative that perhaps this internal review that you are undertaking is not sort of a big bang event, that you will bring all of your conclusions back and one day make a bunch of changes? But rather it'll evolve over time and as you find opportunities, you will bring them in?

Yes. I mean, certainly I think the business will evolve over time and I am not sure that the CAPREIT transaction is totally reflective of a change.

As you know, I have got a lot of experience with joint ventures. I think for First Capital, there's definitely a role for partners in a various set of circumstances.

So this particular transaction is one where we have brought in a strategic partner who brings a specific expertise to a major property. And when you look at the balance of our portfolio, particularly on the residential side, there's more opportunities for us to do that.

Another area where I think it makes sense for us to enter into partnerships is where we own an asset in a particular trade area and someone else does and by combining them we can better reflect the merchandising mix that we can offer the market, more flexibility we can provide to our tenants. And so I think there's merit in looking at those.

And the last area where I think it's obvious for us to look at partnerships is on some of our large developments that have a longer development timeline. That type of project puts pressure on metrics like debt to EBITDA.

Obviously, there's a risk factor and provided we are the managing partner on those projects, there will be a role for partners in some of those projects going forward.

Okay. And then just lastly on the lease termination income, did you say who the tenants were?

We did not.

Okay. Do you care to share that or no?

I don't. But out of respecting the confidentiality for the respective tenants, that's the reason we didn't disclose them.

Okay. Well it pretty clearly was not Target.

I would imagine, they didn't --

No. Unfortunately not.

But it does seem the way that it impacted the financials or the performance in the quarter that perhaps it would have been similar lease structure in that vacancy moved quite a bit but NOI did not. So can we assume that these are larger format, low rent type vacancies?

I would say more mid, in terms of size.

But relatively low rents?

Yes. I would say.

Well, actually --

Yes. There will be an uptick in the rents with the replacement tenants.

Not if you are thinking like what Target rents were, not that low. But lower than market.

Okay. That's great.

Thank you very much, guys.

Okay. Thanks, Alex.

You compressed the cap rate a little bit in your Vancouver portfolio and I am just wondering, given the things that you said about having difficulty buying assets of the quality that you like and where your share price is trading, if there's any thought being given to selling off assets to buy back stock.

So Heather, as you know, we don't have an NCIB in place right now. Buying back stock is directly correlated with where we are trading.

We have come off a bit recently. Right now, there's no plan to initiate an NCIB for our stock, but obviously that's something that we will continue to evaluate.

Okay. And in terms of what you are seeing, it seems like the Calgary Market and the Western Canadian Market continues to be quite strong for you.

Are you seeing any signs of, whether it's on the rental side as opposed to occupancy, of softness in the portfolio?

So the reality is, not yet. We have not seen any deterioration on rental rates or demand.

And in fact recently we have done some of our highest lease rates of all time. And I mean if you look at our renewal retention rate and our renewal increased in the second quarter, actually Alberta was our highest contributor to that.

Now that being said, we do expect softening in Alberta and we have been positioning ourselves for that to happen. It has an impact on how we approach leasing and development in our Alberta assets.

So it's certainly affecting some of our decisions. We have a lower risk tolerance given the state of the Alberta economy.

And if you look at our Mount Royal Village West development, once we sign the food store deal, that could have gone either way, whether we initiated development, but given the current environment, we were pretty focused on securing another tenant that would take us near 70% pre-leasing before we started. It's things like that, that our having an impact.

And so the number, clearly you said that the rental uptick this quarter was lower and it's not necessarily a trend. Do you expect that you will be able to continue to hit the double-digit 10% level if there is softening in Alberta?

I mean overall, I would say we are in a more challenging environment generally. The economy is not great.

Our retail tenants in many categories are in a competitive environment themselves. And from my perspective, that's why more than ever it's critical that we continue to focus on asset quality, which this company has clearly done in a variety of ways both through development but also through the amount of assets that have been sold.

And the strategy focusing on tenants who provide daily necessity, goods and services is also helpful. You can never look at that metric on a single quarter basis, no matter how strong or weak it is.

And at this stage, there's nothing that we see that would indicate we are going to be materially off our longer-term average. But that certainly could change over the next several quarters.

And just finally, I know you are not giving guidance but do you have a target for the square footage and the quantum of development deliveries you are looking to complete over the next 12 months?

So Heather, at the end of the quarter we had 1.1 million square feet under active development. Our proportionate interest in these developments is 700,000 square feet.

As I have mentioned earlier, we have undertaken improvements in our MD&A and we will continue to focus on that, especially in the development section. Our estimated completion timeframes for each of our projects that are currently under way is within the MD&A as well as the invested cost and the cost to complete.

And over time, we will look to continue to enhance our disclosure to provide additional details and timing of transfers.

Okay. Thanks.

Thanks, Heather.

Hi, guys. Most of my questions have been answered.

But in terms of the timing on the termination as well as Target, can you just provide when that occurred in the quarter and how much of it's going to carry into Q3? Or just on a relative, how many months in versus how many --

Both of those were in the second quarter.

Yes, they were both in Jodi's region.

Yes. Both were in the second --

I think Matt, you are asking for timing within the quarter?

Yes. Did it happen towards the end of the quarter or mid quarter or beginning of the quarter?

They were mostly early to mid-quarter.

Okay. So there will be a little bit of a down tick on a relative basis into Q3 as well.

If you amortize the amount of the fee income over the downtime, would it roughly equate to the rents that were being paid? Or is there some left over for any incremental CapEx?

All that was taken into account in the payments that we received for the terminations, the downtime as well as the [indiscernible].

Okay. That's it for me.

Thanks.

Okay. Thank you, Matt.

Okay. Well that concludes our Q2 conference call.

I would just like to reiterate our appreciation for your continued interest in First Capital. Have a great afternoon, everyone.

Thank you and goodbye.