First Capital Real Estate Investment Trust

Roger Chouinard - IR Adam Paul - President & CEO Kay Brekken - EVP & CFO Jordan Robins - EVP & COO Jodi Shpigel - Senior Vice President, Development Carmine Francella - Senior Vice President, Leasing

Heather Kirk - BMO Capital Markets Michael Smith - RBC Capital Markets Sam Damiani - TD Securities Matt Kornack - National Bank Financial Pammi Bir - Scotia Capital

Thank you, Donna. 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 forward-looking 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 quarter ended September 30, 2016 and our current annual information form, which are available on SEDAR and on our website. These forward-looking statements are made as of today's date and except as required by securities laws, we undertake no obligation to publicly update or revise any such statements.

With us here today are our President and CEO, Adam Paul, as well as our senior executives, Kay Brekken; Jordan Robins; Jodi Shpigel and Carmine Francella. I will now turn over the call to Adam.

Okay. Thank you, Roger.

Good afternoon, everyone and thank you for taking the time to join us today. Getting right to the point, Q3 was another strong quarter for First Capital.

In the real estate business you have to grow organically to succeed over the long term. In Q2 of this year, we had a rare quarter of negative same-property NOI growth, which we said would be the case before the year even started.

But as expected, we were pleased to see growth resume in Q3 with same property NOI increasing by 2.4% from the third quarter of 2015. But this is not a quarter-to-quarter business, so I'd like to make a few comments about our progress as a company and how I believe we're positioned for the future.

Based on the Bank of Canada's projections for GDP growth in Canada, we continue to be in a low growth environment. Later on the rapidly evolving trends in retail and the environment for retail real estate will be more challenging for some than others.

These are the macro factors and they are largely out of our control. Notwithstanding that, First Capital has a track record of recognizing the macro factors that affect our business of retail real estate incorporating them into our decision-making and ultimately creating opportunities.

But it is the micro factors that are within our control and will ultimately determine our success. So this is the area that we spend almost all of our time.

The First Capital business has been built to outperform both when times are good and even more so when times are not. We as management do our job by investing in the right assets and the best markets, and then merchandising them with necessity based retail with the strongest retailers within our strategically assembled use categories, that not only where we outperformed but we will also minimize volatility as we navigate through various economic cycles and retail trends.

That is how this business has been built and this approach will continue to serve us very well. We now have a portfolio of irreplaceable retail assets in markets with the best demographic profiles in the country.

Our strategy of concentrating on large retail focused properties and merchandizing them with necessity based online resistant retail is exactly where we want our capital invested as the population in these urban markets continues to grow at a higher rate than new retail supply. Our active development properties are large and complex and as you'll hear from Jodi are now well advanced, so the risk associated with these projects is lower than ever.

And from a balance sheet perspective, we're also in a solid position which provides us with flexibility to achieve our goals. Lastly, I would like to speak about our platform.

It's been almost two years since I joined First Capital, I inherited an operating and development platform that was and continues to be one of our major competitive advantages. As you know, we've made a lot of changes over the past 18 months to become even better and to facilitate our next phase of growth.

I said a year ago that the changes we are making including our reorganization and the exceptional talent we added to our already very strong team would be done to improve our performance. The primary driver was to improve the bottom line by growing our top line.

When you combine an exceptionally high quality portfolio with the preeminent operating and development platform, the result should be outperformance. We are exceptionally well positioned in that regard.

This is a long-term business. Real estate companies that operate through a public company structure have the difficult task of balancing long-term value creation with short term earnings growth.

Now we have a well established track record of long-term value creation and while we have also grown our earnings on a per share basis, we said this is the area we will focus on bringing more into balance on the back of our leading property level performance. In fact, we made it our top priority heading into this year.

Now three quarters doesn't create a track record but it can certainly be the beginning of one. We posted operating FFO growth per share of 4.6% so far this year.

We're particularly pleased with these results given 2016 has been more challenging in terms of year-over-year growth as result of $4.3 million or $0.02 per share of lease termination fee income earned in 2015. We're also dealing with above average anchor tenant space that is in transition.

It's clear that our activities on this anchor space is value creating but it has negatively impacted our occupancy and same-property NOI in the short term specifically in 2016. Supported by our strong performance through three quarters of the year, we have increased our expected earnings growth for the second time in 2016.

We now expect operating FFO per share growth to be in the mid-single digits for the full year. With that, I will now pass things over to Kay, who will speak to our results and activities in more detail.

Following Kay, Jodi Shpigel will provide an update on our major development projects. And following Jodi's comments, we would be pleased to take any questions.

Kay?

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

The third quarter was a very busy quarter for us in terms of transaction activities. We advanced funds towards the purchase of 85,000 square feet of flagship retail space at the base of a 76-storey condominium located at the intersection of Bloor Street and Yonge Street in Toronto.

This is one of the best intersections in the country for retail. We advanced a $39 million loan on an assembly of properties at the intersection of Avenue Road and Lawrence Avenue in Toronto.

This assembly includes one of the top performing grocery stores in the country, our Pusateri’s flagship grocery store that is scheduled to reopen in the fully renovated space this month. Subsequent to quarter end, this loan was repaid simultaneously with our closing on the $63 million purchase of this assembly.

We closed on the strategic acquisition of a 50% interest in a redevelopment property located directly across the street from our current properties in Yorkville Village at 101 Yorkville Avenue for $15.5 million. To support these investment activities, we completed an equity offering of 7.6 million shares generating gross proceeds of $172.6 million and issued an additional $150 million of Series T unsecured debentures with a 9.6 year term to maturity at an effective interest rate of 3.4%.

Additionally during the quarter, we did post four properties, one of which was a 50% non-managing interest as well as one residual land parcel for a total of $50.4 million. Overall we were very pleased with these unexpected opportunities to add outstanding properties to our growing portfolio.

Starting on Slide 5 of our conference call deck, we were also very pleased with the solid growth in operating FFO we generated in the third quarter and in the year-to-date period. Our operating FFO for the third quarter increased 11.6% or $7.1 million and 4.8% or $0.02 on a per share basis versus the prior year period.

On a year-to-date basis, we achieved operating FFO growth of 9.5% or $16.8 million in dollar terms and 4.6% or $0.03 on a per share basis. The primary driver of the growth and operating FFO in the quarter was a $5 million increase in NOI due to three key factors, first growth in same property NOI primarily driven by rent escalations and to a lesser degree by higher occupancy levels and increased lease surrender fees.

Secondly, growth in non-same property NOI largely due to development completions in our Brewery District and Phase 1 of our Yorkville Village properties over the past 12 months, net of space taken off-line for redevelopment in 3080 Yonge in Phase 2 of Yorkville Village and thirdly rose due to accretive acquisitions completed over the past 12 months let the impact of dispositions completed in the same time period. Also contributing to the growth in operating FFO on the quarter was a $1.5 million reduction in G&A expenses year-over-year primarily due to the reorganization we completed in the third quarter of 2015.

Our interest expense declined by $1 million year-over-year despite an increase in total debt outstanding as we continue to take advantage of the low rate interest environment to refinance higher rate maturing debt with new 10 year debt. Moving to Slide 6, our Q3 same-property NOI increased 2.4% versus the prior year period on higher rental rates, higher same-property occupancy levels, a $600,000 year-over-year increase in lease surrender fees and some one-time operating cost recovery.

On Slide 7, we continue to achieve solid lift on our lease renewals, our Q3 same-property lease renewal lift was 8.3% on 280,000 square feet of renewals, our Q3 full portfolio lease renewal lift was 7.7% on 312,000 square feet of renewals slightly lower due to shorter-term leases we've done in properties but we want to retain the flexibility to redevelop over the short to medium-term. Moving to Slide 8, our average net rental rate grew 1.9% or 35% over last year to $19.18 per square foot primarily due to rent escalation.

Year-to-date we transferred from development to IPP 219,000 square feet of new GLA with an invested cost of $115 million. In Q3, we also transferred an additional $24 million from developments to IPP related to complete its phase in our Yorkville Village property.

This phase includes the link the new Yorkville Village grand entrance which connects the property to Yorkville Avenue, the food hall and other common areas from which we will ultimately earn revenue to kiosk, pop-up shops and events hosted at the property. On Slide 9, our total same property portfolio occupancy rate was up 60 basis points from Q3 of last year while our total portfolio occupancy rate was up 30 basis points.

The year-over-year improvement in occupancy was primarily due to releasing of space vacated by the closure of two target locations in Q2 of 2015 as well as one Canadian Tire store in Q3 of 2015. Our Q3 total portfolio occupancy rates declined 20 basis points from Q2 due in part there’s only two properties that were of 100% occupied and acquiring the one-on-one Yorkville Avenue property for redevelopment with a low occupancy level.

At quarter end, we were holding 0.7% of our portfolio intentionally vacant for redevelopment. On Slide 10, our NOI run rate increased by $19 million over Q3 of 2015 versus the prior quarter the NOI run rate increased by $1 million to the new tenants and rent escalations partially offset by the impact of the dispositions completed in the quarter, which I touched on earlier.

Properties we intend to acquire were re-advanced deposits or loans including One Bloor and the Pusateri's Assembly are not included in our run rate at quarter end. Slide 11 highlights the properties with the highest developments spend during the quarter.

We invested $42.2 million in development and redevelopment activities in the quarter bringing our year-to-date spend to a $113 million. Our development pipeline at quarter end totaled 14.6 million square feet of additional density including 3.3 million square feet of retail density and 11.3 million square feet of residential density with 900,000 square feet currently under active development.

Slide 12 gives the details on the factors driving the growth and operating FFO and the related movements over the prior year period, which I already touched on. This slide also highlights our operating FFO payout ratio which has declined to 77.7% for the year-to-date period versus 80.6% for the prior year period.

Slide 13, summarizes our operating AFFO performance compared to the prior year. Our Q3 operating AFFO per share increased by $0.01 or $0.046 per share while our year-to-date operating AFFO increased by $0.03 or $0.036 per share.

The growth in both periods was primarily driven by higher operating FFO. Slide 14 touches on our other gains, losses and expenses.

Our Q3 other losses included in FFO decreased by $12.9 million versus the prior year period, primarily due to lower restructuring cost. Year-to-date, we are recording another gain of $1.2 million, primarily due to the proceeds received from target, which we discussed on our second quarter conference call.

Information on our key financing activities for the quarter, which I’ve already mentioned can be found on Slide 15. Slide 16, summarizes our key financial ratios, the size of our operating credit facility and the size our unencumbered asset flow.

I want to highlight that our net debt to total assets has declined by 50 basis points since the start of the year to 42.4% and over the past 12 months our unencumbered assets pool has grown by $1 billion to $6.6 billion or 73% of our total assets. Giving a significant liquidity and financial flexibility to take advantage of future growth opportunities.

Slide 17 shows our 10 year debt ladder as at quarter end. As you can see from this chart, we have future opportunities for interest rate roll down in our near-term maturities.

I want to highlight specifically our 2017 maturities totaling $33 million with the weighted average interest rate of 5.4%. Looking forward, we’ve updated our operating FFO growth expectations for the full year to be in the mid single-digits.

We expect our operating FFO per share to be lower in the fourth quarter than it was in the third quarter primarily due to increased interest expense, related new debentures we issued in Q3 and increased G&A due to the seasonal pattern of our spent. Additionally, we are expecting lower lease termination fees in the fourth quarter and we have some one-time property operating cost recoveries in the third quarter which I previously mentioned.

Our revised expectation also reflect the impact of the increased share count from the third quarter equity offerings. Before I conclude, I want to take a few minutes to speak about one of our biggest initiatives for 2016.

It’s a program we refer to internally as FCR BEST, which stands for Business Excellence Strategic Transformation. FCR BEST includes the launch of a number of new IT systems and the end to end redesigns of many of our key business processes to align with our new organizational structured and our new systems.

We are now half way through this three year program. Over the past three months we launch four new IT systems including the latest version of JD Edwards with the redesigned and simplified chart of accounts.

A new reporting systems that better supports our consolidated and proportionate interest recordings. A new lease enquiry system that gives all employees ready access to our key lease information and a new customer relationship management system which supports the work of our leasing and legal teams to execute new lease deals with our tenants.

I want to extend a huge thank you to each and every employee that played a role in the launch of these new systems and new processes. This was our massive undertaking and a tremendous success and we’re not done yet.

As we have more systems plan for 2016, we look forward to launching a new corporate website as well as a new property budgeting system in the next several weeks. Overall, we were extremely pleased with the many accomplishments our team achieved during a very busy quarter and a solid growth in operating FFO we generated.

This concludes my comments on the quarter. I will now turn the call over to Jodi, for an update on our major development projects.

Thanks, Kay. We have made great progress on our development initiatives and I am pleased to give you a brief update.

Adam spoke about the macro and micro factors and why we continue to see success by focusing on the micro factors. In keeping with that theme, I am going to start with Alberta, where we continued to make significant progress notwithstanding the macroeconomic backdrop.

On Slide 19 and 20, construction on the Edmonton Brewery District project is well advanced at this stage and during Q2 and Q3, a number of tenants have opened for business including a 40,000 square foot Loblaw City Market grocery store, a 13,000 square foot Shoppers Drug Mart, 21,000 square foot Winners and a 40,000 square foot GoodLife, which opened earlier this week. Our retail tenants have told us that they are very pleased with those development and their store performance with forecasting met or exceeded we are very pleased with this development.

In fact, a number of the strongest retailers in the country have told us, this should be a model for urban retail development. We are expecting more tenants to open in a coming months including in the spring 2017, the opening of the 40,000 square foot Mc in addition to a number of restaurants and quick service retailers that will be complimentary to this projects and its proximity to the arena districts down the streets where the Edmonton oilers started to play their season.

Based on the success of the Phase I openings, demands remain high for the remaining 90,000 square feet of space that have left to develop which will take this property to 305,000 square feet. Moving to Slide 21, construction on our Mount Royal West project in Downtown Calgary is progressing on schedule.

The project is substantially preleased and we look forward to the opening in the fall of 2018 of our two anchor tenants, Canadian Tire and an Urban Fare grocery store. This phase will further support and enhance our Downtown Calgary assets as well as the residential growth occurring in the area including the 34 storey condo tower being constructed adjacent to our Retail Podium.

We have agreed to sell this residential to Embassy BOSA and establish a well capitalized condo developer in Western Canada who have indicated that pre-sales have been strong and construction is underway. Moving to Montreal and Slide 22 and 23, we are pleased by the significant redevelopment of one of our well located properties in an affluent neighborhood at Montreal we have completed earlier this year.

This 100,000 square foot redevelopment includes a new 40,000 square foot Urban Fare grocery store which is a banner of Loblaw, along with [Pharma3] [ph], Scotiabank, Starbucks and other complementary retailers. We have also sold residential density rights for a condo project that is now under construction by a local developer which will further enhance the redevelopment.

Moving to Toronto on Slide 24, we are very pleased with the progress of our Yonge and Bloor's redevelopment which started late 2015 and is now under active construction. Progress on the development is on-schedule and we are in advanced negotiations with the number of restaurants and retailers to go complement the 25,000 square foot of Loblaw city market which will anchor this urban redevelopment on Toronto's main survey line.

This will be our third Urban Loblaw store that we have developed. There is always a lot of talk about when it comes to Yorkville Village, this property is presented on Slide 25 and 26, it is now clear that the risk on successful execution of this project is at its lowest point has been and the direction of project is taking continuous to evolve in very exciting way.

We now have roughly 400,000 square feet and $600 million invested in [indiscernible]. I will touch on our $400 million Yorkville position which is almost evenly split between the mall and our street front retail.

I will start with the mall which we also refer to as the counter host, given how it is evolving and which will drive to a more traffic to the property. We were very pleased to see the opening of our new entrants directing on Yorkville Avenue over the Labor Day weekend which is the name of the lane.

The opening of the lane is a major milestone in the redevelopment of the mall as it connect with the neighborhood on Yorkville Avenue. This is a key part of our strategy, when we purchased the property.

The lane will not only serve as a major entrance to the mall but will also play host to many experiences through our events programs to ensure the mall is engrained in the fabric of the community and differentiated from other retail, as well ultimately being a meaningful way to generate ancillary income. We expect dozens of experiential events each year.

By way of example, the following is a sample of what's in store over the next few weeks. The Yorkville Village are accessible is shown on Slide 26 and it is wrapping up today.

This is the collaboration with OCAD University showcasing graduating students that can be purchased as well as our pop-up stores with uniquely preservative items for sale, live demonstrations and workshops amongst others. Industry entertains, on November 30, we are one of the host of this annual events.

Our value will feature an exclusive dining event with few prepared by celebrity chef and restaurant steward Mark McEwan. The Yorkville Village holiday market, to capitalize on the holiday season we are creating a European holiday style market in the mall and the lane which will feature Christmas Day Tour entries with [Jeff Aberty] [ph] who have now relocated into mall and when you have partnered with on these events.

Other vendors will be featuring and selling winter fashion accessories, jewelry and winter trees including freshly made Belgium waffles, warm beverages and other delicious things in the lane. Equinox has already used the lane for Yoga pop-up classes and will continue to do so for other events over the coming months.

With the opening of the lane, our Phase 1 construction is now largely complete, Phase 1 includes a 155,000 square feet that is now 98% leased. The opening of the lane has improved customer traffic flow into the mall and will have a significant impact on the success of the property over time.

With the progress of day's one, our leasing efforts have recently moved to Phase 2 which is the remaining 55,000 square feet. As a result of Equinox's tremendous success since opening in February of this year, we are pleased to announce that SoulCycle, a New York City based studio owned by Equinox will be opening in a new space.

SoulCycle will be a great addition to the neighborhood and their brand and offering is consistent with our vision for the mall of unique retail art, fashion, culinary and fitness and lifestyle. Moving to our Street Front assets on Yorkville Avenue, we are experiencing very significant traction, featuring of the new Chanel store is well underway with an expected opening over the next few months, at 8,500 square feet, this will be one of the largest and most beautiful Chanel in North America.

We also entered into new leases with other luxury retailers who have reflected confidentially of our new deals for now. But we expect to start construction next year on the redevelopment of several buildings we own on Yorkville supported by this pre-leasing.

Outside our portfolio, Christian Louboutin and FTK's Data have both recently opened further contributing to the transformation that is taking place on Yorkville between Avenue Road and Bel Air where market rents have virtually doubled in the last two to three years. Moving to Slide 27 and 28, construction is progressing on schedule for 2018 opening of our juice mix space in Liberty Village in Downtown Toronto with 160,000 square feet of retail and 506 residential rental units.

We are in advance negotiations with select retailers for over 80% of the retail space with the view that the new retail space shall perfectly complement the retail offering and the rest of our Liberty Village assets. Our investment in Liberty Village is meaningful and will stand at 570,000 square feet and $380 million after completion of this space.

Earlier in the summer, we were pleased to host near Toronto and a number of other local and provincial politicians as they announced plans for SmartTruck Go which is the introduction of new transit stations throughout the city of Toronto on the already existing go train lines. We have been working collaboratively with the city and provincial governments and are very pleased that one of the new stations announced is in Liberty Village.

Collectively, the properties I have discussed will comprise of approximately $1.5 billion in total investments on completion of the presently active development phases this majority of which is income producing today. These assets are consistent with our strategy of focusing on large urban retail properties with above average growth profile and most of them still have the opportunity to be expanded through additional density in the future.

They are all great assets that we simply cannot buy today. That concludes our update on major developments.

Donna we will be now pleased to take any questions.

Just following up on the G&A, I don't know if you specified but what kind of a run rate should we be looking at with the additional savings that you've been getting?

Hi Heather, so the restructure happened in Q3 of 2015, so the savings that we had forecasted were in the range of $4.5 million to $5.5 million and we would say the savings came in at the high end of that range. We would not expect to continue to see savings going forward in the fourth quarter given the restructure happened in Q3 of last year and we came out of that restructure with some vacant positions that we have been filling over the course of this year.

So therefore we would expect our G&A run rate to increase for next year.

Okay. So nothing additional moving forward.

Correct.

Just in terms of the Sobeys exposure, can you just give us your thoughts on how that might potentially impact you given the troubles you are having with Safeway and if you have any concerns in that regard?

Yes we have done a lot of work on that, Heather. So the way I would kind of summarize the answer to the question is that Sobeys and Safeway occupied some great real estate in our portfolio generally up low market rent and we can tell you there is one location in Calgary where they have an expiry next year and they have decided to close the store and not renew.

The properties situated in market with pretty good demographics, very high traffic counts, it is a good center and there are gaps in the market when you look at the grocery presence and so as a result of that, there are two strong grocery banners that are interested in the space, market rents will be higher than what Safeway was paying, we're also going to take advantage of the opportunity in that property to free up a pad that currently sits in no-build for Safeway. We have had lease deals in the past to develop that pad, but haven’t been successful in obtaining a relaxation from them.

So that one should work out well for us and I think generally that situation would be a good example of how we view the majority of our Sobeys Safeway locations.

And so would you be actively wanting to take some space back, like would this be something that you would sort of push for in terms of potentially adding to development pipeline or…?

A lot of them are not necessarily development pipeline. But re-tenanting the space and from what we know up-to-date based on our discussions with them, those opportunities are likely to be limited, meaning they’re going to be doing well and haven’t indicated any plans to give any other space back.

We have an interest in giving other space back.

And so just generally in terms of the tone of the market from the tenant perspective, just wanted to get a sense of whether you’re seeing any shift, now that were for a little further down the road with respect to Western Canada, like how would your same property NOI have been split geographically?

So our same property NOI coming into the third quarter when we looked at Alberta has actually outperformed our portfolio as a whole. In the third quarter, it came in generally consistent with our portfolio average.

And so clearly there's been demand there for high quality space and what we are doing not only renewable, but we’re doing new deals with tenants bringing new tenants into properties. And our occupancy is held up very, very well in Alberta.

The rental rate growth has been solid and we meet pretty good leasing progress in the Alberta developments. We have two that Jodi went through.

But reality is a lagging indicator, so I would expect some level of softening until the economy turns around there, we just haven’t really seen it yet.

And so just one last one, in terms of your outlook for 2017, I know that sort of been reluctant to provide guidance and I was just wanted to ask whether that was going to change for next year and what your outlook was?

Our expectation would be to provide similar guidance in 2017 as we did in 2016 and we would do that on our next conference call.

Thank you.

Thank you and good afternoon. I have two questions.

I guess just first on FCR best, it sounds like it was a pretty significant undertaking. Just wondering are you planning on changing any reporting?

Will changes in reporting fall out of that effort?

We will continue to look to enhance our reporting and there are a couple of opportunities that we think would give better information to the readers of the financial statements and that would be something we would look to do in Q1. I wouldn't think of them as anything material though that would change significantly how you’re modeling the business.

Okay. And on your development, as you mentioned they are complicated, they are certainly exciting developments.

There's a lot of moving parts, in doubling of rents in Yorkville for one but how you make a note in terms of your performance, in terms of cost versus changing rents and just the complications of urban development?

Thanks Michael. And it’s a very good question and you sort of gave some good points in the question.

The active projects are - we've taken on probably some of our most complex development that we have in years past. And so as we gone through them, and because of all the moving parts, that really see some cost increases on some of the projects.

But the yield curve, overall stay flat, so that is the income side has kept pace and so really it’s not a concern as long as the yields ultimately remain as we expect.

Great, thank you.

Thank you. Good afternoon.

Just looking out a couple years, how do you see the development pipeline evolving as you complete three or four of your major projects, which are ongoing right now?

Hi Sam, it's Adam. So as you point out, we have five active developments that are on the go right now, active and large and generally we started the majority of them in and around two years ago, there are fairly well advanced now in the which we take a lot of comfort and then given the risk associated with them is at its lowest point.

But we still have the better part of 24 months before we complete those. So right now we’re doing a lot of work analyzing our pipeline and it's a very deep pipeline as you know and with the exception of the Christie Cookie Site, our pipeline is not in the form of raw land it’s in the form of low density shopping centers and that’s an important distinction because that means there's income in place and that affords us a lot more flexibility in terms of the timing of the redevelopment of these assets.

If we decide to delay some by two or three years, not a big deal, if it was raw land and that would be a big deal. And our expectation is that once we select the next round of properties and again we’re dealing with a ten plus year pipeline with what we own today.

But we’re going to decide which ones are most prime for redevelopment to come in behind the existing projects and if you look at our development spend relatively recently we’ve been in and around $200 million a year. I think what's most likely to be the outcome for the next round of properties that backfill is, we will select slightly less properties.

So we can pay more attention to them. These projects are complex as you noted that means that there’s a lot of senior man hours that are required to successfully execute these.

So we’re dealing with slightly less. That will be good.

We will also select the ones that have the most significant value creation right now. So we can do with more profitably.

And I think moving from $200 million more likely to be in and around the $150 million in terms of annual spend and that really wouldn’t be the case until 2018 given the projects that we have on the go right now.

Right. And given the - I guess the potential mix of future projects that are going to be on the go.

Will you see that target yield likely going higher versus lower than the current 5.3% that you're talking about where our yield is?

Yes. The target yield is definitely high.

It’s a function of two things. One is what I touched on is that we will - we’re happy to select fewer projects that have more profitability or higher development yields, select one.

Number two is, our overall yield are being brought down by the residential component of our King High Line development and the projects we're looking at in the next round it's very likely they're all retail focused. They're all mixed use but we wouldn’t be exposed to the non-retail component.

And so that's the case we would also get a pick up from that.

And just finally, you've identified 13 million, 14 million square feet of excess density across the portfolio, which is significant in relation to the existing portfolio size. Have you given much thought to potentially accelerating some disposition of some of that density that you don't think you'll be able to develop on to the next five plus years?

Yes, the short answer is yes. And you’re seeing that we sold a property in the quarter that is located in [Shadow Gate] [ph], near Montreal and this is just an area that evolved where the site high and best use was a retail - was a residential site.

We decided there wasn’t a core fit for us and so we sold it. We’re selling other res density in the portfolio.

There's a small property that’s under contract right now that is scheduled to close in the fourth quarter. So yes we will selectively call some of the res density, but the real meat behind it there are sites like Christie Cookie and some of the other properties we own in Liberty Village and those are obviously very core to us and will not be sold.

Okay, thank you.

Hi, guys. You may have touched on this, but I just wanted to go back to the development pipeline and it's currently - specifically the 2017 space that's coming online.

With regards to your privilege 30/80 Yonge and the Brewery District, those square footage differentials you’re bringing online. Do you expect those will be cash rent paying in 2017 or will it come in as fixturing string period and then rent comes on later after that?

Most of our deliveries for next year are back in waiting that they were for this year. So I would assume that given that you should expect them to be in straight line rent with cash rent coming early in 2018.

Okay, fair enough. And you've now done some purchases of high street type real retail in Toronto.

Would you foresee expanding that let’s say Montreal and St. Catharine Street, Vancouver going forward or is that limited to what you've done in Yorkville and One Bloor?

I mean we’re keen to explore opportunities in all of the core markets. If you look at some of the properties that have created on St.

Catharine's for example, they’re really standalone properties. If you look at our acquisitions, they’re in the context of a larger retail strategy and that’s important for us.

So we’re trying to assemble critical mass where we can have a high degree of influence over the merchandising mix that tailored and offer to the local community. So that difficult to do with one off transactions and in Yorkville obviously we’ve got a big presence there, there’s a major transformation that's underway.

We’re contributing to that transformation from a retail perspective, but it takes critical mass to do that. So that's the caveat.

We’d be keen to do it in other markets, but it would be contingent on taking an initial position that’s fairly sizeable. So we have somewhere to grow from that's meaningful.

Okay, fair enough, similar like Griffintown type investment for Montreal. And just quickly with regards to One Bloor East, have you at this point started negotiations or discussions for incremental tenancies there is that still too early in the process?

It's too early in the process. Our strategy on that acquisition is a result of some of the things that we identified through the review of the property and notwithstanding it's a new property.

We did identify a number of potential opportunities to improve the design, improve the way space can be demised and improve the way space can be presented. And we've decided that we would take two to three months to really focus on that and we’ve been really - pleasantly surprised that the level of inbound inquiries from tenants who were interested in the space and we’ve maintained a dialogue, but we have respectfully requested with them to give us a short period of time so that we can present a product that we hope will be enhanced from what they may have seen before.

And given that we’re the better part of the euro from the ability to turn over any space there, we're under a time pressure. So what I would expect is over the next few months, that's when we’ll get into real discussions and negotiations with tenants.

Okay. Great, thank you.

Thanks. Good afternoon.

I just want to maybe touch on the balance sheet and just your thoughts on managing leverage through the process over the next couple of years with respect to the development that you’ll be doing and you’re sitting today just slightly over nine times. So I’m just want to sort of get a better feel for where you see that headed over the next call it 12 to 18 months or so.

Hi Pammi, so as we talked about before the balance sheet is obviously very important to us and we made some meaningful progress here with our EBITDA interest coverage improving to 2.5 times, our unencumbered asset pool amounts 73% of our total assets sitting at $6.6 billion. Our secured debt to total asset ratio has declined by half of what it was in 2010.

Our debt to assets improved 50 basis points as I mentioned earlier since the start of the year. The debt-to-EBITDA remains at the higher-end of the range of where we like it to be, but it’s still very comfortable for a business like ours that derives over 80% of its revenues from daily necessities.

Our goal remains that over the long-term. We’d like to bring the leverage down.

But I would say that is out at measured pace, so you shouldn't expect a dramatic change.

The other thing I would add to that Pammi is, when people look at our debt-to-EBITDA, we encourage them to also look at the business we’re in. So we’re in the high quality urban retail business, which consequently because it got such a strong growth profile also has a low yield profile.

So all other things being equal investing in the types of assets we own versus a high yielding assets. You’re going to inherently have higher debt-to-EBITDA and then if you also look at where we are in our lifecycle from a development perspective, really up until now, we have been investing more in development than we've been completing and that will inherently put pressure on that metric.

Starting this year - end of this year and certainly into next year, there's an equilibrium that comes into place where we will complete a similar amount of development as we invest the new development and then in 2018 it starts to reverse where we complete more. And so when you start looking out to that time period, again you’re seeing a reduction in the debt-to-EBITDA.

So these are - all the things I mentioned and Kay mentioned are the factors we looked at and Kay is exactly right in that it will be a decline. It will be a measured gradual decline.

Okay. So I guess you’re not envisioning it really drifting too much higher from current levels or any at all would you say?

Look in any given quarter things can move around a little bit, but no generally we're out or near the peak.

Okay. And then just - I apologize if you already mentioned this, but in terms of the completions that you expect for 2017 what sort of dollar value or quantum do you expect to transfer in from development into IPP?

So, Pammi, we would expect it to be similar this year about $200 million of deliveries.

The only thing is that likely - like this year, likely to be back end year loaded.

Right, and not necessarily fully stabilized?

While fully stabilized and I referenced when you transfer is typically when the space is ready for lease, which is assuming there’s leases in place, which is our intention. You would be in a period where there is in cash rent paid, but it would start to impact FFO through straight line rent.

That’s generally the state that the majority of our space will transfer.

Right, okay. Thanks very much.

Okay, thank you very much everyone for attending and for your continued interest in First Capital. We look forward to speaking with you about our year end results in February.

Thank you and have a great afternoon.